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

com JayArhSals

A Compilation of the

Questions and Suggested Answers

In the

PHILIPPINE BAR EXAMINATIONS 2007-2013

In

MERCANTILE
LAW
Compiled and Arranged By:

Salise, Hector Christopher “Jay-Arh” Jr. M.

(University of San Jose-Recoletos School of Law)

ANSWERS TO BAR EXAMINATION QUESTIONS by the UP


LAW COMPLEX (2007, 2009, 2010) &

PHILIPPINE ASSOCIATION OF LAW SCHOOLS (2008)

“Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.”-Leroy Satchel Paige
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FOREWORD
This work is a compilation of the ANSWERS TO BAR
EXAMINATION QUESTIONS by the UP LAW COMPLEX ,
Philippine Association of Law Schools from 2007-2010 and
local law students and lawyers’ forum sites from 2011-2013
and not an original creation or formulation of the author.

The author was inspired by the work of Silliman University’s


College of Law and its students of producing a very good
material to everyone involved in the legal field particularly the
students and the reviewees for free. Hence, this work is a
freeware.

Everyone is free to distribute and mass produce copies of this


work, however, the author accepts no liability for the content of
this reviewer, or for the consequences of the usage, abuse, or
any actions taken by the user on the basis of the information
given.

The answers (views or opinions) presented in this reviewer are


solely those of the authors in the given references and do not
necessarily represent those of the author of this work.

The Author.

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TABLE OF CONTENTS
(Titles are based on Silliman’s Compilation [Arranged by Topic])

General Principles

Presumption: Habitually Engaging in Commerce (2009)………………………………….............9

Banking Law

Banks; Bank Deposits vs. Deposit Substitutes (2010).......................................................9

Banks; Deposit: Safety Deposit Box, Relationship from Banks (2010).............................10

Banks; Money Laundering: Predicate Crimes (2007).......................................................10

Banks; Mortgage; Redemption (2007).............................................................................11

Banks; Insolvency; Actions of the Monetary Board (2009)..............................................12

Banks; Insolvency; Claims (2010)..................................................................................13

Banks; Receivership (2007)............................................................................................13

Banks; Receivership; Prohibited Transaction (2009)......................................................14

Banks; Secrecy of Bank Deposit; AMLC (2013)...............................................................14

Banks; Secrecy of Bank Deposits (2009).........................................................................15

Banks; Single Borrower’s Limit; Collateral Security (2008).............................................16

Banks; Types of Banks (2010) .......................................................................................16

Truth in Lending Act (2009) .........................................................................................17

Bulk Sales Law

Bulk Sales Law; Covered Transactions (2010) ................................................................18

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Bulk Sales Law; Covered Transactions (2009).................................................................19

Bulk Sales Law; Covered Transactions (2007).................................................................19

Bulk Sales Law; Validity (2009) .....................................................................................20

Corporation Law

BOD; Conflict of Interest; Ratification (2008)................................................................20

BOD; Qualifications (2012) ...........................................................................................21

Corporation; Dissolution (2012) ....................................................................................23

Corporation; Formation; Enactment of a Law (2008)......................................................24

Corporation; Sole Proprietorship (2010).........................................................................24

Derivative Suit; Expiration of Term (2013) ...................................................................26

Derivative Suit; Jurisdiction (2009)...............................................................................26

Dividends; Declaration of Dividends (2009)....................................................................27

Dividends; Declaration of Dividends (2009)....................................................................28

Dividends; Declaration of Dividends (2008)....................................................................28

Liabilities; BOD; Corporate Acts (2012)..........................................................................29

Piercing the Corporate Veil (2008) ................................................................................31

Stock and Transfer Book (2009) ....................................................................................32

Stockholders; Appraisal Right (2007) ............................................................................32

Stockholders; Contractual Relationship; Quorum (2009)................................................33

Stockholders; Preferred Shares (2013)...........................................................................34

Trust Fund Doctrine (2007) ..........................................................................................35

Ultra Vires Acts (2009)...................................................................................................35

Credit Transaction

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Chattel Mortgage; Foreclosure (2009)............................................................................36

Chattel Mortgage; Foreclosure (2008) ...........................................................................37

Mortgage; Extrajudicial Foreclosure; Blanket Mortgage & Damage Clause (2012)............38

Mortgage; Foreclosure (2012) ........................................................................................39

Mortgage; Foreclosure (2010) ........................................................................................40

Insolvency & Corporate Recovery

Insolvency; Preferred Claims (2007) ..............................................................................41

Rehabilitation; Proceeding; Rehabilitation & Insolvency (2012).....................................42

Rehabilitation; Stay Order (2012) .................................................................................44

Insurance Law

Beneficiary; Death of Insured Due to Beneficiary (2008)................................................45

Concealment; Material Concealment (2013) ..................................................................45

Insurable Interest; Building Destroyed by Fire (2010)....................................................46

Insurance; Double Insurance, Validity (2012).................................................................47

Insurance; Perfection of Insurance Contracts (2009)......................................................47

Insurance; Property Insurance; Assignments (2009).......................................................48

Insurance; Property Insurance; Late Payment of Premiums (2010).................................49

Insurance; Property Insurance; Payment of Premiums by Check (2007).........................50

Insurance; Property Insurance; Payment of Premiums even after Loss (2013)................51

Insurer: Effects: Several Insurers (2008)........................................................................51

Intellectual Property

Agreements: Technology Transfer Agreements; Requisites & Prohibitions (2010)...........52

Article of Commerce; As Trademark, Patent & Copyright (2010)....................................53

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Copyright (2013)...........................................................................................................54

Copyright; Commissioned Artist (2008).........................................................................54

Copyright; Commissioned Work (2008)..........................................................................56

Copyright; Infringement (2007).....................................................................................57

Denicola Test (2009)......................................................................................................57

Infringement; Claims (2010) .........................................................................................58

Infringement; Trademark, Copyright (2009)...................................................................59

Patent: Non-Patentable; Method of Diagnosis & Treatment (2010)..................................60

Trademark; Unfair Competition (2010)..........................................................................61

Letters of Credit

Independence Principle (2010) ......................................................................................61

Letter of Credit (2012) ..................................................................................................62

Letter of Credit; Liabilities of a Confirming and Notifying Bank (2008)..........................63

Maritime Commerce

Averages: Types (2010) .................................................................................................64

Barratry (2010) .............................................................................................................64

Carriage of Goods; Deviation; Liability (2009) ...............................................................65

Carriage of Goods; Implied Warranty; Liability (2010)....................................................65

Carriage of Goods; Indemnity; Jettisoned Goods (2010).................................................66

COGSA; Prescription of Claims/Action (2010)................................................................67

Liability; Loss; Fortuitous Event (2008) ........................................................................67

Negotiable Instruments Law

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Checks: Forged Checks; Liability of Drawee Bank (2008)................................................68

Checks; Liability; Drawer and Drawee Bank (2010).........................................................69

Checks; Notice of Dishonor (2009).................................................................................70

Forgery; Liabilities; Drawee Bank (2009)........................................................................71

Negotiability (2013) ......................................................................................................71

Negotiability (2012) ......................................................................................................72

Negotiable Instruments; Illicit/Illegal Consideration (2007)...........................................73

Negotiable Instruments; Illicit/Illegal Consideration; Lawful Dishonor (2009)................74

Negotiable Instruments: Incomplete, Delivered; Doctrine: Comparative Negligence


(2008)............................................................................................................................74

Negotiable Instruments: Subject to a Term (2009).........................................................75

Parties; Holder in Due Course (2012) ............................................................................75

Parties; Instances a Subsequent Party is Liable (2008)...................................................76

Securities Regulation

Howey Test (2009).........................................................................................................77

Insider Trading (2013) ..................................................................................................77

Insider Trading (2008) ..................................................................................................78

Investment Contract; Procedure (2010) ........................................................................79

Margin Trading Rule (2009) ..........................................................................................80

Securities; Exempt Securities (2009) ............................................................................80

Securities; Selling of Securities (2009) ..........................................................................81

Tender Offer (2010) ......................................................................................................82

Transportation Law

Carriage; Breach of Contract (2008) ..............................................................................83

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Carriage; Breach of Contract; Cause of Action; Defenses (2009).....................................83

Carriage; Breach of Contract; Presumption of Negligence (2013)....................................85

Maritime Protest (2007) ................................................................................................86

Trust Receipts Law

Trust Receipt (2007) .....................................................................................................87

Trust Receipt; Security for a Loan (2008)......................................................................88

Trust Receipts Law; Liability for Estafa (2013)...............................................................88

Trust Receipts Law; Violation Committed by a Corporation (2012)................................89

Warehouse Receipts Law

Warehouse Receipt: Surrendering of Possession; Lien (2009).........................................90

Negotiable Instrument; Delivery of Goods (2007)...........................................................90

MULTIPLE CHOICE QUESTIONS

2013 Mercantile Law Exam MCQ (October 20, 2013) ….…………………………………….…....92

2012 Mercantile Law Exam MCQ (October 21, 2012) ….………………………………………..102

2011 Mercantile Law Exam MCQ (November 20, 2011).……………………………….………..144

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General Principles establishment which has for its object


some commercial operation. “ Text
Presumption: Habitually Engaging in messages may qualify to be equivalent to
Commerce (2009) electronic documents.

No.V. Cecilio is planning to put up a Banking Law


grocery store in the subdivision where he
and his family reside. To promote this Banks; Bank Deposits vs. Deposit
proposed business venture, he told his wife Substitutes (2010)
and three children to send out promotional
No.II. (C) Differentiate ―bank deposits‖ from
text messages to all the residents in the
―deposit substitutes.‖ (2%)
subdivision. Cecilio’s family members did
SUGGESTED ANSWER:
as instructed, and succeeded in reaching,
Bank deposits are funds obtained by a
through text messages, more than 80% of
bank from the public which are relent by
the residents in the subdivision.
such bank to its own borrowers. Deposit
substitutes are alternative forms of
Is Cecilio habitually engaged in commerce
obtaining funds from the public, other
even if the grocery store has yet to be
than deposits, through the issuance,
established? Explain your answer. (3%)
endorsement, or acceptance of debt
instruments for the own account of the
SUGGESTED ANSWER:
borrower, for the purpose of relending or
Yes. Even if the grocery store has yet to
purchasing of receivables and other
be established, Cecilio already habitually
obligations. These instruments may
engaged in commerce, when per his
include, but need not be limited to,
instruction the members of his family
banker’s acceptances, promissory notes,
contacted more than 80% the residents
participations, certificates of assignment
of the subdivision where they reside.
and similar instruments with recourse,
According to Article 3 of the Code of
and repurchase agreements (Section 95,
Commerce, “legal presumption of
Rep. Act No. 7653, “The New Central
habitually engaging in commerce shall
Bank Act”).
exist from the moment the person who
intends to engage therein announces
(D) Why are banks required to maintain
through circulars, newspapers, handbills,
reserves against their deposits and deposit
posters exhibited to the public, or in any
substitutes? State one of three purposes for
other manner whatsoever an
these reserves. (2%)

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SUGGESTED ANSWER: ALTERNATIVE ANSWER:


Any one of the following 4 purposes for The legal relationship of the bank and its
requiring banks to maintain reserves safety deposit box client is that of lessor
against their deposits and deposit and lessee.
substitutes will suffice:
(1) One of the purposes of the (B) Is a stipulation in the contract for the
requirement to maintain bank reserves use of a safety deposit box relieving the
is to control the volume of money bank of liability in connection with the use
created by the credit operations of the thereof valid? (2%).
banking system (Section 94 of the New SUGGESTED ANSWER:
Central Bank Act); The stipulation relieving the bank of
(2) It is to enable the banks to answer liability in connection with the use of
any withdrawal; the safety deposit box is void as it is
(3) To help Government to finance its against law and public policy (CA Agro-
operation; Industrial Development Corp. v. Court of
(4) To help the Government control Appeals, supra).
money supply.

Banks; Deposit: Safety Deposit Box,


Banks; Money Laundering: Predicate
Relationship from Banks (2010)
Crimes (2007)
No.II. (A) How do you characterize the legal
No.X. Name at least five predicate crimes to
relationship between a commercial bank
money laundering. (5%)
and its safety deposit box client? (20%)
SUGGESTED ANWERS: SUGGESTED ANSWER:
The Relationship between a commercial
Any five of the following are predicate
bank and its safety deposit box client is
crimes to money laundering:
that of a bailee and a bailor, the
bailment being for hire and mutual (1) Kidnapping for ransom under Article
benefit (Sia v. Court of Appeals, 222 267 of Act No.3815, otherwise known as
SCRA 24 (1993); CA Agro-Industrial the Revised Penal Code, as amended;
Development Corp. v. Court of Appeals,
219 SCRA 426(1993)). (2) Sections 3,4,5,7,8 and 9 of Article
Two of Republic Act No. 6425, as

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amended, otherwise known as the (11) Violations under Republic Act No.
Dangerous Drugs Act of 1972; 8792, otherwise known as the Electronic
Commerce Act of 2000
(3) Section 3 paragraphs B,C,E,G,H and I
of Republic Act No. 3019, as amended; (12) Hijacking and other violations under
otherwise known as the Anti-graft and Republic Act No 6235;destructive arson
Corrupt Practices Act; and murder, as defined under the
Revised Penal Code, as amended,
(4) Plunder under Republic Act No. 7080, including those perpetrated by terrorist
as amended; against non-combatant persons and
(5) Robbery and extortion under Articles similar targets;
294,295,296,299,300,301 and 302 of the
Revised Penal Code, as amended; (13) Fraudulent practices and other
violations under Republic Act No. 8799,
(6) Jueteng and Masiao punished as otherwise known as the securities
illegal gambling under Presidential Regulation Code of 2000
Decree No. 1602;
(14) Felonies or offenses of a similar
nature those are punishable under the
(7) Piracy on the high seas under the
penal laws of other countries. (Sec 3,
Revised Penal Code, as amended and
Anti-Money Laundering Act of 2001).
Presidential Decree No. 532;

(8) Qualified theft under Article 310 of


the Revised Penal Code, as amended; (9)
Swindling under Article 315 of the Banks; Mortgage; Redemption (2007)
Revised Penal Code, as amended.
No.IX. On December 4, 2003, RED

(9) Swindling under 315 of the Revised Corporation executed a real estate mortgage

Penal code, as amended; in favor of BLUE Bank. RED Corporation


defaulted in the payment of its loan.

(10) Smuggling under Republic Act Nos. Consequently, on June 4, 2004, BLUE

455 and 1937 Bank extra judicially foreclosed the


property. Being the highest bidder in the
auction sale conducted, the Bank was

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issued a Certificate of Sale which was (SED) of the Monetary Board prepared a
registered on August 4, 2004. detailed report (SED Report) specifying the
facts and the chronology of events relative
Does RED Corporation still have the right
to the problems that beset MPBC rural
to redeem the property as of September 14,
bank branches. The report concluded that
2007? Reason briefly. (5%)
the bank branches were unable to pay their

SUGGESTED ANSWER: liabilities as they fell due, and could not


possibly continue in business without
No, RED Corporation has lost its right to
incurring substantial losses to its
redeem the property. Juridical persons
depositors and creditors.
whose property is sold pursuant to an
extrajudicial foreclosure, shall have the
(A) May the Monetary Board order the
right to redeem the property until
closure of the MPBC rural banks relying
registration of the certificate of sale with
only on the SED Report, without need of an
the Register of Deeds, which shall in no
examination? Explain. (3%)
case be more than three months after
SUGGESTED ANSWER:
foreclosure, whichever is earlier (Section
Yes. Upon receipt of the report of the
47, General Banking Law).
SED, the Monetary Board is authorized
to take any of the actions enumerated
under Sec. 30, Republic Act No. 7653,
Banks; Insolvency; Actions of the otherwise known as the New Central
Monetary Board (2009) Bank Act, leading to the receivership
and liquidation of a bank or quasi-bank.
No.VIII. Maharlikang Pilipino Banking
There is no requirement that an
Corporation (MPBC) operates several
examination be first conducted before a
branches of Maharlikang Pilipino Rural
banking institution may be placed under
Bank in Eastern Visayas. Almost all the
receivership ( Rural Bank of Buhi v.
branch managers are close relatives of the
Court of Appeals, 162 SCRA 288 (1988)).
members of the Board of Directors of the
corporation. Many undeserving relatives of
(B) If MPBC hires you as lawyer because the
the branch managers were granted loans.
Monetary Board has forbidden it from
In time, the branches could not settle their
carrying on its business due to its
obligations to depositors and creditors.
imminent insolvency, what action will you
institute to question the Monetary Board’s
Receiving reports of these irregularities, the
order? Explain. (3%)]
Supervising and Examining Department

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SUGGESTED ANSWER: and the money market placements are


The order of the Monetary Board may be not included in the insured deposits
questioned on a petition for certiorari on (section 4(f) of Republic Act No. 3591, as
the ground that the action taken was in amended).
excess of jurisdiction or with grave abuse
of discretion amounting to lack or
excess of jurisdiction. The petition of Banks; Receivership (2007)
certiorari may only be filed by the
No.VIII. Due to growing financial
stockholders of record representing the
difficulties, Z Bank was unable to finish
majority of the capital stock within ten
construction of its 21-storey building on a
(10) days from receipt by the board of
prime lot located in Makati City. Inevitably,
directors of MPBC of the order directing
the Bangko Sentral ordered the closure of Z
receivership, liquidation or
Bank and consequently placed it under
conservatorship (Sec. 30, par. (2), R.A.
receivership. In a bid to save the bank’s
No. 7653).
property investment, the President of Z
Bank entered into a financing agreement
with a group of investors for the completion
Banks; Insolvency; Claims (2010)
of the construction of the 21-storey building
No.XIV. When OCCIDENTAL Bank folded in exchange for a ten-year lease and the
up due to insolvency, Manuel had the exclusive option to purchase the building.
following separate deposits in his name: (10%)
P200,000 in savings deposit; P250,000 in
(A) Is the act of the President valid? Why or
time deposit; P50,000 in current account;
why not?
P1 million in a trust account and P3 million
in money market placement. Under the SUGGESTED ANSWER:
Philippine Deposit Insurance Corporation
No, the bank president’s act is not valid.
Act, how much could Manuel recover?
He had no authority to enter into the
Explain. (2%)
financing agreement. Z Bank was ordered
SUGGESTED ANSWER:
closed and placed under receivership.
Manuel can recover P500, 000.00,
Control over the properties of Z Bank
because this is the total of his savings
passed to the receiver. The appointment
deposit, time deposit and current
of a receiver operates to suspend the
account (Section 4(g) of Republic Act No.
authority of the bank and its officers
3591, as amended). The trust account
over the bank’s assets and properties,

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such authority being reposed in the False. During the receivership, the
receiver (Abacus Real Estate assets and properties of the corporation
Development Center, Inc. v. Manila are being gathered for conversion into
Banking Corporation, 455 SCRA 97 cash in preparation for distribution to
(2005)). creditors. Granting new loans and
accepting new deposits would constitute
(B) Will a suit to enforce the exclusive right
doing business for the bank in the
of the investors to purchase the property
ordinary course of business which is
prosper? Reason briefly.
contrary to the purpose and nature of a

SUGGESTED ANSWER: receivership proceeding.

No, the exclusive options granted to the


investors, having been entered into by
Banks; Secrecy of Bank Deposit; AMLC
one without authority to do so, is
(2013)
unenforceable. The bank, therefore,
cannot be compelled to sell the property. No.III. From his first term in 2007,
Under Section 30 of Republic Act No. Congressman Abner has been endorsing his
7653, New Central Bank Act, the pork barrel allocations to Twin Rivers in
properties of Z Bank should be exchange for a commission of 40% of the
administered for the benefit of its face value of the allocation. Twin Rivers is a
creditors. The property in question can non-governmental organization whose
be disposed of only for the purpose of supporting papers, after audit, were found
paying the debts of Z Bank (Sec. 30, by the Commission on Audit to be fictitious.
Republic Act No. 7653, and New Central Other than to prepare and submit falsifies
Bank Act). papers to support the encashment of the
pork barrel checks, Twin Rivers does not
appear to have done anything on the
endorsed projects and Congressman Abner
likewise does not appear to have bothered
Banks; Receivership; Prohibited
to monitor the progress of the project he
Transaction (2009)
endorsed. The congressmen converted most

No.I. (E) A bank under receivership can still of the commissions he generated into US

grant new loans and accept new deposits. dollars, and deposited these in a foreign

SUGGESTED ANSWER: currency account with Banco de Plata


(BDP).

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Anti-Money Laundering Council (Anti-


Based on amply-supported tips given by a Money Laundering Act; Republic v.
congressman from another political party, Cabrini Green Ross, 489 SCRA 644,
the Anti-Money Laundering Council sent B 2006).
DP an order: (1) to confirm Cong. Abner’s
deposits with the bank and to provide
details of these deposits; and (2) to hold all
withdrawals and other transactions
Banks; Secrecy of Bank Deposits (2009)
involving the congressman’s bank
accounts. No.I. (B) If the Ombudsman is convinced
As counsel for BDP, would you advise the that there is a violation of law after
bank to comply with the order? (8%) investigating a complaint alleging illicit
SUGGESTED ANSWER: bank deposits of public officer, the
I shall advise Banco de Plata not to Ombudsman may order the bank
comply with the order of the Anti-Money concerned to allow in camera inspection of
Laundering Council. It cannot inquire bank records and documents.
into the deposits of Congressman Abner,
regardless of currency, without a bank SUGGESTED ANSWER:
inquiry order from a competent court, False. The Bank Secretary Law prohibits
because crimes involved are not the inspection of a bank account unless
kidnapping for ransom, violations of the the permission of the account holder is
Comprehensive Dangerous Drugs Act, obtained, or upon lawful order of the
hijacking and other violations of court or when the deposit is the subject
Republic Act No. 6235, destructive of litigation. Investigation by the
arson, murder, and terrorism and Ombudsman is not considered as a
conspiracy to commit terrorism (Section pending litigation to allow the
11 of Anti-Money Laundering Act). examination of the bank records and
documents (Marquez v. Desierto, 359
The Anti-Money Laundering Council SCRA 772 (2001)).
cannot order Banco de Plata to hold all
withdrawals and other transactions
involving the accounts of Congressman
Abner. It is the Court of Appeals which
has the power to issue a freeze order
over the accounts upon petition of the

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Banks; Single Borrower’s Limit; not release any part of the collateral by
Collateral Security (2008) the amount of reduction.

No.XIX. Industry Bank, which has a net


The collateral is a single commercial lot
worth of P1 Billion, extended a loan to
in the Fort, covered by a single title and
Celestial Properties Inc. amounting to P270
beings essentially indivisible in
Million. The loan was secured by a
character, the mortgage cannot be
mortgage over a vast commercial lot in the
“partially released.” Besides, since a real
Fort Bonifacio Global City, appraised at
estate mortgage cannot be “partially
P350 Million. After audit, the Banko Sentral
released.” Besides, since a real estate
ng Pilipinas gave notice that the loan to
mortgage is merely a collateral contract,
Celestial Properties exceeded the single
it can be enforced only to the amount of
borrower’s limit of 25% of the bank’s net
the loan; and the moment the loan
worth under a recent BSP Circular. In light
exposure is reduced, then automatically,
of other previous similar violations of the
reduction of the collateral coverage of
credit limit requirement, the BSP advised
the real estate mortgage follows.
Industry Bank to reduce the amount of the
loan to Celestial Properties under pain of
severe sanctions. When Industry Bank
informed Celestial Properties that it
intended to reduce the loan by P50 Million, Banks; Types of Banks (2010)
Celestial Properties countered that the
No.I. Briefly describe the ff. types of banks;
bank should first release a part of the
(2% each)
collateral worth P50 Million. Industry Bank
rejected the counter-proposal, and referred
(A) Universal bank
the matter to you as counsel. How would
SUGGESTED ANSWER:
you advise Industry Bank to proceed, with
A universal bank is a commercial bank
its best interests in mind? (5%)
with 2 additional powers, namely: (1) the
SUGGESTED ANSWER:
power of an investment house and (2)
With a net worth of P1.0 Billion, the the power to invest in non-allied
maximum loan exposure of the bank to enterprises (Section 23, Rep. Act No.
Celestial Properties can reach up to 8791, “The General Banking Law of
P250.0 Million. The bank should proceed 2000”).
with to reduce the loan of Celestial
properties by P20.0 Million, but should (B) Commercial bank

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SUGGESTED ANSWER: enterprises and individuals (Section 3


A commercial bank is a bank that can: (a), Rep. Act No. 7906 “Thrift Banks Act
(1) accept drafts; (2) issue letters of of 1995”).
credit; (3) discount and negotiate
promissory notes, drafts, bills of (D) Rural bank
exchange, and other evidence of debt; (4) SUGGESTED ANSWER:
accept or create demand deposits; (5) A rural bank is one established to
receive other types of deposits, as well provide credit facilities to farmers and
as deposit substitutes; (6) buy and sell merchants or their cooperatives and, in
foreign exchange, as well as gold or general to the people of the rural
silver bullion; (7) acquire marketable communities (Section 3, Rep. Act No.
bonds and other debts securities; and (8) 7353, “The Rural Banks Act of 1992”).
extend credit, subject to such rules
promulgated by the Monetary Board (E) Cooperative bank
(Section 29, Rep. Act No. 8791, “The SUGGESTED ANSWER:
General Banking Law of 2000”). A cooperative bank is organized under
the Cooperative Code to provide
(C) Thrift bank financial and credit services to
SUGGESTED ANSWER: cooperatives. It may perform any or all
A thrift bank is one established as a the services offered by a rural bank,
savings and mortgage bank, a stock including the operation of a Foreign
savings and loan association, or a private Currency Deposit Unit subject to certain
development bank, for the purpose of: (1) conditions (Section 100, Rep. Act
accumulating the savings of depositors No.6938, “The Cooperative Code of the
and investing them in outlets Philippines”).
determined by the Monetary Board as
necessary in the furtherance of national
economic objectives; (2) providing short- Truth in Lending Act (2009)
term working capital, medium and long-
No.XI. (A) A loan agreement which provides
term financing, to business engaged in
that the debtor shall pay interest at the rate
agriculture, services, industry and
determined by the bank’s branch manager
housing; and (3) providing diversified
violates the disclosure requirement of the
financial and allied services for its
Truth in Lending Act.
chosen market and constituencies
SUGGESTED ANSWER:
specially for small and medium

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True. This contrary to the duty of the Manila outlet constitutes only one-third
creditor to disclose in detail the of its total business and, therefore, it
interests, charges and other figures would not conducted by Venezia.
indicating in detail the cost of the credit Moreover, the requirements of the Bulk
granted to the debtor (United Coconut Sales Law reflected in Sections 3,4,5,
Planters Bank v. Beluso, 530 SCRA 567 and 9, by the express language of said
(2007)). provisions, apply only to the first type of
bulk sales, i.e., to any sale, transfer,
mortgage or assignment of a stock of
goods, wares, merchandise, provisions or
Bulk Sales Law
materials otherwise than in the ordinary
Bulk Sales Law; Covered Transactions course of trade and the regular
(2010) prosecution of business of the vendor,
mortgagor, transferor, or assignor, and
No.V. Venezia is a famous international
not to the second type (as in the sale
fashion chain with outlets in Makati,
described in the problem) or the third
Ortigas, and Manila. It has complied with
type (i.e., sale, etc. of all or substantially
the minimum capitalization required under
all of the fixtures and equipment used in
the Retail Trade Nationalization Act and
and about the business). As the Bulk
carries on retail business worth more than
Sales Law is penal in nature, it should be
S3 million for each of its outlets. As its
interpreted strictly against the State
Manila outlet is not doing very well, it
(People v. Wong Szu Tung, CA G.R. No.
decides to sell all of its business there
9776-R, March 26, 1954;50 O.G. 4867;
consisting of remaining inventory, furniture
Section 2 of the Bulk Sales Law).
and fixtures and other assets to its
competitor.
(B) If instead of selling its Manila outlet,
Venezia merely mortgages its assets there,
(A) Venezia’s Manila outlet constitutes one-
would it need to comply with the
third of its total business. Should it comply
requirements of the Bulk Sales Law? (2%)
with the requirements of the Bulk Sales
Law? Why or why not? (2%)
SUGGESTED ANSWERS:
For the same reasons stated in the
SUGGESTED ANSWER:
answer to A above, Venezia need not
Venezia need not comply with the
comply with the requirements of the
requirements of the Bulk Sales Law as its
Bulk Sales Law. The second type of bulk

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sales also includes the mortgage of all or The receiver seeks your advice on whether
substantially all of the business of the the Bulk Sales law will apply to either, or
mortgagor (Section 2, Bulk Sales Law). both, options. What will your advice be?
Explain (4%)
(C) What are the legal consequences of a SUGGESTED ANSWER:
failure to comply with the requirements of I will advice the receiver that the Bulk
the Bulk Sales law? (2%) Sales law does not apply to both options.
Sect. 8 of the Bulk Sales Law expressly
SUGGESTED ANSWER: provides that it will not apply executors,
Failure to comply with the requirements administrators, receivers, and assignees
of the Bulk Sales Law renders the Sale, in insolvency, or public officers, acting
transfer, mortgage, or assignment under judicial process. In this case, the
fraudulent and void (Section 4, Bulk receiver is acting under judicial process.
Sales Law), and makes any person found
guilty of violating any provision of the
Bulk Sales Law punishable by 5 years, or
a fine in an amount not exceeding P5,
Bulk Sales Law; Covered Transactions
000, or both such imprisonment and fine
(2007)
in the discretion of the court (Section
11, Bulk Sales Law). No.XII. Seeking to Streamline its operations
and to ball out its losing ventures, the
stockholders of X corporation unanimously
Bulk Sales Law; Covered Transactions adopted a proposal to sell substantially all
(2009) of the machineries and equipment used in
and about its manufacturing business and
No.XIV. XXX Corporation (XXX) and its
to sink the proceeds of the sale for the
sister company, YYY Corporation (YYY), are
expansion of its cargo transport
both under judicial receivership. The
services.(5%)
receiver has the option to sell or
substantially all of the properties of YYY to (A) Would the transaction be covered by the
XX, or simply merges the two Corporations. provisions of eh Bulk Sales Law?
Under either option, the requirements
SUGGESTED ANSWER:
under the Corporation Code have to be
complied with. No. the transaction is not covered by the
provisions of the Bulk sales law, Bulk

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sales law applies only to retail Bulk Sales Law; Validity (2009)
merchants, traders and dealers. It does
No.I. (C) Even if the seller and the buyer in
not apply to manufacturers. X
a sale in bulk violate the Bulk Sales Law,
Corporation is engaged in the
the sale would still be valid.
manufacturing business (Development
SUGGESTED ANSWER:
bank of the Phil. V. Judge of the
False. When the Bulk Sales Law is
Regional Trial Court of manial86 O.G.
violated, the sale is null and void. When
1137 (1987)).
the provisions of the said law have not
ALTERNATIVE ANSWER: been complied with, the sale is
considered as being “fraudulent and
YES, the transaction is covered by the
void” and even when coupled with
Bulk Sales Law because it involves the
delivery, the title over the goods does
sale of substantially all the equipment
not transfer to the buyer. However, the
used in the business of X corporation
civil liabilities arising from the
(Sec. 2 Bulk sales law)
transaction remain enforceable between
the parties thereto.

(B) How would X Corporation effect a valid


sale?
Corporation Law
SUGGESTED ANSWER:
BOD; Conflict of Interest; Ratification
To effect a valid sale. X corporation (2008)
must prepare an affidavit stating the
names of all its creditors, their No.XII. Pedro was 70% of the subscribed

addresses, the amount of their credits capital stock of a company which owns an

and their maturities. X Corporation office building. Paolo and Juan own the

should give the affidavit to the buyer remaining stock equally between them.

who , in turn, should furnish a copy to Paolo also owns a security agency, a

each creditor and notify the creditors of janitorial company and a catering business.

the proposed bulk sale to enable them to In behalf of the office building company,

protect their interest. Paolo engaged his companies to render


their services to the office building. Are the
service contracts valid? Explain. (4%)
SUGGESTED ANSWER:

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The contracts of Paolo, who owns 15% of full disclosure of the adverse interest of
the Outstanding Capital Stock of the Paolo to Pedro.
office building company is concerned if
they were not approved by the Board of
Directors and Paolo was not designated BOD; Qualifications (2012)
to execute them on behalf of said
company. No.VI. X is a Filipino immigrant residing in
Sacramento, California. Y is a Filipino
On the other hand, if the contracts were
residing in Quezon City, Philippines. Z is a
duly approved by the Board of Directors
resident alien residing in Makati City. GGG
of the office building company with
Corporation is a domestic corporation -
Paolo duly designated as company
40% owned by foreigners and 60% owned
representative, they would nevertheless
by Filipinos, with T as authorized
be voided at the option of the company.
representative. CCC Corporation is a
Under Sec. 32 of the Corporation Code.
foreign corporation registered with the
“A contract of the corporation with one
Philippine Securities and Exchange
or more of its directors or trustees or
Commission. KKK Corporation is a
officers is voidable at the option of such
domestic corporation (100%) Filipino
corporation, unless all the following
owned. S is a Filipino, 16 years of age, arid
conditions are present,” (a) if Paolo as a
the daughter of Y.
director in the board meeting in which
the contracts were approved was not (A) Who can be incorporators? Who can be
necessary to constitute a quorum for subscribers? (2%)
such meeting; (b) Paolo’s vote at such
meeting was not necessary for the SUGGESTED ANSWER:
approval of the contracts; (c) Each of the
contract are fair and reasonable under X,Y,Z and T could all be incorporators

the circumstances. and subscribers. Note, however, that


Sec.10 of the Corporation Code requires

If condition (a) or (b) is absent, Sec, 32 that there must be at least five but not

requires that the contracts must be more than fifteen incorporators (who

ratified by the shareholders representing must all be natural persons) and that a

at least two-thirds (2/3) of outstanding majority of the incorporators must be

capital stock, provided that there was residents of the Philippines. S, being a
minor, could neither be an incorporator
nor a subscriber. GGG Corporation, CCC

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Corporation, and KKK Corporation, CCC requirement under the law governing the
Corporation, and KKK Corporation could business of the corporation) but not GGG
not be incorporators as they are not Corporation, CCC Corporation, and KKK
natural persons. However, they could be Corporation as they are not natural
subscribers. persons. However, the aforementioned
corporations could have their respective
(B) What are the differences between an representatives nominated and possibly
incorporator and a subscriber, if there are elected as directors by the stockholders.
any? (2%) Each director must own at least one
share of the capital stock of the
SUGGESTED ANSWER:
corporation (Sec.23, Corporation Code).

Some of the differences are as follows:


(D) Who are qualified to act as Treasurer of
first, all the incorporators are required
the company? (2%)
to sign and acknowledge the Articles of
Incorporation while the subscribers, as SUGGESTED ANSWER:
such, are not subject to the same
requirement; second, the incorporators The Corporation Code does not impose
could be either natural or juridical any nationality or residency requirement
persons; and third, the number of in respect of the Treasurer. Any such
incorporators cannot exceed fifteen requirement or any other reasonable
while the number of subscribers could be requirement may be adopted by the
more than fifteen (subject to corporation and reflected in its by-laws,
compliance, in the appropriate cases, or required by the law(s) governing the
with the requirements of the Securities business of the corporation or a law of
Regulation Code). general application (e.g., the Anti-
Dummy Law which applies to all
(C) Who are qualified to become members of nationalized businesses). Accordingly,
the board of directors of the corporation? anybody with the qualifications required
(2%) under the by-laws of the corporation or
under the law(s) governing the business
SUGGESTED ANSWER:
of the corporation, could be elected
Treasurer by the Board of Directors.
X,Y,Z and T could be directors (subject
Note, however, that the Treasurer could
to the residency requirement mentioned
not be the President at the same time
in (a) above and any nationality
(Sec. 25, Corporation Code).

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(E) Who can be appointed Corporate Corporation automatically dissolve or


Secretary? (2%) terminate the corporate existence of AAA
Corporation? Explain your answer. (5%)
SUGGESTED ANSWER:
SUGGESTED ANSWERS:
The Secretary is required to be both a
resident and a citizen of the Philippines No, the sale of all the assets and
(Sec. 10, Corporation Code). liabilities of AAA Corporation to BBB
Banking Corporation will not result in
[Note: The problem does not state what kind the automatic dissolution of termination
of business the corporation would engaged of the existence of the former. A
in. Neither does it state whether X,Y,Z and T decision to dissolve AAA Corporation or
are all of legal age and otherwise have the to terminate its corporate existence
capacity to enter into contracts. Accordingly, would require a separate approval by a
the suggested answer set out below assume majority of the Board of Directors of AAA
that the corporation would not be engaging Corporation and its stockholders holding
in a nationalized activity and that X,Y,Z and at least two thirds of the total
T are all of legal age and otherwise have the outstanding capital stock, as well as the
capacity to enter into contracts.] separate approval by the Monetary
Board.

Corporation; Dissolution (2012) (B) What are the legal requirements in order
that a corporation may be dissolved? (5%)
No.X. AAA Corporation is a bank. The
operations of AAA Corporation as a bank SUGGESTED ANSWERS:

was not doing well. So, to avert any bank


A corporation may be dissolved
run, AAA Corporation, with the approval of
voluntarily under Section 118 (where no
the Monetary Board, sold all its assets and
creditors are affected) or under Section
liabilities to BBB Banking Corporation
119 (where creditors are affected), or by
which includes all deposit accounts. In
shortening of the corporate term under
effect then, BBB Corporation will service all
Section 120, or involuntarily by the SEC
deposits of all depositors of AAA
under Section 122, all of the Corporation
Corporation.
Code. Dissolution under Section 118,119

(A) Will the sale of all assets and liabilities and 120 require the same corporate

of AAA Corporation to BBB Banking approvals stated in (a) above.

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Note that the SEC also has the authority (B) May the composition of the board of
under Section 6 of PD 902-A to revoke directors of the National Power Corporation
the certificate of registration of a (NPC) be validly reduced to three (3)?
corporation upon any of the grounds Explain your answer fully. (2%)
provided by law, including the SUGGESTED ANSWER:
aforementioned Section 6-A
The NPC Board may be reduced to only
three (3) members, but this would have
to be affected by legislative amendment
of its charter. The National Power

Corporation; Formation; Enactment of a Corporation (NPC is a chartered

Law (2008) government corporation, not governed


by the general provisions of the
No.XI. (A) Since February 8, 1935, the
Corporation Code which requires that
legislature has not passed even a single law
Boards of Directors of private
creating a private corporation. What
corporations shall not have less than 5
provision of the Constitution precludes the
members. The provisions of the
passage of such a law? (3%)
Corporation Code are applicable to
SUGGESTED ANSWER:
government corporations only in a

Under Sec. 16, Art. XII of the 1987 suppletory manner.

Constitution, Congress cannot, except


by general law, provide for the
formation, organization, or regulation of
private corporations. It is only
Corporation; Sole Proprietorship (2010)
government owned or controlled
corporations that may be created or No.IX. Your client Dianne approaches you
established through special charters. for legal advice on putting up a medium-
Consequently, it has been held that a sized restaurant business that will
private corporation created pursuant to specialize in a novel type of cuisine. As
a special law is a nullity, and such Dianne feels that the business is a little
special law is void for being in violation risky, she wonders whether she should use
of the Constitution (NDC v. Phil. a corporation as the business vehicle, or
Veterans Bank, G.R. Nos. 84132-33, 10 just run it as a single proprietorship. She
December 1990). already has an existing corporation that is
producing meat products profitably and is

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also considering the alternative of simply capital than if she were to form a
setting up the restaurant as a branch office separate corporation. However, all the
of the existing corporation. assets of the existing corporation will be
liable for the debts and losses of the
(A) Briefly explain to your client what you restaurant business.
see as the legal advantages and
disadvantages of using a separate (B) If you advise your client to use a
corporation, a single proprietorship, or a corporation, what officer positions must the
branch of an existing corporation for the corporation at least have?(2%)
proposed restaurant business. (3%) SUGGESTED ANSWER:
SUGGESTED ANSWER: The corporation must have at least five
If Dianne will set up a separate directors (Section 14 of the Corporation
corporation, her liability for its Code). It Must also have a president, a
obligations and losses will be limited to treasure, and secretary (Section 25 of
the amount of her subscription in the the Corporation Code).
absence of showing that there is a
ground to disregard its separate juridical (C) What particular qualifications, if any,
personality. If she were to operate a are these officers legally required to possess
single proprietorship, her liability for its under the Corporation Code? (2%)
debts and losses will be unlimited. SUGGESTED ANSWER:
Every director must own at least one
The formation and the operation of a share of the capital stock of the
corporation require a great deal of paper corporation, which must be recorded in
work and record-keeping. This is not the his name on the books of the
situation in the case of a single corporation, and a majority of the
proprietorship. directors must be residents of the
Philippines (Section 25 of the
If Dianne will form a separate Corporation Code).
corporation, it can raise more funds for
the business than if she were to set up a The president must also be a director.
single proprietorship. The secretary must be a resident and
citizen of the Philippines (Section 25 of
If she were to set up the restaurant as a the Corporation Code).
branch office an existing corporation,
the corporation will have more funds as

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Derivative Suit; Expiration of Term SUGGESTED ANSWER:


(2013) The remaining directors cannot elect
new directors to fill in the two
No.VIII. In the November 2010 stockholders
vacancies. The board of directors may
meeting of Greenville Corporation, eight (8)
fill up vacancy only if the ground is not
directors were elected to the board. The
due to expiration of term, removal or
directors assumed their posts in January
increase in the number of board seats. In
2011. Since no stockholders meeting was
this case, the term of the two directors
held in November 2011, the eight directors
expired after one year. They hold-over
served in a holdover capacity and thus
period is not part of their term. The
continued discharging their powers.
vacancies should be filled up by election
by the stockholders (Valle Verde Country
In June 2012, two (2) of Greenville
Club, Inc. v. Africa, 598 SCRA 202,
Corporation’s directors - Director A and
2009).
Director B – resigned from the board.
Relying on Section 29 of the Corporation
The derivative suit was improper. In a
Code, the remaining six (6) directors elected
derivative suit, the corporation, not the
two (2) new directors to fill in the vacancy
individual stockholder, must be the
caused by the resignation of Directors A
aggrieved party and that the stockholder
and B.
is suing on behalf of the corporation.
What stockholder X is asserting is his
Stockholder X questioned the election of the
individual right as a stockholder to elect
new directors, initially, through a letter-
the two directors. The case partakes
complaint addressed to the board, and later
more of an election contest under the
(when his letter-complaint went unheeded),
rules on intra-corporate controversy
through a derivative suit filed with the
(Legaspi Towers 300, Inc. v. Muer, 673
court. He claimed that he vacancy in the
SCRA 453, 2012).
board should be filled up by the vote of the
stockholders of Greenville Corporation.
Greenville Corporation’s directors defended
the legality of their action, claiming as well
that Stockholder X’s derivative suit was Derivative Suit; Jurisdiction (2009)
improper.
No.II. Atlantis Realty Corporation (ARC), a
local firm engaged in real estate
Rule on the issues raised. (8%)
development, plans to sell one of its prime

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assets—a three-hectare land valued at why and where would such a suit be filed?
about P100-million. For this purpose, the If not, why not? (2%)
board of directors of ARC unanimously SUGGESTED ANSWER:
passed a resolution approving the sale of Yes, such suit would constitute an entra-
the property for P75-million to Shangrila corporate dispute as it is a suit initiated
Real Estate Ventures (SREV) a rival realty by a stockholder against other
firm. The resolution also called for a special stockholders who are officers and
stockholders meeting at which the proposed directors of the same corporation (P.D.
sale would be up for ratification. No. 902-A, Sec. 5(b)). Such suit should be
filed in the Regional Trial Court
Atty. Edric, a stockholder who owns only designated by the Supreme Court as a
one (1) share in ARC, wants to stop the corporate or commercial court.
sale. He then commences a derivative suit
for and in behalf of the corporation, to (C) Will the suit prosper? Why or why not?
enjoin the board of directors and the (3%)
stockholders from approving the sale. SUGGESTED ANSWER:
No. The suit will not prosper. There is no
(A) Can Atty. Edric, who owns only one requisite demand on the officers and
share in the company, initiate a derivative directors concerned. There is, therefore,
suit? Why or why not? (2%) no exhaustion of administrative
SUGGESTED ANSWER remedies.
Yes, Atty. Edric can initiate a derivative
suit, otherwise known as the minority
stockholders’ suit. It is allowed by law to
enable the minority stockholder/s to
Dividends; Declaration of Dividends
protect the interest of the corporation
(2009)
against illegal or disadvantageous act/s
of its officers or directors, the people No.I. (D) Dividends on shares of stocks can
who are supposed to protect the only be declared out of unrestricted
corporation (Pascual v. Del Zaz Orozco, retained earnings of the corporation.
19 Phil. 82 (1991)). SUGGESTED ANSWER:
True. Dividends on shares of stock of a
(B) If such a suit is commenced, would it corporation, whether cash dividend or
constitute an intra-corporate dispute? If so, stock dividend, can be validly declared
only out of unrestricted retained

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earnings (Sec. 43, Corporation Code). It No. the suit will not prosper. Paterno
cannot be declared out of the capital. cannot compel XYZ Corporation to pay
Otherwise, such declaration of dividend dividends, which have to be declared by
will violate the trust fund doctrine. the Board of Directors and the latter
cannot do so, unless there are sufficient
unrestricted retained earnings.
Otherwise, the corporation will be forced
to use its capital to make said payments
Dividends; Declaration of Dividends
in violation of the trust fund doctrine.
(2009)
Likewise, redemption of shares cannot

No.XVI. On September 15, 2007, XYZ be compelled. While the certificate allws

Corporation issued to Paterno eight such redemption, the option and

hundred preferred shares with the ff. terms: discretion to do so are clearly vested in
the corporation (Republic Planters Bank

―The Preferred Shares shall have the v. Agana, 269 SCRA 1 [1997]).

ff. rights, preferences, qualifications, and


limitations, to wit:

(1) The right to receive a quarterly


dividend of One per Centum cumulative and
participating; Dividends; Declaration of Dividends
(2) These shares may be redeemed, (2008)
by drawing of lots, at any time after two
No.XIV. Ace Cruz subscribed to 100,000
years from date of issue, at the option of the
shares of stock of JP Development
Corporation; xxx
Corporation, which ahs a par value of P1
per share. He paid P25,000 and promised
Today, Paterno sues XYZ Corporation for
to pay the balance before December 31,
specific performance, for the payment of
2008. JP Development Corporation declared
dividends on, and to compel the redemption
a cash dividend on October 15, 2008,
of , the preferred shares, under the terms
payable on December 1, 2008
and conditions provided in the stock
certificates. Will the suit prosper? Explain.
(A) For how many shares is Ace Cruz
(3%)
entitled to be paid cash dividends? Expalin.
SUGGESTED ANSWER:
(2%)

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SUGGESTED ANSWER: (B) On December 1, 2008, can Ace Cruz


compel JP Development Corporation to
Ace Cruz is entitled to be paid each cash
issue to him the stock certificate
dividends to the entire 100,1000 shares
corresponding to the P25,000 paid by him?
subscribed, and not only to the paid-up
(2%)
portion thereof. The legal character of
SUGGESTED ANSWER:
being a “stockholder,” and therefore the
entitlement to all the rights of a No, Ace Cruz cannot compel JP
stockholder, are determined from the Development Corporation to issue him
time of “subscription” and not from the stock certificate for the P 25,000.00.
payment of the subscription. No Certificate of Stock can be issued to a
subscriber until the full amount of his
Under Sec. 43 of the Corporation Code, subscription together with interest and
“a stock corporation may declare expense, if any is due, has been paid. A
dividends out of the unrestricted Subscription is one, entire and
retained earnings which shall be payable indivisible whole contract which cannot
in cash, in property, or in stock to all be divided into portions. The
stock-holders on the basis of outstanding stockholder is not entitled to a
stock held by them” on not on the basis Certificate of Stock until he has
on what stocks have been paid. remitted the full amount of his
subscription (Sec. 64, Corporation Code;
ALTERNATIVE ANSWER: SEC Opinion [January 6, 1989]).
Under Sec. 71, only when a stockholder
has been declared delinquent do his
rights as stockholder become suspended. Liabilities; BOD; Corporate Acts (2012)
It means therefore that a stockholder
who has not paid the full subscription, No.IX. A, B, C, D, E are all duly elected
provided he is not declared delinquent members of the Board of Directors of XYZ
has complete exercise of all of his rights, Corporation. F, the general manager,
including the right to receive dividends. entered into a supply contract with an
But any cash dividends due on American firm. The contract was duly
delinquent stock shall first be applied to approved by the Board of Directors.
the unpaid balance of the subscription However, with the knowledge and consent
(Sec. 43, Corporation Code). of F, no deliveries were made to the
American firm. As a result of the non-

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delivery of the promised supplies, the consented to the non-delivery of the


American firm incurred damages. The promised supplies contrary to the
American firm would like to file a suit for contract that was duly approved by the
damages. Can the American firm sue: Board of Directors. The problem does
indicate any circumstance that would
(A) The members of the Board of Directors excuse or favorably explain the action of
individually, because they approved the F.
transaction? (2%)
(D) Explain the rules on liabilities of a
SUGGESTED ANSWERS: corporation for the act of its corporate
officers and the liabilities of the corporate
No. In approving the transaction, the
officers and Board of Directors of a
directors were not acting their personal
corporation acting in behalf of the
capacities but rather in behalf of XYZ
corporation. (4%)
Corporation exercising the powers of the
corporation and conduction its business SUGGESTED ANSWERS:
(Sec. 23, Corporation Code). The problem
contains no facts that would indicate A corporation would be liable for the acts
that the directors acted otherwise. of its Board of Directors and officers if
the said acts were performed by them in
(B) The corporation? (2%) accordance with powers granted to them
under the Corporation Code, the articles
SUGGESTED ANSWERS:
of incorporation and by-laws of the
corporation, the laws and regulations
Yes. The Board approved the supply
governing the business of, or otherwise
contract and the General Manager
applicable to, the corporation, and, in
entered into the contract, both of them
the case of officers, the resolutions
acting on behalf of the XYZ Corporation.
approved by the Board of Directors.

(C) F, the general manager, personally,


As the directors have a personality
because the non-delivery was with his
separate from that of the corporation,
knowledge and consent? (2%)
they would be personally liable only if

SUGGESTED ANSWERS: they acted wilfully and knowingly vote


for or assent to a patently unlawful act
Yes, F could be sued in his personal of the corporation, or when they are
capacity because he knowingly guilty of gross negligence or bad faith in

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directing the affairs of the corporation, SUGGESTED ANSWER:


or when they acquire any personal or
I would sue Nelson, as the person who
pecuniary interest in conflict with their
owned and controlled Sonnel
duty as directors, which acts result in
Contruction Company, under the
damages to the corporation, its
doctrine of “piercing the veil of
stockholders or other persons, when
corporate fiction.” Although a
they agree to hold themselves personally
corporation has a juridical personality
and solidarily liable with the
separate and distinct from that of its
corporation, or when they are made, by a
stockholders, when the corporation is
specific provision of law, to personally
used merely as an alter ego or controlled
answer for the corporate action. (Sec.
for the benefit of a stockholder, or when
31, Corporation Code).
it is necessary to render justice, then
the courts have the right to pierce the
veil of corporate fiction to hold the
controlling stockholder-officer

Piercing the Corporate Veil (2008) personally liable for the corporate tort or
wrong committed.
No.X. Nelson owned and controlled Sonnel
Construction Company. Acting for the
The contractor should also be held liable,
company, Nelson contracted the
since being an independent contractor it
construction of a building. Without first
is liable for the fault or negligence of its
installing a protective net atop the
people.
sidewalks adjoining the construction site,
the company proceeded with the
(B) If you were the counsel for Sonnel
construction work. One day a heavy piece
Construction, how would you defend your
of lumber fell from the building. It smashed
client? What would be your theory? (2%)
a taxicab which at that time had gone
SUGGESTED ANSWER:
offroad and onto the sidewalk in order to
I would use the theory that the company
avoid traffic. The taxicab passenger died as
cannot be held liable for damages
a result.
because there was no fraud or negligence
(A) Assume that the company had no more
by its officers in undertaking the project
account and property in its name. As
for the construction of the building or
counsel for the heirs of the victim, whom
the selection of a construction company.
will you sue for damages, and what theory
Since a contractor is not an agent of
will you adopt? (3%)

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Sonnel Construction, the latter cannot Stock and Transfer Book (2009)
be held liable for the contractor’s
No.XVIII. (C) What is a stock and transfer
negligence. I would also argue that
book? (1%)
piercing the veil of corporate fiction is a
SUGGESTED ANSWER:
remedy of last resort and cannot be
A Stock and transfer book is a book
availed of without clear evidence
which records all stocks in the name of
showing fraud or disrespect of the
the stockholders alphabetically
separate juridical personality of the
arranged; the installments paid or
corporation. Mere control of equity has
unpaid on all stocks for which
not been considered as sufficient basis
subscription has been made and the date
for piercing the veil.
of payment of any installment, a
statement of every alienation, sale or
(C) Could the heirs hold the taxicab owner transfer of stock made, the date thereof,
and driver liable? Explain. (2%) and by and to whom made; and such
SUGGESTED ANSWER: other entries as the by-laws may
prescribe (Section 74, Corporation Code).
Yes, the taxicab company can be liable
for damages because it failed to comply
with its obligation as a common carrier
to use extraordinary diligence in
transporting the passenger, and because Stockholders; Appraisal Right (2007)
at the time of death of the passenger,
No.VII. In a stockholders meeting, S
the cab driver was violating a traffic
dissented from the corporate act converting
regulation. Under Art. 2185 of Civil
preferred voting shares to non-voting
Code, it is presumed that a person
shares. Thereafter, S submitted his
driving a motor vehicle has been
certificates of stock for notation that his
negligent if at time of mishap he was
shares are dissenting. The next day, S
violating a traffic regulation, such as
transferred his shares are dissenting. The
when he was driving on the wrong side of
next day, S transferred his shares to T to
the road (Mallari, Sr. v. CA, G.R. No.
whom new certificates were issued. Now, T
128607, 31 January 2000).
demands from the corporation the payment
of the value of his shares. (10%)

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(A) What is the meaning of a stockholder’s


appraisal right?
Stockholders; Contractual Relationship;
Quorum (2009)
SUGGESTED ANSWER:
Appraisal right is the right of No.XVIII. Triple a Corporation (Triple A) was
stockholder, who dissents from a incorporated in 1960, with 500 founders’
fundamental or extraordinary corporate shares and 78 common shares as its initial
action, to demand payment of the fair capital stock subscription. However, Triple
value of his shares. It is the right of a A registered its stock and transfer book
stockholder to withdraw from the only in 1978, and recorded merely 33
corporation and demand payment of the common shares as the corporation’s issued
fair value of his shares after dissenting and outstanding shares.
form certain corporate acts involving
fundamental changes in the corporate (A) In 1982, Juancho, the sole heir of one of
structure (Section 81, Corporation the original incorporators filed a petition
Code). with the Securities and Exchange
Commission (SEC) for the registration of his
(B) Can T exercise the right of appraisal? property rights over 120 founder’s shares
Reason briefly? and 12 common shares. The petition was
SUGGESTED ANSWER: supported by a copy of the Articles of
No, T cannot exercise the right of Incorporation indicating the incorporator’s
appraisal in this case. When S initial capital stock subscription. Will the
transferred his shares to T and T was petition be granted? Why or why not? (3%)
issued new stock certificates, the SUGGESTED ANSWER:
appraisal right of S ceased, and T Yes. The articles of Incorporation define
acquired all the rights of a regular the charter of the corporation and the
stockholder. The transfer of shares from contractual relationship between the
S to T constitutes an abandonment of State and the Corporation, the State and
the appraisal right of S. All the T the stockholders, and between the
acquired from the issuance of new stock corporation and the stockholders. Its
certificated was the rights of a regular contents are thus binding upon both the
stockholders (Section 86, Corporation corporation and the stockholders,
Code). conferring on Juancho a clear right to
have his stockholding recorded (Lanuza

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v. Court of Appeals, 454 SCRA 54 with equal par values of P100.00/share.


(2005)). Currently, the issued and outstanding
capital stock of BelPhil consists only of
(B) On May 6, 1992, a special stockholders’ common shares shared between Bayani
meeting was held. At this meeting, what Cruz, a Filipino with 60% of the issued
would have constituted a quorum? Explain. common shares, and Bernard Fleet, a
(3%) Canadian, with 40%.
SUGGESTED ANSWER:
A quorum consists of the majority of the To secure additional working fund, BelPhil
totality of the shares which gave been issued preferred shares to Bernard Fleet
subscribed and issued. Thus the quorum equivalent to the currently outstanding
for such meeting would be 289 shares or common shares. A suit was filed
a majority of the 576 shares issued and questioning the corporate action on the
outstanding as indicated in the article of ground that the foreign equity holdings in
incorporation. This includes the 33 the company would now exceed the 40%
common shares reflected in the stock foreign equity limit allowed under the
and transfer book, there being no Constitution the for public utilities.
mention or showing of any transaction
effected from the time of Triple A’s Rule on the legality of Bernard Fleet’s
incorporation in 1960up to the said current holdings. (8%)
meeting (Section 52 in Relation to SUGGESTED ANSWER:
Section 137 of corporation Code; Lanuza The holding of Bernard Fleet equivalent
v. court of Appeals, 454 SCRA 54 to the outstanding common shares is
(2005)). illegal. His holdings of preferred shares
should not exceed 40%. Since the
constitutional requirement of 60%
Filipino ownership of the capital of
public utilities applies not only to voting
Stockholders; Preferred Shares (2013)
control but also to beneficial ownership

No.X. Bell Philippines, Inc. (BelPhil) is a of the corporation, it should also apply

public utility company, duly incorporated to the preferred shares. Preferred shares

and registered with the Securities and are also entitled to vote in certain

Exchange Commission. Its authorized corporated matters. (Gamboa v. Teves,

capital stock consists of voting common 682 SCRA 397, 2012) The state shall

shares and non-voting preferred shares, develop a self-reliant and independent

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national economy effectively controlled directors; and (c) the corporate officers?
by Filipinos. (Articles II, Sec. 19, 1987 (3%)
Constitution) The effective control here
should be mirrored across the board on (A) the corporation;
all kinds of shares. SUGGESTED ANSWER:
Under Section 45 of the Corporation
Code, no corporation shall possess or
exercise any corporate power except
those conferred by the Code or by its
Trust Fund Doctrine (2007)
articles of incorporation and except such

No.VI. Discuss the trust fund doctrine. (5%) as are necessary or incidental to the

SUGGESTED ANSWER: exercise of the powers so conferred.

The trust fund doctrine means that the When a corporation does an act or

capital stock, properties and other engages in an activity which is outside

assets of a corporation are regarded as of its express, implied or incidental

equity in trust for the payment of powers set out in its articles of

corporate creditors. Stated simply, the incorporation, the act is deemed to be

trust fund doctrine states that all funds ultra vires.

received by the corporation in payment


of the shares of stock shall be held in (B) the board of directors;

trust for the corporate creditors and SUGGESTED ANSWER:

other stockholders of the corporation. When the Board engages in an activity or

Under such doctrine, no fund shall be enters into a contract without the

used to buy back the issued shares of ratificatory vote of the stockholders in

stock except only in instances those instances where the Corporation

specifically allowed by the Corporation Code so Requires such ratificatory vote,

Code (Boman Environmental such as when the corporation is made to

Development Corporation v. Court of invest in another corporation or engage

Appeals, 167 SCRA 540 [1988]). in a business which is not in pursuit of


its primary purpose, the board resolution
not ratified by stockholders owning or
representing at least two-thirds of the
Ultra Vires Acts (2009)
outstanding capital stock would make
When is there an ultra vires act on the part the transaction void, as being ultra
of (a) the corporation; (b) the board of vires.

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to nullify the foreclosure and the


(C) the corporate officers mortgages, raising the following issues:
SUGGESTED ANSWER:
When a corporate officer enters into a (A) The execution of only one Affidavit of
contract on behalf of the corporation Good Faith for both mortgages invalidated
without having been so expressly or the two mortgages; (2%) and
impliedly authorized by the Board of SUGGESTED ANSWER:
Directors, even when the act or contract The execution of only one Affidavit of
falls within the corporation’s express, Good Faith for both mortgages is not a
implied or incidental power, then the ground to nullify the said mortgages and
unauthorized act of the corporate officer the foreclosure thereof. Said mortgages
is deemed to be ultra vires. are valid as between immediate parties
(Lilius v. Manila Railroad Company, 62
Phil. 56 (1935)), although they cannot
bind third parties (Philippine Refining v.
Credit Transaction
Jarque, 61 Phil. 229 (1935)).
Chattel Mortgage; Foreclosure (2009)
(B) The mortgage on the shares of stocks
No.III. Armando, a resident of Manila,
should have been registered in the office of
borrowed P3-million from Bernardo,
the Register of Deeds of Manila where he
offering as security his 500 shares of stock
resides, as well as in the stock and transfer
worth P1.5-million in Xerxes Corporation,
book of Xerxes Corporation. (3%)
and his 2007BMW sedan, valued at P2-
million. The mortgage on the shares of
Rule on the foregoing issues with reasons.
stock was registered in the Office of the
Register of Deeds of Makati City where
SUGGESTED ANSWER:
Xerxes Corporation has its principal office.
The mortgage on the shares of stock
The mortgage on the car was registered in
should be registered in the chattel
the Office of the Register of Deeds of
mortgage registry in the Register of
Manila. Armando executed a single Affidavit
Deeds of Makati City where the
of Good Faith, covering both mortgages.
corporation has its principal office and
also in the Register of Deeds of Manila
Armando defaulted on the payment of his
where the mortgagor resides (Chua Guan
obligation; thus, Bernardo foreclosed on the
v. Samahang Magsasaka, Inc., 62 Phil.
two chattel mortgages. Armando filed suit
472 (1935)). Registration of chattel

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mortgage in the stock and transfer book February 1, 2008, Al obtained another loan
is not required to make the chattel of P10,000 from Bob to be paid on February
mortgage valid. Registration of dealings 15, 2008. He secured this by executing a
in the stock and transfer book under chattel mortgage on a Honda motorcycle.
Section 63 of the Corporation Code On the due date of the first loan Al failed to
applies only to sale or disposition of pay. Bob foreclosed the chattel mortgage
shares, and has no application to but the car was bidded for P6,000 only. Al
mortgages and other forms of also failed to pay the second loan due on
encumbrances (Monserrat v. Ceron, 58 February 15, 2008. Bob filed an action for
Phil. 469 (1933)). collection of sum of money. Al filed a
motion to dismiss claiming that Bob should
(C) Assume that Bernardo extrajudicially first foreclose the mortgage on The Honda
foreclosed on the mortgages, and both the motorcycle before he can file the action for
car and the shares of stocks were sold at sum of money. Decide with reasons. (4%)
public auction. If the proceeds from such SUGGESTED ANSWER:
public sale should be 1-million short of
Bob has the legal right to file a collection
Armando’s total obligation, can Bernardo
suit for a sum of money in lieu of
recover the deficiency? Why or why not?
foreclosing on the chattel mortgage. It
(2%)
has been ruled that a c chattel mortgage
is a security arrangement to support a
SUGGESTED ANSWER:
primary contract (Serra v. Rodriguez,
Yes. Bernardo can recover the
G.R. no. L-25546, 22 April 1974). Since
deficiency. Chattels are given as mere
the chattel mortgage is only a collateral
security, and not as payment or pledge
contract prerogative to choose which of
(CuH ada v. Drilon, 432 SCRA 618
the remedies available to pursue.
(2004)).
However, the filing of the collection suit
constitutes a waiver of the chattel
mortgage (Land Settlement and Dev.
Corp. v. Carlos, 22 SCRA 202, 1968). And

Chattel Mortgage; Foreclosure (2008) even if the collection suit included the
recovery of the P6,000 deficiency on the
No.XVII. On January 1, 2008, Al obtained a
first loan, the same is valid because
loan of P10,000 from Bob to be paid on
unlike in a pledge the lender has the
January 30, 2008, secured by a chattel
legal right to recover the deficiency
mortgage on a Toyota motor car. On

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incurred on the foreclosure of a chattel Yes. X executed a real estate mortgage


mortgage (PAMECA Wood Treatment v. containing a “blanket mortgage clause.”
CA, G.R. No. 106435, 14 July 1999). Mortgages given to secure future
advancements are valid and legal
contracts, and the amounts named as
consideration in said contracts do not
limit the amount for which the mortgage
Mortgage; Extrajudicial Foreclosure;
may stand as security if from the four
Blanket Mortgage & Damage Clause
corners of the instrument the intent to
(2012)
secure future and other indebtedness
can be gathered. (Prudential Bank v.
No.VIII. X obtained a Php10Million loan
Alviar, G.R. No. 150197, 28 July 2005)
from BBB Banking Corporation. The loan is
secured by Real Estate Mortgage on his
(B) What is the meaning of a "dragnet
vacation house in Tagaytay City. The
clause" in a Deed of Real Estate Mortgage?
original Deed of Real Estate Mortgage for
Under what circumstances will the "dragnet
the Php10Million was duly registered. The
clause" be applicable? ( 5%)
Deed of Real Estate Mortgage also provides
that "The mortgagor also agrees that this SUGGESTED ANSWERS:
mortgage will secure the payment of
additional loans or credit accommodations Generally, a dragnet clause is a clause in
that may be granted by the mortgagee ... " a deed of real estate mortgage stating
Subsequently, because he needed more that the mortgage secures all the loans
funds, he obtained another Php5Million and advances that the mortgagor may at
loan. On due dates of both loans, X failed to any time owe to the mortgagee. The
pay the Php5Million but fully paid the word “dragnet” is a reference to a net
Php10Million. BBB Banking Corporation drawn through a river or across ground
instituted extrajudicial foreclosure to trap fish or game. It is also known in
proceedings. American jurisprudence as a “blanket
mortgage clause” or an “anaconda
(A) Will the extrajudicial foreclosure prosper clause.” A mortgage with a dragnet
considering that the additional Php5Million clause enables the parties to provide
was not covered by the registration? (5%) continuous dealings, the nature or
extent of which may not be known or
SUGGESTED ANSWERS:
anticipated at the time, and they avoid
the expense and inconvenience of

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executing a new security on each new Mortgage; Foreclosure (2012)


transaction. It operates as a convenience
and accommodation to the borrower as it No.VII. X obtained a loan for Php50Million

makes available additional funds to him from SSS Bank. The collateral is his

without his having to execute additional vacation house in Baguio City under a real

security documents, thereby saving estate mortgage. X needed more funds for

time, travel, cost of extra legal services, his business so he again borrowed another

recording fees, etc. (Prudential Bank v. Php10Million, this time from BBB Bank,

Alviar, id.) another bank, using the same collateral.


The loan secured from SSS Bank fell due
The “dragnet clause” may not apply to and X defaulted.
other loans extended by the mortgagee
to the mortgagor for which other (A) If SSS Bank forecloses the real estate

securities were given. In the case of mortgage, what rights, if any, are left with

Prudential Bank v. Alviar, the Supreme 888 Bank as mo1igagee also? (2%)

Court adopted the “reliance on the


SUGGESTED ANSWER:
security test” to the effect that “when
the mortgagor takes another loan [from BBB Bank, as junior mortgagee, would
the mortgage] for which another security have a right to redeem the foreclosed
was given, it could not be inferred that property, together with X, his successors

such loan was made in reliance solely on in interest, any judicial or judgement
the original security with the “dragnet creditor of X, or any other person or
clause,” but, rather, on the new security entity having a lien on the vacation
given.” This means that the existence of house subsequent to the real estate
the new security must be respected and mortgage in favour of SSS Bank (i.e.,
the foreclosure of the old security should other junior mortgagees, if any)(Sec. 6,
only be for the other loans not Act 3135)

separately collateralized and for any


(B) If the value of the Baguio property is
amount not covered by the new security
less than the amount of loan, what would
for the new loan.
be the recourse of SSS Bank? BBB Bank?
(2%)

SUGGESTED ANSWER:

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In case of a deficiency, SSS bank could If X defaulted in respect of his loan from
file suit to claim for the deficiency. BBB BBB Bank but fully paid his loan from
Bank could file an ordinary action to SSS Bank, BBB Bank could now foreclose
collect its loan from X. if it does so, it the mortgaged property as it would be
would be deemed to have waived its the only remaining mortgagee of the
mortgage lien. If the judgement in the same.
action to collect is favorable to BBB
Bank, and it becomes final and (E) Does X have any legal remedy after the

executory , BBB Bank could enforce the foreclosure in the event that later on he has

said judgement by execution. It could the money to pay for the loan? (1%)

even levy execution execution on the


SUGGESTED ANSWER:
same mortgaged property, but it would
not have priority over the latter. (Caltex
Yes, X could redeem the property within
Philippines v. IAC, et al., G.R. No. 74730,
one (1) year from the date of registration
August 25,1989)
of the sheriff’s certificate of foreclosure
sale.
(C) If the value of the property is more that
the amount of the loan, who will benefit
(F) If SSS Bank and BBB Bank abandon
from the excess value of the property? (2%)
their rights under the real estate mortgage,
is there any legal recourse available to
SUGGESTED ANSWER:
them? (1%)

If the value of the property is more that


SUGGESTED ANSWER:
the amount of the loan, the excess could
benefit and be claimed by BBB Bank, any
SSS Bank and BBB Bank could each file
judicial or judgement creditor of X, any
an ordinary action to collect its loan
other junior mortgagee, and X.
from X.

(D) If X defaulted with its loan in favor of


BBB Bank but fully paid his loan with SSS
Bank, can BBB Bank foreclose the real Mortgage; Foreclosure (2010)

mortgage executed in its favor? (2%)


No.III. Ozamis Paper Corporation secured
loans from ABC Universal Bank in the
SUGGESTED ANSWER:
aggregate principal amount of P100 million,
evidenced by several promissory notes, and

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secured by a continuing guaranty of its and SA v. American Realty Corporation,


principal stockholder Menandro Marquez; a 321 SCRA 659(1999)).
pledge of Marquez’s shares in the
corporation valued at P45 million; and a (C) Can the bank foreclose on the pledged
real estate mortgage over certain parcels of shares of Marquez and recover the
land owned by Marquez. deficiency from the corporation? Explain.
(2%)
The corporation defaulted and the bank SUGGESTED ANSWER:
extra-judicially foreclosed on the real estate If the bank forecloses the pledge, it
mortgage. The bank which was the sole cannot recover the deficiency because
bidder for P75 million, won the award. the foreclosure extinguishes the
principal obligation, whether or not the
(A) Can the bank sue Marquez for the proceeds from the foreclosure are equal
Deficiency of P25 million? Explain. (2%) to the amount of the principal obligation
SUGGESTED ANSWER: (Art. 2115, Civil Code).
Yes, the bank can sue Marquez for the
deficiency of P25million. In extrajudicial
foreclosure of a real estate mortgage, if
Insolvency & Corporate
the proceeds of the sale are insufficient
to pay the debt, the mortgagee has the Recovery
right to sue for the deficiency (Suico
Insolvency; Preferred Claims (2007)
Rattan and Buri Interiors, Inc. v. Court
of Appeals, 490 SCRA 560 (2006)). No.XIII. (A) What are the preferred claims
that shall be satisfied first from the assets
(B) If the bank opts to file an action for of an insolvent corporation? (10%)
collection against the corporation, can it
SUGGESTED ANSWER:
afterwards institute a real action to
foreclose the mortgage? Explain (2%) Under the Insolvency law necessary
SUGGESTED ANSWER: funeral expenses of the debtor is the
No, the bank can no longer file an action most preferred claim. However, this is an
to foreclose the real estate mortgage. insolvent corporation, thus, claims shall
When it filed a collection case, it was be paid in the ff. order:
deemed to have abandoned the real
estate mortgage (Bank of America, NT (1) Debts due for personal services
rendered the insolvent by employees,

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laborers, or domestic servants Philippine Islands (Section 50,


immediately preceding the Insolvency Law).
commencement of proceeding in
insolvency; (B) How shall the remaining non-preferred
creditors share in the estate of the insolvent
(2) Compensation due the laborers or corporation above?
their dependents under the provisions of SUGGESTED ANSWER:
act numbered thirty-four hundred and The remaining non-preferred creditors,
twenty-eight, known as the workmen’s whose debts are duly proved and
Compensation Act, as amended by Act allowed, shall be entitled to share pro-
Numbered Thirty-eight hundred and rata in the assets, without priority or
twelve, and under the provisions of Act preference whatsoever (Section 49,
Numbered Eighteen hundred and Insolvency Law; Article 2251, Civil
seventy-four, known as the Employees’ Code).
Liability Act, and of other laws providing
for payment of indemnity for damages in
cases of labor accidents;

Rehabilitation; Proceeding;
(3) Legal expenses, and expenses Rehabilitation & Insolvency (2012)
incurred in the administration of the
No.XVIII. (A) Can be distressed corporation
insolvent’s estate for the common
file a petition for corporation rehabilitation
interest of the creditors, when properly
after the dismissal of its earlier petition for
authorized and approved by the court;
insolvency? Why? (2%)
SUGGESTED ANSWER:
(4) Debts, taxes, and assessments due
the Insular Government; Yes, when a distressed corporation’s
petition for insolvency has been
(5) Debts, taxes, and assessments due to dismissed, it can only mean that it still
any province or provinces of the possesses more than enough assets to
Philippine Islands; cover all its liabilities, and consequently,
it can still be “rehabilitated” (PAL v.
(6) Debts, taxes, and assessments due to Zamora, G.R. No. 166996, 06 February
any municipality or municipalities of the 2007, and Sec. 5[d], Securities
Regulation Act).

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Although in Ching v. LBP, G.R. No.


Under Sec. 6(d) of P.D. 902-A, a petition 73123, 02 September 1991, it was held
for corporate rehabilitation is allowed that when a petitioning corporate debtor
only “in cases where the has been denied rehabilitation, the SEC
corporation**possesses sufficient may declare a corporation insolvent as
property to cover all its debts but an incident and in continuation of its
foresees the impossibility of meeting already acquired jurisdiction over
them when they respectively fall due or petitioner, such a procedure does not
in cases where the corporation** has no seem warranted under the Interim Rules
sufficient assets to cover liabilities, but of Procedure for Corporate
is under the management of a Rehabilitation.
rehabilitation receiver or management
committee created pursuant to this Sec. 27, Rule 4 of the Interim Rules
Decree.” state that, “the court shall upon motion,
motu porprio or upon the
Under Sec. 1, Rule 4, Interim Rule of recommendation of the Rehabilitation
Procedure for Corporate Rehabilitation. Receiver, terminate the proceedings,
A petitioner corporate debtor must be without proceeding to
one who is “Any debtor who foresees the insolvency/dissolution.” In other words,
impossibility of meeting its debts when a different petition for insolvency
they respectively fall due,” which means proceedings fall with the general
that it is not insolvent, but merely jurisdiction of RTC, whereas petition for
illiquid, which under Section 2 provides corporate rehabilitation fall within the
the minimum that the debtor is original and exclusive jurisdiction of
“rehabilitable” thus: “the manner by RTC special Commercial Courts.
which the debtor may be rehabilitated
and how such rehabilitation may benefit (C) Explain the key phrase ―equality is
the general body of creditors, employees equity‖ in corporate rehabilitation
and stock holders. proceedings. (2%)
SUGGESTED ANSWER:
(B) Can the corporation file a petition for
The principle of “equality in equity”
rehabilitation first, and after it is dismissed
means that when a corporation is placed
file a petition foR insolvency? Why? (2%)
under the control of a court-appointed
SUGGESTED ANSWER:
rehabilitation receiver, then “all the

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creditors should stand on equal footing. (A) Can XYC Company still be able to draw
Not anyone of them should be given any on their irrevocable Standby Letter of Credit
preference by paying one or some of when due? Explain your answer. (5%)
them ahead of the others. This is
SUGGESTED ANSWER:
precisely the reason for the suspension
of all pending claims against the Yes, As an exception to a Stay or

corporation under receivership” Suspension Order included in a

(Sobrejuanite v. ASB Dev. Corp., G.R. No. Commencement Order issued pursuant

165675, 30 September 2005: Ruby to Section 16(q) of the FRIA, Section

Industrial v. Lim, G.R. Nos. 124185-87, 18(c) if the said law provides that a Stay

20 January 1998). or Suspension Order shall not apply “to


the enforcement of claims against
sureties and other persons solidarily
liable with the debtor, and third party or
accommodation mortgagors as well as
Rehabilitation; Stay Order (2012) issuers of letters of credit x xx.”
Similarly, assuming that it has not been
No.I. ABC Company filed a Petition for
superseded by the FRIA, Section 7(b) of
Rehabilitation with the Court. An Order
the Supreme Court Rules of Procedure
was issued by the Court, (1) staying
on Corporate Rehabilitation (2008)
enforcement of all claims, whether money
provides that a stay order shall not cover
or otherwise against ABC Company, its
claims against letters of credit and
guarantors and sureties not solidarily liable
similar security arrangements issued by
with the company; and (2) prohibiting ABC
a third party to secure the payment of
Company from making payments of its
the debtor’s obligations. This was the
liabilities, outstanding as of the date of the
basis of the decision in the case of
filing of the Petition. XYC Company is a
Metropolitan Waterworks and Sewerage
holder of an irrevocable Standby Letter of
System v. Hon. Reynaldo B. Daway, et al.
Credit which was previously procured by
(G.R. No. 160732, June 21,2004).
ABC Company in favor of XYC Company to
secure performance of certain obligations.
In the light of the Order issued by the
Court.

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Insurance Law Concealment; Material Concealment


(2013)
Beneficiary; Death of Insured Due to
No.II. Benny applied for life insurance for
Beneficiary (2008)
Php 1.5 Million. The insurance company
No.VI. On January 1, 2000, Antonio Rivera approved his application and issued an
secured a life insurance from SOS insurance policy effective Nov, 6, 2008.
Insurance Corp. for P1 Million with Gemma Benny named his children as his
Rivera, his adopted daughter, as the beneficiaries. On April 6, 2010, Benny died
beneficiary. Antonio Rivera died on March of hepatoma, a liver ailment.
4, 2005 and in the police investigation, it
was ascertained that Gemma Rivera The insurance company denied the
participated as an accessory in the killing of children’s claim for the proceeds of the
Antonio Rivera. Can SOS Insurance Corp. insurance policy on the ground that Benny
avoid liability by setting up as a defense the failed to disclose in his application two
participation of Gemma Rivera in the killing previous consultations with his doctors for
of Antonio Rivera? Discuss with diabetes and hypertension, and that he had
reasons.(4%) been diagnosed to be suffering from
hepatoma. The insurance company also
SUGGESTED ANSWER:
rescinded the policy and refunded the
Under Sec. 12 of the Insurance Code. premiums paid.
The interest of a beneficiary shall be Was the insurance company correct? (8%)
forfeited when the beneficiary is the SUGGESTED ANSWER
principal, accomplice, or accessory in The insurance company correctly
willfully bringing about the death of the rescinded the policy because of
insured. In which event, the nearest concealment (Section 27 of Insurance
relative of the insured shall receive the Code). Benny did not disclose that he
proceeds of said insurance, if not was suffering from diabetes,
otherwise disqualified. Thus, the hypertension, and hepatoma. The
insurance company must still pay out concealment is material, because these
the proceed of the life insurance policy are serious ailments (Florendo v. Philam
to the nearest qualified relative of the Plans, Inc., 666 SCRA 618, 2012). Benny
insured. died less than two years from the date of
the issuance of the policy (Section 48 of
Insurance Code).

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Insurable Interest; Building Destroyed by Globe & Rutgers Fire Insurance


Fire (2010) Company, 57 Phil. 576 (1932)). Second,
fire insurance policies contain a
No.X. To secure a loan of P10 million, Mario
warranty that the insured will not store
mortgaged his building to Armando. In
hazardous materials within the insured
accordance with the loan arrangements,
premises. Mario breached this warranty
Mario had the building insured with First
when he stored inflammable materials in
Insurance Company for P10 million,
the building. (Young v. Midland Textile
designating Armando as the beneficiary.
Insurance Company, 30 Phil. 617
Armando also took an insurance of the
(1915)).These two factors exonerate First
building upon his own interest with Second
Insurance Company from liability to
Insurance Company for P5 million.
Armando as mortgagee even though it
The building was totally destroyed by fire, a
was Mario who committed them (Section
peril insured against under both insurance
8 of the Insurance Code).
policies. It was subsequent determined that
the fire had been intentionally started by
(B) What happens to the P10 million debt of
Mario and that in violation of the loan
Mario to Armando? Explain. (3%)
agreement, he had been storing
SUGGESTED ANSWER:
inflammable materials in the building.
Since Armando would have collected P5
million from Second Insurance
(A) How much, if any, can Armando recover
Company, this amount should be
from either or both insurance companies?
considered as partial payment of the
(2%)
loan. Armando can only collect the
SUGGESTED ANSWER:
balance of P5 million (Panlileo v. Cosio,
Armando can receive P5 million from
supra). Second Insurance Company can
Second Insurance Company. As
recover from Mario the amount of P5
mortgagee, he had an insurable interest
million it paid, because it became
in the building (Panlileo v. Cosio, 97
subrogated to the rights of Armando
Phil. 919 (1955)). Armando cannot
(Panlileo v. Cosio, supra).
collect anything from First Insurance
Company. First Insurance Company is
not liable for the loss of the building.
First, it was due to a willful act of Mario,
who committed arson (Section 87 of the
Insurance Code; East Furnitures, Inc. v.

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Insurance; Double Insurance, Validity SUGGESTED ANSWER:


(2012)
Yes. If X obtained an open policy then
No.V X borrowed from CCC Bank. She she could claim an amount
mortgaged her house and lot in favor of the corresponding to the extent of the
bank. X insured her house. The bank also damage based on the value of the house
got the house insured. determined as of the date the damage
occurred, but not to exceed the face
(A) Is this double insurance? Explain your value of the insurance policy; however, if
answer. (3%) she obtained a valued policy then she
could claim an amount corresponding to
SUGGESTED ANSWER:
the extent of the damage based on the
agreed upon valuation of the house.
No, there is no double insurance. Double
insurance exists where the same person
As for CCC Bank, it could claim an
is insured by several insurers separately
amount corresponding to the extent of
with respect to the same subject and
the damage but not to exceed the
interest. (Sec. 93, Insurance Code)
amount of the loan it extended to X or
so much thereof as may remain unpaid.
(B) Is this legally valid? Explain your
answer. (3%)

SUGGESTED ANSWER:

Yes, X and CCC Bank can both insure the Insurance; Perfection of Insurance

house as they have different insurable Contracts (2009)

interest therein. X, the borrower


No.IV. Antarctica Life Assurance
mortgagor, has an insurable interest in
Corporation (ALAC) publicly offered a
the house being the owner thereof while
specially designed insurance policy covering
CCC Bank, the lender, also has an
persons between the ages of 50 to 75 who
insurable interest in the house as
may be afflicted with serious and
mortgagee thereof.
debilitating illnesses. Quirico applied for
insurance coverage, stating that he was
(C) In case of damage, can X and CCC Bank
already 80 years old. Nonetheless, ALAC
separately claim for the insurance
approved his application.
proceeds? (4%)

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Quirico then requested ALAC for the


issuance of a cover note while he was trying The cover note is a receipt whereby the
to raise funds to pay the insurance company agrees to insure the insured for
premium. ALAC granted the request. Ten 60 days pending the issuance of a
days after he received the cover note, regular policy. No separate premium is
Quirico had a heart seizure and had to be to be paid on a cover note. It is not a
hospitalized. He then filed a claim on the separate policy but is integrated in the
policy. regular policy to be subsequently issued.

(A) Can ALAC validly deny the claim on the


ground that the insurance coverage, as
publicly offered, was available only to
Insurance; Property Insurance;
persons 50 to 75 years of age? Why or why
Assignments (2009)
not? (2%)

No.XIII. Ciriaco leased a commercial


SUGGESTED ANSWER: apartment from Supreme Building
No. By approving the application of Corporation (SBC). One of the provisions of
Quirino who disclosed that he was the one-year lease contract states:
already 80 years old, ALAC waived the
age requirement. ALAC is now stopped ―18.xxx The LESSEE shall not insure
from raising such defense of age of the against fire the chattels, merchandise,
insured. textiles, goods and effects placed at any
stall or store or space in the leased
(B) Did ALAC’s issuance of a cover note premises without first obtaining the written
result in the perfection of an insurance consent of the LESSOR. If the LESSEE
contract between Quirico and ALAC? obtains fire insurance coverage without the
Explain. (3%) consent of the LESSOR, the insurance
policy is deemed assigned and transferred
SUGGESTED ANSWER: to the LESSOR for the latter’s benefit.‖
The issuance of a cover note by ALAC
resulted in the perfection of the contract Notwithstanding the stipulation in the
of insurance. In that case, it is only contract, without the consent of SBC,
because there is delay in the issuance of Ciriaco insured the merchandise inside the
the policy that the cover notes was leased premises against loss by fire in the
issued.

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amount of P500, 000 with First United


Insurance Corporation (FUIC). On April 5, 2010, the car was involved in an
accident that resulted in its total loss.
A day before the lease contract expired, fire
broke out inside the leased premises, On April 10, 2010, the drawee bank
damaging Ciriaco’s merchandise. Having returned Enrique’s check with the notation
learned of the insurance earlier procured by ―Insurance funds.‖ Upon notification,
Ciriaco, SBC demanded from FUIC that the Enrique immediately deposited additional
proceeds of the insurance policy be paid funds with the bank and asked the insurer
directly to it, as provided in the lease to redeposit the check.
contract.
Enrique thereupon claimed indemnity from
Who is legally entitled to receive the the insurer. Is the insurer liable under the
insurance proceeds? Explain. (4%) insurance coverage? Why or why not? (3%)
SUGGESTED ANSWER: SUGGESTED ANSWER:
Ciriaco is entitled to receive the The insurer is not liable under the
proceeds of the insurance policy. The insurance policy. Under Article 1249 of
stipulation that the policy is deemed the Civil Code, the delivery of a check
assigned and transferred to SBC is void, produces the effect of payment only
because SBC has no insurable interest in when it is encashed. The loss occurred
the merchandise of Ciriaco (Cha v. Court on April 5, 2010. When the check was
of Appeals, 277 SCRA 690 (1997)) deposited, it was returned on April 10,
2010, for insufficiency of funds. The
check was honored only after Enrique
deposited additional funds with the
bank. Hence, it did not produce the
Insurance; Property Insurance; Late
effect of payment (Vitug, Commercial
Payment of Premiums (2010)
Laws and Jurisprudence, Vol. I, p.250).

No.XI. Enrique obtained from Seguro


Insurance Company a comprehensive ALTERNATIVE ANSWER:

motor vehicle insurance to cover his top of Yes. The insurer is liable. The insurance

the line Aston martin. The policy was policy was issued. In effect, there was a

issued on March 31, 2010 and, on even grant of credit for the payment of the

date, Enrique paid the premium with a premium. The insurer can deduct the

personal check postdated April 6, 2010.

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amount of the check from the proceeds (B) Would your answer in (a) be the same if
of the insurance. it was found that the proximate cause of
the fire was an explosion and that fire was
but the immediate cause of loss and there
is no excepted peril under the policy?
SUGGESTED ANSWER:
Insurance; Property Insurance; Payment
Yes, recovery under the insurance
of Premiums by Check (2007)
contract is allowed if the cause of the

No.IV. Alfredo took out a policy to insure loss was either the proximate or the

this commercial building fire. The broker immediate cause as long as an excepted

for the insurance company agreed to give a peril, if any was not the proximate cause

15-day credit within which pay the of the loss (Section 86, Insurance Code

insurance premium. Upon delivery of the of the Philippines).

policy on May 15, 2006, Alfredo issued a


postdated check payable on May 30, 2006. (C) If the fire was found to have been

On May 28, 2006, a fire broke out and caused by Alfredo’s own negligence, can he

destroyed the building owned by Alfredo. still recover on the policy?

(10%)
Reason briefly in (a), (b) and (c).

(A) May Alfredo recover on the insurance


policy? SUGGESTED ANSWER:
Yes, mere negligence on the part of the

SUGGESTED ANSWER: insured will not prevent recovery under

Yes, Alfredo may recover on the policy. the insurance policy. The law merely

It is valid to stipulate that the insured prevents recovery when the cause of loss

will be granted credit term for payment is the willful act of the insured, alone or

of premium. Payment by means of a in connivance with others (Section 87,

check which was accepted by the Insurance Code of The Philippines).

insurer, bearing a date prior to the loss,


would be sufficient. The subsequent
effects of encashment retroact to the
date of the check (UCPB General
Insurance Co., Inc. v. Masagana
Telamart, Inc., 356 SCRA 307 [2001]).

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Insurance; Property Insurance; Payment St. Peter Manufacturing Company is


of Premiums even after Loss (2013) entitled to recover for the loss from
stable Insurance Company. Stable
No.VII. Stable Insurance Co. (SIC) and St.
Insurance Company granted a credit
Peter Manufacturing Co. (SPMC) have had a
term to pay the premiums. This is not
long-standing insurance relationship with
against the law, because the standing
each other; SPMC secures the
business practice of allowing St. Peter
comprehensive fire insurance on its plant
Manufacturing Company to pay the
and facilities from SIC. The standing
premiums after 60 or 90 days, was relied
business practice between them has been
upon in good faith by SPMC. Stable
to allow SPMC a credit period of 90 days
Insurance Company is in estoppels
from the renewal of the policy with which to
(UCPB General Insurance Company, Inc.
pay the premium.
v. Masagana Telemart, Inc. 356 SCRA
307, 2001).
Soon after the new policy was issued and
before premium payments could be made, a
fire gutted the covered plant and facilities to
Insurer: Effects: Several Insurers (2008)
the ground. The day after the fire, SPMC
issued a manager’s check to SIC for the fire No.VII. Terrazas de Patio Verde, a
insurance premium, for which it was issued condominium building, has a value of P50
a receipt; a week later SPMC issued its Million. The owner insured the building
notice of loss. against fire with three (3) insurance
companies for the following amounts:
SIC responded by issuing its own
Northern Insurance Corp. – P20 Million
manager’s check for the amount of the
premiums SPMC had paid, and denied Southern Insurance Corp. – P30 Million
SPMC’s claim on the ground that under the
―cash and carry‖ principle governing fire Eastern Insurance Corp. – P50 Million

insurance, no coverage existed at the time


(A) Is the owner’s taking of insurance for
the fire occurred because the insurance
the building with three (3) insurers valid?
premium had not been paid.
Discuss. (3%)
Is SPMC entitled to recover for the loss form
SUGGESTED ANSWER:
SIC? (8%)
Taking out insurance covering the same
SUGGESTED ANSWER:
property, same insurable interest and
same risk with three insurance

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companies is “double insurance,” insurance Corp. is liable to the extent of


recognized under Sec. 93 of the its coverage but may recover one-half of
Insurance Code. However, in American the total indemnity from the co-insurers
Home Assurance Co. v, Chua, G.R. No. in the proportion of 60% (Southern
130421, 28 June 1999, the court Insurance) – 40% (Northern Insurance).
referred to the common inclusion of the
“other insurance clause” in fire
insurance policies, requiring disclosure
Intellectual Property
of co-insurance of the same property
with other insurers. Agreements: Technology Transfer
Agreements; Requisites & Prohibitions
(B) The Building was totally razed by fire. If (2010)
the owner decides to claim from Eastern
No.VI. (A) What contractual stipulations are
Insurance Corp. only P50 Million, will the
required in all technology transfer
claim prosper? Explain. (2%)
agreements? (2%)
SUGGESTED ANSWER:

Insured can recover from Eastern SUGGESTED ANSWER:


Insurance Corp. up to the extent of his The following stipulations are required
loss. However, Eastern may refuse to pay in all technology transfer agreements:
if the policy contains an “other
insurance clause” stipulating that non- (1) The laws of the Philippines shall
disclosure of double insurance will avoid govern its interpretation and in the
the policy (Geagonia v. Country Bankers event of litigation, the venue shall be
Insurance, G.R. No. 114427, 06 February the proper court in the place where the
1995.) As there is no indication of a licensee has its principal office;
contractual prohibition on double or
other insurance, all insurance contracts (2) Continued access to improvements in
over the building are deemed valid and techniques and processes related to the
enforceable. technology shall be made available
during the period of the technology
The law prohibits double or over-
transfer arrangement;
recovery, not double insurance. Since
Eastern insured the property up 50% of
(3) In case it shall provide for
the total coverage, it is liable for only
arbitration, the Procedure of Arbitration
50% of the total actual loss. Eastern

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of the Arbitration Law of the Philippines


or the Arbitration Rules of the United
Article of Commerce; As Trademark,
Nations Commission on International
Patent & Copyright (2010)
Trade Law or the Rules of Arbitration of
the International Chamber of Commerce No.VI. (C) Can an article of commerce serve
(ICC) shall apply and the venue of as a trademark and at the same time enjoy
arbitration shall be the Philippines or patent and copyright protection? Explain
any neutral country; and give an example. (2%)
SUGGESTED ANSWER:
(4) The Philippine taxes on all payments A stamped or marked container of goods
relating to the technology transfer can be registered as trademark
agreement shall be borne by the licensor (subsections 113.1 of the Intellectual
(Sec. 88, Intellectual Property Code). Property Code). An original ornamental
design or model for articles of
(B) Enumerate three stipulations that are manufacturer can be copyrighted
prohibited in technology transfer (Subsection 172.1 of the Intellectual
agreements. (3%) Property Code). An ornamental design
SUGGESTED ANSWER: cannot be patented, because aesthetic
The following stipulations are prohibited creations cannot be patented (Section 22
in technology transfer agreements: of the Intellectual Property Code).
However, it can be registered as an
(1) Those that contain restrictions industrial design (Subsections 113.1 and
regarding the volume and structure of 172.1 of the Intellectual Code). Thus, a
production; container of goods which has an original
ornamental design can be registered as
(2) Those that prohibit the use of trademark, can be copyrighted, and can
competitive technologies in a non- be registered as an industrial design.
exclusive agreement; and

ALTERNATIVE ANSWER:
It is entirely possible for an article of
(3) Those that establish a full or partial
commerce to bear a registered
purchase option in favor of the licensor
trademark, be protected by a patent and
(Subsections 87.3, 87.4 and 87.5 of the
have most, or some part of it
Intellectual Property Code).
copyrighted. A book is a good example.
The name of the publisher or the

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colophon used in the book may be Intellectual Property Code) His rights
registered trademarks, the ink used in existed from the moment of its creation
producing the book may be covered by a (Section 172 of the Intellectual Property
patent, and the text and design of the Code; Unilever Philippines (PRC) v. Court
book may be covered by copyrighted. of Appeals, 498 SCRA 334, 2006). The
registration of the painting by Bernie
with the National Library did not confer

Copyright (2013) copyright upon him. The registration is


merely for the purpose of completing the
No.IV. Ruby is a fine arts student in a
records of the National Library. (Section
university. He stays in a boarding house
191 of the Intellectual Property Code).
with Bernie as his roommate. During his
free time, Rudy would paint and leave his
finished works lying around the boarding
house. One day, Rudy saw one of his works
– an abstract painting entitled Manila Traffic Copyright; Commissioned Artist (2008)
Jam – on display at the university cafeteria.
No.XVI. In 1999, Mocha warn, an American
The cafeteria operator said he purchased the
musician, had a bit rap single called Warm
painting from Bernie who represented
Warm Honey which he himself composed
himself as its painter and owner
and performed. The single was produced by
a California record company, Galactic
Rudy and the cafeteria operator immediately
Records. Many notice that some passages
confronted Bernie. While admitting that he
from Warm Warm Honey sounded eerily
did not do the painting,. Bernie claimed
similar to parts of Under Hassle, a 1978 hit
ownership of its copyright since he had
song by the British rock and Majesty. A
already registered it in his name with the
copyright infringement suit was filed in the
National Library as provided in the
United States against Mocha Warm by
Intellectual Property Code.
Majesty. It was later settled out of court,
with Majesty receiving attribution as co-
Who owns the copyright to the painting?
author of Warm Warm Honey as well as a
Explain (8%).
share in the royalties.
SUGGESTED ANSWER.
Rudy owns the copyright to the painting
By 2002, Moeha Warm was nearing
because he was the one who actually
bankruptcy and he sold his economic rights
created it. (Section 178.1 of the

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over Warm Warm Honey to Galactic In the case of Mocha Warm and Majesty,
Records for $10,000. who are the attributed co-authors, and in
spite of the sale of the economic right to
In 2008, Planet Films, a Filipino movie Galactic Records, they retain their moral
producing company, commissioned DJ Chef rights to the copyrighted rap, which
Jean, a Filipino musician, to produce an include the right to demand attribution
original re-mix of Warm Warm Honey for to them of the authorship (Sec. 193,
use in one of its latest films, Astig!. DJ Chef IPC).
Jean remixed Warm Warm Honey with a
salsa beat, and interspersed as well a Which respect to DJ Chef Jean, in spite
recital of poetic stanza by John Blake, 1 of his death, and although he was
17th century Scottish poet. DJ Chef Jean commissioned by Planet Films for the
died shortly after submitting the remixed remix, the rule is that the person who so
Warm Warm Honey to Planet Films. commissioned work shall have
ownership of the work, but copyright
Prior to the release of Astig!. Mocha Warm thereto shall remain with creator, unless
learns of the remixed Warm Warm Honey there is a written stipulation to the
and demands that he be publicly identified contrary.
as the author of the remixed song is all the
CD covers and publicity releases of Planet Even if no copyright exist in favor of
Films. poet John Blake, intellectual integrity
requires that the authors of creative
(A) Who are the parties or entities entitled work should properly be credited.
to be credited as author of the remixed
Warm Warm Honey? Reason out your (B) Who are the particular parties or
answers. (3%) entities who exercise copyright over the
SUGGESTED ANSWER: remixed Warm Warm Honey? Explain. (3%)
SUGGESTED ANSWER:
The parties entitled to be credited as
authors of the remixed Warm Warm The parties who exercise copyright or
Honey are Mocha Warm, Majesty, DJ economic rights over the remixed Warm
Chef Jean and John Blake, for the Warm Honey would be Galactic Records
segments that was the product of their and Planet Films. In the case of Galactic
respective intellectual efforts. Records, it bought the economic rights
of Mocha Warm. In the case of Planet

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Films, it commissioned the remixed Eloise may publish the columns without
work. securing authorization from New Media
Enterprises. Under Sec. 172 of the
Intellectual Property Code, original
intellectual creations in the literary and
artistic domain are protected from the
Copyright; Commissioned Work (2008)
moment of their creation and shall

No.XV. Eloise, an accomplished writer, was include those in periodicals and

hired by Petong to write a bimonthly newspapers. Under Sec. 178, copyright

newspaper column for Diario de Manila, a ownership shall belong to the author. In

newly-established newspaper of which case of commissioned work, the person

Petong was the editor-in-chief. Eloise was to who so commissioned work shall have

be paid P1,000 for each column that was ownership of work, but copyright shall

published. In the course of two months, remain with creator, unless there is a

Eloise submitted three columns which, written stipulation to the contrary.

after some slight editing, were printed in


the newspaper. However, Diario de Manila (B) Assume that New Media Enterprises

proved unprofitable and closed only after plans to publish Eloise’s columns in its own

two months. Due to the minimal amounts anthology entitled, ―The Best of Diario de

involved, Eloise chose not to pursue any Manila‖ Eloise wants to prevent the

claim for payment from the newspaper, publication of her columns in that

which was owned by New Media anthology since she was never paid by the

Enterprises. newspaper. Name one irrefutable legal


argument Eloise could cite to enjoin New

Three years later, Eloise was planning to Media Enterprises from including her

publish an anthology of her works, and columns in its anthology. (2%)

wanted to include the three columns that SUGGESTED ANSWER:

appeared in the Diario de Manila in her


Under the IPC, the copyright or
anthology She asks for you legal advice:
economic rights to the columns she
authored pertains only to Eloise. She can
(A) Does Eloise have to secure authorization
invoke the right to either “authorize or
from New Media Enterprises to be able to
prevent” reproduction of the work,
publish her Diario de Manila columns in
including the public distribution of the
her own anthology? Explain fully. (4%)
original and each copy of the work “by
SUGGESTED ANSWER:

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sale or other forms of transfer of protecting electronic documents. What


ownership,” Since this would be the are involved here are text messages, not
effect of including her column in the letter in their ordinary sense. Hence, the
anthology. protection under the copyright law does
not extend to text messages (Section
172, Intellectual Property Code).

Copyright; Infringement (2007)


The messages that Diana and Piolo
No.III. Diana and Piolo are famous
exchanged through the use of messaging
personalities in showbusiness who kept
service do not constitute literary and
their love affair secret. They use a special
artistic works under Section 172 of the
instant messaging service which allows
Intellectual Property Code. They are not
them to see one another’s typing on their
letter under Section 172(d).
own screen as each letter key is pressed.
When Greg, the controller of the service
For copyright to subsist in a “message”,
facility, found out their identities, he kept a
it must qualify as a “work” (Section 172
copy of all the messages Diana and Piolo
Intellectual Property Code). Whether the
sent each other and published them. Is
messages are entitled or not to copyright
Greg liable for copyright infringement?
protection would have to be resolved in
Reason briefly. (5%)
the light of the provision of the
SUGGESTED ANSWER:
Intellectual Property Code.
Yes, Greg is liable for copyright
infringement. Letter are among the
Note: Since the law on this matter is not
works which are protected from the
clear, it is suggested that either of the above
moment of their creation (Section 172,
of the above suggested answers should be
intellectual Property Code; Columbia
given full credit.
Pictures, Inc. v Court of Appeals, 261
SCRA 144 [1996]). The publication of the
letters without the consent of their
writers constitutes infringement of
copyright. Denicola Test (2009)

No.I. (A) The Denicola Test in intellectual


ALTERNATIVE ANSWER
property law states that if design elements
No, Greg is not liable for copyright
of an article reflect a merger of aesthetic
infringement. There is no copyright
and functional considerations, the artistic

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aspects of the work cannot be conceptually


separable from the utilitarian aspects; thus, (A) Monaliza filed a complaint against
the article cannot be copyrighted. Valentino damages based on, among other
SUGGESTED ANSWER: grounds, violation of her intellectual
True. Applying the Denicola Test in property rights. Does she have any cause of
Brandir International, Inc. v.Cascade action? Explain. (2%)
Pacific Lumber Co. (834 F. 2d 1142, SUGGESTED ANSWER:
1988 Copr.L.Dec. P26), the United States Monaliza cannot sue Valentino for
Court of Appeals for the Second Circuit violation of her intellectual property
held that if there is any aesthetic rights, because she was not the one who
element which can be separated from took the pictures (Subsection 178.1 of
the utilitarian elements, then the the Intellectual Property Code). She may
aesthetic element may be copyrighted. sue Valentino instead for violation of her
right to privacy. He surreptitiously took
(Note: It is suggested that the candidate photographs of her and then sold the
be given full credit for whatever answer photographs to a magazine and uploaded
or lack of it. Further, it is suggested that them to his personal blog in the Internet
terms or any matter originating from (Tolentino, Commentaries and
foreign laws or jurisprudence should not Jurisprudence on the Civil Code of the
be asked.) Philippines, Vol. I, 1987 ed., p. 169).

(B) Valentino’s friend Francesco stole the

Infringement; Claims (2010) photographs and duplicated them and sold


them to a magazine publication. Valentino
No.XV. While vacationing in Boracay,
sued Francisco for infringement and
Valentino surreptitiously took photographs
damages. Does Valentino have any cause of
of his girlfriend Monaliza in her skimpy
action? Explain. (2%)
bikini. Two weeks later, her photographs
SUGGESTED ANSWER:
appeared in the Internet and in a national
Valentino cannot sue Francesco for
celebrity magazine.
infringement, because he has already
sold the photographs to a magazine
Monaliza found out that Valentino had sold
(Angeles vs. Premier Productions, Inc., 6
the photographs to the magazine, adding
CAR (2s) 159).
insult to injury, uploaded them to his
personal blog on the Internet.
ALTERNATIVE ANSWER:

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Yes, as the author of the photographs, Lacoste International, the French firm that
Valentino has exclusive economic rights manufactures lacoste apparel and owns the
thereto, which include the rights to Lacoste trademark, decided to cash in on
reproduce, to distribute, to perform, to the universal popularity of the boxing icon.
display, and to prepare derivative works It reprinted the photographs, with the
based upon the copyrighted work. He permission of the newspaper publishers,
sold only the photographs to the and went on a world-wide blitz of print
magazine; however, he still retained commercials in which Sonny is shown
some economic rights thereto. Thus, he wearing a Lacoste shirt alongside the
has a cause of action against phrase ―Sonny Bachao just loves Lacoste.‖
infringement against Francesco.
When Sonny sees the Lacoste
(C) Does Monaliza have any cause of action advertisements, he hires you as lawyer and
against Francesco? Explain. (2%) asks you to sue Lacoste International
SUGGESTED ANSWER: before a Philippine court:
Monaliza can also sue Francesco for
violation of her right to privacy. (A) For trademark Infringement in the
Philippines because Lacoste International
used his image without his permission:
(2%)
SUGGESTED ANSWER:
Infringement; Trademark, Copyright
Sonny Bachao cannot sue for
(2009)
infringement of trademark. The

No.XV. After disposing of his last opponent photographs showing him wearing a

in only two rounds in Las Vegas, the Lacoste shirt were not registered as a

renowned Filipino boxer Sonny Bachao trademark (Pearl & Dean (Phil.), Inc. v.

arrived at the Ninoy Aquino International Shoemart, Inc., 409 SCRA 231 (2003)).

Airport met by thousands of hero-


worshipping fans and hundreds of media (B) For copyright infringement because of

photographers. The following day, a colored the unauthorized use of the published

photograph of Sonny wearing a black polo photographs; (2%)and

shirt embroidered with the 2-inch Lacoste SUGGESTED ANSWER:

Crocodile logo appearedon the front page of Sonny Bachao cannot sue for

every Philippine newspaper. infringement of copyright for the


unauthorized use of the photographs

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showing him wearing a Lacoste shirt. Philippines without license to do


The copyright to the photographs belong business, cannot sue or intervene in any
to the newspapers which published them action, it may be sued or proceeded
inasmuch as the photographs were the against before our courts or
result of the performance of the regular administrative tribunal (De Joya v.
duties of the photographers (Subsection Marquez, 481 SCRA 376 (2006)).
173.3 (b), Intellectual Property Code
(IPC)).Moreover, the newspaper
publishers authorized the reproduction
of the photographs (Section 177,
Patent: Non-Patentable; Method of
Intellectual Property Code).
Diagnosis & Treatment (2010)

(C) For injunction in order to stop Lacoste No.XIX. Dr. Nobel discovered a new method
International from featuring him in their of treating Alzheimer’s involving a special
commercials. (2%) method of diagnosing the disease, treating
it with a new medicine that has been
Will these actions prosper? Explain. discovered after long experimentation and
SUGGESTED ANSWER: field testing, and novel mental isometric
The complaint for injunction to stop exercises. He comes to you for advice on
Lacoste International from featuring him how he can have his discoveries protected.
in its advertisements will prosper. This Can he legally protect his new method of
is a violation of subsection 123, 4(c) of diagnosis, the new medicine, and the new
the IPC and Art.169 in relation to method of treatment? If no, why? If yes,
Art.170 of the IPC. how? (4%)

(D) Can Lacoste International validly invoke SUGGESTED ANSWER:


the defense that it is not a Philippine Dr. Nobel can be protected by a patent
company and, therefore, Philippine courts for the new medicine as it falls within
have no jurisdiction? Explain. (2%) the scope of Sec. 21 of the Intellectual
SUGGESTED ANSWER: Property Code (Rep. Act No. 8293, as
No. Philippine courts have jurisdiction amended). But no protection can be
over it, if it is doing business in the legally extended to him for the method
Philippines. Moreover, under Section of diagnosis and method of treatment
133 of the Corporation Code, while a which are expressly non-patentable (Sec.
foreign corporation doing business in the 22, Intellectual Property Code).

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Intellectual Property Code (Section 122


of the Intellectual Property Code).
Trademark; Unfair Competition (2010)

No.XVIII. For years, Y has been engaged in (B) Suppose the shoes are covered by a

the parallel importation of famous brands, Philippine patent issued to the owner, what

including shoes carrying the foreign brand would your answer be? Explain. (2%)
MAGIC. Exclusive distributor X demands SUGGESTED ANSWER:

that Y cease importation because of his A patent for a product confers upon its

appointment as exclusive distributor of owner the exclusive right of importing

MAGIC shoes in the Philippines. the product (Subsection 71.1 of the


Intellectual Property Code). The

Y counters that the trademark MAGIC is importation of a patented product

not registered with the Intellectual Property without the authorization of the owner
Office as a trademark and therefore no one of the patent constitutes infringement of

has the right to prevent its parallel the patent (Subsection 76.1 of the

importation. Intellectual Property Code). X can


prevent the parallel importation of such

(A) Who is correct? Why? (2%) shoes by Y without its authorization.

SUGGESTED ANSWER:
X is correct. His rights under his
exclusive distributorship agreement are
property rights entitled to protection. Letters of Credit
The importation and sale by Y of MAGIC
shoes constitute unfair competition (Yu Independence Principle (2010)
v. Court of Appeals, 217 SCRA 328
No.XVII. The Supreme Court has held that
(1993)). Registration of the trademark is
fraud is an exception to the ―independence
not necessary in case of an action for
principle‖ governing letters of credit.
unfair competition (Del Monte
Explain this principle and give an example
Corporation v. Court of Appeals, 181
of how fraud can be an exception. (3%)
SCRA 410 (1990)).
SUGGESTED ANSWER:
The “independence principle” posits that
ALTERNATIVE ANSWER:
the obligations of the parties to a letter
Y is correct. The rights in a trademark
of credit are independent of the
are acquired through registration made
obligations of the parties to the
validly in accordance with the

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underlying transaction. Thus, the liabilities, outstanding as of the date of the


beneficiary of the letter of credit, which filing of the Petition. XYC Company is a
is able to comply with the documentary holder of an irrevocable Standby Letter of
requirements under the letter of credit, Credit which was previously procured by
must be paid by the issuing or ABC Company in favor of XYC Company to
confirming bank, notwithstanding the secure performance of certain obligations.
existence of a dispute between the In the light of the Order issued by the
parties to the underlying transaction, Court.
say a contract of sale of goods where the
buyer is not satisfied with the quality of (b) Explain the nature of Letters of Credit as

the goods delivered by the seller. The a financial devise. (5%)

Supreme Court in Transfield Philippines,


SUGGESTED ANSWER:
Inc. v. Luzon Hydro Corporation, 443
SCRA 307 (2004) for the first time A letter of credit is a financial device
declared that fraud is an exception to developed by merchants as a convenient
the independence principle. For and relatively safe mode of dealing with

instance, if the beneficiary fraudulently sales of goods to satisfy the seemingly


presents to the issuing or confirming irreconcilable interests of a seller, who
bank documents that contain material refuses to part with his goods before he
facts that, to his knowledge, are untrue, is paid, and a buyer, who wants to have
then payment under the letter of credit control of the goods before paying. To
may be prevented through a court break the impasse, the buyer may be

injunction. required to contract a bank to issue a


letter of credit in favor of the seller so
that, by virtue of the letter of credit, the

Letter of Credit (2012) issuing bank can authorize the seller to


draw drafts and engage to pay them
No.I. ABC Company filed a Petition for upon their presentment simultaneously
Rehabilitation with the Court. An Order with the tender of documents required
was issued by the Court, (1) staying by the letter of credit. The buyer and the
enforcement of all claims, whether money seller agree on what documents are to be
or otherwise against ABC Company, its presented for payment, but ordinarily
guarantors and sureties not solidarily liable they are documents of title evidencing
with the company; and (2) prohibiting ABC or attesting to the shipment of the goods
Company from making payments of its to the buyer. Once the credit is

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established, the seller ships the goods to Letter of Credit; Liabilities of a


the buyer and in the process secures the Confirming and Notifying Bank (2008)
required shipping documents or
No.I. X Corporation entered into a contract
documents of title. To get paid, the
with PT Construction Corp. for the latter to
seller executes a draft and present it
construct and build a sugar mill with six (6)
together with the required documents to
months. They agreed that in case of delay,
the issuing bank. The issuing bank
PT Construction Corp. will pay X
redeems draft and pays cast to the seller
Corporation P100,000 for every day of
if it finds that the documents submitted
delay. To ensure payment of the agreed
by the seller conform with what the
amount of damages, PT Construction Corp.
letter of credit requires. The bank then
secured from Atlantic Bank a confirmed
obtains possession of the documents
and irrevocable letter of credit which was
upon paying the seller. The transaction
accepted by X Corporation in due time. One
is completed when the buyer reimburses
week before the expiration of the six (6)
the issuing bank and acquires the
month period, PT Construction Corp.
documents entitling him to the goods.
requested for an extension of time to deliver
Under this arrangement, the seller gets
claiming that the delay was due to the fault
paid only if he delivers the documents of
of X Corporation. A controversy as to the
title over the goods, while the buyer
cause of the delay which involved the
acquires the said documents and control
workmanship of the building ensued. The
over the goods only after reimbursing
controversy remained unresolved. Despite
the bank. (Bank of America NT & SA v.
the controversy, X Corporation presented a
CA, et al., G.R. No. 105395, December
claim against Atlantic Bank by executing a
10,1993) However, letters of credit are
draft against the letter of credit.
also used in non-sale settings where they
serve to reduce the risk of non- (A) Can Atlantic Bank refuse payment due
performance. Generally, letters of credit to the unresolved controversy? Explain.
in non-sale settings have come to be (3%)
known as standby letters of credit. SUGGESTED ANSWER:
(Transfield Philippines, Inc. v. Luzon No, Atlantic Bank cannot refuse payment
Hydro Corporation, et al., G.R. No. to the unresolved controversy between
146717, November 22,2004) the two companies. The Bank is
solidarily liable to pay based on the
terms and conditions of the Letter of
Credit. In FEATI Bank v. Court of

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Appeals, G.R. No.94209, 30 April 1991, The types of average are particular and
the Court held that an irrevocable letter general (Article 808 of the Code of
of credit is independent of the contract Commerce). Particular averages include
between the buyer-applicant and the all expenses and damages caused to the
seller-beneficiary. vessel or to the cargo which did not
inure to the common benefit and profit
(B) Can X Corporation claim directly from of all the persons interested in the
PT Construction Corp.? Explain. (3%) vessel and the cargo (Article 809 of the
SUGGESTED ANSWER: Code of Commerce). General averages
include all damages and expenses which
Yes, X Corporation can claim directly
are deliberately caused to save the
from PT Construction Corp. The
vessel, its cargo, or both at the same
irrevocable letter of credit was merely a
time, from a real and known risk (Article
security arrangement that did not
811 of the Code of Commerce).
replace the main contract between the
two companies. In FEATI Bank c. CA,
G.R. No. 94209, 30 April 1991, opening a
letter of credit does not involve a
specific appropriation of money in favor Barratry (2010)
of the beneficiary. It only signifies that
No.XIII. (B) What is ―barratry‖ in marine
the beneficiary may draw funds up to the
insurance? (2%)
designated amount. It does not mean
SUGGESTED ANSWER:
that a particular sum of money has been
Barratry is any willfull misconduct in the
specifically reserved of held in trust.
part of the master or crew in pursuance
of some unlawful or fraudulent purpose
without the consent of the owner and to
the prejudice of the interest of the
owner (Roque v. Intermediate Appellate
Court, supra).
Maritime Commerce

Averages: Types (2010)

No.XVI. (B) What are the types of averages


in marine commerce (3%)
SUGGESTED ANSWER:

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Carriage of Goods; Deviation; Liability entitles him to compensation or


(2009) indemnification from the shipowner and
the owners of the cargoes saved by the
No.VII. Global Transport Services, Inc.
jettison.
(GTSI) operates a fleet of cargo vessels
plying interisland routes. One of its vessels,
ALTERNATIVE ANSWER:
MV Dona Juana, left the port of Manila for
The jettison resulted to a particular
Cebu laden with,among other goods,
average loss because the damage was due
10,000 television sets consigned to
to the fault of the captain.
Romualdo, a TV retailer in Cebu.

(B) Against whom does Romualdo have a


When the vessel was about ten nautical
cause of action for indemnity of his lost TV
miles away from Manila, the ship captain
sets? Explain. (3%)
heard on the radio that a typhoon which, as
announced by PAG-ASA, was on its way out
SUGGESTED ANSWER;
of the country, had suddenly veered back
Romualdo has a cause of action for his
into Philippine territory, the captain
lost TV sets against the shipowner and
realized that MV Dona Juana would
the owners of the cargoes saved by the
traverse the storm’s path, but decided to
jettison. The jettison of the TV sets
proceed with the voyage. True enough, the
resulted in a general average loss,
vessel sailed into the storm. The captain
entitling Romualdo to indemnity for the
ordered the jettison of the 10, 000 television
lost TV sets.
sets, along with some other cargo, in order
to lighten the vessel and make it easier to
steer the vessel out of the path of the
typhoon. Eventually, the vessel, with its
crew intact, arrived safely in Cebu. Carriage of Goods; Implied Warranty;
Liability (2010)
(A) Will you characterize the jettison of
No.XIII. Paulo, the owner of an ocean-going
Romualdo’s TV sets as an average? If so,
vessel, offered to transport the logs of
what kind of an average, and why? If not,
Constantino from Manila to Nagoya.
why not? (3%)
Constantino accepted the offer, not
SUGGESTED ANSWER:
knowing that the vessel was manned by an
The jettison of Romualdo’s TV sets
irresponsible crew with deep-seated
resulted in a general average loss, which
resentments against Paolo, their employer.

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(Roque v. Intermediate Appellate Court,


Constantino insured the cargo of logs 139 SCRA 596 [1985]).
against both perils of the sea and barratry.
The logs were improperly loaded on one
side, thereby causing the vessel to tilt on
one side. On the way to Nagoya, the crew Carriage of Goods; Indemnity; Jettisoned
unbolted the sea valves of the vessel Goods (2010)
causing water to flood the ship hold. The
No.XVI. An importer of Christmas toys
vessel sank.
loaded 100 boxes of Santa Claus talking
dolls aboard a ship in Korea bound for
Constantino tried to collect from the
Manila. With the intention of smuggling
insurance company which denied liability,
one-half of his cargo, he took a bill of lading
given the unworthiness of both the vessel
for only 50 boxes. On the voyage to Manila,
and its crew.
50 boxes were jettisoned to save the more
precious cargo.
Constantino countered that he was not the
owner of the vessel and he could therefore
(A) Is the importer entitled to receive any
not be responsible for conditions about
indemnity for average? Explain. (2%)
which he was innocent.
SUGGESTED ANSWER:
The importer is not entitled to receive
(A) Is the insurance company liable? Why or
any indemnity for average. In order that
why not? (3%)
the goods jettisoned may be included in
SUGGESTED ANSWER:
the general average and the owner be
The insurance company is not liable,
entitled to indemnity, it is necessary
because there is an implied warranty in
that their existence on board be proven
every marine insurance that the ship is
by means of the bill of lading (Article
seaworthy whoever is insuring the cargo,
816 of the Code of Commerce).
whether it be the ship-owner or not.
There was a breach of warranty, because
the logs were improperly loaded and the
crew was irresponsible. It is the
obligation of the owner of the cargo to
look for a reliable common carrier which
keeps its vessel in seaworthy condition

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COGSA; Prescription of Claims/Action Liability; Loss; Fortuitous Event (2008)


(2010)
No.IX. On October 30, 2007, M/V Pacific, a
No.XII. AA entered into a contract with BB Philippine registered vessel owned by Cebu
for the latter to transport ladies wear from Shipping Company (CSC), sank on her
Manila to France with transshipment via voyage from Hong Kong to Manila. Empire
Taiwan. Somehow the goods were not Assurance Company (Emprie) is the insurer
loaded in Taiwan on time, hence, these of the lost cargoes loaded on board the
arrived in France ―off-season.‖ AA was only vessel which were consigned to Debenhams
paid for one half the value by the buyer. Company. After it indemnified Debenhams,
Empire as subrogee filed an action for
AA claimed damages from BB. BB invoked damages against CSC.
prescription as a defense under the
Carriage of Goods by Sea Act Considering (A) Assume that the vessel was seaworthy.
the ―loss of value‖ of the ladies wear as Before departing, the vessel was advised by
claimed by AA, is BB’s defense tenable? theJapanese Meteorological Center that it
Explain. (3%) was safe to travel to its destination. But
SUGGESTED ANSWER: while at sea, the vessel received a report of
The defense of BB is not tenable. The a typhoon moving within its general path.
one-year prescriptive period in the To avoid the typhoon, the vessel changed
Carriage of Goods Sea Act applies only in its course. However, it was still at the fringe
case the goods were not delivered or of the typhoon when it was repeatedly hit
were delivered in a damaged or by huge waves, were saved three (3) who
deteriorated condition. It does not apply perished. Is CSC liable to empire? What
to damages as a result of delay in the principle of maritime law is applicable?
delivery of the goods. The prescription of Explain. (3%)
the action is governed by Article 1144 of SUGGESTED ANSWER:
the Civil Code, which provides for a
The common carrier incurs no liability
prescriptive period of ten years in case
for the loss of the cargo during a
of actions based on a written contract
fortuitous event, because the following
(Mitsui O.S.K. Lines Ltd. v. Court of
circumstances were present: (1) the
Appeals, 287 SCRA 366 (1998)).
typhoon was the cause of the cargo loss;
(2) the carrier did not contribute to the
loss; and (3) the carrier exercised
extraordinary diligence in order to

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minimize the attendant damage before, the full extent of the claims of the cargo
during and after the typhoon (See owners (Aboitiz Shipping v. New India
Fortune Express v. CA, Caorong. G.R. No. Assurance Company, G.R. No. 156978,
119756, 18 March 1999; Yobido v. CA, 02 May 2006).
G.R. No. 113003, 17 October 1997;
Gathalian v. Delim, G.R. No. L-56487, 21 (C) Assume the facts in question (b). Can
October 1991). the heirs of the three (3) crew members who
perished recover from CSC? Explain fully.
Under Art. 587 of Code of Commerce, in (3%)
case of maritime transactions, the SUGGESTED ANSWER:
liability of the owner of the vessel is
Yes, because the crew members died
limited to the vessel itself. Since the
while performing their assigned duties,
vessel of CSC was seaworthy at the time
aggravated by the failure of the ship
it sank, the CSC is not liable to Empire
owner to ensure that the vessel is
under the maritime principle that the
seaworthy. Workmen’s compensation has
obligations of the owner of a vessel are
been classified by jurisprudence as an
hypothecary in nature.
exception to the hypothecary nature of
maritime commerce, Abueg v. San Diego,
(B) Assume the vessel was not seaworthy as
77 Phil. 730 (1948), especially in this
in fact its hull had leaked, causing flooding
case where the vessel was not seaworthy
in the vessel. Will you answer be the same?
at the time it sank.
Explain. (2%)
SUGGESTED ANSWER:

When the vessel is not seaworthy, it is


an exception to the hypothecary
principle in maritime commerce. To Negotiable Instruments Law
limit its liability to the amount of the
Checks: Forged Checks; Liability of
insurance proceeds, the carrier has the
Drawee Bank (2008)
burden of proving that the
No.V. Pancho drew a check to Bong and
unseaworthiness of its vessel was not
Gerard jointly, Bong indorsed the check
due to its fault or negligence. The failure
and also forged Gerard’s indorsement . The
to discharge such a heavy burden
payor bank paid the check and charged
precludes application of the limited
Pancho’s account for the amount of the
liability rule and the carrier is liable to

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check. Gerard received nothing from the Checks; Liability; Drawer and Drawee
payment. Bank (2010)
No.VIII. Marlon deposited with LYRIC Bank
(A) Pancho asked the payor bank to recredit
a money market placement of P1 million for
his account. Should the bank comply?
tern of 31 days. On Maturity date, one
Explain fully. (3%)
claiming to be Marlon called up the LYRIC
SUGGESTED ANSWER:
Bank account officer and instructed him to

Yes, Sec. 41 of the NIL provides that all give the manager’s check representing the

payees or indorsees who are not partners proceeds of the money market placement to

must indorse jointly, unless the one Marlon’s girlfriend Ingrid.

indorsing has authority to endorse for


the others. Since the signature of Gerard The check, which bore the forged signature

was forged, then the endorsement by of Marlon, was deposited in Ingrid’s


Bong was wholly inoperative. The Bank account with YAMAHA Bank. YAMAHA

is under strict liability to pay to the Bank stamped a guaranty on the check

order of payee. Payment under a forged reading: ―All prior endorsements and/or

endorsement is not to the drawer’s lack of endorsement guaranteed.‖

order, and consequently, the drawee


bank must bear the loss as against the Upon presentment of the check, LYRIC

drawer (Associated Bank v. CA, G.R. Nos. Bank funds the check. Days later, Marlon

107382 and 107612, 31 January 1996). goes to LYRIC Bank to collect his money
market placement and discovers the
(B) Based on the facts, was Pancho as
foregoing transactions.
drawer discharged on the instrument?
Why? (2%)
Marlon thereupon sues LYRIC Bank which
SUGGESTED ANSWER:
in turn files a third-party complaint against

No. The payee Gerard can recover as he YAMAHA Bank. Discuss the respective

still retains his claim on the debt of rights and liabilities of the banks. (5%)

Pancho.
SUGGESTED ANSWER:
Since the money market placement of
Marlon is in the nature of a loan to Lyric
Bank, and since he did not authorize the
release of the money market placement
to Ingrid, the obligation of Lyric Bank to

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him has not been paid. Lyric Bank still the ASSIGNOR unconditionally and
has the obligation to pay him. irrevocably agrees to pay the same,
assuming the liability to pay by way of
Since Yamaha Bank indorsed the check penalty, three percent of the total amount
bearing the forged indorsement of unpaid, for the period of delay until the
Marlon and guaranteed all indorsements, same is fully paid.”
including the forged indorsement, when
it presented the check to Lyric Bank, it When the checks became due, BFC
should be held liable to it. deposited them for collection, but the
drawee banks dishonored all the checks for
However, since the issuance of the check one of the ff. reasons: ―account closed,‖
was attended with the negligence of ―payment stopped,‖ ―account under
Lyric Bank, it should share the loss with garnishment, ―or ―insufficiency of funds.‖
Yamaha Bank on a fifty percent basis BFC wrote Gaudencio notifying him of the
(Allied Banking Corporation v. Lim Sio dishonored checks, and demanding
Wan, 549 SCRA 504 (2008)). payment of the loan. Because Gaudencio
did not pay, BFC filed a collection suit.

In his defense, Gaudencio contended that


Checks; Notice of Dishonor (2009) (a) BFC did not give timely notice of
No.XII. Gaudencio, a store owner, obtained dishonor (of the checks); and (b)
a P1-million loan from Bathala Financing considering that the checks were duly
Corporation (BFC). As security, Gaudencio indorsed, BfC should proceed against the
executed a ―Deed of Assignment of drawers and the indorsers of the checks.
Receivables.‖ Assigning fifteen checks
received from various customers who Are Gaudencio’s defenses tenable? Explain.
bought merchandise from his store. The (5%)
checks were duly indorsed by Gaudencio’s
customers. SUGGESTED ANSWER:
No. Gaudencio’s defenses are untenable.
The Deed of Assignment contains the ff. The cause of action of BFC was really on
stipulation: the contract of loan, with the checks
merely serving as collateral to secure the
―If, for any reason, the receivables or any payment of the loan. By virtue of the
part thereof cannot be paid by the obligors, Deed of Assignment which he signed,

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Gaudencio undertook to pay for the the east the following morning to welcome
receivables if for any reason they cannot the day.
be paid by the obligors (Velasquez v. (Sgd.) Antonio Reyes
Solidbank Corporation, 550 SCRA 119
(2008)). Explain each requirement of negotiability
present or absent in the instrument. (8%)
SUGGESTED ANSWER:
The instrument contains a promise to
Forgery; Liabilities; Drawee Bank (2009) pay and was signed by the maker,
No.XI. (E) ―A bank is bound to know its Antonio Reyes (Section 1(a) of Negotiable
depositor’s signature‖ is an inflexible rule in Instruments Law).
determining the liability of a bank in forgery
cases. The promise to pay is unconditional
SUGGESTED ANSWER: insofar as the reference to the setting of
False. In cases of forgery, the forger the sun in the west in the evening and
may not necessarily be a depositor of the its rising in the east in the morning are
bank, especially in the case of a drawee concerned. These are certain to happen
bank. Yet in many cases of forgery, it is (Section 4(c) of Negotiable Instruments
the drawee that is held liable for the Law). The promise to pay is conditional,
loss. because the money will be taken from a
particular fund, BPI Account No. 1234
(Section 3 of Negotiable Instruments
Law).
Negotiability (2013)
No.I. Antonio issued the following The Instrument contains a promise to
instrument: pay a sum certain in money,
August 10, 2013 P100,000.00 (Section (b) of Negotiable
Makati City Instruments Law).
P1OO,OOO,OO
Sixty days after date, I promise to pay The money is payable at a determinable
Bobby or his designated representative the future time, sixty days after August 10,
sum of ONE HUNDRED THOUSAND PESOS 2013 (Section 4(a) of Negotiable
(P100,000.00) from my BPI Acct. No. 1234 Instruments Law).
if, by this due date, the sun still sets in the
west to usher in the evening and rises in

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The instrument is not payable to order there are no 90-day treasury bills
or to bearer (Section 1(d) of Negotiable (although there are 91-day, 182-day, and
Instruments Law). 364-days bills); second the promise does
not specify whether the so-called
“interest rate” is that established at the

Negotiability (2012) primary market (where new T-bills are


sold for the first time by the Bureau of
No.IV. Indicate and explain whether the Treasury) or at the secondary market
promissory note is negotiable or non- (where T-bills can be bought and sold
negotiable. after they have been issued in the
primary market).; and third, T-bills are
(A) I promise to pay A or bearer conventionally quoted in terms of their
Php100,000.00 from my inheritance which discount rate, rather than their interest
I will get after the death of my father. (2%) rate. They do not pay any interest
directly; instead, they are sold at a
SUGGESTED ANSWER:
discount of their face value and this
“earn” by selling at face value upon
Not negotiable. There is no
maturity. (See, among other,
unconditional promise to pay a sum
www.treasury.gov.ph/govsec/aboutsec.h
certain in money (Sec. 1 [b], NIL) as the
tml)
promise is to pay the amount out of a
particular fund, i.e., the inheritance
(C) I promise to pay A or bearer the sum of
from the father of the promisor(Sec. 3,
Php100,000 if A passes the 2012 bar
NIL).
exams. (2%)

(B) I promise to pay A or bearer Php100,000


SUGGESTED ANSWER:
plus the interest rate of ninety (90) – day
treasury bills. (2%) Not negotiable. The promise to pay is
subject to a condition, i.e., that A will
SUGGESTED ANSWER:
pass the 2012 bar exams (Sec.1[b],NIL).

Not negotiable. There is no


(D) I promise to pay A or bearer the sum of
unconditional promise to pay a sum
Php100.000 on or before December 30,
certain in money. The promise to pay
2012. (2%)
“the interest rate of ninety (90)-day
treasury bills” is vague because, first, SUGGESTED ANSWER:

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Negotiable. It conforms fully with the constitute a defect of title (Section 55,
requirements of negotiability under Negotiable Instruments Law).
Section 1, NIL.
(B) Does S have a cause of action against R
(E) I promise to pay A or bearer the sum of in case of dishonor by the drawee bank?
Php100,000. (2%)

SUGGESTED ANSWER:
SUGGESTED ANSWER:
No, s does not have a cause of action
against R in case of dishonor of the
Negotiable. It conforms fully with the
check by the drawee bank. S is not a
requirements of negotiability under
holder in due course, thus, R can raise
Section 1,NIL. It is payable on demand
the defense that the check was issued
because the note does not express a time
for an illegal consideration (Section 58,
for its payment(Sec.7[b], NIL).
Negotiable Instruments Law).

(C) It S negotiated the check to T, who


accepted it in good faith and for value, may
Negotiable Instruments; Illicit/Illegal R be held secondarily liable by T?
Consideration (2007)
Reason Briefly in (a), (b) and (c).
No.I. R issued a check for P1m which he
used to pay S for killing his political enemy.
SUGGESTED ANSWER:
(10%)
Yes, R may be held secondarily liable by
T who took the check in good faith and
(A) Can be the check be considered a
for value. T is a holder in due course. R
negotiable instrument?
cannot raise the defense of illegality of
the considerarion, because T took the
SUGGESTED ANSWER:
check fre from the defect of title of S
Yes, the check can be considered a
(Section 57, Negotiable Instrumets Law).
negotiable instrument even if it was
issued to pay S to kill his political
enemy. The validity of the consideration
is not one of the requisites of a
negotiable instruments (Section 1,
Negotiable Instruments Law.) it merely

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Negotiable Instruments; Illicit/Illegal No. the illicit cause or consideration


Consideration; Lawful Dishonor (2009) does not adversely affect the
negotiability of the bill, especially in the
No.VI. Lorenzo drew a bill of exchange in
hands of a holder in due course. Under
the amount of P100, 000.00 payable to
Sec. 1 of the Negotiable Instruments law,
Barbara or order, with his wife, Diana, as
the bill of exchange is a negotiable
drawee. At the time the bill was drawn.
instrument. Every negotiable instrument
Diana was unaware that Barbara is
is deemed prima facie to have been
Lorenzo’s paramour.
issued for valuable consideration, and
every person whose signature appears
Barbara then negotiated the bill to her
thereon is deemed to have become a
sister, Elena, who paid for it for value, and
party thereto for value (Sec. 24,
who did not know who Lorenzo was. On
Negotiable Instruments Law).
due date, Elena presented the bill to Diana
for payment, but the latter promptly
dishonored the instrument because, by
then, Diana had already learned of her
husband’s dalliance. Negotiable Instruments: Incomplete,
Delivered; Doctrine: Comparative
(A) Was the bill lawfully dishonored by Negligence (2008)
Diana? Explain. (3%)
No.IV. AB Corporation drew a check for
payment to XY Bank. The check was given
SUGGESTED ANSWER:
to an officer of AB Corporation who was
instructed deliver it to XY Bank. Instead ,
No, the bill was not lawfully dishonored
the officer intending to defraud the
by Diana. Elena, to whom the instrument
Corporation, filled up the check by making
was negotiated, was a holder in due
himself as the payee and delivered it to XY
course inasmuch as she paid value
Bank for deposit to his personal account.
therefore in good faith.
XY Bank debited AB Corporation’s account.
AB Corporation came to know of the
(B) Does the illicit cause or consideration
officer’s fraudulent act after he absconded.
adversely affect the negotiability of the bill?
AB Corporation asked XY Bank to recredit
Explain. (3%)
its amount. XY Bank refused.

SUGGESTED ANSWER:

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(A) If you were the judge, what issues would 5,000.00 five days after his pet dog, Sparky,
you consider relevant to resolve the case? dies. Signed Y.‖ is a negotiable instrument.
Explain. (3%) SUGGESTED ANSWER:
SUGGESTED ANSWER: True. The document is subject to a term
and not a condition. The dying of the
The filling up by the officer of his name
dog is a day which is certain to come.
as payee does not constitute forgery, and
Therefore, the order to pay is
contemplates a mechanically incomplete
unconditional, in compliance with
but delivered instrument. Under Sec. 14
Section 1 of the Negotiable Instruments
of the NIL, in order to enforce an
Law (NIL).
incomplete but delivered instrument
against a prior party, it must be filled-up
(Note: This answers presumes that there
strictly in accordance with the authority
is a drawee)
given. The doctrine of comparative
negligence provides that AB Corp. is
deemed negligent for having issued the
check with a blank payee section that
facilitated the fraud; it should be AB
Parties; Holder in Due Course (2012)
Corp. that must bear the loss, and not
XY Bank.
No.III. X borrowed money from Y in the

(B) How would you decide the case? amount of Php1Million and as payment,

Explain. (2%) issued a check. Y then indorsed the check

SUGGESTED ANSWER: to his sister Z for no consideration. When Z


deposited the check to her account, the
I would fin AB Corp. liable for its check was dishonored for insufficiency of
negligence in delivering an incomplete funds.
instrument to XY Bank (Sec. 14, NIL).
(A) Is Z a holder in due course? Explain
your answer. (5%)

SUGGESTED ANSWER:
Negotiable Instruments: Subject to a
Term (2009) Z is not a holder in due course. She did
not give any valuable consideration for
No.XI. (D) A document, dated July 15, 2009
the check. To be a holder in due course,
that reads: ―Pay to X or order the sum of
the holder must have taken the check in

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good faith and for value (Sec. 52[c], Give two (2) instances where a prior party
Negotiable Instruments Law). may hold a subsequent party liable. (2%)
SUGGESTED ANSWER:
(B) Who is liable on the check. The drawer
or the indorser? Explain your answer. (5%) In the following cases, a prior party may
hold a subsequent party liable: (1) where
SUGGESTED ANSWER: an instrument is negotiated back to a
prior party, and he reissues and further
X, the drawer, will be liable. As the
negotiates the same, he is entitled to en
drawer, X engaged that on due
force payment against a subsequent
presentment the check would be paid
party who qualifies as an intervening
according to its tenor and that if it is
party to whom the prior party is not
dishonored and he is given notice of
personally liable; and (2) in the case of
dishonor, he will pay the amount to the
an accommodation party arrangement,
holder (Sec. 61, NIL). No notice of
where the accommodation party may
dishonor need be given to X if he is
recover from the party accommodated,
aware that he has insufficient funds in
even when the latter is a subsequent
his account. Under Section 114(d) of the
party (Sec. 29, NIL).
Negotiable Instruments Law, notice of
dishonor is not required to be given to (B) How does the ―shelter principle‖
the drawer where he has no right to embodied in the Negotiable Instruments
expect that the drawee will honor the Law operate to give the rights of a holder-
instrument. Z cannot hold Y, the in-dine course to a holder who does not
endorser, liable as the latter can raise have the status of a holder-in-due course?
the defense that there was no valuable Briefly explain. (2%)
consideration for the endorsement of the SUGGESTED ANSWER:
check(Sec. 58, NIL).
The “shelter principle” provides that a
holder who is not himself a holder in due
course but is not a party to any fraud or
illegality affecting the instrument, and
Parties; Instances a Subsequent Party is who derives his title from a holder in due
Liable (2008) course, acquires the rights of a holder in
due course (Sec. 58, NIL).
No.III. (A) As a rule under the Negotiable
Instruments Law, a subsequent party may
hold a prior party liable but not vice versa.

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Securities Regulation While working with Atty. Buenexito on


another file, he accidentally gave you the
Howey Test (2009) Coco Products file containing the
company’s planned corporate financial
No.XI. (C) The Howey Test states that there
rehabilitation. While you knew you had the
is an investment contract when a person
wrong file, your curiosity prevailed and you
invests money in a common enterprise and
browsed through the file before returning it.
is led to expect profits primarily from the
Thus, you learned that a petition for
efforts of others.
financial rehabilitation is imminent, as the
SUGGESTED ANSWER:
company could no longer meet its
The Howey Test requires a transaction,
obligations as they fell due.
contract, or scheme whereby a person
makes an investment of money in a
Soon After, you mother is rushed to the
common enterprise with the expectation
hospital for an emergency operation, and
of profits to be derived solely, not
you have to raise money for her hospital
primarily from the efforts of others
bills. An immediate option for you is to sell
(Power Homes Unlimited Corp. v. SEC,
your Coco Products shares. The sale would
546 SCRA 567 (2008)).
be very timely because the price of the
company’s stocks are still high.

Would you sell the shares to raise the

Insider Trading (2013) needed funds for your mother’s


hospitalization? Take into account legal
No.V. You are a member of the legal staff of (5%) and ethical (3%) considerations. (8%)
a law firm doing corporate and securities SUGGESTED ANSWER
work for Coco Products Inc., a company The sale of the shares does not
with unique products derived from constitute insider trading. Although
coconuts and whose shares are traded in Atty. Buenexito, as corporate secretary
the Philippine Stock Exchange. A partner in of Coco Products, Inc., was an insider, it
the law firm, Atty. Buenexito, to whom you did not obtain the information regarding
report, is the Corporate Secretary of Coco the planned corporate rehabilitation by a
Products. You have long been investing in communication from him. He just
Coco Products stocks even before you accidentally gave the wrong file (Section
become a lawyer. 3.8 of Securities Regulation Code).

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It would be unethical to sell the shares. (A) What provision of the Securities
Rule 1.01 of the Code of Professional Regulation Code (SRC) did they violate, if
Responsibility provide, “A lawyer shall any ? Explain. (4%)
not engage in unlawful, dishonest, SUGGESTED ANSWER:
immoral or deceitful conduct.”
The directors and key officers of the
company violated the prohibition against
A lawyer should not only refrain from
insider trading under Sec. 27 of the
performing unlawful acts. He should also
Securities Regulation Code, which
desist from engaging in unfair deceitful
declares it unlawful for an “insider”
conduct to conceal from the buyer of the
(which includes directors and officers of
shares the planned corporate
a publicly listed company) to sell or buy
rehabilitation.
its securities, if they know of a fact of
special significance with respect to the
company or the security, that is not
Insider Trading (2008)
generally available to the public, before
No.XIII. Grand Gas Corporation, a publicly such material information made public

listed company, discovered after extensive through disclosure proceedings. The

drilling a rich deposit of natural gas along directors and key officers are liable to

the coast of Antique. For five (5%) months, disgorge the profits earned and to pay

the company did not disclose the discovery damages.

so that it could quietly and cheaply acquire


neighboring land and secure mining rights (B) Assuming that the employees of the
to the land. Between the discovery and its establishment handling the printing work of

disclosure of the information to the Grand Gas Corporation saw the exploration

Securities and Exchange Commission, all reports which were mistakenly sent to their

the directors and key officers of the establishment together with other materials
company bought shares in the company at to be printed. They too bought shares in the

very low prices. After the disclosure, the company at low prices and later sold them

price of the shares went up. The directors at huge profits. Will they be liable for
and officers sold their shares at huge violation of the SRC? Why? (3%)

profits, SUGGESTED ANSWER:

The employees are liable for violation of


the prohibition against insider trading.
They fall within the definition of

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“insider”. Subsection 3.8 of the under the Securities Regulation Code.


Securities Regulation Code defines an An “investment contract” is a contract,
insider as “a person whose relationship transaction or scheme (1) involving an
or former relationship to Issuer gives or investment of money, (2) in a common
gave him access to a fact of special enterprise, (3) with expectation of
significance about Issuer or the security profits, (4) primarily from the efforts of
that is not generally available.” others (Power Homes Unlimited
Corporation v. Securities and Exchange
Commission, 546 SCRA 567 (2008)).

(B) What procedure must be followed under


Investment Contract; Procedure (2010)
the Securities Regulation Code to authorize

No.IV. Andante Really, a marketing the sale or offer for sale or distribution of

company that promotes and facilitates sales an investment contract? (2%)

of real property through leverage marketing,


solicits investors who are required to be a SUGGESTED ANSWER:

Business Center Owner (BCO) by paying an Before the investment contract is sold or

enrollment fee of S250. The BCO is then offered for sale or distribution to the

entitled to recruit two other investors who public in the Philippines, it should be

pay S250 each. The BCO receives S90 from registered with the Securities and

the S250 paid by each of his recruits and is Exchange Commission in accordance

credited a certain amount for payments with Section 8 of the Securities

made by investors through the initial efforts Regulation Code (Power Homes

of his Business Center. Once the Unlimited Corporation v. Securities and

accumulated amount reaches S5, 000, the Exchange Commission, 546 SCRA 567

same is used as down payment for the real (2008)).

property chosen by the BCO.


(C) What are the legal consequences of

(A) Does this multi-level marketing scheme failure to follow this procedure? (2%)

constitute an ―investment contract‖ under SUGGESTED ANSWER:

the Securities Regulation Code? Define an The failure to follow the procedure has

―investment contract.‖ (2%) criminal consequences (i.e., upon

SUGGESTED ANSWER: conviction, a fine 50,000 to 5 million

Yes. The multi-level marketing pesos and / or imprisonment of 7 to 21

constitutes an “investment contract” years). It carries also civil liabilities in

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that the purchaser can recover from the market price (Section 48, Securities
seller (i) the consideration paid with Regulation Code).
interest thereon, less the amount of any
income received on the purchased The purpose of the Margin Trading Rule
securities, upon the tender of such is to prevent excessive use of credit for
securities, or (ii) damages if the the purchase of securities. It is a counter
purchaser no longer owns such securities to a broker’s desire to generate more
(Sections 57 and 73, Securities sales by encouraging clients to but
Regulation Code). Furthermore, the securities on credit (Carolina Industries,
Securities and Exchange Commission Inc. vs. CMS STock Brokerage, Inc. 97
(SEC) may issue a cease and desist order SCRA 734 [1980]).
(Subsection 64.1, Securities Regulation
Code).

Securities; Exempt Securities (2009)

No.X. What are the so-called exempt


Margin Trading Rule (2009)
securities under the Securities Regulation
No.XX. Under the Securities Regulation Code? (2%)
Code, what is the margin Trading Rule?
(2%) SUGGESTED ANSWER:
SUGGESTED ANSWER: Under Section 9 of the Securities
Under the Margin Trading Rule, no Regulation Code, the so-called exempt
registered broker or dealer, or member of securities are:
an exchange shall extend credit on any
security an amount greater than (A) Those issued or guaranteed by the
whichever is higher of: government of the Philippines or any of
its political subdivisions or agencies;
(a) 65 percent of the current market
price of the security, or (B) Those issued or guaranteed by the
government of any foreign country with
(b) 100 percent of the lowest market which the Philippines has diplomatic
price of the security during the relation, or any other state on the basis
preceding 36 calendar months, but not of reciprocity, although the SEC may
more than 75 percent of the current

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require compliance with the form and authorized to sell securities, including
content of disclosures; timeshares.

(C) Those issued by the receiver or by On March 30, 1998, Leon and Carina wrote
the trustee in a bankruptcy duly PPR rescinding their purchase agreement
approved by the proper adjudicatory and demanding the refund of the amount
board; they paid because the Palacio Del Boracay
timeshare was sold to them by PPR without
(D) Those involving the sale or transfer the requisite license or authority from the
which is bylaw, under the regulation of SEC. PPR contended that the grant of the
the OIC, HLURB, BIR; and SEC authority had the effect of ratifying the
purchase agreement (with Leon and Carina)
(E) Those issued by banks, except its of Oct.6, 1996.
own shares.
Is the contention of PPR correct? Explain
(Note: It is suggested that any two of the (3%)
above exempt securities should be SUGGESTED ANSWER:
considered as enough answer to the The contention of PPR is not correct. It
question.) is settled that no securities shall be sold
or offered for sale or distribution in the
Philippines without a registration duly
filed and approved by the Commission.
Corporate registration is one of the
Securities; Selling of Securities (2009)
requirements under Sec. 8of batas

No.XVII. Philippine Palaces Realty (PPR) pambansa Blg. 178 (timeshare Realty

had been representing itself as a registered Corporation v. Lao, 544 SCRA 254

broker of securities, duly authorized by the (2008)).

Securities and Exchange Commission


(SEC). On October6, 1996, PPR sold to ALTERNATIVE ANSWER:

spouses Leon and Carina one timeshare of No. Such contention is not correct. Sale

Palacio del Boracay for US S7, 500.00. or offer to sell securities which are not

However, its Registration Statement became exempt securities or which do not arise

effective only on Feb.11, 1998 after the SEC out of exempt transactions, and,

issued a resolution declaring that PPR was therefore, requiring registration, is


unlawful as such act is violative of the

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Securities Regulation Cod. Subsequent any scheme that dilutes the share value
grant of authority by the SEC does not of their investments. It gives them the
retroact to past sales or offers to sell. chance to exit the company under the
same terms offered to the majority
stockholders.

Tender Offer (2010) Under the Securities Regulations Code


and its implementing rules, a mandatory
No.VII. Union Mines, Inc. has total assets of
tender offer is required (i) when at least
P60 Million with 210 stockholders holding
35% of the outstanding shares of a
at least 100 shared each.
public company is to be acquired in one
The company has two principal
transaction or a series of transaction
stockholders, ABC which owns 60% of the
during 12-month period, or (ii) even if
shares of stock, and XYZ; which owns 17%.
any acquisition is less than 35%
ABC in turns is owned to the extent of
threshold but the result thereof is the
21.13% by Acme, Inc.; 29.69% by Golden
ownership of more than 51% of the total
Boy Inc.; 9% by XYZ; and the rest by
outstanding shares of a public company.
individual stockholders.
The mandatory offer rule also applies to
None of the parties is a publicly-listed
share acquisition meeting the threshold,
company.
which is done at the level of the holding
XYZ now proposes to buy Acme’s and
or Parent Corporation controlling a
Golden Boy’s shares in ABC, which would
public company (Cemco Holding, Inc. v.
give it, direct control of ABC and indirect
National Life Insurance Company of the
control of Union Mines.
Philippines, Inc. 529 SCRA 355 [2007]).
Is the proposal acquisition by XYZ subject
to the mandatory tender offer rule? Why or
In this case, Union Mines is clearly a
why not? What is tender offer and when is
public company, since it has total assets
it mandatory? (5%)
of P60 million pesos with 210
SUGGESTED ANSWER
stockholders holding at least 100 shares
Yes, the proposed acquisition is subject
each. A public company is defined as a
to mandatory tender offer rule. A tender
corporation listed on the stock
offer is publicly announced intention by
exchange, or a corporation with assets
a person (acting alone or in concert with
exceeding 50 million pesos and with 200
other persons) to acquire shares of a
or more stockholders at least 200 of
public company. A tender offer is meant
them holding not less than 100 shares of
to protect minority stockholders against
such corporation.

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train and that it was not guilty of


XYZ’s acquisition of shares of Acme, Inc. negligence. Decide. (5%)
and Golden Boy, Inc., taken separately, SUGGESTED ANSWER:
does not reach 35% threshold. If taken
CRI is liable for death of Ricardo Santos
collectively, the two acquisitions total
because it failed to exercise
only 50%. However, when the
extraordinary diligence (LRTA v. Navidad
acquisitions are added to XYZ’s existing
G.R. No. 145804, 06 February 2003). The
shares in Union Mines, they meet the
contract of carriage began when the
more- than -51% thresholds for
passenger purchased his ticket and
mandatory tender offer.
proceeded to the designated loading
facilities to board the train (Dangwa
Transp. Co., Inc. v. Court of Appeals,
G.R. No. 95582, 07 October 1991), CRI is
also liable for all persons in its employ
Transportation Law
(Caltex Philippines, Inc. v. Sulpicio
Carriage; Breach of Contract Lines, Inc., G.R. No. 131166, 30
September 1999).
No.VIII. City Railways, Inc. (CRI) provides
train service, for a fee, to commuters from
Manila to Calamba, Laguna. Commuter are
required to purchase tickets and then
proceed to designated loading and Carriage; Breach of Contract; Cause of
unloading facilities to board the train. Action; Defenses (2009)
Ricardo Santos purchased a ticket for
No.XIX. One of the passenger buses owned
Calamba and entered the station. While
by Continental Transit Corporation (CTC),
waiting, he had an altercation with the
plying its usual route figured in a collision
security guard of CRI leading to a fistfight.
with another bus owned by Universal
Ricardo Santos fell on the railway just as a
Transport, Inc. (UTI). Among those injured
train was entering the station. Ricardo
inside the CTC bus were: Romeo, a stow
Santos was run over by the train. He died.
away: Samuel, a pickpocket then in the act
of robbing his seatmate when the collision
In the action for damages filed by the heirs
occurred; Teresita, the bus driver’s mistress
of Ricardo Santos, CRI interposed lack of
who usually accompanied the driver on his
cause of action, contending that the mishap
occurred before Ricardo Santos boarded the

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trips for free; and Uriel, holder of a free (B) Do Romeo, Samuel, Teresita, and Uriel
riding pass he won in a raffle held by CTC. have a cause of action for damages against
(A) Will a suit for breach of contract of UTI? Explain. (3%)
carriage filed by Romeo, Samuel, Teresita, SUGGESTED ANSWER:
and Uriel against CTC prosper? Explain. Romeo, Samuel, Teresita and Uriel may
(3%) sue UtI on the basis of quasi-delict since
they have no pre-existing contractual
SUGGESTED ANSWER: relationship with UTI. They may allege
Romeo cannot sue for breach of contract that the collision was due to the
of carriage. A stowaway like Romeo, Who negligence of driver of UTI and UTI was
secures passage by fraud, is not a negligent in the selection and
passenger (Vda. De nueca v. Manial supervision of its driver (Articles 2176
Railroad Company, 13 C.A. R. 49(1968)). and 2180, New Civil Code).

Samuel and Teresita cannot sue for (C) What, if any, are the valid defenses that
breach of contract of carriage. The CTC and UTI can raise in the respective
Elements in the definition of a passenger actions against them? Explain. (3%)
are: an undertaking of a person to travel SUGGESTED ANSWER:
in the conveyance provided by the With respect to Romeo, Samuel and
carrier and an acceptance by the carrier Teresita, since there was no pre-existing
of the person as a passenger. (14 Am Jur contractual relationship between them
2d, Carriers, So. 714,p. 164). Samuel did and CTC, CTC can raise the defense that
not board the bus to be transported but it exercised the due diligence of a good
to commit robbery. Teresita did not father of a family in the selection and
board the bus to be transported but to supervision of its driver (Article 2180,
accompany the driver while he was New Civil Code).
performing his work.
Uriel can sue for breach of contract. He It can raise the same defense against
was a passenger although he was being Uriel if there is a stipulation that
transported gratuitously, because he won exempts it from liability for simple
a free riding pass in a raffle held by CTC negligence, but not for willful acts or
(Article 1753, New Civil Code). gross negligence (Article 1758, New Civil
Code).

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CTC can also raise against all the de Oro airport; the pilot miscalculated the
plaintiffs the defense that the collision plane’s approach and undershot the
was due exclusively to the negligence of runway. Of the 150 people on board, ten
the driver of UTI, and this constitutes a (10) passengers died at the crash scene.
fortuitous event, because there was no
concurrent negligence on the part of its Of the ten who died, one was a passenger
own driver (Ampang v.Guinoo who managed to leave the plane but was
Transportation Company, G.R. No. L- run over by an ambulance coming to the
5044, April 30, 1953). rescue. Another was an airline employee
who hitched a free ride to Cagayan de Oro
CTC can also raise against Samuel the and who was not in the passenger manifest.
defense that he was engaged in a
seriously illegal act at the time of the It appears from the Civil Aeronautics
collision, which can render him liable for Authority investigation that the co-pilot
damages on the basis of quasi-delict who had control of the plane’s landing had
(Dobbs, the Law of Torts, pp.524-525). less than the required flying and landing
time experience, and should not have been
Since UTI had no pre-existing in control of the plane at the time. He was
contractual relationship with any of the allowed to fly as a co-pilot because of the
plaintiffs, it can raise the defense that it scarcity of pilots – Philippine pilots have
exercised due diligence in the selection been recruited by foreign airlines under
and supervision of its driver that the vastly improved flying terms and wages so
collision was due exclusively to the that newer and less trained pilots are being
negligence of the driver of CTC, and that locally deployed. The main pilot, on the
Samuel was committing a serious illegal other hand, had a very high level of blood
act at the time of the collision. alcohol at the time of the crash.

You are part of the team that the victims


hired to handle the case for them as a
group. In your case conference, the
Carriage; Breach of Contract;
following questions came up:
Presumption of Negligence (2013)

No.IX. Fil-Asia Flight 916 was on a (A) Explain the causes of action legally

scheduled passenger flight from Manila possible under the given facts against the

when it crashed as it landed at the Cagayan airline and the Pilots; whom will you

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specifically implead in these causes of over. This is in accordance with Articles


action? (5%) 2176 and 2180 of the Civil Code. There
could also be a criminal prosecution for
SUGGESTED ANSWER: reckless imprudence resulting in
A complaint for breach of contract of homicide against the ambulance driver
carriage can be filed against Fil-Asia for and the consequent civil liability.
failure to exercise extraordinary
diligence in transporting the passengers Since the airline employee was being
safety from their point of embarkation transported gratuitously, Fil-Asia Air was
to their destination (Article 1755, Civil not required to exercise extraordinary
Code). diligence for his safety and only ordinary
care. (Lara v. Valencia, 104 Phil. 65,
A complaint based on a quasi-delict can 1958).
be filed against the pilots because of
their fault and negligence (Article 2176,
Civil Code). Fil-Asia Air can be included
for negligence in the selection and
Maritime Protest (2007)
supervision of the pilots (Article 2180,
Civil Code). No.XI. Two vessels figured in a collision
along the Straits of Guimaras resulting in
A third cause of action may be a criminal considerable loss of cargo. The damaged
prosecution for reckless imprudence vessels were safely conducted to the Port of
resulting in homicide against two pilots. Iloilo Passenger A failed to file a maritime
The airline will be subsidiarily liable for protest. B, a non-passenger but a shipper
the civil liability only after the pilots are who suffered damage to his cargo, likewise
convicted and found to be insolvent. did not file a maritime protest at all. (10%)

(B) How will you handle the cases of the (A) What is a maritime protest?

passenger run over the ambulance and the


SUGGESTED ANSWER:
airline employee allowed to hitch a free ride
to Cagayan de Oro? (3%) A maritime protest is a sworn statement
SUGGESTED ANSWER: made with 24 hours after a collision in
It is the driver of the ambulance and his which the circumstances thereof are
employer who should be held liable for declared or made known before a
damages, because a passenger was run competent authority at the point of

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accident or the first port of arrival if in Trust Receipts Law


the Philippines or the Philippine consul
in a foreign country (Article 835, Code of Trust Receipt (2007)
Commerce; Goro v. William Lines, Inc., 3
No.V. C contracted D to renovate his
CAR 1(1963)).
commercial building. D ordered
construction materials from E and received
(B) Can A and B successfully maintain an
delivery thereof. The following day, C went
action to recover losses and damages
to F Bank to apply for loan to pay for the
arising from the collision? Reason briefly
construction materials. As security for the
SUGGESTED ANSWER: loan, C was made to execute a trust receipt.
One year later, after C failed to pay the
B, the shipper, can successfully maintain
balance of the loan, F Bank charged him
an action to recover losses and damages
with violation of the Trust Receipts Law.
arising from the collision
(5%)
notwithstanding his failure to file a
maritime protest since the filing thereof
(A) What is a Trust Receipt?
is required only on the part of A, who
SUGGESTED ANSWER:
being a passenger of the vessel at the
A Trust Receipt is a written or printed
time of the collision, was expected to
document signed by the entrustee in
know the circumstances of the collision.
favor of the entruster containing terms
A’s failure to file a maritime protest will
and conditions substantially complying
therefore prevent him from successfully
with the provision of the Trust Receipts
maintaining an action to recover his
Law, whereby the bank as entruster
losses and damages (Art. 836, Code of
releases the goods to the possession of
Commerce)
the entrustee but retains ownership

ALTERNATIVE ANSWER: thereof while the entrustee may sell the


goods and apply the proceeds for the full
A can maintain an action to recover payment of his liability to the bank
damages if he was not in a condition to (Section 3(j), Trust Receipts Law).
make known his wishes. B can maintain
an action to recover damages since he (B) Will the case against C prosper? Reason
was not on board the vessel (Article 836, briefly.
Code of Commerce). SUGGESTED ANSWER:

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No, the case against C will not prosper, No, Tom Cruz’s obligation to pay the
Since C received the Construction loan covered by the trust receipts to XYZ
material from E Before the trust receipt Bank remains, A “Trust receipt” is
transaction was a simple loan, with the merely a collateral agreement which
trust receipt merely as a collateral or serves as security for a loan, with the
security for the loan. This is Bank appearing as the owner of the
inconsistent with a trust receipt goods. The Bank cannot dispose of the
transaction where the title to the goods goods in any manner it chooses, because
remains with the bank and the goods are it is not the true owner thereof (Rosario
released to the entrustee before the loan Textile Miss v. Home Bankers, G.R. No.
is granted (Consolidated Bank and Trust 137232, 29 June 2005, citing Sia v.
Corporation v. Court of Appeals, 356 People, G.R. No. 30896, 28 April 1983,
SCRA 671 [2001]. Abad v. CA, G.R. No. 42735, 22 January
1990, and PNB v. Pineda, G.R. No.
46658, 13 May 1991). The loss of the
goods covered by the trust receipts
cannot extinguish the principal
Trust Receipt; Security for a Loan (2008)
obligation of the borrower to pay the

No.II. Tom Cruz obtained a loan of P1 bank (Landl & Company [Phil.] v.

Million from XYZ Bank to finance his Metropolitan Bank, G.R. 159622, 30 July

purchase of 5,000 bags of fertilizer. He 2004).

executed a trust receipt in favor of XYZ


Bank over the 5,000 bags of fertilizer. Tom
Cruz withdrew the 5,000 bags from the
warehouse to be transported to Lucena City
Trust Receipts Law; Liability for Estafa
where his store was located. On the way,
(2013)
armed robbers took from Tom Cruz the
5,000 bags of fertilizer. Tom Cruz now No.VI. Delano Cruz is in default in the
claims that his obligation to pay the loan to payment of his existing loan from BDP
XYZ Bank is extinguished because the loss Bank. To extend and restructure this loan,
was not due to his fault. Is Tom Cruz Delano agreed to execute a trust receipt in
correct? Explain. (4%) the bank’s favor covering the iron pellets
SUGGESTED ANSWER: Delano agreed to execute a trust receipt in
the bank’s favor covering the iron pellets
Delano imported from China one year

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earlier. Delano subsequently succeeded in consequence acquired ownership to the


selling the iron pellets to a smelting plant, goods, the transaction does not involve a
but the proceeds went to the payment of trust receipt but a simple loan even
the separation benefits of his employees though the parties denominated the
who were laid off as he reduced his transaction as one of trust receipt
operations. (Colinares vs. Court of Appels, 339 SCRA
609, 2000; Consolidated Bank and Trust
When the extend loan period expired Corporation v. CA, SCRA 671, 2001).
without any significant payment from
Delano (not even to the extent of the
proceeds of the sale of the iron pellets), BDP
Bank consulted you on how to proceed
Trust Receipts Law; Violation
against Delano. The bank is contemplating
Committed by a Corporation (2012)
the filing of estafa pursuant to the
provisions of Pres. Decree No. 115 (Trust
No.II. CCC Car, Inc. obtained a loan from
Receipts Law) to force Delano to tum in at
BBB Bank, which fund was used to import
least the proceeds of the sale of the iron
ten (10) units of Mercedes Benz S class
pellets.
vehicles. Upon arrival of the vehicles and
before release of said vehicles to CCC Car,
Would you, as bank counsel and as an
Inc., X and Y, the President and Treasurer,
officer of the court, advise the bank to
respectively, of CCC Car, Inc. signed the
proceed with its contemplated action? (8%)
Trust Receipt to cover the value of the ten
(10) units of Mercedes Benz S class vehicles
SUGGESTED ANSWER:
after which, the vehicles were all delivered
to the Car display room of CCC Car, Inc.
I will not advise BDP Bank to file a
Sale of the vehicles were slow, and it took a
criminal case for estafa against Delano.
month to dispose of the ten (10) units. CCC
Delano received the iron pellets he
Car, Inc. wanted to be in business and to
imported one year before the trust
save on various documentations required
receipt was executed. As held by the
by the bank, decided that instead of turning
Supreme Court, where the execution of a
over the proceeds of the sales, CCC Car,
trust of a trust receipt agreement was
Inc. used the proceeds to buy another ten
made after the goods covered by it had
(10) units of BMW 3 series.
been purchased by and delivered to the
entrustee and the latter as a

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(A) Is the action of CCC Car, Inc. legally [Note:The problem does not state that BBB
justified? Explain your answer. (5%) bank issued a letter of credit upon
application of CCC Car, Inc, to enable the
SUGGESTED ANSWER:
latter to pay for its importation. In the
No. It is the obligation of CCC Car, Inc., suggested answers above, we assume this
as entrustee, to receive the proceeds of to be the case because the trust receipt,
the sale of the Mercedes Benz S class being an accessory contract, cannot validly
vehicles intrust for BBB Bank, as exist without a principal contract, i.e., the
entruster, and turn over the same to application for the letter of credit.]
BBB Bank to the extent of the amount
owing to the latter or as appears in the
trust receipt (Sec. 9(2), Trust Receipt
Warehouse Receipts Law
Law).

Warehouse Receipt: Surrendering of


(B) Will the corporate officers of CCC Car,
Possession; Lien (2009)
Inc. be held liable under the
circumstances? Explain your answer. (5%) No.XI. (B) Under the Warehouse loses his
lien upon the goods when he surrenders
SUGGESTED ANSWER: possession thereof.
SUGGESTED ANSWER:
Yes, particularly the President and the
True. A lien is dependent on possession.
Treasurer of CCC Car, Inc. who both
When a warehouseman surrenders
signed the trust receipts in the problem.
possession, he thereby loses his lien on
Section 13 of the Trust Receipt Law(PD
the goods over which hi no longer has
115) provides that if the violation or
possession (Sec.29 (a), Warehouse
offense is committed by a corporation,
Receipts Law).
partnership, association, or other
juridical entity, the penalty provided for
in the law shall be imposed upon the
Negotiable Instrument; Delivery of Goods
directors, officers, employees or other
(2007)
officials or persons therein responsible
for the offense, without prejudice to the No.II. Alex deposited goods for which Billy,
civil liabilities arising from the criminal a warehousemen, issued a negotiable
offense. warehouse receipt wherein the good were
deliverable to Alex or order. Alex negotiated
the receipt TC Caloy. Thereafter, Dario a

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creditor, secured judgment against Alex


and served notice of levy over the goods on
the warehouseman.

(A) To whom should the warehousemen


deliver the goods upon demand?(5%)

SUGGESTED ANSWER:

The warehouseman should deliver the


goods upon demand to Caloy who is a
holder of the receipt in good faith and
for value. The goods cannot be levied
upon by the creditor of Alex after it was
negotiated to Caloy (Section 25,
Negotiable Instruments Law).

(B) Would your answer be the same if the


warehouseman issued a non-negotiable
warehouse receipt? Reason briefly. (5%)
SUGGESTED ANSWER:

No, my answer would not be the same if


the warehousemen issued a non-
negotiable warehouse receipt. In such
case. The warehouseman should deliver
the goods to Datio, if the notice of levy
was served on the warehouseman prior
to the notification of the warehouseman
by Alex or Caloy of the transfer of the
non-negotiable receipt. In such case, the
title of Caloy would be defeated by the
notice of levy by Dario (Section 42,
Warehouse Receipts Law).

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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
MCQ (October 20, 2013) Deed of Assignment of Shares of Stock is
equivalent to a lawful pledge of the
I. Claude, the registered stock holder of shares of stock (Lopez v. Court of
1,000 shares in ABC Corp., pledged the Appeals, 114 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
I.(A) Under these facts, is there a valid Conrad without any written instruction
pledge of the shares of stock to Conrad? from 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 Conrad’s 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 Conrad’s 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.

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SUGGESTED ANSWER: (A) The ―Filipino First Policy‖


None of the answer is correct. The (B) The ―Foreign Investment Positive Lists‖
pledge must be foreclosed. (Article 2112, concept
Civil Code) Conrad cannot just (C) The ―Foreign Investment Negative Lists‖
appropriate the shares of stock (Article concept
2088, Civil Code). (D) The ―Control Test‖ concept
(E) All of the above.
NOTE: (D) could have been the correct
answer if the facts stated that there are SUGGESTED ANSWER:
unpaid subscriptions because under (C) The “Foreign Investment Negative
Section 63 of the Corporation Code, the Lists” concept
corporation may refuse the transfer if it (Section 7 of Foreign Investments Act)
holds unpaid claim on the subscribed
shares (See China Banking Corp. v. CA II.(2) The delegation asked: aside from
and Valle Verde Country Club, G.R. No. Filipino citizens, what entities would fall
117604, March 26, 1997). under the definition of ―Philippine National‖
under FIA ’91?
II. A foreign delegation of businessmen and
investment bankers called on your law firm You replied that the definition of
to discuss the possibilities of investing in “Philippine national” under FIA ’91
various projects in the Philippines, and covers .(1%)
wanted your thoughts on certain issues
regarding foreign investment in the (A) domestic partnerships wholly composed
Philippines. of Filipino citizens
(B) domestic corporations 60% of whose
II.(1) The delegation has been told about capital stock, outstanding and entitled to
the Foreign Investment Act of 1991, as vote, are owned and held by Filipino
amended (FIA ’91), and they asked what citizens
exactly is the law’s essential thrust (C) foreign corporations considered as doing
regarding foreign investment in Philippine business in the Philippines under the
business and industries. Corporation Code, 100% of whose capital
stock, outstanding and entitled to vote, are
You replied that FIA ’91 essentially wholly-owned by Filipino citizens
reflects . (1%)

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(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, finally inquired – which of the following
whether domestic or foreign, as a mere corporations or businesses in the
medium: the test of nationality is on the Philippines may it invest and up to what
individuals who control the medium extent? (1%)
(Section 3(a) of Foreign 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
to the domestic market corporation, up to 100% equity
(B) exports consistently at least 40% of its (Section 7 of Foreign 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

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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 the redemption, there are sufficient assets
vote at the annual meeting of the to cover its debts.
stockholders 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,
(E) None of the above. after 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,
(Section 24 and 71 of Corporation Code) 1997)

IV. ABC Corp, issued redeemable shares, V. Arnold, representing himself as an agent
Under the terms of the issuance, the shares of Brian for the sale of Brian’s car,
shall be redeemed at the end of 10 years approached Dennis who appeared
from date of issuance, at par value plus a interested in buying the car. At Arnold’s
premium of 10% prodding, Dennis issued a crossed check
would only be shown to Brian as evidence
Choose the correct statement relating to of Dennis’ good faith and interest in buying
these redeemable shares. (1%) the car. Instead, Arnold used the check to
pay for the medical expenses of his wife in
(A) ABC Corp. would need unrestricted Brian’s clinic after Brian, a doctor, treated
retained earnings to be able to redeem the her.
shares.
(B) Corporations are not allowed to issue Is Brian a holder in due course (HIDC)?
redeemable shares; thus, the issuance by (1%)
ABC Corp. is ultra vires.
(C) Holders of redeemable shares enjoy a (A) Yes, Brian is a HIDC because he was the
preference over creditors. payee of the check and he received it for
services rendered.

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(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 investment in a Philippines corporation
Arnold was not the drawer. and does not need a license from the
(Vicente R. de Ocampo & Company v. SEC.
Gatchalian, 3 SCRA 566, 1961) (Section 3(d) of Foreign Investment Act)

VI. Gawsengsit Corp. is a corporation VII. The BIR assessed ABC Corp. for
incorporated in Singapore. It invested in deficiency income tax for taxable year 2010
Bumblebee Corp., a Philippine corporation, in the amount of P26,731,208.00, inclusive
by acquiring 30% of its shares. As a result, of surcharge and penalties.
Gawsengsit Corp. nominated 30% of the The BIR Can . (1%)
directors of Bumblebee Corp., all of whom
are Singaporeans and officers of (A) Run after the directors and officers of
Gawsengsit Corp. ABC Corp. to collect the deficiency tax and
their liability will be solidary.
Choose the correct statement relating to (B) Run after the stockholders of ABC Corp.
Gawsengsit Corp. (1%) and their liability will be joint
(C) Run after the stockholders of ABC Corp.
and their liability will be solidary

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(D) Run after the unpaid subscriptions still (Rosario Textile Mills Corporation v.
due to ABC Corp., if any Home Bankers Savings and Trust
(E) None of the above choices is correct. Company, 462 SCRA 88, 2005)

SUGGESTED ANSWER: IX. A Bank may acquire real property


(D) Run after the unpaid subscriptions . (1%)
still due to ABC Corp., if any (A) By purchase at a public sale of
(Halley v. Printwell, 648 SCRA 116, properties levied to satisfy tax
2011). delinquencies
(B) By purchase from a real estate
VIII. Anton imported perfumes from corporation in the ordinary course of the
Taiwan and these were released to him bank’s business
by the bank under a trust receipt. While (C) Through dacion en pago in satisfaction
the perfumes were in Anton’s warehouse, of a debt in favor of the bank
thieves broke in and stole all of them. (D) In exchange for the purchase of shares
of stocks of the bank
Who will shoulder the lossof the stolen (E) All of the above.
perfumes? (1%) (F) None of the above.

(A) The loss of the perfumes will be borne SUGGESTED ANSWER:


by the bank in whose behalf the perfumes (B) By purchase from a real estate
were held in trust. corporation in the ordinary course of the
(B) Anton will bear the loss. bank’s business; or
(C) The exporter can hold both the bank (C) Through dacion en pago in
and Anton liable for the loss. satisfaction of a debt in favor of the
(D) The exporter form whom Anton bought bank; or
the perfumes will bear the loss. (D) in exchange for the purchase of
(E) No one bears the loss for an unforeseen shares of stocks of the bank.
event. (Section 36 (7) and 62 (2) of the
Corporation Code)
SUGGESTED ANSWER: (Section 52 of the General Banking Law)
(B) Anton will bear the loss.
(Section 10 of the Trust Receipts Law) X. Under the Anti-Money Laundering Act, a
depositor’s bank account may be frozen.
(1%)

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(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
(D) By the Court of Appeals motu proprio in term “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 incorporators, the correct answer is C
Laundering 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
Ko) misappropriated the filing fees and of the Corporation Code).
never filed the Articles of Incorporation with
the Securities and Exchange Commission XII. Preferred shares cannot vote on the
(SEC). Instead, he prepared and presented proposal . (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 corporation’s by-laws
latter began assuming and discharging (B) To issue corporate bonds
corporate powers. (C) To shorten the corporate term

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(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 because Kaddafy Benjelani has been
corporate officers in the corporation’s officially declared a public enemy.
by-laws. This will require the (C) Yes, the policy is valid and binding
amendment of the by-laws, and as such, because it has been in force for more than
preferred shares shall be allowed to two years.
vote. (D) No, the policy is not valid and binding
Under letter (B), to issue corporate bonds since the spouses’ estrangement removed
– Such corporate bonds are construed as Aurelia’s insurable interest in Benjelani’s
bonded indebtedness, then preferred life.
shares shall be allowed to vote. (E) None of the above.
Under letter (C), to shorten the corporate
term, - Under Section 6 of the SUGGESTED ANSWER”
Corporation Code, preferred shares shall (A) Yes the policy is valid and binding
be allowed to vote. because Aurelia has an insurable interest
on the life of Kaddafy Benjelani.
XIII. In 2010, the Philippine National Police
declared Kaddafy Benjelani ―Public Enemy The policy is valid. Aurelia had insurable
No. 1‖ because of his terrorist activities in interest in the life of Kaddafy Benjelani,
the country that have resulted in the death because he is her husband even if they
of thousands of Filipino. A ransom of P15 are estranged (Section 10 (a) of the
million was placed on Kaddafy Benjelani’s Insurance Code). Kaddafy Benjelani is
head. not a public enemy, because he is not a
national of an enemy country (Filipinas
Worried about the future of their family, Compañia de Sejunos v. Christern,
Kaddafy Benjelani’s estranged wife, Aurelia, Huefeld & Company, Inc., 89 Phil. 54,
secured in December 2010 a life insurance 1951).
policy on his life and designated herself as
the beneficiary.

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XIV. Muebles Classico, Inc. (MC), a Manila- (B) Deny STI’s claim. The Stay Order covers
based furniture shop, purchased hardwood all claims against the debtor and binds all
lumber from Surigao Timber, Inc. (STI), a its 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 STI’s claim. The letter of credit is
letter of credit with Baco de Plata (BDP). not 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 STI’s claim. If the bank disregards
In The meantime, MC- which had been the Stay Order, it may be subject to
undergoing financial reverses = filed a contempt by the rehabilitation court. STI
petition for corporate rehabilitation. The should file its claim with the rehabilitation
rehabilitation court issued a Stay Order to court.
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 SIT’s claim. The letter of credit
demanded payment of the letter of credit is not a claim against the debtor under
opened in its favor. MC, on the other hand, rehabilitation. But against the bank
informed the bank of the Stay Order and which 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 STI’s claim, Under the Worthsell Shippers, Inc., an American
―Independence Principle,‖ the bank deals corporation. En route to Cebu City, the
only with the documents and not the vessel had two stops, first in Hong Kong,
underlying circumstances; hence, the and second, in Manila.
presentation of the letter of credit is
sufficient. XV.(1) While traveling from Tokyo to Hong
Kong, the goods were damaged.

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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.

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2012 Mercantile Law Exam serves to reduce the risk of non-


performance is called -
MCQ (October 21, 2012) a. irrevocable letter of credit;
b. standby letter of credit;
1. Letters of Credit are financial
c. confirmed letter of credit;
devices in commercial transactions
d. None of the above.
which will ensure that the seller of
the goods is sure to be paid when he SUGGESTED ANSWER:
parts with the goods and the buyer
of the goods gets control of the b. standby letter of credit;
goods upon payment. Which
statement is most accurate?
a. The use of the Letter of
3. At the instance of CCC Corporation,
Credit serves to reduce the
AAA Bank issued an irrevocable
risk of nonpayment of the
Letter of Credit in favor of BBB
purchase price in a sale
Corporation. The terms of the
transaction.
irrevocable Letter of Credit state
b. The Letters of Credit can
that the beneficiary must presfmt
only be used exclusively in a
certain documents including a copy
sales transaction.
of the Bill of Lading of the
c. The Letters of Credit are
importation for the bank to release
issued for the benefit of the
the funds. BBB Corporation could
seller only.
not find the original copy of the Bill
d. (a), (b) and (c) are all correct.
of Lading so it instead presented to

SUGGESTED ANSWER: the bank a xerox copy of the Bill of


Lading. Would you advise the bank
a. The use of the Letter of Credit to allow the drawdown on theLetter
serves to reduce the risk of of Credit?
nonpayment of the purchase price a. No, because the rule of
in a sale transaction. strict compliance in
commercial transactions
involving letters of credit,
requiring documents set as
2. Letter of Credit which is used in
conditions for the release
non-sale transaction, where it
of the fund ,has to be

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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
SUGGESTED ANSWER: the 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 Letter of Credit.
the FUND ,has to be strictly corn
c. Yes, because under the
plied 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

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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.

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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
8. BBB Banking Corporation issued a over the proceeds to the BANK is
Letter of Credit in the amount of a violation of the Trust Receipt
P5Million, for the purchase of five (5) Law.
tons of corn by X. Upon arrival of
the goods, the goods were delivered
to the warehouse of X. Thereafter he

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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
It is recommended that examinees be
for 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
dried fruits. Upon arrival of the
under the Trust Receipts Law
goods consisting of dried fruits
regardless of the purpose or
imported by X but before delivery to
intention for the use of the
him, a trust receipt was executed by
proceeds.
X to cover the transfer of the dried
fruits to his possession. The dried
fruits were so saleable but instead of
turning over the proceeds of the 10. X is the President of AAA Products
sale, X used the funds to pay for the Corporation. X signs all the Trust
medical expenses of his mother who Receipts documents for certain
was sick of cancer of the bone. importations of the company. In the
Which statement is most accurate? event of failure to deliver the
a. X cannot be held criminally proceeds of the sale of the goods to
liable because although he the bank, which statement is most
did not pay the bank he used accurate?
the proceeds for a good a. The criminal liability will not
reason. attach to X as President
b. Fraud or deceit is a because of separate juridical
necessary element to hold X personality.
criminally liable for non - b. For violation of Trust
Receipts Law, the law

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specifically provides for who bears the risk of the


the imposition of penalty loss;
upon directors I officers of d. the party who acquires
the 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
a. get the goods only as a
the imposition of penalty
collateral;
upon directors I officers of
b. not get good title to the
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; 13. X acted as an accommodation party
c. the person to whom goods in signing as a maker of a
are delivered for sale and promissory note. Which phrase best

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completes the sentence - This b. The promissory note is


means that X is liable on the non-negotiable because the
instrument to any holder for value: option as to which form of
payment is with the
a. for as long as the holder does maker.
not know that X is only an c. The promissory note is an
accommodation party. invalid instrument because
b. even though the holder there is more than one form
knew all along that X is of payment.
only an accommodation d. The promissory note can be
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

consideration for acting as to which form of payment is with

accommodation party. the maker.

SUGGESTED ANSWER: 15. X issued a promissory note which


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

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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
SUGGESTED ANSWER: underlying obligation still
exists.
b. Yes. The promissory note is b. that cannot anymore be paid
negotiable even though the and the underlying
amount is stated in foreign obligation under the check is
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
incurred by X in favor of Y. Y then
presented for payment within
delivered the check to Z in payment
a period of thirty (30) days.
for certain obligations. Which
statement is most accurate? SUGGESTED ANSWER:
a. Z can encash the check
even though Y did not a. that cannot anymore be paid
indorse the 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

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


the bank itself for the delivery only.
account of 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
marked non-negotiable.
of a bank in the name of the bank
b. Z can claim payment from
against the bank itself for the
X even though it is marked
account of the bank.
non-negotiable.
c. Z can claim payment from Y
19. Which phrase best completes the
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:

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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
b. that when negotiated, they estopped from denying the
can be used to pay genuineness of the
indebtedness. signature of the X, the
c. that at all times the delivery drawer of the 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
b. That when negotiated, they can the signature of the X, the drawer
be used to pay indebtedness. of the 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.

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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 the word "Tiger Woods". To validly
a valid indorsement, although will endorse the check -
result in the assignment of the a. Tiger Woods must sign his
part. real name.
b. Tiger Woods must sign both
24. A promissory note which does not his real name and assumed
have the words "or order" or "or name.
bearer" will render the promissory c. Tiger Woods can sign his
note non-negotiable, and therefore - assumed name.
a. it will render the maker not d. the check has become non-
liable; negotiable.
b. the note can still be assigned
and the maker made liable; SUGGESTED ANSWER:
c. the holder can become
holder in due course; a. Tiger Woods can sign his

d. the promissory note can assumed name.

just be delivered and the


maker will still be liable.

27. Y, as President of and in behalf of


SUGGESTED ANSWER:
AAA Corporation, as a way to

d. the note can still be assigned accommodate X, one of its

and the marker made liable stockholders, endorsed the check


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

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


prevail over the one expressed in
SUGGESTED ANSWER: numbers.

a. it is an ultra vires act. 29. A promissory note which is undated


b. it is a valid indorsement. is presumed to be -
a. dated as of the date of
Recommendation in respect of MCQ #27:
issue;
b. dated as of the date of the
It is recommended that examinees be given
first indorsement;
full credit for whatever answer they gave as
c. promissory note is invalid
there are two possible correct answers of
because there is no date;
equal value: (a) which is supported by the
d. dated on due date.
case of Jose v. CA, et al., G.R. No. 80599,
September 15,1989, and (b) which is
SUGGESTED ANSWER:
supported by Section 22 of the Negotiable
Instrument Law. a. dated as of the date of issue

28. In a negotiable instrument, when 30. An insurance contract is an aleatory


the sum is expressed both in contract, which means that -
numbers and in words and there is a. the insurer will pay the
discrepancy between the words and insured equivalent to the
the numbers - amount of the premium paid.
a. the sum expressed in b. the obligation of the
words will prevail over the insurer is to pay depending
one expressed in numbers. upon the happening of an
b. the sum expressed in uncertain future event.
numbers will prevail over the c. the insured pays a fixed
one expressed in words. premium for the duration of
c. the instrument becomes void the policy period and the
because of the discrepancy. amount of the premiums
d. this will render the paid to the insurer is not
instrument invalid. necessarily the same amount
as what the insured will get
SUGGESTED ANSWER:
upon the happening of an
uncertain future event.

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


is to pay depending upon the in favour of the insured and strictly
happening of an event that is against the insurer who drafted the
certain to happen. insurance 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 life insurance on his own life and
to pay depending upon the happening of made her the sole beneficiary. Y did
an 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
c. the proceeds of the life
liberally in favor of the
insurance will go to the
insured and strictly against
compulsory heirs of Y.
the insurer who drafted the
d. the proceeds of the life
insurance 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.

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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:

statement is most accurate?


c. the life insurance policy is valid
a. The insurer will be liable.
provided the beneficiary is his estate or
b. The insurer will not be liable.
his 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
SUGGESTED ANSWER:
reinstatement of the life

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


insurer cannot anymore
34. X, a minor, contracted an insurance prove that the policy is
on his own life. Which statement is void ab initio or
most accurate? rescindable by reason of
a. The life insurance policy is fraudulent 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 even though premium is not
beneficiary is his estate or paid.
his parents, or spouse or d. that the insured can only
child. claim proceeds in a life

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


years after death. perfection and at the time of loss for
property
SUGGESTED ANSWER:
37. A house and lot is covered by a real
b. the two (2) years after date of estate mortgage (REM) in favor of
issuance or reinstatement of the life ZZZ Bank. The bank required that
insurance policy the insurer cannot the house be insured. The owner of
anymore prove that the policy is void the policy failed to endorse nor
abignitio or rescindable by reason of assign the policy to the bank.
fraudulent concealment or However, the Deed of Real Estate
misrepresentation of the insured. Mortgage has· an express provision
which says that the insurance policy
36. For both the Life Insurance and
is also endorsed with the signing of
Property Insurance, the insurable
the REM. Will this be sufficient?
interest is required to be -
a. No, insurance policy must
a. existing at the time of
be expressly endorsed to
perfection of the contract
the bank so that the bank
and at the time of loss.
will have a right in the
b. existing at the time of
proceeds of such insurance
perfection and at the time
in the event of loss.
of loss for property
b. The express provision
insurance but only at the
contained in the Deed of Real
time of perfection for life
Estate Mortgage to the effect
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:

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a. No, insurance policy must be 39. X insured the building she owns
expressly endorsed to the bank so that with two (2) insurance companies
the bank will have a right in the for the same amount. In case of
proceeds of such insurance in the event damage, -
of loss. a. X can not claim from any of
the two (2) insurers because
38. X is a passenger of a jeepney for hire with the double insurance,
being driven by Y. The jeepney the insurance coverage
collided with another passenger becomes automatically void.
jeepney being driven by Z who was b. the two (2) insurers will be
driving recklessly. As a result of the solidarily liable to the extent
collision, X suffered injuries. Both of the loss.
passenger jeepneys are covered by c. the two (2) insurers will be
Comprehensive Motor Vehicular proportionately liable.
Insurance Coverage. If X wants to d. X can choose who he wants
claim under the "no fault indemnity to claim against.
clause", his claim will lie -
a. against the insurer of the SUGGESTED ANSWER:
jeepney being driven by Z
who was the one at fault. d. X can choose who he wants to

b. the claim shall lie against claim against.

the insurer of the


40. When X insured his building, X
passenger jeepney driven
indicated in the application that it is
by Y because X was his
a residential building, but actually
passenger.
the building was being used as a
c. X has a choice against whom
warehouse for some hazardous
he wants to make his claim.
materials. What is the effect on the
d. None of the above.
insurance policy, i f any?

SUGGESTED ANSWER: a. The insurance policy can be


cancelled because of the
b. the claim shall lie against the change in the use.
insurer of the passenger jeepney driven b. The insurance policy will
by Y because X was his passenger. automatically be changed.
c. The insurance policy need
not be changed.

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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.
It is recommended that examinees be given
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
when he indication in his application that proceeds of the insurance policy because
the building is residential when it was what is material is that at the time of
actually being used as a warehouse. The the loss, X is the owner of the house and
problem does not indicate that the change in lot.
the use of the house was carried out by X
and that it was done without the permission 42. X, while driving his Toyota Altis,

of the insurer. tried to cross the railway tract of


Philippine (xxx line 2 unread text
41. X owned a house and lot. X insured xxx) approached BlumentrittAvenida
the house. The house got burned. Ext., applied its horn as a warning
Then he sold the partially burnt to all the vehicles that might be
house and the lot to Y. Which crossing the railway tract, but there
statement is most accurate? was really nobody manning the
a. X is not anymore entitled to crossing. X was listening to his lpod
the proceeds of the touch, hence, he did not hear the
insurance policy because he sound of the horn of the train and
already sold the partially so his car was hit by the train. As a
burnt house and lot. result of the accident, X suffered
b. X is still entitled to the some injuries and his car was totally
proceeds of the insurance destroyed as a result of the impact.
policy because what is Is PNR liable?
material is that at the time a. PNR is not liable because X
of the loss, X is the owner should have known that he
of the house and lot. was crossing a place
c. No one is entitled to the designated as crossing for
proceeds because ownership

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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
blew its horn when it was negligence or willful act of
about to cross the railway its employees even though
along BlumentrittAvenida they acted beyond the
Ext. scope of their
d. PNR is not liable because X responsibility.
was negligent, for listening to d. The bus company is not
his lpod touch while driving. liable because there is no
way that the bus company
SUGGESTED ANSWER: can anticipate the act of X.

a. PNR is not liable because X SUGGESTED ANSWER:


should have known that he was crossing
a place designated as crossing for train, c. The bus company is liable
and therefore should have been more because common carriers are liable for
careful. the negligence or wilful act of its
employees even though they acted
43. The AAA Bus Company picks up beyond the scope of 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.

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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 checks- in her baggage.
cargo 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
d. None of the above.
of the Warsaw Convention on Air

SUGGESTED ANSWER: Transport.

b. it is possible to have a contract 46. X owns a passenger jeepney covered

of carriage of cargo even wiht by Certificate of Public Convenience.


He allowed Y to use its Certificate of
45. X took Philippine Airlines Flight PR Convenience for a consideration. Y
102 to Los Angeles, USA. She had therefore was operating the
two (2) luggage checked-in and was passenger jeepney under the same
issued two (2) baggage checks. Certificate of Public Convenience

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(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 is most accurate?
the injured party despite a. X as the owner is exempt
the fact that it is Y who is from liability because he was
actually operating the not the one driving.
jeepney, because while the b. X as the owner is exempt
Kabit System is tolerated, from liability because
the 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 liability because he
owner anymore. remains to be the
d. Public Policy dictates that registered owner and the
the real owner, even not the boundary system will not
registered one, will be held allow the circumvention of
liable. the law to 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
because while the Kabit System is liability because he remains to be the
tolerated, the public should not be registered owner and the boundary
inconvenienced by the arrangement. system will not 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 Securities and Exchange

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Commission (SEC). After the receipt he signed all the loan


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

SUGGESTED ANSWER: b. X, as President, cannot be


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

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

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SUGGESTED ANSWER: Was the Corporate Secretary


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

c. Any number in multiples of five d. The Corporate Secretary

(5), for as long as it is not less than five cannot refuse because it is

(5) and no more than fifteen (15) his legal duty to issue a
stock certificate
54. X subscribed 10,000 shares in the corresponding to the number
capital stocks of AAA Corporation. of shares actually subscribed
He paid 50% of the 10,000 shares. X regardless of the actual
asked the Corporate Secretary to payment.
issue him the corresponding stock
certificate representing the 50% of SUGGESTED ANSWER:

what he already paid. The Corporate


Secretary of the corporation refused.

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a. The Corporate Secretary is merger anytime after the


correct because the Corporation Code approval of the SEC.
provides that no certificate of stock
shall be issued to a subscriber until the SUGGESTED ANSWER:

shares as subscribed have been fully


b. The effective date of the
paid.
merger is always the date of the approval

55. XXX Corporation and YYY of the Articles of Merger by the SEC.

Corporation have agreed to be


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

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SUGGESTED ANSWER: b. Classification of shares may be


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

SUGGESTED ANSWER: It is recommended that examinees be given


full credit for whatever answer they give as
the question is vague. It does not state that

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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
59. X sold all his shares in AAA Hotel in the juridical entity and therefore
Corporation to Y. X owns 99% of existing employees cannot automatically
AAA Hotel Corporation. As the new be 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 business in the Philippines,

actually no change in the South China Airlines can sue

juridical entity and before the Philippine Courts

therefore existing and can also be sued.

employees can not b. South China Airlines can sue

automatically be but cannot be sued.

considered 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

those employees who in his be sued in Philippine

judgment are qualified. Courts 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
terminated.
sued in Philippine Courts but cannot
sue.

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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
shareholders of the company. They will have preemptive rights
hold 20% each. How will the to the extent of their
additional shares be divided among existing 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
only.
will have preemptive rights
b. the approval of the majority
to the extent of their
of the stockholders and the
existing 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:
Recommendation in respect of MCQ #62:

a. The existing shareholders


It is recommended that examinees be given
can subscribe to the new
full credit for whatever answer they gave as

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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

instituted in behalf of the ipso 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.


Which statement is most accurate?
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
accordance with its Articles of the new members of the
Incorporation ended last January Board.
30, 2012. The term was not

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b. This is not allowed because of its license to do


the term of the directors business.
must only be for one (1) year. b. There is no more effect in the
c. The positions of the license because anyway at
members of the Board of the time of registration, a
Directors will be resident agent was
automatically declared appointed.
vacant. c. This can be a ground for
d. Acting as members of the suspension only.
Board of Directors in a hold d. This will result in automatic
over capacity must be revocation of its license to do
ratified by the stockholders. business in the Philippines.

SUGGESTED ANSWER: SUGGESTED ANSWER:

a. This is allowed provided there a. This can be a ground for


is a valid and justifiable reason for not revocation or suspension of its license to
calling for an election of the new do business.
members of the Board.
67. The By-laws of ABC Corporation is
66. AAA Corporation is a foreign silent as to when a stockholder can
corporation that wants to operate a be qualified to attend the meeting of
representative office here in the the stockholders. The Corporate
Philippines. As required by the Secretary sent out the notice of the
Corporation Code, there is a need to stockholders meeting two (2) days
appoint a Resident Agent as a before the meeting and at that time
condition precedent to the issuance X was not yet a stockholder. On the
of a license to transact business in day of the meeting, however, X
the Philippines. After two (2) years, became a shareholder which was
AAA Corporation removed its duly recorded in the stock and
Resident Agent and did not appoint transfer book. Which statement is
anyone anymore. Which statement most accurate?
is the most accurate? a. X is a stockholder of ABC
a. This can be a ground for Corporation as of the time
revocation or suspension of meeting of the
stockholders for the

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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.
d. None 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 for all shareholders of a

the stockholders for the purpose of company in terms of

election the 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.

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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. the Securities and Exchange
Commission and the
d. 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;

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73. X maintains a savings deposit in the b. XYZ Corporation is a quasi-


amount of Php·1 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


SUGGESTED ANSWER:
maintained 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
statement is most accurate?
a. XYZ Corporation is a bank.

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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
b. The housing loan of X may be allowed provided it
requires the approval of the is with 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, within ten (1 0) years.
being a benefit for d. Buying back the shares may
employees, will 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
77. ABC Holdings Company, a Hong within 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

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to produce all documents pertaining big amounts. Which statement is


to all the deposit accounts of X? most accurate?
a. Yes, because there is a. The same rules under
already a pending case and Secrecy of Bank Deposit
provided the subpoena Act will apply.
must be specific as to b. An approval from the
which account. Monetary Board is necessary
b. Yes, it is enough that the to open the account.
specific bank is identified. c. Because the deposit is in US
c. No, because the issuance of Dollars, it is covered by the
the subpoena has no real Foreign Currency Deposit
legal basis. Act which allows disclosure
d. Even without a subpoena, only upon the written
information about the permission of the depositor.
deposit accounts of X can be d. Approval from the Court is
submitted to the necessary to order disclosure
Sandiganbayan because it of the account.
will be used in a pending
case. SUGGESTED ANSWER:

SUGGESTED ANSWER: a. The same rules under Secrecy


of Bank deposit Act will apply.
a. Yes, because there is already a
pending case and provided the subpoena 80. X is a depositor of AAA Bank. She

must be specific as to which account. has three (3) deposit accounts all
under her name. One, in checking
79. X, a private individual, maintains a account, one in saving account and
dollar deposit with ABC Bank. X is another one in time deposit account.
suspected to be the leader of a Each account has a balance of
Kidnap for Ransom Gang and he is Php250,000. AAA Bank became
suspected of depositing all ransom insolvent. Philippine Deposit
money in said deposit account Insurance Corporation closed the
which are all in US Dollars. The Bank. X therefore is unable to
police want to open said account to withdraw from all of the accounts.
know if there are really deposits in She then filed her claims with the
Philippine Deposit Insurance

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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 82. X works as a research computer

three (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:

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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 protected from moment of
of the prevalent features of creation.
the 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 because artistic works are protected
the prevalent features of the competing from moment of creation.
marks 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
his use because this is not a Affairs of the Intellectual
copyrightable material. Property Office;
c. the owner of the Patent right;

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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
c. future obligations only;
the 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
consider whether use is fair or not the 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 property;
work. c. properties described in the
c. effect of the use upon the deed except in case of
public in general. stock in trade being a
d. effect of the use upon the substitute;
class in which the creator d. after acquired property.
belongs.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
c. properties described in the
b. effect of the use upon the deed except in case of stock in trade
potential market of the work. being a 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

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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
mortgagee; and the principal office of
b. is binding between the the corporation.
mortgagor and the
mortgagee but will not SUGGESTED ANSWER:

affect third party;


d. With the Register of Deeds
c. to be valid between the
where the debtor resides and the
mortgagor and the
principal office of the corporation.
mortgagee, it must be
coupled with the delivery of
91. Which phrase best completes the
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 securing the obligations

mortgagor and the mortgagee but will specified and that the

not affect third 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:

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a. an oath where then parties SUGGESTED ANSWER:


swear that the mortgage is made for the
purpose of securing the obligations b. the one (1) year period will not

specified and that the obligation is just be interrupted by the filing of the action.

and valid.
93. What is the effect if the. proceeds in

92. X defaulted in his loan with Y. Y an extra-judicial foreclosure sale is

instituted extra-judicial foreclosure not sufficient to pay for the

of the property subject of a real obligation?

estate mortgage that secured the a. the mortgagee can claim

loan. X has one year within which to for deficiency judgment

redeem the property. After the from the debtor.

foreclosure, X filed an action b. the mortgagee can claim for

questioning the validity of the extra- deficiency judgment from the

judicial foreclosure sale. Which mortgagor even though it is a

statement is most accurate? third party mortgage.

a. The one (1) year period c. the mortgagee has no more

within which to redeem will recourse or claim against the

be interrupted by the filing of debtor.

an action questioning the d. the mortgagee cannot claim

validity of the foreclosure. for deficiency judgment from

b. The one (1) year period will the debtor because its an

not be interrupted by the extrajudicial foreclosure.

filing of the action.


SUGGESTED ANSWER:
c. The one (1) year period will
be extended for another year
a. The mortgage can claim for
because of the filing of an
deficiency judgement from the debtor.
action questioning the
validity of the foreclosure 94. X mortgaged her residential house
sale. and lot in favor of ABC Bank. X
d. If the action which questions defaulted in her loan and so the
the validity of the foreclosure bank foreclosed the real estate
prospers, the period will be mortgage on the residential house. Y
interrupted. then bought the residential house
and lot before the expiration of the

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redemption period. Can Y now take foreclose if collection is not


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

entitled to the possession of


c. the creditor can foreclose the
the house.
mortgage and demand collection for any
c. No, because there is a need
deficiency.
to talk to X to leave the
house.
96. XYZ Corporation bought ten (1 0)
d. No, because Y was not the
units of Honda Civic from CCC
one who foreclosed the
Corporation. ABC Bank granted a
mortgage on the property.
loan to XYC Corporation which
executed a financing agreement
SUGGESTED ANSWER:
which provided for the principal

a. No, because it is still covered amount, the installment payments,

by the redemption period and the the interest rates and the due dates.

purchaser is not yet entitled as a matter On due dates of the installment

of right to take possession of the payments, XYZ Corporation was

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

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amount of the monthly investments with any bank,


installments but also the when the inquiry or
details of the finance examination is made in the
charges as required by the course of the SSP's periodic
Truth in 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
taxpayer files an application
charges as required by the
to compromise his tax
Truth in 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

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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.

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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 (C) Yes, since the extent of the ship’s
did nothing to protect a damage was greater than that of the
passenger who remained in the value of the lost cargo.
bus during the stop-over.
(D) No, since X Shipping neither
(B) No, since the carrier's crew could incurred a total loss nor
not have foreseen the attack. abandoned 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
aground off the coast of Cebu during a maker and debtor.
storm and lost all its cargo amounting to
Php50 Million. The ship itself suffered

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(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
S paid the freightage. Meanwhile, the boxes
pre-emption.
were stored in the bus liner’s 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 S’s 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?

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(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
unconditionally placed with T for the finances, policies, and
transportation. business 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:

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(A) examining the agent’s special (D) either actual or constructive


power of attorney. receipt.

(B) examining the bill to (12) On X’s failure to pay his loan to ABC
determine the extent of such Bank, the latter foreclosed the Real Estate
authority. Mortgage he executed in its favor. The
auction sale was set for Dec. 1, 2010 with
(C) asking the agent about the the notices of sale published as the law
extent of such authority. required. The sale was, however, cancelled
when Dec. 1, 2010 was declared a holiday
(D) asking the principal about the
and re-scheduled to Jan. 10, 2011 without
extent of such authority.
republication of notice. The auction sale
then proceeded on the new date. Under the
(10) Under the Negotiable Instruments Law,
circumstances, the auction sale is
if the holder has a lien on the instrument
which arises either from a contract or by
(A) rescissible.
implication of law, he would be a holder for
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
face value of Php50,000.00, payable to the
(D) the amount indicated on the
order of Y. Y indorsed the note to Z, to
instrument's face.
whom Y owed Php30,000.00. If X has no
defense at all against Y, for how much may
(11) The liability of a common carrier for the
Z collect from X?
goods it transports begins from the time of

(A) Php20,000.00, as he is a holder


(A) conditional receipt.
for value to the extent of the

(B) constructive receipt. difference between Y's debt and the


value of the note.
(C) actual receipt.
(B) Php30,000.00, as he is a holder
for value to the extent of his lien.

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(C) Php50,000.00, but with the (16) P sold to M 10 grams of shabu worth
obligation to hold Php20,000.00 Php5,000.00. As he had no money at the
for 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
(B) unknown principals.
and 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 employee’s
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.

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(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
available to prior parties among themselves. or 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 mileage that the ship had accumulated.
the Articles of Incorporation or in May the insurer be made to answer for the
the By-laws. damage to the cargo and the ship?

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(A) Yes, because the insurance (D) Yes, since X and Y are Z’s
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 (B) Both B and C, as they are your
ordinary usage of the ship, and partners.
thus not due 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 genuine.
with him.

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(B) Yes, because X, as a qualified divulge it. The reason for this is that the
indorser, warrants that the note test of concealment of material fact is
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 made in good faith and on a
maker due to the minority of T, reasonable ground for believing that
the drawee. it was necessary to avoid a peril.

(D) Yes, since in a bill of exchange, (B) No, because no reasonable


notice of dishonor is at all times ground for avoiding a peril existed
required. at the time of the deviation.

(26) An insured, who gains knowledge of a (C) No, because T relied merely on
material fact already after the effectivity of his supposed gift of prophecy.
the insurance policy, is not obliged to

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(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 misrepresenting himself as C’s agent,

order 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 thereon results in its avoidance, EXCEPT

system or method. against a

(A) prior indorsee.

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(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

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(D) 3 law firm’s letterhead and its computer in


preparing the letter. T also requested the
(36) If the drawer and the drawee are the firm’s 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
(A) non-negotiable instrument. letter.

(B) promissory note. (B) Both T and the publisher, one


wrote the letter to the other who has
(C) letter of credit.
possession of it.

(D) check.
(C) The law office since T was an
employee and he wrote it on the
(37) D draws a bill of exchange that states:
firm’s letterhead.
"One month from date, pay to B or his order
Php100,000.00. Signed, D." The drawee
(D) The publisher to whom the letter
named in the bill is E. B negotiated the bill
was sent.
to M, M to N, N to O, and O to P. Due to
non-acceptance and after proceedings for (39) E received goods from T for display and
dishonor were made, P asked O to pay, sale in E's store. E was to turn over to T the
which O did. From whom may O recover? proceeds of any sale and return the ones
unsold. To document their agreement, E
(A) B, being the payee
executed a trust receipt in T’s favor
covering the goods. When E failed to turn
(B) N, as indorser to O
over the proceeds from his sale of the goods

(C) E, being the drawee or return the ones unsold despite demand,
he was charged in court for estafa. E moved
(D) D, being the drawer to dismiss on the ground that his liability is
only civil. Is he correct?
(38) T, an associate attorney in XYZ Law
Office, wrote a newspaper publisher a letter (A) No, since he committed fraud
disputing a columnist’s claim about an when he promised to pay for the
incident in the attorney’s family. T used the goods and did not.

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(B) No, since his breach of the (B) principal creditor.


trust receipt agreement subjects
him to both civil and criminal (C) secondary creditor.

liability for 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 X’s 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.

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(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
application and mailed, on the same day, admits the existence of the
its acceptance plus the cover note. It drawer.
reached X's residence on August 11, 2011.
But, as it happened, on August 4, 2011, X (B) No, since by accepting, E
figured in a car accident. He died a day warrants that he is solvent.
later. May X's heirs recover on the
insurance policy? (C) Yes, if E was not aware of that
fact at the time of acceptance.
(A) Yes, since under the Cognition
Theory, the insurance contract was (D) Yes, since a bill of exchange with

perfected upon acceptance by the a fictitious drawer is void and

insurer of X's application. inexistent.

(B) No, since there is no privity of (46) Due to his debt to C, D wrote a

contract between the insurer and promissory note which is payable to the

X’s heirs. order of C. C's brother, M, misrepresenting


himself as agent of C, obtained the note
(C) No, since X had no knowledge from D. M then negotiated the note to N
of the insurer's acceptance of his after forging the signature of C. May N
application before he died. enforce the note against D?

(D) Yes, since under the (A) Yes, since D is the principal
Manifestation Theory, the insurance debtor.
contract was perfected upon
acceptance of the insurer of X's (B) No, since the signature of C

application. was forged.

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(C) No, since it is C who can enforce earlier than 5 years prior to the
it, the note being payable to the corporation’s expiration date.
order of C.
(C) No, since a corporation can in
(D) Yes, since D, as maker, is fact 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 corporation’s 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
correct?
proper defense is due diligence in
the selection and supervision of
(A) No, since the 5-year rule on
the 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

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(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

was then elected in his place. Until which warrants that the note is genuine

time should S serve as director? and in all respects what it


purports to be.
(A) April 11, 2011.
(51) X Corp., whose business purpose is to
(B) Feb. 1, 2011. manufacture and sell vehicles, invested its
funds in Y Corp., an investment firm,
(C) May 17, 2011. through a resolution of its Board of
Directors. The investment grew
(D) Nov. 21, 2011.
tremendously on account of Y Corp.'s
excellent business judgment. But a
(50) M, the maker, issued a promissory note
minority stockholder in X Corp. assails the
to P, the payee which states: "I, M, promise
investment as ultra vires. Is he right and, if
to pay P or order the amount of Php1
so, what is the status of the investment?
Million. Signed, M." P negotiated the note
by indorsement to N, then N to O also by
(A) Yes, it is an ultra vires act of the
indorsement, and O to Q, again by
corporation itself but voidable only,
indorsement. But before O indorsed the
subject to stockholders’ ratification.
note to Q, O's wife wrote the figure "2" on
the note after "Php1" without O's (B) Yes, it is an ultra vires act of its
knowledge, making it appear that the note Board of Directors and thus void.
is for Php12 Million. For how much is O
liable to Q? (C) Yes, it is an ultra vires act of
its Board of Directors but voidable
(A) Php1 Million since it is the only, subject to stockholders’
original tenor of the note. ratification.

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(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
(52) Notice of dishonor is not required to be not 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 marine insurance, it is required that the

him 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 firm’s
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:

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(A) does not exceed 25% of the expressed, explained, illustrated,


outstanding capital stock. or embodied in a work.

(B) exceeds 25% of the outstanding (D) Yes, since Y’s 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
following week, X, without notes, presented withdrawing shareholder is not a
a lecture on his findings before the disinterested 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 X’s 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.

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(B) forever. (C) The insured’s formal assignment


of his right to indemnification to the
(C) 50 years from the time the insurer.
author created his work.
(D) The insured’s 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 X’s
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 insurer’s
her ride to work and another for her ride
payment of the insured.

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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

MRT got into a fight near the flower shop, bill 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 insurances’s
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 Y’s
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.

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(B) No, since Y’s remedy is to run (A) Yes, but solidarily with Y.
after the forger, X.
(B) Yes, since X’s 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 (C) No, since it is the buyer at the
to know the signature of Y, its auction sale who should answer for
client. the deficiency.

(66) The rule is that no stock dividend shall (D) No, because X is not Z’s
be issued without the approval of 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 (B) No, since it has no power to

of 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 Y’s request, executed a Real (69) Perils of the ship, under marine

Estate Mortgage (REM) on his (X’s) 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
the loan but half of Y's obligation remained
of the sea.
unpaid. May Z sue X to enforce his right to
the deficiency?

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(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
dissertations prepared for oral delivery, his 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
(C) Yes but only from the drawer. grant X's application.

(D) Yes but only from the holder. (B) No, since Y may be regarded as
ABC’s agent and he already knew of
(72) The rule is that the intentional X’s previous hospitalization.
cancellation of a person secondarily liable

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(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 company’s
(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


(B) Yes, since it is the corporation
and 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.

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(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 allowed?
negligence and bad faith in the
discharge of their duties. (A) No, it would be deceptive since
he is a proprietor, not a
(77) T is the registered trademark owner of corporation.
"CROCOS" which he uses on his ready-to-
wear clothes. Banking on the popularity of (B) No, since "A" is a generic name,

T's trade mark, B came up with his own not suitable for registration.

"CROCOS" mark, which he then used for


(C) Yes, since his line of business is
his "CROCOS" burgers. T now sues B for
public transportation.
trademark infringement but B argues that
his product is a burger, hence, there is no
(D) Yes, since such name would give
infringement. Is B correct?
his business a corporate identity.

(A) No, since the owner of a well-


(79) T delivers two refrigerators to the
known mark registered in the
warehouse of W who then issues a
Philippines has rights that
negotiable receipt undertaking the delivery
extends even to dissimilar kinds
of the refrigerators to "T or bearer." T
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.

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(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

of Directors to amend its By-laws. By company must have at least

majority vote, the Board then approved the PhP75 Million paid-up capital.

amendment. Is this amendment valid?


(B) Yes, since there is substantial

(A) No since the stockholders compliance with our nationalization

cannot delegate their right to laws respecting paid-up capital and

amend the 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 FIMA’s paid up capital

the By-laws. more than meets the country’s


nationalization laws.

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(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
(B) absolute. fixed period after the occurrence
of an event which may not
(C) discretionary.
happen.

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

(C) X, being Y’s judgment creditor


(A) No, since the law declared void

(D) Y, being the owner of the goods the contract on which the
promissory note was founded.

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(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
(87) P authorized A to sign a bill of of Z, his only right being to
exchange in his (P’s) name. The bill reads: collect.
"Pay to B or order the sum of Php1 million.
Signed, A (for and in behalf of P)." The bill (D) Yes, since X owed Y Php1

was drawn on P. B indorsed the bill to C, C Million.

to D, and D to E. May E treat the bill as a


(89) X Shipping, Co., insured its vessel MV
promissory note?
Don Teodoro for Php100 Million with ABC

(A) No, because the instrument is Insurance, Co. through T, an agent of X

payable to order and has been Shipping. During a voyage, the vessel

indorsed several times. accidentally caught fire and suffered


damages estimated at Php80 Million. T
(B) Yes, because the drawer and personally informed ABC Insurance that X
drawee are one and the same Shipping was abandoning the ship. Later,
person. ABC insurance denied X Shipping’s claim
for loss on the ground that a notice of
(C) No, because the instrument is a abandonment through its agent was
bill of exchange. improper. Is ABC Insurance right?

(D) Yes, because A was only an (A) Yes, since X Shipping should
agent of P. have ratified its agent’s action.

(88) Z wrote out an instrument that states: (B) No, since T, as agent of X
"Pay to X the amount of Php1 Million for Shipping who procured the
collection only. Signed, Z." X indorsed it to

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insurance, can also give notice of is sufficient that he was declared


abandonment for his principal. no 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 ¾ 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
(A) Yes, since the new law cannot be good 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.

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(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 X’s 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 X’s favor.
received value for the restrictive

(D) No, since it is in fact an indorsement.

innominate contract between X and


Y.

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(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 (P’s) 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?

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(A) No, since the drawer and References:


drawee 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
outstanding capital stock.

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


stockholders.

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


stockholders representing the
outstanding capital stock.

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