Mercantile Law MCQ

Mercantile Law Q&As (2007-2013) hectorchristopher@yahoo.
com JayArhSals
MULTIPLE CHOICE equivalent to a lawful pledge of the shares

of stock.
QUESTIONS (MCQ)
SUGGESTED ANSWER:
2013 Mercantile Law Exam
(D) Yes, because the execution of the Deed
MCQ (October 20, 2013) of Assignment of Shares of Stock is
equivalent to a lawful pledge of the shares
I. Claude, the registered stock holder of of stock (Lopez v. Court of Appeals, 114
1,000 shares in ABC Corp., pledged the SCRA 617).
shares to Conrad by endorsement in blank
of the covering stock certificates and, I.(2) After Claude defaulted on the loan,
execution of a Deed of Assignment of Conrad sought to have the shares
Shares of Stock, intended as collateral for a registered in his name In the books of the
loan of P 1.0 Million that was also corporation. If you are the Corporate
supported by a separate promissory note.
Secretary of ABC Corporation, would you
register the shares in the name of Conrad
I.(A) Under these facts, is there a valid without any written instruction from
pledge of the shares of stock to Conrad? Claude? (1%)
(1%)
(A) Yes, since the endorsement and delivery

(A) No, because shares of stock are of the certificates of stock executed by
intangible personal properties whose Claude constitute the legal authority to
possession cannot be delivered and, hence, cancel the shares in his name and to place
cannot be the subject of a pledge. them in Conrads name.
(B) No, because the pledge of shares of (B) Yes, since the execution of the Deed of
stock requires double registration with the Assignment by Claude would constitute the
Register of the principal place of business of legal authority to cancel the shares in his
the corporation and of the residence of the name and place them in Conrads name.
pledgor. (C) No, because corporate officers can only
(C) Yes, because endorsement and delivery take direct instructions from the registered
of the certificates of stock is equivalent to owners on the proper disposition of shares
the transfer of possession of the covered registered in their names.
shares to the pledgee. (D) No, because the corporation has a
(D) Yes, because the execution of the Deed primary lien on the shares covering the
of Assignment of Shares of Stock is unpaid subscription.
Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.-Leroy Satchel Paige
Page 92 of 173
Mercantile Law Q&As (2007-2013) hectorchristopher@yahoo.com JayArhSals
SUGGESTED ANSWER: (A) The Filipino First Policy

None of the answer is correct. The pledge (B) The Foreign Investment Positive Lists
must be foreclosed. (Article 2112, Civil concept
Code) Conrad cannot just appropriate the (C) The Foreign Investment Negative Lists
shares of stock (Article 2088, Civil Code). concept
(D) The Control Test concept
NOTE: (D) could have been the correct (E) All of the above.
answer if the facts stated that there are
unpaid subscriptions because under SUGGESTED ANSWER:
Section 63 of the Corporation Code, the (C) The Foreign Investment Negative
corporation may refuse the transfer if it Lists concept
holds unpaid claim on the subscribed (Section 7 of Foreign Investments Act)
shares (See China Banking Corp. v. CA and
Valle Verde Country Club, G.R. No. 117604, II.(2) The delegation asked: aside from
March 26, 1997). Filipino citizens, what entities would fall
under the definition of Philippine National
II. A foreign delegation of businessmen and under FIA 91?
investment bankers called on your law firm
to discuss the possibilities of investing in You replied that the definition of
various projects in the Philippines, and Philippine national under FIA 91
wanted your thoughts on certain issues covers .(1%)
regarding foreign investment in the
Philippines. (A) domestic partnerships wholly composed
of Filipino citizens
II.(1) The delegation has been told about the (B) domestic corporations 60% of whose
Foreign Investment Act of 1991, as capital stock, outstanding and entitled to
amended (FIA 91), and they asked what vote, are owned and held by Filipino
exactly is the laws essential thrust regarding citizens
foreign investment in Philippine business (C) foreign corporations considered as doing
and industries. business in the Philippines under the
Corporation Code, 100% of whose capital
You replied that FIA 91 essentially stock, outstanding and entitled to vote, are
reflects . (1%) wholly-owned by Filipino citizens
Page 93 of 173
(C) All of the above, because the law (D) Exports consistently at least 60% of its
considers the juridical personality, whether goods or services produced, and can sell
domestic or foreign, as a mere medium; the goods or services to the domestic market
test of nationally is on the individual who (E) None of the above.
control the medium
(D) None of the above, because the term SUGGESTED ANSWER:
Philippine national can only cover (E) None of the above.
individuals and not juridical entities. (Section 3(e) of Foreign Investments Act)
SUGGESTED ANSWER: II.(4) As a last question and by way of a

(D) All of the above, because the law concrete example, a delegation member
considers the juridical personality, whether finally inquired which of the following
domestic or foreign, as a mere medium: the corporations or businesses in the
test of nationality is on the individuals who Philippines may it invest and up to what
control the medium (Section 3(a) of Foreign extent? (1%)
Investments Act)
(A) A lifestyle magazine publication
II.(3) The delegation heard that foreigners corporation, up to 40% equity
can invest up to 100% of the equity in (B) An advertising corporation, up to 100%
export oriented enterprises and you were equity
asked exactly what the term covers. (C) A commercial bank, up to 60% equity
(D) A jeepney manufacturing corporation,
You replies that an export oriented up to 100% equity
enterprise under FIA 91 is an enterprise (E) A real estate development corporation,
that .(1%) up to 60% equity
(A) only engages in the export of goods and SUGGESTED ANSWER:

services, and does not sell goods or services (D) A Jeepney manufacturing corporation,
to the domestic market up to 100% equity (Section 7 of Foreign
(B) exports consistently at least 40% of its Investment Act)
goods or services, and sells at least 60% of
the rest to the domestic market
(C) exports consistently at least 60% of the III. Dennis subscribed to 10,000 shares of
goods or services produced, and sell at least XYZ Corporation with a par value of P100
40% of the rest to the domestic market. per share. However, he paid only 25% of the
Page 94 of 173
subscription or P250,000.00 No call has (D) ABC Corp. may redeem the shares at
been made on the unpaid subscription. the end of 10 years without need for
unrestricted earnings provided that, after
How many shares in Dennis entitled to vote the redemption, there are sufficient assets
at the annual meeting of the stockholders to cover its debts.
of XYZ? (1%) (E) All of the above are incorrect.
(A) 10,000 shares SUGGESTED ANSWER:

(B) 2,500 shares (D) ABC Corp. may redeem the shares at
(C) 100 shares the end of 10 years without need for
(D) 0 shares unrestricted earnings provided that, after
(E) None of the above. the redemption, there are sufficient assets
to cover its debts.
SUGGESTED ANSWER: (Section 8 of Corporation Code; Republic
(A) 10,000 Shares Planters Bank v. Agana, 269 SCRA 1, 1997)
(Section 24 and 71 of Corporation Code)
V. Arnold, representing himself as an agent
IV. ABC Corp, issued redeemable shares, of Brian for the sale of Brians car,
Under the terms of the issuance, the shares approached Dennis who appeared
shall be redeemed at the end of 10 years interested in buying the car. At Arnolds
from date of issuance, at par value plus a prodding, Dennis issued a crossed check
premium of 10% would only be shown to Brian as evidence
of Dennis good faith and interest in buying
Choose the correct statement relating to the car. Instead, Arnold used the check to
these redeemable shares. (1%) pay for the medical expenses of his wife in
Brians clinic after Brian, a doctor, treated
(A) ABC Corp. would need unrestricted her.
retained earnings to be able to redeem the
shares. Is Brian a holder in due course (HIDC)?
(B) Corporations are not allowed to issue (1%)
redeemable shares; thus, the issuance by
ABC Corp. is ultra vires. (A) Yes, Brian is a HIDC because he was the
(C) Holders of redeemable shares enjoy a payee of the check and he received it for
preference over creditors. services rendered.
Page 95 of 173
(B) Yes, Brian is a HIDC because he did not (A) Gawsengsit Corp. is doing business in
need to go behind the check that was the Philippines and requires a license from
payable to him. the Securities and Exchange Commission
(C) No, Brian is not a HIDC because Dennis (SEC).
issued the check only as evidence of good (B) Gawsengsit Corp. is not doing business
faith and interest in buying the car. in the Philippines by its mere investment in
(D) No, Brian is not a HIDC because Brian a Philippine corporation and does not need
should have been placed on notice: the a license from the SEC
check was crossed in his favor and Arnold (C) Gawsengsit Corp. has to appoint a
was not the drawer. resident agent in the Philippines.
(E) No, Brian is not a HIDC because the (D) Gawsengsit Corp. cannot elect directors
requisite consideration to Dennis was not in Bumblebee Corp.
present. (E) All the above choices are incorrect.
SUGGESTED ANSWER: SUGGESTED ANSWER:

(D) No, Brian is not a HIDC because Brian (B) Gawsengsit Corp. is not doing
should have been placed on notice: the business in the Philippines by its mere
check was crossed in his favor and Arnold investment in a Philippines corporation and
was not the drawer. does not need a license from the SEC.
(Vicente R. de Ocampo & Company v. (Section 3(d) of Foreign Investment Act)
Gatchalian, 3 SCRA 566, 1961)
VII. The BIR assessed ABC Corp. for
VI. Gawsengsit Corp. is a corporation deficiency income tax for taxable year 2010
incorporated in Singapore. It invested in in the amount of P26,731,208.00, inclusive
Bumblebee Corp., a Philippine corporation, of surcharge and penalties.
by acquiring 30% of its shares. As a result, The BIR Can . (1%)
Gawsengsit Corp. nominated 30% of the
directors of Bumblebee Corp., all of whom (A) Run after the directors and officers of
are Singaporeans and officers of ABC Corp. to collect the deficiency tax and
Gawsengsit Corp. their liability will be solidary.
(B) Run after the stockholders of ABC Corp.
Choose the correct statement relating to and their liability will be joint
Gawsengsit Corp. (1%) (C) Run after the stockholders of ABC Corp.
and their liability will be solidary
Page 96 of 173
(D) Run after the unpaid subscriptions still (Rosario Textile Mills Corporation v. Home
due to ABC Corp., if any Bankers Savings and Trust Company, 462
(E) None of the above choices is correct. SCRA 88, 2005)
SUGGESTED ANSWER: IX. A Bank may acquire real property

(D) Run after the unpaid subscriptions still . (1%)
due to ABC Corp., if any (A) By purchase at a public sale of
(Halley v. Printwell, 648 SCRA 116, 2011). properties levied to satisfy tax
delinquencies
VIII. Anton imported perfumes from Taiwan (B) By purchase from a real estate
and these were released to him by the bank corporation in the ordinary course of the
under a trust receipt. While the perfumes banks business
were in Antons warehouse, thieves broke in (C) Through dacion en pago in satisfaction
and stole all of them. of a debt in favor of the bank
(D) In exchange for the purchase of shares
Who will shoulder the lossof the stolen of stocks of the bank
perfumes? (1%) (E) All of the above.
(F) None of the above.
(A) The loss of the perfumes will be borne
by the bank in whose behalf the perfumes SUGGESTED ANSWER:
were held in trust. (B) By purchase from a real estate
(B) Anton will bear the loss. corporation in the ordinary course of the
(C) The exporter can hold both the bank banks business; or
and Anton liable for the loss. (C) Through dacion en pago in
(D) The exporter form whom Anton bought satisfaction of a debt in favor of the bank;
the perfumes will bear the loss. or
(E) No one bears the loss for an unforeseen (D) in exchange for the purchase of shares
event. of stocks of the bank.
(Section 36 (7) and 62 (2) of the Corporation
SUGGESTED ANSWER: Code)
(B) Anton will bear the loss. (Section 52 of the General Banking Law)
(Section 10 of the Trust Receipts Law)
X. Under the Anti-Money Laundering Act, a
depositors bank account may be frozen.
(1%)
Page 97 of 173
(A) By the bank when the account is the Auto Mo, Ayos Ko is a . (1%)
subject of a suspicious or covered
transaction report (A) De jure corporation
(B) By the Anti-Money Laundering Council (B) De facto corporation
(AMLC) when the account belongs to a (C) Corporation by estoppels
person already convicted of money (D) General partnership
laundering (E) None of the above.
(C) By the Regional Trial Court, upon ex
parte motion by the AMLC, in a criminal SUGGESTED ANSWER:
prosecution for money laundering pending NOTE: The last sentence of the given
before it. problem is unclear as to whether the term
(D) By the Court of Appeals motu proprio in latter refers to Enrico or to the
an appeal from a judgment of conviction of incorporators. As such, it is necessary to
a criminal charge for money laundering. qualify the answer depending on the
(E) In none of the above. meaning given to the term latter
(C) Corporation by estoppels
SUGGESTED ANSWER:
(E) In none of the above. If the term latter refers to the
(Section 10 of the Anti-Money Laundering incorporators, the correct answer is C
Act) (Section 20 and 21 of the Corporation
Code).
XI. Unknown to the other four proponents,
Enrico (who had been given the task of (E) None of the above.
attending to the Articles of Incorporation of If the term latter refers to Enrico, the
the proposed corporation, Auto Mo, Ayos correct answer is E (Sections 20 and 21 of
Ko) misappropriated the filing fees and the Corporation Code).
never filed the Articles of Incorporation with
the Securities and Exchange Commission XII. Preferred shares cannot vote on the proposal
(SEC). Instead, he prepared and presented . (1%)
to the proposed incorporators a falsified

SEC certificate approving the Articles. (A) To include other corporate officers in the
Relying on the falsifies SEC certificate, the corporations by-laws
latter began assuming and discharging (B) To issue corporate bonds
corporate powers. (C) To shorten the corporate term
Page 98 of 173
(D) All of the above Is the policy valid and binding? (1%)
(E) None of the above.
(A) Yes, the policy is valid and binding
SUGGESTED ANSWER: because Aurelia has an insurable interest
(E) None of the above. on the life of Kaddafy Benjelani.
(B) No, the policy is not valid and binding
Under letter (A), to include other corporate because Kaddafy Benjelani has been
officers in the corporations by-laws. This officially declared a public enemy.
will require the amendment of the by-laws, (C) Yes, the policy is valid and binding
and as such, preferred shares shall be because it has been in force for more than
allowed to vote. two years.
Under letter (B), to issue corporate bonds (D) No, the policy is not valid and binding
Such corporate bonds are construed as since the spouses estrangement removed
bonded indebtedness, then preferred shares Aurelias insurable interest in Benjelanis life.
shall be allowed to vote.
Under letter (C), to shorten the corporate (E) None of the above.
term, - Under Section 6 of the Corporation
Code, preferred shares shall be allowed to SUGGESTED ANSWER
vote. (A) Yes the policy is valid and binding
because Aurelia has an insurable interest
XIII. In 2010, the Philippine National Police on the life of Kaddafy Benjelani.
declared Kaddafy Benjelani Public Enemy No.
1 because of his terrorist activities in The policy is valid. Aurelia had insurable
the country that have resulted in the death interest in the life of Kaddafy Benjelani,
of thousands of Filipino. A ransom of P15 because he is her husband even if they are
million was placed on Kaddafy Benjelanis head. estranged (Section 10 (a) of the Insurance
Code). Kaddafy Benjelani is not a public
enemy, because he is not a national of an
Worried about the future of their family, enemy country (Filipinas Compaia de
Kaddafy Benjelanis estranged wife, Aurelia, Sejunos v. Christern, Huefeld & Company,
secured in December 2010 a life insurance Inc., 89 Phil. 54, 1951).
policy on his life and designated herself as
the beneficiary.
Page 99 of 173
XIV. Muebles Classico, Inc. (MC), a Manila- (B) Deny STIs claim. The Stay Order covers all
based furniture shop, purchased hardwood claims against the debtor and binds all its
lumber from Surigao Timber, Inc. (STI), a creditors. The letter of credit is a claim
Mindanao-based logging company. MC was against the debtor that is covered by the
pay STI the amount of P5.0 million for 50 Stay Order.
tons of lumber. To pay STI, MC opened a (C) Grant STIs claim. The letter of credit is not
letter of credit with Baco de Plata (BDP). a claim against the debtor under
BDP duly informed STI of the opening of a rehabilitation, but against the bank which
letter of credit in its favor. has assumed a solidary obligation.
(D) Deny STIs claim. If the bank disregards the
In The meantime, MC- which had been Stay Order, it may be subject to contempt
undergoing financial reverses = filed a by the rehabilitation court. STI should file
petition for corporate rehabilitation. The its claim with the rehabilitation court.
rehabilitation court issued a Stay Order to
stay the enforcement of all claims against (E) File an action for interpleader to resolve
MC. the parties competing claims
After shipping the lumber, STI went to BDP, SUGGESTED ANSWER:

presented the shipping documents, and (C) Grant SITs claim. The letter of credit is
demanded payment of the letter of credit not a claim against the debtor under
opened in its favor. MC, on the other hand, rehabilitation. But against the bank which
informed the bank of the Stay Order and has assumed a solidary obligation.
instructed it to deny payment to STI (Metropolitan Waterworks and Sewerage
because of the Stay Order. System v. Daway, 432 SCRA 559, 2004)
BDP comes to you for advice. Your best XV. Akiro of Tokyo, Japan sent various
advice is to . (1%) goods to his friend Juan in Cebu City,
Philippines , through one of the vessels of
(A) Grant STIs claim, Under the Worthsell Shippers, Inc., an American
Independence Principle, the bank deals only corporation. En route to Cebu City, the
with the documents and not the underlying vessel had two stops, first in Hong Kong,
circumstances; hence, the presentation of and second, in Manila.
the letter of credit is sufficient.
XV.(1) While traveling from Tokyo to Hong
Kong, the goods were damaged.
Page 100 of 173
SUGGESTED ANSWER:
What law will govern? (1%) (D) Yes, provided he files the complaint
within 1 year from delivery.
(A) Japanese law (Section 3 (6) of Carriage of Goods by Sea
(B) Hong Kong law Act; Belgian Overseas Chartering
(C) Chinese law &Shipping N.V. v. Philippine First
(D) Philippine law Insurance Company, Inc., 383 SCRA 23,
(E) American law 2002)
SUGGESTED ANSWER:
(A) Philippine law (Article
1753, Civil Code)
(Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court, G.R. No. L-
69044, May 29, 1987).
XV.(2) Assuming Philippine law to be

applicable and Juan fails to file a claim
with the carrier, may he still commence an
action to recover damages with the court?
(1%)
(A) No, the failure to file a claim with the

carrier is a condition precedent for
recovery.
(B) Yes, provided he files the complaint with
10 years from delivery.
(C) Yes, provided he files the complaint with
10 years from discovery of the damage.
(D) Yes, provided he files the complaint
within 1 year from delivery.
(E) Yes, provided he files the complaint with
1 year from discovery of the damage.
Page 101 of 173
2012 Mercantile Law Exam
MCQ (October 21, 2012)
1. Letters of Credit are financial
devices in commercial transactions
serves to reduce the risk of non-
which will ensure that the seller of
performance is called -
the goods is sure to be paid when he
a. irrevocable letter of credit;
parts with the goods and the buyer
b. standby letter of credit;
of the goods gets control of the
c. confirmed letter of credit;
goods upon payment. Which
d. None of the above.
statement is most accurate?
a. The use of the Letter of
SUGGESTED ANSWER:
Credit serves to reduce the
risk of nonpayment of the b. standby letter of credit;
purchase price in a sale
transaction.
b. The Letters of Credit can
3. At the instance of CCC Corporation,
only be used exclusively in a
AAA Bank issued an irrevocable
sales transaction.
Letter of Credit in favor of BBB
c. The Letters of Credit are
Corporation. The terms of the
issued for the benefit of the
irrevocable Letter of Credit state
seller only.
that the beneficiary must presfmt
d. (a), (b) and (c) are all correct.
certain documents including a copy
SUGGESTED ANSWER: of the Bill of Lading of the
importation for the bank to release
a. The use of the Letter of Credit serves the funds. BBB Corporation could
to reduce the risk of nonpayment of not find the original copy of the Bill
the purchase price in a sale of Lading so it instead presented to
transaction. the bank a xerox copy of the Bill of
Lading. Would you advise the bank
to allow the drawdown on theLetter
of Credit?
2. Letter of Credit which is used in
a. No, because the rule of
non-sale transaction, where it
strict compliance in
commercial transactions
involving letters of credit,
requiring documents set as
conditions for the release of
the fund ,has to be
Page 102 of 173
strictly corn plied with or 4. AAA Carmakers opened an

else funds will not be irrevocable Letter of Credit with BBB
released. Banking Corporation with CCC Cars
b. Yes, because an irrevocable Corporation as beneficiary. The,
letter of credit means that irrevocable Letter of Credit was
the issuing bank undertakes opened to pay for the importation of
to release the fund anytime ten (1 0) units of Mercedes Benz S
when claimed by the class. Upon arrival of the cars, AAA
beneficiary, regardless of the Carmakers found out that the cars
kind of document presented. were all not in running condition
c. Yes, because the issuing and some parts were missing. As a
bank can always justify to consequence, AAA Carmakers
CCC Corporation that xerox instructed BBB Banking
copies are considered as Corporation not to allow drawdown
faithful reproduction of the on the Letter of Credit. Is this legally
original copies. possible?
d. Yes, because the issuing a. No, because under the
bank really has no discretion "Independence Principle",
to determine whether the conditions for the
documents presented by the drawdown on the Letters of
beneficiary are sufficient or Credit are based only on
not. documents, like shipping
documents, and not with the
SUGGESTED ANSWER: condition of the goods
subject of the importation.
a. No, because the rule of strict
b. Yes, because the acceptance
compliance in commercial
by the importer of the goods
transactions involving letters of
subject of importation is
credit, requiring documents set as
material for the drawdown of
conditions for the release of the
the Letter of Credit.
FUND ,has to be strictly corn plied
c. Yes, because under the
with or else funds will not be
"Independence Principle", the
released.
seller or the beneficiary is
always assured of prompt
payment if there is no breach
Page 103 of 173
in the contract between the b. Assign the warehouse receipt

seller and the buyer. to Z to transfer ownership of
d. No, because what was the goods.
opened was an irrevocable c. Negotiate the warehouse
letter of credit and not a receipt by specifically
confirmed letter of credit. indorsing it to Z.
d. The warehouse receipt in
SUGGESTED ANSWER: this case is non-negotiable.
a. No, because under the SUGGESTED ANSWER:

"Independence Principle",
conditions for the drawdown on a. No, because under the
the Letters of Credit are based "Independence Principle",
only on documents, like shipping conditions for the drawdown on
documents, and not with the the Letters of Credit are based
condition of the goods subject of only on documents, like shipping
the importation. documents, and not with the
condition of the goods subject of
the importation.
5. For a fee, X deposited 1,000 sacks of

corn in the warehouse owned by Y.
Y is in the business of warehousing. 6. The warehouseman, by issuing the
Y issued a warehouse receipt as warehouse receipt, acknowledges
proof of the possession of the 1,000 that the goods are in his possession,
sacks of corn. The warehouse but he can refuse to deliver the
receipt states as follows: "Deliver to goods to the holder of the
X or bearer 1,000 sacks of corn." X warehouse receipt covering the
wanted to use the warehouse receipt goods if -
as payment of his debt in favor of Z. a. the warehouse receipt
How can the ownership of the goods covering the goods is not
covered by the warehouse receipt be presented.
transferred? b. the lien of the
a. Negotiate the warehouse warehouseman is not
receipt by just delivering satisfied.
the warehouse receipt to Z.
Page 104 of 173
c. the said holder presents a was asked to sign a Trust Receipt

materially altered warehouse covering the goods. When the goods
receipt. were sold, X did not deliver the
d. All of the above. proceeds to BBB Banking
Corporation, arguing that he will
need the fund for the subsequent
importation. Is there sufficient basis
SUGGESTED ANSWER:
to sue for criminal action?
a. Yes, because X's failure to
d. All of the above.
turn over the proceeds to the
bank is a violation of the
Trust Receipt Law.
7. The legal remedy of the b. No, because the trust receipt
warehouseman in case of conflicting was signed only after the
claims is to --- delivery of the goods. When
a. file an action for the trust receipt was signed,
interpleader. the ownership of the goods
b. give the goods to the first one was already with X.
who first presented the c. Yes, because violation of
warehouse receipt. Trust Receipt Law is mala
c. use his discretion as to who prohibita, intention is
he believes has the prior irrelevant.
right. d. No, because X has a valid
d. keep the goods and reason not to deliver the
appropriate them to himself. proceeds to BBB Banking
Corporation.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
a. file an action for interpleader.
a. Yes, because X's failure to turn over
8. BBB Banking Corporation issued a the proceeds to the BANK is a
Letter of Credit in the amount of violation of the Trust Receipt Law.
P5Million, for the purchase of five (5)
tons of corn by X. Upon arrival of
the goods, the goods were delivered
to the warehouse of X. Thereafter he
Page 105 of 173
c. Yes, because violation of Trust payment under the Trust

Receipt Law is mala prohibita, Receipts Law.
intention is irrelevant. c. X can be held criminally
liable under the Trust
Recommendation in respect of MCQ #8: Receipts Law regardless of
the purpose or intention for
It is recommended that examinees be
the use of the proceeds.
given full credit for whatever answer they
d. X cannot be held criminally
gave as there are two possible correct
liable because the underlying
answers of equal value: (a) and (c).
obligation is one of simple
loan.
SUGGESTED ANSWER:
9. X secured a loan from BBB Bank to
pay for the importation of some
c. X can be held criminally liable under
dried fruits. Upon arrival of the
the Trust Receipts Law regardless of
goods consisting of dried fruits
the purpose or intention for the use
imported by X but before delivery to
of the proceeds.
him, a trust receipt was executed by
X to cover the transfer of the dried
fruits to his possession. The dried
fruits were so saleable but instead of 10. X is the President of AAA Products
turning over the proceeds of the Corporation. X signs all the Trust
sale, X used the funds to pay for the Receipts documents for certain
medical expenses of his mother who importations of the company. In the
was sick of cancer of the bone. event of failure to deliver the
Which statement is most accurate? proceeds of the sale of the goods to
a. X cannot be held criminally the bank, which statement is most
liable because although he accurate?
did not pay the bank he used a. The criminal liability will not
the proceeds for a good attach to X as President
reason. because of separate juridical
b. Fraud or deceit is a personality.
necessary element to hold X b. For violation of Trust
criminally liable for non - Receipts Law, the law
Page 106 of 173
specifically provides for the who bears the risk of the

imposition of penalty upon loss;
directors I officers of the d. the party who acquires
corporation. security interest in the
c. The officer will not be held goods.
criminally accountable
because he is just signing SUGGESTED ANSWER:
the trust receipt for and in

b. the person to whom goods
behalf of the corporation.
are delivered for sale and
d. The officer of the corporation
who bears the risk of the
will be held liable provided it
loss;
is clear that the officer
concerned participated in the
decision not to pay.
12. Which phrase best completes the

SUGGESTED ANSWER:
statement - In accordance with the
Trust Receipt Law, purchasers of
b. For violation of Trust
the goods from the Entrustee will:
Receipts Law, the law
specifically provides for the
a. get the goods only as a
imposition of penalty upon
collateral;
directors I officers of the
b. not get good title to the
corporation.
goods;
c. only get security interest
over the goods;
11. Who is the Entrustee in a Trust d. get good title to the goods.
Receipt arrangement?
SUGGESTED ANSWER:
a. the owner of the goods;

d. get good title to the goods.
b. the one who holds the goods
and receives the proceeds
from the sale of the goods;
c. the person to whom goods 13. X acted as an accommodation party
are delivered for sale and in signing as a maker of a
promissory note. Which phrase best
Page 107 of 173
completes the sentence - This b. The promissory note is non-

means that X is liable on the negotiable because the
instrument to any holder for value: option as to which form of
payment is with the maker.
a. for as long as the holder does c. The promissory note is an
not know that X is only an invalid instrument because
accommodation party. there is more than one form
b. even though the holder knew of payment.
all along that X is only an d. The promissory note can be
accommodation party. negotiated by way of delivery.
c. for as long as X did not
receive any consideration for SUGGESTED ANSWER:
acting as accommodation
party. b. The promissory note is non-
d. provided X received negotiable because the option as to
consideration for acting as which form of payment is with the
accommodation party. maker.
SUGGESTED ANSWER: 15. X issued a promissory note which

states "I promise to pay Y or bearer
b. even though the holder knew the amount of HK$50,000 on or
all along that X is only an before December 30, 2013." Is the
accommodation party. promissory note negotiable?
a. No, the promissory note
14. X issued a promissory note which becomes invalid because the
states, "I promise to pay Y or order amount is in foreign
Php100,000.00 or one (1) unit Volvo currency.
Sedan." Which statement is most b. Yes, the promissory note is
accurate? negotiable even though the
a. The promissory note is amount is stated in foreign
negotiable because the forms currency.
of payment are clearly c. No, the promissory note is
stated. not negotiable because the
amount is in foreign
currency.
Page 108 of 173
d. Yes, the promissory note is a. Z can encash the check even

negotiable because the Hong though Y did not indorse the check.
Kong dollar is a known
foreign currency in the 17. A stale check is a check -
Philippines. a. that cannot anymore be

paid although the underlying
SUGGESTED ANSWER: obligation still exists.
b. that cannot anymore be paid
b. Yes. The promissory note is and the underlying
negotiable even though the amount obligation under the check is
is stated in foreign currency. also extinguished.
c. that can still be negotiated or
16. X delivered a check issued by him
indorsed so that whoever is
and payable to the order of CASH to
the holder can
Y in payment for certain obligations
d. which has not been presented
incurred by X in favor of Y. Y then
for payment within a period of
delivered the check to Z in payment
thirty (30) days.
for certain obligations. Which
statement is most accurate? SUGGESTED ANSWER:
a. Z can encash the check even
though Y did not indorse the a. that cannot anymore be paid
check. although the underlying obligation still
b. Z cannot encash the check exists.
for lacking in proper
endorsement. 18. In payment for his debt in favor of
c. Y is the only one liable X, Y gave X a Manager's Check in
because he was the one who the amount of Php100,000 dated
delivered the check to Z. May 30, 2012. Which phrase best
d. The negotiation is not valid completes the statement - A
because the check is an Manager's Check:
instrument payable to order. a. is a check issued by a

manager of a bank for his
SUGGESTED ANSWER: own account.
b. is a check issued by a
manager of a bank in the
Page 109 of 173
name of the bank against the a. negotiation can be made by

bank itself for the account of delivery only.
the bank.
c. is like any ordinary check 20. As payment for a debt, X issued a
that needs to be presented promissory note in favor of Y but the
for payment also. promissory note on its face was
d. is better than a cashier's marked non-negotiable. Then Y
check in terms of use and instead of indorsing the promissory
effect. note, assigned the same in favor of Z

to whom he owed some debt also.
Which statement is most accurate?
a. Z cannot claim payment
SUGGESTED ANSWER: from X on the basis of the
promissory note because it is
b. Is a check issued by a manager of
marked non-negotiable.
a bank in the name of the bank
b. Z can claim payment from X
against the bank itself for the
even though it is marked
account of the bank.
non-negotiable.
c. Z can claim payment from Y
because under the
statement -- A check which is
Negotiable Instrument Law,
payable to bearer is a bearer
negotiation and assignment
instrument and:
is one and the same.
a. negotiation can be made by
d. Z can claim payment from Y
delivery only;
only because he was the
b. negotiation must be by
endorser of the promissory
written indorsement;
note.
c. negotiation must be by
specific indorsement;
SUGGESTED ANSWER:
d. negotiation must be by
indorsement and delivery. b. Z can claim payment from X even
though it is marked non-negotiable.
SUGGESTED ANSWER:
Page 110 of 173
21. Negotiable instruments are used as b. The drawee bank can recover
substitutes for money, which means from X, because he is the
- drawer even though his
a. that they can be considered signature was forged.
legal tender. c. The drawee bank is estopped
b. that when negotiated, they from denying the
can be used to pay genuineness of the signature
indebtedness. of the X, the drawer of the
c. that at all times the delivery check.
of the instrument is d. The drawee bank can recover
equivalent to delivery of the from Y because as endorser
cash. he warrants the genuineness
d. that at all times negotiation of the signature.
of the instruments requires
proper indorsement. SUGGESTED ANSWER:
SUGGESTED ANSWER: c. The drawee bank is estopped from

denying the genuineness of the
b. That when negotiated, they can signature of the X, the drawer of the
be used to pay indebtedness. check.
23. A issued a check in the amount of

Php20,000 payable to B. B endorsed
22. The signature of X was forged as the check but only to the extent of
drawer of a check. The check was Php1 0,000. Which statement is
deposited in the account of Y and most accurate?
when deposited was accepted by a. The partial indorsement is
AAA Bank, the drawee bank. not a valid indorsement,
Subsequently, AAA Bank found out although will result in the
that the signature of X was actually assignment of that part.
forged. Which statement is most b. The partial indorsement will
accurate? invalidate the whole
a. The drawee bank can recover instrument.
from Y, because the check c. The endorsee will be
was deposited in his considered as a holder in
account. due course.
Page 111 of 173
d. The partial indorsement is SUGGESTED ANSWER:

valid indorsement up to the
extent of the Php10,000. a. a bill of exhchange
SUGGESTED ANSWER: 26. A check was issued to Tiger Woods.

But what was written as payee is
a. The partial indorsement is not a the word "Tiger Woods". To validly
valid indorsement, although will endorse the check -
result in the assignment of the part. a. Tiger Woods must sign his
real name.
24. A promissory note which does not b. Tiger Woods must sign both
have the words "or order" or "or his real name and assumed
bearer" will render the promissory name.
note non-negotiable, and therefore - c. Tiger Woods can sign his
a. it will render the maker not assumed name.
liable; d. the check has become non-
b. the note can still be assigned negotiable.
and the maker made liable;
c. the holder can become SUGGESTED ANSWER:
holder in due course;
d. the promissory note can just a. Tiger Woods can sign his
be delivered and the maker assumed name.
will still be liable.
SUGGESTED ANSWER:
27. Y, as President of and in behalf of
d. the note can still be assigned and AAA Corporation, as a way to
the marker made liable accommodate X, one of its

stockholders, endorsed the check
25. A check is - issued by X. Which statement is
a. a bill of exchange; most acurate?
b. the same as a promissory a. It is an ultra vires act.
note; b. It is a valid indorsement.
c. is drawn by a maker; c. The corporation will be held
d. a non-negotiable instrument. liable to any holder in due
course.
Page 112 of 173
d. It is an invalid indorsement. a. the sum expressed in words will

prevail over the one expressed in numbers.
SUGGESTED ANSWER:
29. A promissory note which is undated
a. it is an ultra vires act. is presumed to be -
b. it is a valid indorsement. a. dated as of the date of issue;
b. dated as of the date of the
Recommendation in respect of MCQ #27:
first indorsement;
c. promissory note is invalid
It is recommended that examinees be given
because there is no date;
full credit for whatever answer they gave as
d. dated on due date.
there are two possible correct answers of
equal value: (a) which is supported by the
SUGGESTED ANSWER:
case of Jose v. CA, et al., G.R. No. 80599,
September 15,1989, and (b) which is a. dated as of the date of issue
supported by Section 22 of the Negotiable
Instrument Law. 30. An insurance contract is an aleatory
contract, which means that -
28. In a negotiable instrument, when a. the insurer will pay the
the sum is expressed both in insured equivalent to the
numbers and in words and there is amount of the premium paid.
discrepancy between the words and b. the obligation of the insurer
the numbers - is to pay depending upon the
a. the sum expressed in words happening of an uncertain
will prevail over the one future event.
expressed in numbers. c. the insured pays a fixed
b. the sum expressed in premium for the duration of
numbers will prevail over the the policy period and the
one expressed in words. amount of the premiums
c. the instrument becomes void paid to the insurer is not
because of the discrepancy. necessarily the same amount
d. this will render the as what the insured will get
instrument invalid. upon the happening of an
uncertain future event.
SUGGESTED ANSWER:
Page 113 of 173
d. the obligation of the insurer b. are to be constructed liberally in

is to pay depending upon the favour of the insured and strictly against
happening of an event that is the insurer who drafted the insurance
certain to happen. policy,
SUGGESTED ANSWER: 32. X is the common law wife of Y. Y

loves X so much that he took out a
b. the obligation of the insurer is to life insurance on his own life and
pay depending upon the happening of an made her the sole beneficiary. Y did
uncertain future event. this to ensure that X will be
financially comfortable when he is
31. An Insurance Contract is a contract
gone. Upon the death of Y, -
of adhesion, which means that in
a. X as sole beneficiary under
resolving ambiguities in the
the life insurance policy on
provision of the insurance contract,
the life of Y will be entitled to
-
the proceeds of the life
a. the general rule is that, the
insurance.
insurance contract is to be
b. despite the designation of X
interpreted strictly in
as the sole beneficiary, the
accordance with what is
proceeds of the life insurance
written in the contract.
will go to the estate of Y.
b. are to be construed liberally
c. the proceeds of the life
in favor of the insured and
insurance will go to the
strictly against the insurer
compulsory heirs of Y.
who drafted the insurance
d. the proceeds of the life
policy.
insurance will be divided
c. are to be construed strictly
equally amongst X and the
against the insured and
compulsory heirs of Y.
liberally in favor of the
insurer. SUGGESTED ANSWER:
d. if there is an ambiguity in
the insurance contract, this a. X as sole beneficiary under the
will invalidate the contract. life insurance policy on the life of Y will be
entitled to the proceeds of the life
SUGGESTED ANSWER: insurance.
Page 114 of 173
33. X, in January 30, 2009, or two (2) d. The life insurance is valid
years before reaching the age of 65, provided the disposition of
insured his life for Php20Million. the proceeds will be subject
For reason unknown to his family, to the approval of the legal
he took his own life two (2) days guardian of the minor.
after his 65th birthday. The policy
contains no excepted risk. Which SUGGESTED ANSWER:

c. the life insurance policy is valid
a. The insurer will be liable.
provided the beneficiary is his estate or his
b. The insurer will not be liable.
parents, or spouse or child.
c. The state of sanity of the
insured is relevant in cases
35. The "incontestability clause" in a
of suicide in order to hold
Life Insurance Policy means ---
the insurer liable.
a. that life insurance proceeds
d. The state of sanity of the
cannot be claimed two (2)
insured is irrelevant in cases
years after the death of the
of suicide in order to hold
insured.
the insurer liable.
b. that two (2) years after date
of issuance or reinstatement
SUGGESTED ANSWER:
of the life
a. the insurer will be liable. insurance policy, the insurer

cannot anymore prove that
34. X, a minor, contracted an insurance the policy is
on his own life. Which statement is void ab initio or rescindable
most accurate? by reason of fraudulent
a. The life insurance policy is concealment or
void ab initio. misrepresentation of the
b. The life insurance is valid insured.
provided it is with the c. that the insured can still
consent of the beneficiary. claim from the insurance
c. The life insurance policy is policy after two (2) years
valid provided the beneficiary even though premium is not
is his estate or his parents, paid.
or spouse or child. d. that the insured can only
claim proceeds in a life
Page 115 of 173
insurance policy two (2) b. existing at the time of perfection

years after death. and at the time of loss for property
SUGGESTED ANSWER: 37. A house and lot is covered by a real

estate mortgage (REM) in favor of
b. the two (2) years after date of ZZZ Bank. The bank required that
issuance or reinstatement of the life the house be insured. The owner of
insurance policy the insurer cannot the policy failed to endorse nor
anymore prove that the policy is void assign the policy to the bank.
abignitio or rescindable by reason of However, the Deed of Real Estate
fraudulent concealment or Mortgage has an express provision
misrepresentation of the insured. which says that the insurance policy
is also endorsed with the signing of
36. For both the Life Insurance and
the REM. Will this be sufficient?
Property Insurance, the insurable
a. No, insurance policy must be
interest is required to be -
expressly endorsed to the
a. existing at the time of
bank so that the bank will
perfection of the contract
have a right in the proceeds
and at the time of loss.
of such insurance in the
b. existing at the time of
event of loss.
perfection and at the time of
b. The express provision
loss for property insurance
contained in the Deed of Real
but only at the time of
Estate Mortgage to the effect
perfection for life insurance.
that the policy is also
c. existing at the time of
endorsed is sufficient.
perfection for property
c. Endorsement of Insurance
insurance but for life
Policy in any form is not
insurance both at the time of
legally allowed.
perfection and at the time of
d. Endorsement of the
loss.
Insurance Policy must be in
d. existing at the time of
a formal document to be
perfection only.
valid.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
Page 116 of 173
a. No, insurance policy must be 39. X insured the building she owns
expressly endorsed to the bank so that the with two (2) insurance companies
bank will have a right in the proceeds of for the same amount. In case of
such insurance in the event of loss. damage, -
a. X can not claim from any of
38. X is a passenger of a jeepney for hire the two (2) insurers because
being driven by Y. The jeepney with the double insurance,
collided with another passenger the insurance coverage
jeepney being driven by Z who was becomes automatically void.
driving recklessly. As a result of the b. the two (2) insurers will be
collision, X suffered injuries. Both solidarily liable to the extent
passenger jeepneys are covered by of the loss.
Comprehensive Motor Vehicular c. the two (2) insurers will be
Insurance Coverage. If X wants to proportionately liable.
claim under the "no fault indemnity d. X can choose who he wants
clause", his claim will lie - to claim against.
a. against the insurer of the
jeepney being driven by Z SUGGESTED ANSWER:
who was the one at fault.
b. the claim shall lie against d. X can choose who he wants to
the insurer of the passenger claim against.
jeepney driven by Y because

40. When X insured his building, X
X was his passenger.
indicated in the application that it is
c. X has a choice against whom
a residential building, but actually
he wants to make his claim.
the building was being used as a
warehouse for some hazardous
SUGGESTED ANSWER: materials. What is the effect on the

insurance policy, i f any?
b. the claim shall lie against the a. The insurance policy can be
insurer of the passenger jeepney driven by cancelled because of the
Y because X was his passenger. change in the use.
b. The insurance policy will
automatically be changed.
c. The insurance policy need
not be changed.
Page 117 of 173
d. The insurance policy is fixed over the house and lot was
regardless of the change in already transferred.
the use. d. Y will be the one entitled to
the proceeds because he now
Recommendation in respect of MCQ #40: owns the partially burnt
house and lot.
full credit for whatever answer they gave as SUGGESTED ANSWER:
the question is unclear. What is clear is that
there was misrepresentation on the part of X b. X is still entitled to the proceeds
when he indication in his application that of the insurance policy because what is
the building is residential when it was material is that at the time of the loss, X is
actually being used as a warehouse. The the owner of the house and lot.
problem does not indicate that the change in
the use of the house was carried out by X 42. X, while driving his Toyota Altis,
and that it was done without the permission tried to cross the railway tract of
of the insurer. Philippine (xxx line 2 unread text

xxx) approached BlumentrittAvenida
41. X owned a house and lot. X insured Ext., applied its horn as a warning
the house. The house got burned. to all the vehicles that might be
Then he sold the partially burnt crossing the railway tract, but there
house and the lot to Y. Which was really nobody manning the
statement is most accurate? crossing. X was listening to his lpod
a. X is not anymore entitled to touch, hence, he did not hear the
the proceeds of the sound of the horn of the train and
insurance policy because he so his car was hit by the train. As a
already sold the partially result of the accident, X suffered
burnt house and lot. some injuries and his car was totally
b. X is still entitled to the destroyed as a result of the impact.
proceeds of the insurance Is PNR liable?
policy because what is a. PNR is not liable because X
material is that at the time of should have known that he
the loss, X is the owner of was crossing a place
the house and lot. designated as crossing for
c. No one is entitled to the
proceeds because ownership
Page 118 of 173
train, and therefore should instantly. Is AAA Bus Company

have been more careful. liable?
b. PNR is liable because a. The bus company is not
Railroad companies owe to liable for as long as the bus
the public a duty of company can show that
exercising a reasonable when they hired X, they did
degree of care to avoid injury the right selection process.
to person and property at b. The bus company cannot be
railroad crossings which held liable because what X
means a flagman or a did is not part of his
watchman should have been responsrbility.
posted to warn the public at c. The bus company is liable
all times. because common carriers
c. PNR is not liable because it are liable for the negligence
blew its horn when it was or willful act of its employees
about to cross the railway even though they acted
along BlumentrittAvenida beyond the
Ext. scope of their responsibility.
d. PNR is not liable because X d. The bus company is not
was negligent, for listening to liable because there is no
his lpod touch while driving. way that the bus company
can anticipate the act of X.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
a. PNR is not liable because X
should have known that he was crossing a c. The bus company is liable
place designated as crossing for train, and because common carriers are liable for the
therefore should have been more careful. negligence or wilful act of its employees
even though they acted beyond the scope of
43. The AAA Bus Company picks up their responsibility.
passengers along EDSA. X, the
conductor, while on board the bus, 44. X is a trader of school supplies in
drew his gun and randomly shot the Calapan, Oriental Mindoro. To bring
passengers inside. As a result, Y, a the school supplies to Calapan, it
passenger, was shot and died has to be transported by a vessel.
Page 119 of 173
Because there were so many When X reached Los Angeles one (1)
passengers, the two (2) boxes of of the two (2) checked in luggage
school supplies were loaded but the could not be found. Which
shipping company was not able to statement is most accurate?
issue the Bill of Lading. So, on a. PAL is liable for the loss of
board, the Ship Captain issued the checked- in luggage
instead a "shipping receipt" to X under the provisions of the
indicating the two (2) boxes of Warsaw Convention on Air
school supplies being part of the Transport.
cargo of the vessel. Which phrase b. PAL is liable for the loss only
therefore, is the most accurate? if the baggage check
a. the owner of the vessel is not expressly states that the
liable because no bill of airline shall be liable in case
lading was issued to X of loss.
hence, no contract of c. PAL cannot be held liable
carriage was perfected. because that is the risk that
b. it is possible to have a a passenger takes when she
contract of carriage of cargo checks- in her baggage.
even without a bill of d. PAL can only be held liable if
lading, and the "shipping it can be proven that PAL
receipt" would be was negligent.
sufficient.
c. the only acceptable SUGGESTED ANSWER:
document of title is a Bill of

a. PAL is liable for the loss of the
Lading.
checked-in-luggage under the provisions of
the Warsaw Convention on Air Transport.
SUGGESTED ANSWER:
46. X owns a passenger jeepney covered
b. it is possible to have a contract of by Certificate of Public Convenience.
carriage of cargo even wiht He allowed Y to use its Certificate of

Convenience for a consideration. Y
45. X took Philippine Airlines Flight PR therefore was operating the
102 to Los Angeles, USA. She had passenger jeepney under the same
two (2) luggage checked-in and was Certificate of Public Convenience
issued two (2) baggage checks.
Page 120 of 173
(Kabit System) under the name of X. amount of Php1 ,000 daily under
The passenger jeepney met an the boundary system. This means
accident. Who will be liable? that anything above Php1 ,000
a. Y, the one actually operating would be the earnings of Y. Y,
the jeepney, will be liable to driving recklessly, hit an old lady
the injured party. crossing the street. Which statement
b. X will be the one liable to the is most accurate?
injured party despite the fact a. X as the owner is exempt
that it is Y who is actually from liability because he was
operating the jeepney, not the one driving.
because while the Kabit b. X as the owner is exempt
System is tolerated, the from liability because
public should not be precisely the arrangement is
inconvenienced by the one under the "boundary
arrangement. system".
c. X will not be held liable if he c. X will not be exempt from
can prove that he is not the liabilitybecausehe
owner anymore. remains to be the registered
d. Public Policy dictates that owner and the boundary
the real owner, even not the system will not allow the
registered one, will be held circumvention of the law to
liable. avoid liability.
d. Y is the only one liable
SUGGESTED ANSWER: because he drove recklessly.
b. X will be the one liable to the SUGGESTED ANSWER:

injured party despite the fact that it is Y
who is actually operating the jeepney, c. X will not be exempt from liability
because while the Kabit System is tolerated, because he remains to be the registered
the public should not be inconvenienced by owner and the boundary system will not
the arrangement. allow the circumvention of the law to avoid
liability.
47. X owns a fleet of taxicabs. He
operates it through what is known 48. The Articles of Incorporation of AAA
as boundary system. Y drives one of Corporation was approved by the
such taxicabs and pays X a fixed SecuritiesandExchange
Page 121 of 173
Commission (SEC). After the receipt he signed all the loan

of the Certificate of Approval from documents, because the loan
the SEC, AAA Corporation decided was authorized by the Board.
to immediately start the operation of c. YYY Bank can choose as to
its business despite the fact that it who it wants to hold liable
has no approved By-Laws. What is for the loan.
the legal status of the AAA d. If ZZZ Corporation cannot
Corporation? pay, X can be held
a. A de jure corporation; subsidiarity liable.
b. A de facto corporation;
c. A corporation by estoppel; SUGGESTED ANSWER:
d. An unregistered corporation.
b. X, as President, cannot be
SUGGESTED ANSWER: personally held liable for the obligation of

the corporation even though he signed all
a. A de jure corporation the loan documents, because the loan was
authorized by the Board.
49. X, the President of ZZZ Corporation,
was authorized by the Board of 50. X owns 99% of the capital stock of
Directors of ZZZ Corporation to SSS Corporation. X also owns 99% of
obtain a loan from YYY Bank and to TTT Corporation. SSS Corporation
sign documents in behalf of the obtained a loan from VW Bank. On
corporation. X personally negotiated due date, SSS Corporation
for the loan and got tile loan at very defaulted. TTT Corporation is
low interest rates. Upon maturity of financiallyhealthy. Which statement
the loan, ZZZ Corporation was is most accurate?
unable to pay. Which statement is a. X being a controlling owner
most accurate? of SSS Corporation can
a. Because X was personally automatically be held
acting in behalf of the personally liable for the loan
Corporation, he can be held of SSS Corporation.
personally liable. b. TTT Corporation, owned 99%
b. X, as President, cannot be by X, can automatically be
personally held liable for the held liable.
obligation of the corporation
even though
Page 122 of 173
c. SSS Corporation and TTT SUGGESTED ANSWER:

Corporation, although both
are owned by X, are two (2) b. Banks
distinct corporations with

52. Father X, an American priest who
separate juridical
came from New York, registered the
personalities hence, the
Diocese of Bacolod of the Roman
TTT Corporation cannot
Catholic Church which was
automatically be held liable
incorporated as a corporation sole.
for the loan of SSS
There were years when the head of
Corporation.
the Diocese was a Filipino, but there
d. The principle of piercing the
were more years when the heads
veil of corporate fiction can
were foreigners. Today, the head is
be applied in this case.
an American again. Y donated a
SUGGESTED ANSWER: piece of land located in Bacolod City

for use as a school. Which
c. SSS Corporation and TTT statement is most accurate?
corporation, although both are owned by X, a. The Register of Deeds of
are two (2) distinct corporation with the Bacolod City can refuse to
separate juridical personalities hence, the register and transfer the title
TTT Corporation cannot automatically be because the present head of
held liable for the loan of SSS corporation. the corporation sole is not a
Filipino.
51. A corporation generally can issue b. The nationality of a
both par value stock and no par corporation sole depends
value stock. These are all fixed in upon the nationality of the
the Articles of Incorporation of the head at any given time.
corporation. Which of the following c. Acorporationsole,
corporations may not be allowed to regardless of the nationality
issue no par value shares? of the head, can acquire real
a. Insurance companies; property either by sale or
b. Banks; donation.
c. Trust companies; d. A corporation sole is not
d. All of the above. legally allowed to own real
property.
Page 123 of 173
SUGGESTED ANSWER: Was the Corporate Secretary

correct?
c. A corporation sole, regardless of a. The Corporate Secretary is
the nationality of the head, can acquire real correct because the
property either by sale or donation. Corporation Code provides
that no certificate of stock
53. The number of the Board of
shall be issued to a
Trustees of a non-stock, non-profit
subscriber until the shares
educational institution should be ---
as subscribed have been
a. five (5) only
fully paid.
b. any number for as long as it
b. The Corporate Secretary
is not less than five (5) and
cannot refuse because a
no more than eleven (11)
Stock Certificate can be
c. any number in multiples of
issued corresponding to the
five (5), for as long as it is
percentage of shares which
not less than five (5) and no
were paid.
more than fifteen (15).
c. The Corporate Secretary
d. not less than five (5) nor
cannot refuse because a
more than ten (1 0) in
Certificate of Stock can be
multiples of five (5).
issued provided it is
indicated in the Certificate
SUGGESTED ANSWER:
the actual percentage of
c. Any number in multiples of five what has been paid.
(5), for as long as it is not less than five d. The Corporate Secretary
(5) and no more than fifteen (15) cannot refuse because it is

his legal duty to issue a
54. X subscribed 10,000 shares in the stock certificate
capital stocks of AAA Corporation. corresponding to the number
He paid 50% of the 10,000 shares. X of shares actually subscribed
asked the Corporate Secretary to regardless of the actual
issue him the corresponding stock payment.
certificate representing the 50% of
what he already paid. The Corporate SUGGESTED ANSWER:
Secretary of the corporation refused.
Page 124 of 173
a. The Corporate Secretary is correct merger anytime after the

because the Corporation Code provides that approval of the SEC.
no certificate of stock shall be issued to a
subscriber until the shares as subscribed SUGGESTED ANSWER:
have been fully paid.

b. The effective date of the merger is
55. XXX Corporation and YYY always the date of the approval of the
Corporation have agreed to be Articles of Merger by the SEC.
merged into one corporation. To

56. AAA Corporation is a wholly owned
facilitate the merger, both
subsidiary of BBB Corporation. To
corporations agreed that the merger
support the business of AAA
be made effective on May 31,2012.
Corporation, BBB Corporation
The Securities and Exchange
agreed to give its corporate
Commission (SEC) approved the
guarantee to the loan of AAA
Articles of Merger on June 30, 2012.
Corporation. What is required so
that the corporate guarantee will be
a. The effective date of the
valid?
merger is May 31, 2012, the
a. It only requires the approval
date stipulated by the parties
of the Board of
as the effective date.
Directors of BBB
b. The effective date of the
Corporation.
merger is always the date of
b. The Articles of Incorporation
the approval of the Articles of
must provide such power
Merger by the SEC.
and be approved by the
c. The effective date of the
Board of Directors.
merger would be the date
c. Providingcorporate
approved by the Board of
guarantee to another
Directors and the
corporation is a necessary
stockholders.
exercise of power of a
d. The stockholders and the
corporation.
Board of Directors can set
d. It would require both the
the effective date of the
approval of the Board of
Directors and the
stockholders on record.
Page 125 of 173
SUGGESTED ANSWER: b. Classification of shares may be

allowed for as long as it is clearly stated as
a. It only requires the approval of such in the Articles of Incorporation of the
the Board of Directors of BBB Corporation. Corporation.
57. The capital stock of ABC 58. ABC Corporation declared stock
Corporation is divided into common dividends to its stockholders. The
shares and preferred shares. stock dividends were approved by
Preferred shares are preferred as to the Board of Directors of ABC
dividends and common shares are Corporation. In the subsequent year
those shares which have the regular however, the Board again approved
and ordinary attributes of a share of the redemption of all stock
a corporation. Which statement is dividends and to pay the
most accurate? shareholdings in cash. Which
a. This kind of classification statement is most accurate?
may not be allowed or else it a. The redemption of the stock
will violate the Doctrine of dividends can be validly
Equality of shares. approved by the Board
b. Classifications of shares may without any conditions.
be allowed for as long as it is b. The redemption of stock
clearly stated as such in the dividends may only be
Articles of allowed if there are sufficient
Incorporation of the earnings and should not be
Corporation. violative of the trust fund
c. Classifications of shares is doctrine.
mainly for business purpose c. The redemption of the shares
to attract investors. may be taken from the
d. Classifications of shares may existing property and other
be allowed with the approval assets of the corporation.
of the stockholders and the d. None of the above.
Board of Directors.
SUGGESTED ANSWER:
full credit for whatever answer they give as
the question is vague. It does not state that
Page 126 of 173
stockholders representing at least two-thirds SUGGESTED ANSWER:

of the outstanding capital stock approved the
declaration of stock dividends. b. Despite the change in
shareholder, there is actually no change in
59. X sold all his shares in AAA Hotel the juridical entity and therefore existing
Corporation to Y. X owns 99% of employees cannot automatically be
AAA Hotel Corporation. As the new considered separated.
owner, Y wanted a reorganization of
the hotel which is to include 60. South China Airlines is a foreign
primarily the separation of all airline company. South China
existing employees and the hiring of Airlines tickets are sold in the
new employees. Which statement is Philippines though Philippine
most accurate? Airlines as their general agent.
a. With the change in South China Airlines is not
ownership, in effect there is registered to do business as such
a new juridical entity and with the Philippine Securities and
therefore all employees are Exchange Commission. Which
considered separated. statement is most accurate?
b. Despite the change in a. Although unlicensed to do
shareholder, there is actually business in the Philippines,
no change in the South China Airlines can sue
juridicalentityand before the Philippine Courts
thereforeexisting and can also be sued.
employeescannot b. South China Airlines can sue
automatically be considered but cannot be sued.
separated. c. South China Airlines cannot
c. Y, as the new shareholder, sue and cannot be sued also.
has the right to retain only d. South China Airlines can be
those employees who in his sued in Philippine Courts
judgment are qualified. but cannot sue.
d. For as long as the existing

SUGGESTED ANSWER:
employees are given their
separation pay, they can be
d. South China Airlines can be sued
terminated.
in Philippine Courts but cannot sue.
Page 127 of 173
61. So that ABC Corporation could shares equivalent to their

venture into more projects, it needed existing shareholdings
to raise funds by issuing new shares because the Corporation
to increase its capitalization. X, Y, Z, Code provides that each of
J and G are the five existing the existing stockholders will
shareholders of the company. They have preemptive rights to the
hold 20% each. How will the extent of their existing
additional shares be divided among shareholdings.
the existing shareholders?
a. The existing shareholders
can subscribe to the new
62. If ABC Corporation will increase its
shares equivalent to their
authorized capital stock, the
existing shareholdings
Corporation Code requires -
because the Corporation
a. the approval of the majority
Code provides that each of
of the Board of Directors
the existing stockholders will
only.
have preemptive rights to the
b. the approval of the majority
extent of their existing
of the stockholders and the
shareholdings.
Board of Directors.
b. The existing shareholders'
c. the approval of 2/3 of the
preemptive rights is
shareholders of the
equivalent to the percentage
outstanding capital stock as
that they want.
well as the approval of the
c. Each of the existing
Securities and Exchange
shareholder can exercise
Commission.
their right of first refusal
d. the approval of the majority
against each other.
of the Board of Directors and
d. Preemptive rights and right
approval of the shareholders
of first refusal are one and
holding 2/3 share of the
the same.
outstanding capital stock.
SUGGESTED ANSWER:
a. The existing shareholders

can subscribe to the new
full credit for whatever answer they gave as
Page 128 of 173
the question is vague. It does not state that extended. What will happen to the
the increase of the authorized capital stock corporation?
also requires the approval of the SEC. a. The corporation is
dissolved ipso facto.
63. X is a minority stockholder of CCC b. There is a need to pass a
Corporation. Y is a member of the board resolution to formally
Board of Directors of CCC dissolve the corporation.
Corporation and at the same time c. The Board of Directors must
he is the President. X believes that Y pass a resolution for the
is mismanaging CCC Corporation corporation to formally go
hence, as a stockholder and in into liquidation.
behalf of the other stockholders, he d. The stockholders must pass
wanted to sue Y. Which statement is a resolution to dissolve the
most accurate? corporation.
a. X can institute a derivative
suit in behalf of himself as a SUGGESTED ANSWER:
stockholder.
b. A derivative suit must be a. The corporation is dissolved ipso
instituted in behalf of the facto.
corporation.
65. The term of one (1) year of the Board
c. Derivative suit is an
of Directors of AAA Corporation
exclusive remedy that X can
expired last February 15, 2012. No
institute.
new election of the Board of
d. Derivative suit is not the
Directors was called, hence, the
remedy in this situation.
existing members of Board continue
SUGGESTED ANSWER: as Directors in hold over capacity.

b. A derivative suit must be a. This is allowed provided
instituted in behalf of the corporation there is a valid and
justifiable reason for not
64. The term GGG Corporation in calling for an election of the
accordance with its Articles of new members of the Board.
Incorporation ended last January
30, 2012. The term was not
Page 129 of 173
b. This is not allowed because of its license to do business.

the term of the directors b. There is no more effect in the
must only be for one (1) year. license because anyway at
c. The positions of the the time of registration, a
members of the Board of resident agent was
Directorswillbe appointed.
automatically declared c. This can be a ground for
vacant. suspension only.
d. Acting as members of the d. This will result in automatic
Board of Directors in a hold revocation of its license to do
over capacity must be business in the Philippines.
ratified by the stockholders.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
a. This can be a ground for
a. This is allowed provided there is a revocation or suspension of its license to do
valid and justifiable reason for not calling business.
for an election of the new members of the
Board. 67. The By-laws of ABC Corporation is
silent as to when a stockholder can
66. AAA Corporation is a foreign be qualified to attend the meeting of
corporation that wants to operate a the stockholders. The Corporate
representative office here in the Secretary sent out the notice of the
Philippines. As required by the stockholders meeting two (2) days
Corporation Code, there is a need to before the meeting and at that time
appoint a Resident Agent as a X was not yet a stockholder. On the
condition precedent to the issuance day of the meeting, however, X
of a license to transact business in became a shareholder which was
the Philippines. After two (2) years, duly recorded in the stock and
AAA Corporation removed its transfer book. Which statement is
Resident Agent and did not appoint most accurate?
anyone anymore. Which statement a. X is a stockholder of ABC
is the most accurate? Corporation as of the time
a. This can be a ground for ofmeetingofthe
revocation or suspension stockholdersforthe
Page 130 of 173
purpose of electing the b. bought shares of XYC

members of the board. Corporation, a sister
b. X is not qualified to elect company of ABC Corporation
members of the board when he learned that XYC
because at the time the Corporation was about to
notice of the meeting was also list its share in the
sent, she was not yet a Philippine Stock Exchange.
stockholder. c. bought shares of ZZZ
c. Qualifications as to who are Corporation when he learned
considered as stockholders that ABC Corporation would
on record for purposes of acquire ZZZ Corporation.
being able to elect members d. All of the above.
of the board are to be
determined by the By-laws SUGGESTED ANSWER:
alone.
d. All of the above.
69. The purpose of the "Tender Offer"

SUGGESTED ANSWER:
Rule is to -
a. X is a stockholder of ABC a. ensure an even playing field
Corporation as of the time of meeting of the for all shareholders of a
stockholders for the purpose of election the company in terms of
members of the board opportunity to sell their

shareholdings.
68. X, who is the Executive Vice b. ensure that minority
President of ABC Corporation, a shareholders in a publicly
listed company, can be held liable or listed company are protected
guilty of insider trading if, he - in the sense that they will
a. bought shares of ABC equally have the same
Corporation when it was opportunity as the majority
planning to acquire another shareholders in terms of
company to improve its asset selling their shares.
base, the news of which c. ensure that the shareholders
increased the price of the who would also want to sell
shares in the Stock their shareholdings will have
Exchange.
Page 131 of 173
the opportunity for a better b. the Philippine Stock

price. Exchange;
d. All of the above. c. the Securities and
Exchange Commission;
SUGGESTED ANSWER: d. d. the Securities and Exchange
Commission and the
All of the above.
Philippine Stock Exchange.
70. Section 38 of The Securities

SUGGESTED ANSWER:
Regulation Code defines an
independent director as a person c. The Securities and Exchange
who must not have a relation with Commission
the corporation which would
interfere with his exercise of 72. The government agency granted
independent judgment in carrying with the power of supervision and
out the responsibilities of a director. examination over banks and non-
To ensure independence therefore, bank financial institutions
he must be - performing quasi-banking functions,
a. nominated and elected by to ensure that the conduct of its
the entire shareholders; business is on a sound financial
b. nominated and elected by basis that will provide continued
the minority shareholders; solvency and liquidity is -
c. nominated and elected by a. The Philippine Deposit
the majority shareholders; Insurance Corporation;
d. appointed by the Board. b. The Bangko Sentral ng
Pilipinas;
SUGGESTED ANSWER: c. The Anti-Money Laundering
Council;
c. Nominated and elected by the
d. The Securities and Exchange
majority shareholders;
Commission.
71. "Securities" issued to the public are

SUGGESTED ANSWER:
required by law to be registered with
- b. The Bangko Sentral ng Pilipinas
a. the Bangko Sentral ng
Pilipinas;
Page 132 of 173
73. X maintains a savings deposit in the b. XYZ Corporation is a quasi-

amount of Php1 Million with ABC bank.
Bank Corporation. X also has c. XYZ Corporation is an
obtained a loan from ABC Bank Investment Company.
Corporation in the amount of Php1 d. XYZ is none of the above.
Million. In case of default,
a. ABC Bank can set-off the SUGGESTED ANSWER:
loan from the savings

b. XYZ Corporation is quasi-bank.
account being maintained by
X with ABC Bank.
75. XXX Bank Corporation and ZZZ
b. Set-off is not possible
Corporation were merged into XX ZZ
because legal compensation
Bank Corporation. So as not to
is not allowed in banking
create any unnecessary conflict, all
transaction.
the former directors of both banks
c. Deposit accounts are usually
wanted to be appointed /elected as
earmarked for specific
members of the Board of Directors
purpose hence offsetting is
of the merged bank. Each bank
not legally possible.
used to have eleven (11) members of
d. Off -setting is not possible
the board. The maximum number of
because the obligation of X is
directors of the merged bank is -
a "simple loan".
a. 15;
b. 22;
SUGGESTED ANSWER:
c. 21;
a. ABC Bank can set-off the loan d. 11.
from the savings account being maintained

SUGGESTED ANSWER:
by X with ABC bank.
c. 21
74. XYZ Corporation is engaged in
lending funds to small vendors in
76. All senior officers of ABC Bank are
various public markets. To fund the
entitled to obtain a housing loan. X
lending, XYZ Corporation raised
is an Executive Vice President for
funds through borrowings from
Operations of ABC Bank. She
friends and investors. Which
obtained a housing loan with the
a. XYZ Corporation is a bank.
Page 133 of 173
ABC Bank. Which statement is most owned by ABC Holding Company.

accurate? Which statement is most acurate?
a. The housing loan of X a. Buying back the shares by
requires a guarantor from XYZ Bank is absolutely not
somebody who is not allowed.
connected with the bank. b. Buying back the shares may
b. The housing loan of X be allowed provided it is with
requires the approval of the the approval of the
Board of Directors of the Monetary Board and
bank. disposed of within six (6)
c. The housing loan of X, being months.
a benefit for employees, does c. Buying back the shares may
not require (a) but will be allowed provided such
require (b). shares 'will be disposed of
d. The housing loan of X, being within ten (1 0) years.
a benefit for employees, will d. Buying back the shares may
not require be done anytime provided
(a) and (b). the Board of Directors will
approve the same.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
d. The housing loan of X, being a
benefit for employees, will not require (a) b. Buying back the shares may be
and (b). allowed provided it is with the approval of
the Monetary Board and disposed of within
77. ABC Holdings Company, a Hong six (6) months.
Kong company, owns 10% of XYZ
Bank. Because of the peace and 78. X is being charged for violation of
order situation in the Philippines, Anti-Graft and Corrupt Practices
ABC Holding Company wanted to because he is suspected of having
sell its shareholdings in XYZ Bank. accumulated unexplained wealth. X
Unfortunately, nobody is interested maintains deposit accounts with
to buy a 1 0% shareholdings in a ABC Bank. The Ombudsman filed
bank. The board of directors of XYZ criminal cases against X before the
Bank thought that it would be a Sandiganbayan. Can the Court
good idea to buy back the shares issue subpoenas against ABC Bank
Page 134 of 173
to produce all documents pertaining big amounts. Which statement is

to all the deposit accounts of X? most accurate?
a. Yes, because there is already a. The same rules under
a pending case and provided Secrecy of Bank Deposit Act
the subpoena must be will apply.
specific as to which account. b. An approval from the
b. Yes, it is enough that the Monetary Board is necessary
specific bank is identified. to open the account.
c. No, because the issuance of c. Because the deposit is in US
the subpoena has no real Dollars, it is covered by the
legal basis. Foreign Currency Deposit
d. Even without a subpoena, Act which allows disclosure
information about the only upon the written
deposit accounts of X can be permission of the depositor.
submitted to the d. Approval from the Court is
Sandiganbayan because it necessary to order disclosure
will be used in a pending of the account.
case.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
a. The same rules under Secrecy of
a. Yes, because there is already a Bank deposit Act will apply.
pending case and provided the subpoena
must be specific as to which account. 80. X is a depositor of AAA Bank. She
has three (3) deposit accounts all
79. X, a private individual, maintains a under her name. One, in checking
dollar deposit with ABC Bank. X is account, one in saving account and
suspected to be the leader of a another one in time deposit account.
Kidnap for Ransom Gang and he is Each account has a balance of
suspected of depositing all ransom Php250,000. AAA Bank became
money in said deposit account insolvent. Philippine Deposit
which are all in US Dollars. The Insurance Corporation closed the
police want to open said account to Bank. X therefore is unable to
know if there are really deposits in withdraw from all of the accounts.
She then filed her claims with the
PhilippineDepositInsurance
Page 135 of 173
Corporation. Which statement is a. In an examination to determine

most accurate? gross estate of a decedent.
a. X can claim a total of
Php500,000 for all the three 82. X works as a research computer
(3) accounts. engineer with the Institute of
b. X can only claim from one (1) Computer Technology, a government
account of Php250,000. agency. When not busy with his
c. X can claim a total of work, but during office hours, he
Php750,000 from all the developed a software program for
three (3) accounts. law firms that will allow efficient
d. X cannot claim anything monitoring of the cases, which
from any of the deposit software program is not at all
accounts. related to his work. Assuming the

program is patentable, who has the
SUGGESTED ANSWER: right over the patent?
a. X;
a. X can claim a total of Php b. Institute of Computer
500,000 for all the three (3) accounts. Technology;
c. Neither X nor the Institute of
81. The Bank Secrecy Law (RA 1405)
Computer Technology can
prohibits disclosing any information
claim patent right over the
about deposit records of an
invention;
individual without court order
d. X and the employer of X will
except -
jointly have the rights over
a. in an examination to
the patent.
determine gross estate of a
decedent. SUGGESTED ANSWER:
b. in an investigation for
violation of Anti-Graft and a. X
Corrupt Practices.
c. in an investigation by the 83. The "test of dominancy" in the Law
Ombudsman. on Trademarks, is a way to
d. in an impeachment determine whether there exists an
proceeding. infringement of a trademark by -
SUGGESTED ANSWER:
Page 136 of 173
a. determining if the use of the b. X can sue Y for

mark has been dominant in infringement because
the market. artistic works are
b. focusing on the similarity of protected from moment of
the prevalent features of the creation.
competing marks c. Works of art need to be
which might create copyrighted also to get
confusion. protection under the law.
c. looking at the mark whether d. Y can use the drawing even
they are similar in size, form though not copyrighted
or color. because it is already a public
d. looking at the mark whether property having been
there is one specific feature published already.
that is dominant.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
b. X can sue Y for infringement
b. Focusing on the similarity of the because artistic works are protected from
prevalent features of the competing marks moment of creation.
which might create confusion.
85. Compulsory Licensing of Inventions
84. X's painting of Madonna and Child which are duly patented may be
was used by her mother to print dispensed with or will be allowed
some personalized gift wrapper. As exploitation even without agreement
part of her mother's efforts to raise of the patent owner under certain
funds for Bantay Bata, the mother circumstances, like national
of X sold the wrapper to friends. Y, emergency, for reason of public
an entrepeneur, liked the painting interest, like national security, etc.
in the wrapper and made many The person who can grant such
copies and sold the same through authority is -
National Bookstore. Which a. the Director General of the
statement is most accurate? Intellectual Property Office;
a. Y can use the painting for b. the Director of Legal Affairs
his use because this is not a of the Intellectual Property
copyrightable material. Office;
c. the owner of the Patent right;
Page 137 of 173
d. any agent of the owner of the a. obligations both past and

Patent right. future;
b. obligations existing at the
SUGGESTED ANSWER: time the mortgage is
constituted;
b. the Director of Legal Affairs of the
c. future obligations only;
Intellectual Property Office;
d. past obligations only.
86. The Fair Use Doctrine allows others

SUGGESTED ANSWER:
to utilize copyrighted works under
certain conditions. The factors to b. obligation existing at the time the
consider whether use is fair or not mortgage is constituted;
would be the purpose and character
of the use, nature of the copyrighted 88. Which phrase best completes the
work, amount and substantiality of statement - A chattel mortgage can
the portions used, and what else? cover:
a. effect of the use upon the a. only property described in
creator of the work. the deed without exception;
b. effect of the use upon the b. can also cover substituted
potential market of the work. property;
c. effect of the use upon the c. properties described in the
public in general. deed except in case of stock
d. effect of the use upon the in trade being a substitute;
class in which the creator d. after acquired property.
belongs.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
c. properties described in the deed
b. effect of the use upon the except in case of stock in trade being a
potential market of the work. substitute;
87. Which phrase best completes the 89. Which phrase best completes the
statement - A chattel mortgage can statement - The Deed of Chattel
be constituted to secure: mortgage, if not registered with the
Page 138 of 173
Register of Deeds where debtor c. in the Stock and Transfer

resides: Book of the corporation with
a. is not valid, hence not the Corporate Secretary;
binding between the d. with the Register of Deeds
mortgagor and the where the debtor resides and
mortgagee; the principal office of the
b. is binding between the corporation.
mortgagor and the
mortgagee but will not affect SUGGESTED ANSWER:
third party;
d. With the Register of Deeds where
c. to be valid between the
the debtor resides and the principal office of
mortgagor and the
the corporation.
mortgagee, it must be
coupled with the delivery of
the subject matter of the
statement - The affidavit of good
chattel mortgage;
faith in a Deed of Chattel Mortgage
d. is as if a non-existent chattel
is:
mortgage.
a. an oath where the parties
swear that the mortgage is
SUGGESTED ANSWER:
made for the purpose of
b. is binding between the mortgagor securing the obligations
and the mortgagee but will not affect third specified and that the
party. obligation is just and valid;

b. an affidavit, the absence of
90. Which phrase best completes the which will vitiate the
statement - To bind third parties, a mortgage between the
chattel mortgage of shares of stock parties;
must be registered: c. necessary only if the chattel
a. with the Register of Deeds being mortgaged are growing
where the debtor resides; crops;
b. with the Register of Deeds d. a certification from the
where the principal office of mortgagor that he is the
the corporation is; mortgagor of the chattel.
SUGGESTED ANSWER:
Page 139 of 173
a. an oath where then parties swear SUGGESTED ANSWER:

that the mortgage is made for the purpose
of securing the obligations specified and b. the one (1) year period will not be
that the obligation is just and valid. interrupted by the filing of the action.
92. X defaulted in his loan with Y. Y 93. What is the effect if the. proceeds in
instituted extra-judicial foreclosure an extra-judicial foreclosure sale is
of the property subject of a real not sufficient to pay for the
estate mortgage that secured the obligation?
loan. X has one year within which to a. the mortgagee can claim for
redeem the property. After the deficiency judgment from the
foreclosure, X filed an action debtor.
questioning the validity of the extra- b. the mortgagee can claim for
judicial foreclosure sale. Which deficiency judgment from the
statement is most accurate? mortgagor even though it is a
a. The one (1) year period third party mortgage.
within which to redeem will c. the mortgagee has no more
be interrupted by the filing of recourse or claim against the
an action questioning the debtor.
validity of the foreclosure. d. the mortgagee cannot claim
b. The one (1) year period will for deficiency judgment from
not be interrupted by the the debtor because its an
filing of the action. extrajudicial foreclosure.
c. The one (1) year period will

SUGGESTED ANSWER:
be extended for another year
because of the filing of an
a. The mortgage can claim for
action questioning the
deficiency judgement from the debtor.
validity of the foreclosure
sale. 94. X mortgaged her residential house
d. If the action which questions and lot in favor of ABC Bank. X
the validity of the foreclosure defaulted in her loan and so the
prospers, the period will be bank foreclosed the real estate
interrupted. mortgage on the residential house. Y
then bought the residential house
and lot before the expiration of the
Page 140 of 173
redemption period. Can Y now take foreclose if collection is not

possession of the property? enough;
a. No, because it is still covered c. the creditor can foreclose the
by the redemption period mortgage and demand
and the purchaser is not yet collection for any deficiency;
entitled as a matter of right d. None of the above.
to take possession of the
property. SUGGESTED ANSWER:
b. Yes, the purchaser is now

c. the creditor can foreclose the
entitled to the possession of
mortgage and demand collection for any
the house.
deficiency.
c. No, because there is a need
to talk to X to leave the
96. XYZ Corporation bought ten (1 0)
house.
units of Honda Civic from CCC
d. No, because Y was not the
Corporation. ABC Bank granted a
one who foreclosed the
loan to XYC Corporation which
mortgage on the property.
executed a financing agreement
which provided for the principal
SUGGESTED ANSWER:
amount, the installment payments,
a. No, because it is still covered by the interest rates and the due dates.
the redemption period and the purchaser is On due dates of the installment
not yet entitled as a matter of right to take payments, XYZ Corporation was
possession of the property. asked to pay for some handling

charges and other fees which were
95. Which phrase best completes the not mentioned in the Financing
statement - When a debt is secured Agreement. Can XYC Corporation
by a real estate mortgage, upon refuse to pay the same?
default of the debtor: a. No, because handling
a. the only remedy of the charges and other fees are
creditor is to foreclose the usual in certain banking
real estate mortgage; transactions.
b. another remedy is filing an b. Yes, because ABC Bank is
action for collection and then required to provide XYZ
Corporation not only the
Page 141 of 173
amount of the monthly investments with any bank,

installments but also the when the inquiry or
details of the finance charges examination is made in the
as required by the Truth in course of the SSP's periodic
Lending Act. special examination of said
c. No, because the Finance bank to ensure compliance
Agreement is a valid with the Anti-Money
document to establish the Laundering Act (AMLA);
existence of the obligation. b. Upon Philippine Deposit
d. Yes, because legally, finance Insurance Corporation
charges are never allowed in (PDIC) and SSP inquiry into
any banking transaction. and examination of deposit
accounts in case there is a
SUGGESTED ANSWER: finding of unsafe or unsound
banking practice;
b. Yes, because ABC Bank is
c. Upon inquiry in cases of
required to provide XYZ
impeachment;
Corporation not only the
d. Upon inquiry by the
amount of the monthly
Commissioner of Internal
installments but also the
Revenue in the event a
details of the finance charges
taxpayer files an application
as required by the Truth in
to compromise his tax
Lending Act.
liabilities on the ground of
financial incapacity.
SUGGESTED ANSWER:
97. Which of the following is an
exception to the secrecy of bank
c. Upon inquiry in cases of
deposits which are in Philippine
impeachment.
Pesos, but NOT an exception to the
secrecy of foreign currency deposits? 98. The Anti-Money Laundering Law is a
law that seeks to prevent money
a. Upon
laundering activities by providing for
BangkoSentralngPilipinas
more transparency in the Philippine
(SSP) inquiry into or
Financial System, hence the
examination of deposits or
Page 142 of 173
following institutions are covered by 100. The main feature of the Foreign
the law, except: Investment Act of 1991 is to introduce
a. bank and any financial the concept of "Negative Lists". Under
institutions; the said law, what is a "Negative List"?
b. pawnshops;
c. casino operators; a. It is a list of business
d. All of the above. activities or enterprises in

the Philippines that
SUGGESTED ANSWER: foreigners are disqualified to
engage in.
c. casino operators b. It is a list of business
activities or enterprises in
99. For purposes of determining
the Philippines that
violation of the prov1s1ons of Anti-
foreigners are qualified to
Money Laundering Law, a
engage in.
transaction is considered as a
c. It is a list of business
"Suspicious Transaction" with
activities or enterprises that
"Covered Institutions" regardless of
are open to foreign
the amount involved, where which
investments provided it is
the following circumstances exist/s?
with the approval of the
a. the amount involved is not
Board of Investment.
commensurate with the
d. It is a list of business
client's business or financial
activities or enterprises that
capacity;
are open to foreign
b. there is no underlying legal
investments provided it is
or trade obligation, purpose
with the approval of the
or economic justification;
Securities and Exchange
c. client is not properly
Commission.
identified;
d. All of the above. SUGGESTED ANSWER:
a. It is a list of business activities or

SUGGESTED ANSWER:
enterprises in the Philippines that
d. all of the above foreigners are disqualified to engage in.
Page 143 of 173
2011 Mercantile Law Exam damages estimated at Php80 Million. The

cargo owners filed a suit against X Shipping
MCQ (November 20, 2011) but it invoked the doctrine of limited
liability since its vessel suffered an Php80
(1) P rode a Sentinel Liner bus going to
Million damage, more than the collective
Baguio from Manila. At a stop-over in
value of all lost cargo. Is X Shipping
Tarlac, the bus driver, the conductor, and
correct?
the passengers disembarked for lunch. P
decided, however, to remain in the bus, the (A) Yes, since under that doctrine,
door of which was not locked. At this point, the value of the lost cargo and the
V, a vendor, sneaked into the bus and damage to the ship can be set-off.
offered P some refreshments. When P
rudely declined, V attacked him, resulting (B) No, since each cargo owner has a
in P suffering from bruises and contusions. separate and individual claim for
Does he have cause to sue Sentinel Liner? damages.
(A) Yes, since the carrier's crew did (C) Yes, since the extent of the ships
nothing to protect a passenger who damage was greater than that of the
remained in the bus during the value of the lost cargo.
stop-over.
(D) No, since X Shipping neither
(B) No, since the carrier's crew could incurred a total loss nor abandoned
not have foreseen the attack. its ship.
(C) Yes, since the bus is liable for (3) A writes a promissory note in favor of his
anything that goes wrong in the creditor, B. It says: "Subject to my option, I
course of a trip. promise to pay B Php1 Million or his order
or give Php1 Million worth of cement or to
(D) No, since the attack on P took authorize him to sell my house worth Php1
place when the bus was at a stop- Million. Signed, A." Is the note negotiable?
over.
(A) No, because the exercise of the
(2) A cargo ship of X Shipping, Co. ran option to pay lies with A, the maker
aground off the coast of Cebu during a and debtor.
storm and lost all its cargo amounting to
Php50 Million. The ship itself suffered
Page 144 of 173
(B) No, because it authorizes the (D) No, since pre-emptive rights are
sale of collateral securities in case governed by the articles of
the note is not paid at maturity. incorporation.
(C) Yes, because the note is really (5) M makes a promissory note that states:
payable to B or his order, the other "I, M, promise to pay Php5,000.00 to B or
provisions being merely optional. bearer. Signed, M." M negotiated the note
by delivery to B, B to N, and N to O. B had
(D) Yes, because an election to known that M was bankrupt when M
require something to be done in lieu issued the note. Who would be liable to O?
of payment of money does not affect
negotiability. (A) M and N since they may be
assumed to know of M's bankruptcy
(4) ABC Corp. increased its capital stocks
from Php10 Million to Php15 Million and, in (B) N, being O's immediate
the process, issued 1,000 new shares negotiator of a bearer note
divided into Common Shares "B" and
Common Shares "C." T, a stockholder (C) B, M, and N, being indorsers by
owning 500 shares, insists on buying the delivery of a bearer note
newly issued shares through a right of pre-

(D) B, having known of M's
emption. The company claims, however,
bankruptcy
that its By-laws deny T any right of pre-
emption. Is the corporation correct?
(6) S delivered 10 boxes of cellphones to
Trek Bus Liner, for transport from Manila
(A) No, since the By-Laws cannot
to Ilocos Sur on the following day, for which
deny a shareholder his right of pre-
S paid the freightage. Meanwhile, the boxes
emption.
were stored in the bus liners bodega. That
(B) Yes, but the denial of his pre- night, however, a robber broke into the
emptive right extends only to 500 bodega and stole Ss boxes. S sues Trek
shares. Bus Liner for contractual breach but the

latter argues that S has no cause of action
(C) Yes, since the denial of the right based on such breach since the loss
under the By-laws is binding on T. occurred while the goods awaited transport.
Who is correct?
Page 145 of 173
(A) The bus liner since the goods serving as an arm for receiving its
were not lost while being outside orders for pizzas.
transported.
(C) Yes, it is not shown that one
(B) S since the goods were company completely dominates the
unconditionally placed with T for finances, policies, and business
transportation. practices of the other.
(C) S since the freightage for the (D) Yes, since the two companies
goods had been paid. perform two distinct businesses.
(D) The bus liner since the loss was (8) A negotiable instrument can be indorsed
due to a fortuitous event. by way of a restrictive indorsement, which
prohibits further negotiation and
(7) X Corp. operates a call center that constitutes the indorsee as agent of the
received orders for pizzas on behalf of Y indorser. As agent, the indorsee has the
Corp. which operates a chain of pizza right, among others, to
restaurants. The two companies have the
same set of corporate officers. After 2 years, (A) demand payment of the
X Corp. dismissed its call agents for no instrument only.
apparent reason. The agents filed a
collective suit for illegal dismissal against (B) notify the drawer of the payment
both X Corp. and Y Corp. based on the of the instrument.
doctrine of piercing the veil of corporate

(C) receive payment of the
fiction. The latter set up the defense that
instrument.
the agents are in the employ of X Corp.
which is a separate juridical entity. Is this
(D) instruct that payment be made
defense appropriate?
to the drawee.
(A) No, since the doctrine would

(9) Under the Negotiable Instruments Law,
apply, the two companies having the
a signature by procuration operates as a
same set of corporate officers.
notice that the agent has but a limited
authority to sign. Thus, a person who takes
(B) No, the real employer is Y Corp.,
a bill that is drawn, accepted, or indorsed
the pizza company, with X Corp.
by procuration is duty-bound to inquire
into the extent of the agent's authority by:
Page 146 of 173
(A) examining the agents special (D) either actual or constructive

power of attorney. receipt.
(B) examining the bill to determine (12) On Xs failure to pay his loan to ABC
the extent of such authority. Bank, the latter foreclosed the Real Estate
Mortgage he executed in its favor. The
(C) asking the agent about the auction sale was set for Dec. 1, 2010 with
extent of such authority. the notices of sale published as the law
required. The sale was, however, cancelled
(D) asking the principal about the
when Dec. 1, 2010 was declared a holiday
extent of such authority.
and re-scheduled to Jan. 10, 2011 without
republication of notice. The auction sale
(10) Under the Negotiable Instruments Law,
then proceeded on the new date. Under the
if the holder has a lien on the instrument
circumstances, the auction sale is
which arises either from a contract or by
implication of law, he would be a holder for
(A) rescissible.
value to the extent of
(B) unenforceable.
(A) his successor's interest.
(C) void.
(B) his predecessor's interest.
(D) voidable.
(C) the lien in his favor.
(13) X executed a promissory note with a

(D) the amount indicated on the
face value of Php50,000.00, payable to the
instrument's face.
order of Y. Y indorsed the note to Z, to
whom Y owed Php30,000.00. If X has no
(11) The liability of a common carrier for the
defense at all against Y, for how much may
goods it transports begins from the time of
Z collect from X?
(A) conditional receipt.

(A) Php20,000.00, as he is a holder
(B) constructive receipt. for value to the extent of the

difference between Y's debt and the
(C) actual receipt. value of the note.
(B) Php30,000.00, as he is a holder

for value to the extent of his lien.
Page 147 of 173
(C) Php50,000.00, but with the (16) P sold to M 10 grams of shabu worth
obligation to hold Php20,000.00 for Php5,000.00. As he had no money at the
Y's benefit. time of the sale, M wrote a promissory note
promising to pay P or his order Php5,000. P
(D) None, as Z's remedy is to run then indorsed the note to X (who did not
after his debtor, Y. know about the shabu), and X to Y. Unable
to collect from P, Y then sued X on the note.
(14) Under the Anti-Money Laundering Law,
X set up the defense of illegality of
a covered institution is required to maintain
consideration. Is he correct?
a system of verifying the true identity of
their clients as well as persons purporting (A) No, since X, being a subsequent
to act on behalf of indorser, warrants that the note is
valid and subsisting.
(A) those doing business with such
clients. (B) No, since X, a general indorser,
warrants that the note is valid and
(B) unknown principals.
subsisting.
(C) the covered institution.

(C) Yes, since a void contract does
not give rise to any right.
(D) such clients.
(D) Yes, since the note was born of

(15) It is settled that neither par value nor
an illegal consideration which is a
book value is an accurate indicator of the
real defense.
fair value of a share of stock of a
corporation. As to unpaid subscriptions to
(17) In a contract of carriage, the common
its shares of stock, as they are regarded as
carrier is liable for the injury or death of a
corporate assets, they should be included
passenger resulting from its employees
in the
fault although the latter acted beyond the
scope of his authority. This is based on the
(A) capital value.
(A) rule that the carrier has an

(B) book value.
implied duty to transport the
(C) par value. passenger safely.
(D) market value.
Page 148 of 173
(B) rule that the carrier has an (D) in every case even if the majority
express duty to transport the of the members decide otherwise
passenger safely during the elections.
(C) Doctrine of Respondeat Superior. (20) The rule is that the valuation of the
shares of a stockholder who exercises his
(D) rule in culpa aquiliana. appraisal rights is determined as of the day
prior to the date on which the vote was
(18) A holder in due course holds the
taken. This is true -
instrument free from any defect of title of
prior parties and free from defenses (A) regardless of any depreciation or
available to prior parties among themselves. appreciation in the share's fair
An example of such a defense is - value.
(A) fraud in inducement. (B) regardless of any appreciation in

the share's fair value.
(B) duress amounting to forgery.
(C) regardless of any depreciation in

(C) fraud in esse contractus.
the share's fair value.
(D) alteration.
(D) only if there is no appreciation or
depreciation in the share's fair
(19) In elections for the Board of Trustees of
value.
non-stock corporations, members may cast
as many votes as there are trustees to be
(21) T Shipping, Co. insured all of its
elected but may not cast more than one
vessels with R Insurance, Co. The
vote for one candidate. This is true -
insurance policies stated that the insurer
shall answer for all damages due to perils of
(A) unless set aside by the members
the sea. One of the insured's ship, the MV
in plenary session.
Dona Priscilla, ran aground in the Panama
(B) in every case even if the Board of Canal when its engine pipes leaked and the
Trustees resolves otherwise. oil seeped into the cargo compartment. The
leakage was caused by the extensive
(C) unless otherwise provided in the mileage that the ship had accumulated.
Articles of Incorporation or in the May the insurer be made to answer for the
By-laws. damage to the cargo and the ship?
Page 149 of 173
(A) Yes, because the insurance (D) Yes, since X and Y are Zs
policy covered any or all damage employees.
arising from perils of the sea.
(23) X, Co., a partnership, is composed of A
(B) Yes, since there appears to have (capitalist partner), B (capitalist partner)
been no fault on the part of the and C (industrial partner). If you were
shipowner and shipcaptain. partner A, who between B and C would you
have an insurable interest on, such that
(C) No, since the proximate cause of you may then insure him?
the damage was the breach of
warranty of seaworthiness of the (A) No one, as there is merely a
ship. partnership contract among A, B
and C.
(D) No, since the proximate cause of
the damage was due to ordinary (B) Both B and C, as they are your
usage of the ship, and thus not due partners.
to a peril of the sea.
(C) Only C, as he is an industrial
(22) X has been a long-time household partner.
helper of Z. X's husband, Y, has also been
Z's long-time driver. May Z insure the lives (D) Only B, as he is a capitalist
of both X and Y with Z as beneficiary? partner.
(A) Yes, since X and Y render (24) X is the holder of an instrument
services to Z. payable to him (X) or his order, with Y as

maker. X then indorsed it as follows:
(B) No, since X and Y have no "Subject to no recourse, pay to Z. Signed,
pecuniary interest on the life of Z X." When Z went to collect from Y, it turned
arising from their employment with out that Y's signature was forged. Z now
him. sues X for collection. Will it prosper?
(C) No, since Z has no pecuniary (A) Yes, because X, as a conditional

interest in the lives of X and Y indorser, warrants that the note is
arising from their employment with genuine.
him.
Page 150 of 173
(B) Yes, because X, as a qualified divulge it. The reason for this is that the
indorser, warrants that the note is test of concealment of material fact is
genuine. determined
(C) No, because X made a qualified (A) at the time of the issuance of the
indorsement. policy.
(D) No, because a qualified (B) at any time before the payment
indorsement does not include the of premium.
warranty of genuineness.
(C) at the time of the payment of the
(25) A bill of exchange has T for its drawee, premium.
U as drawer, and F as holder. When F went
to T for presentment, F learned that T is (D) at any time before the policy
only 15 years old. F wants to recover from becomes effective.
U but the latter insists that a notice of

(27) T, the captain of MV Don Alan, while
dishonor must first be made, the
asleep in his cabin, dreamt of an Intensity 8
instrument being a bill of exchange. Is he
earthquake along the path of his ship. On
correct?
waking up, he immediately ordered the ship
(A) Yes, since a notice of dishonor is to return to port. True enough, the
essential to charging the drawer. earthquake and tsunami struck three days
later and his ship was saved. Was the
(B) No, since T can waive the deviation proper?
requirement of notice of dishonor.
(A) Yes, because the deviation was
(C) No, since F can treat U as maker made in good faith and on a
due to the minority of T, the drawee. reasonable ground for believing that
it was necessary to avoid a peril.
(D) Yes, since in a bill of exchange,
notice of dishonor is at all times (B) No, because no reasonable
required. ground for avoiding a peril existed at
the time of the deviation.
(26) An insured, who gains knowledge of a
material fact already after the effectivity of (C) No, because T relied merely on
the insurance policy, is not obliged to his supposed gift of prophecy.
Page 151 of 173
(D) Yes, because the deviation took (B) Yes, because it is an original
place based on a reasonable belief of creation.
the captain.
(C) Yes, because it entailed the
(28) X, drawee of a bill of exchange, wrote application of X's intellect.
the words: "Accepted, with promise to make
payment within two days. Signed, X." The (D) No, because it did not entail any
drawer questioned the acceptance as application of X's intellect.
invalid. Is the acceptance valid?

(30) D, debtor of C, wrote a promissory note
(A) Yes, because the acceptance is payable to the order of C. C's brother, M,
in reality a clear assent to the order misrepresenting himself as Cs agent,
of the drawer to pay. obtained the note from D, then negotiated it

to N after forging C's signature. N indorsed
(B) Yes, because the form of the it to E, who indorsed it to F, a holder in due
acceptance is really immaterial. course. May F recover from E?
(C) No, because the acceptance (A) No, since the forgery of C's
must be a clear assent to the order signature results in the discharge of
of the drawer to pay. E.
(D) No, because the document must (B) Yes, since only the forged
not express that the drawee will signature is inoperative and E is
perform his promise within two bound as indorser.
days.
(C) No, since the signature of C, the
(29) X came up with a new way of payee, was forged.
presenting a telephone directory in a mobile
phone, which he dubbed as the "iTel" and (D) Yes, since the signature of C is
which uses lesser time for locating names immaterial, he being the payee.
and telephone numbers. May X have his

(31) A material alteration of an instrument
"iTel" copyrighted in his name?
without the assent of all parties liable
(A) No, because it is a mere system thereon results in its avoidance, EXCEPT
or method. against a
(A) prior indorsee.
Page 152 of 173
(B) subsequent acceptor. (C) No, since the promise to just pay
a sum of money is unclear.
(C) subsequent indorser.
(D) No, since it contains a promise
(D) prior acceptor. to do an act in addition to the
payment of money.
(32) X constituted a chattel mortgage on a
car (valued at Php1 Million pesos) to secure (34) A bank can be placed under
a P500,000.00 loan. For the mortgage to be receivership when, if allowed to continue in
valid, X should have business, its depositors or creditors would
incur
(A) the right to mortgage the car to
the extent of half its value. (A) probable losses
(B) ownership of the car. (B) inevitable losses
(C) unqualified free disposal of his (C) possible losses

car.
(D) a slight chance of losses
(D) registered the car in his name.
(35) EFG Foundation, Inc., a non-profit
(33) B borrowed Php1 million from L and organization, scheduled an election for its
offered to him his BMW car worth Php1 six-member Board of Trustees. X, Y and Z,
Million as collateral. B then executed a who are minority members of the
promissory note that reads: "I, B, promise foundation, wish to exercise cumulative
to pay L or bearer the amount of Php1 voting in order to protect their interest,
Million and to keep my BMW car (loan although the Foundation's Articles and By-
collateral) free from any other laws are silent on the matter. As to each of
encumbrance. Signed, B." Is this note the three, what is the maximum number of
negotiable? votes that he/she can cast?
(A) Yes, since it is payable to bearer. (A) 6
(B) Yes, since it contains an (B) 9

unconditional promise to pay a sum
certain in money. (C) 12
Page 153 of 173
(D) 3 law firms letterhead and its computer in

preparing the letter. T also requested the
(36) If the drawer and the drawee are the firms messenger to deliver the letter to the
same person, the holder may present the publisher. Who owns the copyright to the
instrument for payment without need of a letter?
previous presentment for acceptance. In
such a case, the holder treats it as a (A) T, since he is the original creator
of the contents of the letter.
(A) non-negotiable instrument.
(B) Both T and the publisher, one
(B) promissory note. wrote the letter to the other who has
possession of it.
(C) letter of credit.
(C) The law office since T was an

(D) check.
employee and he wrote it on the
firms letterhead.
(37) D draws a bill of exchange that states:
"One month from date, pay to B or his order
(D) The publisher to whom the letter
Php100,000.00. Signed, D." The drawee
was sent.
named in the bill is E. B negotiated the bill to
M, M to N, N to O, and O to P. Due to non- (39) E received goods from T for display and
acceptance and after proceedings for dishonor sale in E's store. E was to turn over to T the
were made, P asked O to pay, which O did. proceeds of any sale and return the ones
From whom may O recover? unsold. To document their agreement, E
executed a trust receipt in Ts favor
(A) B, being the payee
covering the goods. When E failed to turn
over the proceeds from his sale of the goods
(B) N, as indorser to O
or return the ones unsold despite demand,
(C) E, being the drawee he was charged in court for estafa. E moved
to dismiss on the ground that his liability is
(D) D, being the drawer only civil. Is he correct?
(38) T, an associate attorney in XYZ Law (A) No, since he committed fraud
Office, wrote a newspaper publisher a letter when he promised to pay for the
disputing a columnists claim about an goods and did not.
incident in the attorneys family. T used the
Page 154 of 173
(B) No, since his breach of the trust (B) principal creditor.
receipt agreement subjects him to
both civil and criminal liability for (C) secondary creditor.
estafa.
(D) secondary debtor.
(C) Yes, since E cannot be charged

(42) Upon execution of a trust receipt over
with estafa over goods covered a
goods, the party who is obliged to release
trust receipt.
such goods and who retains security
(D) Yes, since it was merely a interest on those goods, is called the
consignment sale and the buyer

(A) holder.
could not pay.
(B) shipper.
(40) The authorized alteration of a
warehouse receipt which does not change
(C) entrustee.
its tenor renders the warehouseman liable
according to the terms of the receipt (D) entrustor.
(A) in its original tenor if the (43) X, warehouseman, sent a text message
alteration is material. to Y, to whom X had issued a warehouse
receipt for Y's 500 sacks of corn, notifying
(B) in its original tenor.
him of the due date and time to settle the
storage fees. The message stated also that if
(C) as altered if there is fraud.
Y does not settle the warehouse charges
(D) as altered. within 10 days, he will advertise the goods

for sale at a public auction. When Y ignored
(41) Any agreement binding upon the the demand, X sold 100 sacks of corn at a
holder to extend the time of payment or to public auction. For Xs failure to comply
postpone the holder's right to enforce the with the statutory requirement of written
instrument results in the discharge of the notice to satisfy his lien, the sale of the 100
party secondarily liable unless made with sacks of corn is
the latter's consent. This agreement refers
to one which the holder made with the (A) voidable.
(A) principal debtor. (B) rescissible.
Page 155 of 173
(C) unenforceable. (45) A bill of exchange has D as drawer, E

as drawee and F as payee. The bill was then
(D) void. indorsed to G, G to H, and H to I. I, the
current holder presented the bill to E for
(44) On June 1, 2011, X mailed to Y
acceptance. E accepted but, as it later
Insurance, Co. his application for life
turned out, D is a fictitious person. Is E
insurance, with payment for 5 years of
freed from liability?
premium enclosed in it. On July 21, 2011,
the insurance company accepted the (A) No, since by accepting, E admits
application and mailed, on the same day, the existence of the drawer.
its acceptance plus the cover note. It
reached X's residence on August 11, 2011. (B) No, since by accepting, E
But, as it happened, on August 4, 2011, X warrants that he is solvent.
figured in a car accident. He died a day
later. May X's heirs recover on the (C) Yes, if E was not aware of that
insurance policy? fact at the time of acceptance.
(A) Yes, since under the Cognition (D) Yes, since a bill of exchange with
Theory, the insurance contract was a fictitious drawer is void and
perfected upon acceptance by the inexistent.
insurer of X's application.

(46) Due to his debt to C, D wrote a
(B) No, since there is no privity of promissory note which is payable to the
contract between the insurer and order of C. C's brother, M, misrepresenting
Xs heirs. himself as agent of C, obtained the note

from D. M then negotiated the note to N
(C) No, since X had no knowledge of after forging the signature of C. May N
the insurer's acceptance of his enforce the note against D?
application before he died.
(A) Yes, since D is the principal
(D) Yes, since under the debtor.
Manifestation Theory, the insurance
contract was perfected upon (B) No, since the signature of C was
acceptance of the insurer of X's forged.
application.
Page 156 of 173
(C) No, since it is C who can enforce earlier than 5 years prior to the
it, the note being payable to the corporations expiration date.
order of C.
(C) No, since a corporation can in fact
(D) Yes, since D, as maker, is have a corporate life of 50 years.
primarily liable on the note.
(D) Yes, the amendment to shorten
(47) T Corp. has a corporate term of 20 corporate term cannot be made
years under its Articles of Incorporation or earlier than 5 years prior to the
from June 1, 1980 to June 1, 2000. On corporations expiration date.
June 1, 1991 it amended its Articles of
Incorporation to extend its life by 15 years (48) B, while drunk, accepted a passenger
from June 1, 1980 to June 1, 2015. The in his taxicab. B then drove the taxi
SEC approved this amendment. On June 1, recklessly, and inevitably, it crashed into
2011, however, T Corp decided to shorten an electric post, resulting in serious
its term by 1 year or until June 1, 2014. physical injuries to the passengers. The
Both the 1991 and 2011 amendments were latter then filed a suit for tort against B's
approved by majority vote of its Board of operator, A, but A raised the defense of
Directors and ratified in a special meeting having exercised extraordinary diligence in
by its stockholders representing at least the safety of the passenger. Is his defense
2/3 of its outstanding capital stock. The tenable?
SEC, however, disapproved the 2011

(A) Yes, as a common carrier can
amendment on the ground that it cannot be
rebut the presumption of negligence
made earlier than 5 years prior to the
by raising such a defense.
expiration date of the corporate term, which
is June 1, 2014. Is this SEC disapproval
(B) No, as in tort actions, the proper
correct?
defense is due diligence in the
selection and supervision of the
(A) No, since the 5-year rule on
employee by the employer.
amendment of corporate term
applies only to extension, not to
(C) No, as B, the common carrier's
shortening, of term.
employee, was obviously negligent
due to his intoxication.
(B) Yes, any amendment affecting
corporate term cannot be made
Page 157 of 173
(D) Yes, as a common carrier can (B) Php1 Million since he warrants
invoke extraordinary diligence in the that the note is genuine and in all
safety of passengers in tort cases. respects what it purports to be.
(49)X is a director in T Corp. who was (C) Php12 Million since he warrants
elected to a 1-year term on Feb. 1, 2010. his solvency and that he has a good
On April 11, 2010, X resigned and was title to the note.
replaced by R, who assumed as director on
May 17, 2010. On Nov. 21, 2010, R died. S (D) Php12 Million since he warrants
was then elected in his place. Until which that the note is genuine and in all
time should S serve as director? respects what it purports to be.
(A) April 11, 2011. (51) X Corp., whose business purpose is to

manufacture and sell vehicles, invested its
(B) Feb. 1, 2011. funds in Y Corp., an investment firm,
through a resolution of its Board of
(C) May 17, 2011. Directors. The investment grew
tremendously on account of Y Corp.'s
(D) Nov. 21, 2011.
excellent business judgment. But a
minority stockholder in X Corp. assails the
(50) M, the maker, issued a promissory note
investment as ultra vires. Is he right and, if
to P, the payee which states: "I, M, promise
so, what is the status of the investment?
to pay P or order the amount of Php1
Million. Signed, M." P negotiated the note
(A) Yes, it is an ultra vires act of the
by indorsement to N, then N to O also by
corporation itself but voidable only,
indorsement, and O to Q, again by
subject to stockholders ratification.
indorsement. But before O indorsed the
note to Q, O's wife wrote the figure "2" on (B) Yes, it is an ultra vires act of its
the note after "Php1" without O's Board of Directors and thus void.
knowledge, making it appear that the note
is for Php12 Million. For how much is O (C) Yes, it is an ultra vires act of its
liable to Q? Board of Directors but voidable only,
subject to stockholders ratification.
(A) Php1 Million since it is the
original tenor of the note.
Page 158 of 173
(D) Yes, it is an ultra vires act of the (B) Yes, since both companies use
corporation itself and, consequently, water in conducting their business.
void.
(C) No, since the companies are not
(52) Notice of dishonor is not required to be engaged in the same line of
made in all cases. One instance where such business.
notice is not necessary is when the indorser
is the one to whom the instrument is (D) No, since the root word "Eagle" is
suppose to be presented for payment. The a generic name not subject to
rationale here is that the indorser registration.
(A) already knows of the dishonor (54) For a constructive total loss to exist in
and it makes no sense to notify him marine insurance, it is required that the
of it. person insured relinquish his interest in

the thing insured. This relinquishment
(B) is bound to make the acceptance must be
in all cases.
(A) actual.
(C) has no reason to expect the
dishonor of the instrument. (B) constructive first and if it fails,
then actual.
(D) must be made to account for all
his actions. (C) either actual or constructive.
(53) "Eagleson Refillers, Co.," a firm that (D) constructive.
sells water to the public, opposes the trade

(55) The Corporation Code sanctions a
name application of "Eagleson Laundry,
contract between two or more corporations
Co.," on the ground that such trade name
which have interlocking directors, provided
tends to deceive trade circles or confuse the
there is no fraud that attends it and it is
public with respect to the water firms
fair and reasonable under the
registered trade name. Will the opposition
circumstances. The interest of an
prosper?
interlocking director in one corporation may
(A) Yes, since such use is likely to be either substantial or nominal. It is
deceive or confuse the public. nominal if his interest:
Page 159 of 173
(A) does not exceed 25% of the expressed, explained, illustrated, or

outstanding capital stock. embodied in a work.
(B) exceeds 25% of the outstanding (D) Yes, since Ys article failed to
capital stock. make any attribution to X.
(C) exceeds 20% of the outstanding (57) In case of disagreement between the
capital stock. corporation and a withdrawing stockholder
who exercises his appraisal right regarding
(D) does not exceed 20% of the the fair value of his shares, a three-member
outstanding capital stock. group shall by majority vote resolve the
issue with finality. May the wife of the
(56) X, an amateur astronomer, stumbled
withdrawing stockholder be named to the
upon what appeared to be a massive
threemember group?
volcanic eruption in Jupiter while peering
at the planet through his telescope. The (A) No, the wife of the withdrawing
following week, X, without notes, presented shareholder is not a disinterested
a lecture on his findings before the person.
Association of Astronomers of the
Philippines. To his dismay, he later read an (B) Yes, since she could best protect
article in a science journal written by Y, a her husband's shareholdings.
professional astronomer, repeating exactly
what X discovered without any attribution (C) Yes, since the rules do not
to him. Has Y infringed on X's copyright, if discriminate against wives.
any?
(D) No, since the stockholder himself
(A) No, since X did not reduce his should sit in the three-member
lecture in writing or other material group.
form.
(58) Apart from economic rights, the author
(B) Yes, since the lecture is of a copyright also has moral rights which
considered Xs original work. he may transfer by way of assignment. The

term of these moral rights shall last
(C) No, since no protection extends
to any discovery, even if (A) during the author's lifetime and
for 50 years after his death.
Page 160 of 173
(B) forever. (C) The insureds formal assignment

of his right to indemnification to the
(C) 50 years from the time the insurer.
author created his work.
(D) The insureds endorsement of its
(D) during the author's lifetime. claim to the insurer.
(59) Which of the following indorsers (61) X invented a device which, through the
expressly warrants in negotiating an use of noise, can recharge a cellphone
instrument that 1) it is genuine and true; 2) battery. He applied for and was granted a
he has a good title to it; 3) all prior parties patent on his device, effective within the
have capacity to negotiate; and 4) it is valid Philippines. As it turns out, a year before
and subsisting at the time of his the grant of X's patent, Y, also an inventor,
indorsement? invented a similar device which he used in
his cellphone business in Manila. But X
(A) The irregular indorser.
files an injunctive suit against Y to stop him
from using the device on the ground of
(B) The regular indorser.
patent infringement. Will the suit prosper?
(C) The general indorser.

(A) No, since the correct remedy for
(D) The qualified indorser. X is a civil action for damages.
(60) Where the insurer was made to pay the (B) No, since Y is a prior user in
insured for a loss covered by the insurance good faith.
contract, such insurer can run after the

(C) Yes, since X is the first to
third person who caused the loss through
register his device for patent
subrogation. What is the basis for
registration.
conferring the right of subrogation to the
insurer?
(D) Yes, since Y unwittingly used Xs
patented invention.
(A) Their express stipulation in the
contract of insurance.
(62) P, a sales girl in a flower shop at the
Ayala Station of the Metro Rail Transit
(B) The equitable assignment that
(MRT) bought two tokens or tickets, one for
results from the insurers payment
her ride to work and another for her ride
of the insured.
Page 161 of 173
home. She got to her flower shop where she (B) without acceptance but the bill is
usually worked from 8 a.m. to 5 p.m. At paid by the drawer.
about 3 p.m., while P was attending to her
duties at the flower shop, two crews of the (C) without acceptance but the bill
MRT got into a fight near the flower shop, is paid by the drawee.
causing injuries to P in the process. Can P

(D) with acceptance but the bill is
sue the MRT for contractual breach as she
paid by the drawer.
was within the MRT premises where she
would shortly take her ride home?
(64) If an insurance policy prohibits
additional insurance on the property
(A) No, since the incident took place,
insured without the insurer's consent, such
not in an MRT train coach, but at
provision being valid and reasonable, a
the MRT station.
violation by the insured
(B) No, since P had no intention to

(A) reduces the value of the policy.
board an MRT train coach when the
incident occured.
(B) avoids the policy.
(C) Yes, since she already had a

(C) offsets the value of the policy
ticket for her ride home and was in
with the additional insurancess
the MRTs premises at the time of
value.
the incident.
(D) forfeits premiums already paid.

(D) Yes, since she bought a round
trip ticket and MRT had a duty (65) X found a check on the street, drawn
while she was at its station to keep by Y against ABC Bank, with Z as payee. X
her safe for her return trip. forged Z's signature as an indorser, then
indorsed it personally and delivered it to
(63) Forgery of bills of exchange may be
DEF Bank. The latter, in turn, indorsed it
subdivided into, a) forgery of an
to ABC Bank which charged it to the Ys
indorsement on the bill and b) forgery of the
account. Y later sued ABC Bank but it set
drawer's signature, which may either be
up the forgery as its defense. Will it
with acceptance by the drawee, or
prosper?
(A) with acceptance but the bill is

(A) No, since the payee's signature
paid by the drawee.
has been forged.
Page 162 of 173
(B) No, since Ys remedy is to run (A) Yes, but solidarily with Y.
after the forger, X.
(B) Yes, since Xs is deemed to
(C) Yes, since forgery is only a warrant that his land would cover
personal defense. the whole obligation.
(D) Yes, since ABC Bank is bound to (C) No, since it is the buyer at the
know the signature of Y, its client. auction sale who should answer for
the deficiency.
(66) The rule is that no stock dividend shall
be issued without the approval of (D) No, because X is not Zs debtor.
stockholders representing at least 2/3 of
the outstanding capital stock at a regular or (68) May a publicly listed universal bank
special meeting called for the purpose. As to own 100% of the voting stocks in another
other forms of dividends: universal bank and in a commercial bank?
(A) a mere majority of the entire (A) Yes, if with the permission of the
Board of Directors applies. Bangko Sentral ng Pilipinas.
(B) a mere majority of the quorum of (B) No, since it has no power to
the Board of Directors applies. invest in equities.
(C) a mere majority of the votes of (C) Yes, as there is no prohibition on
stockholders representing the it.
outstanding capital stock applies.

(D) No, since under the law, the
(D) the same rule of 2/3 votes 100% ownership on voting stocks
applies. must be in either bank only.
(67) X, at Ys request, executed a Real (69) Perils of the ship, under marine
Estate Mortgage (REM) on his (Xs) land to insurance law, refer to loss which in the
secure Y's loan from Z. Z successfully ordinary course of events results from
foreclosed the REM when Y defaulted on

(A) natural and inevitable actions of
the loan but half of Y's obligation remained
the sea.
unpaid. May Z sue X to enforce his right to
the deficiency?
Page 163 of 173
(B) natural and ordinary actions of results in the discharge of the latter. With
the sea. respect to an indorser, the holder's right to
cancel his signature is:
(C) unnatural and inevitable actions
of the sea. (A) without limitation.
(D) unnatural and ordinary actions (B) not limited to the case where the
of the sea. indorsement is necessary to his title.
(70) Under the Intellectual Property Code, (C) limited to the case where the
lectures, sermons, addresses or indorsement is not necessary to his
dissertations prepared for oral delivery, title.
whether or not reduced in writing or other
material forms, are regarded as (D) limited to the case where the
indorsement is necessary to his title.
(A) non-original works.
(73) X, in the hospital for kidney
(B) original works. dysfunction, was about to be discharged
when he met his friend Y. X told Y the
(C) derivative works. reason for his hospitalization. A month
later, X applied for an insurance covering
(D) not subject to protection.
serious illnesses from ABC Insurance, Co.,
where Y was working as Corporate
(71) Can a drawee who accepts a materially
Secretary. Since X had already told Y about
altered check recover from the holder and
his hospitalization, he no longer answered a
the drawer?
question regarding it in the application
(A) No, he cannot recover from form. Would this constitute concealment?
either of them.
(A) Yes, since the previous
(B) Yes from both of them. hospitalization would influence the

insurer in deciding whether to grant
(C) Yes but only from the drawer. X's application.
(D) Yes but only from the holder. (B) No, since Y may be regarded as
ABCs agent and he already knew of
(72) The rule is that the intentional Xs previous hospitalization.
cancellation of a person secondarily liable
Page 164 of 173
(C) Yes, it would constitute (B) Yes, since as an indorser who is

concealment that amounts to secondarily liable, there must first
misrepresentation on X's part. be presentment for payment and
dishonor by the maker.
(D) No, since the previous illness is
not a material fact to the insurance (C) No, since the absolute rule is
coverage. that there is no need for
presentment for payment and
(74) Several American doctors wanted to set dishonor to hold an indorser liable.
up a group clinic in the Philippines so they
could render modern medical services. If (D) Yes, since the secondary liability
the clinic is to be incorporated under our of Y and Z would only arise after
laws, what is the required foreign equity presentment for payment and
participation in such a corporation? dishonor by the maker.
(A) 40% (76) The Board of Directors of XYZ Corp.

unanimously passed a Resolution
(B) 0% approving the taking of steps that in reality
amounted to willful tax evasion. On
(C) 60%
discovering this, the government filed tax
evasion charges against all the companys
(D) 70%
members of the board of directors. The
(75) X executed a promissory note in favor directors invoked the defense that they
of Y by way of accommodation. It says: "Pay have no personal liability, being mere
to Y or order the amount of Php50,000.00. directors of a fictional being. Are they
Signed, X." Y then indorsed the note to Z, correct?
and Z to T. When T sought collection from

(A) No, since as a rule only natural
Y, the latter countered as indorser that
persons like the members of the
there should have been a presentment first
board of directors can commit
to the maker who dishonors it. Is Y correct?
corporate crimes.
(A) No, since Y is the real debtor and

(B) Yes, since it is the corporation
thus, there is no need for
that did not pay the tax and it has a
presentment for payment and
personality distinct from its
dishonor by the maker.
directors.
Page 165 of 173
(C) Yes, since the directors officially (D) No, since unlike T, he did not
and collectively performed acts that register his own "CROCOS" mark for
are imputable only to the his product.
corporation.
(78) A, the proprietor of a fleet of ten
(D) No, since the law makes taxicabs, decides to adopt, as his business
directors of the corporation name, "A Transport Co., Inc." May this be
solidarily liable for gross negligence allowed?
and bad faith in the discharge of
their duties. (A) No, it would be deceptive since
he is a proprietor, not a corporation.
(77) T is the registered trademark owner of
"CROCOS" which he uses on his ready-to- (B) No, since "A" is a generic name,
wear clothes. Banking on the popularity of not suitable for registration.
T's trade mark, B came up with his own

(C) Yes, since his line of business is
"CROCOS" mark, which he then used for
public transportation.
his "CROCOS" burgers. T now sues B for
trademark infringement but B argues that
(D) Yes, since such name would give
his product is a burger, hence, there is no
his business a corporate identity.
infringement. Is B correct?
(79) T delivers two refrigerators to the

(A) No, since the owner of a well-
warehouse of W who then issues a
known mark registered in the
negotiable receipt undertaking the delivery
Philippines has rights that extends
of the refrigerators to "T or bearer." T
even to dissimilar kinds of goods.
entrusted the receipt to B for safekeeping
only. B negotiated it, however, to F who
(B) Yes, since the right of the owner
bought it in good faith and for value. Who is
of a well-known mark registered in
entitled to the delivery of the refrigerators?
the Philippines does not extend to
goods which are not of the same
(A) T, since he is the real owner of
kind.
the refrigerators.
(C) Yes, as B was in bad faith in

(B) F, since he is a purchaser in
coming up with his own "CROCOS"
good faith and for value.
mark.
Page 166 of 173
(C) B, since T entrusted the receipt (C) No, because the voting in the
to him. Board should have been by majority
of a quorum.
(D) W, since he has as a
warehouseman a lien on the goods. (D) Yes since the votes of 2/3 of the
stockholders and majority of the
(80) The Articles of Incorporation must be Board were secured.
accompanied by a Treasurer's Affidavit
certifying under oath, among others, that (82) A group of Malaysians wanted to invest
the total subscription paid is: in the Philippines insurance business.
After negotiations, they agreed to organize
(A) not less than P25,000.00. "FIMA Insurance Corp." with a group of
Filipino businessmen. FIMA would have a
(B) not more than P5,000.00.
PhP50 Million paid up capital, PhP40
Million of which would come from the
(C) not less than P5,000.00.
Filipino group. All corporate officers would
(D) not more than P25,000.00. be Filipinos and 8 out of its 10-member
Board of Directors would be Filipinos. Can
(81) In a special meeting called for the FIMA operate an insurance business in the
purpose, 2/3 of the stockholders Philippines?
representing the outstanding capital stock
in X. Co. authorized the company's Board (A) No, since an insurance company
of Directors to amend its By-laws. By must have at least PhP75 Million
majority vote, the Board then approved the paid-up capital.
amendment. Is this amendment valid?

(B) Yes, since there is substantial
(A) No since the stockholders cannot compliance with our nationalization
delegate their right to amend the laws respecting paid-up capital and
By-laws to the Board. Filipino dominated Board of

Directors.
(B) Yes since the majority votes in
the Board was sufficient to amend (C) Yes, since FIMAs paid up capital
the By-laws. more than meets the countrys

nationalization laws.
Page 167 of 173
(D) No, since an insurance company (85) A promissory note states, on its face: "I,
should be 100% owned by Filipinos. X, promise to pay Y the amount of Php
5,000.00 five days after completion of the
(83) Under the Public Service Act, an on-going construction of my house. Signed,
administrative agency has the power to X." Is the note negotiable?
approve provisionally the rates of public
utilities without a hearing in case of urgent (A) Yes, since it is payable at a fixed
public needs. The exercise of this power is period after the occurrence of a
specified event.
(A) supervisory.
(B) No, since it is payable at a fixed
(B) absolute. period after the occurrence of an
event which may not happen.
(C) discretionary.
(C) Yes, since it is payable at a fixed

(D) mandatory.
period or determinable future time.
(84) X, creditor of Y, obtained a judgment in

(D) No, since it should be payable at
his favor in connection with Y's unpaid loan
a fixed period before the occurrence
to him. The court's sheriff then levied on
of a specified event.
the goods that Y stored in T's warehouse,
for which the latter issued a warehouse (86) P sold to M a pair of gecko (tuko) for
receipt. A month before the levy, however, Z Php50,000.00. M then issued a promissory
bought the warehouse receipt for value. note to P promising to pay the money
Who has a better right over the goods? within 90 days. Unknown to P and M, a law
was passed a month before the sale that
(A) T, being the warehouseman with
prohibits and declares void any agreement
a lien on the goods
to sell gecko in the country. If X acquired
the note in good faith and for value, may he
(B) Z, being a purchaser for value of
enforce payment on it?
the warehouse receipt
(A) No, since the law declared void

(C) X, being Ys judgment creditor
the contract on which the
(D) Y, being the owner of the goods promissory note was founded.
Page 168 of 173
(B) No, since it was not X who his creditor, Y, to whom he owed Php1
bought the gecko. million. Y now wants to collect and satisfy
X's debt through the Php1 million on the
(C) Yes, since he is a holder in due check. May he validly do so?
course of a note which is distinct
from the sale of gecko. (A) Yes, since the indorsement to Y
is for Php1 Million.
(D) Yes, since he is a holder in due
course and P and M were not aware (B) No, since Z is not a party to the
of the law that prohibited the sale of loan between X and Y.
gecko.
(C) No, since X is merely an agent of
(87) P authorized A to sign a bill of Z, his only right being to collect.
exchange in his (Ps) name. The bill reads:
"Pay to B or order the sum of Php1 million. (D) Yes, since X owed Y Php1
Signed, A (for and in behalf of P)." The bill Million.
was drawn on P. B indorsed the bill to C, C

(89) X Shipping, Co., insured its vessel MV
to D, and D to E. May E treat the bill as a
Don Teodoro for Php100 Million with ABC
promissory note?
Insurance, Co. through T, an agent of X
(A) No, because the instrument is Shipping. During a voyage, the vessel
payable to order and has been accidentally caught fire and suffered
indorsed several times. damages estimated at Php80 Million. T

personally informed ABC Insurance that X
(B) Yes, because the drawer and Shipping was abandoning the ship. Later,
drawee are one and the same ABC insurance denied X Shippings claim
person. for loss on the ground that a notice of
abandonment through its agent was
(C) No, because the instrument is a improper. Is ABC Insurance right?
bill of exchange.
(A) Yes, since X Shipping should
(D) Yes, because A was only an have ratified its agents action.
agent of P.
(B) No, since T, as agent of X
(88) Z wrote out an instrument that states: Shipping who procured the
"Pay to X the amount of Php1 Million for
collection only. Signed, Z." X indorsed it to
Page 169 of 173
insurance, can also give notice of is sufficient that he was declared no

abandonment for his principal. longer a member of the board.
(C) Yes, since only the agent of X (C) Yes, since the provisions of the
Shipping relayed the fact of Corporation Code applies as well to
abandonment. government-owned and controlled
corporations.
(D) No, since in the first place, the
damage was more than of the (D) No, since the board has the
ship's value. power to oust him even without the
new law.
(90) A law was passed disqualifying former
members of Congress from sitting in the (91) 002-38-0001 G, a grocery goods
Board of Directors of government-owned or supplier, sold 100 sacks of rice to H who
controlled corporations. Because of this, promised to pay once he has sold all the
the Board of Directors of ABC Corp., a rice. H meantime delivered the goods to W,
government-owned and controlled a warehouseman, who issued a warehouse
corporation, disqualified C, a former receipt. Without the knowledge of G and W,
Congressman, from continuing to sit as one H negotiated the receipt to P who acquired
of its members. C objected, however, it in good faith and for value. P then
insisting that under the Corporation Code claimed the goods from W, who released
members of the board of directors of them. After the rice was loaded on a ship
corporations may only be removed by vote bound for Manila, G invokes his right to
of stockholders holding 2/3 of its stop the goods in transit due to his unpaid
outstanding capital stock in a regular or lien. Who has a better right to the rice?
special meeting called for that purpose. Is C
correct? (A) P, since he has superior rights
as a purchaser for value and in good
(A) Yes, since the new law cannot be faith.
applied to members of the board of
directors already elected prior to its (B) P, regardless of whether or not
passage. he is a purchaser for value and in

good faith.
(B) No, since the disqualification
takes effect by operation of law, it (C) G, since as an unpaid seller, he
has the right of stoppage in transitu.
Page 170 of 173
(D) W, since it appears that the (94) A bill of exchange states on its face:
warehouse charges have not been "One (1) month after sight, pay to the order
paid. of Mr. R the amount of Php50,000.00,
chargeable to the account of Mr. S. Signed,
(92) In a signature by procuration, the Mr. T." Mr. S, the drawee, accepted the bill
principal is bound only in case the agent upon presentment by writing on it the
acted within the actual limits of his words "I shall pay Php30,000.00 three (3)
authority. The signature of the agent in months after sight." May he accept under
such a case operates as notice that he has such terms, which varies the command in
the bill of exchange?
(A) a qualified authority to sign.
(A) Yes, since a drawee accepts

(B) a limited authority to sign.
according to the tenor of his
acceptance.
(C) a special authority to sign.
(B) No, since, once he accepts, a

(D) full authority to sign.
drawee is liable according to the
(93) In return for the 20 years of faithful tenor of the bill.
service of X as a househelper to Y, the latter

(C) Yes, provided the drawer and
promised to pay Php100,000.00 to Xs heirs
payee agree to the acceptance.
if he (X) dies in an accident by fire. X
agreed. Is this an insurance contract?
(D) No, since he is bound as drawee
to accept the bill according to its
(A) Yes, since all the elements of an
tenor.
insurance contract are present.
(95) May the indorsee of a promissory note

(B) Yes, since X services may be
indorsed to him "for deposit" file a suit
regarded as the consideration.
against the indorser?
(C) No, since Y actually made a

(A) Yes, as long as the indorser
conditional donation in Xs favor.
received value for the restrictive
(D) No, since it is in fact an indorsement.
innominate contract between X and

Y.
Page 171 of 173
(B) Yes, as long as the indorser (A) Yes, because there was breach of
received value for the conditional implied warranty.
indorsement.
(B) No, because there was no intent
(C) Yes, whether or not the indorser to breach an implied warranty.
received value for the conditional
indorsement. (C) Yes, because it relates to a
material representation.
(D) Yes, whether or not the indorser
received value for the restrictive (D) No, because there was only
indorsement. representation of intention.
(96) X issued a check in favor of his (98) The Articles of Incorporation of ABC
creditor, Y. It reads: " Pay to Y the amount Transport Co., a public utility, provides for
of Seven Thousand Hundred Pesos ten (10) members in its Board of Directors.
(Php700,000.00). Signed, X". What amount What is the prescribed minimum number of
should be construed as true in such a Filipino citizens in its Board?
case?
(A) 10
(A) Php700,000.00.
(B) 6
(B) Php700.00.
(C) 7
(C) Php7,000.00.
(D) 5
(D) Php700,100.00.
(99) P authorized A to sign a negotiable
(97) Shipowner X, in applying for a marine instrument in his (Ps) name. It reads: "Pay
insurance policy from ABC, Co., stated that to B or order the sum of Php1 million.
his vessel usually sails middle of August Signed, A (for and in behalf of P)." The
and with normally 100 tons of cargo. It instrument shows that it was drawn on P.
turned out later that the vessel departed on B then indorsed to C, C to D, and D to E. E
the first week of September and with only then treated it as a bill of exchange. Is
10 tons of cargo. Will this avoid the policy presentment for acceptance necessary in
that was issued? this case?
Page 172 of 173
(A) No, since the drawer and drawee References:

are the same person.

Answers to Bar Examination
(B) No, since the bill is non- Questions by the UP LAW COMPLEX
negotiable, the drawer and drawee (2007, 2009, 2010)
being the same person.

UP LAW REVIEW
(C) Yes, since the bill is payable to
order, presentment is required for
PHILIPPINE ASSOCIATION OF LAW
acceptance. SCHOOLS (2008)
(D) Yes, in order to hold all persons

lawphil.net
liable on the bill.
(100) The corporate term of a stock

corporation is that which is stated in its
Articles of Incorporation. It may be
extended or shortened by an amendment of
the Articles when approved by majority of
its Board of Directors and:
(A) approved and ratified by at least

2/3 of all stockholders.
(B) approved by at least 2/3 of the

stockholders representing the
(C) ratified by at least 2/3 of all

stockholders.
(D) ratified by at least 2/3 of the

stockholders representing the
Page 173 of 173

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Mercantile Law MCQ

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Mercantile Law Q&As (2007-2013) hectorchristopher@yahoo.

MULTIPLE CHOICE equivalent to a lawful pledge of the shares

(A) Yes, since the endorsement and delivery

SUGGESTED ANSWER: (A) The Filipino First Policy

SUGGESTED ANSWER: II.(4) As a last question and by way of a

(A) only engages in the export of goods and SUGGESTED ANSWER:

(A) 10,000 shares SUGGESTED ANSWER:

SUGGESTED ANSWER: SUGGESTED ANSWER:

SUGGESTED ANSWER: IX. A Bank may acquire real property

(SEC). Instead, he prepared and presented . (1%)

to the proposed incorporators a falsified

After shipping the lumber, STI went to BDP, SUGGESTED ANSWER:

XV.(2) Assuming Philippine law to be

(A) No, the failure to file a claim with the

strictly corn plied with or 4. AAA Carmakers opened an

in the contract between the b. Assign the warehouse receipt

a. No, because under the SUGGESTED ANSWER:

5. For a fee, X deposited 1,000 sacks of

c. the said holder presents a was asked to sign a Trust Receipt

c. Yes, because violation of Trust payment under the Trust

specifically provides for the who bears the risk of the

the trust receipt for and in

12. Which phrase best completes the

a. the owner of the goods;

completes the sentence - This b. The promissory note is non-

d. provided X received negotiable because the option as to

consideration for acting as which form of payment is with the

accommodation party. maker.

SUGGESTED ANSWER: 15. X issued a promissory note which

d. Yes, the promissory note is a. Z can encash the check even

Philippines. a. that cannot anymore be

c. Y is the only one liable X, Y gave X a Manager's Check in

because he was the one who the amount of Php100,000 dated

delivered the check to Z. May 30, 2012. Which phrase best

d. The negotiation is not valid completes the statement - A

because the check is an Manager's Check:

instrument payable to order. a. is a check issued by a

name of the bank against the a. negotiation can be made by

that needs to be presented promissory note in favor of Y but the

for payment also. promissory note on its face was

d. is better than a cashier's marked non-negotiable. Then Y

check in terms of use and instead of indorsing the promissory

effect. note, assigned the same in favor of Z

SUGGESTED ANSWER: c. The drawee bank is estopped from

23. A issued a check in the amount of

d. The partial indorsement is SUGGESTED ANSWER:

SUGGESTED ANSWER: 26. A check was issued to Tiger Woods.

be delivered and the maker assumed name.

will still be liable.

d. the note can still be assigned and AAA Corporation, as a way to

the marker made liable accommodate X, one of its

d. It is an invalid indorsement. a. the sum expressed in words will

d. the obligation of the insurer b. are to be constructed liberally in

SUGGESTED ANSWER: 32. X is the common law wife of Y. Y

statement is most accurate?

a. the insurer will be liable. insurance policy, the insurer

insurance policy two (2) b. existing at the time of perfection

SUGGESTED ANSWER: 37. A house and lot is covered by a real

the insurer of the passenger claim against.

jeepney driven by Y because

SUGGESTED ANSWER: materials. What is the effect on the

of the insurer. Philippine (xxx line 2 unread text

train, and therefore should instantly. Is AAA Bus Company

document of title is a Bill of