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Mercantile Law Bar Examination Q & A (1990-2006)

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ANSWERS TO BAR EXAMINATION QUESTIONS IN

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ofvs. P5 million. This is Insurer: paying out or permitting the I, ordinary Andrew Lee, course hereby of assign, business, transfer or and has Chattel Insolvency; Parties; Derivative Insured; Retail Common Mortgage Accommodation Trade Accident Fraudulent vs. Suit: Private Law vs. Requisites vs. After-Incurred (1993) Payment Carrier; Suicide Party 76 (1998) Defenses (1993) (2004) (2002) Retail Obligations 56 87 34 65 Trade (2002) Insured; Parties; Insolvency; Derivative Law 97 (1999) Accident Accommodation Kabit (1996) Suit: Jurisdiction; 44 System Chattel 76 Watered Suicide Retail (2005) Mortgage; Sole Party (1995) Trade Stock 97 Proprietorship (2003) Kabit 56 Law (1993) Foreclosure System; 88 (1996) Parties; 34 (1990) Effects: Agent Derivative 76 (1997) Accommodation Retail 66 of Several the Insolvency; 44Trade Suit; Registered Chattel Insurers Close Law; Law ....................................................................................................................22 to be paid out funds of the bank after the insufficient convey, absolutely realizable and assets unconditionally, to meet to its Banks; Classifications of Banks (2002) Mortgage; obligations Party Corporation; (2005) Consignment Owner (2003) 56 (2005) Ownership that 88 Insurer; survive Corporate (1991) Parties; 97 Maritime 3rd of (1997) 76 Accommodation Party Thing Opportunity 66 Commerce; Liability Mortgaged Insolvency; (2005) (1996) Party Bareboat (1990) Voluntary 34 56 (2005) Derivative Insurer; 45 (2003) Insolvency 88 Credit 3rd Parties; 97 Suit; Party Transactions Prior Minority Proceeding Holder Liability Operator Stockholder in (2000) (1999) Due (1991) Rule Course 57 (2003) 45 66 Insurer; (2003) Insolvency; Mortgage 97 (1993) Registered 35 3rd 88 Distinction: Party (1999) Voluntary Parties; Liability; Owner; 45 De BOD: Election of Aliens(hereinafter as members (2005) 22 BOD; Capacity of Directors (1996) 22 BOD; Compensation latter became insolvent. This act is penalized liabilities, Ready Credit or Principles cannot Bank continue in called business the Banks: There Applicability: are six Foreign (6) classes Currency of Deposit banks Act identified & General of Mercantile Law ..............................................................................12 Mortgage vs. Holder facto No Conclusive Involuntary Fault in Corporation Due vs. Indemnity Levy Course Presumption Solvency (2003) vs. (1996) (1994) (1995) Corporation 46 (1990) 88 57 Mortgage; 66 Parties; Insurer; 98 Law Trans-Shipment; by on Holder Estoppel 3rd Extrajudicial Corporate Party in Due (2004) Liability; Recovery Bill Foreclose Course of 35 Quitclaim Lading; Distinction: (1996) (2003) (2006) binding (1994) 88 67 46 Parties; Dividends Rehabilitation; contract Mortgage; 57 Insurer; Holder vs. (1993) Foreclosure Profit: Authorized in Stay Due 98 Order Cash Course Driver (2003) (2006) Dividend (1998) Clause 46 vs. 67 by fine of not lessBanking than P1,000.00 nor more without Bank) probable all of my right, losses to and its (1994) depositors interest in and orInterlocking (1991) 22 BOD; Conflict of title Interest 22 BOD; Directors (1995) 22 BOD; Interlocking Directors Secrecy in the of Bank General Deposits (2005) Law of 2000. Name at Mortgage; Suspension 89 Stock (1991) Dividend 57 Foreclosure Holder of Insurer; Payment in (2005) Due Authorized (2003) vs. Course; 35 Insolvency Distinction; 46 Driver Indorsement Mortgage; Clause Private 67 Foreclosure in (2003) vs. Suspension blank Public 57 (2002) Insurer; of Corporation of Improvements 89 Payments Place Authorized of (2004) Payment vs. (1999) Driver Stay 35 Partnership Distinction; Order (2000) Clause; 46them Mortgage; (2003) 89 vehicle Stock 67 is Suspension vs. stolen Non-Stock (1993) Commercial Transaction (2003) 12 Joint Account (2000) 12 Joint Account vs. (2000) 12 Theory of than P10,000.00 and by imprisonment for creditors; toParties; my23 accounts or has willfully receivable violated from a(1995) Home final cease Hi least Yielding four Corporation (4) of filed and aForeclosure; complaint explain the (1996) By-Laws; Validity; limiting qualifications of BOD members (1998) 23 By-Laws; Validity; limiting Commercial Transaction (2003) Effect of Payments; Corporation 58 of Insurer; mere Rehabilitation Group taking (2004) Insurance; by 36 creditor-mortgagor Dividends: Receiver Employer-Policy (1999) Declaration 67 of Suspension property Holder of Dividends (2000) (1992) of Payments; (2005) 58 47 Insurer; Mortgage; 36 Remedies Dividends: Liability Redemption (2003) of the Sources Insurers 68 Period; of Dividends; (1990) Foreclosed 58 Loss: Trust not less than two nor more than ten years. and Builders desist Development order, involving Corporation acts against distinguishing five of its characteristic officers or violation function of of This work is intended for sale or commerce. This work is freeware. Itfor may be Cognition vs. Theory of Manifestation (1997) 12or Validity; qualifications ofnot BOD members (2000) 23 By-Laws; limiting qualifications of BOD members (2001) 23 Negotiable Instruments Law ..............................................................................................76 What do(2002) you understand by the term SUGGESTED ANSWER: transactions (hereinafter amounting called the Obligor) to fraud arising or from a Section each one. 31 of (5%) the Corporation Code. The Property Fund Actual Doctrine Total Loss 47 (2005) Mortgage; (1996) 36 59 Dividends; Remedies Loss: Constructive Declaration (2003) 48 Total Preference of Dividends Loss (2005) of Credits (1990) 59 Loss: 36 (2002) Dividends; Total 48 Promissory Loss Declaration Only (1992) Note: ofLiability 59 Dividends Marine By-Laws; Validity; limiting qualifications of BOD members (2003) 24 Close Corporations; Deadlocks (1995) 24 vs. Any four (4) of the six (6) classes of Banks; Insolvency; Requirements (1997) commercial transaction? Is itinstitution. essential that dissipation delivery of the housing assets units of the with aof total contract The corporation claimed that the said officers Bond: Bond vs. Surety Bond (2004) 76 Checks: Crossed Checks (2005) 77following Checks: Crossed Checks (2001) (1991) Insurance; 48Cash 36 Remedies; Implied Dividends; Warranties Available Declaration to (2000) Mortgagee-Creditor 60 Dividends Marine Insurance; (2001) (1996) 36 Peril Dividends; 48 of Remedies; the Ship Right; vs. Available Managing Peril of to the Corporation Mortgagee-Creditor Sea (1998) (1991) 60 Mutual 37 banks identified in the General Banking Law at least one party to a contract be a Give the basic requirements to be complied Closed Corporation; Restriction; Transfer of shares (1994) 24 Controversy; Intra-Corporate (1994) 25 freely copied and distributed. It is primarily intended for all those who desire to have a main price purpose of P4,000,000.00, of the the Receiver description is and to were guilty of advancing their personal Cancelled Checks (2004) 77 Crossed Check (1991) 77 Checks; Crossed Check (1994) 77 Checks; (2001) Doctrine Insurance 49 Remedies; of Company; Corporate Secured Nature Opportunity Debt & Checks; Definition (1991) (2005) 49 (2006) 37 Effect: 60 Expiration of the Corporate Term (2004) 37 Effects; Merger of 1 Universal Banks These are those Banks; Diligence Required (1992) of by 2002, to wit: merchant in order to consider such a with BSP before the Monetary Board Trust Receipts Law ...............................................................................................................98 Controversy; Intra-Corporate (1996) 25 Controversy; Intra-Corporate (1996) 25 Controversy; Intra-Corporate recommend contract value the rehabilitation of...........................................................................................................................12 which are or attached liquidation hereto of interests to the prejudice of the corporation, Banking Law SUGGESTED ANSWER: Crossed Check (1995) 78 Checks; Crossed Check (1996) 78 Checks; Crossed Check (1996) 78 Checks; Effect; which used to be called expanded In the event that I shall be unable to pay my Corporations (1999) 37 Effects; Winding Up Period of a Corporation (1997) 38 Effects; Winding Up Period of Placido, a bank depositor, left his checkbook commercial transaction? (4%) can declare a bank insolvent, order it closed the as bank. Annex A (hereinafter called the Jurisdiction and 25 that they were grossly negligent in a (2006) 25 Controversy; Intra-corporate; (1997) Corporation Sole; Definition (2004) 26 A Commercial transaction is defined as ...... deeper understanding of the issues touched by the Philippine Bar Examinations and its commercial banks and the operations of outstanding Trust Receipts indebtedness Law; Acts & Omissions; owned to Covered the (2006) 98 Trust Receipts Law; Liability for estafa (1991) 99 Acceptance by the drawee bank (1998) 78 Checks; Effects; Alterations; Prescriptive Period (1996) 78 Checks; on his desk at his house. Unknown to him, a and forbid it from doing further business in Corporation (2000) 38 Foreign Corporation; Doing in of the Philippines (1998) 38 Foreign Corporation; Banks: Applicability: Foreign Currency Deposit Act Business & Secrecy Bank Deposits (2005) 12 Banks: Collateral Receivables). handling its affairs. Aside from documents Corporation: Issuance of shares of stock to pay for the services (2005) 26 Corporation: Right of Repurchase of It is not essential that at least one party to SUGGESTED ANSWER: which are now primarily governed by the Bank, the Bank shall have the right, without visitor at the time, noticing the same, took a the Philippines. Trust Receipts Law; Liability for Estafa (1997) 99 Trusts Receipt Law (2003) 99 Forged Check; Effects (2006) 79 Checks; Liability; Drawee Bank 80 Checks; Material Alterations; Doing Business inBanks: the Philippines; Acts or Deposits; Activities (2002) 38(1995) Foreign Corporation; Doing Business inathe and contracts, the corporation also submitted Security (2002) 12 Secrecy of Bank Garnishment (2004) 13 Banks; Classifications ofLiability Banks the commercial transaction be a merchant. Before the Monetary Board can declare Public Service Law ...............................................................................................................89 Shares; Trust Fund Doctrine (2005) 26 Corporation: Sole Proprietorship (2004) 26 Corporation; Articles of General Banking Law of 2002. They can any further formality or act on its part, to check therefrom, filled it up in the amount of (1999) 80 Checks; Presentment (1994) 80 Checks; Presentment in evidence (2003) records 80 Checks; of the Validity; officers Waiver U.S. of Dollar Banks Philippines; Test (2002) 39 Joint Venture; Corporation (1996) 39 provinces Liabilities; BOD; Corporate Acts (1996) (2002) 13 Banks; Conservator vs. Receiver (2006) 13 Banks; Diligence Required (1992) 14 Banks; Insolvency; What is essential is that the transaction bank insolvent, order it closed and forbid it 39 trend. It is specially intended for law students from the who, very often, are exercise the powers of an investment house collect the Receivables from the Obligor and P3,000.00 and succeeded in encashing the Letters of Credit ....................................................................................................................68 Incorporation (1990) 26 Corporation; Bulk Sales Law (2005) 27 Corporation; By-laws (2001) 28 Corporation; deposits in several banks overseas - Boston Certificate of public Convenience (1998) 89 Certificate of Public Convenience; inseparability of certificate and liability for negligence (1991) 80 Defenses; Forgery (2004) 81 Forgery; Liabilities; Prior & Subsequent Parties evince an intent to engage in commerce or from doing further business in the Liabilities; Stockholders, Directors, Officers (1997) 39 Piercing the Corporate Veil (1994) 39 Piercing the Prohibited Transactions (2000) 14 Banks; Insolvency; Requirements (1997) 14 Banks; Restrictions on Loan and invest in non-allied enterprises. They to apply the same proceeds thereof toward check on the day. Placidos account For their part, the officers filed a Bank criminal Commencement; Corporate Existence (2003) 28 Corporation; Conversion of Stock Corporation (2001) 28 82 Bank, Bank of Switzerland, and of New trade. Philippines, the following basic requirements Letter vessel of (1992) Credit: 90 Mortgage Certificate (2005) of Public 68 Letter Convenience; of Credit; Certification Requirements from (1995) Consignee 90 Powers (1993) of 68 the Letters Public of Service Credit; (1990) 81 Forgery; Liabilities; Prior & Subsequent Parties (1995) 81 Incomplete & Delivered (2004) Corporate Veil (1996) 4014 Piercing the Corporate Veil (2001) 40 Piercing the Corporate Veil Safety (2004) 40 Piercing have the highest capitalization payment of my said Accommodations (2002) Banks; Restrictions on Loan Accommodations (2006) 15 Banks; Box; was thereby debited in indebtedness. the same amount. complaint against the directors of requirement. Hi Deposit Yielding Usury Law ...............................................................................................................................99 York. Joint Account (2000) Corporation; De Facto Corporation (1994) 28 Corporation; Dissolution; Methods of Liquidation (2001) 28 recipients of deliberately distorted notes from other unscrupulous schools and 1 There must be an examination by the must be complied with by the BSP, to wit: Andrew to pay the loan on its due Discovering the erroneous debit, Placido Liability Commission of failed a (1993) confirming 90 Public and notifying utilities bank (2000) (1994) 90 date Revocation 69 Letters of of Certificate Credit; Liability (1993) of 91 alaw Notifying Revocation Bank of (2003) Certificate 69 Incomplete and Delivered (2005) 82 Incomplete Instruments; 2 Incomplete Commercial Delivered Banks Instruments These vs. Incomplete are Corporation for violation of Republic Act No. the Corporate Veil (2006) 40 Pre-emptive Right (2001) 40 Pre-Emptive Right vs. Appraisal Right (1999) 41 SEC; Liability 15 Banks; Secrecy of Bank Deposit; AMLC (2006) 15 Banks; Secrecy of Bank Deposit; Exceptions What is a joint account? (2%) head of the Incorporation; Department of Supervision or as his Corporation; Incorporation; Requirements (2006) Corporation; Requisites (2002) 29 on September 1, 2002. When the Bank demanded that the bank credit him with a 28 Usury Law (199) 99 ordinary or regular commercial banks, 6426, otherwise known as the Foreign Letters (1993) 91 of Credit; Three Distinct Contract Relationships (2002) 69 Undelivered Instrument (2006) 82 Indorser: Irregular Indorser vs. General Indorser (2005) 82 Negotiability (1993) SUGGESTED ANSWER: Jurisdiction; Transferred Jurisdiction (1996) 41 Stockholder; Delinquent; Unpaid Subscription (1997) 41 (2006) 16 Banks; Secrecy of Bank Deposits (1990) 16 Banks; Secrecy of Bank Deposits (1991) 16 Banks; examiners or agents into the condition of the attempted toThe collect from the Obligor, like amount. bank refused on the the Corporation; Meetings; BOD & Stockholders (1993) 29 Currency Corporation; Nationality of Corporation (1998) 29 83 distinguished from a by universal bank. They Deposit Act of the Philippines. The A joint account is a transaction of merchants students. Share to others this work and you will be richly rewarded God in heaven. 82 Negotiability (2002) 83 Negotiability; Holder in Due Course (1992) 83 Negotiability; Requisites (2000) Stockholders: Preemptive Right (2004) 42 Stockholders; Appraisal Right that (2003) 42 Stockholders; Removal of Secrecy of Bank Deposits (1992) 17 Banks; Secrecy bank. of Bankto Deposits (1994) 17 Banks; Secrecy of Bank Warehouse Receipts Law .................................................................................................100 Bank discovered that the latter had already ground that Placido was negligent in leaving have aInvest lower capitalization requirement than officers alleged their bank deposits were Corporation; Corporation (1993) 29 Corporation; Power Corporate Funds for other Purpose where other Non-Stock merchants agree to contribute Negotiable Instrument: Ambiguous Instruments (1998) 84 Negotiable Instrument: Definition & Characteristics 2 The examination discloses that the Officers & BOD (2001) 42 Stockholders; Removal; Minority Director (1991) 42 Stockholders; Rights (1996) 42 closed operations and liquidated all its his checkbook Deposits (1995) on his 17 Banks; desk so Secrecy of heBank could Deposits (1998) 17disclosed Banks; Secrecy of Bank Deposits (2000) universal banks and cannot exercise the 18 illegally for want of a30 court order, the amount of capital agreed upon, and Requisites (1995) 30 84 Corporation; Power tothat Invest Corporate Funds in Negotiable another Corporation (1996) Corporation; Bill of Lading (1998) 100 Delivery of Goods; (1998) 100 Delivery of the Goods (1991) 100 condition of the bank is one of Garnishment insolvency, or (2005) Instrument: Identification (2005) 84 Instrument: Negotiable Document vs. assets. The Bank sued Andrew for collection, not put up theNegotiable defense of forgery or want of Stockholders; Voting Power of Stockholders (1990) 42 Stocks; Increase of Capital Stock (2001) 42 Stocks; Sale, Banks; Secrecy of Bank Deposits; Exceptions (2004) 18 Banks; Secrecy of Bank Deposits; (2001) powers of an investment house and invest in and that such deposits were not even the It is also very good karma. Maritime Commerce .............................................................................................................69 participating in the favorable or unfavorable Insurance Intellectual Law Property ........................................................................................................................49 .............................................................................................................60 Recovery of Moral Damages (1998) 30 Corporation; Separate Juridical Personality (1995) 31 Corporation; The Garnishment Facts disclose or Attachment that even of85 Goods to the (1999) naked 100 Negotiable Documents of Title (1992) 100 Ownership of Goods that its continuance in business would but Andrew moved to dismiss the complaint authority under the NIL. Negotiable Instrument (2005) Negotiable Instrument; Negotiability (1997) 85 Negotiable Instruments; Bearer non-allied enterprises. subject of the case against them. a) Will the Transfer of Certificates of Stock (1996) 43 Stocks; Sale, Transfer Certificates of Stock (2001) 43 Stocks; Sale, 18 BSP; Receivership; Jurisdiction (1992) 18 Legal Tender (2000) 19 PDIC Law vs. Secrecy of Bank Deposits results thereof in the proportion they may Securities Regulation ..........................................................................................................91 eye, there were marked differences between involve probable loss toReceipt creditors or Separate Juridical Personality (1996) 31 Corporation; Separate Juridical Personality (1996) 31 Corporation; Yielding Corporation prosper? Explain. on the ground that the debt had already Stored (1992) 101 Right to the Goods (2005) 101 Unpaid Seller; Negotiation ofCarriage the (1993) 101 Validity of Average; Particular Average vs. General Average (2003) 69 Bottomry (1994) 70 of Goods: Deviation: 3 Thrift Banks These banks (such as complaint filed against the directors ofin Hi Beneficiary: Copyright Effects: (1995) Irrevocable 60 Copyright; Beneficiary Commissioned (2005) 49 Artist Beneficiary: (1995) 60 Rights; Copyright; Irrevocable Commissioned Beneficiary Artist (2005) (2004) 50 60 Instrument (1998) 85 Negotiable Instruments; Bearer Instruments (1997) 85 Negotiable Instruments; bearer determine. Transfer of Certificates of Stock (2004) 43 Trust Fund Doctrine (1992) Trust Fund Doctrine; Intra-Corporate Act (1997) 19 Responsibilities & Objectives of BSP (1998) 19 Juridical Truth in 43 Lending Act (1991) 19 Truth Lending SUGGESTED ANSWER: Placidos signature and the one in the check depositors. been paid by reason of his execution of the Separate Juridical Personality (1999) 31 Corporation; Separate Personality (2000) 32 Corporation; stipulations excusing warehouseman from (2000) 101 savings and mortgage banks, savings Joint Account vs. Partnership (2000) Liability Insider (2004) (2005) 91 70 Insider Carriage Trading of Goods; (1995) Deviation; 91negligence Insider When Trading; Proper Manipulative (2005) Practices Carriage (1994) of Goods; 92stock Manipulative Exercise Beneficiary; Copyright; Life Infringement Insurance; Prohibited (1994) 60 Beneficiaries Copyright; Infringement (1998) Concealment; (1997) 6170 Material Copyright; Concealment Infringement (2001) (1998) 50 61 instruments; liabilities of maker and indorsers (2001) 85 Negotiable Instruments; and undelivered No, because the Foreign Currency Deposit Act Controversy (1991) 43 Actby (2000) 19 forged the visitor. As between Placido and 350 The head of saidincomplete Department shall aforesaid Deed of Assignment which, being and loan associations, and private Distinguish Separate Juridical joint Personality account (2000) from 32 partnership. Corporation; Set-Off; Unpaid Subscription (1994) 32 Corporation; Stock Extraordinary Practices (2001) Diligence 92 Securities (2005) Regulation 70 Charter Code; Party Purpose (1991) 70 (1998) Charter 92 Securities; Party (2004) Definition 71 COGSA: (1996) Prescription 92 Securities; of SUGGESTED ANSWER: Concealment; Copyright; Infringement Material Concealment: (2006) 61 Incontestability Copyright; Photocopy; Clause (1994) when 50 allowed Concealment; (1998) 61 Material Infringement Concealment: vs. Unfair (R.A. No. 6426), including its punitive instruments; holder in due course (2000) 86 Negotiable Instruments; Incomplete Delivered Instruments; the bank, who should bear the loss? Explain. inform in writing the Monetary Board of such absolute and unconditional, was in essence a SUGGESTED ANSWER: development banks)Validity may exercise most of (3%) The Corporation bank (2001) bear 32 Corporation; the loss. A Validity drawee of Corporate bank Acts (1998) 33 Corporation; of Corporate Acts provisions, refers toinstrument; foreign currency deposits Claims/Actions Selling of should Securities; (2004) Meaning 71 COGSA; (2002) Prescription 92 Tender of Claims (2002) (1992) 93 71 COGSA; Prescription of Claims (2000) 72 We would to seek the indulgence of the reader for some Bar Questions which facts. Incontestability Competition (1996) Clause 61 (1996) Infringement 50 Concealment; vs. Unfair Competition Material Concealment: (2003) 61 Infringement; Incontestability Jurisdiction Clause (1997) 61are Patent; 51 Comparative Negligence (1997) 86 Negotiable Instruments; kinds of negotiable words of negotiability dacion enlike pago. The Bank opposed the Offer The following are the distinctions between the powers and functions of a (2003) commercial must exercise the highest diligence in (2002) 33Prescriptive Corporation; Voluntary Dissolution (2002) 33 Corporation; Voting Trust Agreement (1992) 33 62 accounts constituted within the Philippines. It 4 Upon finding said information or Fault COGSA; Period (1995) 72 Doctrine of Inscrutable Fault (1995) 72 Doctrine of Inscrutable motion, contending that the Deed of Patents: joint account and partnership: Concealment; Non-Patentable Material Concealment; (2006) 61 Gas-Saving Clause (1991) Device: 51 Concealment; first to file Material rule (2005) Concealment; Patents: (2002) 86 Negotiable Instruments; Requisites (1996) 87 Notice Dishonor (1996) 87 Parties; Accommodation bank except that they cannot, among others, Edited and Arranged by: SUGGESTED ANSWER: safeguarding the Inventions accounts of Incontestability its clienthas no application at all to accounts, even statement to be true, the Monetary Board (1) AInfringement; partnership has a firm name while a Assignment was only a security for a loan. If (1997) 72 Doctrine of Inscrutable Fault (1998) 72 Limited Liability Rule (1994) 72 Limited Liability Rule (1997) 72 open current or check accounts without prior Incontestability (Since Clause the Remedies question (1998) & 51 is Defenses outside Insurable the (1993) Interest: scope 62 of Bank Patents; Deposit Infringement (2000) 51(1992) Insurable 62 Interest: Patents; Public Rights Enemy over the Party (1990) 87 Parties; Accommodation Party (1991) 87 Parties; Accommodation Party (1996) 87 depositors. The bank is also with improperly classified under acharged topic Silliman and for University some topics College which are improperly or though they are banks, opened and shall appoint a receiver to take charge of the joint account has none and is conducted in Rule you were the Judge, how would you resolve the Bar Examination, it is recommended Monetary Board approval, and they cannot Limited Liability Rule (1999) 72 Limited Liability (2000) 73 Limited Liability Rule; Doctrine of Inscrutable genuineness (2000) Invention 52of Insurable (1990) of the Interest: 63 signatures Trademark Separate of (1990) Insurable its current 63 Law Trademark Interest (1999) (1994) 52 63 Insurable Trademark, Interest; Test Equitable ofthe Dominancy Interest (1996) (1991) 63 b) Was there a violation of Secrecy of Bank constituted abroad. assets and liabilities of the bank. of 2005 thethe name the partner. motion to ostensible dismiss filed by Andrew? that the candidate be given full credit of Batch issue letters of credit. Their operations are account holders. But what can be more Fault (1991) 73 Limited Liability Rule; General Average Loss (2000) 73 Limited Liability Rule; General Average Deposits Law (Republic Act No. 1405)? Explain. 52 Trademark; Insurable Interest; Infringement Life vs. (1991) Property 63 Insurance Trademark; (1997) Test of 52 Dominancy Insurable Interest; (1996) 64 Life Tradename: vs. Property International Insurance (2000) Affiliation 5 governed Within 60 days,by the Monetary Board (2) Explain While Miscellaneous a partnership ......................................................................................................................102 has be juridical (5%) 5%, whatever may his answer, and he Bar primarily the Thrift Banks Act of ignorantly phrased, for the authors are just Reviewees who have prepared this striking is that there were marked (5%) Loss (2000) 73 The motion to dismiss should bedifferences granted. The shall determine and confirm if the bank is 53 personality 52 (2005) Insurable 64 and Interest; may Life sue vs. or be Property sued Insurance under (2002) 53 Insurable Interest; Property Insurance (1994) be given a bonus if he made an answer in 1995 (RA 7906). SUGGESTED ANSWER: between Placidos signature and the one &in Energy Regulatory Commission: Jurisdiction Power (2004) by: 102 and Fourpublic ACID Problems of Philippine simple absolute and unconditional insolvent, interest requires, toJudiciary the following manner:) Updated its firm name, a joint account has no juridical Insurable Interest; Property Insurance (2001) 53 Insurance; Cash &Rural Carry Basis (2003) 53 Insurance; 4 Banks these are those which No, because the punitive provisions of Cothe Transportation Law ..............................................................................................................93 the check forged by the visitor. Certainly, (2006) 102 Government Deregulation vs. Privatization of an Industry (2004) 102 Political Law; WTO (1999) 102 conveyance embodied in the deed of order the liquidation of the bank. personality and can sue or be sued only in work while reviewing for the Bar Exams under time constraints and within their are organized primarily to Double extend loans No. and Insurance vs. Re-Insurance (1994) 53 Insurance; Double Insurance (2005) 54 Insurance; Insurance; Secrecy of Bank Deposits Law (R.A. Placido was not negligent in leaving his (3) While a partnership has a common fund, assignment would be operative, and theTrade the name ostensible partner. Power of of the the State: Regulating of Domestic (2004) 103 Tariff and Customs Code: Violation of Customs Boundary System (2005) 93 Carriage; Breach of Contract; of Negligence (1990) 93 Carriage; other credit facilities to farmers, fishermen or 1405), including the statutory exemptions effect (1993) Insurance; Effects; Payment of Premiums byPresumption Installment (2006) 54 Insurance; Life Insurance; checkbook in54 his own desk (PNB v Quimpo a joint account has none. assignment would constitute essentially a Banks; Insolvency; Prohibited Transactions (2000) Laws (2004) 103 farm families, as well as cooperatives, Breach of Contract; Presumption of Negligence (1997) 93 Carriage; Fortuitous Event (1995) 93 Carriage; provided therein, are not applicable to FCDU D BAR-Retake 2007 158 SCRA 582 ) Assignment ofpartnership, Policy (1991) 54 Insurance; Perfection of to Insurance Contracts (2003) 54 Insurance; Property (4) While in payment a all general mode of dacion en pago. limited knowledge of the law. We would like seek the readers indulgence for a lot The Monetary Board or of the BSP closed Urban merchants, and& private and public employees accounts, even when constituted locally. Liability; Lost Baggage orof Acts of Passengers (1997) 94 Carriage; Prohibited Valid Stipulations (2002) 94 partners have the right management, in a Banks: Secrecy of Bank Deposits; Garnishment (2004) Insurance; Prescription of Claims (1996) 54 Insurance; Return of Premiums (2000) 55 Insured; Accident Policy Bank after it encountered crippling financial and whose operations are primarily governed ( Intengan v. Court of Appeals, G.R. No. 128996, Carriage; Valuation of Damaged Cargo (1993) 94 Common Carrier (1996) 94 Common Carrier; Breach of joint account, the ostensible partner CDC maintained a savings account with (2004) 55 Insured; Accident vs. (1990) difficulties that resulted in a Suicide bank run. X,55 one by the Rural Banks Act of 1992 (RA 7353). February 15, 2002 ) (5) While liquidations of a partnership of typographical errors in this work. manages its business operations. CBank. On orders of the MM Regional Trial Banks: Collateral Security (2002) Contract; Damages (2003) 94 Common Carrier; Defenses (2002) 95Cooperative Common Carrier; Defenses; Fortuitous of the members of the BOD of the bank, 5 Banks these are those may, by agreement, be entrusted to a partner Court, the Sheriff garnished P50,000 of his Andrew is engaged in the business of Events (1994) Common Carrier; Defenses; Limitation of which Liabilityare (1998) 95 Common Carrier; Defenses; attended and 95 stayed throughout the entire organized primarily to provide or partners, in satisfy a joint account liquidation account, to the judgment in favor of building low-cost housing units under meeting of the Board that was held well in Duration of Limitation ofonly Liability (2001) 95 Common Carrier; financial Liability and (1996) credit 95 Common services Carrier; to cooperatives Duty to The Authors thereof can be CDC done by the ostensible his creditor, MO. complained that the contracts with real estate developers. He advance of the bank run and before news and whose operations are primarily governed Bulk Sales Law ......................................................................................................................20 Examine Baggages; Railway and Airline 96 Commonapplied Carrier; Test (1996) 96of Common Carriers; Defenses partner. garnishment violated the Law on(1992) the Secrecy July 26, 2005 for a loan P3 Million from Ready had begun to trickle to the business by the Cooperative Code of the Philippines Theory of 96 Cognition vs. Theory of Liability Manifestation (1997) (1996) Common for Loss (1991) ofBulk Bank Deposits because the existence of Bank (the Bank), (2000) which20required Sales Law; Carriers; Covered Transactions (1994) 2096 Bulk Credit Sales Law; Covered Transactions Bulk Sales community about the dire financial pit the (RA 6938). The Civil Code adopts the theory of his had savings account was disclosedafter to the Banks; Conservator vs. Receiver (2006) Andrew to provide collateral security forofit. bank fallen into. Immediately the Law; Covered Transactions (2006) 20 Bulk Sales Law; Exclusions (1993) 20 Banks Bulk Sales Law; Obligation the 6 Islamic these are those SUGGESTED ANSWER: cognition, while the Code of Commerce public. (5%) Is CDC's complaint meritorious Distinguish between the role of Andrew offered to assign to the Bank his a meeting, X caused the preparation and No. CDC's complaint is not meritorious. It was held which are organized primarily to provide Vendor (1995) 21 Bulk Sales Law; Obligation of the Vendor (1997) 21 Bulk Sales Law; Obligation of the Vendor generally recognizes the theory of Nationalized Activities Undertakings ........................................................................74 or not? of Reason briefly. or conservator and that of receiver of a bank. receivables amounting toa P4 from issuance a in managers check payable in(2001) China Banking Corporation v. of Ortega, 49to SCRA 355 financial and credit services inmillion a manner or manifestation, the perfection contracts. 21 SUGGESTED ANSWER: (2.5%) Home Builders Development Corporation (the Insolvency Corporate Recovery ...................................................................................64 SUGGESTED that peso ANSWER: deposits may and the himself in Activities the sum of be 5 garnished million (1973) transaction consistent with the Islamic Nationalized or Undertakings (1993)pesos 74 Nationalized Activities or Undertakings (1994) 74 Nationalized How do these two& theories differ? The Conservator is appointed for a period not Obligor). The Bank accepted the offer. Under the theory of placed cognition, the of depositary can comply with order equivalent to bank the amount or the invested Shariah. At present, only the Al charge Amanah Activities or Undertakings (1995) 75 Retail Trade Law (1990) 75 Retail Trade Law (1991) 75 Retail Trade Law exceeding one (1) year, to take of the Insolvency vs. of Payment (1998) 64 Insolvency: Voluntary Insolvency (2005) 64 Insolvency; Accordingly, Andrew obtained the loan Assets and acceptance considered to effectively bind garnishment without violating the Law on the in the bank is by aSuspension business acquaintance. He Islamic Investment Bank of the Philippines assets, liabilities, and the management of a (1992) 75 he executed a promissory note undertaking vs. Liabilities (1998) 65 Insolvency; Assignees (1996) 65 Insolvency; Effect; Declaration of Insolvency (1991) 65 theSecrecy offeror only from the time itthe came tothe his Bank Deposits. Execution is now claimsof that he is keeping funds in has been organized as an Islamic Bank. bank or a quasi-bank in a state of continuing to pay the loan in full in one lump sum on knowledge. the theory of goalfor of litigation as it is its fruit. Garnishment trust the Under owner and that he had SUGGESTED ANSWER: inability, or to maintain a Consumer Protection Law ..................................................................................................21 September 1, unwillingness 2002, together with interest Credit Transactions ..............................................................................................................44 manifestation, the contract is perfected at is of agree the process. Upon committed no execution violation of the General No. I part do not that there is no violation of condition of liquidity deemed adequate to thereon at the rate of 20% per annum. At the theservice moment when the acceptance is declared of the notice of garnishment on the Banking Act (RA 337, as amended) for which the statute (RA 337, as amended). X violated Metric System Law (1994) 21 Chattel Mortgage vs. After-Incurred Obligations (1991) 44 protect the interest of depositors and same time, Andrew executed a Deed of or made bybe the offeree. bank where the defendant deposited he should punished. Do preparation you agreefunds, that Sec 85 when he caused the and creditors. in On the other hand, Receiver Assignment favor of the Bankthe assigning tois such funds become part of the subject there has been no violation of the statute? issuance of a managers check appointed to manage a bank or quasi-bank the Bank his receivables from the Obligor. matter of litigation. (3%) that is unable to pay its liabilities in The deed of assignment read:

Mercantile Mercantile Law Law Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) Page 14 Corporation of 103 Page payable Page 2 6 8 10 of 3 5 7 9 11 of 103 to of 103 of 103 himself 103 Page 13in of the 103sum Page 4 of 103 Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) Page 12 of 103

General PrinciplesTABLE of OF FOR ECONTENTS W A RBanking D Law Mercantile Law

MERCANTILE LAW
(1990 2006)

ARRANGED BY TOPIC

Dondee

From the ANSWERS TO BAR EXAMINATION QUESTIONS bythe UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS 2005

Updated: June 27, 2007

June 27, 2007

Banks; Restrictions on Loan Accommodations (2002) As part of the safeguards against imprudent banking, the General Banking Law imposes limits or restrictions on loans and credit accommodations which may be extended by banks. Identify at least two (2) of these limits or restrictions and explain the rationale of SUGGESTED ANSWER: each of them. (5%) Any two (2) of the following limits or restrictions on loan and credit transactions which may be extended by banks, as part of the safeguards against imprudent banking, 1 to wit: SBL Rules (i.e., Single Borrowers Limit) rules are those promulgated by the Bangko Sentral ng Pilipinas, upon the authority of Section 35 of the General Banking Law of 2000, which regulate the total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation or other entity. The rules seek to protect a bank from making excessive loans to a single borrower by prohibiting it from lending beyond a specified ceiling. 2 DOSRI Rules These rules promulgated by the BSP, upon authority of Section 5 of the General Banking Law of 2000, which regulate the amount of credit accommodations that a bank may extend to its

Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Page Page 16 17 15 of 103 of 103 filed observed name a complaint of other by the with persons. depositary. the City To

deposits 4. Supposing impairment directors, under the RA clause. officers, titles 1405, ofRA stockholders as the amended. 6832, housescreating and and Can lots their a arecommission the Bank inrelated possession justifiably interests to conduct invoke of (thus, the RA Luansing an DOSRI). 1405 investigation and Generally, Realty, a) of Inc., not the respond isa itbanks failed under to the credit obligation 1989 writ accommodations and coup to b) deliver quash detat the the to and titles its to SUGGESTED ANSWER: to Rudy? subpoena recommend DOSRI (2.5%) for must examination? measures be in the(5%) to regular prevent course similar of Yes. Yes, Whether itbusiness has an the obligation transaction to is considered titles to a of attempts to seize and on power terms is deliver not a valid lessexercise favorable sale Rudy. orto money As Luansing placement Realty, does Inc. not make istonot the a Banks; Secrecy of Bank Deposits (1992) police the power. bank than those offered nonmoney covered subject institution matter under ofbank litigation Section within of the 3. DOSRI No commercial shall make any Socorro received $10,000 from a3 foreign bank borrowers. the Anti-Money meaning of Laundering Sec 2 entitled of RA Act, 1405 itwhich may not loan or discount on the security of shares of although she was only to $1,000.00. prohibits invoke this the law disclosure to refuse or delivery inquiry of into the bank titles its own stock. plan to conceal the In an capital apparent Banks; Secrecy of Bank Deposit; Exceptions (2006) deposit to Rudy. except in cases where the money erroneously sent amount, she opened a dollar Under Republic Act No.1405 (The Bank Banks; Restrictions on Loan Accommodations (2006) the deposited or invested is the subject matter account with her local bank, deposited Secrecy bank are considered Pio is Law), the and president Bank. His of litigation nor willdeposits it of matter whether the $10,000 issued 4Western checks in the amount Banks; Secrecy of Bank Deposits (2000) absolutely confidential and may not be bank each wife applied for a loan with the said to money was swindled. of $2,000 and 1 check for $1,000 GP is a suspected lord who isofficer examined, inquired or cafe. looked into by any finance an internet The loan told payable to jueteng different individuals who rumored to her be enjoying police and military person, government official, bureau or office. her that application will not be approved deposited the same in their respective dollar SUGGESTED ANSWER: protection. The envy of many drug lords who suit What The are sender the exceptions? bank then (5%) brought a civil because the grant of loans to related accounts with different local banks. The exceptions to the Bank Secrecy Law arethe had not escaped the dragnet of the law, GP before the RTC for the recovery of interests of bank directors, officers, and the following: was summonedsent to prohibited a amount. hearing of erroneously In the the of the is by the course General 1. stockholders Special or general examination of a SUGGESTED ANSWER: Committee on Racketeering and Other trial, the sender presented testimonies of Banking Law. Explain whether the loan bank, authorized by General the Bangko Sentral ng Section 36 of the Banking Law of in Syndicated Crimes the House offunds bank officials to of show that the were, officer is correct. (5%) Pilipinas' Monetary Board, inconducting connection with 2000 does not which entirely prohibit directors or Representatives, was a fact, deposited in a bank by Socorro and paid a bank fraud or serious irregularity. officers of the bank, directly or indirectly, congressional investigation in aid of out to several persons, who participated in 2. fromExamination by an independent borrowing the bank. this and case, legislation on the from involvement of In police the concealment and dissipation of the Auditor, hired by the Bank and for Bank, the which Pio is personnel, the president of Western military and possibly evenerroneously of local amount thatuse. Socorro had 3. Disclosure with the Depositor's written Bank's exclusive makes him an officer, director and Socorro moved to strike out said testimonies government officials, in the illegal activities of received. permission. stockholder of the said bank. The General from the record invoking the law on secrecy suspected gambling and drug lords. 1 bank In case of Impeachment. Banking Law provides additional of deposits. If for you were thewere Judge, Subpoenaed to attend the investigation 2 In cases of Bribery or dereliction of out? restrictions to the bank before it can lend to would you issue an order to strike them officers of certain identified banks with a duty by a ANSWER: Public Officer, upon order of a of SUGGESTED its directors or officers. A written approval Why? directive to them to bring the records and competent court. I will not strike out thethe testimonies from the majority vote of all directors of the the documents of bank deposits of individuals record. 3 In cases The of testimonies money deposited/invested of bank officials bank, excluding the director concerned, mentioned in the subpoenas, among them is which, in Furthermore, turn, is thethe subject of Litigation, indicating where questioned dollar required. such dealings must GP. GP and the banks opposed the production SUGGESTED ANSWER: accounts upon order were of a competent opened Court. in depositing be upon terms not less favorable to the bank of banks records of deposits on the Yes. opposition isLoans valid. GP is not a public 4. the DOSRI Loans: with their Banks 4The misappropriated sums must be considered as than those offered to others ( Section 1326, ground that no such inquiry is allowed under of Bank official. The Directors, investigation Officers, does Stockholders not involve and one is likewise involved in litigation one which Central "Manual ofDeposits Regulations the Law onBank's Secrecy of Bank (RA for of the exceptions to the prohibition against related interests. among the Other excepted cases under the Secrecy Banks and Financial Intermediaries, 1405 as amended). Is the opposition of GP disclosure 5 Bank Loans of any in excess information of 5% concerning of the Bank's bank of Deposits Act (Melon Bank v Magsino cited in Ranioso v. CA, G.R. No. 117416, and the banks valid? Explain. Banks; Secrecy of Bank Deposits (1994) deposits under the Law on Secrecy of Bank Capital Safety & Surplus Deposit Box; Liability 190 SCRA 633) December 8, 2000waived ). violation of this Miguel, a special customs agent is charged Deposits. 6 and The The Borrower Committee conducting his right the as MN OP rented aA safety deposit box at provision will cause his or her position to be before the Ombudsman with having acquired investigation is not a competent court or the regards the Secrecy of Bank Deposits SIBANK. The parties signed a contract of vacant and the erring director 5. declared the Anti-Graft and property out of proportion to his salary, Ombudsman 7 Violation authorized under the law to or lease with theof conditions that: the bank is in officer subjected to the penal provisions of Corrupt Practices Act. violation of the Anti-Graft Corrupt issue for production of the notaasubpoena depository ofthe the contents and of the safe the New Central Bank Act. 6. Coup d' etat Law (RA 6968, Practices Act. the The Ombudsman issued of a bank record involving such disclosure. and has neither possession nor control Banks; Secrecy of Bank Deposits; Exceptions (2004) 7. BIR Commissioner's authority to verify Oct 24,1990). subpoena duces tecum to theno Banco de Cinco the same; the bank assumed interest in The Law on Secrecy of Bank Deposits a decedent's Gross Estate and a taxpayer's commanding its representative to furnish said contents and assumes no liability in the provides that all deposits of whatever nature request for a compromise agreement due toor Ombudsman records of transactions by in connection therewith. The safety deposit box with banks or banking institutions are incapacity to pay his tax liability. the name of Miguel, his wife and children. A had two keyholes: one for the guard key 8. Foreign Currency Deposits by may foreign absolutely confidential in nature and not second subpoena was issued expanding the which remained with the bank; and the other lenders & investors under PDs 1034. be examined, inquired or looked into by any of first by including the production of records renters' key. The box can be opened 9. for the Violations of the Anti-Money person, government official, bureau or office. friends ofthe Miguel inboth saidkeys. bankThe and in all its only When with use of renters 10. the exercises/invokes Laundering Law. Miguel moved to quash the subpoenas arguing However, the law State provides exceptions in its branches and extension offices, specifically deposited certificates of title in the box. But (NOTA BENE: It is suggested that anyDeposits 6 of Police Power. that they violate the Secrecy of Bank certain instances. Which of the following may naming them. later, they discovered that the certificates the above be given full credit) 1. In cases of ANSWER: SUGGESTED Law. In addition, he contends that the not be among the exceptions: were gone. MN and OP now for 2. In The cases bank involving is liable, based on claim the decisions of impeachment. subpoenas are in the nature of fishing damages from SIBANK. Is the bank liable? Banks; Secrecy of Bank Deposits (1990) 3. In cases involving BIR the Supreme Court in CA Agro-Industrial bribery expedition or general warrants and are Explain briefly. (5%) Manosa, newspaper while 4. In casesa of anti-graft andcolumnist, corrupt inquiry. Development Corp. v. Court of Appeals, 219 SCRA constitutionally impermissible with respect to making a deposit in a bank, overheard a 5. In cases where the money involved is the practices. 426 (1993) and Sia v. Court of Appeals, 222 SCRA private individuals who are not under pretty bank teller informing a Supreme coemployee SUGGESTED ANSWER: subject of 24 (1993). In those cases, contention the Court investigation. Is Miguels tenable? that No. Gigi, Miguels a well contention known public is not official, tenable. has The ruled that the renting out of safety deposit inquiry into illegally property just a few hundred pesos in her bank boxes is a " special kind ofacquired deposit " wherein account extends and to that cases her where next check such property in all of is the bank is the depositary. In thewill absence concealed by being held by recorded probability bounce. Manosa wrote this in any stipulation prescribing theor degree of information the in his newspaper Thus, diligence required, that of a column. good father of a Gigi family is to be

Fiscal Any sustain of stipulation Manila Miguels forexempting unlawfully theory and the disclosing restrict depositary the information from any inquiry only about liability to property her arising bankheld from account. by the orloss a) in the Will of the thename thing said suit deposited of the prosper? government would Explain be official void your for answer. would beingmake contrary to available to law persons and public in government policy. The who deposit box illegally acquire is located property in the an easy bank means premises of b) evading Supposing that Gigi is charged with and is under prosecution. the absolute All they control have ofto the do unlawfully acquiring under RA 1379 bank. be would to simply wealth place the property in the Banks; of Bank Deposit; (2006) and that Secrecy the fiscal issued a AMLC subpoena duces name of persons other than their spouses Rudy is the jobless but is toaccount be a jueteng tecum for records of reputed the bank of and children (Banco Filipino Savings vs. operator. He has been the charged Gigi. May 161 Gigi validly said Purisima scra 576;never Secoppose 8 Anti-Graft Law as or Banks; Secrecy of Bank Deposits (1995) convicted of any crime. He maintains several issuance on the ground that the same amended by BP 195) Michael withdrew without authority funds of SUGGESTED ANSWER: bank accounts and has purchased 5 houses violates the law on secrecy of bank deposits? a) The Secrecy of Bank Deposits Act the partnership in the amounts of P500th and and lots his children from the Luansing Explain your for answer. prohibits, to its he exclusionary clauses, US$50th for services hedoes claims he rendered Realty, subject Inc. Since not have any any person from examining, inquiring for the benefit of the partnership. He visible job, the company reportedor his looking into all deposits of whatever nature deposited the P500th in his personal peso purchases to the Anti-Money Laundering with banks or banking institutions incharged the the current account with Prosperity Bank and Council (AMLC). Thereafter, AMLC Philippines which by law are declared US$50th in his personal foreign currency him with violation of the Anti-Money absolutely confidential in nature. savings account Eastern Bank. Laundering Law.with Upon request of Manosa the The partnership instituted an action in AMLC, court who merely overheard what appeared to be the bank disclosed to it Rudy's bank deposits against Michael, Prosperity, and Eastern to 1. Can Rudy move to dismiss the case a vague remark a Bank employee to a co-on amounting to of P100 Million. Subsequently, he ALTERNATIVE ANSWER: compel Michael to return the subject funds to the ground that he has no criminal record? employee and writing the same in his in court for violation of the Antia) was The charged complaint against Manosa will not SUGGESTED ANSWER: the partnership and pending litigation to (2.5%) newspaper column is neither the inquiry nor Money Laundering Law. prosper because writing vague No. Under the merely Anti-Money Law, order both banks to disallow any a withdrawal disclosure contemplated by law.Laundering remark aaccounts. Bank to"money a co-employee Rudyof would beemployee guilty of a laundering from his is not the initial disclosure contemplated bythe law. If an At the hearing of the court crime" committed when the case proceeds of anyone should be liable, it will be the bank of ordered Prosperity tolike produce the records "unlawful activity," jueteng operations, SUGGESTED ANSWER: employee who the information. Michaels peso current account, and Eastern are made todisclosed appear as having originated from b) Among the instances excepted from the to produce the records of his foreign legitimate sources. The money laundering coverage of the Secrecy of Bank Deposits currency savings account. crime is separate from the unlawful activity of ActCan are the Anti-graft cases. Prosperity Hence Gigi may not court compel Eastern being a jueteng operator, andand requires no validly oppose the issuance of a subpoena to disclose the bank deposits of Michael? previous conviction for the unlawful activity duces tecum for the bank records on her. SUGGESTED ANSWER: Discuss fully. (See also Sec. 3, Anti-Money Laundering Act Banks; Secrecy of Bank Deposits (1991) Yes, as far as the peso account is concerned. 2. To raise funds for his defense, Rudy sold of 2001). The law 6832) creating a the Commission to of Sec 2(RA of RA 1405 allows disclosure the houses and lots to a friend. Can Luansing conduct a Thorough Fact-Finding Investigation bank in case where the money Realty,deposits Inc. be compelled to transfer to the of deposited the Failed Coup of Dec 1989, is the subject of and litigation. buyer ownership ofdetat the matter houses lots? Recommend Measures to Michael Preventis aimed the SUGGESTED ANSWER: Since the case filed against (2.5%) Occurrence ofRealty, Similar Attempts a Violent Luansing Inc. ishe aAt real estate at recovering the amount withdrew from Seizure of Power for a Other Purposes, company, hence itpartnership, is not covered institution the funds of theand which amount provides that the Commission may account, ask the a under Section 3 of the Anti-Money Laundering he allegedly deposited in his Monetary Board to disclose information onbe Act. Only banking institutions, insurance disclosure of his bank deposits would No, with respect to to the foreign currency and/or to grant authority examine any bank companies, securities dealers and brokers, proper. account. Under Foreign Currency Law, deposits, trust orthe investment funds, or pre-need companies and other entities the exemption to in the against banking transactions the prohibition name dealing of and/or administering or otherwise in disclosure of commodities information bank utilized by a person, natural or concerning juridical, under currency, or financial deposits is written consent the investigation by the Commission, in any of bank derivatives are covered institutions. Hence, Banks; Secrecy of Bank Deposits (1998) depositor. or banking institution in the Philippines, when Luansing Realty, Inc. may not use the Anti(20) An insurance is deluded the1998 Commission has Act reasonable ground to to Money Laundering to company refuse to transfer 3. In disclosing Rudy's bank accounts the into releasing a check to A for P35th pay believe that said deposits, trust or investment the buyer ownership of the houses and to lots. AMLC, did the bank violate any law? (2.5%) for Treasury Bills (T-bills) which A claims funds, or ANSWER: banking transactions have been to SUGGESTED SUGGESTED ANSWER: be en route on board an armored truck from used in support or in furtherance of the The Law on Secrecy ofnot Bank Deposits islaw. itself No, the bank did violate any The a government bank. The check is delivered objectives of the said coup detat. Does the to merely a statutory enactment, and it "covered may, bank being specified as a A who depositsnot it to his account with on XYZ above provision violate the (such Law therefore, be modified, or amended as institution" under the Anti-Money Laundering Bank before the insurance company realizes Secrecy of Bank Deposits (RA 1405)? by Law, providing furtherreport exceptions therefrom), to the AMLC covered it is is aobliged scam. to Upon such realization, the or and evensuspicious repealed, transactions, expressly or impliedly, by without thereby insurance company files an action against A a violating subsequent law. TheThis Secrecy of Bank any is defrauded one of and the for recovery of law. the amount Deposits Act did not Secrecy amount of to Bank a contract exceptions to the Deposit obtains a writ of preliminary attachment. In between the depositors and depository Act. addition to the writ, the Bank is also served a banks within the meaning of the nonsubpoena to examine the account records of impairment clause of the Constitution. Even A. The Bank declines to provide any if it did, the police power of the State is information in response to the writ and superior to the nonmoves to quash the subpoena invoking secrecy of bank

shall the National promote Internal and maintain Revenuemonetary Code, thestability Commissioner and convertibility of Internal of the Revenue Peso. can inquire into the deposits of a decedent for Truth in Lending Act (1991) the purpose of determining the gross estate Dana Gianina purchased on case, a 36 month of such decedent. Apart from this a BIR installment basis the cannot latest be model of the inquiry into bank deposits made. Nissan Sentra car from the Thus, exception 3Sedan may not always be Jobel Cars Turning to exception 4, an inquiry into bank Inc. In addition to the advertised selling price, applicable. deposits is possible only in prosecutions for the latter imposed finance charges consisting unexplained wealth the Anti-Graft and of interests, feesunder and service charges. It did Corrupt Practices Act, according to the not, however, submit to Dana a written Supreme Court in the cases of Philippine statement setting forth therein the National Bank v. Gancayco, 15 SCRA 91 (1965) information required by the Truth in Lending However, all other casesand of anti-graft and v. and Banco Filipino Savings Mortgage Act (RA 3765). Nevertheless, the Bank conditional corrupt practices will not warrant an inquiry 1 Has there been substantial Purisima, (1988). deed 161 of SCRA sale 576 which the parties executed into bank deposits. Thus, exception compliance of the aforesaid Act? 4 may mentioned that the total amount indicated not always be applicable. Like any other 2 If your answer to the foregoing therein included such finance charges. exception, must be interpreted strictly. questionitis in the negative, what is the effect Exceptions 1, 2 and 5, on contract? the other hand, are of the violation on the provided expressly in the Law on Secrecy 3 In the event of a violation of theof Act, Bank Depositors. They are available what remedies may be availed of to by Dana? depositors at all times. Banks; Secrecy of Bank Deposits; Garnishment (2001) The Law on Secrecy of Bank Deposits, otherwise known as RA 1405, is intended to encourage people to deposit their money in pesos for denominations from twenty five banking institutions and also to discourage centavos and above, and in amounts not private hoarding so that the same may be exceeding twenty pesos for denominations PDIC Law vs. Secrecy Bank Deposits Act (1997) properly utilized by banks to assist in the ten centavos and of less. An employee of a large manufacturing firm economic development of the country. Is a earns a salary which is just a bit more than notice of garnishment served on a bank at what he needs for a comfortable living. He is the instance of a creditor of a depositor SUGGESTED ANSWER: thus able to still maintain a P10,000 savings covered by the said law? State the reason(s) No. The notice of garnishment served on a account, a P20,000 checking account, a for your answer. (5%) bank at the instance of a creditor is not P30,000 money market placement and a covered by the Law on Secrecy of Bank P40,000 trust fund in a medium-size Deposits. Garnishment is just a part of the by the PDIC. b) State which of the above commercial bank. a) State which of the four process of execution. The moment a notice of accounts are are deemed covered by accounts insured garnishment is served on a bank and there the Law on Secrecy of Bank SUGGESTED ANSWER: exists a deposit by the judgment debtor, the Deposits. a) The P10th savings account and the P20th bank is directly accountable to the sheriff, for account are deemed insured by the PDIC. b) checking the benefit of the judgment creditor, for the The P10th savings account and the P20th whole amount of the deposit. In such event, account are covered by the Law on Secrecy of checking the amount of the deposit becomes, in effect, BSP; Receivership; Deposits. Bank a subject of theJurisdiction litigation.(1992) Family Bank was placed under statutory receivership and subsequently ordered Responsibilities & Objectives of BSP (1998) liquidated by the Central Bank (CB) due to What are the responsibilities and primary fraud and irregularities in its lending objectives of the BSP? (5%) SUGGESTED ANSWER: operations which rendered it insolvent. The BSP shall provide policy directions in the Judicial proceedings for liquidation were areas of money, banking and credit. It shall thereafter commenced by the CB before the have supervision over the operations of RTC. Family Bank opposed the petition. banks and exercise such regulatory powers Shortly thereafter, Family Bank filed in the as provided in the Central Bank Act and same court a special civil action against the other pertinent laws over the operations of CB seeking to enjoin and dismiss the finance companies and non-bank financial liquidation proceeding on the ground of grave litigation. Explain your answer or institutions performing quasi-banking abuse of discretion by the CB. The court choice briefly. (5%) functions, such as quasi-banks and poised to: 1) restrain the CB from closing SUGGESTED ANSWER: The primary objective of the BSP is to institutions performing similar functions. Family Bank; and 2) authorize Family Bank to SUGGESTED ANSWER: maintain price stability conducive to a withdraw money from its deposits during the balanced and sustainable growth pendency of the case. If you were the Judge, would you issue such orders? Why?
Mercantile Law Bar Examination Q & A (1990-2006)

Page Page 18 19 of 103 of 103 Under of the Section economy. 6(F) of It

No. The RTC has no authority to restrain the monetary board of the BSP from statutory authority to undertake receivership and ultimate liquidation of a bank. Any opposition to such an action could be made to the court itself where assistance is sought. The action of the RTC where the proceeding is pending appeal have to be made in the Court of Legal Tender (2000) Appeals. After many years of shopping in the Metro Manila area, housewife HW has developed the sound habit of making cash purchases only, none on credit. In one shopping trip to Mega Mall, she got the shock of her shopping life for the first time, a stores smart salesgirl refused to accept her coins in payment for a purchase worth not more than one hundred pesos. HW was paying seventy pesos in 25centavo coins and twenty five pesos in 10 centavo coins. Strange as it may seem, the salesgirl told HW that her coins were not SUGGESTED ANSWER: legal tender. Do you agree with that the coins No. The salesgirls understanding salesgirl in respect of her understanding of are not legal tender is not correct. Coins are legal tender? Explain (2%) legal tender in amounts not exceeding fifty

Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

20 21 of 103 their loan of portfolios. Page Page 22 103 of 103 Gregorio indebtedness 500 bags, dueCompany or which owing, X on

when without 2) If there the more, is sale a proceeds bona and transfer fide toand arrange is just made dispute the a) by as the delivery to the vendor, amount andmortgagor, installation due as her of transferor electric your new or home assignor theater consumption who system. produces rate. You and Is know Angelenes delivers you will acontention written receivewaiver a SUGGESTED ANSWER: statement valid? of the provisions on your credit of the card Bulk purchases Sales Law from No. Angelenes only legal an recourse in from his the creditors bank containing as shown by option verified tothis statement; pay case was to pay the electric bill under only and a minimum b) by a vendor, amount, mortgagor, which is usually transferor or protest. Hertotal failure do so justified MECO 1/36 assignor of the who price is to an you executor, were charged administrator, forto cut the electric service (Ceniza v CA 218 or S 290) your receiver, purchase. assignee Did Embassy in insolvency, Appliances public

SUGGESTED ANSWER: comply officer with acting the provisions under judicial of the process, Truth in the sale There is no need for Embassy Appliances to Lending or transfer Act (RA is 3765)? not covered by the Bulk Sales comply with theObligation Truth inof Lending Act. The Bulk Sales Law; the Vendor (1995) Law. transaction is not a sale on installment basis.and House of Pizza (Pizza) is the owner Embassy Appliances is a seller on cash basis. operator of a nationwide chain of pizza BOD: Election of Aliens as members (2005) It is the credit card company which allows outlets. House of Liquor (Liquor) is a retailer A Korean national joined a corporation which theof buyer to enjoy the privilege of paying the all kinds of liquor. is engaged in the furniture manufacturing House of Foodsbasis. (Foods) has offered to price on installment business. He was elected to the Board of purchase all of the outlets, equipment, Directors. To complement its furniture fixtures and furniture of Pizza. Foods also manufacturing business, the corporation offered to purchase from (1994) Liquor all of its Bulk Sales Law; Covered also engaged in the Transactions logging business. With moderately priced stock constituting 50% Stanrus Inc a department storecan with outlets in of the additional logging activity, the its total inventory. SUGGESTED ANSWER: Makati, national Mandaluyong, Quezonof City, Korean stillLiquor beand a member theis What Both and have creditors. Yes, just Pizza as long as sixty percent (60%) of the contemplating to refurbish and renovate Board of Directors? Explain. (3%) legal requirements must Pizza and its Liquor Board of Directors are Filipinos. Corporations Makati store in order to introduce the most comply with in order for Foods to that are and sixty percent (60%) owned by in modern state oftransactions? the art equipment consummate the Discuss fully. Filipinos can engage the business merchandise display.in To carry out itsof plan, it SUGGESTED ANSWER: exploration, development and utilization of intends to sell ALL of the existing fixtures and Pizza and Liquor must prepare an affidavit natural resources. (Art. XII, Sec. 2, 1987 equipment (display cases, wall decorations, stating the names of all their creditors, their Constitution) The of aliens as furniture, counters, etc.) to Crossroads addresses, theelection amounts of their credits and members of the Board Of Directors engaging Department Store. Thereafter, will buy their respective maturities. it Pizza and and Liquor in partially-nationalized activities isand allowed install new fixtures and equipment must submit said affidavit to Foods which, in in proportion to their allowable participation continue operations. Crossroads wants to turn, should notify the creditors about the or share in the capital of such entities. (Sec. ALTERNATIVE ANSWER: know from you which as counsel: 1) Whether the transaction is about to be concluded creditors of Stanrus. 2-A, As Anti-Dummy far as Law) Nothing is concerned, in the facts it intended sale isLiquor bulk sale. 2) How can it must with Pizza and Liquor. SUGGESTED ANSWER: shows that more than forty percent (40%) prepare an affidavit stating the names of all protect itself future claims of and of BOD; Capacity offrom Directors (1996) 1) Yes. The sale involves all fixtures the its Board creditors, of Directors their addresses, are foreigners. the amounts of Rodman, the President of TF Co, wroteof a letter equipment, not in the ordinary course their credits and their respective maturities. to Gregorio, offering to sell to the latter 5,000 trade and the regular prosecution of business It must submit said affidavit to its buyer, who bags of fertilizer at P100 per bag. Gregorio of Stanrus, Inc. (Sec 2 Act 3952, as amended) in turn, should notify the creditors about the signed his conformity to the letter-offer, and transaction which is about to be concluded 2) Crossroads should require from Stanrus paid a down-payment of P50th. A few days But as Pizza is concerned, it is not with as his far seller. Inc. submission of a written waiver the Bulk later, the Corporate Secretary of TFof informed covered by the Bulk Sales Law. So Foods can Sales Law by the creditors shown by Gregorio of the decision of as their BOD not todoing consummate the transaction without verified statements or to comply with Gregorio the ratify the letter offer. However, since anything. requirements of the Bulk Sales Law, that had already paid the down-payment, TF Bulk Sales Law; Obligation of the Vendor (1997) is, theThe seller must notify of the delivered 500 bags of his fertilizer which Gregorio sole proprietor of creditors a medium-size grocery terms and conditions of the sale, and accepted. TF made it clear that the delivery shop, engaged in both wholesale also, and retail before receiving from an vendee any part lock, of should be considered new transactions, sells theentirely entire business thestock purchase price, deliver to such vendee a to transaction. Thereafter, Gregorio sought and barrel because of his plan written swornof statement of the names and enforcement the letter-offer. Is there a emigrate abroad with his family. Is he SUGGESTED ANSWER: addresses of all his creditors together with binding contract for the 5,000 bags of covered by the provisions of the Bulk Sales No, there is no binding contract for the 5,000 Bulk Sales Law; Covered Transactions (2000) theLaw? amount of indebtedness due to each (Sec fertilizer? Explain. In the affirmative, what must be done bags of fertilizer. First, the facts do not Company X, engaged in the business of SUGGESTED ANSWER: 2 Act 3952, amended) by the parties so as to comply with the law? indicate that Rodman, the President ofof TF goods, Co, manufacturing parts and accessories, Yes. This is car a sale of the stock was authorized by the BOD to enter into the operates a factory with equipment, fixtures and entire business, not in the said contract ortools thatof he was to do machinery and for this empowered purpose. The ordinary course business or trade of the so under some provision the by-laws TF manufactured goods are of sold wholesale to vendor. Before receiving from the of vendee Co. The part facts dothe not purchase alsothroughout indicate that distributors and dealers the any of price, the vendor Rodman has been clothed with the apparent Philippines. Company was among the must deliver to X such vendee a written power to entities execute the contract agreements business adversely hit by the 1997 and statement, duly sworn, of or the names similar to it. Second, Co hasdropped specifically Asian business crisis. Its sales with said addresses of all TF creditors to whom informed Gregorio that it has not ratified the the thevendor declinemay in car sales and itstogether operating be indebted, with contract for the sale of 5,000 bags of fertilizer costs escalated, while its creditor banks and amount of and that the delivery to other financial institutions tightened

Corporation Law

Bulk Sales Law

was faced with the dismal choice new of business either Gregorio account accepted, of the goods, is an entirely fixtures or suspending its operations or selling its 53820 transaction. subject matter (Yao Ka ofSin the Trading bulk sale. v CA GR business. It chose the latter. Having struck a June 15, 1992 209s763) Bulk Sales Law; Obligation the Vendor (2001) deal with Company Z, a of more viable entity BOD; (1991) A Compensation is a merchant engaged in the sale of X a engaged in the same business, Company After many years, which called for variety of difficult goods and merchandise. Because sold its entire business to the former without sacrifices on or the part of publicity. the companys of the economic crisis, incurred much fanfare any form he of In fact, directors, ABC Manufacturing was finally indebtedness to X, Y and Z. Inc Thereafter, A evidence exists that the transaction was earning substantial profits. Thus, sold to B all the stock of goods furtively entered into to avoid the and prying the in bulk of his goods to B.BOD (2%). President proposed to steps the that merchandise. a) What should A the eyes of Company Xs creditors. The creditor SUGGESTED ANSWER: directors be paid a bonus equivalent to 15% undertake to effect a valid sale banks and other financial institutions sued A must prepare net an income affidavitbefore stating the SUGGESTED ANSWER: of the companys Company X for violation of the Bulk Sales tax Company X violated the Bulk Sales Law when names of all his creditors, in this case, X, during the preceding year. The Presidents Y, Law. Decide. (5%) it sold its entire business to the Company Z and Z, their addresses, amount ofthe their proposal was unanimously approved by SUGGESTED ANSWER: furtively to avoid the prying eyes of its credits and their maturity. A should give the BOD. A stockholder of ABC questioned the Yes, the Its stockholder as agoods valid and legal a creditors. manufactured are sold affidavit to B who, in turn, should furnish bonus. Does he have grounds to object? ground toto object to the payment to the wholesale distributors and dealers. The copy to each creditor and notify the creditors directors of a bonus equivalent to 15% of the sale of all or substantially all of its stocks, not to that there is a proposed bulk sale in order companys net income. The their law interests. provides in the ordinary course business, enable the latter to of protect b) the Suppose A submitted a false statement that total annual compensation of the constitutes bulk sale. The transaction being a on the schedule of his creditors. What is the effect of directors, in the preceding year, cannot bulk sale, entering into such transaction false as requirements to Vendee B. such SUGGESTED ANSWER: exceed 10%statement of the companys net income without complying with the of BOD; Conflict of Covered Interest (1994) SUGGESTED ANSWER: Bulk Sales Law; Transactions (2006) a) There was no substantial compliance (2%) before income tax (Sec 30 Corp Code). the Bulk Sales Law, Company X violated said If the vendee does not have knowledge of ABC Pigger Inc is engaged in raising and law Pursuant to a writ of execution issued by the with the Truth in Lending Act. The law. the falsity of the schedule, the sale valid. selling hogs in the local market. Mr. De Dios, Regional Trial Court in "Express Bank v. is Don provides that the creditor must make a full However, if vendee has of one of the its directors while traveling abroad, Rubio," sheriff levied and sold knowledge at public disclosure ofthe the credit lost. The statement such falsity, the sale is void because is the in met a leather goods manufacturer who was auction 8 photocopying machines of Donhe that the total amount due includes bad faith. interested in buying pig skins from the Rubio. Is the sheriff's covered by the without principal and the sale financial charges, c) What is the right creditors X, Y, and Z if A SUGGESTED ANSWER: Philippines. Mr De Dios of set upon a each separate Bulk Sales Law? (5%) specifying the amounts due portion No. The to sale comply by sheriff with the at public procedure/steps sale is not a required by failed company and started exporting pig skins to thereof would be insufficient and under question letter (a) hereof? sale by law a merchant. Section 8 of the Bulk b) A violation of the Truth in Lending Act his foreign contact but the pig skins exported unacceptable. SUGGESTED ANSWER: (1%) Sales provides that it has no fellow willLaw notitself adversely affect the validity of the were not sourced from ABC. His The recourse of X, Y, and Z is to question the application to executors, administrators, contract itself. directors in ABC complained that he should validity of the sale from A to B so as to SUGGESTED ANSWER: receivers, assignees in insolvency, or public c) given It would allow Dana to refuse payment have this business to ABC. How would recover the goods and merchandise I would decide in favor of Mr De Dios. ABC is officers, acting under process. Bulk Sales of financial charges or, if The already paid, to to you decide on this matter? satisfy their credits. engaged in raising and selling hogs in the Law only applies to the sale or may encumbrance recover the same. Dana also initiate local market. The company that Mr De of a merchant of goods, merchandise or Dios criminal charges against the creditor. had set up was to engage, as it did, in the commodity done "in bulk" as defined by the Bulk Sales Law; Exclusions (1993) export of pigs skins. There is thus no conflict ALTERNATIVE ANSWER: Law itself. c) (Per Atty Jomby Paras if u read In the annual meeting of XYZ of interest between Mr. De Corporation, Dios and ABCthe Metric System Law (1994) provisions closely) the the stockholders unanimously adopted a Pigger Inc so as to makeUnder the case fall Truth within in Angelene is a customer of Meralco Electric Observation: The term conflict of Lending Act, said financial charges valid, resolution proposed by the BOD to sell are the conflict of interest situation under the Company (MECO). Because of the abrupt rise interest is susceptible to varied views and Dana may not refuse payment thereof. substantially all the fixtures and equipment law (Sec 34 Corp Code) in electricity rates, Angelene complained and interpretations. Only criminal charges may be initiated used in and about its business. The President BOD; Interlocking Directors (1995)that she should be with MECO insisting against the creditor. of the Corporation approached you and asked Chito Santos is Act a (2000) director ofrates. both Platinum the former However, Truth inassistance Lending for charged legal to effect the sale. 1) What Corporation and Kwik Silver Corporation. He Angelene did not tender any payment. valid? 2) What are the two instances when Embassy Appliances sells home theater steps should you take so that the sale may When MECOs employees served the first 48owns 1% of the outstanding capital stock the sale, transfer, that are designed of and be components hour notice of disconnection, Angelene Platinum and or 40T of Kwik. Platinum plans tofor mortgage assignment of stockcenters of goods, customized as entertainment protested. MECO, however, did not implement enter into a contract with Kwik that will make merchandise, provision, or materials otherwise wares, consumers within the medium-to-high price the 48-hour notice of of disconnection. Instead, both earn very substantial incompanies the ordinary course trade and profits. the regular than bracket. Most, if not all, of these packages its employees examined Angelenes electric The contract is presented at the respective prosecution of the business of theusually vendor are are sold on installment basis, by 1. meter, In meetings order that the contract will not be installed changed the same, and board of Platinum and Kwik. deemed to be a sale or transfer in not means of credit cards allowing a maximum voidable, whatAngelene, conditions made will have be of another. Still, no to tender of SUGGESTED ANSWER: bulk? 36 equal monthly payments. Preferred credit complied with? Explain. 1) The requirements of the Bulk Sales Law payment. cards of this type are those issued by banks, MECO served a second 48-hour notice 2. If be these conditions are not met, how must complied with. The seller delivers to of which regularly hold mall wide sales disconnection on June 22, 1984. It blitzes gave may this contract ratified? Explain. the purchaser a list ofbe his creditors and the participated in like Angelene until 5 by pm appliance of June 25,retailers 1984 purchaser in turn notifies such creditors ofwithin Embassy Appliances. You are a buyer of a which to pay. As no payment had been the proposed sale at a stipulated time in home theater center at Embassy Appliances. made, MECO cut Angelenes electric service advance. TheJune salesclerk who is attending to you simply on 28, 1984. Angelene contends that swipes your written credit card electronic the 48-hour noticeon of the disconnection approval machine (which prints rule cannot be invoked by momentarily MECO out your charge slip since you have unlimited credit), tears the slip from the machine, hands the same over to you for your signature, and

Consumer Protection Law

Page Page 24 23 of 103 of 103 which Theto BOD invest of X the Co, funds acting ofon a thestanding corporation. authority Robert of wants the stockholders the deadlock to Is a a) by-law his provision presence of as director X Corporation at the broken. amend the by-laws, amended its by-laws so rendering meeting ineligible is not necessary or if elected, to constitute subject toa 1. as What are the remedies to who is to disqualify any of itsavailable stockholders removal, quorum a director for such if he meeting; is also a director in a b) his whose vote is business not necessary for the Robert under the Corp code to of break also a stockholder and director a the corporation is in competition approval of the contract; c) the deadlock? Explain. competitor from being elected to its BOD. with or is antagonistic to saidand corporation SUGGESTED ANSWER: contract is fair and reasonable under the 2. Are there any remedies to prevent the valid and legal? State your reasons. (5%). Yes, the by-law provision is valid. It is the Y, a stockholder holding sufficient assets circumstances. paralyzation of the business available to to right of a corporation to protect itself against assure of a 902-A seat while in the BOD, filed a Robert him under PD the petition possible and prejudice be SUGGESTED ANSWER: At the harm meeting of the BOD ofthat Kwik may to approve the petition with the SECisfor a declaration of to break the deadlock pending 1. nullity Robert can petition the SEC to arbitrate caused by its competitors. position contract, Chito would haveThe to make sure of that of the amended by-laws. He alleged litigation? Explain. the dispute, with such powers as director is highly sensitive and confidential. - a) there is no fraud involved; and b) the among other things that as a stockholder, he provided in Sec 104 of the Corp Code. To contract say the least, allow a person, who is a is fair to and reasonable under the had acquired rights inherent in stock 2. ownership The SEC can appoint a right rehabilitation director incircumstances. a corporation whose business is in such as the to vote and be SUGGESTED ANSWER: receiver or a management committee. competition with or is antagonistic to X voted upon in the election of directors. Is the SUGGESTED ANSWER: No. There is no vested right of a stockholder Corporation, to become also a director in X stockholders petition tenable? (5%) 2. If the conditions relating to the quorum to be elected as director. When a person Corporation would be harboring a conflict of and required number of votes are not met, buys stock in a corporation he does so with interest which is harmful to the latter By-Laws; Validity; limiting BOD the contract must qualifications be ratified of by the vote of the knowledge that its affairs are dominated (Gokongwei Jr v SEC 89 S 336 (1979); 97 S 78 members (2003) stockholders representing at least 2/3 of the by a majority of the stockholders. To this (1980)). To outstanding prevent the entry of in Marlo Enriquez, capital stock a meeting called extent, the stockholder parted with his whom it considered as one antagonistic to its for the purpose. Furthermore, the adverse personal right to regulate the disposition of interests, its Board Directors, interestinto of Chito in the of contract mustBayan be his property which he invested in the capital Corporation amended itsis fair articles of disclosed and the contract and stock of the corporation and surrendered it BOD; Interlocking Directors incorporation and by-laws to BP add certain reasonable. (Secs. 32 (1996) and 33, 68) to the will of the majority of his fellow Leonardo isof the Chairman and Corporations have the power to make byqualifications stockholders to President, be elected incorporators or stockholders. Raphael is a Director of NT Corporation. laws declaring a person employed in the as while members of its Board of Directors. When On one occasion, NT Co, by its service of a rival company to be ineligible for presented for approval at represented a meeting of Leonardo and A Ent, a single proprietorship the Corporations BOD. An amendment stockholders duly called for the purpose, the owned by Raphael, entered into a dealership which renders a director ineligible, or if amendments were overwhelmingly ratified. agreement whereby NT Co appointed A Ent elected, subjects him to removal, if he is also Marlo Enriquez brought suits against Bayan SUGGESTED ANSWER: as exclusive distributor of its amendments. products in a director in a corporation whose business is Corporation to question the SUGGESTED ANSWER: (per Dondee) Luzon. The SC reiterated in the case of Northern Is the dealership agreement in competition with or is antagonistic to the Would the action prosper? Why? (4%) The dealership agreement is voidable at the SMC vs. SEC decided in April 11, 1979, that it By-Laws; Validity; limiting qualifications of BOD valid? Explain. other corporation is valid. option of NTby Co all inasmuch as the facts do not is recognized authorities that 'every members (2000) indicate that was power approved by the corporation has the thesame inherent to adopt At the annual stockholders meeting of MS BOD of NT Co before it was signed or, by-laws 'for its internal government, and to Corporation, the stockholders unanimously assuming such approval, that it was regulate the conduct and prescribe the rights passed a resolution authorizing the Board of approved under the following conditions: 1) and duties of its members towards itself and Directors to amend the corporate by-laws so inthe the meeting of of the BOD at which That presence the owner of A among themselves inRaphael, reference to the the as to disqualify any stockholder who is also a was approved was not law, Ent,agreement management of its affairs.'" At common director or stockholder of a competing necessary to constitute a to quorum the rule was "that the power makefor and business from being elected to the Board of 2) That the vote of Raphael was not meeting; adopt such bylaws was inherent in every Directors of MS Corporation. The by-laws necessary as for the the corporation oneapproval of its of necessary and were accordingly amended. GK, a stockholder agreement; 3) That the agreement is fair inseparable legal incidents. And it is settled of MS Corporation and a majority stockholder and reasonable under the circumstances throughout the United States that in the of a competitor, sought election to the Board ALTERNATIVE ANSWER: (Sec 32 Corp Code) absence of positive legislative provisions The dealership agreement is valid upon the of Directors of MS Corporation. His limiting it, every private corporation has this assumption that the same was approved by nomination was denied on the ground that he inherent power as one of its necessary and the BOD of NT Co before it was signed and was ineligible to run for the position. Seeking inseparable legal incidents, independent that such approval was made under the of a nullification of the offending disqualification SUGGESTED ANSWER: any specific enabling provision in its charterof following conditions: 1) That the presence provision, GK consults you about its by-laws validity Close Corporations; Deadlocks (1995) The provision in the amended or in in general law, executed such power of selfthe the meeting of the BOD at which the Raphael, owner of A Ent, under the Corporation Code of the Phils. What Robert, Rey and Ben a joint venture disqualifying any stockholder who is also a government essential towas enable the agreement was approved notunder would your legal advice be? (3%) agreement tobeing form a close corporation director or stockholder of a competing corporation to accomplish the a purposes of its necessary to constitute quorum for the Corp Code the outstanding capital stock business from being elected to the Board of 2) That the vote of Raphael was not creation." such meeting; of which the three of them would equally Directors of MS Corp is valid. The corporation necessary for the approval of the that any own. They also provided therein is empowered to adopt a code of by-laws for agreement; 3) That the the agreement fair of corporate act would need vote of is 70% its government SUGGESTED ANSWER: not inconsistent with the Corp reasonable under stock. the circumstances theand outstanding capital The terms of Code. Such disqualifying provision 1. At the meeting of the BOD of Platinumis to not 32 Corp Code) were the(Sec agreement accordingly inconsistent with the Corp Code. approve the contract, Chito would have to By-Laws; Validity; limiting qualifications of BOD By-Laws; Validity; limiting qualifications of BOD implemented and the corresponding close make sure that members (1998) members (2001) corporation was incorporated. After 3 years, Robert, Rey and Ben could not agree on the business in Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Page Page 26 25 of 103 of 103 stock Jennifer may include and Gabriel labor owned the performed controlling for stocks or services in MFF actually Co and rendered CLO Inc, not Here, be located. limiting The the formalities price to be prescribed paid, when by the to the both corporation. family corporations. Due to serious law right for the of first replacement refusal isof exercised, the lostto not more disagreements, Jennifer assigned all her certificate than 25% were parcomplied value, without with. Eventually any qualification X Right of Repurchase ofwhile Shares; Trust Fund shares in MFF to Gabriel, Gabriel Co whatsoever, issued in substitution is not in the of the articles. lost It is merely Corporation: Doctrine (2005) assigned all his shares in CLO to Jennifer. certificate, stated Cert in the of Stock By-laws. No 2002. Therefore Juan such what conditions may a stock Subsequently, Jennifer and CLO filed a forthwith limitation transferred shall not for valuable be binding on the Under corporation acquire its own shares? (2%) complaint against Gabriel and MFF in the consideration purchaser. the (GoSock new & certificate Sons & Sy toGui Jose Huat who Inc v Controversy; Intra-Corporate (1994) SUGGESTED ANSWER: SEC seeking to recover the corporate records IAC 19 Feb 87 knew nothing ofMin theRes) previous sale to Pedro. In line with the trust fund doctrine that Because of disagreement with the BOD and a and funds of CLO which Gabriel allegedly In time, the corporation was confronted with generally renders it unlawful for the threat by the BOD to expel her for refused to turn over, and which remained in the conflicting claims of Jose and Pedro. The SUGGESTED ANSWER: corporation to return assets to the misconduct and inefficiency, Carissa offered controversy between Pedro and Jose, should the the offices of MFF. Is there an intra-corporate BOD of X Co invited you to enlighten them on Yes, there is an intra-corporate controversy stockholders representing capital, a in matter beto submitted the or to the regular in writing resign President and member controversy in this case? these questions; viz: a)as Ifto a suit SEC were to be this case. The fact that, when the complaint courts? b) Between Jose and Pedro, whom all her corporation may acquire its own shares only of the BOD, and sell to the company initiated in order to to resolve the against Gabriel MFF was filed with the should the therein for P300,000.00 Her offer to when there exists and in the books unrestricted shares SEC (per 2006, RTCs Jurisdiction), Jennifer corporation so recognize as the rightful of resign was effective as soon as my shares retained earnings to cover the repurchase Closed Corporation; Restriction; Transfer of shares 1 ELIMINATE fractional shares arising and CLO were no longer stockholders of MFF stockholder? shares. The purpose of the repurchase of are fully paid. At its meeting, the BOD (1994) out of stock dividends; did not divest the SEC (per 2006, RTCs How would you respond to the above shares must be a legitimate business accepted Carissas resignation, approved her inherited from his uncle 10,000 SUGGESTED 2 COLLECT COMPROMISE anto: Jurisdiction) ofor its jurisdiction over the case queries? purpose of the corporation, such as offer toANSWER: sell back her shares of stock to the Rafael a) The matter should be submitted to the shares of Sta. Ana Corporation, a close toJennifer the corporation arising out inasmuch as was a former company, and promised to buy the stocks on indebtedness regular courts specifically in the Regional corporation. The a par value of unpaid subscription in have a the delinquency sale; stockholder of shares MFF and controversy arose a staggered basis. Carissa was informed of of Trial Court where the principal office of the P10.00 per share. Rafael notified Sta. Ana 3 to PURCHASE delinquent shares sold out of this relation. (SEC v CA GR 93832 Aug 23 the BOD Resolution in a letter-agreement to Controversy; Intra-Corporate (2006) at P70.00 per corporation is located. The controversy that he was selling the sale; and his shares 91; 201s124) which she affixed her consent. The during What is an intra-corporate controversy? between Pedro and Jose is not an intrashare. to There being no or takers among the PAY dissenting withdrawing Companys new President singed the 4 SUGGESTED ANSWER: (8%) Carissa wants to sue the Company to collect corporate controversy. stockholders, Rafael sold the same to his stockholders entitled to such payment under promissory note. After payment P100,000 the An intra-corporate controversy is a conflict b) If there is no over-issuance of shares the balance. If you were retained by Carissa cousin Vicente (who is not a stockholder) for the Corporation Code. (Sees. 41 and 82, company defaulted in paying the balance of The between stockholders, ortransfer partners resulting thewhere two-transactions Juan, Corporate Secretary members refused to as her from lawyer, will you fileof the suit? A) P700,000. Corporation Code) the in corporation, association SUGGESTED ANSWER: theP200,000. corporation should recognize both Pedro theand shares Vicentes name in the or corporate Labor Arbiter; b) RTC; or c) SEC? partnership regarding the regulation the The RTC has jurisdiction over this case which and Jose as rightful stockholders. This is books because Alberto, one of of the corporation. The controversy must arise out involves intra-corporate controversy. As of without prejudice to the right of the stockholders, opposed the transfer on the of intra-corporate or partnership relations of 2006, the applicable rule is that there is a corporation to claim against Juan for the ground that the same violated the by-laws. the parties; between corporation, TRANSFERRED JURISDICTION under Sec. 5.2 value of the shares which Juan sold to Jose. Alberto offeredor to buy thesuch shares at P12.50 Corporation Definition (2004) partnership or association and the of the Sole; SRC, the Commissions jurisdiction per share, as fixed by the by-laws orState a total What is a corporation sole? insofar as it concerns their individual While the by-laws of Sta. Ana provides that over all cases enumerated under PD 902-A price of P125,000 only. SUGGESTED ANSWER: It is further required that the thefranchises. right of first refusal can be exercised at sec. 5 has been transferred to the Courts of Section 110 of the Corporation Code defines dispute be intrinsically connected with the a price not exceeding 25% more than general jurisdiction or the appropriate a "corporation sole" as one formed for the Controversy; Intra-Corporate (1996) regulation of such the corporation (Speed par value of shares, the Articles of Regional Trial Court. purpose of administering and managing, as In 1970, Magno joined AMD Co as a Junior Incorporation Distributing Corp., et al. v. Court of Appeals, et al, simply provides that the Is the Securities and Exchange trustee, the affairs, propertyrose and from the ranks stockholders Accountant. He steadily G.R. No. 149351, March 17, 2004; Intestate Estate of record shall have Commission the venue for actions temporalities any religious denomination, until he of became AMDs Executive VP. preferential of Alexander T.Tyv. Court of Appeals, G.R. No.It right to purchase said shares. involving intra-corporate controversies? sect or church. It is however formed by the chief of his Is Subsequently, because Rafael bound by 2001). the pricing proviso under 112872, April 19, SUGGESTED ANSWER: is silent as to pricing. (2%) archbishop, bishop, priest, minister, rabbi orAMD theNo, by-laws of Sta. Ana Corporation? involvement in certain anomalies, the pursuant to Subsection 5.2 of the ANSWER: other presiding elder of such religious from the SUGGESTED BOD considered him resigned Securities Regulation Code, the quasi-judicial Corporation: Issuance of loss shares ofconfidence. stock to pay for the Yes. In a closeof corporation, theand restriction as denomination, sect or church. company due to of jurisdiction the Securities Exchange services (2005) Magno filed a complaint in the to Commission the transfer to ofhear shares has to be stated/ Aggrieved, corporate cases, Janice some consultancy work for annotated the Articles controversies, of Incorporation, SECrendered questioning the validity of his includingin intra-corporate under XYZ Corporation. Her compensation included By-Laws and the certificate stock. This termination, and seeking reinstatement to his theSection 5 of Pres. Decree No. of 902-A, has been shares of stock therein. XYZ Corporation serves as notice to the to person dealing with former position, with Can backwages, vacation expressly transferred the designated issue shares of stock to pay for the services such sharesTrial likeCourt. Rafael in this to case. With and sick leave benefits, 13th month pay and Regional Pursuant a ALTERNATIVE ANSWER: of Janice as its consultant? Discuss such notice, he is bound by the pricing Christmas bonus, plus moral andyour exemplary memorandum circular issued by the proviso Supreme No, Rafael is By-laws. not bound by the pricing SUGGESTED ANSWER: answer. (2%) stated in the damages, attorneys fees and costs. AMD Court, only particularly designated RTC Yes, provided the approval of stockholders under the By-laws of Sta Ana Corporation. filed a motion to dismiss, arguing that the special in each judicial representing two-thirds (2/3) of the Under the commercial corporation courts law, the restrictions on SEC has no jurisdiction over cases of illegal region originalshares and exclusive jurisdiction outstanding stock is obtained. the right have to transfer must appear in SUGGESTEDcapital ANSWER: dismissal, and has no power to award over such of cases (See Intestate Estate of As of 2006, the applicable rule is that there is Although the facts indicate that the the articles incorporation and in the byControversy; Intra-corporate; Jurisdiction (1997) damages. Should the motion to dismiss be Alexander T.stockholder Ty v. Appeals, G.R. No. a TRANSFERRED consultancy work has JURISDICTION already been under Sec. laws aswas well as inCourt the of certificate of stock, Juan a of X Co. He owned a granted? Explain. 112872, April 19, 2001). 5.2 of the SRC, the Commissions jurisdiction "rendered" constituting "previously contracted otherwise, the shares same shall not be total of 500 evidenced bybinding Cert of on over all cases enumerated under PD 902-A debt," under Section 39 of the Corporation any purchaser thereof in good faith. Moreover Stock No 1001. He sold the shares to Pedro. sec. 5 has been transferred to the Courts of Code, the pre-emptive rights of existing theAfter restriction shall not be indorsed more onerous getting paid, Juan and than general jurisdiction or the "in appropriate stockholders need not be respected granting the existing stockholders or theto delivered said Certificate of Stock No 1001 REGIONAL COURT. payment of a TRIAL previously contracted debt," but corporation the option to purchase theto shares Pedro. The following day, Juan went the Controversy; (1996) only with the Intra-Corporate indicated stockholders' approval. of offices the transferring stockholder with that such of the corporation and claimed Under Section 62 of the Corporation Code, reasonable term or period stated therein. his Certificate of Stock No 1001 was lost and consideration for the issuance of that, despite diligent efforts, the certificate could Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Mercantile Examination Q & A (1990-2006) Page Page 30 29 of 103 of 103 incidental Center, Page 27 Page to, Pasig, of 103 or 28necessary of MM 103 while for its Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q ALaw & (1990-2006) A Bar (1990-2006)

1) Can Top IsGrade this the can Foundation also compel the use Divine same theCorporation funds minimum donated toand c)by Seventh Article. The capital stock of the return to it maximum the its members purchase number price for of purchase directors and payof required damages. food and in a SUGGESTED ANSWER: corporation is One Million Pesos medicine stock corporation? for distribution (2.5%) to the victims of the Under Section 10 of the Corporation Corporation; By-lawsPhilippine (2001) (P1,000,000) Currency. Pinatubo eruption? 2) Can the Foundation Code, any number of natural persons not less What are your comments and suggested Suppose that the by-laws of X Corp, a mining operate a specialty restaurant that caters tothan five (5) but not more than fifteen (15), changes to the proposed articles? firm provides that The directors shall be the general public in order to augment its all of SUGGESTED ANSWER: legal age and majority of whom relieved from all liability for any contract funds? 3) One of the a original trustees died are a) Onby the First Article, I would suggest residents of the Philippines, may form entered into the corporation with any firm a and the other two resigned because they that the corporate indicate the fact of SUGGESTED ANSWER: private corporation for any lawful purpose. in which the directors may be interested. immigrated to the US.name How will the vacancies 1) Yes, This (Sec is the 36(9) of the minimum Corp Code) andas maximum long incorporation by using either Toho Thus, director Asame acquired claims which in the BOT be filled? as the number amount of of directors donation required is reasonable. in a stock Marketing Corporation or Toh Marketing overlapped with Xs claims and were corporation under Section 14(6) of the Company, Incorporated. necessary for the development and 2) If b) the purposes The Third ofArticle the corporation should indicate are the Corporation Code. operation of Xs mining properties. a) Is the Corporation; Incorporation; Residency Requirements limited City or to the Municipality establishment and and the Province his mining claims over above that ofin by-law provision valid? Why? (3%) b) What (2006) maintenance the Philippines, of the and library not merely and museum the region as or the corporations (2%) happens if director A claims? is able to consummate Must all incorporators and directors SUGGESTED ANSWER: stated as its inBOD the problem, may later the designate, foundation to be cannot its be a) No. It a is in violation of Section 32caters of the to Corp residents of the Philippines? (2.5%) operate place of specialty principal restaurant office. that ANSWER: c) The Seventh Article must Code. theSUGGESTED general public. In such case, theadditionally action of Not all directors and incorporators ALTERNATIVE ANSWER: b) A should account toultra the for to be point out the number of corporation shares which the foundation will be vires. intoneed 2) If the act of the corporation is justified by par residents of the Philippines. Under 10 the profits which he realized from the Section the capital stock is divided, as well as the the secondary purpose of the corporation of thethereof Corporation Code, only a said majority transaction. He grabbed the business value or a statement that stock of which the act of operating a value. the incorporators need to be residents of the opportunity from the corporation. (Section or aincludes portion thereof are without par restaurant, the foundation will be within its Philippines. As provided in Section 23 of the 34,(Sec Corp Code) 14 & 15 Corp Code) power to Code, do so. Corporation; Bulk Sales (2005) Existence Corporation; Commencement; Corporate same only aLaw majority of the members 3) Since are only 2engaged of the members of (2003) Divine Corporation is in of thethere Board of Directors need to the be residents the BOT remaining and there is no quorum, manufacture of garments for export. 1. of When does a corporation acquireIn the the Philippines. Incorporation; Requisites (2002) theCorporation; vacancies will have to be filled up inobtain a corporate course of existence? its business, it was able to You have been asked to incorporate special meeting of the members (sec 29 SUGGESTED ANSWER: loans from individuals and financing a new company to be called FSB Savings & Corp) institutions. However, due to the drop in the Corporation; Power to Invest Corporate Funds for other 2. CBY & Co., Inc., registered with the Mortgage Bank, Inc. List the documents that demand for garments in the international Purpose (1995) Securities and Exchange Commission its meet you must submit to thecould Securities and market, Divine Corporation not its Stikki Cement Co was organized primarily for a articles of incorporation. It failed, however, Exchange Commission (SEC) to equipment obtain obligations. It decided to sell all its cement manufacturing. Anticipating for one reason or another, to have its by-laws certificate of incorporation for FSB Savings & such as sewing machines, perma-press SUGGESTED ANSWER: substantial profits, its President proposed that filed with, and registered by, the Mortgage Bank, Inc. (5%) machines, high speed sewers, cutting tables, The documents to be submitted to the Stikki invest in a) a power plant project, b) a and Commission. It nevertheless transacted and ironing tables, etc., as well as its supplies Securities and Exchange Commission (SEC) SUGGESTED ANSWER: concrete road project, and c) quarry did business as a corporation for sometime. A materials to Top Grade Fashion Corporation, to incorporate a new company to be called The transactions would constitute a sale of operations for limestone in the manufacture suit was commenced by its minority its competitor. (5%) 1) How would you FSB Savings &all Mortgage Bank, Inc., to obtain the proposed investments? Explain. 2) "substantially of the the assets of Divine of cement. 1)assailing What corporate approvals or stockholders continued classify the transaction? the certificate of incorporation for said Describe the procedure in securing these Corporation complying with the test under votes are needed for existence of CBY & Co., Inc., because of the SUGGESTED company, 1) Articles of Incorporation 2) approvals. Sec. 40 ANSWER: of are: the Corporation Code, the non-adoption and registration of its by-laws. 1. Unless the power plant and the concrete Treasurers Affidavit; 3) Certificate of transactions not being "in the ordinary course Would the action prosper? Why? (6%) to the road are and reasonable necessary Authority from the Monetary Board of project business," one "thereby the of Corporation; of be Stock Corporation (2001) the Conversion BSP; manufacture ofwould cement by Stikki (and they of corporation rendered incapable 4) Verification slip from the records of X company is a stock corporation composed do not appear to be so), then the approval ofthe continuing the business or accomplishing the ALTERNATIVE SEC whether ANSWER: or not the proposed name of the Reyes family engaged in the real said projects by a majority of the BOD and purpose for which it was incorporated." Itratification is business. a already sale and transfer in the bulk inthe beenapproval adopted by another estate of regional thehas ofBecause such by contemplation of the Bulk Sales Law. corporation, partnership or association; crisis, the stockholders decided to convert stockholders representing at least 2/3 ofUnder the 5) Letter undertaking to change Sec. 2 of the Bulk Sales Law, a bulk sale their stock corporation into a charitable non- the outstanding capital stock would be As for and the non-profit quarry operations for limestone, proposed name if already includes any sale, transfer, mortgage, or by stock association by adopted amending necessary. the same is of anincorporation. indispensable ingredient in corporation, partnership or assignment of all, or substantially of the theanother articles a) Couldall, this be 6) Bank certificate of deposit concerning the manufacture of cement and may, association; business orWhy? trade theretofore conducted by legally done? (3%) b) Would your X Company is a non-stock corporation? Why? the paid-up capital; therefore, considered vendor, mortgagor, transferor, or answer be be the same if at reasonably the inception, SUGGESTED ANSWER: 7) the SEC in or (2%) Letter necessary toThis accomplish the primary assignor. isauthorizing exactly what happened a) Yes, itof can be legally done. converting 2) Can Divine Corporation sell the Monetary Board or its In duly authorized purpose Stikki. In such case, only the the case at bar. the ALTERNATIVE stock corporation ANSWER: to a non-stock aforesaid items to its competitor, Top records Grade representative to would examine the bank approval of the BOD be necessary 1. The majority vote of the BOD is necessary. corporation by a mere amendment of the 8) Registration Fashion Corporation? What are the regarding the deposit of the paid-up capital; (Sec 42 BP 68) The investment in a power plant project, articles of incorporation, the stock Sheet; requirements toa) validly sell the items? SUGGESTED ANSWER: b) a concrete road project, and c) quarry Corporation; Meetings; BOD & Stockholders (1993) corporation is not distributing any of its Explain. For such a transaction to be valid, it requires not only the operations of stockholders. limestone used in the assets Under to the Articles of Incorporation On the contrary, of Manila favorable resolution of the Board of Directors of Divine manufacture of cement, the express theCorporation, stockholders are deemed to of have waived Industrial Corp, itsis within principal place of but also the ratificatory vote or implied power of the corporation, or at their business right to shall share be in in the Pasig, profits MM. of The the principal least the same is corporation which is are a gain notOrtigas a loss to the corporate offices at the corporation.

thestockholders factory existence processing of representing the corporation. leather at products, is in least two-thirds b) (2/3) No, my answer will not holds be the same. In a Manila. corporation its annual of The the outstanding capital stock, as non-stock corporation, the are notin stockholders meeting at members the Manila Hotel mandated under Sec. 40 of the Corporation SUGGESTED ANSWER: entitled to share inmeeting thevoid profits of of the ManilaThe and its BOD at acase hotel in Code. sale would be in 2.a) The procedure in twin securing the approval corporation because all present and future Makati MM. Thethe by-laws are silent as to the failure to meet approvals. (Islamic ALTERNATIVE ANSWER: of the BOD is of as follows: Directorate the Philippines v. Court of Appeals, profits belong to corporation. In place of meetings ofthe the stockholders and Divine Corporation can1997) sell thebe items its 1 a notice of the BOD should sent G.R. No. 117897, May 14, converting the non-stock corporation to to a directors. 1) Who shall preside at the competitor, Top Grade Fashion Corporation. all the directors. The notice should state the stock corporation by a mere meeting of the directors? 2)amendment Can Ting, a of However, Divine Corporation must comply purpose of the stockholders annual meeting in Manila, thestockholder, Articles of meeting. Incorporation, the non-stock who did not attend the with Sections 3, 4 corporate and 5 of the Bulk Sales 2 At the meeting, each of the project validity of the resolutions question the corporation is deemed to have distributed anpassed at Law, namely: (1)the deliver sworn statement should be approved by a majority BOD of meeting? 3)corporation Can same such asset of the stockholder i.e. of itsthe profits, the names and addresses of all the at creditors (not merely a majority of those present question the validity of the resolutions among its members, without a prior (Observation: The question is rather held vague to whom the vendor mortgagor may the meeting) adopted by the ator the meeting in be dissolution of theBOD corporation. Under Sec more particularly question 1b. The question 2.b) The procedure in securing the approval indebted together with the amount of Makati? 122, the corporation must does non-stock not specify the conversion is frombe a of the stockholders isthat as follows: SUGGESTED ANSWER: indebtedness due or owing to each of the non-stock corporation to a stock corporation. dissolved first. 1) The President presides over the meeting 1 said Written notice of apply the proposed creditors; (2) the purchase or The candidate is likely to be confused because investment of the directors, and the time if there and place is no of position the of the words if at the the inception, X Co is a of mortgage money to pro-rata payment of nonstock corporation. Hence, any to answer Chairman in the By-Laws. If there(3) is stockholders meeting should be sent each bona fide provided claims of the creditors; and along the same lineof should be treated with ByCorporation; De Facto Corporation (1994) stockholder the position at his of place Chairman residence provided as in the make a full detailed inventory of the stock of liberality) A corporation was created by a special law.the Laws, the Chairman presides over shown on the books of the corporation and goods, wares, merchandise, provisions or 3) How would you protect the interests Later, the law creating it was declared deposited meeting to of the the addressee Directors (Sec in the 54 post Corp office Code) materials, in bulk, and notify every creditor at of the creditors of Divine Corporation? 2) No. The law provides that the annual invalid. May such corporation claim to be a with postage prepaid, or served personally. least ten (10) days before transferring SUGGESTED ANSWER: SUGGESTED ANSWER: meeting shall beprojects held in the de stockholders facto corporation? 2 At the meeting, each of the possession. Considering that where Divine Corporation has No. A or private corporation may be created city municipality the principal should be approved by the stockholders office entered a de facto stage of dissolution with only Corporation Code. Only public of under the the Corporation is the located. For this representing at least 2/3 of outstanding the ceasing oflaw its I would invoke corporations may beoperations, created under special purpose, the also provides that Metro capital stock. (Sec 42 BP 68) on behalf of the creditors the protection law. Corporation: Proprietorshipa (2004) Manila Sole is considered city or municipality. Where a the private corporation is business created under under Sec. 122 of Corporation Code, that YKS Trading filed a the complaint for specific Since principal place of of MIC is a special law, there is no attempt at a valid the proceeds of the sale should first be performance with damages against PWC Pasig, MM, the holding of the annual incorporation. Such corporation cannot applied towards theto of the Corporation for failure deliver cement stockholders meeting insettlement Manila is claim proper. ALTERNATIVE ANSWER: a de facto status. obligations of the corporation, before any 3) No. The law allows the BOD to hold its ordered by plaintiff. In its answer, PWC (Sec 51 Corp) Under the Bulk Sales Law, if the proceeds are Corporation; Dissolution; Methods of Liquidation (2001) amount can be paid to stockholders. meeting anywhere in the the Philippines. The denied liability on the ground, inter alia, that not; applied proportionately towards the X Corporation shortened its life by holding of personality the BOD meeting innot Makati was YKS has no to corporate sue, being settlement of the accounts of the corporate amending Articles ofthe Incorporation. ItPWC has proper its and the validity of the resolutions incorporated, and that President of debts, to have the sale of the subject matters no debts but owns a prime property located adopted by the Board in that meeting cannot was authorized to enter into a contract to not Top Grade Fashion as being in Quezon City. How would theCorp., said property beplaintiff questioned. (Sec 53 Board Corp code) with by the PWC of Directors, "fraudulent and void" and obtain satisfaction Corporation; Nationality of Corporation (1998) be liquidated among five stockholders of hence the contract is the ultra vires. YKS Trading from the properties which are deemed to said What corporation? is the nationality Discuss two of methods a corporation of still replied that it by is a sole proprietorship owned SUGGESTED ANSWER: be owned Divine Corporation in spite of liquidation. (5%) organized and the incorporated under the laws by delivery YKS, and that President of PWC had The prime property of X Corporation can be to the buyer. The creditors can of a foreign country, but owned 100% by made it appear in several letters presented liquidated among the five stockholders after collect on the credit against Divine SUGGESTED ANSWER: SUGGESTED ANSWER: Filipinos? (2%) in Corporation, evidence thatwill he had to sign the property has been conveyed by Under the control test ofthe corporate Yes the suit prosper. As apay, solethe and if itauthority cannot contracts on behalf of the Board of Directors corporation to the five stockholders, by nationality, this foreign corporation is the of proprietorship, the proprietor of YKS Trading creditors can apply for attachment on 4) In case Divine Corporation violated the law, of PWC. Will the suit prosper or not? Reason dividing or Nationality. partitioning it among themselves Filipino there are grounds has the capacity to act Where and the personality to v. property fraudulently sold. (See People remedies are available to Top Grade Fashion what briefly. (5%) in any two of the following by for piercing the veil of ways: corporate entity, that sue Mapoy, PWC. It G.R. is not No. necessary 48836, September for 1) YKS Trading 21, 1942) Corporation against Divine PHYSICAL DIVISION before or PARTITION based on is, disregarding the fiction, the corporation to be incorporated it can sue. On the SUGGESTED ANSWER: Corporation? the proportion of the values of of their will follow the nationality the controlling other hand, PWC is estopped from asserting If the sale by Divine Corporation did not 2) SELLING THE PROPERTY to a third person stockholdings; or members or stockholders, since the that its President had no authority to enter obtain the required two-thirds (2/3) vote of and dividing the proceeds the five corporation will then be among considered as the one into the contract, considering that, in several the outstanding capital stock, then stockholders init had proportion their Corporation; Non-Stock Corporation (1993) and the same. of PWC's letters, clothed itsto President transaction is void . (Islamic Directorate of the stockholdings; or The AB Memorial Foundation was Top Gradev. Fashion Corporation can have the with apparent authority to deal with YKS Philippines Court of Appeals, G.R. No, 117897, 3) after the determination of the valuenon-stock of the Corporation; Articles of Incorporation (1990) incorporated as a non-profit, purchase declared void and recover the Trading. May 14, 1997) property, by ASSIGNING orto TRANSFERRING The articles of incorporation beestablish registered corporation in paid, order as to and purchase price well as damages THE PROPERTY to one stockholder with the of in the SEC contained the following maintain a library and museum in honor against the directors and provisions officers who obligation on the part of said stockholder to -- a) First Article. The name the deceased parents of of the incorporators. ALTERNATIVE ANSWER: undertook the transaction inthe violation of the pay the other four stockholders the amount/s For violation of the Bulk Sales Law, the corporation shall be Toho Marketing Its Articles of Incorporation provided for a law. in proportion to the value of composed the stockholding principal of officers of the Divine Corporation Company. board trustees of 5 of b) each. Third The principal of such can be Article. held criminally liable. office In addition, Top incorporators, which authorized to admit new Corporation; Incorporation; Requirements (2006) corporation shall be located in Region III, in Grade can sue Divine Corporation for members. The Articles of Incorporation also What is the minimum and maximum number such municipality therein as its Board of damages. of to the Bulk Sales Law allow the Violation foundation receive donations of incorporators required to incorporate a Directors may designate. would render such from members. As aofsale Jan fraudulent 30, 1993,and 60 stock corporation? void. Since Top Grade would be compelled members had been admitted by the BOT. to return the goods to Divine Corporation,

Mercantile Law Bar Examination Q & A (1990-2006) Page Page 32 31 ofPage 103 of 103 34 Philippines of stopping 103 (BP payment Page 68). 33 of thereof, 103 Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) SUGGESTED ANSWER: Incorporator Seldon was S acting was elected in his director capacity and asthe an b) are Yes.silent, Assuming When the a corporation juridical that person the is deemed corporation has a to good have committed the breach of trust against Valid NOTE: (per Dondee) The law provides that aSec in president officer of of general Turtle. He manager. was not Part acting of his in his continues reputation the power to to that operate declare is simply dividends debased, even with under resulting depleted interests the corporation would be to voting trust agreement is anmoral agreementin writing emolument personal is capacity. a Ford Furthermore, no facts the capital, social 43. Since would humiliation, it hasthe the power stockholders to damages declare or may the be emasculate the right Expedition, of minority which whereby one or more stockholders of a corporation 3) XL Foods Corporation guaranteed the corporation have been owns. provided After which a few would years, indicate S lost his managers awarded. dividends, be XY Moreover, is solidarily a stock corporation. goodwill liable for can the be stockholders to seek redress for the consentto transfer his or theirshares to a trustee in loan of its sister company XL Meat Products, The provision of the Articles of Incorporation corporate that the positions action but Seldon he refused was by an obligations considered incurred an asset of by the corporation. corporation? corporation. Filing of such action asdictated a to return orderto vestin the lattervoting orthe other rights pertaining SUGGESTED ANSWER: Inc. SUGGESTED ANSWER: TAKE NOTE: the not case of FBN Inc. vs mentofst that at dissolution the assets of the to said shares for a In period exceeding five years upon the intent motor to vehicle defraud claiming Shamron that by as himself a or in Explain. (3%) derivative suit even by a lone stockholder is Void This is an ultra vires act on part of XL a) In the face of the refusal the atutory the AMEC, fulfi January 17, 2005 ,of the SCcreditorruled that; corporation shall be given to a charitable stockholder collusion with Turtle. a substantial Having equity acted share, into what he one of the protections extended by law conditions Foods Corporation, and is not one of the banks to grant does more loans, the following are Derivative Watered Stock (1993) FBNI contends that AMEC is not entitled to corporation not prohibit the corporation he considered ownsSuit: that portion as his duty of the as corporate an officerof assets ofthe the minority stockholders against abuses and such powers provided for in Sec.Real 36 Estate of the tools available to the stockholders to SUGGESTED ANSWER: A became a stockholder of Prime moral damagesdividends because it is a corporation. from declaring before dissolution. now corporation, in his possession. Seldon Is should the contention not be held of S majority. other Corporation Code. 1) additional subscription to shares of stock No. The contention of SJuly is not valid. The Ford replenish capital, toof wit: Corporation; Validity Corporate Acts (1998) Corporation; Separate Juridical Personality (1996) Corporation (PREC) 10, 1991, when he terms and valid? personally Explain liable. (5%) on Corporation; Voluntary Dissolution (2002)several corporation by stockholders or approved by Expedition of the is owned by the corporation. The conditions A juridical personof is generally notInc entitled to The stockholders People Power (PPI) PR Co owns ashare beach resort with was given one by another stockholder Name three (3) methods by of which a stock Undersection 59 ofthe C orporation C ode, specified in supra, 2) resolutions advances by the stockholders the investors; corporation has a legal personality separate two in a special stockholders moral damages because, unlike aa to natural Jaime, the President PR,not to cottages. qualify him as a director. A was revoting trust agreem ent may confer the upon a trustee not corporation may be voluntarily dissolved. corporation; and distinct from that of its stockholder. meeting: a) Resolution increasing the person, it cannot experience physical occupied one of the cottages for residential elected director in the July 1, 1992 annual only the stockholder's voting rights butalso otherrights agreem SUGGESTED ANSWER: Explain each method. (5%) 3) payment of unpaid subscription by the What thebut corporation owns is its own authorized capital PPI; and suffering such sentiments as b) wounded purposes. After Jaimes term expired, PR meeting he methods continued to be aa registered pertaining to his or shares as stock long asof the voting ent. The The three (3) by which stock stockholders. property and not the property of any trustagreem entis notentered "for the purpose of circum five yearResolution authorizing the BOD to issue, foror shareholder feelings, serious anxiety, mental anguish wanted to recover possession of the cottage. of PREC. corporation may be voluntarily dissolved are: SUGGESTED ANSWER: venting the law againstmonopolies and period m stockholder When herefused was even still how a director, substantial A cottage, the discovered equity cash payment, the shares the cites moral shock. The new Court of from Appeals Jaime to surrender the 1) Voluntary Dissolution where no creditors b) No. As a general rule, or illegalcombinations in restraintoftrade ay the be stockholders orused Corporation; Set-Off; Unpaid Subscription (1994) that on Jan 5, 1991, PREC issued free of share that stockholder owns. proposed capital stock increase in favor Mambulao Lumber Co. v. PNB, et al.of to contending that asis a done stockholder and former affected. This by a majority vote extended are was forpurposes offraud." (section 59, 5th paragraph ofthe the managers cannot be held solidarily liable Victor employed in MAIA Corporation. He charge 10,000 shares to X a lawyer who outside investors who are non-stockholders. justify the award of moral damages. President, he has a right to possess and in cases Corporation Code). Thus, the traditional concept of a of the directors, and resolution of at least for the obligations incurred by the subscribed to 1,500 shares of corporation. the PREC. corporation SUGGESTED ANSWER: assisted in a court case involving where the voting trust agreem primarily intended to single out However, the ent Court's statement in Mambulao enjoy the properties of the Is 2/3 vote of stockholders, submitted to the corporation. The corporation has a separate Jaimes contention is not correct. Jaime may at P100 per share or a total of P150,000. He The foregoing resolutions were approved by voting a stockholder's to vote from his trust other rights as 1) Can A now bring an action in the name of the that "a right corporation may have a good Jaimes contention correct? Explain. Securities and Exchange Commission. and distinct personality from that of the own shares of stock in PR Corp but such isa executed such and m ade irrevocable for lim ited duration m ay made an initial down payment of P37,500.00. stockholders representing 99% ofmay the total corporation to question the issuance of the shares reputation which, if besmirched, also be 2) Voluntary dissolution where creditors to pursuant to a in practice becomor e a legal device whereby transfer of stockholders managers. The latter are ownership doesPresident not entitle him to the He was appointed and General Nevertheless, AMEC's claim for moral outstanding capital stock. The sole dissenter X without receiving any payment? 2) Can X question a ground for the award of moral damages" is are affected. This is done by a petition a loan the stockholders shares is effected subjectto the specific presumed to be acting in good faith in of Manager. of sue any specific property of the for Because of his in disagreement with falls under item 7 of Article 2219 was Jimmy Morato who owned 1% of the Thedamages execution a voting trust agreem therefore, m thepossession right of A to him behalf of the corporation agreement an obiter dictum. provision oftheof voting trustagreem ent. ent, dissolution which must be filed with the continuing the operation ofprovision the on corporation. or a A definite portion thereof. ay create 1. Are a the dichotom resolutions y between binding the equitable the or expressly the BOD, he resigned andonly demanded the Civil Code. This stock. whereby on corporation the ground that has one share insigned his Securities and Exchange Commission, beneficial ownership corporate ofa The obligations incurred by the corporation Neither ishis heunpaid a the co-owner of corporate the period corporation and its stockholders including of salaries, his cost of authorizes theofthe recovery of shares moral damages in payment name? Cannot shares issued to X be by a3) majority the members of the board of stockholder, on the one hand, is and the which legaltitlealone thereto is Corporation; Power toof Invest Corporate Funds in another made are those of the corporation property. Properties registered in the name Jimmy Morato, the dissenting living allowance, his bonus, and cases of libel, slander or any other form of considered as watered stock? on the other hand. (Lee vs. CA, contingent Feb. 4, 1992) directors, verified by the president or Corporation (1996) of hisare liable therefor. However, when the 2. What remedies, if 2219(7) any, are does available to of the corporation owned by it as an stockholder? (3%) reimbursement gasoline and defamation. Article not qualify upon full secretary, and upon affirmative vote MAIA Stockholders Corporation like admits Jaime that only it own owed shares Victor of When may a corporation invest its its funds in of SUGGESTED ANSWER: corporation is already insolvent, the directors Morato? (2%) entity separate and distinct from expenses. whether plaintiff is a natural or juridical representation Derivative Suit: the Requisites (2004) paym stockholders representing at least 2/3 of the 1. No. The resolutions are not binding on the stock in the corporation. Such shares of stock P40,000. but told him that this will be applied another corporation or business or for any and officers become trustees of a the business stockholders. person. Therefore, a entofthe juridical person such as AA, a minority stockholder, filed suit 3) Dissolution by shortening of the SUGGESTED ANSWER: outstanding capital stock. corporation and its stockholders including to the do not unpaid represent balance specific of his corporate subscription property. in other purposes? loan. and assets of the corporation for the benefit

a corporation can validly complain for libel or A corporation against BB, CC, DD, and EE, the holders of corporate term. This is its done by amendment Corporation; Separate Juridical Personality (2000) may invest funds in no another Jimmy Morato. While these resolutions were the(Rebecca v CA GR 100866 Jul 14, amount Boyer-Roxas of P100,000.00 There was call92 of the creditors and are liable for negligence any other form of defamation and claim majority shares of MOP Corporation, for an e-for corporation of the articles of incorporation. Marulas Creative Technology Inc., or business or for any other 211s470) approved by the stockholders, the directors or notice for the payment of the unpaid Moreover, where the broadcast is libelous per or mismanagement. moral damages. alleged misappropriation of corporate in funds. business enterprise engaged the Corporation; Separate Juridical Personality (1996) purpose other than the primary purpose for which damages. is requiredIn by law in such subscription. Victor questioned the set-off. 1) se, approval, the law implies such a case, Corporation; Voting Trust Agreement (1992) The complaint averred, inter alia, that MOP manufacture of computer media accessories; Richard owns 90% of the shares of the which it was organized when the said case, does exist. set-off the unpaid executed subscription evidence of annot honest mistake or the want of May A MAIA distressed a ofvoting Corporation is the corporation in space whose at a rents an office and capital stock ofcompany GOM Co. occasion, investment is approved byOn a one majority the 2. Jimmy Morato can store petition the SEC libeled (Now RTC) with victors claim for salaries? 2) Would your character or reputation of the party trust agreement for a period of three years behalf and for whose benefit the derivative commercial building owned by X. Being a GOM represented by Richard as President BOD and such approval is ratified by the toonly declare the 2 resolutions, as well as any and answer be the same if indeed there hadshares been in goes in mitigation of damages. Neither overGeneral 60% of its outstanding paid suit is brought. In their capacity as members SUGGESTED ANSWER: start-up company, Marulas enjoyed some to and Manager executed a up contract to representing at least 2/3 of the all actions taken by the BOD thereunder, null stockholders a call for the unpaid subscription? in such a case is the plaintiff required favor of acannot bank to whom it was indebted, with of the Board of rent Directors, the majority 1) No. MAIA setoff the unpaid leniency in its payments; but after three sell a subdivision lot in favor of Tomas. For outstanding capital stock. Written notice of the and void. introduce evidence of actual damages as a the Bank named asand trustee. Additionally, the stockholders adopted a resolution subscription with Victors claim for salaries. years, Corporation; X put precedent Validity a stop of to Corporate it and asked (2002) Marulas failure of GOM to develop the subdivision, investment the date, time and condition to theActs recovery of some proposed Company mortgaged all its properties to the authorizing MOP Corporation to withdraw the The unpaid subscription is not yet due as president and general manager, Y,acts who is a Which of the following corporate are Tomas filedstockholders an action for rescission and of the meeting at which damages. In this case, the broadcasts are place SUGGESTED ANSWER:of Bank. the insolvency ofthe the suit. Pursuant to said resolution, theyour there is noBecause call. stockholder, tose. pay back rentals valid, void, or voidable? Indicate answer damages against GOM and Richard. proposal will be taken up must beWill sent to SUGGESTED ANSWER: libelous per Thus,the AMEC is entitled to such The action may prosper against GOM but Corporation; Recovery of Moral Damages (1998) 2) Yes. The reason is that Victor is entitled to the Company, the Bank foreclosed corporate counsel filed a Motion to Dismiss in Corporation; Separate Juridical Personality (1995) amounting to a hundred thousand pesos or to by writing the paragraph number of the action prosper? Explain. each stockholder. (Sec 42 Corp Code) No. All the requisites for a valid derivative moral damages. definitely not against Richard. Richard has a payment offiled his salaries which MAIA In a complaint against XYZ as Corporation, mortgaged properties, and thehas highest the name of the case. MOP Corporation. Should Ronald Sham doing business under thethe name the vacate the premises thecorresponding end of the month. query, followed byat your suit exist in this First, AA was exempt legal personality separate and distinct from no right to withhold in payment of unpaid Luzon Trading Corporation alleged that its of bidder, acquired said properties and assets motion be granted or denied? Reason briefly. of SHAMRON Machineries (Shamron) sold Marulas neither paid its debt or nor vacated the answer as Valid, Void, Voidable, as to from exhausting his remedies within the The three-year period prescribed insell, that of GOM. If he singed the contract to subscription. To do so would violate Labor President & General Manager, who is also a the the Company. (5%) Turtle Mercantile (Turtle) a diesel farm premises. X sued Marulas and Y make for collection the case may If your answer is Void, corporation, and be. did not have to a Voting Trust Agreement having expired, SUGGESTED ANSWER: he (Apodaco did so as President and General Laws vthe NLRC 172 S 442) stockholder, suffered mental anguish, fright, the tractor. In payment, Turtles of the unpaid rentals, plus interest and explain your answer. In case of President a Voidable demand on the Board of Directors for thecosts Yes, the suit will prosper against Marulas. Itand Corporation; company demanded the turn-over Stock Corporation (2001) Manager of GOM and serious not in his personal humiliation and anxiety as aand Manager Dick Seldon issued a check of litigation. Will the suit prosper against X?for social answer, specify what conditions must be latter to sue. Here, such a demand would be is the one renting the office and store space, transfer of all its assets and properties, XY is a recreational club which was capacity. Richard 90% of Mere the ownership tortuous by acts of of XYZ favor Shamron. A week later, result Against Y?in (5%) present or complied with to make the futile, since the directors who comprise the X, as P50th lessee, from the of owner of the building, including management and operation of In its counterclaim, XYZ Co claimed to have organized to the operate aof golf course for its of the capital stock GOM is not of itself Corporation. food business, entered into a contract with sold the tractor to Briccio Industries corporate act valid. (5%) 1)and XL Foods majority (namely, BB, CC, DD EE) are the as Turtle lessor. the Company, claiming that under the Voting suffered moral damages due to besmirched members with an original authorized capital sufficient ground to disregard his separate its President Jose Cruz, whereby the latter (Briccio) for P60th. Briccio discovered that Corporation, which engaged in the But ones the guilty suit of against the wrong Yis will complained not prosper. of. fastY, as Trust Agreement, the was constituted reputation or goodwill as aBank result of Luzon of personality P100M. Theabsent articles incorporation legal aof showing, for would supply the corporation with its meat stock Second, AA appears to be stockholder at the engine of the tractor was reconditioned president and general manager, and the also as trustee of the management and operations Trading Cos complaint. 1) May Luzon nor the by-laws did not provide for example that he acted maliciously or in bad and poultry requirements. time alleged misappropriation of sothe he refused to pay Creative Turtle. As a result, Dick the Corporation; Separate Juridical Personality (1999) Does the demand of the Company tally stockholder Marulas Technology, allegations of the complaint? of the Company. Trading Co recover damages based on distribution of dividends although there is a with SUGGESTEDof ANSWER: faith (EPG Const Co v CA GR 103372 Jn 22,92 corporate funds. Seldon ordered Stop Payment of theand check As a result of perennial business losses, a the concept of a Voting Trust Agreement? Inc., has a legal personality separate (2%) 2) May XYZ Co recover moral Voidable A contract of the corporation with provision that after its dissolution, the assets 210s230) Shamron sued Turtle and Dick Seldon. Third, the suit is brought on behalf and forThe SUGGESTED ANSWER: issued to Shamron. corporations net worth has been wiped out. Explain briefly. SUGGESTED ANSWER: distinct from that of the corporation. damages? (3%) one or more of its directors or trustees or shall bedemand given to of a charitable corporation. Is tally Shamron obtained a favorable judgment the benefit of MOP Corporation. this of the The the company doesperson not No. corporation, being an artificial InA fact, it is now in negative territory. SUGGESTED ANSWER: liability of is the corporation is In that officers voidable, at the option of such XY a stock corporation? Give reasons for holding co-defendants Turtle and Dick Seldon Conmart (Phils.) Inc. held v. Securities and Exchange connection, it was in with the concept of a did Voting Trust XY is a has stock corporation because it is which no feelings, emotions or senses, Nonetheless, the stockholders not like to corporation and not that of its officers and corporation (Sec 32, Corporation Code). your answer? (5%) Commission, 198 SCRA 73liable. (1991)Comment that to grant jointly and severally on the Agreement. The Voting Trust Agreement organized as a stock corporation and there is and which cannot experience physical give up. Creditor-banks, however, do not stockholders who are not liable for corporate SUGGESTED to the corporation concerned the right of decision ofANSWER: the Juridical trial court. Discuss fully. merely conveys to the trustee the right to Corporation; Separate Personality (2000) no prohibition in its Articles of suffering or mental anguish, isIncorporation not entitled to share the confidence of the stockholders and liabilities. 2) The Board of Directors of XL Foods The trial court erred in holding Dick Seldon, withdrawing or dismissing the suit, at the ALTERNATIVE ANSWER: vote the shares of grantor/s. The Nine individuals formed a private corporation or its by-laws for itmore to declare moral damages. refuse to grant loans.dividends. a) What tools are Corporation declared andTurtle, paid cash President and GM stockholders of jointly instance of majority and and consequence of stockholders foreclosure the replenish capital? (3%) of pursuant tothe the provisions of the Corporation When a corporation is organized as a mortgaged stock available to the to dividends without approval of the severally liable with Turtle. In issuing the directors who themselves are the persons properties would be alien to the Voting Trust Code of the corporation and its articles of Incorporation stockholders. check issued to Shamron and, thereafter, alleged to have Agreement and its effects. or By-Laws

his corporation duty, interest continued adverse its investments. business to the operations corporation No. A PRIVATE from 2. There retaining Opening CORPORATION is no surplus offices need by for profits is one the in formed absorbed excess for of nullifyan the questioned Would Dividends; Declaration of the Dividends (1990) Sometime 3. Participating in April 2004, in the Malyn management, learned about until in May respect 30, of 1997, any matter last which day ofhas its been some corporation 100% whatever private of their name to purpose, paid-in undertake benefit capital. dissolution or end, while and a her action prosper? Why? At SUGGESTED least 2/3 of the stockholders of there Solar Fort Patio supervision Cafe or control located of in domestic City entity and corporate reposed existence. inANSWER: him in confidence, Prior to saidhe date, shall be PUBLIC winding CORPORATION up procedure. As is any formed a Taguig result for of the Yes, she istrustee already a the stockholder time b) 4. Are Entering there into when a corporation Corporation, upon at the the that its development was undertaken by liable a number as a of meeting pending for civil corporation actions, of and government merger, the of ainstances absorbed portion of the corporation State for the is a were the alleged misappropriation of corporate 5. Appointing representatives or shall service not contracts be held liable for not declaring recommendation of the BOD, declared a 50% new corporation known as Fort Patio, Inc., varying must nature account but for mostly profits money which claims otherwise filed general automatically good or dissolved welfare. and The true its assets test is and the funds. And that filing such action as a SUGGESTED ANSWER: distributors, operating under the control of dividends? (3%) stock dividend during their annual meeting. whereof both Schiera and and Jaz are directors. by would creditors, have none accrued of which to the was corporation. expected to purpose liabilities are the acquired corporation. If assumed the corporation by the instances when a is corporation shall derivative suit even bywithin a lone stockholder is 2) Pending approval of the merger bynot the foreign entity, who domiciled in the The notice of the annual stockholders Malyn also found that Schiera and Jaz, on be Equity completed imposes or resolved liability upon him five not years to deal is The surviving created corporation. for political or public purpose be held liable for not administration declaring dividends one ofdid the protections extended by law the SEC, may the surviving corporation Philippines or who stays in thehad country for a a from meeting not mention about a to behalf of Patio Investments, obtained for May his own 30, 1997. benefit. (Sec.anything 31, Corporation connected with the of are: minority stockholders against abuses of the If the Under creditors Sec. 34 had of sought the Corporation your professional Code was where already institute suits to collect allIf for period periods at PBCom least 180 days in stock dividend declaration. The matter loan ofor P500,000.00 from Bank, Code) government, then it totaling is a public corporation. majority. Nevertheless, Gina must first help a director, at that time by virtue about of whether his office, or not acquires their for 1) when justified by definite corporate expansion receivables to opening the absorbed corporation any calendar year. the of Fort although Patio Cafe. This taken up only under the item other not, it purpose is a due private corporation the SUGGESTED ANSWER: exhaust any administrative remedies before projects or programs approved by the BOD; or 2) cases himself could a be business pursued opportunity beyond May which 30, should from its customers? your answer. business in the agenda of the meeting. C.K. loan secured Explain by assets of Patio whole orwas substantially the the whole interest in Distinction: De facto Corporation vs. Corporation by No. The the merger does not become effective her what suit be consider in court. 1997, belong to would the corporation, have been your thereby advice? obtaining when corporation is prohibited under any (3%) Senwa, a stockholder, who received his copy Investments and personally guaranteed byloan the corporation belongs to the State. A public Estoppel (2004) until and unless approved by the SEC. Before SUGGESTED ANSWER: Malyn then filed a corporate derivative action agreement financial institution or creditor, (2%) profits to the prejudice of such corporation, of the notice but did not attend the meeting, Schiera and Jaz. any corporation is with created by special legislation The cases can pursued even beyond May Is there a be difference between a de facto approval by the SEC of from the merger, the before the Regional Trial Court of Makati City he must account to the latter for all such whether local or foreign, declaring dividends subsequently learned about the 50% stock or act of Congress. A private corporation 30, 1997, the last day of the corporate corporation and a corporation by estoppel? surviving corporation has no legal personality Distinction; Stock vs. Non-Stock Corporation (2004) against Schiera and Jaz, alleging that the two without its or his consent, and consent has not profits declaration. by refundingHe the same, unless his act dividend desires to have must be organized under the such Corporation SUGGESTED ANSWER: existence of GHQ Corp. The Corporation is the SUGGESTED ANSWER: Explain briefly. (2%) with respect to receivables due to the Distinguish clearly a or stock corporation from directors had breached their fiduciary duties has been ratified by a vote of the yet been secured; 3) when it can be clearly shown stock dividend declaration cancelled and set Code. Aactually DE FACTO CORPORATION is the one which I will not accept the case. Sec of Corp not dissolved upon the43 expiration of absorbed corporation. a non-stock corporation. by misappropriating money and assets of that such retention is necessary under special stockholders owning or representing at least aside, and wishes to retain your services as a a actually exists for all practical purposes as 3) A case was filed against a customer to Code states that no stock dividend shall be SUGGESTED ANSWER: corporate term. There is still the period for Patio Investments in the operation of Fort suchits (2/8) of the outstanding capital circumstances obtaining in the corporation, astwo-thirds lawyer for the purpose. Will you accept the corporation but which has legal A stock corporation one that has Jaz capital collect on the promissory note issued byviolate him issued without the of right the to Effect: Expiration of Corporate Term no (2004) liquidation or winding up. approval Patio Cafe. 1)is Did Schiera and when there (5%) is need for special reserve for probable stock. case? Discuss with reasons. NOTE: Under Section 122 of the orporation C ode, a corporate existence as C against the State. It is stock divided into shares and is authorized to after the date of the merger agreement. The stockholders representing not less than 2/3 corporate opportunity? Explain. XYZ Corporation entered into a contract of the principle of contingencies. corporation whose corporate existence is of terminated essential to the existence a de in facto SUGGESTED distribute toANSWER: thethe holders of that suchwhile shares customer raised defense the of the outstanding capital stock at a regular lease with ABC, Inc., over a piece of real any manner continues to be a body corporate for three Yes. Although refused the profits business or corporation that of there be (1) a valid law dividends or as allotments the of surplus receivables of Malyn the of date the merger special duly called for that estate for meeting a term 20 years, renewable for (3) years afterits dissolution forpurposes ofprosecuting Dividends; Right; Corporation (1991) nevertheless, using the resources and purpose. under which a provided corporation might on before, the basis of Managing the shares held. All other agreement was transferred to the surviving and andanother defending Conformably suits by and againstitand with Sec to le enable 50 ofitto the se be 20 years, that XYZ's (3) actual use (2) or notice exercise in good ABC Management Inc. company, presented to the DEF close its faith credit standing of receivables the Schiera and Corp incorporated, a bona fide attempt to corporations are non-stock corporations. corporation, those which were Code, aterm written of in the holding of of corporate is extended accordance affairs, corporate powers conferred upon it by law. ALTERNATIVE ANSWER: Dividends: Declaration of Dividends (2005) Mining Co, the draft of its proposed Jaz clearly demonstrated that the business organize as a corporation under such law, created after the merger agreement remained thewith regular sent to the shareholders law. meeting Four years after the culminating term of XYZ Yes, I will accept the case. The problem does Under circumstances may a pursued corporation Management Contract. As an incentive, have been successfully inABC the will and to could be what owned by the absorbed corporation. suffice. The notice itself specified Corporation expired, but still within the the period in the A CORPORATION BY ESTOPPEL exists when not indicate that there is action by the BOD declare dividends? (2%)' included in the terms of distributed compensation that name of the would close corporation. More Theallowed termination ofthe life of a contract corporate disposition entity does These receivables be to the said subject matter. by the lease for the persons assume to act as a corporation which is also necessary for the declaration of SUGGESTED ANSWER: itself cause the extinction or dim inution of the and ABC would be entitled to 10% of any stock importantly, Schiera and Jaz guilty of notby stockholders conformably with theare dissolution extension period, XYZ to Corp. No diverting form of which dividends can declared and knowing itof tothe be lease without authority 50% stock dividend. rights and liabilities ofsuch entity. 27 If the three- do so. In distribution SUGGESTED ANSWER: dividend DEF may be declare during the theprocedures resources of the close and liquidation under New notified ABC, Inc., that it is exercising the as yearextended life has expired without a trustee or Dividends; Declaration ofrule, Dividends of its rem paid by ANSWER: the except from to 1) SUGGESTED this case, those persons will be liable As a general A (1991) cannot bring a lifetime of the Management Contract. corporation to corporation another entity, equivalent Corporation Code? Discuss the merits of Would this option to extend the lease. ABC, Inc., receiver having been expressly designated by the aining Whether the receivable was incurred by the During the annual stockholders meeting, unrestricted retained earnings appearing on 2) Was it proper for Malyn to file a general partners for all debts, liabilities and derivative suit in the name of the you approve such provision? If not, what fraud and badof faith. ed to so arguing argument. (3%) corporation, within thatperiod, the board assets. of directors (or objected to the proposed extension, absorbed corporation before orfor after the Riza, a stockholder proposed to the body that SUGGESTED ANSWER: its derivative books. Dividends must be paid in amounts suit with a prayer injunctive damages incurred or arising as a result of corporation concerning an act that took continue as Itmay, trustees) itself, m ay be permi would you suggest as an alternative? that since the corporate unreserved life of XYZ Corp. had I would not approve proposed merger SUGGESTED agreement, ANSWER: ora before or after the in a part of the corporations earned proportional to all stockholders onstipulation the basis relief? Explain. their actions. during the place before he became a"trustees" stockholder. expired, it could no opt to renew Although it is a close corporation, Distinction: Dividends vs.longer Profit: Cash Dividend vs.the bythreelegal im is management contract that the managing approval thereof by theby SEC, the said surplus be if capitalized and stock dividends be of the outstanding stock held them. Cash or However, the act complained of a plication to lease. XYZ Corp. countered that withstanding yearterm , nevertheless the principles of separate Stock Dividend (2005) corporation, as ancan additional compensation receivable would still belong the surviving distributed to the stockholders, arguing that 2) No. In a derivative suit, the action is property dividends, be to declared from continuing one, A may do so. com plete appointa lapse of its corporate term itprofit; still has the juridical personality stillof apply. The business Distinguish dividend from cash to it, should be Sec entitled to 10% of any stock corporation under 80 the Corp. Code as the owners of the company, the stockholders, instituted/ brought in the name of a such unrestricted retained earnings by a the Foreign Corporation; Doing Business intrustee the noora to renew the lease because quo As of the corporation still separate and distinct dividend from stock dividend. (2%) dividend that be declared. which does not may make any distinction as to by right a majority vote, can docorporate anything. corporation and reliefs are prayed for therein proper resolution of is the Board of Stockholders Directors. receiverwh Philippines (1998) SUGGESTED ANSWER: warranto for involuntary from of its for liquidation. are thethe only ones entitled to be receive stock the assets and proprietary liabilities of interests the absorbed o stockholder. m ayyou rule SUGGESTED ANSWER: chairman of proceedings the meeting, how would theis corporation, by a minority Stock dividends, however, must declared When a foreign corporation deemed to be PROFITS are residual amounts representing SUGGESTED ANSWER: (PEPSIdissolution of XYZ Corp. has been instituted actbeyond stockholders and directors. Consequently, XYZ Corporation's contention is not dividends (Nielsen & Co v Lepanto Mining 26 s corporation that the surviving on the motion to declare stock dividends? The law does not qualify the term minority by a proper resolution of thecorporation Board of doing business in the Philippines? (3%) COLA As the chairman of the meeting, I would rule thatperiod. return of capital after deducting all corporate Effects; Winding Up business Period of athat Corporation by theof Office of the on Solicitor General. Is the since the opportunity and the in terms meritorious. the ruling of the 569) I from would add the (1997) unsubscribed would inherit. the Based number of shares owned by a Directors existing unrestricted retained PHILIPPINE SUGGESTED ANSWER: against the motion considering that a costs and expenses from revenues. The The corporation, once dissolved, thereafter contention of XYZ Corp. meritorious? Explain resource's used pertain to the close Supreme Court in Philippine National Bank vs. capital stock of a corporation may only be stockholder bringing is the action inbe behalf of S, INC., vs. earnings and ratified by stockholders A foreign corporation deemed to doing declaration of 209 stock dividends should initially accumulated profits, from year to year, continues to at be a body corporate for three briefly. (5%) THE COURT corporation, the to sue and of Rizal, SCRA XYZ Corp. was issued for cash orstanding property or for of services theCFI corporation. (SMC v (1992). Khanif 176 SCRA 448) representing least two-thirds (2/8) the to business in the Philippines it is continuing be taken by the BOD and thereafter to be represent corporate retained earnings OF years for purposes of prosecuting and 3) dissolved No. WATERED SHARES are those sold by recover rendered remains with the close corporation the ipso facto upon the expiration of its already constituting a demandable outstanding capital stock of the corporation, body or substance the business or the APPEALS, concurred in the by aof 2/3 vote of Dividends: Sources of Dividends; Trust Fund Doctrine from which dividends can be declared. defending suits by and against and of still the corporation for less than the par/book and (Sec not with Malyn. Therefore, it is original term. It ceased to be a body debt 62 Corp Code). As an it alternative, I obtained in a meeting duly called for the enterprise for which itCorp was organized. It is [G.R.There No.an CASH DIVIDENDS represent (Sec 43 Code). isactual no (2005) enabling it to settle andmanaging close itson affairs, value. In the instant case, it will depend upon necessary to file a derivative suit behalf of stockholders corporate for the purpose of145855. continuing the would suggest that the corporation purpose. (Sec. 43, Corporation Code) the intention of an entity to continue the distribution of accumulated profits to prohibition, however, against the From what funds are cash and stock culminating in the final disposition and the value of services rendered in relation tothe November except the close corporation, the body business for which it was organized, should instead be given although a net profit of its business in the country. The grant stockholders as a return on their 3) Assuming that a derivative suit is proper; resolving to recommend to the dividends sourced? Explain why. (2%)Ifunder 24, 2004.]) distribution of its remaining assets. the 3 the stockholders the total par value ofconnected the shares. proceedings would be governed only for purposes with its winding participation and, if it later so desires, to then and extension of 90day credit terms of a SUGGESTED ANSWER: Doctrine of Corporate Opportunity (2005) action continue if the corporation is dissolved investments. Declaration of cash dividends may the BOD it Close consider a declaration of stock Derivative Suit; Corporation; Corporate year extended life expires a trustee Interim Rules of dividends Procedure for be Intra-Corporate up that orcorporation liquidation. Extending the lease is not convert the amount that without may due thereby Dividends; foreign Declaration of to Dividends a domestic (2001) All cash and stock are always paid the pendency of the suit? Explain. Briefly during discuss the doctrine of by corporate requires only the approval of the majority dividends for concurrence thereafter by the of Opportunity (2005) or Disputes. receiver being designated the an act to wind up or liquidate XYZ Corp.'s to equity or shares of stock at no less than corporation for every purchase shows an For the past three years of its commercial SUGGESTED ANSWER: out of the within unrestricted retained the Board ofof Directors in (1999) a proper resolution. opportunity. (2%) Effects; Merger Corporations stockholders. Malyn, Schiera and Jaz the directors of corporation that period and earnings by that Foreign Corporation; Doing Business in the affairs. It is contrary toare the idea of winding the par thereof. Yes, forvalue in spite of the dissolution of any intention STOCK to DIVIDENDS continue transacting are simply with transfers the of operation, X, an oil company, has been SUGGESTED ANSWER: (also called surplus profit) of the corporation. Two corporations agreed to merge. They then Patio Investments, a close corporation formed time (expiry of the 3 year extended term), Philippines; Acts or Activities (2002) up the affairs of theto corporation. corporation, remains a no juridical person for In brief, the it doctrine disqualifies a director, SUGGESTED ANSWER: latter. retained earnings capital stock, thereby earning tremendously in excess of 100% of If the corporation has unrestricted executed an agreement the to run Patio Cafe, al specifying fresco coffee shop the corporate liquidation is not with yet over, atthe least three (3) an examples of the acts or of The liquidation can continue the purpose trustee or of officer dissolution from for appropriating three years for from his Give increasing the In number of shares of the stocks the corporations paid-in capital. All of retained earnings, the dividends would have surviving corporation and the absorbed in Makati City. 2000, Patio Cafe began how, if at all, can a final settlement of the activities that are specifically identified under winding up. benefit The members of the BOD can the date of dissolution, precisely one of is the personal a transaction or opportunity each stockholder with no required cash stockholders have been claiming thatreverses, they to be sourced from the capital stock. This corporation. Under the agreement of merger experiencing financial corporate affairs bewinding made? our foreign investment laws as constituting continue with the of"TRUST the corporate purposes that pertains is to toallow thethe corporation, the winding-up and of which its contribution. A two-thirds vote of the share in the profits of the corporation by way illegal. It violates FUND dated November 5, the surviving consequently, some of1998, the checks it issued to business in the Philippines (3%) affairs until final liquidation. They can as affairs, including termination ofact pending under the duty ofthe loyalty he should first bring doing stockholders, coupled with a majority vote of of dividends but the Board of Directors failed DOCTRINE" that provides that the capital acquired all the rights, properties its corporation beverage distributors and employees SUGGESTED ANSWER: Derivative Suit; Minorityfor Stockholder (2003) trustees receivers this purpose. suits. to the corporation for its use or exploitation. the Board of Directors, is needed to declare to lift its finger. a) Is Corporation X guilty of stock of or the corporation is a trust fund to be In October 2003, Schiera informed Malyn Any three (3) of the following acts or and liabilities of the absorbed corporation. 1) bounced. SUGGESTED ANSWER: Effects; Winding Up a Period of life a Corporation (2000) Gina Sevilla, minority stockholder of Bayan Distinction; Private vs. Public Corporation (2004) stock dividends. violating a law? Iflocation in the affirmative, state kept intact during the of the corporation Must the absorbed corporation undertake that she found a for a second cafe in activities What would constitute happen doing to the business absorbed in the Corporation X is guilty of violating Section 43 The The SEC doctrine approved of of corporate the amendment opportunity of the is of an Corporation, felt that various investments Distinguish clearly a private corporation from the basis (2%) dissolution and the winding up procedures? for the benefit the creditors of the Taguig City. Malyn objected because of the Philippines under our foreign investment corporation? G.R. No. 77860, November 22, 1988; and of the Corp Code. This provision prohibits Articles enforcement of Incorporation of the duty of of GHQ loyalty Corp of the companys capital were ultra vires if not, a public corporation your answer. (3%) Explain corporation. (Commissioner of Internal- Revenue dire financial condition of the corporation. 1. Soliciting orders laws: Steinberg v. Velasco, G.R. No. 30460, stock corporations SUGGESTED ANSWER: shortening corporate its directors corporate and life to officers. only 25 March When years indeed, made in G.R. violation of law. She filed aa SUGGESTED ANSWER: v. Court of Appeal, No. 108576, January 20, 12,1929) in accordance director, with Sec or 120 officer of the Corp attempts derivative suit seeking to 1999; Boman trustee Environmental Development Corp. to acquire or v. Court of Appeals,

Mercantile Examination Q & A (1990-2006) Page Page 38 37 of 103 of 103 Code. acquires, Page As35 shortened, Page of in 103 36 violation of 103 the of Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q ALaw & (1990-2006) A Bar (1990-2006)

Page 43 They then brought 39 of 103 103 children. 5) When Page he Page 40 42 44 is 41 made, of 103 of 103 by a the SUGGESTED ANSWER:of to deed of provision assignment the corporate specific law, toproper OnNo. substantial c) the December 2) The number toperiod have amount 6, of 1988, more of shares 30 of shares A, days damages. an he incorporator within holds with which on which It would record to and the pay infor the What the majority is the doctrine stockholders "piercing can always the veil muster of d. No, the stockholder may not exercise Chattel officers Mortgage for vs. registration After-Incurred with Obligations the request (1999) for action. acquisition more assets like acquisitiona of personally answer for the corporate thus stockholder the the General be corporation. difficult Manager can pay for of of the Pablo the unpaid Paje to convincingly Multi subscription Farms corporate 2/3 vote, entity?" would you Explain. allow the majority right because the matter that he SUGGESTED ANSWER: Mercantile Inc vcorporation's CA GR 111008, Nov 7, (Tramat the transfer in the stock and company car, house, machinery or Onappraisal December 1, 1996, Borrower executed a 94 assert had Co, resigned notthat yet expired. the as GM incorporation and stocks, sold to of the the family stockholders to remove the one director The doctrine of "piercing the veil of corporate 238s14) dissented from is not one of those where SUGGESTED ANSWER: b) Pre-emptive business; right and must be exercised in transfer books of the assigned shares, chattel mortgage in favor of the Bank to the corporation his was shares intended of stocks merely in the as a case representing the minority? I will not allow the majority stockholders entity," is the doctrine that allows the(1997) courts Liabilities; Stockholders, Directors, Officers right of appraisal isstock available under the Stockholders: Right (2004) 3) to Preemptive have extra share with which to cover or No. the Articles of Incorporation cancellation of the certificates in PX's secure a loan of P3M. In due time the loan of accordance corporation estate tax for with P300th, planning. the book (Tan value Boon Bee v to remove the director. While the look behind the separate juridical A, B, and C are shareholders of XYZ Co. A corporation code. Piercing the Corporate Veil (1996) the requirement for declaration of stock The Board of Directors of ABC, Inc., a meet or the By-Laws. When the Articles of name, and the issuance of new stock was paid. On December 1, 1997, Borrower Jarencio 30June88) thereof,41337 payable as follows: a) P100th as SEC; Transferred Jurisdiction (1996) stockholders by a 2/3 vote, remove a his personality ofmay, a and treat the has Jurisdiction; an unpaid subscription of P100th, Bs dividend. E Co sold its assets to M passed Inc after complying domestic corporation, a resolution Incorporation and the By-Laws are silent, the certificates incorporation the names of his wife and obtained another loan for P2M which the down payment; b) P100th on or before 31 What is the original and exclusive jurisdiction director, the law also provides, however, corporation as an association of persons shares are fully paid up, while C owns only with themay requirements of the Bulk Sales Law. authorizing additional issuance of shares of BOD fix reasonable time within which children as the new owners. The officers of Bank granted under the same security asand July1989; and c) a the remaining balance of of the SEC? that his right may not, without just cause, be Stocks; Sale, Transfer of Certificates of Stock (1996) thereby make the individual actors personally nominal but fully paid up shares and is a Subsequently, one of the creditors of E Co the stocks without notice nor approval of the stockholders may exercise the right. the Corporation denied the request on the that which secured the first loan. P100th on or before 30 Sep 1989. A SUGGESTED ANSWER: Pre-Emptive Right vs. Appraisal Right (1999) exercised so as to deprive the minority of Arnold has in his name 1,000 shares of the For the second loan, Borrower merely liable for corporate liabilities. The fiction of director and officer. XYZ becomes insolvent, tried to collect the amount due it, but found stockholders. DX, a stockholder, objected to ground that another heir is contesting the promissory note, with an acceleration clause, The SEC has original and exclusive Foreign Corporation; Doing Business in the The corporation failed to pay the ABC Corporation has an authorized capital representation in the BOD (Sec 28 Corp code; stock of ABC Co as evidenced by his a delivered promissory note; no new chattel corporate identity is disregarded and the and it a is established that the insolvency outcapital that E Co had no more assets left. The the issuance, contending that it first violated validity of the deed of assignment. May the is was executed by the corporation for the Stockholders; jurisdiction Rights over (1996) cases involving: a) Devices Philippines; Test (2002) installment on due date. A then sued Paje on Govt vs Agoncillo 50p348) of P1M divided into 50,000 common stock certificate. Arnold delivered the stock mortgage agreement was executed as the individuals comprising it can be treated the result of fraudulent practices within the creditor then sued M Inc on the theory that right of balance. preemption to the unissued shares. Is Corporation be compelled by mandamus to unpaid or schemes amounting to in fraud and What are the rights of a counsel SUGGESTED ANSWER: SUGGESTED ANSWER: What ismere the legal test for determining if its an the promissory note in the a) Does the shares and 50,000 preferred shares. At certificate to Steven who now claims to be parties relied on a provision the 1996 identically. The stockholders can be held company. If you were for a creditor M Inc is a alter ego ofRTC. E Co. Will the his contention tenable? Explain briefly. (5%) register the shares of stock in the names of SUGGESTED ANSWER: misrepresentation; b) Controversies arising stockholder? G.R. SUGGESTED Yes. No. The 108734, corporation ANSWER: May 29, may 1996) be . compelled by Yes. DX's contention is the tenable. Under SUGGESTED unlicensed foreign corporation is doing court have jurisdiction over case? b) inception, the Corporation offered for the realANSWER: owner of the shares, having paid for chattel mortgage agreement which included directly liable for corporate obligations, even of XYZ, would you advise legal action against suit prosper? Explain. the assignees? Explain briefly. (5%) The rights of a stockholder are as follows: 1) out of intra-corporate or partnership a) As to Aan action can be brought against The suit will not prosper. The sale by E Coall of mandamus to register the shares of stock in Section 39subscription. of the Code, business in the Philippines? (2%) Would your answer beCorporation the same if A instead subscription all the common shares. Arnolds ABC refused to future debts as among the obligations to the extent of their personal assets A, B, and C? The right to vote, including the right tolegal relations; c) Controversies in the election or A for P100th which is the amount of unpaid its assets to M Inc does not result in the the name of the assignee. The only stockholders of ABC, Inc. enjoy preemptive SUGGESTED ANSWER: To what circumstances will the doctrine In case the Mortgagor executes sold his shares to register his friend Mabel and the However, only 40,000 shares were recognize and Stevens ownership. Is secured by the mortgage. The provision (Concept Builders v. NLRC, Marabe, etin al, appoint a proxy; 2) The right to share the appointment of directors, officers, etc; d) subscription. Since the corporation is The test is whether or not the unlicensed transfer SUGGESTED of a the ANSWER: liabilities of the latter to, limitation imposed by Section 63 of the right to subscribe to all issues of shares of apply? (2.5%) subsequent promissory note or notes either latter filed case with the RTC against thenor subscribed. Recently, the directors thought the refusal justified? Explain. reads: profits of the corporation, including the right Petitions to be declared in a state of The doctrine is applicable when the notion ABCs refusal to recognize and register insolvent, the limit of the stockholders foreign corporation has performed an act or in the assumption thereof by, the The Corporation when the or Corporation any class, including the reissuance of as a renewal, Code as anis extension, as a new corporation to compel it to register the sale of raising additional capital andformer. decided to to declare stock dividends; 3) The to to a the suspension of payments (Sec 5 right PDpublic 902-A) ofloan, legal entity is used to against 1) Defeat Stevens ownership is justified. The facts liability to the creditor is only up acts that imply a continuity commercial facts given do not indicate that such transfer holds any unpaid claim the shares treasury in proportion to their this mortgage shall also stand as and to issue new certificates ofof stock in her offer to shares the public all the authorized shares proportionate share of the assets of convenience. 2) Justify wrong. 3) Protect SUGGESTED ANSWER: Stockholders; indicate Appraisal that the Right stock (2003) certificate for the extent of his unpaid subscription. dealings or arrangements, and contemplate or assumption took place or was stipulated have pre-emptive rights to the remaining intended to be transferred. The alleged claim respective shareholdings. security for the payment of said4) promissory name? of the Corporation at their market value. a) the corporation upon liquidation; The b) As to heir Bthere is not no cause of action a) The RTC has jurisdiction over the case. fraud. 4) Defend crime (PNB v. Andrada 1,000 shares in question is in the name of In what instances may the right of appraisal to that extent the performance of acts or upon 10,000 by shares? the parties (2%) b) in Would their Mr. agreement. X have of another of PX is sufficient to deny note notes without necessity of executing Would Mr. X, a stockholder holding 4,000 right ofor appraisal; 5) The pre-emptive right TAKE NOTE: The RTC has jurisdiction over against B because he has already fullythe paid The SC said that asale corporation may only buy Electric, G.R. No. Arnold. Although the certificate was delivered be availed of under the Corporation Code? works, or the exercise of some of the Furthermore, the by E Co of its assets is pre-emptive rights to the 50,000 preferred the issuance of new certificates of stock to his a new contract and this mortgage shall have shares, to shares; 6) The right to inspect corporate cases which involves intra-corporate for his subscription. As stated earlier, the SUGGESTED ANSWER: its own shares stock if it has enough by Arnold toof Steven, the facts do not functions normally incident to, and in indicate a sale shares? of its (2%) property. It does not involve the wife and children. It would be otherwise if the the same force and effect as ifto the said books and 7) The .right elect controversy. As of 2006, the applicable rule is SECTION 81. Instances of Appraisal Right. 142936, April 17, 2002) limit ofrecords; the stockholders liability to the surplus profits therefore. c)of the Assuming that the existing that certificate was duly endorsed by progressive prosecution of, commercial gain sale shares of stock of the corporation transferee's title to the shares has no prima promissory note or notes were existing on directors; 8) Such other rights as may that there is a TRANSFERRED JURISDICTION Trust Fund Doctrine (1992) Any b) My stockholder answer would of a be corporation the same. An shall action have 5) Shield a violation of the proscription creditor of the corporation, when the latter As Borrower failed to uncertain. pay the second loan, stockholders are and entitled to the pre-emptive Arnold atpurpose the its time it was delivered to Steven or of the object of business belonging to stockholders. There is facie validity or is date hereof. contractually be granted toa the under Sec. 5.2 of the SRC, the the Commissions Joint Venture; Corporation (1996) A Corporation executed promissory note the to compel right to a dissent corporation and to demand register payment a shares sale that ofbe against forum shopping (First Philippine becomes insolvent, is extent of his the Bank proceeded to foreclose Chattel rights, at what price will the or that the procedure for the effective corporation. therefore no merger or consolidation the stockholders by the corporation orunder by C, c) As to Can action can be filed against Piercing the Corporate Veil (2001) jurisdiction over all cases enumerated International Bank v. Court of Appeals, G.R. No. May a corporation enter into a joint binding itself to pay its President/Director, the and fair to issue value new of certificates his shares of in stock the following is itself subscription. d) Assuming a stockholder disagrees Mortgage.Borrower sued the Bank claiming offered? (2%) transfer of E shares of stock set out in the bytook place. Co continues to exist and special law. 6) Work inequities among members of SUGGESTED ANSWER: not as stockholder because he has already 1 In case any amendment to the articles of 137537, January 24, 1996). Plaintiffs filed a the collection action against X PD 902-A sec. 5 was has been transferred to the venture? who had tendered his resignation, a certain instances: an intra-corporate matter that exclusively with the issuance of was new shares and the that the mortgage no longer in force. laws of ABC Co, if any, observed. Since remains liable to creditor. A corporation may enter into a joint venture. the corporation internally, involving no rights paid up the shares, but in his capacity incorporation has the effect of changing or of Corporation. Upon execution of the courts Courts of general jurisdiction or the sum in payment of the latters shares and as lies with the RTC. pricing for the shares, may the stockholder Borrower claimed that a fresh chattel the certificate was not endorsed in favor Stockholders; Voting Power of Stockholders (1990) However, inasmuch as the term joint of the public or third persons (Secosa v. Heirs TAKE NOTE: The RTC has jurisdiction over the director and officer because of the restricting the rights of any stockholders or class decision, X Corporation was found to be appropriate Regional Trial Court. interests in the company. The corporation invoke (or hisanybody appraisal and demand mortgage should have been executed when Steven elserights for that matter), the Mercy subscribed to 1,000 shares of stock of of Stockholder; Delinquent; Unpaid Subscription (1997) venture has no precise legal definition, it ofErwin Suarez Francisco, G.R. No. 156104, June cases which involves intra-corporate corporations insolvency being the result of shares, or of authorizing preferences in any SUGGESTED ANSWER: without assets. Thereafter plaintiffs filed an defaulted in paying the full amount so that payment for his could shareholdings? (2%) the second loan was granted. a) Decide the only conclusion be no other than that Rosario Corporation. She paid 25% of said Evade lawful obligations ofcollection the The BOD ofthe a corporation, by a vote of ten in Stocks; Sale, Transfer of Certificates of Stock (2001) 29,said 2004). may take various forms. could take the a. Yes. Mr. X, a stockholder holding 4,000 controversy. As of the applicable rule is of 7) fraudulent practices within the company. respect superior to2006, those of It outstanding shares action against its present and past former President filed suit for case and ratiocinate. (4%) b) Suppose the the shares in question still belong to Arnold. subscription. During the stockholders corporation like a judgment credit (Sibagat favor of one against, declared due and A is the registered owner of Stock Certificate form of or a simple pooling of resources (not shares, has pre-emptive right owned to the that there is a JURISDICTION Directors liable jointly and for any class, of extending or shortening the term would its are validity and effectiveness be what stockholder YTRANSFERRED Corporation which of the balance before the SEC. a)severally Under chattel mortgage was not registered, (Razon v IAC GR 74306 Mar 16,92 207s234) G.R. No. 112546, December 11, 1992). 8)the capital Timber Corp. v.Mercy Garcia, meeting, can vote all subscribed payable all unpaid subscription to No. Sec. 000011. He entrusted the possession ofof involving incorporation) between twoof or more remaining 10,000 shares. All stockholders under 5.2 of the SRC, the Commissions damages sustained byher the corporation, of corporate existence; impaired? Explain. (4%) substantially all of the stocks X conditions is a stock corporation empowered SUGGESTED ANSWER: Escape liability arising from a director debtresulting (Arcilla v. to shares? Explain. stock. The lone dissenting said certificate to his best friend who corporations for a specific project, purpose SUGGESTED ANSWER: a stock corporation shall enjoy B preemptive jurisdiction over all cases enumerated under stockholders or other persons from 2 In case of sale, lease, exchange, transfer, Corporation. The two corporations have the or to acquire its own shares? b) Is the failed Yes, Mercy can vote all her subscribed Court of Appeals, G.R. No. 88113, October 23, pay on due date, i.e., 19 Sept 1997, his 1 arrangement The foreclosure of the chattel borrowed the said endorsed certificate toor undertaking, for a limited time. may right to subscribe to all issues or It disposition PD 902-A sec. 5 or has been transferred to the gross negligence or bad faith in directing mortgage, pledge or other disposition of all same board of directors and Y Corporation between the corporation and its 9) Piercing Avoid inclusion of corporate assets as the shares. Section 72 ofthe the Corporation Code 1992). the Corporate Veil (1994) SUGGESTED ANSWER: unpaid subscription. Other than the shares mortgage regarding second loan is notCode) support Bs application for passport (or for a involve the creation of a more formal of shares of any class, in proportion to their Courts of general or affairs of the corporation. (Sec 31 Corp substantially all ofjurisdiction the corporate property and financed the operations of X the Corporation. President covered by the trust fund doctrine? part ofthat the estate of the decedent (Cease v.forties, states holders of subscribed shares not Yes, Y Corporation may be held liable forathe ALTERNATIVE ANSWER. SUGGESTED ANSWER: Mr. Pablo, awas rich merchant in his early wherein he unable to complete payment, valid. A chattel mortgage cannot validly purpose other than transfer). But B for sold the structure and, hence, the formation of respective shareholdings. appropriate Regional Trial Court. assets as provided in be the Code; and May Y Corporation held liable the Explain your answers briefly. Court of stock Appeals, G.R. No. L-35861, October 18, fully paid which are not delinquent shall have a. No, Mr X does not have pre-emptive right a) A corporation may only acquire its debts of X Corporation. The doctrine of was a defendant in a lawsuit which could he did not own any share in unfair the corporation. secure after incurred The certificate to X, a bona fide purchaser corporation. If the joint venture would who involve 3 InX case of merger or consolidation. (n) debts of Corporation? Why? (5%) 10) To promote or obligations. to shield objectives 1979). all the rights of a stockholder. over the remaining 10,000 shares because own shares of stock if the trust fund doctrine piercing the veil of corporation fiction applies subject him to substantial damages. A year On (Villanueva 23of Sept he was informed by the affidavit good faith required under the relied on theof endorsed certificates and the creation a partnership, as the term is v. Adre, G.R. No. 80863, April 27, Stocks; Increase of1997, Capital Stock (2001) Liabilities; BOD; Corporate Acts (1996) these shares have already been offered at is not impaired. This is to say, for instance, Stockholders; Removal of Officers & BOD (2001) to this case. The two corporations have the before the court rendered judgment, Pablo BOD that, unless due payment is meanwhile chattel mortgage law expressly provides that believed him to bethe theCivil owner thereof. understood under Code, then a) a Can 1989). Suppose Corporation has an authorized corporation forthwith: may a corporate director, trustee, or incorporation and he chose not to subscribe that it X may purchase its own shares of as stock In When 1999, Corporation A passed a Explain board same board of directors and Y Corporation sought his lawyers advice on how to plan received, he: a) could no longer serve a his the foregoing mortgage is made for securing A claim the shares of stock from X? corporation cannot be a party to it. Pre-emptive Right (2001) capital stock of P1M divided into 100,000 Chattel Mortgage vs. After-Incurred Obligations (1991) SUGGESTED ANSWER: b) would not taxes. be entitled to the cash and officer be held personally liable with the to them. He, therefore, waived his right by utilizing merely its surplus profits over resolution removing X from his position owned substantially all ofhas the stocks of as X estate to avoid Hisconditions lawyer suggested director of the the obligation specified in the (3%) b) Would your answer be the same if A Suppose that X Corporation has already shares of stock with par value of P10of each. a) To secure the payment of an earlier loan of them ALTERNATIVE ANSWER: a) No. Assuming that the shares were SUGGESTED ANSWER: stock dividends which were declared and corporation? thereto and the corporation may offer and above the subscribed capital the manager of said corporation. The by-laws of Corporation, which facts justify the conclusion that he for should form a corporation with hereof, and no other purpose. The afterlost the stock certificate in question or if it issued a) (an the answer 1000 originally enumerating authorized the instances shares or Give two ways whereby said authorized A corporate director, trustee or officer may SUGGESTED ANSWER: P20,000 as well as subsequent loans which already transferred tothat B, cannot claim the payable on Sep 1997; and to anyone. corporation. A corporation provides the officers that the latter is merely anAextension of are the himself, his 24 wife and his children (all students incurred obligation not being specified in the was stolen from him? (2%) b. Yes. Mr. X would have pre-emptive rights of the cases under the so Corporation that its BOD Code and where the capital stock may be increased to about be heldof personally liable with the corporation her friend Noreen, would extend to the her, shares stock from X. The certificate of c) corporation could not vote in the the president, vice-president, treasurer and personality of the former, and that former and still unemployed) as stockholders stockholders and affidavit, is not secured bypractical mortgage. to the 50,000 preferred shares. All stockholders Corp allows wish the to acquisition increase Xs of shares authorized such as P1.5M. (3%) b) Give three reasons under the following circumstances: 1) When Karen executed in favor of Noreen a chattel stock covering said shares have been duly meeting scheduled to take place on 26 Sept secretary. Upon complaint filed withAdded the SEC, controls the policies of the latter. to then transfer all his assets and liabilities 2 Yes. The chattel mortgage is not valid to stockholders of a entrusted stock corporation shall capital in the stock. stockholders After complying exercise with of appraisal the for a corporation to increase its capital stock he assents to a patently unlawful act of the mortgage over her (Karen) car. Is the endorsed by A and by him to B. By 1997. it held that a manager could be removed by this is the fact that Y Corporation controls the this corporation. Mr Pablo followed the as against any person, except the mortgagor, SUGGESTED ANSWER: SUGGESTED ANSWER: corporation; 2) When he acts in bad faith orall enjoy pre-emptive right to subscribe to requirements right, failure of of the bids in on the increase sale of delinquent ofof the (2%) Was the action of law the BOD on each mortgage valid? his said acts, A is now estopped from mere resolution of the board of directors. On finances of X Corporation which is merely an recommendation of his lawyer. 1 year later, a) Two ways of increasing the Authorized his executors and administrators. A chattel mortgage cannot effectively secure with gross negligence in issues or said disposition of shares of any class, in capital shares, stock, etc.) X issued an additional 1000 foregoing matters valid? claiming shares from X, a bona fide motion for reconsideration, X alleged that adjunct, business conduit or alter ego ofhe Yor in Capital the court rendered judgment against Pablo Stock of X corporation to P1.5M are: ALTERNATIVE ANSWER: SUGGESTED after-incurred obligations. While a stipulation directing the affairs of the corporation, SUGGESTED ANSWER: Piercing the Corporate Veil (2004) proportion to their respective shareholdings. shares of the ANSWER: same value. a) Assume that the purchaser who relied on the endorsement by could only be removed by the affirmative Corporation (CIR v Norton & Harrison Co 11 S and 1) the Increase plaintiff the sought number of to shares enforce this b. Yes, Mr. X has preemptive right over the b) The arrangement between the corporation to include after-incurred obligations a resulting a) No. The of 30 days within with the interest the corporation in conflict b) Yes. In the case where the certificate of How does one pierce the veil of in corporate stockholder A period presently holds 200 out which of the the A(1964)) of the certificate ofof stock. 714 vote of the stockholders representing 2/3 of judgment. The sheriff, however, could not from 100,000 to 150,000 shares with the 50,000 preferred shares because they were and its President to the extent that it calls for chattel mortgage is itself not invalid, the stockholder can pay the unpaid subscription damages to the corporation, stockholders or SUGGESTED stock was lost or stole from A, A its has a right SUGGESTED ANSWER: fiction? 1000 original ANSWER: shares. Would A have a prethe outstanding capital stock. Is Xs locate same par any value property of P10.00 in the each. name of Pablo and not offered before by the corporation for the payment of the latters shares is covered b) When should stockholder A exercise the obligation however, be deemed The veil ofcannot, corporate fiction may be pierced other persons; 3) When he consents to the had yetto expired. The not plaintiff can avail himself of the No. Stockholders approval is necessary only to claim the certificate of stock from the thief emptive right 200 of the new issue of doctrine 1000 2)piercing Increase par value of 100,000 contention legally Why? (5%) therefore returned the writ of execution subscription. by the trust fund doctrine. The only pre-emptive right? (2%) automatically by that mortgage until by proving in court that the notion of legal issuance of secured watered stocks of the veil of corporate fiction which for the has removal oftenable. the members of the BOD. who no right or title to the same. One shares? Why? (3%) SUGGESTED ANSWER: shares to P15.00 each. ANSWER: unsatisfied. What remedy, if any, is exceptions from the trust fund doctrine are b) No. delinquency not deprive the who, having knowledge thereof, does not SUGGESTED after aor new chattel mortgage or an addendum entity is being used to or defeat public can beThe invoked when a did corporation is available formed Forwho the removal of a corporate officer or has lost any movable has been c. The shares will be offered tosecretary existing hisa) Yes, A would have a pre-emptive right to to the plaintiff? the redemption of redeemable shares and, stockholder of his right to receive dividends forthwith file with the corporate to the original chattel mortgage is executed convenience, justify wrong, protect fraud, or or used in avoiding a just obligation. Whilein it employee, the vote the BOD is unlawfully deprived thereof, may recover it stockholders, who of are entitled to sufficient preemptive b) Three practical reasons for a corporation 200 the new issue of 1000 shares. A there is a the case of close corporation, when objection thereto; 4) When he agrees to hold declared. However, the cash dividend written to cover the obligation after it has been defend crime or the entity is just an isof true that a family corporation may be for from the purpose. the person in possession of the same. right, at a price fixed by the BOD, which to increase its capital stock are: 1) toorders stockholder of record holding 200 shares in the Stocks; Sale, Transfer ofand Certificates of Stock (2004) shall should be a deadlock and the SEC himself personally Stockholders; Removal; Minority (1991) declared may be applied by the corporation actually incurred. Accordingly, unless such instrument or alter ego orDirector adjunct of another organized to pursue an estate tax; planning, (Art 559 NCC) not be less than the par value of such generate more working capital; X Corpo. According to the Corp Code, each Piercing the Corporate Veil (2006) solidarily liable with the corporation; payment of the appraised value of a Four months before his death, PX assigned to the is unpaid subscription. (Sec 71 Corp Assuming that the minority block of the XYZ supplements are made, the chattel mortgage entity or person. which not per se illegal or unlawful (Delpher shares. Trust Fund Doctrine; Intra-Corporate Controversy (1991) stockholder has the pre-emptive right to all or stockholders 100problem shares stock registered in 1 his name in Code) Corporation isof able to elect director in the given would be only deemed to Trades Corp v share. IAC 157 SCRA 349) the factual issues of shares made by the corporation in of a favor of his wife and his and therefore, secure only the loan of P20,000 (Sec 5 Act settings, however, indicate the existence proportion to 1505; Belgian Catholic Missionaries v Magallanes lawsuit that could subject Pablo to a Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

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Five Would years the later seller-mortgagee after completing be payment legally of thejustified purchase in foreclosing price, debtor on this obtained second title chattel to ANSWER: theSUGGESTED mortgage? lot. And even as the chattel mortgage on No. The two mortgages were executed to the house was still subsisting, debtor secure the payment of the unpaid mortgaged to a bank the lot and installments for the purchase new This car. improvement thereon to secureof aa loan. When the mortgage on duly the old car was and real estate mortgage was registered foreclosed, theback seller-mortgagee deemed Due to business reverses, failed to annotated at the of the debtor title. is tohis have renounced other rights. A was pay creditors. Theall chattel mortgage foreclosure of additional property, that is, the foreclosed when the debtor failed to new car the covered bycompany the second reimburse surety formortgage payments Chattel Ownership of Thing Mortgagedsale, (1990) would be a nullity. made onMortgage; the bond. In the foreclosure Zonee, who lives in Bulacan, bought a 1988 the surety company was awarded the house Toyota Corolla sedan on July 1, 1989 as model the highest bidder. from Anadelaida, who lives in Quezon City, Only after the foreclosure sale did the surety for P300th, paying as downpayment company learn of the P150th real estate mortgage in and promising to pay the balance inlot 3 equal favor of the lending investor on the and quarterly installments beginning October 1, the improvement thereon. Immediately, it 1989. Anadelaida executed a deed of sale of filed a complaint praying for the exclusion of the vehicle in favor of Zonee to secure the house from the real estateand, mortgage. It the unpaid balance of thechattel purchase price, was submitted that as the mortgage had Zonee execute a deed of chattelit was was executed and registered ahead, Ten days after the execution of the mortgage onreal the vehicle in Anadelaidas superior to the estate mortgage. abovementioned documents, had on the Onfavor. the suggestion that a chattel Zonee mortgage car transferred and registered in her name. a house- a real property- was a nullity, the Contemporaneously, Anadelaida had the surety company countered that when the chattel mortgage on executed, the car registered in the chattel mortgage was debtor was Chattel Mortgage Registry of on the which Office of not yet the owner of the lot the the was Register of Deeds of Quezon City.was a house built. Accordingly, the house In Sep 1989, the Zonee sold the sedan to Jimbo 1 Discuss validity of the position taken personal property and a proper subject of a without telling the latter that the car was by the surety company. (3%) chattel mortgage. to a Anadelaida. When Zonee failed 2 mortgaged Who has better claim to the house, the to pay the first installment on OctoberExplain 1, surety company or the lending investor? 1989, Anadelaida went to see Zonee and (3%) the latter the car to 3 discovered Would that the position ofhad the sold surety company a) Jimbo refused to it give up thetitle car on be Jimbo. bolstered by the fact that acquired in a the ground that the chattel foreclosure sale conducted by mortgage the Provincial executed by (3%) Zonee in favor of Anadelaida is Sheriff. Explain not valid because it was executed before the car was registered in Zonees name, i.e., before Zonee became the registered owner of the car. Is the said argument meritorious? b) Jimbo also argued that even if the chattel Explain your answer. mortgage is valid, it cannot affect him because it was not properly registered with the government offices where it should be registered. What government office is Jimbo SUGGESTED ANSWER: referring to? a) Jimbos argument is not meritorious. Zonee became the owner of the property upon delivery; registration is not essential to vest that ownership in the buyer. The execution of the chattel mortgage by the buyer in favor of the seller, in fact, can demonstrate the vesting of such ownership b) Jimbo was referring to the Register of to the mortgagor. Deeds of Bulacan where Zonee was a resident. The Chattel Mortgage Law requires the registration to be made in the Office of the Register of Deeds of the province where the mortgagor resides and also in which the property is

situated as well as the LTO where the vehicle is registered. (Sec 4 Chattel Mortgage Law) Credit Transactions (1999) Various buyers of lots in a subdivision brought actions to compel either or both the developer and the bank to lease and deliver free and clear the titles to their respective lots. The problem arose because notwithstanding prior sales mostly on installments made by the developer to buyers, developer had mortgaged the whole subdivision to a commercial bank. The mortgage was duly executed and registered with the appropriate governmental agencies. However, as the lot buyers were completely unaware of the mortgage lien of the bank, they religiously As the developer failed to under pay its loan, the paid the installments due their sale mortgage contracts. was foreclosed and the whole subdivision was acquired by the bank as the highest bidder. a) May the bank dispossess individual lots or, alternatively, require prior purchasers of them to pay again for the paid lots? b) Discuss What are the rights of the bank vis-(3%) vis those buyers with remaining unpaid installments? Discuss. (3%) Recommendation: Since the subject matter of these two (2) questions is not included within the scope of the Bar Questions in Mercantile Law, as it is within Civil Law, it is suggested that whatever answer is given by the examinee, or the lack of answer should be given full credit. If the examinee gives a good answer, he should be given additional SUGGESTED ANSWER: credit. No. The bank may not dispossess the 1

prior purchasers of the individual lots, much less require them to pay for the said lots. The bank has to respect the rights of the prior purchasers of the individual lots. The purchasers have the option to pay the installments of the mortgagee. 2 The bank has to respect the rights of the buyers with remaining unpaid installments. The purchaser has the option to pay the installments to the mortgagee who Mortgage (1999) the payments to the mortgage should apply Debtor purchased a parcel of land from a indebtedness. Chattel Mortgage; Foreclosure (1997) realty company payable in five yearly Ritz bought a new car on installments which installments. Under the contract of sale, title provided for would an acceleration clause in the to the lot be transferred upon full event of default. To secure payment payment of the purchase price. of the But even before full unpaid installments, aspayment, and whendebtor due, he constructed house mortgages, on the lot. Sometime constituted twoa chattel i.e., one thereafter, debtor mortgaged the house to over his very old car and the other covering secure his obligation arising from the the new car that he had just bought as issuance of a bond needed in Ritz the conduct of aforesaid, on installments. After his business. The mortgage was defaulted on three installments, theduly sellerregistered with the proper chattel mortgagee foreclosed on the old car. mortgage The registry. proceeds of the foreclosure were not enough to satisfy the due obligation; hence, he similarly sought to foreclose on the new car.

ToPage pay47 for Page of her 103 48 loan of 103 obtained from Stela, constituted Stelas Because of business reverses, neither the (5) b. Integrity The Liza lease Bank rentals whichin granted belong favor Edzo to a a the LDC countered that it had chattel over anthe electric generator. Borrower nor Mr. Timbol wasbuilt ableon tothe pay the loan mortgagor. in mortgage 2001 inHowever, the amount of mortgage P500,000. extends The mortgaged with the extrajudicially prior Cecil, arentals creditor of Liza, levied on attachment loan. In June property 2001, the Bank loan to was not secured not yet by any received asset of when Edzo, the knowledge of two mortgagee which mortgages, had received theobligation generator. Stela filed a third claim. foreclosed the real estate but it was guaranteed becomes due unconditionally and party the mortgagee and formal lease. How would you Cecil opposed the claim. their with the notice Bank of asthe the onlya)bidder in the solidarily may ran by Edzos after President the Rule said on and rentals controlling for the SUGGESTED ANSWER: mortgagee and LDC? (3%) b)the Is the resolve the dispute between conflicting claims. foreclosure sale. On September 16, 2001, the stockholder, payment of the Eduardo mortgage Z. debt. Ong, as Mortgage; Foreclosure; Effect of mere taking by creditormortgagee the lease rentals due certificates of entitled sale of to the two properties in accommodation surety. Mortgage; Extrajudicial Foreclose mortgagor of property (1992) (2006) The loan due to Integrity Bank fell due on from lease agreement? favor ofLDC the under Bank the were registered with (3%) the A real estate mortgage may be foreclosed Recommendation: Since the subject matter of Ten months later, both the Borrower and Mr. June X 15, & Co 2002. obtained Despite a loan pleas from for extension a local bank of in Register of Deeds of Quezon City. (2) able questions is not includedfunds withinto the these twoto raise judicially or In what instance as Timbol were sufficient payment the amount byextrajudicially. Edzo, of P500th, the bank mortgaging demanded scope of the Bar properties Questions in Mercantile may a mortgagee extrajudicially foreclose a redeem their respective from the immediate security payment. therefore Because its real the property. bank SUGGESTED Law, as Bank it is within Civil it is real estateANSWER: mortgage? (5%) Bank, but the refused to Law, permit threatened Subsequently, to proceed the company against applied the surety, with the When a sale is made under a special power suggested that whatever answer is given redemption on the ground that the period for Eduardo same Z. bank Ong, for Edzo a Letter decided of to Credit pay up (LC) all for by the examinee, or the lack of answer inserted or attached to any real-estate redemption had already expired, so that the its $200th obligations in favor to Integrity of a foreign Bank. bank On to June cover 20, the should be given full credit. If the mortgage, thereafter given as security for the Bank nowexaminee has absolute ownership of both 2002, importation Edzo paid of to machinery. Integrity Bank To the guarantee full SUGGESTED ANSWER: gives a good answer, he should payment of money or the fulfillment of any a. The be mortgagee has credit. a better than principal properties. The and Mr. right Timbol payment amount of theof obligation P500,000, under plus the accrued LC, the given Borrower additional other obligation, then the mortgagee may LDC. Thetoday, mortgage extends to tothe interests came to you September 15, 2002, company amounting and itsto President P55,000. and As a Treasurer result, extrajudicially foreclose the was real estate to The machinery arrived and released improvements introduced on the land, with Edzo find out if the position of the Bank is correct. executed had hardly a surety any cash agreement left for operations in the local Mortgage; Foreclosure (2003) mortgage (Sec. 1, Act No. 3135, as amended). the company under a trust After receipt the would declarations, amplifications, and and What be your answer? State your banks decided favor. to close its business. May the sale at public auction by a bank of SUGGESTED ANSWER: agreement. As the company defaulted inathe limitations established by law, whether the reasons (5%). paying the unpaid salaries of its employees, property mortgaged to it be nullified because 1 With respect to the real estate mortgage How would you, as judge in the insolvency of its obligations, the bank took estate remains in the possession of the thepayment filed a petition for insolvency on July 1, price was extremely low? Why? over the land and building owned by the Borrower, Edzo rank the respective credits At orthe possession of the imported machinery. mortgagor or passes into the hands of a third proceedings, 2002. SUGGESTED ANSWER: Primetime Corporation, a juridical body, the period claims of time, the five creditors mentionedthe same it (5) sought to foreclose person (Art 2127 NCC). The notice given by of redemption is only three (3) months, which above in terms of preference or priority mortgaged property and to hold the company Foreclosure (2003) LDC to the mortgagee was not enough to Mortgage; SUGGESTED ANSWER: period already expired. against each other? (5%) as well as its President and Treasurer, liable of of Janette and Jeanne to remove the building from coverage of the Because The claim offailure Handyman for P10,000 2 As to the real estate mortgage over the Did the takingAgreement. of Garage possession of the under the Surety their loan to X Bank, the latter foreclosed mortgage considering that the building was pay a specific lien on the carresult repaired. residential house and lot owned by Mr. Timbol, the has machinery by the bank in the 1) full built after the mortgage was constituted and on the mortgage constituted on their period of redemption is one (1) year from the date payment of the obligations of the company property which was put up claims by them as the notice was only as regards the lease and The four of registration of the certificate of sale, which andremaining its officers, and (4) 2) foreclosurehave of the security foror the payment of each the loan. not as to the construction of the building. preference priority against otherThe in SUGGESTED ANSWER: period has not yet expired in this case. mortgage? paid for the at the foreclosure Since the mortgagee was informed of the price (1) No. 4 claim of the BIR forthe unpaid The taking ofproperty possession of machinery the1) following order: wasbank not enough to inliquidate the of lease and did not object to it, the mortgagee sale value taxes by added the did not result full payment obligation. The bank sued for deficiency. became bound by the terms of the lease (2) No. 3 claim of Joselyn Reyes for the obligations owing from the company In and their Janette and Jeanne did not deny when Remedies it acquired the property as the highest Unlawful termination Mortgage; (2003) itsanswer, officers. The taking of such possession No. of claim Ace equipment themust existence the of loan nor the of their in bidder. Hence, into the (3) Carmakers, Inc., the soldmortgagee a motor steps vehicle on be1considered merely as fact a measure as an unpaid seller; and default. They, however, interposed the shoes of basis the mortgagor acquires the Supplies installment to Chari and Paredes. The order to protect or further safeguard the No.that 5 claim of SUGGESTED ANSWER: defenses the interest. price at Dacion the auction was rights of the lessor under 1768 of the (4) transaction was reflected on Art a promissory banks security en pago can a) The house is always a favor real property even Bank. extremely low and that loan, despite NCC. This provision the lessor the right Integrity note by Charigives in of Carmakers. only be considered astheir having taken place 1stexecuted Alternative Answer: SUGGESTED ANSWER: v Pineda 197 s accepts 1) though itwas was constructed on a right land not loan documents, was a and long-term loan to appropriate the condominium building but the(PNB a.note The mortgagee has better the The secured by a a mortgage overto the when a creditor appropriates belonging to the builder. However, the which not yet If (1999) you were the after paying the Art lessee half theNCC, value of Mortgage; building. Under 2127 of of the the car. Contemporaneous with the execution of the had ownership of the goods in payment of a Foreclosure of matured. Improvements 2) The mereyou taking of possession of parties may treat it as a personal property judge, would rule on the case? Why? the building atmortgage thatto time. Should the lessor mortgage extends all improvements on the note and the deed, Carmakers, due how obligation. Borrower obtained a loan against the mortgaged assets does not amount to and constitute a chattel mortgage thereon. (6%) refuse to reimburse said amount, theof lessee the mortgaged property regardless who Inc., assigned the instruments sans recourse security of a mortgage on a parcel of foreclosure. Foreclosure requires a land. sale at Such mortgage be valid and binding but remove the improvement even Chari though and when shall the improvements were to may Adelantado Finance Corporation. While the mortgage was subsisting, borrower public auction. The foreclosure, therefore, only on the parties. It will not bind or affect the land will suffer damage thereby. introduced. cannot complain otherwise, defaulted in LDC her obligations. Could leased for fifty years the mortgaged property b) The lending investor hasthe a better claim SUGGESTED ANSWER: has not as yet been effected. third parties. because it knew that property it to was Adelantado Finance corporation take action to Land Development Company (LDC). The Mortgage; Redemption Period; Foreclosed Property Preference of Credits (2002) the house. The real estate mortgage 2nd alternative Answer: leasing was mortgaged when it built the against both Carmakers Inc., and Chari? Why? mortgagee was duly advised of the lease. (2002) As June 1, the 2002, Systems a. of Assuming office condominium was covering the that house and Edzo lot was duly condominium. (6%) Thereafter, LDC constructed on the Primetime Corporation (the Borrower) Corporation (Edzo) to third the duly constituted under the Condominium registered and bindswas the indebted parties and mortgaged property an office condominium. (1) Ace Equipment Supplies for various obtained a P10 Million, five-year term loan following creditors: Law, before LDCother could hand, validly the constitute persons. On the chattelthe Borrower defaulted on his loan and personal and accessories sold to to from Universal Bank (the Bank) in 1996. As same computers as a the condominium, it should cause mortgage on house securing the credit mortgagee foreclosed the mortgage. At the Edzo on credit amounting to P300,000. security for the loan and as required by the in the register of affect deeds the of the of be therecorded surety company did not foreclosure sale, the mortgagee was awarded (2) Handyman Garage for mechanical Bank, the Borrower gave the following province or city where the land is situated an rights of third parties such as the lending the property as the highest bidder. The c) repairs No. The (parts chattel and service) mortgage performed over the on house collateral security in favor of the Bank: 1) a enabling or master deed showing, among investor despite registration of the chattel corresponding Certificate of Sale was in owned by mortgage the Borrower and located which Edzos was company foreclosed car amounting did affect to P10,000. the rights real estate over the land and others, a certificate ofnot the registered owner mortgage. executed and after the lapse of one year, title (3) Joselyn Reyes former employee of Quezon City; 2) the joint and several of and thirdofparties like the lending building all registered holders of investor. any lien or was consolidated in of the name mortgagee. Timbol, the note President of theof Borrower; and Edzo who unlawful termination promissory Pr. Primo Since the sued third Edzo parties are not bound by the encumbrance on for the property that they Mortgagee then applied with the RTC for the 3) a real estate mortgage over the of employment and was able to obtain a chattel mortgage, they are not also bound by consent to the registration of the deed. (Sec issuance a writ ofMr. possession not only over lot of owned by Timbol, also located in Quezon residential house and final against Edzo for P100,000. any enforcement itsmortgagee provisions. The its 4. judgment RA 4726). If of the gave the land but also the condominium building. (4) Bureau of Internal Revenue for City. foreclosure of such chattel mortgage did not consent thereto, then LDC should prevail. If The mortgagee contended that the SUGGESTED ANSWER: unpaid value-added taxes amounting toof the bolster or add anything tothe thecondominium position no consent was given, was mortgage included all accessions, Mortgage vs. Levy (2003) P30,000. surety company. included in the mortgage. improvements and accessories found on the mortgaged property.

Mercantile Law Bar Examination Q & A (1990-2006) Page 46 of 103 Mercantile Law Bar Examination Q & A (1990-2006)

Page 49 of 103 Upon his failure to the loan Page 50 53 52 54 of 103 103 relation, Moreover, Yes, On when March Purita in insured Page 19, the cannot 51 1993, problem and of pay 103 be insurer a fire at a razed on due date, the bank foreclosed the donee hand, have the agreed there building of the is to deceased. no to the double the payment ground. Hence, insurance of Garapal she premium because cannot Insurance by 1989, citing Gcrcio v. Sun Life, G.R. No. reinsurance the over Will no After continuing Petras evidence the his vehicle building is an suit crisis insurance prosper? of in burned involving favor suicide of against down, Explain. IOU. the or banking Robin When liability arson filed Anjo his or SUGGESTED ANSWER: mortgage on the 3 lots, which were Concealment; Material Concealment; Incontestability 23703, September 28, 1925; and Go v.28, also the installments refused insured be his to beneficiary. with and make the partial good First payment its Insurance obligation has is been to Benjie and which defaulted, involvement claim financial the for original fire sector IOU loss of foreclosed insurer in with BX the in EFG. may Asian the these On incur region. chattel Feb events. in favor 1994, BX No, Petras suit will not prosper (assuming subsequently Clause sold for only P99th atGarapal the Redfern, G.R. No. 47705, April 25, 1841); different made under at (1991) the from the time insurance the of insured loss, contract. then with the the 1) insurer Second Is Does of the mortgage, demanded EFG BD original denied have and insured. an Robins payment insurable sought claim. to interest of recover On the April within the 3, insurance 1994, (2) Neither can the Insured take the cash that the policy of life insurance has been in Concealment; Insurance; Double Insurance (2005) Material Concealment (2001) foreclosure sale. Thereafter, the bank filed an Atty Roberto took out a life insurance policy Insurance becomes Insurance liable. Company. legally When justified The thesame car in loss refusing is true happened with the deficiency. proceeds Robin meaning sought of from May the reconsideration IOU Insurance the still two recover Code of policies, the of the the denial, the SUGGESTED ANSWER: surrender value, assign or even borrow on force for a period of less than 2 years from SUGGESTED ANSWER: When does double insurance exist? A applied for a non-medical life insurance. ordinary action for the collection of Sep the from the Dana Ins Co (DIC) on 1 respect on payment the 5th to the month, to interests Benjie? the six 2) insured Is months Nat entitled in agreed the two to 1989. Philippines deficiency? premiums but EFG (PD1460)? reiterated for Explain. which its (2%) position. IS had been On March faithfully 20, Yes. IOU BD may has insurable no longer recover in his the bank deficiency. SUGGESTED ANSWER: said policy without theinterest beneficiary's consent the date of its issue). The matters which Juan period (2%) The insured did not inform the insurer that deficiency. A contended that the mortgage On 31 Aug 1990, Roberto died. DIC refused policies. collect of payment on the insurance had not yet policy? elapsed (UCPB paying 1995, Robin during commenced all the time judicial he action was alive. (Nario v. Philamlife, G.R. No. 22796, June SUGGESTED ANSWER: Under Section 93 the Insurance Code, deposit. Under In Art case 1484 ofof loss of the of said NCC, deposit, in a 26, contract more of failed to disclose was material and relevant to General c) As Judge, Iprior would allow the businessman to one week to his application for contract he executed was indivisible and to pay his beneficiaries because it discovered Insurance v. Masagana Telamart, G.R. No. Starbrite against EFG. refused Should payment, Robins action contending be given that 1967); 1)Yes. At the time ofmisrepresented the loss, Benjie was no SUGGESTED ANSWER: there double insurance when there overparticularly sale of personal to the extent property of the the amount price of in which the approval and issuance of theis insurance recover his total loss of P5M representing the insurance, he was examined and confined atto consequently, the had norecover legal right that Robert had certain 137172, April 4, 2001) . bank Francis can BX is due had course? no insurable Explain. interest and therefore (3)No, The Insured cannot add another Robins action should not be given due longer the owner of the property insured as insurance with two or more companies, excess is payable of the limit in installments, covered by the the PDIC vendor Act, may, policy. They would to have affected Lifes from full value of his goods which were lost through St. material Lukes Hospital where he was diagnosed foreclose only the real estate mortgage and facts in his application. The Peninsula Insurance Company, but the was not entitled receive the Good proceeds beneficiary because that would reduce the SUGGESTED ANSWER: course. Is filing of the request for latter he failed to redeem the property. The law covering the same property, the same PBD among will be several damnified. options, He will foreclose suffer the chattel action on his application, either by approving fire. As to the creditor, Ithe would allow him for beneficiaries lung cancer. The soon thereafter leave out the chattel mortgage, and sue sued on basis thatthen DIC can has the right to insured deduct the amount of to from ISs insurance coverage on his life and amount which first beneficiary may Starbrite isthe correct with respect to been the reconsideration did not suspend the running requires in property insurance that a person insurable interest and the same risk. Double pecuniary mortgage loss on of the P300,000.00, thing sold, that if one is, his has it with the corresponding adjustment for a unpaid recover amount to extent of or died infor athe plane crash. Isinsurance the insurer liable him a supposed deficiency judgment. If contest the validity of insurance policy premium from the also on his property. Is Starbrites contention recover and therefore adversely affect his insurance coverage on the property IS. of the prescriptive period of one year can recover the proceeds of the policy if Insurance; Life Insurance; Assignment of Policy (1991) insurance exists where the same person is of bank constituted, deposit of half should a million the vendees pesos minus failure to higher premium or rejecting the same. equivalent to the value of you the credit hehe considering that the fact concealed had no you were the Judge, would sustain only within 2 years from the date ofthe issue proceeds. valid? Explain? (5%) vested right (Go v. Redfem, G.R. No. 47705, April SUGGESTED ANSWER: SUGGESTED ANSWER: The beneficiary in the property insurance SUGGESTED ANSWER: stipulated in the insurance policy. Thus, has insurable interest at the time of policy of insurance upon his life, with a insured by several insurers separately in In when P200,000.00 pay cover which two or is more the maximum installments. such Moreover, a disclosure may have amount warranted a The extended to the businessman for the stocksbearing with of the cause of ofthe death of Decide thethe contention A? and during the lifetime insured. Insurable Interest: Public Enemy (2000) 25, 1941); If I were the Judge, Ifavor would dismiss the action No. The concealed fact is material to the I would rule in of the insurance policy or the assignee thereof must have robin commenced judicial action against EFG issuance of the policy and also at the time face value of P100th was assigned by Jose, a respect of the same subject matter and recoverable case, however, from the the PDIC. vendor shall have no medical examination of Juan by Good Life in in-trade which were mortgaged by the insured? Why? (5%) the case. (4)Assurance Unless the policy allows, the May a member of the MILF or its Insured breakaway as being premature since the proper approval and issuance of the insurance company. The incontestability clause, insurable interest in the property insured. Interest; Equitable Interest (1991) on March 20, his ability to Insurable when the loss occurs. At the timeremedy of fire, married man with 2 legitimate children, to interests. (Geagonia v. Court of1995, Appeals, G.R. No.BX, further action against the purchaser order for it to reasonably assess the risk businessman. cannot even designate another beneficiary Insurance; Double Insurance; effect (1993) group, the Abu Sayyaf, bethe insured a would be to complete the foreclosure ofeffect the policy. It is well settled that insured need applies only if the policy had been in a mere friend-companion of with IS, price has no A piece of machinery was shipped to Mr do so had already prescribed. The one-year Benjie no longer had insurable interest in the his nephew Y as security for the a loan of P50th. 114427, February 6, 1995) recover any unpaid balance of the involved in accepting application. In and any should the original beneficiary predecease Julie and Alma formed a business 2) No. While at the time of the loss he had company licensed to do under the mortgages and only thereafter can there by not die of the disease he failed to disclose to for at least 2 years. The 2 year period is insurable interest in the residential house of Pablo on the basis of C&F Manila. Pablo period is counted from Feb 28, 1994 when property insured. He did not give the insurer any written notice any agreement to the contrary void. While case, goodacquires faith is beneficiary's no isdefense in him. His estate the partnership. Under thePhils business name Pino insurable interest in sufficient the building, as he was Insurance Code of the (PD 1460)? an action for collection of any deficiency. In the insurer. It is that his counted from the time the insurance IS. BX is not entitled to receive the proceeds insured said machinery with the Talaga EFG denied Robins claim, not from the date of such assignment despite the explicit the given facts did not explicitly state that concealment. The waiver of a medical SUGGESTED ANSWER: vested right upon his death; and As to the insurance coverage on the of Shop, the partnership engaged in a sale oflife the owner thereof, Nat did not have Explain. (3%) Caltex v IAC (GR 74730, 25 Aug 89) , the nondisclosure misled the insurer in forming becomes effective until the death of any the from ISs insurance on his property. Merchants Ins Co (Tamic) for loss or damage (presumably after April 3, 1994) EFG to that effect in the policy. Jose Anjos failure to pay covered 2 when or more examination in the non-medical life provision ALTERNATIVE ANSWER: (5) The Insured cannot allow his creditors A member of the MILF or the Abu Sayyaf may IS, BX is entitled to receive the proceeds. construction materials. Julie insured the interest in the policy. There was no remedies on a secured debt, said the court, his estimate of the risks of the proposed insured and not thereafter (Tan v CA GR 48044 during the voyage. The vessel sank en route reiterated its position denying Robins claim. died. Upon the claim on the policy by the installments, this may safely be presumed insurance from Good Life makes it more Concealment; I wouldMaterial rule in clause favor Incontestability of the the insurance to attach or execute on the policy. (Philamlife be insured with a company licensed toeven do have Concealment: There is no requirement that BX should stocks in trade of Pino Shop with WGC automatic transfer in policy that are either an action to collect or to foreclose insurance policy or in making inquiries. 29Jun1989) to company. Manila. Pablo then filed apay claim with not The reason for this rule is toforeclose insure that assignee, the insurer refused on the because the right of IOU Co to the necessary that Juan supply complete v. Pineda, G.R. No. 54216, 19, 1989) Although an to insurer may business under the Insurance Code of the Clause (1994) insurable interest in July the life of IS. Itshe was are IS Insurance Co for P350th. Subsequently, would give him such interest in the policy. a contract of real security. These remedies Tamic which was denied for the reason that of claims against insurance companies ground that it was not notified of the chattel mortgage under the circumstances is information about his previous hospitalization rescind the 23, contract on ground Phils. What isinsurance prohibited to be insured ishis a Interest; Property Insurance (2001) SUGGESTED ANSWER: OnInsurable September 1990, Tan took a life himself who took the insurance again got an contract with on RSI for own are alternative remedies, although an action prior to deliver, Pablo had no insurable promptly settled and that insurance suits are assignment. Upon the other hand, the heirs premised on Anjos failure to pay 2 or more Beneficiary: Rights; Irrevocable Beneficiary (2005) for such information constitutes an important misrepresentation after The an action is If and the policy of life insurance has been Insurable Interest; Life vs. enemy Property Insurance (2002) public enemy. A public is a citizen or in Pablo JQ, owner had deficiency an ofexisting a condominium insurable unit, interest insured on the insurance policy from Philam. policy was life. P1m then from EIC for P200th. A fire of for any is not precluded, subject to interest. Decidefor the case. brought by the insured while the evidence as of Jose contended that Y is not entitled to installments. The foreclosure would not have Jacob obtained a life insurance policy for P1from factor which Good Life takes into Insurance; Return of Premiums (2000) commenced recovery under the policy, the force for a period of 2 years or more national of a country with which the Distinguish insurable interest in property SUGGESTED ANSWER: the piece of machinery he bought. The same against fire with the XYZ Insurance issued on November 6, 1990. He died on April unknown origin and gutted the of store of the certain exceptions such asbecause those stated to the origin cause the destruction has amount under the policy the in Art been valid if it not so. (The Million designating irrevocably Diwata, a consideration inwere deciding whether to issue the any Name at least three instances when an insurer is not precluded from invoking the the date of its issue (on which point the A life insurance is hepatoma. assignable. A provision, Philippines isJulie at war. Such member ofgiven the insurance from insurable interest in facts life purchase Co., and ofof made goods the under loss payable a perfected to 26, 1992 The insurance partnership. filed her claims with the 1484 of the Civil Code, by a foreclosure onhis not yet disappeared. (See Sun Ins Office Ltd v without due notice toas the insurer did not also state explicitly whether Anjos friend, as his beneficiary. Jacob, however, policy or not. (See Assurance Co of assignment SUGGESTED ANSWER: insured is entitled to a return the groundin of misrepresentation a defense in given facts are vague) then Life can no however, the policy stating that written MILF or the Abu Sayyaf isSunlife not a Good citizen orof insurance. (5%) contract of sale already vests equitable brother, MLQ. In case of loss by fire of the company denied the beneficiaries claim and three insurance companies. However, her the mortgages. While the factual settings in CA gr 89741, Mar 13 insurance, 91 195s193) was void. Resolve the issues. default SUGGESTED was ANSWER: a payment default or a default changed his mind and wants Yob and Jojo, his Canada a) In v CA property GR 105135, June 22, the 1995 expectation 245 s 268) premium paid. the action for recovery. This isthe alright since longer prove that the policy is void ab initio notice of such an assignment should be given national of another country, but of the interest said condominium on property unit, in favor who may of recover buyer on rescinded the policy by reason of alleged claims were denied separately for breach of the case of Suria v IAC (30 June 87) are not Three instances when an insured is entitled arising from abe breach of negative pledge or Insurable Interest: Separate Insurable Interest (1999) other friends, to included beneficiaries of benefit must have aaas legal basis. In life the while bar insurance problem is not delivery covered yet by of the or is rescindible by reason of the fraudulent to the insurer valid (Secs Ins Philippines. even itis is pending (Filipino fire policy? State the reason(s) misrepresentation and concealment policy condition which required the insured to similar to the facts given 181-182 in the problem, the Concealment; Material Concealment; Incontestability to a return of premium paid are: breach ofthat athe warranty. In such case, however, SUGGESTED ANSWER: A businessman in the grocery business considering the proceeds of the policy ALTERNATIVE ANSWER: insurance, expectation of benefit to be Merchants incontestability clause. concealment or misrepresentation of Juan Code). The failure of the notice of assignment Ins Co v CA GR 28Nov1989) for your answer. (5%) material facts made by 85144 Tan in his application. give notice of any insurance effected SC implied that foreclosure as a remedy in for 1 To the WHOLE PREMIUM, if no part his Insurable Clause (1998) The indivisibility of a contract of real security, JQ can recover on the fire insurance policy IOU would not have been able to Concealment; Material Concealment: Incontestability Interest; Life vs. Property Insurance (1997) obtained from First Insurance an insurance are for the three friends. Can Jacob derived from the continued existence of a of life ( sufficient SecCompany 48 Ins Code) would thus preclude the assignee from It returned the premiums paid. covering the stocks in trade. Julie went to SUGGESTED ANSWER: secured obligations must first be availed ofon interest in thing insured be exposed to any of Renato was issued a life insurance policy such as a real estate mortgage or a chattel the loss of said condominium unit. He has thea foreclose the chattel mortgage validly as Clause (1997) policy for P5M to fully cover his stocks-ina) A obtains a fire insurance on his house and as still add not Yob and Jojo as his basis. beneficiaries? Remedies; Available to Mortgagee-Creditor (2001) need have any legal The beneficiaries contend that the company claiming rights under the policy. The failure court and contended that she should not be No, Jacob can no longer add Yob and Jojo as in by a creditor in preference to other remedies the perils insured against. January 2, 1990. He concealed the fact that mortgage, only means that a division or a insurable interest as owner-insured. As such foreclosure, under the circumstances The assured answers No to the question generous gesture names his neighbor as the trade from the risk of fire. Explain. (2%) Debtor A issued a promissory note in the had no right rescind the contract as of notice did to not, however, avoid the policy; blamed for thethereafter, omission, alleging that the hiscontemplated beneficiaries in addition to Diwata. As the that might also be invoked by him. b) In insurance, the actual 2 Where the insurance is made for a definite Three months a policy: fire of accidental 3 years prior to the issuance of his life partial payment of a secured obligation does beneficiary beneficiary. in If As the house fire insurance is destroyed policy, by fire, MLQ can by the law, could only be the application for a life Are you amount of property P10M in favor of commercial bank rescission must done the lifetime hence, upon thebe death ofduring Jose, the proceeds insurance agents for completely WGC, RSI and EIC knew irrevocable beneficiary, Diwata has acquired value of the interest therein is the limitIn of period of time and the insured surrenders his origin broke out insurance policy, he had been seeing a successfully claim against the policy? b) A not warrant a corresponding division or B cannot recover on the fire insurance policy. effected for aand payment default covering two suffering from any form of heart illness? Y secured by mortgage of destroyed his properties of the insured within two years and prior to would, in the absence of a designated of the existence of the additional insurance a-vested right over Jacob's life the insurance that can validly be placed policy, to such portion of premium as for the grocery including his stocks-in-trade. This doctor about his heart insurance over his life and names proportionate reduction ofof the security given. For the beneficiary to ailment. recover on the his fire or or more installments) (Luis Ridad v Filipinas fact, the assured has been ainsurance heart patient worth P30M. When A the failed to pay his obtains the commencement of the action. Is the beneficiary, go to the estate the insured. coverages and that she was not informed policy. Any additional beneficiaries will SUGGESTED ANSWER: On March 1, 1992, Renato died of heart SUGGESTED ANSWER: thereon. In businessman life insurance, there is no limit to neighbor B the beneficiary because of As secret corresponds with unexpired time at a is pro prompted the to file with First A creditor in such secured debts may pursue property insurance policy, it is required that Investment and Finance Co GR L-39806 many years. On 7the Sep 1991, the assured indebtedness, despite demands made by rata contention of the beneficiaries tenable? The estate,May in turn, would be liable for the about the requirement that such other or reduce the amount which Diwata, as the first 1) No. An insured is required to disclose the failure. the heirs file a claim on the The incontestability clause does not for B. If A dies, can B successfully claim against the amount of insurance that may be taken love rate, unless a short period rate has been agreed Insurance; Perfection of Insurance Contracts (2003) Insurance aa claim for five million pesos the remedy of foreclosure, in part or in full, or he must have insurable interest in the Jan27,83 120s246) killed in plane crash. The insurance bank Y, the latter instituted a collection suit No. loan of P50,000 in favor of Y. additional insurance should be stated in the beneficiary, may recover, which will other insurances covering the subject matter proceeds of owing the life insurance policy The insured dies within less than two policy? the life. upon and appears onclaim the of the policy, afterapply. representing the full value his goods. Josie Gatbonton obtained from Warranty file an ordinary action for collection on any of property insured. In this case, MLQ does not company denies the for insurance to enforce payment ofofface the P10M account. SUGGESTED ANSWER: policy. Is the contention of claim Julie tenable? adversely affect her vested right. (Go v. SUGGESTED ANSWER: of the insurance being applied for. (New Life c) In property insurance, an interest First Insurance denied the because it claim Renato? (5%) from the of Promissory Note: Liability (2001) deducting from the whole premium any Insurance Corporation a comprehensive amount due. A issuance favorable judgment can on have insurable interest in the the policy condominium proceeds and returns the premiums paid. Is foryears Subsequently, bank Y also filed foreclosure Yes. The life insurance policy in question was Explain. May she recover on her fire SUGGESTED ANSWER: a) No. In property insurance, the beneficiary Redfern, G.R. No. 47705, April 25, 1941) Insurance; Cash & Carry Basis (2003) Ent v CA 207 s 669) insured must exist when the insurance takes discovered that at the time of the loss, the September 23, 1990. The insured died on X, Y and Z signed a promissory note in favor loss or damage under the policy which has motor vehicle insurance to cover her brand warrant an issuance of a writ of execution on unit. the decision of the Prohibited insurance company proceedings against A for security given for Beneficiary; Life Insurance; Beneficiaries issued on January 9, 1990. More than 2 years 2) No, Assuming because that she is the guilty incontestability of violation of clause a insurance policies? Explain. must have insurable interest in the property What is meant by cash and carry in the effect and when the loss occurs but need not SUGGESTED ANSWER: stocks-in-trade were mortgaged to a creditor April 26, 1992, or less than 2 years from of A stating: We promise to pay A on previously accrued. new automobile. She paid, and the insurer any property, not exempt from execution, justified? the account. If because you were the judge, how (1998) had elapsed when Renato, the insured, died warranty/ does not condition. apply the policy has not insured. (Sec 18 Ins Code). B does not have The case for collection will be allowed to September business of insurance? exist in the meantime. In life insurance, it is who obtained from Second Insurance 23, 1990. December 31, 2001 the sum of P5,000.00 3 likewise When the contract is voidable on account accepted payment in check. Before the check belonging to the judgment debtor. There would you resolve the two cases? (5%) Juan de la Cruz was issued Policy No. 8888 of SUGGESTED ANSWER: on March 1, 1992. The incontestability clause been in force for 2 years, from the date of insurable interest in the house insured. proceed. But the foreclosure proceedings The right of the insurer to rescind is only lost enough that insurable interest exists at the Company fire insurance coverage for the When the note due, A sued Xa and Y who of the fraud or misrepresentation of the insurer or could be encashed, Josie was involved in a to should be no fell legal obstacle for creditor the Midland Insurance on aIn whole life Insurance; Effects; Payment of Premiums by Installment applies. issue, during the lifetime the insured, the have toLife be dismissed. instituting if the beneficiary has commenced an action time when the contract isof made but it need Z. Is the defense valid? Why? (5%) stocks at their full value of Co P5M. a) May the put up the defense that A should have of his agent or on account of facts the existence motor vehicle accident where her car waive, in full or in part, his right to plan for P20,000 on August 19, 1989. Juan is Insurance; Co-Insurance Re-Insurance INCONTESTABILITY CLAUSE (2006) b) Yes. InANSWER: life insurance, it is action not (1994) required separate insurance coverages over the same decision of the insurance company not to pay SUGGESTED foreclosure proceedings, after filing the policy. isvs. no such in this not exist at the time of loss. businessman and the creditor obtain impleaded of which the insured was ignorant without hisa on became a totalThere wreck. She sought payment foreclosure on contracts of have real security. The insurer has two years from the date married to Cynthia with whom he has three Distinguish co-insurance from rethat the beneficiary must insurable The Peninsula Insurance Company offered to Insurable Interest; Property Insurance (1994) The defense is not valid. The liability of X, Y, of in-trade? Explain (3%) b) First Insurance SUGGESTED ANSWER: stocksis justified. There was fraudulent collection case involving the same account or case. (Tan v CA 174 s 143) fault; or when, by any default of the insured other from the insurer. Could the insurer be made SUGGESTED ANSWER: issuance of the insurance contract or of legitimate designated insurance. insure brand new car against all risks interest in the lifeConcealment: of the insured. It was the its Concealment; Material Incontestability (per Dondee) Yes, because there was a joint. In a Francis' civil suit, the Court ordered Benjie to pay and Z under the promissory note is refused to children. pay claiming that double concealment. It He, is not material that the transaction, bank Y however, is guilty of splitting a than actual fraud, the insurer never incurred any liable under the insurance coverage? (6%) Beneficiary: Effects: Irrevocable Beneficiary (2005) CO-INSURANCE is the percentage in last reinstatement within which to contest Purita, his common-law wife, as the revocable insurance is Million contrary to law. Is this contention insured himself who took the policy on his in the sum of PI for 1 year. The policy Clause (1996) Nat P500,000.00. To execute the judgment, perfected contract of case, insurance being the Z the is moment not anthe insured died of apolicy. different cause than cause of action. The loan of P10M is the the Such liability under the What value are of the the effects insured of an property irrevocable which the the policy, whether or not, the insured still beneficiary. Juan referred to Purita in tenable? (3%) c) Suppose you are the the Judge, was issued with the premium fixed at his own Juan life. procured a non-medical life A insurance there is a meeting of the with respect the sheriff levied upon Benjies registered indispensable party. The minds fact that did not fact concealed. The fact concealed, that is principal obligation while mortgage designation insured himself of a assumes beneficiary or undertakes under the to act lives within such period. After two years, the Insurable Interest; Life vs. Property Insurance (2000) application and policy the legal wife. 3 how much would you 160,000.00 payable in as 6 Francis onlythe from Good Life Insurance. designated his property (a parcel of land and the building to the object and the cause He of payment. The Z will not prevent A from collecting heart ailment, is months. material to securing the same is merely an accessory to implead SUGGESTED ANSWER: Insurance as insurer Code? to the Explain. extent (2%) of the deficiency in defenses of concealment IS, an elderly bachelor with no known years later, Juan died. Purita filed her claim allow theobligation. businessman and the creditor to paid the first twosold months installments. wife, Petra, as theis beneficiary. Earlier, in the his or payment of check a valid unless thereon),and same at public auction proportionate share ofpayment X gives and Y in determination by the the insurance company said loan The collection of the loan the The irrevocable designation the the insurance of the insured property. In case misrepresentation, no matter how patent or However, if the incontestability clause which relatives, obtained life insurance coverage for (Observation: Even if the liability of from their respective insurers. Explain for the proceeds of the policy as the recover Despite demands, he tothe pay the latter, application in response to the question as to to Nat, the highest The on upon encashment theDeposit check bounced. payment of the loan. whether or not to failed accept application for and the foreclosure ofbidder. the mortgage securing beneficiary a Insurance; vested right over Life Insurable Interest: Bank (2000) SUGGESTED ANSWER: of loss or damage, the insurer will be liable well founded, no lie. applies to the insurance policy covering the Insurance; Property Prescription of Claims P250,000.00 from Starbrite Insurance X, Y, and Z longer ishe solidary, the defense (3%) designated beneficiary The widow, subsequent installments. Five months after whether or not had ever been March 18, 1992, registered with the Register insurance and to therein. require the medical said loan constitute one and the same cause Insurance. The deposit Insured cannot act to divest BD has a bank of halfof a million pesos. a) Yes. The businessman, as owner, and the only for such proportion the loss Remedies; Secured Debt (1991) life of the insured had been in force for 2 (1996) Corporation, an entity licensed to engage in or would still not be valid) Cynthia, also filed a claim as the legal wife. the issuance of the policy, the vehicle was he answered in the He Deeds the certificate of collection sale issued to him examination of the insured. of action. The filing of the case bars hospitalized, SUGGESTED ANSWER: the insured irrevocable beneficiary, in negative. whole or in Since the limit of the under insurance coverage of creditor, as mortgagee, have separate damage as the amount of insurance bears To years secure from the issuance payment thereof, of his loan the of insurance P200th, Robin his building against fire with the insurable business the Insurance To whom should the proceeds of the carnapped. Francis filed with the insurance forgot to mention his confinement at To the to by the sheriff. Meanwhile, on the subsequent filing of policy the January foreclosure The proceeds of the insurance shall be 27, part, without the beneficiary's consent. the Philippine Deposit Insurance Corp (PDIC) insurable interests in the same stocks-inthe designated percentage of the full value Remedies; Available to Mortgagee-Creditor (1996) A company executed would in favor not of be the justified Angeles in Banking denying After Juan died in a plane crash, Petra filed a of EFG Assurance. The insurance policy Code of the Philippines (PD1460). He also insurance policy be awarded? (5%) company a claim for its of value. However, the Kidney Hospital. 1993, Benjie insured with Garapal Insurance proceedings. (1) The beneficiary designated in a life awarded to the ESTATE Juan de la Cruz. REINSURANCE is where the insurer procures be specific: (RA 3591) is only one tenth of BDs deposit, trade. Each may insure such interest to the property insured. Finding a 24-month payment plan attractive, Co the claim 1 document, for proceeds a real of the estate insurance mortgage and contained claim with Good Discovering the usual Life. stipulation that anyJuans insured his residential house for twice that company denied his claim on the ground that for in P1,000,000.00 the same building that insurance contract cannot be changed Purita, the commonlaw-wife, is disqualified a party, called the reinsurer, toexcess insure hethird would like some protection for the protect his own separate interest. b) The Anjo purchased a Tamaraw FX from Toyota over in returning 3 lots the registered premium in resulting paid. histo name In that and case, a previous hospitalization, Good Life rejected action or suit must be filed within one year amount within the same corporation. He he failed to pay the premium in the was sold at public auction Nat. Benjie without the consent of the beneficiary as the beneficiary of the deceased because him against liability by reason of such original by taking out an insurance against all risks contention of First Insurance that double He paid a down-payment of P100th and chattel the insurer mortgage cannot over prove his 3 the cars policy and 1 void Isuzu ab QC. Petras claim on the ground of concealment after the rejection of the claim. immediately assigned all his rights to the cancellation of the policy. Can Francis failed to redeem the property by March 18, because he has a vested interest in from the policy of illicit relation between theis deceased and insurance. Basically, a SUGGESTED ANSWER: or contingencies of loss arising any insurance is contrary to law untenable. obtained financing for the balance from IOU cargo initio or truck. rescindible by reason of fraudulent and misrepresentation. Petra sued Good Life, insurance proceeds to BX, a friend-companion recover from the Peninsula Insurance 1993. (Philamlife v.or Pineda, G.R. No. 54216, July 19, Purita, the designated beneficiary. Due to unsound unsafe banking practices There is no law providing that double Co. He executed a chattel mortgage concealment or misrepresentation of the invoking good faith on part of Juan. living with him. Three years later, IS died in a Company? (5%) such illicit is including unforeseen adverse effects insurance illegal per se. insured. fire that gutted his insured house twoof days after he had sold it. There is Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Insurance Law

owner to only, recover from insurance company? in the problem (a) above iswith an open policy insurance policy for its construction paid P5,000 Luz contends that she was but not drunk. He was playing his hand children to not the accidental ship but intentional. Inc., be made liable under its policy? Why? aentitle non-dramatic work if it the be a drama; to marine 1) That the ship isthe into Asiatic Insurers, Inc., should be made liable covered byimmediately a comprehensive motor vehicle Explain. b) Was it proper for the ship owner and it insurance: was determined after employees variously assigned to its entitled to go after Raul to claim the gun, from which he previously removed the (6%) complete or execute it if it be a model or design; c. and/or to take in certain cargoes 2) That the seaworthy to make the voyage under policy. The fact that the driver waswas liability insurance (CMVLI) underwritten by provincial SAM lost case in court, and POS was to send athe notice of fire the that the value of Fortunes house infrastructure projects. Y Insurance additional P4,500.00 1) Is Cala, as subrogee magazine. As his secretary was watching to exhibit, perform, represent, produce or reproduce ship shall not deviate from the voyage merely holding a TVR does not violate the FastPay Insurance Company when it collided abandonment to the insurance company? awarded one million pesos in damages which P2.4m, how much may he collect from underwrote the coverage, the of Luz,in entitled to reimbursement from Raul? television, he stood in front of her andX,Y Company the work any manner or by any method whatever insured; 3) That the ship shall carry the SUGGESTED ANSWER: condition that the driver should have a valid with a speeding bus owned by RM Travel Inc. (5%) Explain. he sought to collect from the insurer. But CNI for and Z? premiums of which were paid entirely by 2) Mayor Cala recover what itfor has paid Luz? pointed the gun at her. She pushed it aside for profit otherwise; if not reproduced in copies necessary documents to In an open policy, the insured may recover SUGGESTED ANSWER: and existing drivers license. Insurer: Effects: Several Insurers (2005) The collision resulted in serious injuries to X; used ATTs report to deny the claim on the X Company without any employee andshow said nationality that it may be loaded. and He assured to sell any manuscripts or any record or neutrality it will Besides, suchloss a condition should be 1) No, No. there Luz was executed no "constructive a release in total favor loss" of his total up to the amount of the notsale, What is the nature of the liability of the Y, a passenger of the bus; and Z, a that pedestrian ground that the injuries to POS's 3 children contributions. While the policy was in effect, her that it was not and then pointed it at his whatsoever thereof; d. to make any other use or carry any document which will cast reasonable disregarded because what is involved is a Raul because (Manila the Mahogany vessel was Mfg refloated Corp v CA and GR the insurance cover. Thus, the extent of recovery several insurers in double insurance? waiting for a ride at the scene of the collision. were intentional, hence excluded from the five of the covered employees perished at temple. The next moment, there was an disposition of the work consistent with the laws of suspicion thereon; 4) That the ship shall not SUGGESTED ANSWER: 52756, 12 Oct 1987)plus passenger jeepney, and what is involved costs of refloating the needed repairs would be P400th from X, P200th from Y, and The wife of the deceased sought payment on Explain. (2%) The police report established that the bus sea policy's coverage. POS countered that CNI (P on their way to their provincial explosion and Tan slumped to the floor the land 2) Yes. Cala lost its right against Raul carry contraband, especially ifThe nature of the of the several here is not own damage insurance buthad third 2.9 Million) will not liability be more than threeP600th the policy but Z. her claim was rejected. The was thefrom offending vehicle. bus CMVLI The was estopped from using ATTs report Their wives sued Y Insurance lifeless. it In is problem making a voyage through belligerent because of the release executed by Luz. d) (a), what is the extent theZ assignments. insurers in double insurance is that each party liability where the injured party is a of fourths of the value of the vessel. A insurance company agreed that there was no policy issued by Dragon Ins Co. X, Y, and because it payment was unethical for ATT to provide Company for of made death benefits waters. Since the release was without the to a liability of the insurance companies is bound to the contribute ratably third party not privy the the contract of among constructive total loss is one which gives suicide. However, itto was submission of for insurer jointly sued RM Travel and Dragon Ins prejudicial information against his client to under the policy. While the suit was pending, SUGGESTED ANSWER: Marine Insurance; Peril of the Shipvehicle vs. Peril the Sea Insurer; Authorized Driver Clause; isof stolen consent of Cala, recover the themselves? loss ininsured proportion to may the amount for which insurance. person aCala right to abandon. (Sec, 131, the insurance company that there was of no the the indemnity under the Insurance Code the insurer, CNI. Who should prevail: the the wives signed a power of attorney In problem (a), the insurance companies (1998) (1993) SUGGESTED ANSWER: amount of P5,000 form Luz (Manila Mahogany he is liable under his contract as provided for Insurance Code) There would have been a accident. In support thereof, itcourt contended a) the designating Phils (PD1460). The lower applied claimant, POS; or the insurer, CNI? Company executive, PJ, Decide asreport, among themselves would be liable, viz: X A marine insurance policy on a cargo states CNI is not estopped from using ATT's HL insured his brand new car with Ins Co vX CA GR 52756, 12 Oct by Mfg SecCorp 94 of ICP par. The ratable contribution constructive total loss had the1987). vessel MN that there was no accident when aPdeliberate no fault indemnity policy of the statute, with reasons briefly. (5%) their authorized representative to enter into Insurer; Authorized Clause (1991) 4/12 of P600th P200th 2/12 for of P600th that the insurer= shall be Ywherein liable losses = because CNI, inDriver the loss first place, for comprehensive coverage the each of each insurer will be determined Pearly Shells suffer or needed refloating actdismissed was performed unless some additional, the suit against RM Travel, and of a settlement with the insurance company. SUGGESTED ANSWER: Sheryl insured her newly acquired car, athe P100th Z 6/12 of P600th = P300th incident to perils of the sea. During the commissioned it and paid ATT for it. On insurance company undertook to indemnify based on the following formula: AMOUNT OF and repairs of more than the required threeunexpected, independent and unforeseen ordered Dragon Ins to pay indemnity to all When a settlement was reached, PJ No. The cause of action of Y is based on the Nissan Maxima against any loss or damage voyage, seawater entered the compartment other hand, ATT has no conflict of interest him against loss or damage to the car a) by POLICY divided by TOTAL INSURANCE TAKEN fourths of its value, i.e., more than P30.0 happening occur which produces orX brings three plaintiffs. Do you agree with the courts instructed ALTERNATIVE ANSWER: the insurance company to issueside contract of carriage, that of and Z is for P50th and against party liability for SUGGESTED ANSWER: where thecollision cargo was stored due to the because SAM and CNI are on the same accidental ... b) while by fire, external multiplied by LOSS =3rd LIABILITY OF THE Million (Sec. 139, Insurance Code, cited in pay about theon injury or death; and b) that the judgment? Explain (2%) However, the insurance company shall e) Supposing in problem (a) above, Fortune Each insurer is bound, as between himself the settlement check to the order of X based torts. The court should not have P20th with the XYZ Ins Co. Under the policy, Yes. The suit will prosper. Y Ins Co is liable. X defective drainpipe of theft, the ship. The insured their interests being congruent with each explosion, burglary, or and c) malicious INSURER. Oriental Assurance v. of Appeals and insured willfully exposed himself to needless for the total costs ofCourt refloating and needed was able to collect from both Y and Z, may and other insurers, to contribute ratably to Company, which will undertake the payment dismissed the against RM Travel. The the car must be driven only by an authorized After a month, the car carnapped while Co, through its executive, PJ, acted as agent filed an action onsuit thewas policy for recovery of other, namely, to oppose POS's claim. It act. Panama Saw Mill, G.R. No. 94052, August 9, peril and thus removed himself from the SUGGESTED ANSWER: repairs (P2.9 Million). he keep the entire amount he was able to the loss in proportion to the amount for to the individual claimants of their respective court should have ordered Ins to pay driver who is latter either: 1) the insured, or 2) any SUGGESTED ANSWER: parked in the parking space inDragon front ofMay the of Y Ins Co. The thus bound by the the damages caused to the cargo. the cannot be said thatis ATT has used the 1991) coverage of the insurance policy. Are the two No. The proximate cause of the damage to c) Was it proper for the ship owner to collect from the said 2 insurance companies? which he is liable under his contract. (Sec. shares. PJ misappropriated the settlement each of X, Y , and Z to the extent of the However, in Finman General Assurance Corp. v. No. These two contentions are not tenable. person driving on the insureds order or with Intercontinental Hotel in Makati. misconduct of its agent. It is the usual insured recover damages? (5%) HLs wife information to the disadvantage or prejudice SUGGESTED ANSWER: contentions of the insurance company the cargo insured was the defective send a notice ofprovided abandonment to person the 94,Court Insurance Code) amount and the wives pursued their case insurance coverage, but whatever amount of Appeals, 213 SCRA 493 (1992), it was The insurer is liable for injury or even is his permission: that the who was driving said car before it death was practice in the group insurance business that of SAM. ANSWER: No, heExplain. can only be indemnified his loss, SUGGESTED tenable? Insurer; 3rd Liability (1996) drainpipe of the ship. This is policy peril of for the ship, insurance company? Explain. against Y Party Insurance Co. Will the suit prosper? agreed upon in the should explained that there is no "accident" in the due to the insureds gross negligence. The be driving is permitted in accordance with carnapped reported immediately the the employer-policy holder is the agent of No, it was not proper for the ship owner to not profit thereby; hence he must return While driving his car along EDSA, Cesar and not peril of the sea. The defect in the Insurer; Liability of the Insurers (1990) Explain (3%) answered first government by RM Travel and context of an accident policy, if it is the fact thatto the insured removed the magazine licensing or other laws or regulations to drive incident various agencies in the the insurer. send a notice of abandonment to the P200th of the P800th he was able to collect. sideswiped Roberto, causing injuries to the drainpipe was the result of the ordinary use a) Suppose that Fortune owns house succeeding amount should be insured paid by natural result of the insured's voluntary act, from the hand means that the the motor vehicle and is notadisqualified from compliance withgun the insurance requirements. insurance company because abandonment During the effectivity of and the policy, the car, latter, Roberto sued Cesar the third party of the ship. To recover under aneedless marine Because the car could not be recovered, HL valued at P600th and insured the same Insurance up to the amount of the unaccompanied by anything unforeseen didDragon not willfully expose himself to driving such motor vehicle by order of a Loss: Actual Total Loss (1996) can only be by availed of herself, when, in ainsurance marine then driven who had no liability insurer for damages and/or insurance policy, the proximate cause of the filed aAt claim for the loss of the with the against fire with 3Sheryl insurance companies as insurance coverage. The excess of the claims except the injury. There is no accident when a peril. most, insured is car only guilty of court. RC Corporation purchased rice from insurance contract, the amount to be was drivers license, met an accident and proceeds. The insurance company moved to loss or damage must be peril of the sea. insurance company but it was denied on the follows: X P400th Y P200th Z P600th of X, Y, and Z, and above such deliberate act is performed, unless some negligence (Sun Ins v CA over 211 s 554) Thailand, which it Nature intended to sell locally. Mutual Insurance Company; & Definition (2006) Insurer; 3rd Party Liability; Nowas Fault Indemnity (1994) expended to recover the vessel would have Insured; Accident vs. Suicide (1995) extensively damaged. The estimated cost of dismiss the complaint, contending that the ground that his wife who driving the car be insurance coverage, if should additional and unforeseen happening occurs Due is tois stormy weather, theany, ship carrying the What a mutual insurance company or been more than three-fourths of its value. What your understanding of a no fault Sun-Moon Insurance issued a Personal repair was P40th. Sheryl immediately liability of Cesar has the not injury. yet been determined when it was carnapped was in the possession answered or paid by RM Travel. that brings about This element of SUGGESTED ANSWER: rice became submerged in sea water, and association? Vessel MN Pearly Shells needed P2.9 indemnity clause found in an insurance Accident Policy to Henry Dy with a face value notified XYZ, but latter refused to pay on with finality. a) Is the contention of only the of an expired drivers license, a violation of a deliberateness is the not clearly shown from the A mutual life insurance corporation is SUGGESTED ANSWER: with it the rice cargo. When the cargo arrived Million, which does not meet the required policy? of P500th. A provision in the policy states the policy alleging that Sheryl violated the In the absence of any stipulation in the insurer correct? Explain. b) May the insurer the the authorized driver clause of the facts of the case, especially considering SUGGESTED ANSWER: cooperative Under that NO promotes FAULT INDEMNITY the welfare of clause, its SUGGESTED ANSWER: in Manila, RC filed a claim for total loss with three-fourths of its value tocompany merit that indemnify the the company HL for the shall loss not of the be insured liable vehicle? in policies from thereof which when insurance she drove it without or a be terms heldthat liable with Cesar? insurance company. 1) May the insurance fact BOY is a minor, and the injured The insurer was notof correct in denying the No, the contention the insurer is not own members, with the money collected any claim for death or injury of any the insurer, because the rice was no longer abandonment. (Section 139, Insurance Code, Explain. 2) Supposing that the car was respect of bodily injury consequent upon drivers license. Is the insurer correct? companies may Fortune recover in case fire company be held liable toand parties are also children. Accordingly, it is Loss: Total Loss Only (1992) claim since the proviso that the person correct. There is no need to wait for the from passenger among themselves or third party solely shall for be their paid SUGGESTED ANSWER: fit for human consumption. Admittedly, the Insured; Accident vs. Suicide (1990) cited in Oriental Assurance v. Court of Appeals brought by ANSWER: HLperson on theSUGGESTED insured attempting to commit should destroy his house completely? possible CNI may not prosper. ATT's An insurance company issued a marine driving isthat permitted in accordance with decision of the court determining Cesars own protection and not for profit. Members without the necessity of proving fault or Fortune may recover from the insurers in the rice could still be used as animal feed. Is Luis was the holder of an accident and Panama Saiv Mill, G.R. No. 94052, insurance August 9, installment basis and there were installments suicide or willfully exposing himself to Yes, RCs claim for total loss is justified. The report is not conclusive on POS or the court. insurance policy covering a shipment by sea licensing, etc. qualified only a person liability with finality before the third party are negligence both the insurer of any and kind. insured. The indemnity A mutual in such order as he may select up to their RCs claim for total loss justified? Explain. 1991) and payable before the loss of the car as well as policy effective Nov 1, 1988 to Oct 31, 1989. due needless peril was except in an attempt to savefor rice, which imported from Thailand from Mindoro to (Sec Batangas of 1,000 pieces at of driving the vehicle other than the insured liability insurer could be sued. The occurrence life insurance company has no capital stock respect of Six any one shall not exceed concurrent liability 94 Ins Code) installments not yetperson payable. Because of the loss At a boxing contest held on Jan 1, 1989 and human life. months later Henry Dy died sale locally, is obviously intended for of the Mindoro garden stones against total loss 1. police report of the the time of the accident (Palermo v Pyramid injury to Roberto immediately gave rise and P5,000.00, relies solely provided upon they its are contributions under oath, or the the car, the vendor demanded from HL the of sponsored by his employer, he slipped andIns of consumption a bullet wound inthe his head. Investigation ALTERNATIVE ANSWER: byshall public. The losses, complete to 2. death certificate and evidence only. The stones were loaded in two lighters, accident; and Co GR 36480 31 fact May 88)his the liability of the insurer under its policy. premiums to meet unexpected following proofs be sufficient: Policy balance of one the promissory note. HL resisted the Valued unpaid was insurer hit on the by opponent so he fell showed that evening Henry was in a The is600 correct. The clause authorized physical destruction of the rice is not sufficient to establish the proper payee; or the first with pieces and the second with b) If each of the fire insurance policies In other words, where an insurance policy contingencies and expenses (Republic v. demand and claimed that he was only liable for and his head hit one of the posts of the happy mood although he was not drunk. He driver in the policy evidently applies to both essential to constitute an actual total loss. 3. medical report and evidence of 400 pieces. Because of rough seas, damage obtained by Fortune in the problem (a) is a insures directly against liability, the insurers Sunlife, G.R. No 158085, October 14, 2005). installments due and payable before the loss of the boxing ring. and He was unconscious was playing with his handgun from which the any rendered other person driving the Such a loss exists in this case since the he rice, medical or hospital disbursement in respect wasinsured caused thethe second lighter in valued policy and value ofthe his resulting house liability accrues immediately upon was the car but no longer liable for other installments the and was dead on arrival at hospital due had previously removed its magazine. He vehicle at the time of the accident. The term ALTERNATIVE INSTANCE: 4. Claim may be made against one having been soaked in sea water and thereby of which refund is claimed. the loss of 325 out of the 400 pieces. fixed in each of the policies P1m, how The occurrence of the injury or at event upon which due at the time of the losswho of the car. not yet to intra-cranial hemorrhage. pointed the gun at his sister got scared. authorized driver should be construed as a In case of an over insurance by several motor vehicle only. rendered unfit for human consumption, has owner of the shipment filed claims against SUGGESTED ANSWER: much would Fortune recover from X if he has Can his father who is a beneficiary under the liability depends (Sherman Shafer v Judge Decide. Copyright (1995) He assured her it was not loaded. He then person who is authorized by law to driver the The insurer cannot be held solidarily liable insurers, the insured is entitled to a ratable Insurer; 3rd Party Liability; Quitclaim (1994) become totally the purpose for RTC 1) Yes. The car was useless lost to theft. What the insurance on the ground of 14 Henrys wife Beverly, as due the for designated already obtained full payment on the said insurance policy successfully claim Olongapo Citycompany Branch 75 GR l-78848, Nov Loss: Constructive Total Loss (2005) What intellectual property rights are pointed the gun at his temple and pulled the vehicle (Peza v Alikpala 160s31) with Cesar. The liability of the insurer is return of the premium, proportioned to the Rauls truck bumped the car owned by Luz. SUGGESTED ANSWER: which was imported (Pan Malayan Insand Co v CA applies init this case is theft clause, constructive total loss inasmuch as more beneficiary, sought to the collect under the insurance policies issued by Y and Z? 88 167s386) indemnity from the insurance company? Insurer; Authorized Driver Clause (2003) SUGGESTED ANSWER: protected by copyright? M/V Pearly Shells, a aggregate passenger and cargo trigger. The gun fired and Henry slumped on based on contract while that of Cesar is amount by which the sum insured Fortune may still value recover only the balance of The car was insured by Cala Insurance. For gr 95070 Sep 5, 1991) SUGGESTED ANSWER: not the authorized driver clause. It is than of the of the stones had been policy. Sun-Moon Insurance rejected her Explain. SUGGESTED ANSWER: The insurance company is not liable under its Rick defrom la Cruz insured his passenger vessel, was insured for P40,000,000.00 the floor. based on tort. If the insurer were solidarily in all the policies exceeds the insurable value P200,000 X insurance company since the damage caused, Cala paid Luz P5,000.00 Yes, in the father who is a beneficiary under immaterial that HLs that wife that wasdeath driving car lost one of Asiatic the lighters. Is the insurance claim on the ground the of the Henry Sec 5 of PD 49 provides Copyright shall policy covering against total loss only the jeepney with Insurers, Inc. The policy against constructive total Luz loss. Due it to a a liable with Cesar, it could be made to pay of the thing at risk. the insured may only recover up to Why? the in amicable settlement. executed the accidental insurance successfully with an expired drivers license at the time company liable under its can policy? was not accidental. Beverly sued the consist in the exclusive right: shipment of 1,000 pieces of Mindoro garden provided that the authorized driver of the ALTERNATIVE: typhoon, it sank near Palawan. Luckily, there Insured; Accident Policy (2004) more than the amount stated in the policy. SUGGESTED ANSWER: extent of his loss. release of claim, subrogating Cala to all her claim indemnity for the death of the insured. was carnapped (Perla Compania de Seguros v insurer. Decide.and Discuss fully. stones. There is no constructive total loss vehicle should have a valid and existing Beverly can recover the proceeds of the policy from the insurer. The death of were no casualties, only injured passengers. CNI insure SAMRaul. under a homeowner's This would, however, be contrary to was thethat 2) The rights promissory against note is When not affected Cala demanded by policy Clearly, the proximate cause of death CA 208 was s 487) the insured not due to suicide can claimed since the rule is to be drivers license. The passenger jeepney of The ship owner sent a notice of against claims for accidental injuries by principles underlying insurance contracts. On whatever reimbursement befalls the from subject Raul, matter the latter of the refused the boxing contest. Death sustained in a computed on the total 1,000 pieces of Rick de la Cruz which was at the time driven abandonment of his interest over the vessel neighbors. SAM's minor theboxing other hand, if is the were accessory saying that contract. he had The already paid contest aninsurer accident . (Desolidarily la Cruz v Mindoro by Jay Cruz, to the insurance company which then liable with Cesar andCo it 17s559) is made to pay only Capital Ins & Surety up to the amount

Mercantile Law Bar Examination Q & A (1990-2006) Page Page 58 59 55 57 of 103 of 103 Page unpaid son, hired Luz 56 P4,500 of balance BOY, professionals 103 injured for on the the 3damage to children afloatto of Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) or willful exposure tonote needless peril whichbe are excepted risks. The insureds promissory POS, the vessel car a neighbor, as evidenced forto should P900,000.00. who by sued paid a release SAM When and for not of re-floated, damages. claim only figured garden stated Having in stones in an already the accident covered insurance obtained resulting by policy, the full in single payment the the death principles policy on the a. Page 60 of 103 print, reprint, publish, copy, act was purely an act of negligence which is payable covered by thebefore policy and for Insured; Accident vs. Suicide (1993) the SAM's the executed installments vessel lawyer by needed Luz was due discharging and ATT, repairs who estimated was Raul. paid at for the his of coverage a underlying insurance passenger. (see policies Oriental solidary At the issued Assurance time obligations of by the Y Co and accident, v CA would Z,200 Fortune s be distribute, multiply, sell and make photographs, which the insured got the insurance for his protection. In fact, he removed the S Insurance Co issued a personal accident loss services P2,000,000.00. offrom the byand the The insurer insurance for reporting company 459) Jay violated may Cruz no was . (Malayan longer licensed recover Ins to Co drive v from CA but GR it X was L-36413 insurance Sep photo engravings, and pictorial magazine the car. gun when he pointed the gun toillustrations his temple he did soof the Marine Warranties (2000) Sohe Cala demanded reimbursement from Luz, or policy to 165s536; Bob Tan with awho face of v periodically refused to pay claim case to of CNI. the ship In one owner, report, 26,Insurance; 88 Figuracion vda devalue Maglana confiscated policy. byImplied an LTO agent issued him because thought that iton was the safe for him to do so. He did so to assure his works; b. to make any translation or other version What warranties are implied in marine sister that the gun was harmless. There is none in the policy that would Insurer; Group Insurance; Employer-Policy Holder (2000) who refused to pay, saying that the total P500th. In the evening of Sep 5, 1992, after Consolacion GR 60506 Aug 6, 92 212s268) ATT disclosed stating there to CNI was that no after constructive his total to Open Policy a Traffic Violation Report (TVR) just minutes extracts orthat arrangements orinsured adaptation thereof; SUGGESTED ANSWER: the insurer ofto liability for car the death of the since the death was Insurer; 3rd Party Liability (2000) insurance? c) If the each of the policies obtained bymood Fortune relieve X company procured a group accident damage the was P9,500.00 Since Cala his birthday party, Tan was in a happy investigations, loss. a) Was there he found constructive the injuries total to the loss 3 before accident. Could Asiatic Insurers, dramatize if it be a non-dramatic work; to convert it an accident. The following warranties are implied in X was riding a suburban utility vehicle (SUV) SUGGESTED ANSWER:

Intellectual Property

Page Page 62 63 66 61 of 103 of 103 invention An Liza deception insolvent cannot Page did Page debtor, could not 64 be 65 of fall held 103 be of after within 103 rather liable for their lawful infringement remote. regular discharge Since duties. of following it copyright cannot What prevails an really since adjudication be under issaid the that the of bank formula be The 3) b) said demanded Victoria to E=mc2. There If be Aaron similar Hotel is The immediate no is IPO chain to need declared such disapproved reproduces of payment. products exact an insolvent duplication as TV, by the petition. law are In the conferred meantime, by the the case fact filed by of provision insolvency, Intellectual physicians of is the can released Property Intellectual be so from, Code, easily Property generally, one deceived of the Code by such Einstein's stereo Because videotapes, of the the court, and the patentees application radio bank what distributes sets threatened would existing on or cameras the be the the ground patent to copies effect, proceed or such betamax that thereof if his any, as to of registration Vicente proceeded and not and by resulted use. in Although a all ALTERNATIVE ANSWER: that debts, limitations trademark holds claims, that to as liabilities the the Axilon, invention copyright and it of may demands belongs is the be hard making to which the to of theory products against its hotels when such of the declaration the of relativity surety, Sony. and improvement makes is Eduardo on not his them patentable. creditors? made Z.available Ong, by another Edzo Explain. Is the to hotel is Shangrila judgment Corporation's award in favor parent Vicente. had used May the the There is infringement. If hotel the51p713) owner of be a It are SUGGESTED ANSWER: employee, quotations expect or have an ifbeen the opposition from inventive proved a published thereto against activity work to his is succeed. estate. not for purpose a the IPO's decided guests merely action to for minor pay correct? viewing up (Frank all (5%) its invthe obligations Benito, guest to . rooms. To tradename judgment obtained and logo by Vicente long before, be enforced A declaration by thenominal court that the ANOTHER ANSWER: trademark which manufactures certain types SUGGESTED ANSWER: part ofof 5 any obligations his judicial regular proceedings duties, ofthe the insolvent even or if for he debtor giving uses the to of Integrity charges independently Bank. a separate On patentable, June 20, 2002, an fee improvement Edzo for petitioner the paid use of of Give protection independently of the of laws insolvency will be for S Yes, the IPO is correct because under the The application for registration of the Turbo SUGGESTED SUGGESTED ANSWER: ANSWER: is insolvent will have the following effects: of goods could reasonably be expected to time, survive. professorial facilities and advice materials by legal ofpractitioner, the it was to Integrity theexisting an videotape Bank patented player. the fullinvention 1) principal Can the must amount Victoria be of a Development proceedings? Corporation Explain. because 1) be The sheriff shall possession The The 5entity judgment obligations obtained of the by insolvent Vicente can debtor be Intellectual Property Code, discoveries, Corporation may be contested. The factual engage in the manufacture of another employer. provided that the source and name of the P500,000, Hotel major improvement plus enjoined accrued for (Aquas interests infringing v take de amounting Leon copyrights L-32160 first to register the intellectual of all assets of the debtor until the that enforced survive independently are as follows: of the insolvency scientific theories and mathematical settings do not indicate that there had been product using the same trademark, another Patents: Infringement; Remedies & Defenses (1993) How does the international affiliation ofof author are identified (See Section 184.1[k] 30Jan82) to P55,000. and held As liable a result, for damages? Edzo had 2) hardly Would any it properties. 1 Taxes and assessments due the Patents; Rights over the Invention (1990) appointment of a receiver or assignee; proceedings. Under Sec 32 of the Insolvency methods, are classified to be as "nonprior use for at least 2 months of the party who uses the trademark for that Ferdie is a patent owner of a certain Corporation affect the the Intellectual Property Code of the cash make left any for operations difference and if Victoria decided Hotel to close does not Shangrila 2) can Payment toEintein's the debtor of any outcome SUGGESTED ANSWER: government, national or local; Cheche invented a device that can convert Law, the assignment to the assignee of all patentable inventions." theory of trademark Axilon. Copyright; Photocopy; when allowed (1998) product be held liable for using that invention. He discovered that his invention is of the dispute? Explain. (5%) Philippines). its charge business. any After fee paying for the use the unpaid of the videotape? salaries Trademark (1994) 1) Yes. Victoria Hotel has no right to use SUGGESTED debts due to him and the delivery to a the 2 Obligations arising from rainwater into automobile She asked the infringed real and personal property, and relativity falls within the category of being May aANSWER: person have photocopies of some trademark. Using this standard, infringement being by Johann. 1) Whatestate are the of its employees, Edzo filed a fuel. petition for The international affiliation of Shangrila Laberge, Inc., manufactures and markets such video tapes in its hotel business debtor of "scientific any property belonging to him, embezzlement or fraud; Macon, a lawyer, to assist in getting her effects of the debtor made by the clerk of the In the insolvency proceedings in court, the non-patentable theory." pages of the book of Professor Rosario made exists because Sony can be reasonably remedies available to Ferdie against Johann? insolvency on July 1, 2002. Patents: Trademark; Gas-Saving Test of Dominancy Device: (1996) to file rule (2005) Corporation may be critical in the event that after-shave lotion, shaving cream, without the consent of the creator/ of and the transfer of any property by him 3 Obligation of any person liable with invention patented. Macon suggested that assignee in insolvency sought to invalidate court shall vacate and set aside any without violating the copyright law? (3%) expected to use such first trademark on owner electric 2) If you were the lawyer of Johann in deodorant, the 3) All civil proceedings pending its Cezar N Corporation works in amanufactures car manufacturing rubber company shoes SUGGESTED ANSWER: affiliates or parent abroad hadthe talcum powder and toilet soap, using the copyright. are forbidden; the insolvent debtor for the same debt, either they form a corporation with other friends judgment entered in company any action commenced the payment made by Edzo to Integrity Bank fans. infringement suit, what are the defenses that 2) No. The use of the videotapes is for Yes. The private reproduction of a published against the insolvent shall be stayed; and owned under the by Joab. trademark Cezar Jordann is quite innovative which hit and the registered in a foreign jurisdiction trademark PRUT, which is registered with as a solidary codebtor, surety, guarantor, have the corporation apply for the for and being a fraudulent transfer because it was with 30 days immediately prior to the the your client can assert? 4) Mortgages pledges are not SUGGESTED ANSWER: business and not merely for home work in a single copy, where the loves Phil market to tinker in 1985, with and things. registered With the its tradename and the logo. A well-known mark the Phil Patent Office. Laberge does not partner, indorser or otherwise. patent, 80% thebefore sharesthe of stock commencement of insolvency proceedings. made within 30 of days filing thereof of the to 1) The following remedies are available to Ferdie affected by the order declaring a person consumption. (Filipino Society of Composers, reproduction is made by a natural person materials trademark and with parts of the Bureau car, he of was Patents, able to and is subject to protection under manufacture briefs and underwear and these 4 Alimony or claim for support; and be subscribed by Cheche and 5% by Macon. insolvency petition. In defense, Integrity Bank Intradename this case, however, the action filed by against 59, Insolvency Law) Authors Publishers v device Tan 148 s pd 1988) exclusively for provable research and private study, invent Trademarks a that gas-saving and Technology that will in enable 1990. Treaty of Paris for the Protection of is items are not specified in commenced the certificate of 5 Debts not against the estate Theinsolvent. corporation was formed and the patent Vicente against Carlito was by asserted the(Sec. payment to(BPTTT) it461; was for a Copyright; Infringement (1997) JG who manufactures briefs and underwear, permitted, without the authorization ofnot the cars PK Company to consume also manufactures less gas. Francis, rubber shoes coJohann. seize and destroy b. injunction c. damages Intellectual Property to which the Philippines registration. (such as a. after-incurred obligations) of, or application was filed. Cheche died legitimate debt that was However, not covered bya the Vicente not later than June 16, 1995 (the In an action for damages on account of an c) Assuming that, Aaron has guarantors wants tothis know whether, under our laws, from he the Franco, the estranged husband ofwhich Cheche, Copyright; Commissioned Artist (1995) owner of the copyright in the work. worker, with the saw trademark how Cezar Javorski created the device it is a in member. such amount may been obtained included in the schedule submitted by, the 3 months later of a was heart attack. facts on point are have not clear) when prohibition because it a valuable infringement of aup copyright, the corporation defendant Infringement vs. Unfair Competition (1996) for his with debts, are the guarantors released can use and register the trademark PRUTE contested the application of the Solid Investment House commissioned Mon and registered likewise, came BPTTT in with 1978. a similar gadget, use of the invention properly transacted which can insolvent debtor. pecuniary consideration made in good faith, Vicente obtained a if writ of preliminary (the alleged pirate) raised the defense In 1992, PK adopted and copied the What is the between infringement from their obligations once Aaron for his merchandise. What is your advice? and filed hisCo own patent application as that Blanco and his distinction son Steve, both noted artists, also using scrap materials and spare parts of is be more than what the infringer (Johann received. attachment against Carlito or more than )30 thus falling within the exception specified in SUGGESTED ANSWER: SUGGESTED ANSWER: Insolvency; Effect; Declaration of Attorneys Insolvency (1991) he was that what he had filed copied design of unaware N Corporations Jordann rubber and unfair competition? discharged from his debts? Explain. sole surviving heir of Cheche. Decide the to paint a mural for the Main Lobby of the the company. Thereafter, Francis an d. fees and cost the Insolvency Law. As judge in the pending days before the petition for involuntary SUGGESTED ANSWER: No, precisely under the principle Yes. The trademark registered in the of SUGGESTED ANSWER: SUGGESTED ANSWER: What are the effects of a judgment in name was a copyright material. Would this defense shoes, both as to shapeof and color, but of issue with reasons. new building of Solid for a contract price of application for registration his device with insolvency was filed against Carlito by his insolvency case, how would you decide the No. An intention to pirate is not an cannot element excussion, the liability of the guarantors The distinction between infringement Laberge Inc covers only after-shave lotion, The estranged husband of Checke SUGGESTED ANSWER: insolvency in Voluntary Insolvency cases? be valid? retained the trademark Javorski on its Insolvency vs. Suspension ofmural? Payment (1998) P2m. a) who owns the Explain b) the Bureau of Patents. Eighteen months respective contentions of the assignee in other creditors. (i.e. on July 29, 1995) of infringement. Hence, an honest SUGGESTED ANSWER: arises after the exhaustion of intention the assets (presumably trademark) and unfair shaving cream, deodorant, talcum powder successfully contest the application. The The contention of the assignee in insolvency 1) Is only the gas-saving device patentable? products. Distinguish insolvency from suspension of Who owns the copyright of the mural? later, Cezar filed his application for the (Radiola-Toshiba Phil v IAC GR 75222 July18,91 insolvency and of Integrity Bank? Explain is no defense to an action for infringement. The orfollows: declaration of insolvency SUGGESTED ANSWER: of the principal obligor. The effect of competition are as 1) Infringement of and adjudication toilet soap. It does not cover briefsinand right over inventions accrue from the May PK Company be held liable to N Co? SUGGESTED 2) These ANSWER: are the defenses that can be asserted is correct. The payment made by Edzo to Explain. payments. (3%) Explain. registration of his device with the Bureau of ALTERNATIVE ANSWER: 199s373) (5%) Yes, the gas-saving device is patentable SUGGESTED ANSWER: of a trademark, whereas unfair competition is by the court, after hearing or default, shall discharge merely confirms exhaustion of the trademark is the unauthorized use underwear. moment of creation and as a right it can a) Solid owns the mural. Solid was the one an infringement suit: Explain. Bank was a fraudulent preference or Integrity SUGGESTED ANSWER: Patents. Yes. The owner of a the copyright must make ALTERNATIVE ANSWER: PK Co may be liable for unfairly competing The limit of the trademark is stated in the passing off of ones goods as those of because it provides technical solution a the have the following effects: a) Forbid the assets of the obligor available to his 1 Patent is invalid (Sec 45 RA 165, as who commissioned the artists to do the work lawfully be assigned. Once the title thereto is payment, being made within thirty (30) days a) In insolvency, the liabilities of the others aware that the material in question is Yes. Article 2076 of the Civil Code provides: against N Co. By copying the design, shape certificate issued to Inc. It does another; problem in athe field of human activity. It is new payment the debtor of sum any debt due to creditors. amended) vested in transferee, the latter has the and paid for to the work inLaberge the of P2m before the filing of the insolvency petition. debtor are more than his assets, while innot under or covered by a copyright. This is done The obligation of the guarantor is him and the delivery to him of any property 2) Fraudulent intent is unnecessary in and color N Corporations Jordann rubber include briefs and underwear which involves an inventive step, and certainly 2 Patent is not new or patentable right toof apply for its registration. The suspension of payments, assets of theare by the giving of such notice atrubber aas prominent extinguished at the same that the of the belonging tois him; b) Forbid the transfer ofis whereas fraudulent intent infringement of shoes and using the same in time its different products protected by Larberges Insolvency; Jurisdiction; Sole Proprietorship industrially applicable. It therefore fulfills b)Unless there a stipulation to the contrary 3 trademark, Specification of the invention does not estranged husband of Cheche, if(1990) not shoes debtor are more than his liabilities. portion of the copyright material. When the debtor, and for the same causes as all other Note: An examinee who answers on the unfair competition; any property by him; and c) Stay of all civil essential in trademarked Javorski, PK is obviously trying trademark. One requisites day Jerry mandated Haw, doing by business the would intellectual under the in the contract, the shall belong in comply with Sec 14copyright b) In insolvency, the assets of the debtor disqualified to inherit, merely succeed alleged pirate is thus made aware obligations. basis of the issue of the JG can register the trademark PRUTE proceedings against the insolvent but to pass off its shoes foris those of N.of Itthereof, is of no Property Code for what patentable. name Starlight Enterprise, avalidity sole joint ownership to Solid and Mon and Steve. 4 Patent was issued not to the true and to are to be converted into cash for distribution to the interest of Cheche. d) act What remedies are available to the transfer of patent as a material valid consideration of pirating the it copy will 2) his Assuming that is patentable, who is foreclosure may be allowed (Secs 18 Inc & 24 3) The prior registration of of the trademark cover its briefs and underwear (Faberge v moment that he trademark Javorski was proprietorship, finds himself short on cash actual inventor, designer or author the utility among his creditors, while in suspension of Copyright; Infringement (1998) guarantors in case they are made to pay the for subscription of the shares of stocks constitute infringement. patent? What, if any, is the remedy of the losingCopyright; entitled to the Insolvency Law) is IAC a 215 prerequisite s 316) to an action for infringement Commissioned Artist (2004) registered ahead of the trademark Jordann. and unable to pay his debts as they fall due model or the plaintiff did not derive his rights payments, the debtor is only asking for time SUGGESTED ANSWER: Juan Xavier wrote anddue published Trademark (1990) should be given credit. a story creditors? Explain. Trademark, Testand ofwhereas Dominancy (1996) party? of trademark, registration of the and CT are artists whose paintings Priority in registration is property not material inset anup BR although he has sufficient tomay cover from the true actual inventor, designer or within which to noted convert his frozen assets into Under Article 2081, the guarantor similar to an unpublished copyrighted story In 1988, the Food and Drug Administration SUGGESTED ANSWER: Insolvency; Fraudulent Payment (2002) What is the test of dominancy? trademark is not necessary in unfair are highly prized by collectors. Dr. DL action for unfair competition as distinguished such debts. He asks you, as his retained author of the utility model (Sec 28 RA 165 as cash ANSWER: with which to pay his obligations against the creditor all the defenses that liquid of Manoling Santiago. It was, however, Cezar is entitled to the submitted patent because he was approved the labels by Turbo SUGGESTED As of June 1,them 2002, Edzo Systems Patents; Infringement (1992) competition. (Del Monte Corp v mural CA 78325 Jan commissioned to paint a at the from an action for infringement of trademark. counsel, for advice on the following queries: amended) when the latter fall due. pertain to the principal debtor. The discharge The test of dominancy requires that if the conclusively proven that Juan Xavier wasthe not the real inventor. Francis, copying from Corporation for its new drug brand name, Corporation (Edzo) was indebted to the the 25,90 181s410) In an lobby action for infringement offor patent, Insolvency: Voluntary Insolvency (2005) main of his new hospital children. The basis he ofby anAaron action for with unfair competition a) Should file a petition the SEC to be obtained on principal obligation competing trademark contains the main or aware the story ofthe Manoling Santiago work of that Cezar, cannot claim the essential Infringement vs. Unfair Competition (2003) Axilon. Turbo is applying with the (Converse Rubber Co v now Jacinto Rubber & Plastics following creditors: a) Ace Equipment alleged defended himself by stating agreed to collaborate on the project for Aaron, ainfringer well-known architect, is suffering is can confusing and misleading similarity declared in a state of suspension of now be used aswho a Manoling defense by in the Both essential features of another and confusion was protected by copyright. criteria of of an inventor, must In what way is an infringement of a Bureau Patents, Trademarks and possess Co GR 27425 and 30505, Apr28,80 97s158) computers and accessories sold to Edzo Supplies for various personal 1) that the of patent issued by thefour Patent Office a total fee two million pesos to be equally from financial reverses. He has creditors general appearance, not financial similarity of payments insued view of the said guarantors against creditors. and deception is likely to result, infringement Santiago Juan for infringement of essential elements of Xavier novelty, originality and Technology Transfer for the the registration ofThe trademark similar toinvention that which pertains to on credit amounting to P300,000. was not really an which was divided between them. It was also agreed with a total claim of P26 Million. Despite his trademarks condition he faces? Explain your answer. b) SUGGESTED ANSWER: SUGGESTED ANSWER: Tradename: International (2005) guarantors are also entitled to indemnity takes place. Duplication or imitation is not copyright. Is Juan Xavier liable? precedence to beAffiliation to (2%) protection. unfair competition? said brand name. Itentitled was subsequently b) Handyman Garage for mechanical patentable; 2) these that he had no his intent to that Dr. DL had to provide all the materials intention to pay obligations, Yes. he Juan Xavier is liable for infringement of Should Insolvency; sell Assets profit vs. participation Liabilities (1998) certificates S Development Corporation sued Shangrila under Article 2066 of the Civil Code. SUGGESTED ANSWER: necessary; not is it necessary that the Nevertheless, under the "first to file rule," confirmed that Accilonne is a generic term repairs (parts and service) performed on infringe so that there was no actionable for Infringement; the assets painting and pay for the wages current are insufficient to cover allcase ofof copyright. It isusing not necessary that Juan to his 10 brothers and sisters in order to raise opened a coffee shop using money Jurisdiction (2003) Corporation for the S logo and the a) IHoracio would counsel Jerry to file the Petition for label should suggest an effort Francis application would have to be given for a class of anti-fungal drugs and is used as Edzos company car 3) amounting to P10,000. for infringing infringement; and that there was no to technicians and laborers needed for the work them. His creditors are about to sue him. Xavier is aware that the story of Manoling cash for his business? Explain. borrowed from financial institutions. After 3 K-9 Corporation, a foreign corporation tradename Shangrila. The claims c) Joselyn Reyes former employee of Suspension of Payment with theformer ordinary imitate. Similarity in size, form and color, priority. Cezar, however, has within three such by the medical profession and the Assume that the project is completed and exact of the patentees existing on the duplication project. Consequently, he was constrained to owner file a of Santiago was protected by copyright. The months, Horacio left for the US with the alleging itself to be the registered that it was the first to register the logo and the Edzo who sued Edzo for unlawful termination courts, rather than the SEC. SECs jurisdiction while relevant, is not conclusive. (Asia months from the decision, to have it cancelled pharmaceutical industry, and that it is used both BR and CT fully paid the amount of petition theare court to declare him patent but only a minor improvement. petition for insolvency. (5%) a) Since Aaron work of Manoling Santiago is protected at Trademark; Infringement (1991) of defrauding his creditors. While his trademark K-9 and logo K, filed anWith Inter tradename in the Philippines and that it year had SUGGESTED ANSWER: of employment and was able to obtain a over such cases is confined only to petitions Brewery v CA GR 103543 Jul5,93 224s437) as intent the rightful inventor; or within one as a generic chemical name in various P2M as artists' fee by DL. Under the law on insolvent, can the judge properly treat the those defenses, would you exempt the was merely forced by circumstances to for TV, the time ofare its creation. Sony is a with registered trademark liabilities worth P1.2m, assets, Partes case the Intellectual Property been using the same inpublications. its tohis restaurant I would not exempt alleged violator final judgment against Edzo for P100,000. filed by corporations and partnerships under from publication, to file an action prove scientific and professional Ahis intellectual property, who will ownfrom the petition as one for involuntary insolvency? Copyright; Infringement (2006) alleged violator from liability? Why? SUGGESTED ANSWER: stereo, radio, cameras, betamax and other however are worth P1.5m. May Horacio be Office against Kanin Corporation for the d) Bureau of Internal Revenue for business. Shangrila Corporation counters that liability for the following reasons: 1) A patent its regulatory powers. SUGGESTED ANSWER: priority to the invention, which has been taken competing drug manufacturer asks you to mural? Who will own the copyright in the SUGGESTED ANSWER: Explain. In a written legal opinion for a client on the The application for registration by Turbo 3) Supposing Joab got wind of the electronic products. A local company, declared insolvent? (2%) cancellation of the latters mark K-9 and b) Instead of selling profit participation SUGGESTED ANSWER: unpaid value-added taxes amounting it is anhim affiliate of an international organization once issued by the Patent Office raises a to Best No. This is aExplain. case for voluntary insolvency from and fraudulently registered by contest the registration ofdeclared the brand name mural? Why? (5%) No. Horacio may not be insolvent. difference between apprenticeship and Corporation may be contested. The inventions of his employees and also laid Manufacturing Inc produced electric fans logo K. During the pendency of the case Under presumption Section 178.4 that of the the article Intellectual is e) Integrity Bank which granted Edzo a certificates, I would urge Jerry to enter into a P30,000. which hasby been using such logo and because this was filed by an insolvent debtor Francis. Axilon Turbo. What will you advice be? His assets worth P1.5m are more than his learnership, Liza quoted without permission a Trademark Law would not allow the claim to the patents, asserting that Cezar which it sold under the trademark Sony before the IPO, Kanin Corporation brought Property loan patentable; in 2001 Code, in it in the can, case amount however of of commissioned P500,000. be shown The partnership or to incorporate in order to raise tradename Shangrila for over 20 years. owing debts exceeding the amount of liabilities worth labor expert's comment appearing in his registration of aP1.2m. trademark when ALTERNATIVE ANSWER: and Francis were using his which, materials and without the consent Sony. Sony sued Best suit against K-9 Corporation before the RTC work, otherwise the creator (Sec (in the 45of absence RA of a A written mere loan was not secured by any asset of Edzo, cash for law his business. However, Shangrila Corporation registered the P1,000.00 under Section 14 of165). the Insolvency Insolvency; Assignees (1996) SUGGESTED ANSWER: book may entitled "Annotations on the Labor applied to sell orin used in connection with hishis b) Jerry profit participation company time making the devices, will Manufacturing for infringement. Decide the for infringement and damages. Could the stipulation but statement it was to guaranteed or the allegation contrary) unconditionally is not owns enough and the to tradename and logo in the Philippines only Law. Under Section 20 of theIn Insolvency On June 16, 1995, Vicente obtained a writ of There is no infringement. order thatLaw, a case Code." Can the labor law expert hold Liza products, is merely descriptive or deceptively Which of suit the two corporations has a better certificates to his brothers and sisters claim prevail over those of his employees? case. action before the RTC prosper? Why? copyright, destroy but that the presumption. work itself belongs ( Aquas to v the de solidarily by Edzos President and controlling after the was filed. the petition must be filed by three or more preliminary attachment against Carlito. The Patent; Non-Patentableof Inventions (2006) can prosper, for infringement trademark SUGGESTED ANSWER: liable for of copyright for result misdescriptive of them. Confusion can right to registering useinfringement the logo and the tradename? without the same with the SEC Explain. person stockholder, Leon 30 who Jan 82 commissioned Eduardo L32160 )Z. Ong, asalive creation. creditors. In the case at bar, it its is Aaron, the ALTERNATIVE ANSWER: levy on Carlitos property occurred on June Supposing Albert Einstein were today No, Joab's claim cannot prevail over those of SUGGESTED ANSWER: the products on which the trademark is used quoting ause portion ofexempted his book without his from the of as the generic Explain. because his sale is Axilon an transaction 2) accommodation An intention to infringe is not Accordingly, the mural belongs to DL. surety. debtor, who filed the insolvency proceedings. Medical drugs may be procured only upon SUGGESTED ANSWER: 25, 1995. On July 29, 1995, another creditor S Development Corporation has a better and he filed with the Intellectual Property his employees. In the first place, Joab did not must be of the same kind. The electric fans permission? (5%) product itself. being isolated and not a sale to the public. The loan due to Integrity Bank fellcase duesince on necessary nor an element in a for However, BR and CT own the copyright, prescription made by a duly licensed filed petition for involuntary insolvency right to a use the logo and the tradename, Office (IPO) an application for patent for his commission any of the two employees to produced by Best Manufacturing cannot Insolvency; obligations that survive (1997) Copyright; Infringement (1994) June 2002. Despite pleas for extension of infringement of a patent. there is 15, no stipulation to the contrary. physician. The possibility of against Carlito. The court gave since the protective benefits of theory of relativity expressed in the invent the device, and itsinsolvency payment by Edzo, the due course to the Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Insolvency & Corporate Recovery

Corporate Recovery (2003) b) Law on Discuss the effects of the SEC order Corporation for itsforeclosure rehabilitation of X suspension on applied the judicial and submitted a by rehabilitation plan which proceedings initiated First Bank. (2%) c) called Would theentry order of for the by it suspension into a joint have venture any effect on with the foreclosure proceedings agreement Y Corporation. Under the initiated by Second Bank? Explain agreement, Y Corporation was(2%) to lend to X d) Corporation Would the suspension its order creditoffacilities withhave certain any effect the suit filed Third Bank? X banks toon obtain funds notby only to operate e) What the legal consequences ofin a the Explain. (2%)are Corporation but also for a part thereof rehabilitation receivership? (2%) amount of P1 million as initial deposit in a f) sinking What measures may the receiver fund to be augmented annually in take to preserve the assets amounts equivalent to 10% of of Debtor the yearly Corporation? (2%) income from its operation of the business of X SUGGESTED ANSWER: Corporation. From this fund the creditors of a. The SEC order of suspension of payment is X Corporation were to be paid annually, starting valid with respect to the debtor corporation, from the second year of operations, with the but not with respect to the principal entire indebtedness to be liquidated in stockholders. The SEC has jurisdiction to 15 years. The creditors of X Corporation objected declare suspension of payments with respect to the plan because Y Corporation would to corporations, partnership or associations, be taking over the to business and assets of X but not with respect individuals. SUGGESTED ANSWER: Could the court approve the plan Corporation. b. SUGGESTED The SECthe order of suspension payment despite objections of the of creditors of X ANSWER: suspended the judicial proceedings initiated be Corporation and could the creditors by Rehabilitation; the First Bank. According to the Supreme compelled Stay to Order follow (2006) the plan? Could Y Court in a line of cases, the suspension order The Blue Star Corporation with the Corporation, in managing thefiled business of X applies to secured creditors and to the action Regional Trial Court a petition for rehabilitation Corporation in the meantime, be deemed to to on enforce the the the ground that it foresaw against the impossibility have taken-over X security Corporation itself? (6%) corporation regardless of the stage thereof. of paying its obligations as they fall due.
the of petition sufficient in form and c. Finding The order suspension of payments substance, the court issued an Order suspended the foreclosure proceedings appointing a rehabilitation receiver and staying initiated by the Second Bank. While the the enforcement of all for claims against the What is is the rationale the Stay Order? foreclosure against the property of a third SUGGESTED ANSWER: corporation. (5%) party, is in reality an action to is collect the to The it purpose of the stay order intended principal obligation owned by the or give the management committee corporation. During the time that rehabilitation receiver the leeway to the make payment of the principal obligation is to the business viable again, without having suspended, the and debtor corporation is in divert attention resources to litigation considered to be not in default and, various fora (Philippine Airlines v. Spouses ALTERNATIVE ANSWER: G.R. Nos. 76879 & 77143, October 3, the 1990; therefore, even the right enforce Kurangking, et al, G.R. No. to 146698, September c. The suspension order does not apply to a Rubberworld [Phils.] Inc. v. NLRC, G.R. No. security, whether owned by the debtor24, 2002;mortgage BF Homes,because Inc. v. Court of Appeals, third party in such a case, 126773, April 14,a1999; ASB Dev. corporation or of thirdSobrejuanite party, has v. not yet theCorp., credit is not yet being enforced against G.R. No. 165675, September 30, 2005). It arisen. thealso corporation against from the third party an prevents but a creditor obtaining mortgagors property. advantage or preference over another with
SUGGESTED ANSWER:

Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Page Page 68 67 of 103 of 103

respect to actions the d. For the same reason against as in (c), the corporation order of (Finasia Investments and suspended Finance Corp v. Court suspension of payments the suit of Appeals, G. R. No. 107002, October 7,1994) . filed by Third Bank vs. against the principal Suspension of Payment Insolvency (1995) ALTERNATIVE ANSWER: stockholders. between suspension payments d. Distinguish The action against the ofprincipal and insolvency. stockholders surety in favor of the SUGGESTED ANSWER: corporation is not as it is notisan In suspension of suspended payments, the debtor not action against the corporation but against the insolvent. He only needs time within which stockholders whose personality separate to convert his asset/s into cash is with which to from that of the corporation. pay his obligations when they fall due. In the of PD insolvency, theappointment debtor is insolvent, e. case Under 902A, the of a ALTERNATIVE ANSWER: that is, his assets are less than his liabilities. rehabilitation receiver will suspend all The following are the distinctions: actions for claims against the corporation and the corporation will be placed under
SUGGESTED ANSWER:

SUGGESTED ANSWER:

1 In suspension of payments, the debtor rehabilitation in accordance with a rehabilitation has sufficient plan property approved to cover by the all SEC. his debts but foresees the impossibility of meeting them SUGGESTED when ANSWER: they respectively fall due, whereas, in f. insolvency, To preserve the assets of the Debtor the debtor does not have Corporation, the receiver may take custody sufficient property to pay all his debts in full; of, 2 and control over, all the existing the assets In suspension of payments, and property of the corporation; evaluate purpose is to suspend or delay payment of existing and liabilities, earnings and debts assets which remain unaffected although a operations of the corporation; and determine postponement of payment is declared, thewhereas, best way to salvagethe and protect in insolvency, object is to the obtain Suspension ofthe Payments; Remedies (2003) interest of investors and creditors. discharge from all debts and liability; When is the remedy of declaration in a state 3 In suspension of payments, no limit for of suspension of payments available to a the amount SUGGESTED ANSWER: corporation? of indebtedness is required, whereas, in This insolvency, the must (per dondee) remedy is debts available to a exceed P1,000 of voluntary corporation when in it case experiences inability to insolvency, orand must not beOrder less than P1,000 pay one's debts liabilities, and where the in Suspension of Payments vs. Stay (2003) case of involuntary insolvency. 1 has sufficient property to cover all its petitioning corporation either: Distinguish the stay order in corporate debts but foresees theaimpossibility of a state of rehabilitation from declaration in meeting them when they fall due (solvent Insolvency; Voluntary Insolvency Proceeding (1991) suspension of payments? (4%) but illiquid) or Is SUGGESTED the issuance ANSWER: of an order, declaring a 2 has no sufficient property (insolvent) petition in a Voluntary Insolvency proceeding Suspension of Payments; Rehabilitation but is under the management a Receiver (1999) insolvent, mandatory upon theof court? SUGGESTED ANSWER: Debtor Corporation and its principal rehabilitation receiver or a management Assuming that petition was in due stockholders filed withlaw the Securities and committee, the the applicable is P.D. No. form and substance and that the assets of thefor Exchange Commission (SEC) a petition 902-A pursuant to Sec. 5 par. petitioner are less his liabilities, the of rehabilitation and than declaration of a state court must adjudicate the insolvency (Sec 18 suspension of payments under PD 902-A. The Insolvency Law) objective was for SEC to take control of the Insolvency; Voluntary vs. all Involuntary Solvency (1995) corporation and its assets and liabilities, Distinguish between voluntary insolvency and earnings and operations, and to determine involuntary insolvency. the feasibility of continuing operations and SUGGESTED ANSWER: rehabilitating the company the benefit of In Generally, voluntary insolvency, it for is creditors the debtor the unsecured had investors and creditors. himself who files the petition insolvency, manifested willingness to for cooperate with while in involuntary insolvency, at least 3 Debtor Corporation. The secured creditors, creditors are the ones who file the petition for however, expressed serious objections and ALTERNATIVE ANSWER: insolvency against the insolvent debtor. reservations. The following are the distinctions: had insolvency, already initiated judicial 1 FirstIn Bank involuntary 3 or more foreclosure proceedings on the mortgage creditors are required, whereas in voluntary constituted on the factory of Debtor insolvency, one creditor may be sufficient; Corporation. 2 In involuntary insolvency, the creditors Second Bank had already initiated foreclosure must be residents of the Philippines, whose proceedings on a third-party mortgage credits or demand accrued in the Philippines, constituted on certain assets of the principal and none of the creditors has become a stockholders. creditor assignment within 30 days prior to Third by Bank had already filed a suit against thethe filing of the petition, whereas in voluntary principal stockholders who had held insolvency, these are not required. themselves liable jointly and severally for 3 the In involuntary insolvency, the debtor loans of Debtor Corporation with said must have done any of the acts of insolvency Bank. as After enumerated by Sec 20, whereas in hearing, the SEC directed the voluntary insolvency, the debtor must not and appointment of a rehabilitation receiver have done any of said acts. ordered the suspension of all actions and 4 claims In involuntary the amount against the insolvency, Debtor corporation as well of indebtedness not be less than P1,000 as against themust principal stockholders. a) (2%) whereas in the voluntary insolvency, must Discuss validity of the SEC it order or exceed P1,000. suspension? 5 In involuntary insolvency, the petition must be accompanied by a bond, whereas such is not required in voluntary insolvency.

COGSA; Prescription of Port Claims (2000) of iron Merchandise charter ore with left the XYZ Broker, over of 2,500 the Zamboanga latters cubic meters vessel, City of the RC imported computer motherboards from bound logs MV LadyLove. for at $27 Manila. per Before For cubic one meter the reason Saad FOB. or could another, After load it, the United States and had them M/V inspecting XYZ Ilog sold de Manila Lady the Love logs, hit a to CD submerged Oslob issued Maritime ashipped purchase obstacle Coto On the arrangements made upon instruction Manila aboard oceangoing cargo causing order. which itdecided to sinkan along to load with it for itsits cargo. own account. A ship of the consignee, H&T Corporation of LA, owned by BC Shipping Company. When the salvor, a) May Salvador, XYZ Inc., was Cocontracted validly ask to for the California, the SP Bank of LA issued an cargo arrived atthe Manila and refloat rescission the vessel of for charter P1seaport Million. party? What If delivered so, kind can of irrevocable letter of credit available at sight to RC, the crate appeared intact; but upon average Saad recover was the damages? refloating fee To what of P1extent? million, b) If SUGGESTED ANSWER: infor favor of BV for contents, the total priceis of inspection of the RC discovered and Oslob whose did not account load it should for its purchase own it be? account, Why? it Particular Average. The of the vesselto FE the logs. The ofowner credit was mailed that the items inside had all badly (4%) bound by the letter charter party? c) been Explain the shall shoulder the average. Generally Bank with the instruction to forward it to the damaged. He did not any notice of meaning of owner profile hac vice of the speaking, simple or particular averages beneficiary. The letter of credit provided damage or In anything with least of all vessel. what kind ofanyone, charter party does include all expenses and damages caused to that the draft to be drawn is on he SP Bank and with BC Shipping Company. What did was this obtain? ANSWER: theSUGGESTED vessel or cargo which have not inured to that it be accompanied by, among other to a) proceed directly to your office to consult XYZ may ask for the 809, rescission of the thethings, common benefit (Art. and are, certification from AC, stating that you abouta whether he should have given a charter party if, as in this case, it sold the therefore, to be borne only by the owner of the logs have been approved prior shipment notice of damage and how long a time he SUGGESTED ANSWER: vessel before the charterer has begun to Before loading on the vessel chartered by AC, the property which gave rise to the same in accordance with the terms and conditions had to initiate a suit the provisions of Myload advice would beunder that RC should give the vessel and the purchaser loads it the logs were inspected by custom inspectors (Art. 810) while general or gross averages of the purchase order. the Carriage of Goods by Sea Act (CA 65). notice of the damage sustained by the for own account. Saad recover andhis representatives of themay Bureau of cargo Forestry, include "all the damages and expenses which What would your advice be? (2%) within 3 days and that he has to file the suit damages to the extent of its losses (Art 689 certified caused to the good condition and arewho deliberately in order to save the b) If Oslob did not load Lady Love for its to recover the damage sustained by the Code of Commerce) exportability of the logs. After the loading was vessel, its cargo, or both at the same time, own account, it would be bound by the charter cargo within one year from the date of the completed, the Chief Mate of the vessel from a real and known risk" (Art. 811). Being party, but XYZ would have to indemnify delivery of cargo to him. issued a the mate receipt of the cargo which for the common benefit, gross averages are COGSA; Prescriptive Period (1995) Oslob if it was not informed of the Charter stated that the logs are in good condition. to be borne by the owners of the articles Bottomry What is(1994) the prescriptive forrequired actions Party at the time of sale. (Art case 689 Code However, AC refused to period issue the saved (Art. 812). In the present there of is Gigi obtained a loan from Jojo Corporation, involving lost or damaged cargo under the of Commerce) certification in vessel the letter of credit. Because no c) proof that the had to be put afloat The term Owner Pro Hac Vice ofa the payable in installments. Gigi executed Carriage of Goods by Sea Act? the absence of certification, FE Bank refused to save it from an imminent danger. SUGGESTED ANSWER: Vessel, is generally understood to be the chattel mortgage in favor of Jojo whereby she to YEAR advance payment on the letter of credit. ONE after the delivery of the goods or 1) charterer of favor the vessel in its the case of transferred in of Jojo, successors May Fe Bank be held liable under the letter the date when the goods should have been of bareboat or charter (Litonjua Shipping and assigns, alldemise her title, rights ... to a vessel credit? Explain. 2) Under the facts above, the delivered (Sec COGSA) Co v National Seamens Board GR 51910 of which Gigi is3(6), the absolute owner. The seller, BV, argued that FE Bank, by accepting Charter Party (2004) 10Aug1989) chattel mortgage was registered with the the obligation to notify him that the Company Under a charter party, XXO Trading Doctrine of Inscrutable Fault (1995) Philippine Coast Guard pursuant to PD 1521. irrevocable letter of credit has been directions shipped sugar to Coca-Cola Company through 1. 2 vessels coming from the opposite Gigi defaulted and had a total accountability transmitted toeach it onother his behalf, has confirmed SS Negros Shipping Corp., insured by Capitol SUGGESTED ANSWER: collided with due to fault imputable of P3M. But Jojo could not foreclose the the letter of credit. Consequently, FE 1) The letter ofthe credit provides as Bank a Insurance Company. The cargo but is toNo. both. What are liabilities of the two mortgage on the vessel because itarrived sank liable under the letter of credit. Is the condition a certification AC. Without such to with shortages. Coca-Cola demanded from vessels with respect to of the damage caused during a typhoon. Meanwhile, Lutang argument tenable? Explain. certification, there is no obligation on the Capitol Insurance Co. P500.000 in settlement them and their cargoes? Explain. Corporation which rendered salvage services SUGGESTED ANSWER: part of FE Bank to advance payment of the XXO Trading. The MM Regional Trial Court, 2. for If it cannot be determined which of the two for refloating the vessel sued Gigi. Whose Lutang Corporations lien should be given letter of credit. (Feati Bank v CA 196 S 576) where the civil suit was filed, "absolved the vessels was at fault resulting in the collision, lien should be given preference, that of of a Jojo preference. The lien of Jojo by virtue 2) No. FE Bank may have confirmed the letter insurance company, declaring that under the which party should bear the damage caused or Lutang? loan of bottomry was extinguished when the of credit when it notified BV, that an Code of Commerce, the shipping agent is to the vessels and the cargoes? Explain. vessel sank. Under such loan on bottomry irrevocable letter of credit has been liable for damages in favor of third 3. civilly Which party should bear the damage to the Jojo acted not only as creditor but also as transmitted it on its behalf. the persons to the conduct of But the carrier's vessels due andto the cargoes if the cause of the insurer. Jojos right to recover the amount of be conditions in the letter of credit must first captain, and the stipulation in the charter collision was a fortuitous event? Explain. theparty loan is predicated on the safe arrival of complied with, namely that from the draft be is exempting the owner liability ANSWER: theSUGGESTED vessel at the port of destination. The accompanied by a policy. certification from AC. not against public Coca-Cola No. The appeal of Coca-Cola will not prosper. SUGGESTED ANSWER: right was lost when vessel sank (Sec 17 Further, confirmation of a letter of credit appealed. Will its the appeal prosper? Reason Under Article 587 of the Code of Commerce, 1. Carriage Each of Goods: vessel Deviation: must bear Liability its (2005) own damage. Both Letters of Credit; Liability of a confirming and notifying PD must 1521) be expressed. (Feati Bank v CA 196 s 576) briefly. (5%) shipping agent is civilly liable for of ofclear them were at fault. (Art 827, Code Onthe a weather, M/V Sundo, carrying bank (1994) damages in left favor of third persons due to the Commerce) insured cargo, the port of Manila bound In letters of credit in banking transactions, of the captain, and the 2. Each of them should bear respective for conduct Cebu. While atcarrier's sea, the vessel distinguish the liability of a their confirming bank SUGGESTED ANSWER: shipping agent can exempt himself damages. Since it cannot be determined as to encountered a strong typhoon forcing the from a notifying bank. In case anything wrong tovessel the letter therefrom only abandoning the which isby at fault.happens This isnearest the doctrine of captain tovessel steer the vessel to the of credit, ait confirming incurs liability with all his equipment and the freight he inscrutable fault. for bank island where stayed seven days. The for the amount of the letter credit, while a may have earned theof voyage. On the 3. No party shall beduring held liable since the cause vessel ran out of provisions for its notifying bank does not incur any liability. other hand, assuming there is bareboat of the collision is fortuitous The carrier passengers. Consequently, the event. vessel Assuming that the cargo was damaged charter, the stipulation in the charter party is not an insurer. proceeded to Leyte to replenish its supplies. Letters of Credit; Liability of a Notifying Bank is (2003) because of such deviation, who between the exempting the owner from liability not a) What liability, if any is incurred by an insurance company and the owner of the against public policy because the public at COGSA: Prescription of Claims/Actions (2004) SUGGESTED ANSWER: advising or notifying bank in a letter of credit cargo bears the loss? Explain. large is not involved (Home Insurance Co. v. transaction? American Steamship Agencies, Inc., 23 SCRA25
(1968).

Mercantile Law Bar Examination Q & A (1990-2006) Page Page 70 71 of 103 of 103 Page The AA 72 insurance entered of 103 Page into company 69aofcontract 103 should with Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) SUGGESTED ANSWER: bear BB the thru loss CC to tothe transport cargo because ladies' wear the from M/V BV The Ilog agreed Saad de Manila Dev to sell Co with to enters AC, a cargo a into Ship of a voyage and 500 tons

It incurs liability unless it is also the deviation Manila of tono the France vessel with was transhipment proper in order at negotiating bank to avoid Taiwan. a peril, Somehow whichthe was goods the strong were not loaded b) Taiwan Bravo Bank out received from Cisco Bank typhoon. at The on running time. Hence, of provisions when the was goods by registered mail an irrevocable letter a direct arrived consequence in France, they of the arrived proper "off-season" deviation of ALTERNATIVE ANSWER: credit issued by Delta Bank for the account in order and AA to was avoid paid the only peril for of one-half the typhoon. the value of The of the cargo bears the loss from the Y owner Company inAA the amount of US$10,000,000 by the buyer. claimed damages because in the bar, they stayed too The to cover thecase saleat of canned fruit juices. shipping company and its agent. The long at the island, making it an improper beneficiary of the letter of credit was X defense of the respondents was prescription. deviation. Every deviation not specified in Corporation which later on partially availed Considering that the ladies' wear suffered Sec. 124of isvalue," improper. (Sec. 125, Insurance itself of the letter of credit by submitting to "loss as claimed by AA, should the Code) Bravo Bank all documents relative to the prescriptive period be one year(2005) under the Carriage of Goods; Deviation; When SUGGESTED ANSWER: shipment of the cans ofProper fruit juices. Bravo Carriage of Goods by Sea Act, or ten years The applicable prescriptive is ten Under what circumstances canperiod a for vessel Bank paid X Corporation its partial under the Civil Code? Explain briefly. years under the Civil Code. The one-year properly proceed to a port other its(5%) availment. Later, however, it than refused further SUGGESTED ANSWER: prescriptive period under the Carriage offraud port of destination? Explain. (4%) availment because of suspicions of Deviation is proper: Goods by Sea Act applies in cases of loss or X being caused practiced upon it and, instead , sued a) when by cargo. circumstances over which damages to the The term "loss" as Corporation to recover what it had paid the SUGGESTED ANSWER: the master nor the owner ofCourt the ship has any neither interpreted by the Supreme in were Mitsui latter. How would you rule if you the control; b) when necessary to comply with a O.S.K. Lines Ltd. v. Court of Appeals, 287 SCRA judge to decide the controversy? (6%) Letters of Credit; Three Distinct Contract Relationships warranty or avoid a 366 (1998) , contemplates a situation where (2002) peril, the made peril is insured no whether delivery or at not all was by the carrier of Explain the three (3) distinct but perished intertwined against; c) when made in good faith, and the goods because the same had or grounds of belief in its necessity toindispensable avoid a contract relationships that are upon reasonable gone out of commerce deteriorated or peril; or d) when in good faith, for the in a letter of credit transaction. decayed while in transit. In the present case, SUGGESTED ANSWER: life, or another vessel in distress. (Sec. purpose ofrelieving saving human the shipment of ladies' wear was actually The three (3) distinct but(1992) intertwined contract Insurance Code) 124, COGSA; Prescription of Claims delivered. Thethat "lossare of value" is not the total relationships indispensable in a letter of A local consignee sought to enforce judicially loss contemplated by the Carriage of Goods transaction are: credit Carriage of Goods; Exercise Diligence a claim against the Extraordinary carrier for loss of a by Act. 1) Sea Between the applicant/buyer/importer and (2005) shipment of drums of lubricating oil from Letter of Credit:beneficiary/seller/exporter Mortgage (2005) the Star Shipping Lines accepted 100 cartons of Japan under the Carriage of Goods by Sea Act The Ricardo mortgaged his to one AC Bank applicant/buyer/importer is the who sardines from Master to fishpond be delivered to 555 (COGSA) after the carrier had rejected its procures to the secure a Manila. P1 Million loan. In a separate letter of credit and obliges himself to reimburse Company in Only 88 cartons were demand. The carrier pleaded in its Answer transaction, hebank opened a letter of credit with the issuing upon receipt of the documents of delivered, however, these were in bad the affirmative defense of prescription under the same bank for $500,000.00 in favor ofis the one title, while the beneficiary/seller/exporter condition. 555 Company claimed from Star the provisions of said Act inasmuch as the HS Bank, a the foreign bank, to purchase who in compliance with themissing contract of sale ships Shipping Lines value of consignee the suit was brought by the after one outboard motors. Likewise, Ricardo executed the goods to the buyer and delivers the documents goods, as well as the damaged goods. Star (1) year from the delivery of the goods. In a Surety Agreement favor AC Bank. of title and draftinto the of issuing bank Shipping Lines refused because the former turn, the consignee contended that the to recover The outboard motors arrived and were SUGGESTED ANSWER: payment for the goods. Their relationship is failed to present a bill of was lading. Resolve period suspended The claim of of prescription 555 Company is meritorious, delivered to Ricardo, but he was not ableby to the governed by the contract of sale. with reasons the claim of 555 Company. written extrajudicial it had even if it fails to present a bill ofa) lading. pay the purchase price demand thereof. Canmade AC (4%) against the carrier within the one-year period, 2) take Between the issuing and the Although a bill of lading the best bank evidence Bank possession of is the outboard pursuant to Article 1155 of the Civil Code beneficiary/seller/exporter The foreclose issuing bank is of the contract of Can carriage for cargo, motors? Why? b) AC Bank also providing that the prescription of actions is and the one that issues the letter of credit nevertheless such contract can exist even the mortgage over the fishpond? Explain. interrupted when there is a written undertakes to pay the seller without a bill of lading. Like anyupon otherreceipt of the (5%) SUGGESTED extrajudicial demand by the creditors. a)and Has to draft ANSWER: and proper title contract, a contract of documents carriage is aof meeting a) SUGGESTED No, for AC Bank has no to legal standing, the action in fact prescribed? Why? b) If the ANSWER: surrender the documents the buyer of minds that gives rise to an obligation on upon much less a lien, onwere the outboard motors. consignees action predicated ongoverned The action taken by the local the consignee reimbursement. Their relationship is thea) part of the carrier to transport goods. Insofar as AC Bank is concerned, it has misdelivery or conversion of of the goods, would has, in fact, prescribed. The period ofprivity one by the terms of thethat letter credit issued by Jurisprudence has held the moment the with the person of Ricardo under the Surety G.R. No. L-18965, October 30, 1964; Negre v. your answer be the same? Explain briefly. year under the Carriage of Goods by Sea the bank. carrier receives the cargo for transport, thenAct Agreement, and ainterrupted lien onissuing the fishpond based 3) Between the bank and the Cabahug Shipping & Co., G.R. No.by L-19609, April (COGSA) is not a written its duty to exercise extraordinary diligence ALTERNATIVE on the ANSWER: real estate mortgage constituted 29,extrajudicial 1966) applicant/buyer/importer Their relationship is demand. The provisions of Art arises . (Cia. Maritima v. Insurance Co. of North Star Shipping Lines can refuse to honor 555 therein. governed by the terms of the application and 1155 of the NCC merely apply and to prescriptive America, Company's for the missing b) Yes, claim butfor only to issuance enforce payment of agreement the of and the not letter periods provided for in said Code to of damaged goods. The Bill of Lading is the the principal loan of P1million secured by the credit by the bank. special laws such as COGSA except when document title that legally establishes the real estateof mortgage on the fishpond otherwise provided. (Doleover v Maritime Co 148 s ownership of 555 Company said goods. b) If the consignees action were predicated 118). (National Union Fire Insurance ofof Pittsburg v. 555 needs to present the Bill Lading to the on misdelivery or conversion of goods, Stolt-Nielaen, G.R. No. 87958, April 26, 1990) Letter of Credit; Certification from Consignee (1993) legally claim said goods. provisions of the COGSA would be Average; Particular Average vs. General Average (2003) inapplicable. Charter Party (1991) In these cases, the NCC prescriptive periods, including Art 1155 of the NCC will apply (Ang v Compania Maritama

Letters of Credit

Maritime Commerce

133 s 600)

Mercantile Law Bar Examination Q & A (1990-2006) SUGGESTED ANSWER: owner and the captain as the typhoon came Under the doctrine of inscrutable fault, earlier and overtook the vessel. The vessel where fault is established but it cannot be sank and a number of passengers determined which of the two vessels were at disappeared with it. fault, both shall be deemed to have been at Relatives of the missing passengers claimed fault. damages against the shipowner. The Doctrine of Inscrutable Fault (1998) shipowner set up the defense that under the A severe typhoon was raging when the doctrine of limited liability, his liability was vessel SS Masdaam collided with MV Princes. co-extensive with his interest in the vessel. It is conceded that the typhoon was the .1 How will you advice the claimants? As the vessel was totally lost, his liability had major cause of the collision, although there Discuss the doctrine of limited liability in maritime also been extinguished. was a very strong possibility that it could law. (3%) .2 Assuming that the vessel was insured, have been avoided if the captain of SS SUGGESTED Masdaam was not drunk and the captain of may the ANSWER: claimants go after the insurance .1 Under the doctrine of limited liability in the MV Princes was not asleep at the time of proceeds? (3%) maritime law, the liability of the shipowner arising collisions. Who should bear the damages to ANSWER: from the operation of a ship is confined to the SUGGESTED the vessels and their cargoes? (5%) The shipowners of SS Masdaam and MV vessel, equipment, and freight, or insurance, if Princess shall each bear their respective loss any, so that if the shipowner abandoned the ship, of vessels. For the losses and damages equipment, and freight, his liability is extinguished. However, the doctrine of limited suffered by their cargoes both shipowners liability does not apply when the shipowner or are solidarily liable. Limited Liability Rule (1994) captain is guilty of negligence. Toni, a copra dealer, loaded 1000 sacks of .2 Yes. In case of a lost vessel, the claimants copra on board the vessel MV Tonichi (a may go after the proceeds of the insurance common carrier engaged in coastwise trade covering the vessel. owned by Ichi) for shipment from Puerto Galera to Manila. The cargo did not reach Manila because the vessel capsized and When Toni sued Ichi for damages based on sank with all its cargo. breach of contract, the latter invoked the limited liability rule. 1) What do you understand of the rule invoked by Ichi? 2) Are there exceptions to the limited liability SUGGESTED ANSWER: rule? 1) By limited liability rule is meant that the liability of a shipowner for damages in case of loss is limited to the value of the vessel involved. His other properties cannot be reached by the parties entitled to damages. 2) Yes. When the ship owner of the vessel involved is guilty of negligence, the limited liability rule does not apply. In such case, the ship owner is liable to the full extent of (Mecenas v CA sustained 180 s 83) by the aggrieved the damages parties Limited Liability Rule (1997) Explain the doctrine in Maritime accidents The Doctrine of Limited Liability SUGGESTED ANSWER:

Doctrine of Inscrutable Fault (1997) Explain the doctrine in Maritime accidents Doctrine of Inscrutable Fault

Under the doctrine of limited liability the exclusively real and hypothecary nature of maritime law operates to limit the liability of the shipowner to the value of the vessel, earned freightage and proceeds of the insurance. However, such doctrine does not apply if the shipowner and the captain are Limited Liability Rule (1999) guilty of negligence. Thinking that the impending typhoon was still 24 hours away, MV Pioneer left port to sail for Leyte. That was a miscalculation of the typhoon signals by both the ship-

Page Page 74 73 of 103 of 103 and Claro also already the fact sighted that A does Manila noton have its radar the means screen. and Manila resources had no to radar invest MVengage SuperFast, in retail a passenger-cargo trade. Besides, vessel Matildes sale P500th equipment. in the security As for speed, agency. Don Claro was owned of the byasbestos SF Shipping products Company to Celeste, plying the being ALTERNATIVE ANSWER: twice as fast as Manila. inter-island wholesale, routes, the transaction was on its is way not to covered by 1) The prosecutor may establish the fact that (Asbestos v Peralta 155 S when it Zamboanga the RetailIntegrated City Trade from Law the Manila port 213) the P500th would constitute a Manila major failed to At the time of the collision, accidentally, and without fault or negligence Nationalized Activities or Undertakings (1995) investment and yet A is not even elected follow Rule 19 of the International Rules of of anyone on the ship, hit a huge floating Global KL Malaysia, a 100% Malaysian owned member of the BOD or one of the officers. the Road which requires 2 vessels meeting object. The accident caused damage to the corporation, to build a hotel beach Furthermore, may also be shownby that A head on to it change their course each vessel and loss desires of an accompanying crated resort in Samal Island, City, to take does not even have means (right) to raise the vessel steering tothe starboard so that cargo of passenger PR. In Davao order to lighten the advantage of it the increased tourists amount of P500th and that or (left) each vessel may pass onthe theofficers port side vessel and save from sinkingtraffic and inof order SUGGESTED ANSWER: and boost the tourism industry of the the rest majority of the directors are foreigners. of the other. that it would to avoid risk of damage to or loss of 2) No. The mereManila fact ofsignaled being a common law 1. Assuming that Global has US$100M to invest Philippines. turn to the port side and steered of the shipped items (none of which was wife of a foreigner does not bring her within in a hotel beach resort in the Philippines, may accordingly, thus resulting in the collision. located on the deck), some had to be ambit of the Anti-Dummy Law. it be allowed to acquire the land on which to the Don Claros captain was off-duty and was ALTERNATIVE ANSWER: jettisoned. SF Shipping had the vessel build the resort? If so, under what terms and 2) Yes. having a drink at the ships bar it at thebe time of Being a common law wife, can repaired at its port of destination. SF passengers who died and the owners of the conditions may Global acquire the land? the collision. a) Who would you hold liable for presumed that she is the one running the Shipping thereafter filed a complaint recover damages from the owner of said cargoes Discuss fully. the collision? b) If Don Claro facie was at fault, business, which raises a prima demanding all the other cargo owners to SUGGESTED ANSWER: vessel? 2. May Global be allowed to manage the hotel presumption may the heirs of the of violation of the Anti-dummy share in the total repair costs incurred by the I can hold the 2 vessels liable. In the problem beach resort? Explain. Law, (RA 6084). company and in the value of the lost and given, whether on the basis of the factual 3. May Global be allowed to operate restaurants Nationalized Activities or Undertakings (1994) jettisoned cargoes. In answer to the SUGGESTED ANSWER: settings or under the doctrine of inscrutable within the hotel beach resort? Explain. Celeste, a domestic corporation wholly complaint, the shippers sole contention was 1. Global can secure a lease on the land. As a SUGGESTED ANSWER: fault, both vessels can be said to have been owned by Filipino citizens, is engaged in that, under the Code of a Commerce, each The corporation with Malaysian nationality, No. The shippers contention is not valid. guilty of negligence. The liability of the 2 trading and operates as general contractor. damaged should bear its or own Global own the land. owners of party thecannot cargo jettisoned, to his save the carriers for the death or injury of passengers It buys and resells the products of Matilde, a damage and those can that did not suffer any 2. from Yes, Global manage the beach vessel sinking and to save the hotel rest of and for the loss of or damage to the goods domestic corporation, 90% of whose capital losscargoes, orresort. damage were obligated to make There isnot no to law prohibiting it from the are entitled contribution. The arising from the collision is solidary. Neither stock is owned by aliens. All of Matildes Limited Liability Rule (2000) any contribution in favor ofconstitute those who did. Is managing the resort. jettisoning of said cargoes general carrier may invoke the doctrine of last clear are made in the Philippines from MV Mariposa, of five passenger ships goods the shippers contention valid? Explain (2%) 3. Global may one be allowed to operate restaurants average loss which entitles the owners chance which can only be relevant, if at all, materials found or produced in the owned by Marina Navigation Co, sank off the within the beach from resort. This is part of the thereof to contribution the owner of the between the two vessels but not on the SUGGESTED ANSWER: Philippines. On the other hand, ECQ coast of Mindoro while en route to Iloilo City. of the resort. vessel operation and also from the owners of the claims made by passengers or shippers Yes, but is subject toFilipino the doctrine of limited a 100% owned SF Shipping is not to contribution/ More than 200entitled passengers perished in the Integrated cargoes saved. (Litonjua Shipping v National Seamen Board GR liability. The doctrine is to the effect that the and manufacturer of asbestos reimbursement for the costs of repairs the disaster. Evidence showed that on the ship corporation 51910 10Aug1989) liability of the shipowners would only be to vessel fromignored the shippers. captain typhoon bulletins issued by products. Celeste and ECQ took part in a the bidding extent of any remaining value ofits the conducted by MWSS for Pag-asa during the 24-hour period public vessel, proceeds of insurance, if any, and asbestos pipe requirements. Celeste won the immediately prior to the vessels departure earned freightage. Given the factual settings, bid, having offered 13% lower than that from Manila. The bulletins warned all types of the shipowner himself was not guilty by ECQ; and MWSS awarded theof sea crafts to avoid the typhoons expected offered negligence and, therefore, the doctrine can contract to supply its asbestos pipes to from path near Mindoro. To make matters worse, 1) Is Celeste barred under the Flag Law well apply (Amparo de los Santos v CA 186 ECQ to to nullify the award in s 69) he took more load than was allowed for the Celeste. Limited Liability Rule; General Average Loss (2000) taking part in sought biddings supply the of Celeste. Nationalized Activities or Undertakings (1993) ships rated capacity. Sued for damages by favor X Shipping Company spent almost a fortune government? 2) Did Celeste and Matilde 1) A invested P500th in a security agency on Nav violate the victims surviving relatives, Marina in refitting and repairing its3) luxury passenger the Anti-Dummy Law? Did Celeste October 30, 1990.1) He wasits charged with Co contended that liability, if any, had and vessel, the MV Marina, which plied the interMatilde violate the Retail Trade being a dummy of his friend, a foreigner. been extinguished with the sinking Ifof MV Nationalization island routesLaw? of the company from La Union Explain. you were the prosecutor, what evidence can not Mariposa; and 2) that assuming it had in the north to Davao City in the south. The SUGGESTED ANSWER: ANSWER: you present to prove violation of the Antibeen so extinguished, such liability should be SUGGESTED MV Marina met an untimely fate during its Yes. The contentions of Marina Nav Co are 1) No. The materials offered inoff the bids Dummy Law? Juana de Cruz, a common limited to 2) the loss of la the Are these post-repair voyage. It sank the coast of meritorious. The captain of cargo. MV Mariposa is submitted are made in the Philippines from law wife of foreigner wrested control of of contentions meritorious in the the context Zambales while en route to La Union from guilty ofanegligence in ignoring the typhoon articles produced or grown in the Philippines, a television firm. At the by instance of the Code applicable provisions of the of Manila. The investigation showed that the bulletins issued PAGASA and in and the bidder, Celeste, is a domestic minority group of the firm, she Commerce? (3%) captain alone was negligent. There entity. were no overloading the vessel. But was onlycharged the captain The Flag Law does not apply. It can with violation of the Anti-Dummy Law. May casualties in that disaster. Faced be with a of the vessel MV Mariposa is guilty of invoked against a bidder who is not and a she be convicted by the mere fact that she is claim only for the payment of the refitting negligence. SUGGESTED ANSWER: The ship owner is not. Therefore, domestic entity, or against a domestic entity a common law wife of a foreigner? Explain. repair, X Shipping company the ship or owner can invoke doctrine of 1) A allows permits the use orthe exploitation 2) No, since Celeste is merely aasserted dealer of who offers imported materials. Limited Liability Rule; Doctrine of Inscrutable Fault exemption from liability on the basis of the limited liability. or enjoyment of a right, privilege or business, SUGGESTED ANSWER: Matilde and not an alter ego of the latter. (1991) hypothecary or limited liability rule under the exercise or enjoyment of which is No. The assertion ofon X Shipping Company is Celeste buys and sells its own account In a collision between M/T Manila, a tanker, Article 587 ofMatilde. the Code of Commerce. Is X expressly reserved by the Constitution or the not valid. The total destruction of the vessel the products of and M/V Don Claro, an inter-island vessel, Shipping Companys assertion valid? Explain laws to citizens of the Philippines, by the 3) Matilde did not violate the Retail Trade does not affect the liability of the ship owner Don Claro sank and many of its passengers (3%). foreigner not possessing the requisites Law since it does notvessel sell itscompleted products to for repairs on the before its drowned and died. All its cargoes were lost. prescribed by the Constitution or the laws of consumers, but to dealers who resell them. loss. The collision occurred at nighttime but the Limited Liability Rule;violate General Average LossTrade (2000) the Philippines. The prosecutor should prove Neither did Celeste the Retail sea was calm, the weather fair and visibility the above elements of the crime Law since, in the first place, it is not was good. Prior to the collision and while still prohibited to 4 nautical miles apart, Don Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Nationalized Activities or Undertakings

Page Page 76 77 75 of 103 of 103 backup requires Civil Code in the 60% and processing Filipino other laws holding of of in goods, land c) general corporate factories, application ownership. and can d) its still own apply in A course, SURETY is habitually issued byengaged a surety or employees. suppletorily. Is EL engaged in retail trade? does due it appear asBOND that suchZ failure is or refusal ALTERNATIVE ANSWER: insurance company in favor of a Explain. in selling to bad constituted the general faith. public that designated The dismissal by the court was board correct. A SUGGESTED ANSWER: beneficiary, to which such 3) Yes. Not being a holder course, c) The Anti-dummy Law allows commodity. Sincepursuant there is in nodue violation of the The sale by EL of generators to government check whether or not post-dated or crossed, company acts as a surety to the debtor or Excel is subject to the personal defense representation to the extent of actual and Retail Trade Law, there would likewise by no offices, agricultural enterprises and factories is still a negotiable instrument and unless obligor of such beneficiary. A CASH BOND is which Po Press can set up against Jose (State permissible foreign investments in violation of the Anti-Dummy Law. are outside theAccordingly, scope of the term retail Pablo is a general indorser, which is not Retail Trade Law (1993) a security in the form cash established by Investment House v IAC 175of S 310) corporations. the President of business and may, be made by expressed in the settings, he cannot Checks; Crossed (1995) A foreign firm Check is engaged in theto business of the a guarantor or surety secure Acme may no sit factual intherefore, the BOD of the Checks: Crossed Checks (2005) the said corporation. However, sales be held liable for the dishonor of the On Oct 12, 1993, Chelsea a corp to manufacturing selling Straights, rubber products obligation ofand another. department store corporation but can do of so What is a crossed check? What are the generators byIn EL to its may own House employees d) Therealty Treasurer of Acme not hold that instrument. State Investment v IAC (GR engaged in the manufacture of cigarettes, dealers who in turn sell them to others. It also in the corporation. effects of crossing a check? Explain. constitute retail in sales and did are not proscribed. position either the court department store 72764 13Jul1989) , the go so far ordered from Moises 2,000 bales of tobacco. sells directly to agricultural enterprises, ALTERNATIVE ANSWER: SUGGESTED ANSWER: Under the amendment to Retail Trade corporation or in the realty corporation since as to hold that the fact of the crossing would Chelsea issued to Moises two public crossed checks automotive assembly plants, utilities In State Investment House v IAC (GR 72764 A Crossed Check under accepted banking Law introduced by Law PD 714, the the term retail the Anti-Dummy prohibits render the instrument non-negotiable. postdated Mar andbulk, 15 Apr 94 in full which buy 15 them in94 large and to its 13Jul1989), the SC considered a crossed check practice, crossing a check is done by writing business shall of not include a manufacturer employment aliens in such nationalized payment therefor. On 191) Jan Moises sold officers and employees. Is 94 there violation as subjecting a subsequent holder thereof to two parallel lines diagonally on the left top (such as EL) selling tothose industrial areas of business except that calland for to Dragon Investment House at a 2) discount of the Retail Trade Law? Explain. May said the contractual covenants of the payor and portion of the checks. The crossing is special commercial users or consumers who use the highly technical qualifications. the checks drawn by Chelsea in his firmtwo operate a canteen inside the premises of the payee. If such were the case, then the where the name of the bank or a business products bought by them to render service to favor. Moises failed to deliver the bales its plant exclusively for its officials and of instrument is (1991) not one which can still be said institution is written between the two parallel SUGGESTED ANSWER: Retail Trade Law the general public (eg government offices) tobacco as agreed Chelseas employees without despite violating the Retail Trade 1) On thewhich assumption that the foreign firm is to contain an unconditional promise pay or lines, means that the drawee should Is theto Filipino common-law wife of a to and/or produce or (1991) manufacture goods demand. Consequently, on 1 Mar 94 Chelsea Act? Explain. Retail Trade Law; Consignment doing in thethe Philippines, the sale order a sum certain in money. In the transfer paybusiness only with intervention ofto that foreigner fromsold engaging the retail which are barred in turn by in them (eg issued a stopCrossed payment order on the 2 ABC Manufacturing Inc, a by company wholly Effects Checks SUGGESTED ANSWER: the dealersof of agricultural enterprises, of non-negotiable credits assignment, the company. business? agricultural enterprises and factories). checks issued to Moises. Dragon, claiming to 1) The check may not be encashed but only owned by foreign nationals, manufactures A Filipino common-law wife of a foreigner is automotive assembly plants, and public transferor does not assume liability for the (Goodyear Tires v Reyes Srdistributes Gr 30063, Jly 83 ALTERNATIVE ANSWER: be a holder in due course, filed a complaint in the bank. 2) The check may benot negotiated deposited typewriters which ABC to 2,the SUGGESTED ANSWER: not barred from engaging in retail business. utilities is wholesale and, therefore, in fault of the debtor or obligor. Accordingly the 123s273). Yes. ABC The check crossed. It should for collection against for the The value of only onceto one Chelsea 1 consigns its typewriters to have Dragon cannot from Chelsea. general public in 2is ways: On the assumption that she acts for and in violation of the collect Retail Trade Act (BF Goodrich v courts decision was correct. forewarned Mr. Noble that it was issued for a the checks. Rule on the complaint of Dragon. who has an account with a bank. 3) The act independent dealers who in turn sell them to instruments are crossed checks which were her own behalf, and absent a violation of the Reyes 121 s 363) specific purpose. Hence, Mr Noble could not Give your legal basis. of crossing the check serves as a warning to 2) Yes. The of2,000 the canteen inside the public; and, Law which prohibits a foreigner intended to operation pay for the bales of Anti-Dummy a holder in due course. He are is subject to the that the check has issued for2 a be the premises for its officers and individuals, who notor an tobacco toholder beexclusively delivered to Moises. It been was fromThrough being either the real proprietor the personal defense of breach of trust/ definite purpose, so that he must inquire if he employees, would amount to an input in the employees ofof ABC, and who are paid strictly therefore the obligation of Dragon to inquire employee a person engaged in the retail agreement by basis Mr. Pablo. Such defense received the check pursuant that ANSWER: has these arrangements violate the Retailis Trade manufacturing process therefore, does on ALTERNATIVE a commission each sale. as to the purpose of theand, issuance ofto the 2 purpose;Do trade, she would be for violating the Retail otherwise, he is not a holder in due An engagement by a wife (including available in favor of Mr Carlos against Mr Law? not violate the Retail Trade Act. crossed checks before causing them to be Trade Act. Checks; Crossed relationships) Check (1994) SUGGESTED ANSWER: course. common-law of a foreigner in Noble. Retail Trade Law (1996) on its part to make such discounted. Failure Press issued in favor of Jose a postdated a) Po The first arrangement would not be in Checks: Crossed Checks vs. Cancelled Checks (2004) Retail Trade Law (1990) the retail trade business, raises the With a capital of P2th Maria operates a stall inquiry, which resulted in its bad faith, crossed check, in payment of newsprint violation of thethat Retail Trade Law. The law Distinguish clearly (1) crossedcompany checks from Acme Trading Co Inc, a trading presumption she has violated the Antiat a public market. She manufactures soap Dragon cannot claim to be a holder in due which Jose promised deliver. Jose sold and applies only when the to sale is direct to the cancelled checks; wholly owned by foreign stockholders, was Dummy Law. Hence, the wife is barred from that she sells to the general public. Her course. Moreover, the checks were sold, not SUGGESTED ANSWER: negotiated the to Excel Inc. sells at a for general public. A check dealer buys and persuaded by Paulo Alva, a Filipino, to invest engaging in the retail trade business. common law husband, MaLee, who has a endorsed, by check him tois Dragon which not lines A one with two did parallel Retail discount. Trade Excel Law (1992) did and, not ask Jose the purpose in his own behalf therefore, the sale in crossed 20% of the outstanding shares of stock a and pending petition for naturalization, become a holder in due course. Not being a of a drawn diagonally across its face or across of crossing the check. Since Jose failed to A Cooperative purchased from Y Co on to the general public is made by the dealer corporation he is forming which will engage in occasionally finances the purchase of goods holder in due course, On Dragon is subject to the a corner thereof. the other hand, deliver the newsprint, Po ordered the drawee installments a rice mill and made a down and not by the manufacturer (Marsman & Co v the department store business (the for resale, and assists in part the management of ALTERNATIVE ANSWER: personal defense on the of Chelsea SUGGESTED ANSWER: cancelled check is one marked or stamped bank to stop payment on the check. Efforts payment therefore. As security for the First Coconut Control Co GR39841 20June1988) department store corporation). Paulo also the business. Is breach there aof violation of the Retail a) The first arrangement violates the Retail concerning trust on the part ofof a No, there is the no violation of the Trade "paid" and/or "cancelled" byRetail or on behalf of Excel to from Po failed. Excel wants payment ofcollect the balance, the Cooperative Checks; Crossed Check (1996) urged Acme to invest in 40% of the Trade Law? Explain. Trade Law because when ABC consigned Moises Lim in not complying with his Law. Maria is a manufacturer who sells to the drawee bank to indicate payment thereof. to know from you as counsel: 1) What are executed a chattel mortgage in favor of Y the What are the effects of crossing a outstanding shares of2000 stockbales of the realty the typewriters, the transaction was one of obligation to deliver the of Checks; Crossed Check (1991) general public, through her stall in the public SUGGESTED ANSWER: effects of crossing a check? 2) Whether as Corporation. Y Co in turn assigned its rights check? corporation he is putting up to own the land consignment sale. In consignment sale, an crossed check, is it a holder in due course? tobacco. Mr Pablo sought to aborrow P200th from Mr The effects crossing check are as be market, the of soap which she manufactures. second indorser and holder of the to the chattel mortgage to Z Co a 5% foreign on which the department store will built agency relationship is created so it is as if 3) Whether Pos defense of lack of Carlos agreed to loan the b) amount in 1 Carlos. The check may not be encashed but only follows: Inasmuch as her capital does not exceed corporation? Explain your answer. May owned company doing business in the (the realty corporation). a) May Acme invest ABC sells directly to the public through its against Jose is also available as against consideration as the form of a the postdated check which was deposited in a bank; P5th (it isinvest only P2th) then she is considered Acme in realty corporation? SUGGESTED ANSWER: The cooperative thereafter made Philippines. in the said department store Excel? (i.e. 2 parallel diagonally drawn the Cooperative was to meet 2 crossed The4a check may be lines negotiated only once to agents. under Sec the Retail Trade Law as not Discuss. c) of May the President of Acme, a b) Because The second arrangement would be installment payments to Z Co.unable SUGGESTED ANSWER: on the top left portion of the check). Before its obligations in full, Trade Z Co filed against it a BOD of the said department store corporation? one who has an account with a bank; engaged in the retail business. Inasmuch foreigner, sit in the violative of the Retail Law, since the 1) The effects of crossing a check due date the check, Pablo discounted court suit for collection. The Coop resisted he be a business director of realty corporation? May as Marias is the not a business, sale is done through individuals being paid 3 the The act ofof crossing aretail check serves as a The check is for deposit only in the are:1 it with Noble On due date, Noble deposited contending Z Co was illegally engaged in Discuss. d) May the Treasurer of Acme, then the requirement in Sec 1that of the Retail strictly on a that commission warning to the holder thereof the check has account of the payee basis. The said the occupy check the with same his position bank. The in the check said department was the retail trade business having sold a another foreigner, Trade Law that Philippine nationals shall individuals would then may be for acting merely as been issued for only a definite purpose so that the 2 The check be indorsed only store corporation? May he be the treasurer of dishonored. Noble sued Pablo. The court consumer good as opposed to a producer engage, directly, or indirectly, in the retail agents of the manufacturer. Sales, therefore, holder must inquire if he has received the check SUGGESTED ANSWER: once in favor of a person who has an ALTERNATIVE ANSWER: said corporation? Explain. the dismissed Nobles complaint. Was the courts item. The Coop also alleged that Z had business is inapplicable. For this reason, made by such agents are deemed direct pursuant torealty that purpose, otherwise he isthe not a The courts decision was incorrect. Pablo and account with a bank SUGGESTED ANSWER: b) The 2nd arrangement is not violative decision correct? violated the Anti-Dummy Law. Is Z guilty of of participation of Ma Lee, Marias common Law sales by the manufacturer. holder in due course (See Bataan Cigar and Carlos, being immediate parties to the 3 Trade The check is issued for a specific a) Acme may not invest in the department the Retail Law because typewriters are violating the Retail Trade Law and the Antihusband, in the management of the business Cigarette Factory, Inc. v CA GR 93048, Mar 3, 1994; instrument, are governed by the rules SUGGESTED purpose ANSWER: and the person who takes itfor not Retail Trade Law (1996) store corporation since the Retail Trade Actof not consumption goods or goods Dummy Law? Why? 230 s 643) would not be a violation of the circumstances Retail Trade privity. Given the factual of Z Co is not guilty of violating the Retail Trade in accordance with said purpose does not EL allows, Inc, a domestic corporation with foreign in the case of corporations, only 100% personal, household and family use. Law in problem, relation to the Anti-Dummy Law. the Pablo has no valid excuse from Law and the Anti-Dummy Law. The term become a holder in due course and is not equity, manufactures electric generators, Filipino owned companies to engage in retail denying liability, (State investment House a) v IAC RETAIL under Retail thereunder. Trade Act requires entitled to the payment and sells them to the following customers: trade. 2) No. It seller is a crossed check and Excel did not GRAcme 72764may 13July1989). undoubtedly had b) invest inPablo the that the must be habitually engaged in government offices which userealty the generators take it in accordance with the purpose for Bond: Cash Bond vs. Surety Bond (2004) benefited in the transaction. hold corporation, on to the assumption that To the b) selling to the general public consumption during brownouts render public service, which the check was issued. Failure on its Distinguish cash bond from surety otherwise would contravene the basic balance of 60% of also ownership of the latter goods. Byclearly consumption goods are meant agricultural enterprises which utilize the part to inquire as to said purpose, bond. rules of enrichment. Even corporation, is Filipino owned since the law in personal, family and household purposes. A generators as unjust negotiable instruments, the merely Rice Mill Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) SUGGESTED ANSWER: does prevented not fall Excel under from the becoming category.a Neither holder

Negotiable Instruments Law

Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

payment therefor through (Traders the Royal Clearing Bank v. House, RPN, G.R. XM No. 138510, October 10, 2002). Bank honored it. Thereafter, Albert withdrew P210,000 Drawee-bank canhis recover from the the and closed account. collecting bank (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, G.R. No. after a When the check was returned to him because even if the indorsement on XM 18657, August 23,1922) month, William discovered the alteration. the check deposited by bank's Bank recredited P210,000 tothe Williams client is forged, collecting bank is current account, and sought reimbursement bound by its warranties as an indorser from ND Bank. ND Bank refused, claiming and cannot set up defense of forgery that XM Bank failed to return the altered asto against drawee bank (Associated check it within 24 hour clearing period. Bank v. Court of Appeals, G.R. Who, as between, XM Bank and No. ND 107382, Bank, SUGGESTED ANSWER: Checks; Liability; January Drawee 31, 1996). Bank (1995) should bear the loss? Explain. ND Guzman Bank should the loss if XM Mario issuedbear to Honesto Santos a Bank returned the altered check toaND Bank within check for P50th as payment for 2nd hand twenty four after of its Mario, discovery of the car. Without thehours knowledge alteration. Under the given facts, William Honesto changed the amount to P150th discovered the alteration when the which alteration could not be detected byaltered the check was returned to him the after a month. It naked eye. Honesto deposited altered may safely be assumed that the William check with Shure Bank which forwarded immediately advised XM Bank of such fact same to Progressive Bank for payment. and that the latter promptly notified ND Bank Progressive Bank without noticing the thereafter. Bank Circular No. 9, as alteration paid Central the check, debiting P150th amended, on which the decisions of the from the account of Mario. Honesto withdrew Supreme Court in Hongkong & Shanghai the amount of P15th from Shure Bank and Banking Corp v Peoples Bank & Trust Co and disappeared. After receiving his bank Republic Mario Bank vs CA the were based was statement, discovered alteration SUGGESTED ANSWER: expressly cancelled and superseded by CB and demanded restitution from Progressive The demand of Mario for restitution of the No Discuss 317 dated Dec 23 1970. The latter was in Bank. fully the rights and the amount of P150,000 to his account is tenable. turn amended by CB Circular No 580, dated liabilities of the parties concerned. Progressive Bank has no right to deduct said Sept 19, 1977. As to altered checks, the new amount from Marios account since the order rules provide that the drawee bank can still of Mario is different. Moreover, Progressive return them even after 4:00 pm of the next Bank is liable for the negligence of its day provided it does so within 24 hours from employees in not noticing the alteration discovery of the alteration but in no event which, though it cannot be detected by the beyond the period fixed or provided by law ALTERNATIVE ANSWER: naked eye, could be detected by a XM BankProgressive should bear the loss. the for filing of a legal action by theWhen returning As between Bank and Shure magnifying instrument used by tellers. bank drawee against bank (XM the that Bank) bank failed sending to the return the Bank, it is the former should bear the same. altered check to the collecting bank (ND Assuming thatBank the relationship between the loss. Progressive failed to notify Shure drawee Bank) bank the and 24 the hour collecting clearing bank period is Bank that within there was something wrong with inby Sec 4c of CBhour Circular 9, 24 dated evidenced some written document, the theprovided check within the clearing rule of Checks; Material Alterations; (1999) prescriptive Feb 17, 1949, period the Liability latter would is be absolved 10 years. from hours. A check for (See P50,000.00 drawn against liability. v was PB&T Co GR L-28226 Sep (Campos, NIL HSBC 5th ed 454-455) drawee 30 1970; bank 35 and s 140; made alsopayable Rep Bank to vXYZ CA GR 42725 Checks; Forged Check; Effects (2006) Apr 22, 1991 196 sThe 100) Marketing or order. check was deposited Discuss the legal consequences when a bank with payees account at ABC Bank which honors a forged check. (5%) then sent the check for clearing to drawee SUGGESTED ANSWER: bank. Drawee bank refused when to honor the honors The legal consequences a bank check on ground that the serial number a forged check are as follows: 1 Is it proper for the drawee bank thereof had been altered. XYZ marketing (a) When Drawer's Signature is to Forged: dishonor the check for the reason that it had been sued drawee bank. Drawee-bank by accepting the check cannot altered? Explain (2%) of forgery, because by set up the defense 2 In instant suit, drawee bank contended accepting the instrument, the drawee bank that XYZ Marketing as payee could not sue the admits the genuineness of signature of Checks; Crossed Check (1996) drawee bank as there was no privity between (BPI Family Bank vs. Buenaventura G.R. Ondrawer March 1, 1996, Pentium Company ordered then. Drawee theorized that there was no basis to No. 148196, September 30, 2005; Section 23, a computer CD is Bytes, and issued Unless a from forgery attributable to a the fault make it liable for the check. Is this contention Negotiable Instruments Law). of P30,000 postcrossed check in the SUGGESTED ANSWER: or negligence of amount the drawer himself, the correct? Explain. (3%) dated Mar Upon ofagainst the a. No. The 31, serial number isreceipt not a material remedy of 1996. the drawee-bank is the check, CD Bytes discounted the check with particular of the check. Its alteration does party responsible for the forgery. Otherwise, Fund House. material not constitute

80 of 103 alterationPage of Page the 78 79 instrument. of 103 of 103 The serial number is not the material the Family Bank v. drawee-bank bears loss to (BPI Buenaventura, OnG.R. April No. 1, 1996, 148196, Pentium September stopped 30, payment 2005). A negotiability of the instrument. of the drawee-bank check for failure payingof on CD a Bytes forged to check deliver must b. Yes. As a general the drawee not and the be computer. considered Thus, as rule, when paying Fund out House of itsis funds (Samsung Construction Co. to Phils, v. Far East liable under the check because there is no deposited cannot charge the check, the the amount drawee the bank drawer Bank, August 13, 2004). If the privity ofG.R. contract between XYZ Marketing, dishonored it.No. 129015, If Fund House a complaint against drawee-bank has charged drawer's as payee, and files ABC Bank as the drawee account, bank. Pentium and CDaction Bytes forsuch the payment ofis the the latter can recover amount from the However, if the taken by the bank G.R. No. 107382, January 31, Bank 1996; Bank of P. I. dishonored check, will the complaint prosper? drawee-bank (Associated v. Court of an abuse of right which caused damage not v. Case Montessori No. Explain. SUGGESTED ANSWER: The complaint filed Appeals, only to the issuer of the:Internationale, check but also G.R. to the May 28, 2004). by 149454, Fund House against not payee, the payee has a Pentium cause ofwill action However, the (1994) drawer may be precluded or Checks; Presentment prosper but the one under quasi-delict. against CD Bytes will. estopped from setting up the 13, defense of Gemma drew check on September Fund House isa not a holder in due course and, forgery as against the drawee-bank, it 1990. The Pentium holder presented to when the therefore, can raisethe thecheck defense of is shown that the drawer himself had been drawee bank only on March 5, 1994. The failure of consideration against it. The check guilty of gross negligence as to have bank dishonored the check on the same in question was issued by Pentium to pay for facilitated the by the forgery (Metropolitan date. After dishonor drawee the a computer that it ordered from CD bank, Bytes. (NOTA BENE: The question does not Waterworks v. Court of Appeals, G.R. No. L62943, holder gave a formal notice of dishonor to The computer not the having been delivered, qualify term "forged check". An 143 SCRA 20, July 14, 1986 ). Gemma through aaddressing letter dated April 27, there was a failure of consideration. The answer the liabilities of a 1994. 1) What is meant by unreasonable check discounted Fund by CD drawer with should be House deemed sufficient. time as applied tocheck presentment? 2) Is of have Answers addressing liabilities parties Bytes is a crossed and this should SUGGESTED ANSWER: Drawee Bank versus Collecting Bank Gemma liable to the holder? should likewise be given full credit) put Fund House on inquiry. It should have 1) As applied to presentment for payment, When the signature of the drawer is forged, ascertained title of CD Bytes to the check reasonable the time: is meant not more than 6 as between the drawee-bank and collecting or the nature of the latters possession. months from the date of issue. Beyond said bank, this the respect, drawee-bank sustains the loss, Failing Fund House is deemed period, in it is unreasonable time and the since the collecting bank does not to guarantee guilty of gross negligence amounting legal check becomes stale. the Aside signature of the drawer. The payment absence of good and, thus, not a holder of 2) No. formfaith the check being already theGemma check by the drawee constitutes in due course. Fund House can bank collect from stale, is also discharged form (Philippine National Bank v. Court of the proximate negligence since it Appeals, has CD Bytes as Acceptance the latter was the immediate Checks; Effect; by the drawee bank (1998) liability under the check, being a drawer and the G.R. No. L-26001, October 29, 1968). duty to know the signature of its clientindorser of the check. (See Bataan Cigar and X person draws a check against his current account a whose liability is secondary, this is drawer. Cigarette Factory v CAthe et al 230 s of 643 GR 93048 with to the Ortigas branch of Bonifacio Bank in due the giving of notice dishonor Mar 3, of 94) favor B. Although X does not have beyond the period allowed by law. The giving (b) Forged Payee's Signature: When sufficient funds, the bank honors the check of notice of dishonor on April 27, check, 1994 is drawee-bank pays the forged it must when it is presented for payment. more one (1) month from 5, be than considered as paying out March of its funds and Apparently, X has conspired with the banks 1994 when the check was dishonored. Since cannot charge the amount so paid to the bookkeeper so his ledger would it is not shown that Gemma and the holder account of the depositor. Incard such case, the show that he still has sufficient funds. resided in the same place, the period within bank becomes liable since its primary duty is The bank files an action for recovery of the which to give notice of dishonor must be the to verify the authenticity of the payee's ALTERNATIVE ANSWER: amount paid to the B because the check same time that notice would reach signature (Traders Royal Bank v. Radio 2) Gemma can no still be liablefunds. under Decide the (c) if Forged presented has sufficient Philippines Network, G.R. No. 138510, October Gemma sent by mail. Sec 103 & 104; original contract for the (NIL consideration of SUGGESTED ANSWER: Indorsement : Drawer's account cannot the case (5%) 10, 2002; Westmont Bank v. Ong, G.R. No. Far East Realty Investment Inc v CA 166 S to be which the check was issued. The bank cannot recover the amount paid charged, and if charged, he can recover 132560, January 30, 2002). 256) Checks; Presentment (2003)Bank B for the check. When the bank honored the (Associated v. Court of Appeals, from the drawee-bank A bank it issues its own check. May the holder check, became an acceptor. As acceptor, G.R. No. 107382 January 31,1996). hold the liable thereunder if he fails the bank became primarily and cause directly bank Drawer has no of to action prove presentment for payment, liable to the payee/holder B. against collecting bank, since theor duty of The recourse ofthe the bank should be against collecting bank is the only to the payee. A present bill to drawee for X and its bookkeeper who conspired to make collecting bank is not guilty of negligence acceptance? Explain your answers. (4%) Xs ledger show that he has sufficient funds. over a forged indorsement on checks for ALTERNATIVE ANSWER: it has no way of ascertaining the The bank can recover from B. This is solutio authority of the endorsement and when it indebiti because there is payment by the caused the checks to pass through the bank to B (Manila when such payment is not due. Lighter Transportation, Inc. v. Court of clearing house before allowing withdrawal The checkAppeals, issued X to February B as payee no On the G.R. No. by 50373, 15, had 1990). of the proceeds thereof sufficient funds. other hand, a collecting bank which Checks; Effects; Alterations; Period (1996) endorses a Prescriptive check bearing a forged William issued to Albert a check for P10,000 endorsement and presents it to the drawn on XM Bank. Albert the drawee bank altered guarantees all prior amount ofendorsements the check to P210,000 and including the forged deposited endorsement the check to his account NDbe held itself and with should Bank. When ND Bank presented the check liable for
Page

Page Page 82 83 84 of 103 of 103 delivered Negotiable b) Paragraph Instrument: it to Page Marie. 2 81 Definition of negotiability She 103 & accepted is NOT AFFECTED check in good faitheither as payment Characteristics (2005) What is afrom negotiable a) P2,500.00 2. liability MP Celso bought has in the I the promise a event used right cell that to to pay phone collect it should Pedro from from San pay JR. Juan Alex YuJR or e) Maythe Pablo recover Mario or Theshe interest is to be computed ataa particular for instrument? goods Give delivered the characteristics to Ruth. Eventually, of and preferred through order Benito. the cash oversight sum Celso but ofis P2,500. or MP a inadvertence. party is asubsequent friendDespite so to JR Jose? SUGGESTED ANSWER: and is determinable. Itand does not make the sum time Ruth regretted what she did apologized negotiable instrument. (2%) thethe accepted two. stop However, MRs order promissory by Celso Lim,has BPI note no nevertheless right for P10,000. to claim paid a) Camilo may enforce said promissory uncertain or the not promise conditional. c) to Jun. Immediately he directed the drawee against JR Yu thought upon Felix presentation of who converting is a party ofthe the note subsequent check. into Lim cash sued to note against Mario and Jose. The promissory SUGGESTED ANSWER: (Sgd.) Noel Castro Paragraph 3 negotiability is AFFECTED. bank to dishonor the check. When Marie Celso by BPI endorsing (Sec for paying 60 and itagainst 66 to NIL) his his brother order. Decide KR. The the SUGGESTED ANSWER: Negotiable Instrument a written contract note atthe the time of forgery being payable Incomplete Giving the maker the option renders the to promise encashed check, it is was dishonored. promissory case. & Delivered note is(2004) a piece of paper with the In the event that Lim, in fact,MP hadfor for the payment of money which is intended order, the signature of (5%) Pablo was essential 2)a Manila, June 3,Mr. 1993 1. conditional Is Jun liable d) to Paragraph Marie? 4 negotiability isfor AX, businessman, was preparing a following hand-printed notation: WILL sufficient reasons to issue stop SUGGESTED ANSWER: as a substitute for money and passes from the instrument to pass title to subsequent NOT AFFECTED. business triplegal abroad. As he usually did in the PAY JR TEN THOUSAND PESOS INthe PAYMENT Yes. This covers the delivery of a not an make payment order, he may sue BPI for paying one person to another as money, in such parties. A forged signature was inoperative P10,000.00 For value received, I promise to Giving the option to the holder does past,HIS he CELLPHONE signed several checks in blank and FOR 1 WEEK FROM TODAY. incomplete instrument, under Section 14 of against his order. The waiver executed by Mr manner promise as to give conditional. a holder in due course the (Sec 23 NIL). Accordingly, the parties before pay Sergio Dee or order the sum of the entrusted to MPs his secretary Below this them notation signature with with the Negotiable Instruments Law, which Lim did not mean that it need not exercise right to hold the instrument free from the forgery are not juridically related to P10,000.00 in five (5) installments, with the instruction to to safeguard them and fill of them 8/1/00 next it, indicating the date the provides that there was prima facie authority Negotiability; Holder in Due Course (1992) due diligence to protect the interest of its defenses available to prior parties. Such parties after the forgery to allow such first installment payable on October 5, 1993 out only when required to pay accounts promissory note. When JR presented MPs Camilo may not to go against Pablo, the on b) the part of Ruth fill-up of Perla brought a motor car payable on account holder. It is not amiss to state that instrument must comply with Sec.any 1 of thethe enforcement. and the other installments on before the during his absence. OB, his secretary, filled note to KR, the latter said it or was not a latter not having indorsed the instrument. material particulars done so, the drawee, unless the has earlier installments from thereof. Automotive for Negotiable Instrument Law toHaving be Company considered fifth day of the succeeding month or out one of instrument the checks byinstrument placing her name negotiable under the law and so The characteristics of a a down negotiable instrument and when She it ismade first completed before it is P250th. payment of P50th been accepted by it, is not bound to honor negotiable. thereafter. as the payee. She filled out the amount, could not be a valid substitute for cash. JR c) Camilo may enforce the instrument are; (Sgd.) Lito Villa negotiated to a holder in due course like payment todelivered the holder of check the check that and executed a promissory note for the endorsed the to KC, who took the and opposite view, insisting on the ALTERNATIVE ANSWER: against Julian his Marie special b) TH is anit indorsee of a promissory note that 1) Negotiability -company That quality orof attribute whereby a Marie, it is The valid for because all purposes, and balance. subsequently thereby excludes it from any liability if it accepted in good faith for payment of notes negotiability. You are asked to 1991 6b) BPI would not be liable toreferee. Mr Lim. SUGGESTED ANSWER: indorsement topasses Camilo, thereby making him to simply states: PAY TO JUAN TAN OR ORDER bill, note or check or may pass from hand may enforce it within a reasonable time, as if were to comply with its stop payment order indorsed the note to Reliable Finance gems that KCopposing sold to OB. Later, OB told AX of Which of the views is correct? Mr Lim and BPI are governed by their own The promissory note is negotiable as it 2. Supposing the check was stolen while in SUGGESTED ANSWER: secondarily liable, both being parties after 400 PESOS. The note hasAX notimely date, directed no place hand, similar towhich money, so as to the holder in it had been filled upfinanced strictly ingive accordance Corporation the purchase. (Sec 61 NIL) what she did with regrets. agreement. The waiver executed by Mris Lim, Yes. AX could be held to KC. This a complies with Sec 1, liable NIL. Ruth's possession and a thief filled the blank the forgery. of payment and no consideration mentioned. due course the right to hold the instrument and with the authority given. The promissory note read: For value the bank to dishonor the check. Could AX be neither being one future fraud or gross d) the Julian, inand turn, may the case an incomplete check, which has been check, endorsed delivered it enforce to Marie in of signed Firstly, it MK is of in writing and signed by the collect It was by and written under his sum payable for himself free from received, I promised to pay Automotive held liable Under to KC? Answer and reason briefly. negligence, would be valid. The problem instrument against Bert who, by his forgery, delivered. Section 14 of the Negotiable payment for the goods he purchased from maker, Noel Castro. letterhead specifying the address, which defenses. 2) Accumulation Secondary Contracts as Company or order at its of office in Legaspi (5%) does not indicate the promise existence fraud or has himself primarily liable. Instruments Law, KC, as a TH holder in due her, is rendered Jun liable to Marie the check is at Secondly, the is of unconditional to they happens to be his residence. accepted the are transferred from oneif person to another. City, the sum of P200,000.00 with interest e) Pablo preserves his right to recover from gross negligence on the part of BPI so asas to course, can enforce payment ofthat the check dishonored? (5%) pay a sum certain in money, is, P2,500.00 promissory note as payment for services twelve (12%) percent per annum, payable in Defenses; Forgery (2004) SUGGESTED ANSWER: either Mario or Jose who remain parties warrant liability on its part. if it had been filled up strictly in demand accordance Manila September 21, 1991. rendered to SH, who in turn received the note Thirdly, it is payable on as no date equal installments of P20,000.00 monthly for No. Even though Marie is a holder in due CX maintained a checking account with juridically related to him. Mario is still with the given by to OB and from Juan authority Tan as payment forAX a his prepaid cell of maturity is specified. ten (10) months starting October 21, 1991. course, this is an incomplete and UBANK, Makati Branch. One of checks in considered primarily liable toundelivered Pablo. Pablo (sgd) Perla within a reasonable time. Fourth, it fifty isworth payable to pesos. phone card 450 The instrument, covered by Section 15 of the a stub of was missing. Later, he payee Incomplete and Delivered (2005) may, in case of dishonor, go after Jose who, order. acknowledged having received the note on Negotiable Instruments Law. Where an discovered that Ms. DY forged his signature Note: It indorsement, is possible that an answer Brad was in desperate need of money to pay by his special is secondarily Pay to the order of Reliable Finance The promissory note is negotiable. All the August 1, 2000. A to Bar reviewee had from told TH, incomplete instrument has notblank been succeeded P15,000 distinguish between and hisand debt to Pete, encash a loan shark. Pete liable. might Corporation. Automotive Company requirements of Sec 1 friend, NIL arethat complied with. who happens to be your TH is not delivered, special it will not, if completed and another branch of the bank. DY was able to indorsements of prior parties threatened to take Brads life if he failed to The sum to be paid is still certain despite a holder in due course under Article 52 of the negotiated without authority, be a valid encash check ET, friend, which can thereby materially alter pay. Brad the and Petewhen went toa see Seorita By: (Sgd) Manager that the sum is to be paid by installments Negotiable Instruments Law (Act 2031) and contract in hands of any answers. holder, as guaranteed saying that she the the above suggested The Isobel, Brads due rich execution, cousin, and asked her if (Sec 2b NIL) therefore does in not enjoy the rights and against any person, including Jun, whose was a holder due course. Can CX recover problem did not clearly indicate the Because Perla defaulted in the payment of she could sign a promissory note in his favor Negotiability (2002)the statute. TH asks for our SUGGESTED ANSWER: protection under Forgery; Liabilities; Prior & Subsequent Parties (1995) signature was placed thereon before the money from the bank? Reason briefly. kind of indorsements made. her installments, Reliable Finance Corporation in Yes, amount of P10,000.00 to pay Pete. Which of therecover following stipulations or features CX can the bank. Under advice specifically in from connection with the SUGGESTED ANSWER: Alex issued a against negotiable PN (promissory delivery. Such defense is aher real defense even (5%) initiated a case for a sum of Fearing that Pete would kill Brad, Seorita of a promissory note (PN) affect or do not Section 23 of the Negotiable Instruments Indorser: Irregular Indorser vs. course, General Indorser (2005) note being undated and not mentioning a a) KR is right. The promissory note is not note) payable to Benito or order in payment against a holder in due available to note a money. Perla argued that the promissory Isobel acceded to request. She affixed affect its negotiability, assuming that the PN Law, forgery is a the real The forged Distinguish an irregular indorser from a to place of payment anddefense. any consideration. negotiable. It is not issued to order or bearer. of certain goods. Benito indorsed the PN party like Jun whose signature appeared prior is merely an assignment of credit, a nonher on a piece of paper withto the issignature otherwise negotiable? Indicate your answer check wholly inoperative in relation CX. general (3%)of an existing obligation. What would your advice be? (2%). There is is no word of negotiability containing Celsoindorser. in payment to delivery. negotiable instrument open to all defenses assurance of Brad that he will just fill it up SUGGESTED ANSWER: by writing the paragraph number of the CX cannot be held liable thereon by anyone, therein. It is not issued in accordance with Later Alex found the goods to be defective. available to the assignor therefore, later. Brad then filled up the blank paper, Irregular Indorser is not and, a party to the stipulation or feature of due the PN as shown not even by aNegotiable holder in course. Under a Section 1 of the Instruments Law While in Celsos possession thea PN was Reliable Finance Corporation is not holder making a promissory note for the amount of instrument but he places his signature in in below and your corresponding answer, either forged signature of the drawer, there is no What defense or defenses can Seorita stolen by a) Dennis who forged Celsos due course. Is the promissory note a mere P100,000.00. He then indorsed and delivered blank before delivery. He is not a party but Affected or Not affected. Explain (5%). instrument that would give to a b) valid Theset fact the instrument is rise undated Isobel up that against Pete? Explain. (3%) signature and discounted it with Edgar, a a) The date of the PN is February of credit or a the same to Pete, who accepted the source note30, as he assignment becomes one because ofnegotiable his signature in SUGGESTED ANSWER: contract which can be the basis and does not mention the place ofor paymentof money lender who did not make inquiries b) defense The PN bears interest payable on the instrument? Why? b) Is his Reliable Finance payment 2002. of the debt. theSUGGESTED instrument. Because signature he Corp is The (personal which liability the part of the defense) drawer. ANSWER: does noton militate against its The being about the PN. Edgar indorsed the PN to Felix, last day of each calendar quarter at a rate a holder in due course? Explain briefly. considered an indorser and he is problem liable to is the Seorita Isobel can set up against Pete drawee bank no right or authority to is a) The promissory note in the a negotiable. The has date and place of payment a holder in Indorser due course. When Felix equal to five percent (5%) above is the then While, a warrants that the parties in General theare instrument. that the amount of funds P100,000.00 not in 1. What the rights of Felix, if any, touch the drawer's deposited the negotiable instrument, being in compliance are not material particulars required towith make demanded of thehe PN has from the Forgery; Liabilities; Prior & Subsequent Parties (1990) prevailing 91-day Treasury Bill rate instrument is payment genuine, a Alex good accordance with the authority given toas her to against Alex, Benito, Celso and Edgar? drawee bank. with the provisions of that Sec 1 NIL. Neither the an instrument negotiable. latter refused to pay. Dennis could no longer Jose published loaned atMario themention beginning some money such and, calendar to title toExplain it, that all prior parties had capacity to Brad (in the presence of Pete) and that Pete The fact that no is of made of any fact that the payable sum is to be paid with be located. c) The PN gives the maker the option to evidence quarter. his Mario executed contract; that the instrument at the time of SUGGESTED ANSWER: was consideration not a holder isindebtedness, not in due material. course Consideration for acting in 2. Does Celso any right against Alex, interest nor thathave the maturities are in stated make payment either in money or in quantity and delivered to Jose a promissory note theSUGGESTED indorsement is valid and subsisting; and ANSWER: bad faith when accepted the note as is presumed. Benito and Felix? uncertain Explain. the amount installments renders of palay or his equivalent value. payable to order. that 1. on Felix due has presentment, no right to the claim instrument against will Alex, Negotiable Instrument: Ambiguous Instruments (1998) payment despite his knowledge that it was payable (Sec 2 NIL) d) The PN gives the holder the option Jose endorsed the note to Pablo. Bert be Benito accepted and or Celso paid who or are both parties accepted prior and to How do you treat a negotiable instrument b) Yes, Reliable Finance Corporation is a the only 10,000.00 thatpayment was allowed by Seorita either to require in money or to fraudulently obtained the note from Pablo Incomplete Instruments; Incomplete Delivered paid forgery according Celsos to its tenor, signature and that by ifDennis. it is that is so ambiguous that there is doubt holder in of due course given thefor factual Isobel during their meeting with Brad. Checks; Validity; Waiver of Banks liability require the maker to serve as the bodyguard and endorsed it to Julian by forging Pablos Instruments vs. Incomplete Undelivered Instrument dishonored, Parties to he an instrument will pay if who the are necessary such prior whether it is a bill or a note? (5%) settings. Said corporation apparently took the negligence (1991) Negotiability (1993) or escort of the holder for 30 days. signature. Julian endorsed the note to SUGGESTED ANSWER: (2006) proceedings to the forgery for dishonor cannot are be made. held liable by any promissory note for value, and there are no Mr. Lim issued a check drawn against BPI SUGGESTED ANSWER: Discuss the negotiability or at non-negotiability a) Camilo enforce the said 1. Where a May negotiable instrument is so JunCamilo. was about to leave a business As party who became such or to indications that acquired it insubsequent bad faith (Sec Bank in favor of Mrit Yu as payment of certain a) Paragraph 1 for negotiability is trip. NOT of the following notes promissory note against Mario and Jose? b) ambiguous that there is doubt whether it is a hisAFFECTED. usual practice, he signed several blank the forgery. However, Edgar, who became a 52 NIL see Salas v CA 181 s 296) shares of stock which he purchased. On the The date is not one of the May go against Pablo? c) May bill or aCamilo note, the holder may treat it either checks. He instructed Ruth, his secretary, to party to the instrument subsequent to the Negotiability; Requisites (2000) same day that he issued the check to Yu, requirements for negotiability. 1) Manila, September 1, 1993 enforce said note against Julian? d) as a bill of exchange or a his promissory note at fill Camilo them as payment for obligations. Ruth forgery and indorsed the same Lim ordered BPIwho to stop payment. Per to Felix, Against Julian the right of his election. filled one whom check can with her have name as payee, can be held liable by the latter. standard banking practice, Lim was made to recourse? placed P30,000.00 thereon, endorsed and sign a waiver of BPIs Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Instrument: Document vs. be Negotiable duly taken, he Negotiable will pay the amount Negotiable Instrument (2005) thereof to the holder, or to any subsequent Distinguish a negotiable document indorser who may be compelled to pay. from a negotiable instrument. (2%) SUGGESTED ANSWER: C is not liable to F since the latter cannot Negotiable Instrument have requisites of of Sec. trace his title to the former. The signature 1 of the NIL, a holder of this instrument C in the supposed indorsement by him to have D right of recourse intermediate parties was forged by X. C against can raise the defense of who are secondarily liable, Holder in due forgery since it was his signature that was ALTERNATIVE ANSWER: course may have rights better than forged. As transferor, a general endorser, B is is secondarily liablethe its subject money and to Instrument F. C is liable to is F property since it of is value. due to the itself On the of other hand, negotiable negligence C in placing the notedocument in his does that not contain Sec. 1 ofand NIL, it drawer enabledrequisites X to stealof the same has the no signature secondary of liability of intermediate forge C relative to the parties, transferee steps into the indorsement in favor of merely D. As between C and shoes the innocent transferor, its subject goods F who areof both parties, it is Care whose and the is instrument is merely evidence negligence the proximate cause of the of title; thing of value are the loss. Hence C should suffer the goods loss. mentioned Negotiable incomplete and(1997) undelivered Negotiable Instrument; Negotiability in the Instruments; document. instruments; holder due course or (2000) Can a bill of in exchange a promissory note PN qualify makesas aa promissory for P5,000.00, negotiable note instrument if a.leaves it the is not but name of the payee in blank b. the and the the dated; or because he day wanted to month, verify but its not correct year of its maturity, is given; or spelling first. He mindlessly left the note on is payable toend of the workday. topc.of hisitdesk at the d. it names the two following morning, the cash or When he returned alternative drawees note was missing. It turned up later when X SUGGESTED ANSWER: presented it to PN for payment. Before X, T, a)turned Yes. Date not filched a material particular who out tois have the note from required by Sec 1 NIL for the negotiability PNs office, had endorsed the note afterof an instrument. inserting his own name in the blank space as b) No. The time for payment is not the payee. PN dishonored the note, determinable in this case. The year is not contending that he did not authorize its stated. completion and 9d delivery. But X the saidinstrument he had c) Yes. Sec NIL makes no payable participation in, or knowledge about, the to bearer because the name of the pilferage and alteration of the note and payee does not purport to be the name b) Can the payee in a promissory note be a of therefore he enjoys the rights of a holder in any person. holder in due course within the meaning of due course the Negotiable Instruments A bill under may not be addressed two or thed) Negotiable Instruments Law (Actto 2031)? Law. Who is correct and why? (3%) moreyour drawees in the alternative or in Explain answer. (2%) SUGGESTED ANSWER: to be negotiable (Sec 128 NIL). succession, a) To PN do is so right. Thethe instrument is incomplete makes order conditional. Negotiable Instruments; (1998) any and undelivered. It Bearer did Instrument not create Richard Clinton note contract that would makes bind PNatopromissory an obligation payable to bearer and delivers the same to to pay the amount thereof. b) A payee in a promissory cannot be a Aurora Page. Aurora note Page, however, holder in due course within the meaning of Payable to X. Signed: Aurora endorses it to X in this manner: the Negotiable Instruments Law, because a Page. Later, endorsing the promissory payee is X, an without immediate party in relation to transfers and the same to thenote, maker. The payee is delivers subject to whatever Napoleon. The note available is subsequently defenses, real of personal, to the ALTERNATIVE dishonored by Richardnote. Clinton. May Napoleon maker of ANSWER: the promissory b) A payee against can be a holder in due for course. proceed Richard Clinton the note? A holder is defined as the payee or indorsee SUGGESTED ANSWER: (5%) Yes.instrument Richard Clinton liable to Napoleon of the who is is in possession of it. under the is promissory note. facie The note Every holder deemed prima to be made a by Richard Clinton is a bearer instrument. holder in due course. Negotiable Instruments; Incomplete Despite special indorsement made by Aurora DeliveredInstruments; Comparative Page thereon, the note remained a bearer Negligence (1997) and can be negotiated by mere instrument delivery. When X delivered and transferred the note to Napoleon, the

Page Page 86 85 of 103 of 103 A, single latter became proprietor a holder of a

business thereof. concern, As such is holder, about to Napoleon leave for can a business proceed trip against and, as Richard he so often Clinton. does on these occasions, signs several checks in Negotiable Instruments; Bearer Instruments (1997) blank. He instructs B, his secretary, to A delivers a bearer instrument to B. B then safekeep the checks and fill them out when specially indorses it to C and C later indorses and as required to pay accounts during his it in blank to out D. E steals thechecks instrument absence. B fills one of the by from D and, forging signature succeeds placing her name the as payee, fillsof in D, the in negotiating it todelivers F who acquires the amount, endorses and the check to instrument faith and for value. a) If, C who acceptsin it good in good faith as payment for for any drawee bank refuses to goods soldreason, to B. B the regrets her action and honor theshe check, F enforce the in tells A what did. can A directs the Bank SUGGESTED ANSWER: instrument against the drawer? b) In case of time to dishonor the check. When C Yes, A can be held liable to C, assuming that the dishonor of the check by both the drawee encashes the check, it is dishonored. Can A is the latter gave notice of dishonor to A. This and the drawer, can F hold any of B, C and D be held liable to C? SUGGESTED ANSWER: a case of an incomplete instrument but liable secondarily on the instrument? a) Yes. The was payable delivered as it instrument was entrusted to B, the to bearer as it was bearer instrument. It could be secretary of a A. Moreover, under the doctrine negotiated by mere delivery despite the of comparative negligence, as between A presence of special indorsements. The forged and C, both innocent parties, it was the signature is presume the negligence of Aunnecessary in entrustingto the check to B Negotiable Instruments; kinds of negotiable instrument; juridical relation between or the which is the proximate cause ofamong the loss. words of negotiability parties prior to(2002) the forgery and the parties A. Define the following: (1) a negotiable after the forgery. The only party who can promissory note, (2) a bill of exchange and raise the defense of forgery against a holder Negotiable Instrument: Identification (2005) (3) a check. (3%) in due course is the person whose signature b) Only B and C canwhether be held liable F. The B. You are Pedro Cruz. Draft the appropriate State and explain the by following are is forged. instruments instrument under at the the time Negotiable of the forgery Instruments was Law: contract language for (1) your negotiable negotiable 1) Postal Money payable to bearer, being a check, bearer each instrument. (5%) promissory note and Order; (2) your 2) Moreover, A certificate of elements timewas deposit the instrument indorsed in containing the essential of a which states This is D. to D, certify bearer has blank byinstrument C to whose signature was negotiable (2%) that SUGGESTED ANSWER: deposited inE this bank the liable sum of FOUR forged by cannot be held by F. A. (1) A negotiable promissory note is liabilities anonly,of Negotiable bearer instruments; THOUSAND Instruments; PESOS (P4,000.00) unconditional promise in writing made maker and to indorsers (2001) 3) Letters of credit; repayable the depositor 200 daysby after one person to another, signed by the maker, 4) A issued Warehouse a promissory note payable to B or date. engaging to on demand or at or 5) bearer. Treasury warrants payable from a A pay delivered the note to a B.fixed B indorsed receipts; determinable time, a sum certain specific fund. the note to future C. C placed the note in hisin SUGGESTED ANSWER: money to order or bearer. drawer, which was stolen by the janitor X. X 1) indorsed Postal Money Order Non-Negotiable the note to D byforging Cs (2) A exchange is an unconditional as signature. itbill isof governed by postal rules and D indorsed the note to E who in order in writing addressed by one person to regulation which may be inconsistent with turn delivered the note to F, a holder in due another, signed by the be person giving it, the NIL and it can only negotiated once. course, without indorsement. Discuss the SUGGESTED ANSWER: requiring the person to whom it is addressed individual liabilities to F of A, B and C. (5%) 2) pay A is on liable A certificate to F. As of a time maker of the which to demand or the at fixeddeposit or (3) A check is future a bill exchange on a states promissory This is note, to of A certify is directly thatdrawn or bearer primarily determinable time a sum certain in has bank payable on demand. deposited liable to in F, who this is bank a holder the in sum due course. of FOUR money to order or to bearer. THOUSAND Despite the presence PESOS of (P4,000.00) the special only, B. (1) Negotiable repayable indorsements to the on depositor the note, 200 these days do not after promissory notethe - fact thatas date. detract from Non-Negotiable a bearer it does not comply instrument, with the like requisites the promissory of Sec. 1 note of NIL in 3) question, Letters of credit - by Nonis always negotiable mere B, as a general is liable to F Negotiable delivery, until itindorser, is indorsed restrictively For 4) secondarily, Warehouse Non-Negotiable and receipts warrants- that the Deposit Only. for instrument the sameisas Bill of Lading it merely genuine and in all respects represents good, not what it purports tomoney. be; that he has good title to it; that all prior parties had capacity to 5) contract; Treasury warrants payable from a that he has no knowledge of any specific fund Non-Negotiable being payable fact which would impair the validity of the out of a particular fund. it valueless; that at the instrument or render time of his indorsement, the instrument is valid and subsisting; and that on due presentment, it shall be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor

Mercantile Law Bar Examination Q & A (1990-2006) Page 88 of 103 Mercantile Law Bar Examination Q & A (1990-2006)

YES! Page Dagul 87 of is 103 an accommodation party because in therequires case at 2. If Pedro pays the said P20,000 to Y, Pedro Commercial Banking Co. The By-laws of Saad that Negotiable Instruments; Requisites (1996) bar, he is essentially, a signed person who signsand as the checks issued by it must be by the President can recover the amount from X. X is the What are the party requisites of party a negotiable maker Treasurer without or the Vice-President. receiving any Since consideration, the Treasurer was accommodated or the ultimately SUGGESTED ANSWER: instrument? absent, requested the Vice-President to co-sign the for check, signs as C an accommodation party merely liable for the instrument. Pedro is only an The requisitesparty. of a negotiable instrument are the latter The check was delivered to B. thewhich purpose ofreluctantly lendingdid. the credit of his name. accommodation Otherwise, it would be as follows: a) It must be in writing and The check was dishonored upon presentment on due date for And as an accommodation party he cannot unjust enrichment on the part of X if he is b)the It must contain signed maker or Parties; Party (2003) an unconditional of funds. a) Is Saad liable on the check setinsufficiency up lack of consideration against any as an notdrawer; to Accommodation payby Pedro. promise or order Susan Kawada borrowed P500,000 from XYZ accommodation party? b) If who it is not, then, under the above holder, even as to one iswho not a holder in to pay a certain in together money; c) It must be Parties; Holder in Due Course (1993) Bank whichsum required her, with Rose facts, is/are the accommodation party? due course. payable order or to bearer; and d) Where Larry issued a negotiable promissory note to Reyes who to did not receive any amount from instrument is addressed to a drawee, he Evelyn and authorized the latter to fill up the thethe bank, to execute a promissory note SUGGESTED ANSWER: must be named amount in blank with his loan account in the payable to the bank, or or otherwise its order indicated on statedtherein a.) Saad is not liable on the check as an reasonable certainty. (Sec 1 NIL) with sum of P1,000. However, Evelyn inserted maturities. The note was executed as so accommodation party. The act of the P5,000 in violation of the instruction. She agreed. What kind of liability was incurred by Notice Dishonor (1996) corporation accommodating a friend of the negotiated the in note to Julie who had Rose, that of an accommodation party or that SUGGESTED ANSWER: When is notice of dishonor not required to President, is ultra vires (Crisologo-Jose knowledge of the infirmity. Julie in turn v CA GR of a solidary debtor? Explain. (4%) (per Dondee) may be held liable. Rose is be given toRose the drawer? 80599, 15Sep1989). While itfor may be legally negotiated said note to Devi value and ANSWER: an SUGGESTED accommodation party. Absence of possible for the corporation, whose business who had no knowledge of the infirmity. 1) Notice of dishonor is not consideration is in therequired natureto be of an is to provide financial accommodations in the Can Devi enforce the note against Larry and given to the drawer in any of of the followingof accommodation. Defense absence ordinary course of business, such as one if she can, for how much? Explain. 2) cases: a) Where the drawer and drawee are consideration cannot be validly interposed by given byDevi a financing company to be an Supposing endorses the note to Baby the same person; b) When the drawee a SUGGESTED ANSWER: accommodation party against a holder inis due accommodation party, this situation, for value but who has knowledge of the not having capacity contract; c) When the Parties; Accommodation Party (2003) fictitious person or ato person b) Considering that both President and 1) Yes, Devi can enforce thethe negotiable course. however, is not the case in the bar problem. infirmity, can the latter enforce the note drawer is the person whom the Center Vice-President were signatories to the Juan Sy purchased from to A Appliance promissory note against Larry in the amount against Larry? instrument presented for payment; d) one generator is set on installment with chattel accommodation, they themselves can and be of P5,000. Devi is a holder in due course Where the drawer has no right to expect or liabilities of accommodation mortgage in favor of the vendor. After thesubject breachto ofthe trust committed by Evelyn that the drawee or acceptor will honor require getting hold of the generator set, Juan Sythe parties the in their personal cannot be to set up instrument by Larry against Devi instrument; e) Where the drawer has capacity (Crisologo-Jose v CA 15Sep1989) immediately sold it without consent of the because it is a personal defense. As a holder countermanded payment (Sec Parties; Accommodation Party (1996) to such vendor. Juan Sy was criminally charged with in due course, Devi is not subject 114 NIL) 2) Yes. Nora Baby applied is not for a a holder loan of in P100th due course with BUR To settle the case extra judicially, Juan Sy estafa. personal defense. because Bank. she By way has of knowledge accommodation, of the breach Noras of paid the sum of P20,000 and for the balance Parties; Accommodation Partya(1990) trust sister, committed Vilma, executed by Evelyna against promissory Larrynote in of P5,000.00 he executed promissory note accommodate maker of a which favor is of just BUR a personal Bank. When defense. NoraBut defaulted, having for To said amount with Carmen, Ben Lopez as an promissory note, Jorge signed as indorser taken BUR the Bank instrument sued Vilma, from despite Devi, aits holder knowledge in accommodation party. Juan Sy failed to pay and the instrument wasof negotiated due that course, Vilma Baby received has all no the part rights of the ofloan. a May thethereon, balance. 1) What is the liability Ben SUGGESTED ANSWER: to Raffy, holder for value. At the time Raffy holder Vilma in be due held course. liable? Baby Explain. did not participate Lopez as an a accommodation party? Explain. Yes, Vilma of may be committed held liable. by Vilma is an SUGGESTED ANSWER: took the instrument, he knew Jorge to be an in the breach trust Evelyn 2) What is the liability of Juan Sy? 1) Ben Lopez, as an accommodation party, is accommodation party. As such, she is liable accomodation party only. When the who filled the blank but filled up the liable as maker to the holder up to the sum on the instrument to a holder for value such promissory note was not paid, and Raffy instrument with P5,000 instead of P1,000 as of discovered P5,000 even if he did not receive any as BUR Bank. This is true even if BUR Bank Parties; Holder in Due Course (1996) that Carmen had no funds, he instructed by Larry (Sec 58 NIL) consideration the promissory note. the This is was aware at the time it took What constitutes a holder in due the instrument sued Jorge. for Jorge pleads in defense fact SUGGESTED ANSWER: thethat nature of accommodation. But Ben Lopez that Vilma is merely an accommodation party course? he had endorsed the instrument without A holder in due course isof one who has taken can ask for reimbursement Juan Sy, the and received no part the loan (See Sec 29, receiving value therefor, from and the further fact the instrument under the following accommodation party. NIL; Eulalio Prudencio v CA GR L-34539, Jul 14, 86 that Raffy knew that at the time he took the SUGGESTED ANSWER: Accommodation Partyand (1998) 2) Juan Sy is liable to the extent of P5,000 in 1 Parties; That it is complete regular upon conditions: 143 s 7) instrument Jorge had not received any value Yes. Jorge is liable. Sec 29 of the NIL provides For the purpose of lending his name without the hands of a holder in due course (Sec 14 its face; or consideration of any kind for that accommodation ishis liablenote, on the value therefore, Pedro makes it a NIL). If an Ben Lopez paid theparty promissory 2 receiving That he became holder of it before indorsement. Is Jorge liable? Discuss. instrument to a holder for value, note for P20,000 payable to the order of Juan Sy has the obligation to reimburse Ben was overdue and without notice that it had X notwithstanding the holder at the time of who in turn negotiates it to thewas latter Lopez for the amount paid. If Juan Sy pays been previously dishonored, if Y, such the 1. May that Y recover Pedro if the taking said knew him to be only knowing Pedrofrom is not a party forlatter value. directly to the instrument holder of the promissory note, fact; interposes the consideration? September 15, 2002 an accommodation is the nature or he pays Ben Lopez party. for theThis reimbursement 3 That he took itabsence in good of faith and for (3%) the essenceby of the accommodation. of or the payment latter to the holder, value; Parties; Accommodation Party (1991) Parties; Accommodation Party (2005) For Supposing received, I hereby the same promise facts, to Pedro pay the instrument is discharged. 4 2. value That at theunder time it was negotiated to On June 1, 1990, obtained a loan of P100th from B,with payable Dagul has a A business arrangement Juan Santos or order the sum of TEN pays the said P20,000 may he recover him, he had no notice of any infirmity in the SUGGESTED ANSWER: not later than 20Dec1990. requiredlend A to issue him a check Facundo. The latter B would money to THOUSAND the same PESOS amount (P10,000) from thirty X? (2%) (30) days instrument or defect in the title of the person 1. Yes. Y can recover from Pedro. Pedro is an for that amount to be dated 20Dec1990. Since he does not another, through Dagul, whose name would from date hereof. negotiating it. (Sec party. 52, NIL) accommodation Absence of have any checking account, A, with the knowledge of B, appear in the promissory note as the lender. consideration is in the nature of an requested his friend, C, immediately President of Saad Banking Corp (Signed) Pedro Cruz Dagul would then indorse the accommodation. Defense of absence of (Saad) to accommodate him. C agreed, he signed a check for note to Facundo. Is Dagul an SUGGESTED ANSWER: consideration cannot be validly interposed by the aforesaid amount dated 20Dec 1990, drawn against Saads to: Philippine National accommodation party? Explain. (2%) accommodation party against a holder in due account with the ABC Bank Escolta, Manila course. Branch

Page Page 90 93 92 89 91 of 103 of 103 A who connives gave course passenger, hadhim aof certificate with her the Pietro. B work note by which The of in the public payment heirs plans A of of will convenience for WIC. Pietro offer two By for sued cavans herself sale to Yellow operate some of and rice. Cab thru of auto-trucks AB his Company associates, therefore securities with forpaid she and GH B Port legislative important her The number Area funds reorganized to franchise, of under Calamba, from demand the business the ifdrawee Laguna. it letters meets circumstances activity bank. sent To allcarry the to Thus, ofother Grace, WWW out when in all will fixed P1,00 purchased damages, buy routes them on the from but DOP atsame a the certain certain stocks latter date. towns available fixed refused On September price, in Bulacan to at with pay the stock the 15, requirements. determining faithfully MTthem Communications of Investment its unanswered, obligation his There course presented Inc. is Dizon nothing would of EOL, action the subcontracted not through incheck the in bethe law considered for a light nor Makati the and 2002, exchange heirs, understanding Rizalinsisting EF to discovered Manila priced that that and at it P20 although that within is not per the Manila. liable share. note there because of When Firstly, would AB was thelaw of with payment, a Constitution, such public Enrico firm, factors utility Reyes the filed drawee which requiring the as a delivery complaint indicates the bank a franchise degree dishonored of that 400 for sacks aor collection of it. its he WIC's not Baldo an claimed apparent in tender is his not that possession its sale, offer the employee. ordinance A was will and announced, retain he Resolve was went the null to DOP with and AB. It legislative specificity, of the Later certificate against Soya on, franchise Grace the bean when or extent any with meal. MT other isInvestment the necessary of Aside Regional form its from difference ofor sued authorization the Trial required driver, her, Court from Eva of be SUGGESTED ANSWER: beneficial void was stocks reasons. because, then jumped ownership (2%) that among EF to found P30 thereof. other per out things, share. a) that Is the AB it Thus in had effect OB for Makati. information three raised from an male entity the the Grace, employees government. to generally defense operate through of of as available absence It Reyes supplier owns her rode lawyer, the of previously, offacilities, on electric the filed a Yellow Cab Company be liable with arrangement amends already earned his a made certificate sizable lawful? payment profit. (3%) ofshall public Is b) on OB If the the convenience, liable note. sale for Can breach EF power and truck consideration, but motion its with and does nature to the light not dismiss cargo. and operate to the its reliability. While on check factory them. thethe having ground (Sec. and truck its 30c, been that was RSA) issued EOL on (a) Baldo, on a solidary basis, for the death Revocation ofsecurity Certificate (1993) 3c. Thedoing person may be liable tosuddenly 1) a she fine of materializes, a thing still and claim misuse which payment what only of confidential the is itfrom Public called? AB? Service or (2%) Why? insider (3%) of employees its merely was way to Laguna as living business within two for strangers in the the the compound. ring Philippines that without could SUGGESTED ANSWER: SUGGESTED ANSWER: passenger Pietro. Baldo is an employee of Is Certificate of Public Convenience; inseparability of B. As a sequel to under the same facts narrated 1) Robert isand a holder of a certificate of public not less than P5th nor more than P500th or Commission information can gained do from Sec her 16 employment? (m) of the stopped not a license sell. the Does truck Eva and was have hijacked therefore a valid the defense? cargo. barred from No. Eva does not have a valid defense. First, a) No. The arrangement is not lawful. It is an Yellow Cab under the boundary system. As certificate and vessel (1992) above, EF, out of pity for AB who had already convenience operate a than taxicab service in 2) imprisonment of not less 7 years nor Public she Service also liable Act. for Under damages said section, to sellers the or Investigation Explain. suit bringing by to the and police (b) violated disclosed the that Securities one MT Investment is a holder in due course and, artificial manipulation of the price of such, the death of passenger Pietro is breach Antonio was granted a Certificate of Public paid P1,000.00 to GH, decided to forgive Manila and suburbs. evening, one and of more than 21 years, 3) One or both such fine Commission buyers with is empowered whom she traded? to amend, If so, modify, whatAB is of the Regulation hijackers Code was by armed selling with or a offering bladed tohis sell SUGGESTED ANSWER: as such, holds the postdated check free from securities. This is prohibited by the Securities of contract of carriage, making both the Convenience (CPC) in 1986 to operate a ferry and instead go after CD who indorsed the taxicab units was boarded by three robbers imprisonment in the discretion of the court. or revoke the measure a certificate of such of damages? public convenience Explain weapon securities while the within other the was Philippines unarmed. For without (Hernandez v. Dolor, No. July 30, OB isin an insider (as defined in Subsection any defect of title of staging prior parties and from Regulation Code. b) If G.R, the sale materializes, If the person is the a corporation, partnership, common carrier Yellow Cab and its between and Batangas using the note blank to him. Is CD 160286, still liable as they escaped after a hold-up. after briefly. notice (5%) and hearing. Secondly, he to EF by failure registering to Mindoro deliver the securities 400 sacks, with Fairgoods the Philippine 2004) 3.8(3) of the Securities Regulation Code) defenses available to prior parties among it is called a wash sale simulated sale. association or other juridical entity, the employee, Baldo, solidarily motor vessel MV Lotus. He stopped virtue of the indorsement inliable. blank? Why? Because of said incident, the LTFRB revoked contended that even if or the ordinance sued SEC Dizon andfor thus damages. came to Dizon court in turn with set unclean up Carriage; Breach of employee Contract; Presumption ofwasthe SUGGESTED ANSWER: since she is an of the Bank, themselves. Eva can invoke the defense of penalty shall be imposed upon the officers of operations in 1988 due to unserviceability of (2%) the certificate of public convenience of valid, it is only the Commission which can a 3rd hands. party EOL complaint opposed against the motion Reyes which to dismiss, Negligence (1990) Securities Regulation Code; Purpose (1998) A. No. EF cannot claim payment from AB. EF financial adviser of DOP, and this relationship absence of ground consideration against the corporation, etc. responsible for vessel. Inthe 1989, Basilio was granted a the MT Robert on that said operator require compliance with its provisions under the contending latter registered that it on had the ground never established that the a Peter so hailed a taxicab owned and SUGGESTED ANSWER: What is the principal purpose of laws and is not a holder of the promissory note. To gives her access to material information Investment only if the latter was privy to the violation. And if force such an officer is an alien, he CPC for the same route. After aDid few months, failed to render safe, proper and adequate Sec 17 (j) ofgoverning said Act and since the loss physical was due presence to in majeure. the Philippines, the that operated by Jimmy Cheng and driven by No. The hijacking in this case cannot be and regulations securities in the make the presentment for payment, it is about the issuer (DOP) and the latter's purpose for which the checks were issued shall, in addition to the penalties prescribed, he discovered that Carlos was operating on service as required under Sec 19a of the implementation of Peter the ordinance was without hijacking all of the constitute activities force related majeure to plaintiffs to trading SUGGESTED ANSWER: Hermie Cortez. asked Cortez towhich take considered force majeure. Only one of the Philippines? (2%) necessary to exhibit the instrument, securities (shares), which information is not and, therefore, not a holder in due course. be deported without further proceedings hisin route under Antonios CPC. Because Public Service Act. all a) Was the revocation sanction approval the Commission, exculpate U.S. Reyes securities from any transpired liability to outside Dizon? of the The principal purpose of laws and regulations SUGGESTED ANSWER: him toor his office inof Malate. On the wayits to two hijackers was armed with a bladed EF cannot do because he is not in possession generally available to the public. Accordingly, Second, it is not a ground for the discharge after service of sentence. (Sec 56 RSA) Basilio filed a complaint for illegal operations the certificate of public convenience of enforcement was unauthorized and illegal. Discuss Philippines. fully. If of you are the judge, decide governing securities incollided the Philippines is to 1) The grounds the to dismiss are Malate, the taxicab a passenger weapon. As against the 4motion male employees of the Insider Trading; Manipulative Practices (1994) thereof. (j) of the Public Service Act it iswith only the OB is guilty of insider trading under Section of the postdated check as against a holder in with the Maritime Industry Authority, Antonio Robert justified? Explain. b) When can the May the reliance of X on Section 16 (m) of motion to dismiss by ruling on the respective protect the public against the nefarious B. because CDcan negotiated the instrument SUGGESTED ANSWER: both untenable. EOL is not doing business in Commissioner jeepney, as a result of require which Peter was Reyes, 2 hijackers, with only one of is them 1) Give a case where a person who notsale an as which compliance 27 No, of the Securities Regulation Code, which due course that itan was issued merely and Carlos jointly filed application for Commission (Board) exercise its to the Public Service Act be sustained? Explain. contentions of the parties on thepower basis of the practices of unscrupulous brokers and OB is also liable for damages to sellers or 1a) No. A single hold-up incident which does by delivery. the Philippines, and it did not violate the injured, i.e., he fractured his left leg. being armed with a bladed weapon, cannot issuing corporation, director or officer with the provisions of the ordinance? requires disclosure when trading in Peter security. The only certificate grounds for the discharge and transfer of Antonios CPC and suspend or revoke of public 2) Was X correct in his contention that under facts presented above. (10%) salesmen in selling securities. SUGGESTED ANSWER: buyers with whom she traded. Under not link Roberts taxicab cannot be Securites Act, because it was not selling sued Jimmy for damages, based upon a be considered force majeure. The hijackers thereof, or a person controlling, controlled by Explain. securities. of negotiable instruments those set forth substitution of the vessel MVare Lotus with convenience? Securities; Definition (1996) Section 17 Place of Payment (2000) 1) No. The power vested in the Public Service Subsection 63.1 of the Securities Regulation construed that he rendered a service that is securities in the country. contract of carriage, and Peter won. Jimmy did not act with grave or irresistible threat, or under common control with the issuing in Sec 119 of the NIL and none of those another owned by Carlos. Should Antonios Define securities Carriage; Liability; Lost Baggage or Acts of Passengers The contention of EOL is correct, because it PN is the holder of a negotiable promissory Commission under Sec 16m is subordinate to SUGGESTED ANSWER: Code, the damages awarded could be an unsafe, inadequate and improper (Manzanal wanted to challenge the decision before the violence or force. corporation, is also considered an insider. grounds are available to Eva. The latter may SUGGESTED ANSWER: and Carlos joint application be approved? (1997) never did any business in the Philippines. All The joint application of Antonio and Carlos note within the meaning of the Negotiable the authority of the City of Manila under Sec amount not exceeding triple the amount ofin v Ausejo 164 s 36) SC on the ground that the trial court erred 2) In Securities Law, what is a shortswing not unilaterally discharge herself from her Stocks, bonds notes, convertible debentures, Giver your reasons. Parties; Holder intransfer Due Course (1998) 1b) Under Sec 19a of the Public Service Act, 1997 (15) Antonio, a paying passenger, for its the sale transactions and of in Antonios question CPC were Instruments Law (Act 2031). The note was 18 (hh) of its revised charter to superintend, the transaction plus actual damages. not making an express finding as to whether transaction. 3) In insider trading, what is a of liability by the mere expediency warrants orANSWER: other documents that represent SUGGESTED SUGGESTED X makes ANSWER: abound promissory note for P10,000 the Commission (Board) can suspend or boarded a bus for Batangas City. He consummated outside the Philippines. and substitution of the vessel MV Lotus with originally issued by RP to XL as payee. XL in regulate or control the streets of the city of Exemplary damages may also be awarded or not Jimmy was responsible for the collision fact of special significance? withdrawing her funds from the drawee bank. a share in a company or a debt owned by a by I will counsel Jimmy to desist from Tender Offer (2002) 1) It may be aowned case where person, whose XL. The note mentions the place payment payable to A, a minor, to help him buy revoke a certificate of row, public convenience chose a seat at the front near the bus another vessel by thea transferee indorsed the note to PN for goods bought Manila. (Lagman v City of Manila 17 of s 579) case of bad faith, fraud, malevolence or 2) and, hence, civilly liable to Peter. He went (State Investments v CA GR 101163, Jan 11, company or government entity. Evidences of to challenging the decision. The action of Peter 2002 (6) relationship or former relationship to on the specified maturity date as tell the office school books. A bus endorses the to the B for when the operator fails to provide service driver, and told the driver thatnote heahad should not be approved. The certificate of No. The powers conferred by law upon the wantonness in the violation of the Securities see you for advice. What will you him? 93 217s32). obligations to pay or of rights to during being based on money culpa contractual, the A. What is or ain tender offer? issuer gives gave him access to a which fact of the corporate secretary of PX Bank value, who turn endorses the note to of C. C that isitems safe, proper or adequate, and refuses valuable in his hand carried bag public convenience and MV Lotus are Public Service Commission were not designed Regulation Code or its implementing rules. Explain. participate in earnings and distribution carriers negligence is presumed upon the B. In what instances is a tender offer required special significance about the issuer or the banking hours. ON maturity date, RPof was at knows A is abeside minor. Ifwhich C sues X on the note, to render any service can be he then placed the drivers seat. Not inseparable. The unserviceability of the to deny or supersede the regulatory power of The court is also authorized to award corporate assets. Instruments giving to their breach of contract. The burden of proof to be security that is not generally available, or and a the aforesaid office ready to pay the note can Xmade? setfor up the defenses of minority reasonably demanded and furnished. having slept 24 hours, he requested the vessel covered by the certificate had local governments over motor traffic in the attorney's fees not exceeding 30% of the SUGGESTED ANSWER: legal holders rights to money instead would on Jimmy to other establish that Insider Trading (1995) Revocation oflearns Certificate (1993) (Lagman v City oflie Manila 17 s or person, who such a fact from any but PN did not show up. What PN later did lack of consideration? (3%) driver to keep an eye on the bag should he of likewise rendered ineffective the certificate streets subject to their control. award. Yes. A. Tender C is not offer a holder is a publicly in due course. announced The property; they are therefore instruments despite an exercise of utmost diligence the Under the Revised Securities Act, it is 579) Pepay, a holder of a certificate of public the insiders, with knowledge that thelegally person was (Note: to sueSec XL 2a forof the face value of the note, doze off during the trip. While Antonio was itself, and the holder thereof may not the Revised Securities SUGGESTED ANSWER: promissory intention of note a person is not acting a alone negotiable or in Public utilities (2000) which have intrinsic value and are Certificate of Public Convenience; Requirements (1995) collision could not have been avoided. unlawful for an insider to sell or buy a convenience, failed to register to the from whom he passenger learns the fact, isbag such plus Act interest and costs. Will the theterm suit prosper? asleep, another took the transfer the same to another. (Cohon v CA an does not really define Carriage; Breach ofissuer Contract; of Yes. The suit will prosper as far as the face SUGGESTED ANSWER: instrument concert with as other it is does persons not contain to before acquire any equity word 2) As shortswing aRev transaction where a WWW Communications is an e-commerce recognized and used as Inc. such in the regular What requirements must be met aher security of the if Presumption he knows a fact of complete number of units required by insider (Sec 30, par (b) Securities Act) Explain. (5%) away and alighted at Calamba, Laguna. 188 719). securities.) Negligence (1997) Yes. Ordinarily, the common carrier is not value of the note is concerned, but not with of securities negotiability, of a public that is, company. order or It bear, may also or person buys securities and sells or disposes channels company of whose commerce. present business activity is certificate of public convenience may be special significance with respect to the issuer certificate. However, she tried to justify such Could the common carrier be held liable by Securities; Selling of Securities; Meaning (2002) damages In court involving claims liable for acts of other passengers. But the respect to case the interest due subsequent toof the words be defined of the similar as a method meaning of or taking import. over Not a of the same within a Service period of six (6) limited tosecurity providing its is clients with for all types granted under the Public Act? or a the that not generally available, failure by accidents that allegedly befell Antonio for the loss? 2002 (18) Equity Online Corporation (EOL), a arising from death and injury of bus ALTERNATIVE ANSWER: SUGGESTED ANSWER: common carrier cannot relieve itself from maturity of the note and the costs of being company a holder by asking in due stockholders course, C is to to sell subject their months. information technology hardware. It plans to without disclosing such fact to the other her, claiming that she was so shocked and New York corporation, has a securities 2) Itfollowing is if athe purchase by any for the passengers, counsel for the bus operator files The are the requirements for the liability common carriers employees collection. RP was ready and willing to pay such shares personal at a the price defenses higher of person minority than the and current lack re-focus its corporate direction of gradually party. 3.a) What does the term insider burdened by successive accidents and brokerage service on the Internet after ALTERNATIVE ANSWER: B. Instances where tender offer is required to be issuer or any person controlling, controlled a demurrer to evidence arguing that the granting of a certificate of public could have prevented the act or omission by the note at the specified place of payment of market consideration. price and C on is a a particular mere assignee date. who is converting itself into a full convergence mean as in the Revised Securities act? misfortunes that she did not know what she obtaining allused requisite U.S. licenses and X cannot set up the defense ofthe the minority a) The person intends to acquire 15% or made: by, or under common with issuer, complaint should be dismissed because the convenience, to wit: a)control The applicant must exercising due diligence. In this case, the on the specified maturity date, to but PN did subject to all defenses. organization. Towards this objective, the 3.b) When is a fact considered be of was doing, she was confused and thrown off permits to do so. EOLs website of A. Defense of minority is available to the the equity share of a public company more a corporation, co-partnership or or a purchase subject to the control of the plaintiffs did not submit any evidence that be a citizen of the Philippines, or passenger asked the driver to keep an always eye not show up. PN aggressively lost his right to recover the company has been acquiring special significance under the same Act? tangent momentarily, although she (www.eonline..com), which is hosted by a defense is the not available to among to anSuch agreement made between pursuant association organized under laws of inor issuer oronly. any such person, resulting the operator or itsbusinesses employees were negligent. on minor the bag which was placed beside the interest due subsequent to of the maturity of telecommunications and broadcast 3.c) What are the liabilities a person who had the money and financial ability to buy SUGGESTED ANSWER:enables Internet users to server in were Florida, X. person and one or more sellers. the the Philippines and at more least 60% of10% the of beneficial ownership of than If you the judge, would you of dismiss the drivers seat. If the driver exercised due the note and the costs of collection. media enterprises, and consolidating their violates the pertinent provisions the new trucks and repair the destroyed one. Are No.on-line In the carriage of passengers, the failure X cannot set up the defense against C. Lack trade in securities listed in the various Carriage; Prohibited & Valid Stipulations (2002) b) The person intends to acquire 30% or SUGGESTED ANSWER: SUGGESTED ANSWER: stock of paid-up capital of which must any class of shares (Sec 32 R Sec Act) complaint? diligence, he could have prevented the loss corporate structures. The ultimate plan is to Revised Securities Act regarding the unfair the reasons given by Pepay sufficient of the common carrier to bring the of consideration is athe personal defense which within stock exchanges in the U.S. EOL buys and 3) In insider the equity trading, shares afollowing of fact a public of company 3a. Insider means 1) the issuer, 2) a No. The reasons by Pepay are special not more of Discuss whether or given not belong to citizens of the Philippines. (Sec of the bag. have only two organizations: one to own the use of inside information? grounds to excuse her from completing Certificate of public Convenience (1998) passengers safely to or their destination is only available between immediate U.S. listed securities for the accounts of period of 12 months. significance is, in to being material, director or officer of, a person controlling, b) sufficient The a applicant must public grounds to excuse her from stipulations in a contract ofprove carriage of a parties sells 16a, CA 146, asaddition amended) facilities of the combined and to Explain. The Batong Bakal Corporation with the immediately raises the businesses presumption that or against parties who are not holders in due c) The person intends to acquire clients all over the world, who filed convey their c) units? 1 The a stipulation applicant limiting must prove the sum that that the may be its necessity. such fact as would likely, on being made controlled by, or under common control with, completing her units. The same could be common carrier are valid: develop and produce content materials, and Board of Energy an application for a such failure is attributable to the carriers course. Cs knowledge that A market is aother minor does equity shares of a or public company that and sell instructions EOL through the or operation recovered of by the the public shipper service owner proposed to 90% and of the buy generally available, to affect the price the issuer, 3) a personto whose relationship undertaken by her children or by another to operate the facilities and provide Certificate of Public Convenience for the fault or negligence. In the employees case at bar, the not prevent Cto from being awill holder inthan due Internet. would result in ownership of more EOL has no offices, or the value authorization of the goods in do case business of extent, loss due promote toPub theft. of a security to a significant or which former relationship to the issuer gives or authorized representatives (Sec 16n mass media and commercial purpose of supplying electric power and fact of death and injury of the bus course. C took the promissory note from a 50% of the said representatives outside The website theServ 2 public a stipulation interest in that a shares. proper in thes and event suitable of loss, a reasonable person would consider as gave him access to a the factU.S. of special Act; Halili v Herras 10 769) telecommunications services. WWW lights to the factory and its including employees living Parties; Holder inmany Due Course (1996) passengers raises the presumption fault or d) The applicant must be financially holder for value, B. has icons for countries, an manner. destruction (Sec or 16a deterioration CA 146 as of amended) goods on account especially important under the circumstances significance about the issuer or the of security Parties; Holder incondition Due Course; Indorsement in blank Communications will be the flagship entity within the compound. The application was 1996 2.2) Eva issued to Imelda a check in negligence on the part of the carrier. The capable of undertaking the proposed service icon For Filipino Traders containing the of the defective of the vehicle used in in determining his course of action in the that is not generally available, or 4) a person (2002) which will must own the facilities of the opposed by Bulacan Electric Corporation the amount of P50th post-dated Sep 30, carrier rebut such presumption. and meeting the responsibilities incident to its days prices ofsuch U.S. listed securities expressed the contract of carriage, the carriers liability is light of such factors as the degree of who learns a fact from any of the Insider (2004) A. AB issued a promissory note for P1,000 conglomerate and provide content to the contending that the Batong Bakal 1995, as security a diamond ring to beother Otherwise, the conclusion can be properly its operation. U.S. dollars andfor their Philippine peso limited to the value of the goods appearing in the in specificity, the extent of its difference from foregoing insiders with knowledge that the Ms.of OB was employed in MAS Investment Carriage; Fortuitous Event (1995) Boundary System (2005) payable to CD or his order on September 15, new corporation which, in turn, will operate 3b. It is one which, in addition to being Powers the Public Service Commission (1993) Corporation has not secured a franchise to sold on commission. On Sep 15, 1995, made that the carrier failed to exercise equivalent. Grace Gonzales, a resident of bill of lading unless the shipper or owner declares information generally available previously, person from whom he learns the fact is such SUGGESTED ANSWER: Bank. WIC, a driver medical drug company, M. Dizon Trucking entered into a hauling Baldo is aindorsed of Yellow Cab Company 2002. CD the note in blank and those facilities and provide the services. WWW Manipulative Practices (2001) material, would be likely to affect the market operate and maintain an electric plant. Is the The City of Manila passed an ordinance Imelda negotiated the check to extraordinary diligence asconvenience required by law. Makati, is a regular customer of MT the website a higher value (5%) and its nature and reliability (Sec 30 it par c an (Sec 30b, RSA) No.insider A certificate of public may retained the Bank toto assess whether isnote contract with Fairgoods Co whereby the under the boundary system. While cruising delivered the same EF.several GH stole the Communications seeks your professional Suppose A is the owner of inactive price of a security to a significant extent on oppositions contention correct? (5%) banning provincial buses from the city. The investment which paid the amount of P40th and has been purchasing and selling RSecAct) be granted to Batong Bakal Corporation, desirable to make aExpressway, tender offer for DOP2002 former bound itself tothe haul the latters 2000 along the South Baldos cab SUGGESTED from EF and on September 14, advice on ANSWER: whether or not its the reorganized securities. To create an appearance of active being made generally available, or one ordinance was challenged as invalid under to her. Eva failed to sell ring, so she securities through EOL with use of her though not possessing a company, a drug manufacturer. OB sacks of Soya bean meal from Manila figured in a collision, killing his it to AB for payment. When asked business activity would be considered a public trading forService such securities, which it a reasonable person would consider thepresented Public Act by X returned to Imelda on Sep 19, 1995. American Express credit card. Grace has overheard in the by AB, GH said CD utility requiring a franchise or certificate or any especially Unable to retrieve her check, Eva withdrew never traveled outside the Philippines. After a other form of authorization from the series of erroneous stock picks, she had government. What will be your advice? Explain incurred a net indebtedness of US$30,000. (5%) with EOL, at which time she cancelled her Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Public Service Law

Transportation Law Securities Regulation

American Express credit card. After a

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94 of 103

1 The stipulation is considered unreasonable, unjust and contrary to public policy under Article 1745 of the Civil Code. 2 The stipulation limiting the carriers liability to the value of the goods appearing in the bill of lading unless the shipper or owner declares a higher value, is expressly recognized in Article 1749 of the Civil Code.

SUGGESTED ANSWER:

Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Page Page 96 95 of 103 of 103 OnX one didoccasion, not declare Reynaldo a greater

person turned who out wants that the to ride ticket thewas same inadvertently to signal hiscut intention and wrongly to board. worded. A public PAL utility employees bus, once manning it stops, the is airports in effect making ground services a continuous nevertheless offer scheduled to bus riders. her to It is fly the two duty hours of common later aboard carriers theirof plane. passengers She agreed to stop and their arrived conveyances in Hongkong for a safely. reasonable The aircraft length of used time byin Far order East to Airlines afford developed passengersengine an opportunity trouble, and to board did not and make enter, it to and Hongkong they arebut liable returned for injuries to Manila. suffered Vivian by boarding sued both airlines, passengers PAL and Far resulting East, for from damages the sudden because of SUGGESTED ANSWER: starting her having up or jerking unable to of their take the conveyances Far East flight. (per dondee) No, there was breach of while Could they either are doing or both so.airlines Santiago, be held by liable to contract and Co that she95582 was accommodated (Dangwa Trans v CA Oct 7,91 stepping Vivian? and Why? standing (6%) on the platform of the well with the assistance of PAL employees to 202s574) bus, is already considered a passenger and is take Carrier; the flight undue delay. Common Dutywithout to Examine Baggages; Railway entitled to Carrier; all theDefenses rights and protection (2002) andCommon Airline (1992) pertaining to a contract carriage. Why was is the defense ofof due in the Marino a passenger on a diligence train. Another selection and supervision of an employee passenger, Juancho, had taken a gallon of not available to a a plastic common carrier? (2%) gasoline placed in bag into the same SUGGESTED ANSWER: coach where Marino was riding. The gasoline The defense of due diligence in the selection ignited and exploded causing injury to Marino and supervision of an employee is not who filed a civil suit for damages against the available to a common carrier because the railway company claiming that Juancho degree of diligence required of a common should have been subjected to inspection by carrier is not the diligence of a good father of its conductor. The railway company a family but extraordinary diligence, i.e., disclaimed liability resulting from the diligence of the greatest skill and utmost explosion contending that it was unaware of Common Carrier; Defenses; Fortuitous Events (1994) foresight. theMarites, contents of the plastic bag and invoking a paying bus passenger, was hit theabove right of Juancho to privacy. a) Should her left eye by a stone hurled atthe the railway company be held liable for damages? bus by an unidentified bystander as the bus b) If it were an airline company involved, was speeding through the National Highway. SUGGESTED ANSWER: would your answer be the same? Explain The bus owners personnel lost no time in a) No. The railway company is not liable for briefly. bringing Marites to transportation, the provincial hospital damages. In overland the where carrier she was and treated. Marites common is confined not bound nor empowered wantsan to examination sue the bus company for damages to make on the contents of and seeks your advice whether she can packages or bags, particularly those SUGGESTED ANSWER: legally hold bus company liable. What handcarried bythe passengers. Marites can legally hold the bus company b) If it were an not airline company, the common will you advise her? liable. There is no showing that any such carrier should be made liable. In case of air incident previously happened so as to carriers, it is not lawful to carry flammable impose an obligation on part of the materials in passenger aircrafts, and airline personnel of the bus company to warn the companies may open and investigate passengers and toand take the necessary suspicious packages cargoes (RA 6235) precaution. Such hurling of a stone Common Carrier; Test (1996) constitutes fortuitous event inwhether this case. What is the test for determining or The Common Carrier; Defenses; Limitation of Liability v (1998) company is not an insurer. (Pilapil CA notbus one is a common carrier? X took a plane from Manila bound for Davao SUGGESTED ANSWER: 180 s 346) via Cebu where there whether was a change of The test for determining or not one planes. X arrived Davao safely but to his is a common carrier in is whether the person or dismay, his two suitcases were left entity, for some business purpose and behind with in Cebu. The airline company assured X that the general or limited clientele, offers the service suitcases would come in the next flight of carrying or transporting passengers or but they never X claimed P2,000 for the loss goods or both did. for compensation. Common Carriers; Defenses (1996) of both suitcases, but the airline was willing 1) AM Trucking, a small company, operates to pay only P500 because the airline ticket two trucks forthat hireunless on selective basis. It was stipulated a higher value caters only to a few customers, and itsexceed trucks declared, any claim for loss cannot do P250 not make regular or of scheduled It for each piece luggage.trips. X reasoned does not even have a certificate of public and in out that he did not sign the stipulation convenience. fact had not even read it.

contracted value despite AM tothe transport fact that forthe a fee, clerk 100 had sacks called of rice his attention from Manila to the to Tarlac. stipulation However, in the AMticket. failed Decide to deliver the the case cargo, (5%)because its SUGGESTED ANSWER: when the driver stopped truck was hijacked Even if he not the ticket, X is bound in Bulacan to did visit hissign girlfriend. by that any claim for loss a) the stipulation May Reynaldo hold AM liable as a cannot exceed P250 for each luggage. He carrier? common did higher value. X is entitled b) not declare May AMaset up the hijacking as a defense to P500 for the two luggages lost. defeat Reynaldos claim? to Common Carrier; of Liability (2001) SUGGESTED ANSWER: Carriage; Valuation ofDefenses; Damaged Limitation Cargo (1993) a) Reynaldo may AM Trucking liable as Suppose A was hold riding on an airplane of a A shipped thirteen pieces of luggage through a common carrier. The that AM the facts accident happened LG common Airlines carrier from when Teheran to Manila as Trucking operates only two trucks for hire on and A suffered injuries. In an action evidenced by LG serious Air Waybill which disclosed a selective basis, caters only tothe a latter few by A against the common carrier, that the actual gross weight of the luggage customers, does not make regular or claimed that 1) there was a stipulation in the was 180 kg. Z did not declare an inventory of scheduled trips, and does not have a ticket issued to A absolutely exempting the the contents or the value of the 13 pieces of thefrom law does distinguish between certificate of public convenience are of no carrier liability from the passengers luggage. After the not said pieces of luggage one whose principal business activity is the by moment as death or injuries ad notices were posted arrived in Manila, the consignee was able to carrying of persons or goods or both and the from common dispensing with the claim the carrier cargo broker only 12 pieces, anyone who weight does such carrying only as an extraordinary diligence of the carrier, and with a total of 174 kg. X advised the2) ancillary A was given a discount on the his plane fare of airline of activity, the loss of one of 13 pieces thereby reducing liability of distinction the common the law avoids making any luggage and of the the contents thereof. Efforts with respect to A inmissing particular. a) Are between a person or enterprise offering of carrier the airline to trace the luggage those valid defenses? (1%) b) What are the transportation service a regular or were fruitless. Since on the airline failed to defenses available to any common carrier to scheduled basis one offering service comply with the and demand of X to such produce the SUGGESTED ANSWER: limit or exempt it from liability? (4%) on an occasional, episodic or unscheduled missing X not filed an action for because breach a) No.luggage, These are valid defenses basis, and of contract damages against Airlines. they are with contrary to law as theyLG are in the law refrains from making a In violation its answer, LGextraordinary Airlines alleged that the of the diligence distinction between awhich carrier offering Warsaw Convention limits theits liability required of common carriers. (Article 1757, services to the general public and who to of the carrier, if any, with respect one to cargo 1758 New Civil Code) b) The available to any common offers services solicits business only from a a sum of defenses $20 or per kilo or $9.07 per pound, carrier to limit orthe exempt it from liability are: narrow segment of general population unless a higher value is declared in advance 1 ANSWER: observance extraordinary and additional charges of are paid by the SUGGESTED diligence, Yes. Unless the contents of of a the cargo are passenger and the conditions contract 2 forth or proximate of the declared or the contents acause lost expressly luggage as set inthe the air of waybill, incident is a fortuitous event or force are proved by the satisfactory evidence subject the contract of the carriage of cargo majeure, other than the self-serving declaration of one to the Warsaw Convention. May the 3 or omission of thesustained? shipper or party, the contract should be enforced as it allegation ofact LG Airlines be owner of the goods, is the only reasonable basis to arrive at a Explain. 4 the of the or is just award. The character passenger or goods shipper defects in the packing or in the bound by the terms of the passenger ticket Common Carrier (1996) and v Rapadas 209 s 67) or the containers, waybill. (Panama Define5 a common carrier? order or act of competent public Common Carrier; Duration Liability (1996) carrier SUGGESTED ANSWER: authority, withoutof the common A common carrier is a person, corporation, A bus of GL Transit on its way Davao being guilty of even simpleto negligence firm stopped or association to enable engaged a passenger in the to alight. business At (Article 1734, NCC). of that carrying or transporting passengers moment, Santiago, who had been or goods waiting or for both, a ride, by boarded land, water the bus. or However, air for compensation, offering services to who the the bus driver failed toits notice Santiago public was(Art still 1732, standing Civil on Code) the bus platform, and Common Carrier; of Contract; Damages (2003) stepped onBreach the accelerator. Because of the Vivian Martin was booked by PAL, which sudden motion, Santiago slipped and fell acted as a ticketing agent of May Far Santiago East down suffering serious injuries. SUGGESTED ANSWER: Airlines, for a round trip flight on the latters hold GL Transit liable for breach of contract Santiago may hold GL Transit liable forThe aircraft, from Manila-Hongkong-Manila. of carriage? Explain. breach of contract carriage. of It was ticket was cut by an of employee PAL.the The duty of the driver, when he stopped the bus, p.m. on 05 January 2002 aboard Far Easts ticket showed that Vivian was scheduled to to do no act that have the effect of Flight F007. Vivian arrived at the Ninoy leave Manila at 5:30would increasing the perilAirport to a passenger as Aquino International an hour such before while he was attempting to board theSantiago time scheduled in her ticket, but was the same. a Flight bus is F007 not in had motion told that Far When Easts leftthere at is no necessity for a 12:10 p.m. It

Mercantile Law Bar Examination Q & A (1990-2006)

sardines and kidnapped the driver and his helper, releasing them in Cebu City only 2 days later. Pedro Rabor sought to recover from Alejandro the value of the sardines. The latter contends that he is not liable therefore because he is not a common carrier under the Civil Code and, even granting for the sake of argument that he is, he is not liable for the occurrence of the loss as it was due to a cause beyond his control. If you were SUGGESTED ANSWER: the judge, would you sustain the contention If I were the Judge, I would hold Alejandro as of Alejandro? having engaged as a common carrier. A person who offers his services to carry passengers or goods for a fee is a common carrier regardless of whether he has a certificate of public convenience or not, whether it is his main business or incidental to such business, whether it is scheduled or unscheduled service, and whether he offers his services to the general public or to a I will however, sustain the contention of limited few (De Guzman v CA GR 47822 Alejandro that he is not liable for the loss of 27Dec1988) the goods. A common carrier is not an insurer of the cargo. If it can be established that the loss, despite the exercise of extraordinary diligence, could not have been avoided, liability does not ensue against the carrier. The hijacking by 3 armed men of the truck used by Alejandro is one of such cases (De Common Private Carrier; 27Dec1988). Defenses (2002) Guzman vs. v CA GR 47822 (Pedro de Guzman v CA L-47822 Dec 22,88 Name two (2) characteristics which 168s612) differentiate a common carrier from a private SUGGESTED ANSWER: SUGGESTED ANSWER: carrier. (3%). b) AM Trucking may not set up the hijacking Two (2) characteristics that differentiate a as a defense to defeat Reynaldos claim as common carrier from a private carrier are: the facts given do not indicate that the same 1 A common carrier offers its service to the was attended by the use of grave or public; a private carrier does not. irresistible threat, violence, or force. It would 2 A common carrier is required to observe appear that the truck was left unattended by extraordinary diligence; a private carrier is not so its driver and was taken while he was visiting required. his girlfriend. (Pedro de Guzman v CA L-47822 Common Carriers; Liability Dec 22,88 168 scra 612for ). Loss (1991) Alejandor Camaling of Alegria, Cebu, is engaged in buying copra, charcoal, firewood, and used bottles and in reselling them in Cebu City. He uses 2 big Isuzu trucks for the purpose; however, he has no certificate of public convenience or franchise to do business as a common carrier. On the return trips to Alegria, he loads his trucks with various merchandise of other merchants in Alegria and the neighboring municipalities of Badian and Ginatilan. He charges them freight rates much lower than the regular rates. In one of the return trips, which left Cebu City at 8:30 p.m. 1 cargo truck was loaded with several boxes of sardines, valued at P100th, belonging to one of his customers, Pedro Rabor. While passing the zigzag road between Carcar and Barili, Cebu, which is midway between Cebu City and Alegria, the truck was hijacked by 3 armed men who took all the boxes of

Page Page 98 97 of 103 of 103 received policy and for shipment therefore void and and contained inexistent. an entry (Art. 1409[1], indicating Civil transshipment Code) seemingly inadequate despite its efforts of Trust Receipts Law; Liability for Transportation, estafa (1991) in Hongkong. The President of JRT personally improving the same. Pasok Mr. Noble, as for the President of received and signed the bill of lading and Inc., now applies the issuance toABC it by Trading the Kabit System; Agent of the Registered Owner IncTransportation executed a trust receipt and in favor of BPI despite the entries, he delivered the (2005) Land Franchising Procopio purchased an Isuzu passenger Bank to secure the importation by his corresponding check in payment of the Regulatory Board of a certificate of public jeepney from Enteng, a holder of a certificate company of certain goods. After release and freight. The shipment was delivered at the convenience for the same Manila-Tarlacofof public convenience for the operation of sale route. of the imported the proceeds port discharge but the buyer refused to Manila Could Bayan goods, Bus Lines, Inc., SUGGESTED ANSWER: public utility vehicle plying the Calamba-Los fromthe the sale operator were not rules turned over to BPI. accept the anahaw fans because there was invoke prior against (per Dondee) No, Busin Lines, Inc., SUGGESTED ANSWER: route. While and Procopio continued Would BPI be Bayan justified filing a case for no Baos on-board bill of lading, there was Pasok Transportation, Inc.? Why? (6%) BPI would be justified in filing a case for cannot invoke the prior operator rules offering the jeepney for were public transport estafa against Noble? transshipment since the goods estafa under PD 115 against Noble. The fact against Pasok Transportation, Inc. because services, in he did not have registration transferred Hongkong from the MV Pacific, the of that the trust receipt was issued in favor such Prior or Old Operator Rule under the of a the vessel, vehicle to transferred in a his name. Neither feeder MV Oriental, mother bank, instead of a seller,asto secure Public Service Act only applies a policy of the did he secure that for the himself certificate of vessel. JRT argued sameacannot be of the goods did not preclude theimportation law of the Public Service Commission to public convenience forbecause its operation. Thus, considered transshipment both theaapplication of public the Trust Receipt Law. issue certificate of convenience to a(PD per the records of the shipping Land Transportation vessels belong to the same 115) operator Under the law,prior any operator officer oris employee second when Franchising and Regulatory Board, Enteng company. 1) Was there transshipment? of a corporation for the violation rendering sufficient,responsible adequate and remained its registered owner and operator. Explain 2) JRT further argued that assuming ALTERNATIVE ANSWER: of a trust receipt is who subject the penal satisfactory service, and in allto things One day, while the jeepney was traveling that there was transshipment, it cannot be The filing of a case for estafa under the penal liability thereunder (Sia with v People 166s655) and respects is complying the rule and southbound, it collided with a ten-wheeler deemed to have agreed thereto even if it provisions of the RPC would not be justified. regulation of the Commission. In the facts of truck owned Emmanuel. Thesuch driver of the the bill ofby lading containing entry It has been held in Sia v People (161 s 655) signed Procopio sued Emmanuel for damages, but the case at bar, Bayan Bus Lines service truck admitted responsibility for shipping the accident, it was made known to the that corporate officers and directors are not because the latter moved to dismiss the case on the became seemingly inadequate despite its explaining that the truck lost its brakes. from the that transshipment was in criminally liable for a violation of said Code. 2 lines SUGGESTED ANSWER: ground thatstart Procopio is not the real party efforts of improving the same. Hence, in the under the letter of credit and Registered Owner;are Conclusive Presumption (1990) 1) Yes. Transshipment is the act of taking conditions required before a corporate prohibited interest since he is not the registered that, owner interest of providing efficient public transport it had intention tomotion allow Johnny owns a be Sarao jeepney. He asked cargo outjeepney. of one no ship and loading it in with officer may criminally liable for anhis offense therefore, of the Resolve the services, use of must the 'prior and 1 the be aoperator' specific provision of transshipment of the subject cargo. Is the SUGGESTED ANSWER: neighbor Van There if he could operate the another. It is immaterial whether or not the committed by the corporation; viz:said reasons. (3%) the 'priority of filing' rules shall is untenable law mandating a corporation to act or not to argument The motion to or dismiss should tenable? Reason. jeepney under Vans certificate of public same person, firm, entity owns the be two denied n this case. act; and because Procopio, as the real owner of the convenience. Van agreed and, accordingly, vessels. (Magellan v CA 201 s 102) There must be an explicit statement in 2) No. JRT is is bound by the terms of the bill of jeepney, the real party in interest. Procopio Johnny2registered his jeepney under Van the law itself that, in case of such violation by lading when it accepted the bill of lading falls under the Kabit system. However, the name. On June 10, 1990, one of the a corporation, the officers with full knowledge of its contents legal restriction as regards the which Kabit system passenger jeepneys operated by and Van directors thereof are to be personally and criminally included Hongkong. does transshipment not apply in in this case because the bumped Tomas. Tomas was injured and in liable Acceptance circumstances public at under large such is not deceived nor involved. due time, hetherefore. filed a complaint for damages makes of lading a binding contract. (Limthe v. bill Court of Appeals, G.R. No. 125817, against Van and his driver for the injuries he (Magellan Ca 201 s 102) Januaryv16, 2002, citing Baliwag Transit v. suffered. The court rendered judgment in In any of event, Procoprio is deemed be "the Court Appeals, G.R. No. 57493, to January 7, favor of Tomas and ordered Van and his agent" of the registered owner. 1987) driver, jointly and severally, to pay Tomas Trust Receipts Law; Acts & Omissions; Covered (2006) (First The Sheriff levied on the jeepney belonging Malayan Leasing v. Court of Appeals, G.R. actual and moral damages, attorneys fees, What acts or omissions are penalized to Johnny but registered in the name of Van. No. 91378, June 9,1992; and "F" Transit Co., and costs. under the Trust Receipts Law? (2.5%) Johnny filed a 3rd party claim with the Sheriff Inc. v. ANSWER: NLRC, G.R. Nos, 88195-96, January SUGGESTED Maritime Commerce; Bareboat (2003) alleging ownership of the jeepney levied 27, 1994) The Trust Receipts Law (P.D. No. 115) For the transportation itsgoods cargoor from the upon and stating that the jeepney was declares the failure to turn of over Port of Manila to the Port of Kobe, registered in the name of Van merely to proceeds realized from sale thereof, as a Japan, Osawa & Co., under chartered bareboat enable Johnny to make use of Vans criminal offense Art. 315(l)(b) of M/V Ilog of Kabit System (2005) Karagatan Corporation. M/V Ilog met a sea certificate of public convenience. May the Revised Penal Code. The law is violated Discuss the kabit system in land SUGGESTED ANSWER: accident resulting in the loss of the cargo and Sheriff proceed with the public auction of whenever the entrustee or person to whom transportation and its legal consequences. Yes, the Sheriff may proceed with the the death of some of the seamen manning the Johnnys jeepney. Discuss with reasons. trust receipts were issued fails to: (a) return SUGGESTED ANSWER: (2%) sale of Johnnys jeepney. In auction vessel. Who should bear the loss of the cargo (Metropolitan Bank v. Tonda, G.R. No. 134436, August The kabit system an arrangement where a the goods covered ANSWER: by the trust receipts; or contemplation of lawis as regards the public 16,SUGGESTED 2000). and thethe death of the seamen? Why? (4%) person granted a certificate of public (b) return proceeds the Co. sale of said (per Dondee) Osawaof and shall bear the and third persons, the vehicle is considered Is lack of intent to defraud a bar to the allows other persons to operate goods loss because under a demise or bareboat theconvenience property of the registered operator prosecution of these acts or omissions? theirvmotor vehicles his license, Trans-Shipment; Bill of Lading; binding contract (1993) for a charter,ANSWER: the charterer (Osawa & Co.) mans (Santos Sibug 104 S 520)under SUGGESTED (2.5%) percentage of theirwith earnings (Lim v. JRTfee Inc or entered into a contract C Co of the vessel his own and becomes, No. The Trust with Receipts Lawpeople is violated Court Appeals and Gonzalez, G.R, at No. 125817, Japan to of export anahaw fans valued in effect, the owner for the voyage orover service whenever the entrustee fails to: (1) turn JanuaryAs 16, 2002, citing Baliwag Trannit $23,000. payment thereof, a letter of v. Court subject to for or damages thestipulated, proceeds of the sale ofliability the goods, (2) of Appeals, G.R. to No. 57493, January 7, The 1987) The credit was issued JRT by the buyer. caused negligence. return the by goods covered by the trust law enjoining the kabit system aims to Prior Operator Rule (2003) letter of credit required the issuance of an receipts if the goods are not sold. The mere identify person responsible Bayan Bus Lines had been operating on-board bill the of lading and prohibited thefor an failure to account or return gives rise to the accident in order to protect the riding public. satisfactorily a bus service over the transshipment. The President of JRT then crime which is malum prohibitum. There is route The law does not penalize the parties to a The policy has no force when the public at Manila to Tarlac and vice versa via the contracted a shipping agent to ship the kabit agreement. But the kabit system is no requirement to prove intent to defraud large is neither deceived nor involved. McArthur Highway. With the upgrading of anahaw fans through (Ching v. Secretary of Justice, G.R. No. 164317, the contrary to public O Containers Lines, new 6, North Bayan Bus Lines specifying the requirements of the letter of February 2006;Expressway, Colinares v. Court of Appeals, service became credit. However, the bill of lading issued by G.R. No. 90828, September 5, 2000; Ong v. Court the shipping lines bore the notation of Appeals, G.R. No. 119858, April 29, 2003). Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Trust Receipts Law

Mercantile Law Bar Examination Q & A (1990-2006)

Page

b. The interest cannot be considered usurious. The Usury Law has been suspended in its application, and the interest rates are made floating.

Warehouse Receipts Law


Bill of Lading (1998) 1. What do you understand by a bill of 2. Explain the two-fold character of a bill of lading? (2%) lading. (3%)
SUGGESTED ANSWER:

1.

A bill of lading may be defined as a written acknowledgement of the receipt of goods and an agreement to transport and to deliver them at a specified place to a person named therein or on his order. 2. A bill of lading has a two-fold character, namely, a) it is a receipt of the goods to be transported; and b) it constitutes a contract of carriage of the goods.

These conditions are not met in the penal provisions of the RPC on trust receipts. Trust Receipts Law; Liability for Estafa (1997) A buys goods from a foreign supplier using his credit line with a bank to pay for the goods. Upon arrival of the goods at the pier, the bank requires A to sign a trust receipt before A is allowed to take delivery of the goods. The trust receipt contains the usual language. A disposes of the goods and receives payment but does not pay the bank. The bank files a criminal action against A for violation of the Trust Receipts Law. A asserts that the trust receipt is only to secure his debt and that a criminal action cannot lie against him because SUGGESTED ANSWER: that would of hisis constitutional No. Violationbe of violative a trust receipt criminal as right against imprisonment forArt nonpayment it is punished as estafa under 315 of theof a debt. Is he correct? RPC. There is a public policy involved which is to assure the entruster the reimbursement of the amount advanced or the balance thereof for the goods subject of the trust receipt. The execution of the trust receipt or the use thereof promotes the smooth flow of commerce as it helps the importer or buyer of the goods covered thereby.

Trusts Receipt Law (2003) PB & Co., Inc., a manufacturer of steel and steel products, imported certain raw materials for use by it in the manufacture of its products. The importation was effected through a trust receipt arrangement with AB Banking corporation. When it applied for the issuance by AB Banking Corporation of a letter of credit, PB & Co., Inc., did not make any representation to the bank that it would be selling what it had imported. It failed to pay the bank. When demand was made upon it to account for the importation, to return the articles, or to turn-over the proceeds of the sale thereof to the bank, PB & Co., Inc., also failed. The bank sued PB & Co.s President who was the signatory of the trust receipt for estafa. The President put up the defense that he could not be made liable because there was no deceit resulting in the violation of the trust receipt. He also SUGGESTED ANSWER: submitted that there was no violation of The the No, the defenses are not sustainable. trust because the raw were lack receipt of deceit should not materials be sustained not sold the but mere used by the to corporation in the because failure account for manufacture ofreturn its products. Would those importation, or the articles constitutes defenses be of sustainable? Why? (6%)crime of the abuse confidence in the estafa. The fact that the goods arent sold but are used in the manufacture of its products is immaterial because a violation of the trust receipts law happened when it failed to account for the goods or return them to the Bank upon demand. Usury Law (199) Borrower obtained a loan from a money lending enterprise for which he issued a promissory note undertaking to pay at the end of a period of 30 days the principal plus interest at the rate 5.5% per month plus 2% per annum as service charge. On maturity of the loan, borrower failed to pay the principal debt as well as the stipulated interest and service charge. 1 he was How sued. would you dispose of the Hence, issues raised by the borrower? 2 That the stipulated interest rate is excessive and unconscionable? (3%) 3 Is the interest rate usurious? (3%)

99 of 103

Usury Law

Recommendation: Since the subject matter of these two (2) questions is not included within the scope of the Bar Questions in Mercantile Law, it is suggested that whatever answer is given by the examinee, or the lack of answer should be given full credit. If the SUGGESTED ANSWER: examinee gives a good answer, he should be a. The rate of interest of 5.5% per month is given additional credit.

excessive and unconscionable.

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100 of 103

3. and readiness and willingness to sign when the goods are delivered if so requested by the warehouseman (Sec 8 Warehouse Receipts Law). Garnishment or Attachment of Goods (1999) A Warehouse Company received for safekeeping 1000 bags of rice from a merchant. To evidence the transaction, the Warehouse Company issued a receipt expressly providing that the goods be delivered to the order of said merchant. A month after, a creditor obtained judgment against the said merchant for a sum of money. The sheriff proceeded to levy on the rice and directed the Warehouse Company to 1 advice will you give deliver What to him the deposited rice. the Warehouse Company? Explain (2%) 2 Assuming that a week prior to the levy, the receipt was sold to a rice mill on the basis of which it filed a claim with the sheriff. Would the rice mill have better rights SUGGESTED ANSWER: to the rice than the creditor? Explain your Delivery of Goods; Requisites (1998) 1 The 1000 bags of rice were delivered answer. (2%) Luzon Warehousing Co received from Pedro to the Warehouse Company by a merchant, 200 cavans of rice for deposit in its and a negotiable receipt was issued therefor. warehouse for which a negotiable receipt was The rice cannot thereafter, while in the issued. While the goods were stored in said possession of the Warehouse Company, be warehouse, Cicero obtained a judgment attached by garnishment or otherwise, or be against Pedro for the recover of a sum of levied upon under an execution unless the money. The sheriff proceeded to levy upon receipt be first surrendered to the the goods on a writ of execution and directed warehouseman, or its negotiation enjoined. the warehouseman to deliver the goods. Is The Warehouse Company cannot be SUGGESTED ANSWER: the warehouseman under obligation to compelled to deliver the actual possession of No. There was a valid negotiable receipt as comply with the sheriffs order? (5%) the rice until the receipt is surrendered to it or there was a valid delivery of 200 cavans of impounded by the court. rice for deposit. In such case, the 2 Yes. The rice mill, as a holder for warehouseman (LWC) is not obliged to value of the receipt, has a better right to the deliver the 200 cavans of rice deposited to rice than the creditor. It is the rice mill that any person, except to the one who can 1 surrender the receipt of which he is a can surrender the receipt which is in its comply with sec 8 of the Warehouse holder; possession and can comply with the other Receipts Law, namely: 2 willing to sign a receipt for the delivery requirements which will oblige the of the goods; and warehouseman to deliver the rice, namely, to 3 pays the warehousemans liens that is, sign a receipt for the delivery of the rice, and his fees and advances, if any. to pay the warehousemans liens and fees The sheriff cannot comply with these and other charges. requisites especially the first, as he is not the holder of the receipt. Delivery of the Goods (1991) When is a warehouseman bound to deliver the goods, upon a demand made either by the holder of a receipt for the goods or by SUGGESTED ANSWER: the depositor? The warehouseman is bound to deliver the goods upon demand made either by the holder of the receipt for the goods or by the depositor if the demand is accompanied by 1 an offer to satisfy the warehousemans lien, 2 an offer to surrender the receipt, if negotiable, with such indorsements as would be necessary for the negotiation thereof,

Mercantile Q Law Bar Examination Q & A (1990-2006) Page Mercantile Law Bar Examination &A (1990-2006)

this additional There was no duty, misdelivery the current bylow the price carrier of since the sugar in the cargo world was market considered will surely consigned pull the to the Sugarprice domestic central to levels per the lower Shippers than theOrder cost (Eastern to producer Shipping domestic Lines sugar v CA 190 a situation s 512) that ALTERNATIVE ANSWER: could spell the demise of the Phil sugar Energy Regulatory Commission: & Power There was misdelivery. The of B/L was a industry. a) Discuss theJurisdiction validity this (2004) negotiable document of title because it was proposal to impose an additional levy on CG, acustomer, sued MERALCO in the MM to the Shippers Order. Hence, the common imported sugar (3%) b) Would the proposal Regional Trial Court to disclose the the cargo basis to of carrier should have delivered be consistent with the tenets of the World the theCentral computation of the purchased power only upon surrender of the B/L. The Trade Organization (WTO)? (3%) adjustment (PPA).of The trial ruled had to Recommendation: Since the subject non-surrender the B/L court will make ititliable matter of these (2) because, questions is no holders jurisdiction over the two case asnot in due course. Ownership of Goods Stored (1992) included the scope of the Bar contended by the within defendant, the customer guarantee Questions the payment in Mercantile of a loan Law, obtained it notTo only demanded a breakdown of is suggested that whatever answer isbut given from a bank, pledged 500 bales MERALCO's bill Raul with respect to PPAof by the examinee, or the lack of answer tobacco deposited inimposition a warehouse to said questioned as well the of the PPA, should be given full credit. bank and in blank a matter toendorsed be decided by the the warehouse BoardIf ofthe examinee gives a good answer, he should receipt. Before Raul could pay for the loan, SUGGESTED ANSWER: Energy, the regulatory agency which should SUGGESTED ANSWER: be given additional credit. the tobacco disappeared from the suit. Is a) The proposal to over impose an additional duty also have jurisdiction the instant The trial court's ruling is correct. As held in warehouse. Who should bear the loss the on imported sugar on top of the current tariff the trial court's ruling correct or not? Reason Manila SUGGESTED Electric ANSWER: Company v. Court of Appeals, pledgor the bank? Why? prohibited by the rate (5%) is or valid, not being briefly. The pledgor should the bear the loss. In the 271SCRA 417 (1997), Board of Energy Constitution. It would enable producers to pledge of a warehouse ownership had the power to regulate receipt and fix the power rates realize reasonable profits, and would allow goods with electric depositor or his to of be the charged byremain franchised utilities the sugar industry of the country to survive. transferee. Any contract or real security, like MERALCO. In fact pursuant to Executive b) No. The proposal would not be consistent among them a of pledge, does not amount to Order No. 478 (April 17, this power has with the tenets the1998), WTO which call for the or result in an assumption of risk of loss by been transferred to the Energy Regulatory liberalization of trade. However, such the creditor. The Board (now the Energy Receipts Regulatory proposal may beWarehouse acceptable within Law the did not deviate fromSection this rule.the Commission). Under 43(u) WTO of the allowable period under for Right to the Goods (2005) Electric Power of Industry Reform Act of 2001, adjustment the local industry deposited several cartons of goods with theJojo Energy Regulatory hasSN Power of the State: Regulating ofCommission Domestic Trade (2004) Warehouse Corporation. The corresponding original and exclusive jurisdiction over all In its Problems exercise police power (2006) and business Four ACID of of Philippine warehouse receipt was Judiciary issued to the order of cases contesting power rates. regulation, the legislature of LVM State In several addresses extensively Jojo. Hepolicy endorsed the warehouse receipt to EJ passed a law prohibiting aliens from who paid the value goods deposited. covered by media since of his the appointment on engaging in domestic timber trade. Violators Before EJ could withdraw the goods, Melchor December 21, 2005, Chief Justice Artemio V. including dummies would, after proper trial, informed SN Warehouse Corporation that the Panganiban vowed to leave a judiciary be fined and imprisoned or deported. Mrs. goods belonged to him and were taken characterized by "four Ins" and to focus in by Jojo BC, a citizen of LVM but married to ZC, an without consent. Melchor wants solving thehis "four ACID" problems that to get the alien merchant of PNG, filed suit to invalidate goods, but EJhas also withdraw same. Who a wants betterto right to the goods? corrode the administration of justice in the our the law or exempt from its coverage their SUGGESTED ANSWER: SUGGESTED ANSWER: (5%) Explain this "four Ins" and "four Why? country. She contended that office, the law is, inter alia, Upon timber assuming business. his Chief Justice EJ has a better right to the goods, being ACID" problems. gravely oppressive and discriminatory. It Panganiban to lead a judiciary covered byvowed a negotiable document of title, violated the Universal Declaration of Human characterized by the "four Ins:"issued Integrity, namely the warehouse receipts to the Rights (UDHR) passed in 1948 by the United Independence, Industry one of "order of Jojo." Under and the Intelligence; Sales provisions Nations, of which LVM is to a member, she said, that is morally courageous resist influence, the Civil Code on negotiable documents of as well as indifference the reciprocity provisions of the interference, insolence. title, and under the and provisions of He the World Trade Organization (WTO) Agreement envisions a judiciary that isLaw, impervious the Warehouse Receipts when to goods of 1994, of which PNG and LVM are parties. plague of undue influence brought about deposited with the bailee are covered by a Aside from denying them equal protection, kinship, relationship, negotiable document friendship of title, and the according to BC, the law will also deprive her fellowship. He calls the judiciary battle endorsement andon delivery of the to document family their livelihood without due process thetransfers "Four ACID" problems corroding our ownership of the goods to the nor just ANSWER: compensation. Assuming that the justice system: (1) access to justice SUGGESTED transferee. By limited operation of law, by the system of LVM is similar to ours, would thelegal poor; (2) corruption; (3) tenable. incompetence; Mrs. BC's contention not First, the transferee obtains theis direct obligation of the Mrs. contention be tenable or not? and (4) BC's delay in the delivery of quality UDHR does not purport to limit the right bailee to hold the goods in his name." (Art. (NOTA BENE: It is of Reason briefly. (5%) judgments. The judicial department should states LVM) to regulate domestic trade. 1513, (like Civil Code; Section 41, Warehouse respectfully suggested discharge functions transparency, Second, the WTO Agreement involves Receipts its Law) Since is the holder of the thatEJwith all Bar Candidates If SN Warehouse Corporation is accountability and trade dignity. international between states or warehouse receipt, receive he has a the 2.5% better bonus right for to uncertain as not to the who is entitled to the above question governments, domestic trade in timber or the goods. SN Warehouse is obliged to hold property, what is the proper recourse ofisthe regardless of the answer) other commodities. Third, nationality an the goods in his name. SUGGESTED ANSWER: corporation? Explain. accepted norm for making classifications that do not run counter to the

Miscellaneous

101 of Page 103 103 102 SN Warehouse equal of 103 protection can of file law an clause INTERPLEADER the Chief Constitution. to compel Fourth, there and Melchor is no the to 2. of The Justice also EJ said that litigate must impairment against of due each process other for here the because ownership judiciary "safeguard the liberty" and of the goods. violators of the Sec. law 17 will ofbe the punished Warehouse only "nurture the prosperity" of our people. Receipts after "proper Law trial." states, Fifth, "If more the issue than one ofof "just Explain this philosophy. Cite Decisions the person Court compensation" claimsimplementing the does title not orarise, possession because the the Supreme each of of these SUGGESTED ANSWER: goods, property the ofof warehouse Mrs. is not may, being either expropriated. as a twin beacons theBC Chief Justice. (2.5%) The Chief Justice's philosophy "Safeguarding defense On the contrary, to an action as abrought citizen of against LVM, Mrs. him BC for Liberty, Nurturing Prosperity" embodies the non-delivery is freely allowed of the to engage goods or in as domestic an original Supreme Court's in decision-making suit, whichever timber trade inapproach LVM. is appropriate, require all in Tariff the exercise of its constitutional power and Customs Code: Violation of Customs Laws of known claimants to interplead." judicial review whichof the provides: In cases Unpaid Seller; Negotiation Receipt (1993) (2004) involving liberty, the of justice should A purchased from Sscales 150 cavans ofthe palay on The Collector of Customs ordered seizure weight heavily against government and in credit. A deposited the palay in Ws and forfeiture of new electronic appliances favor of by the the the warehouse. W poor, issued A aoppressed, negotiablefor shipped TON Corp.to from Hongkong marginalized, dispossessed and weak; warehouse receipt inlaws the name of the A. violation of the customs because they were and thatdeclared laws and action that restrict Thereafter, A negotiated the receipt to B who falsely as used office equipment and fundamental rights come to the court "with purchased the said receipt for value and ina then undervalued for purposes of customs heavy presumption against theirbefore constitutional good faith. Who has a better right the to the duties. TON1) filed a complaint MM validity. OnS, the other hand, as aor general deposit, the unpaid vendor b, the rule, Regional Trial Court for replevin, alleging that the Supreme Court must adopt a deferential purchaser of the receipt forin value and in good the Customs officials erred the or respectful attitude towards actions taken by faith? Why? 2) When can the classification and valuation ofwarehouseman its shipment, SUGGESTED ANSWER: the governmental agencies that have be obliged tothe deliver the palay to A? primary as well as in issuance of the warrant of 1) B has a better right than S. The right of responsibility for the economic development seizure. The Collector moved to dismiss the the unpaid seller, S, to the goods was of the country; and only when an act hasof been suit for implementing lack jurisdiction on the part the Decisions "safeguarding of SUGGESTED ANSWER: defeated by of the act ofthe A in endorsing the clearly made or executed with grave abuse of trial court. Should the Collector's motion be liberty" The Collector's include motion those should involving be granted. the receipt to B. discretion does the Court get involved granted or denied? Reason briefly. (5%) 2) The Section warehouseman can be obliged Under 602(g) of the Tariff and to in constitutionality of Presidential Proclamation policy issues. deliver the palay to Bureau A if BG.R. negotiates back No. Customs 1017 (David Code, v. the Arroyo, of Customs No. 171390, has

the to A. validity In that case, A becomes a exclusive original jurisdiction over seizure May 3,receipt 2006); the of Calibrated PreNOTE: (This question is outside the coverage of holder again of the receipt, and A can emptive and forfeiture Response cases (CPR) under and B.P. the tariff Big. 880 and or Examinations. ItWarehouse is therefore recommended the comply with Sec 8 of the laws. thecustoms PublicBar Assembly Act (Bayan v. Ermita, whatever made by the candidate should that Validity stipulations excusing Receipts Law. answer G.R. No. of 169848, April 25, warehouseman 2006); andfrom the given full credit.) be negligence (2000) legality of Executive Order No. 464 and the S stored hardware in the bonded President's exercise materials of Executive Privilege On the other hand, cases that relate to warehouse of W, a licensed warehouseman (Senate of the Philippines v. Ermita, G.R. No. "nurturing the prosperity" of the people under the General Bonded Warehouse Law 169777, April 20, 2006). include the question the constitutionality of (Act 3893 as amended). W issued the thecorresponding Mining Law (La Bugal-B'Laan v.in Ramos, warehouse receipt the form G.R. No. 127882, Dec. 1, 2004 ) and the he ordinarily uses for such purpose in WTO the Government vs. of an118295, Industry Agreement Tanada v. Privatization Angara, course Deregulation of(his business. All theG.R. essential terms (2004) May 2,1997). required under Section 2 of the Warehouse What is the Law difference between government Receipts (Act 2137 as amended) are Negotiable Documents of Title (1992) deregulation and the privatization of receipt an embodied in the form. In addition, the SUGGESTED ANSWER: Forissued a cargo of machinery shipped from industry? Explain briefly. (2%) to Sderegulation contains a stipulation that W or Government is the relaxation abroad to a be sugar central inthe Dumaguete, would not responsible for loss of allor or removal Oriental, of regulatory constraints on firms Negros the Bill of materials Lading (B/L) any portion of the hardware individuals, with a order, view to promoting stipulated shippers with notice of coveredto by the market-oriented receipt even if such loss is competition and approaches arrival to be addressed to the Central. The caused by the negligence of W or his toward pricing, entry, and cargo arrived at output, itsemployees. destination and other was representatives or S endorsed related economic decisions. released to the Central without surrender of and negotiated theindustry warehouse receipt B, Privatization ofthe an refers to to the thewho B/L on basis of the latters demanded delivery of the goods. W transfer of ownership andcarrier control by and the undertaking to hold the free could not deliver because the goods were SUGGESTED ANSWER: government of assets, firms and operations Subsequently, a Bank to whom the central harmless from any liability. nowhere to to be found in his warehouse. He No. I do not agree with the contention of W. in an industry private investors. was indebted, claimed the cargo and claims he is not liable because of the freePolitical Law; WTO (1999) The stipulation that W would not be presented the original of the B/L stating that from-liability clause stipulated in theportion receipt. Government plans toloss impose an additional for the of all or any theresponsible Central had failed to settle its obligations Do you agree with Ws contention? Explain. duty on imported sugar on top of the by current of the hardware materials covered the with the Bank. (5%) tariff rate.even The if intent is that the receipt such loss isensure caused by Was there misdelivery byto the carrier tothe the landed cost ofconsidering sugar not non-surrender be lower or than negligence of W or shall his representative sugar central the SUGGESTED ANSWER: P800 per bag. This The is the at that which employees is void. law price requires a of the B/L? Why? locally produced sugar would be sold in order warehouseman should exercise due diligence to inenable producers to realize the care sugar and custody of the things reasonable profits. Without deposited in his warehouse.