Roxan R.

Labis
MERCANTILE COMPRE QUESTIONS AND SUGGESTED ANSWERS

PROBLEM: Jed Salvio had falsely misrepresented that his wife Vanessa Alayon was not suffering
from diabetes although she was in fact afflicted with diabetes when he procured a 10-year insurance
policy on the life of his wife, which has been in effect for six years after its issuance on December 30,
2010 by Alpha Insurance Company Co. Subsequently, on January 1, 2017 the marriage of Jed Salvio
and Vanessa Alayon was annulled by a final judgment of a family court. On the other hand, on January
2, 2017 one Paul Solitas, a friend of Jed Salvio, had the life of Vanessa Alayon insured in a 5 year
policy issued by Bravo Assurance Co., after which, on January 3, 2017, Paul Solitas and Vanessa
Alayon married each other. Tragically, Vanessa Alayon died on January 4, 2017 due to diabetes. Jed
Salvio and Paul Solitas, respectively filed insurance claims against the insurers on January 5, 2017.

Q1. On January 5, 2017 may Alpha Insurance Co, successfully rescind the insurance policy on the life
of Vanessa Alayon on the ground of fraudulent misrepresentation of Jed Salvio? Explain.

ANS: In a life insurance policy, the insurer may rescind the contract of insurance during the first two
years when the policy was in force during the lifetime of the insured from the date of its issue or of its
last reinstatement. On the case presented, the period within which to rescind the contract on the
ground of fraudulent misrepresentation prescribed already, the insurance has been in force for six
years.
The defenses to avoid the insurance policy are available only during the first two years of a life
insurance policy, provided that after a policy of insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of two (2) years from the date of
its issue or its last reinstatement, the insurer cannot prove that the policy is void ab initio or is
rescindable by the reason of fraudulent concealment or misrepresentation of the insured or his agent.

Q2. May Alpha Insurance Co. Justifiably deny the insurance claim filed against it by Jed Salvio on the
ground that he and Vanessa Alayon were no longer married when Vanessa Alayon died? Explain.

ANS: In a life insurance policy, it is enough that interest exists at the time the policy takes effect and
need not exist at the time of the loss. On the case presented, Jed Salvio has insurable interest on the
life of Vanessa Alayon since they were legally married when the policy took effect. The subsequent
annulment of their marriage will have no effect on the claim filed by Jed Salvio.

Q3. On what ground may Bravo Assurance Co., on the other hand, justifiably deny the insurance
claim filed against it by Paul Solitas? Explain.

ANS: On the ground that Paul Solitas has no insurable interest on the life of Vanessa Alayon when he
took the life insurance policy on the life of the latter. He took the life insurance on January 2, 2017
during which he is not yet the legal husband of Vanessa Alayon since they got married only on
January 3, 2017.

Q4. Assuming that on January 5, 2017 Bravo assurance Co. Denied the insurance claim filed against it
by Paul Solitas, within what period should Paul Solitas commence the appropriate legal action before
a competent forum to enforce his insurance claim? Expalin.

ANS: The parties to a contract of insurance may validly agree that an action on the policy should be
brought within a limited period of time, provided such period is not less than one (1) year from the

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 time the cause of action accrues. If the period agreed upon is less than one (1) year from the time the
cause of action accrues, such agreement is void.
If there is no stipulation or the stipulation is void the insured may bring the action with ten (10)
years in case the contract is written.
The stipulated prescriptive period shall begin to run from the date of the insurer’s rejection of the
claim filed by the insured or beneficiary and not from the time of the loss.

PROBLEM: Warren Masias signed and delivered the folowing promissory note to Ann Bornales on
January 2, 2017.

January 1, 2017.
Two days after date, I promise to pay to the order of Ann Bornales the sum of
Php.__________ without interest.
(Sgd) Warren Masias

Warren Masias authorized Ann Bornales to fill up the subject promissory note for Php 21,000.00, but
Ann Bornales actually filled it up for Php. 121,000.00. On January 3, 2017 Ann Bornales indorsed the
subject instrument in blank and delivered it to Pearl Esmania who, on January 4, 2017, merely
delivered the same instrument to Dave Dasig without any indorsement. Both Pearl Esmania and Dave
Dasig, respectively, took the subject promissory note in good faith and for value.

Q1. On January 2, 2017 did Ann Bornales, as payee, become holder in due course of the subject
promissory note? Explain.

ANS: A holder in due course is one who has taken the instrument under the following conditions:
1. That the instrument is complete and regular upon its face;
2. That he became the holder of it before it was overdue and without notice that it has been
previously dishonored, if such was the fact;
3. That he took it in good faith and for value; and
4. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.

Since the authority to fill in the amount is only good for Php 21,000.00, Ann Bornales cannot be
considered a holder in due course for the excess amount. Ann Bornales in filling the amount acted not
in good faith.

Q2. On January 3, 2017 did Pearl Esmania, who was neither the payee nor the indorsee of the subject
promissory note, become the holder thereof? Explain.

ANS: Yes, Pearl Esmania become the holder thereof. Since the instrument was converted from order
to bearer by subsequent indorsement in blank, it is proper to assume that Pearl Esmania’s name will
not appear as an indorsee of the instrument, but she is considered as holder because on January 3,
2017 she is the BEARER of the instrument.

*Note, if question is if she is holder in due course, take note of the requisites, but if holder alone, he
may be a holder though she cannot be a holder in due course.

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 Q3. Assuming furthermore, that on January 5, 2017 Dave Dasig enforced the subject promissory note
against Warren Masias, what defense may Warren Masias justifiably interpose to avoid liability on the
subject promissory note? Expalin.

ANS: The defense which Warren can set up against Dave Dasig is that the amount of Php 121,000.00
is not in accordance with the authority given by him and that Dave Dasig is not a holder in due course
since when he acquired the instrument it was already overdue.

Q4. If Warren Masias had dishonored the subject promissory note by non-payment on January 5, 2017
and necessary proceedings on dishonor had been duly taken, after which Dave Dasig alternatively
enforced the subject promissory note against Pearl Esmania who refused to pay because her signature
is not affixed in the said promissory note, may Pearl Esmania refuse to pay?

ANS: No Pearl Esmania cannot refuse to pay. As the one negotiating by mere delivery warrants that:
1. The instrument is genuine, in all respects what it purports to be;
2. She has good title to it;
3. All prior parties had capacity to contract;
4. He had no knowledge of any fact which would impair validly of instrument or render it valueless.

Though her signature do not appear, she cannot refuse to pay because she warrants that she has
good title and will be liable to an immediate party to whom she transferred the instrument.

*In case of negotiation by mere delivery warranty extends only in favor of immediate transferee.

PROBLEM: In answer to the pertinent queries in his application for life insurance with Sendino
Surety Co. On January 1, 2017, the applicant Joshua Artieda disclosed that he was earning Php.
1,000,000.oo per annum and expected to live for only nine more years as he was then 61 years old
and, thus, he would receive income of Php. 9,000,000.00 in that period of nine years, but he concealed
the fact that he has been under treatment for tuberculosis for three years. On the basis of the
application of Joshua Artieda, Sendino Surety Co. issued a life insurance policy dated January 2, 2017
with a face value of Php 9,000,000.00. On the other hand, on January 3, 2017 Joshua Artieda had his
house exclusively owned by him and valued at Php 30,000,000.00 insured against fire for Php
28,000,000.00 in a fire insurance policy issued by C. Conanan Insurers, Inc. On even date. However,
on January 4, 2017 Joshua Artieda died as a result of food poisoning. Joshua Artieda was survived by
his spouse, Joyce Cuadra, who was his sole and only heir who inherited the insured house.

Q1. When Joshua Artieda concealed the fact that he has been under treatment for tuberculosis for
three years in answer to the pertinent queries in his application for life insurance with Sendino Surety
Co., did Joshua Artieda commit a material concealment?

ANS: Yes, Joshua Artieda committed a material concealment. The insured need not die of the disease
he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in
forming his estimates of the risks of the proposed insurance policy or in making inquiries.

Q2. In his application for life insurance with Sendino Surety Co. did Joshua Artieda fraudulently
misrepresent that he expected to live for only nine more years and would receive income of Php
9,000,000.00 in that period of nine years? Explain.

ANS: No, he did not fraudulently misrepresented that he expected to live for nine more years and
would receive income of Php. 9,000,000.00 in that period of nine years.
Although false, a representation of the expectation, intention, belief, opinion, or judgment of the

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 insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or if
it is accepted at a lower premium. This is likewise the rule although the statement is material to the
character, since in such case, the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.

Q3. Assuming that Joshua Artieda did not commit a material concealment nor a fraudulent
misrepresentation when he applied for life insurance with Sendino Surety Co., was the life of Joshua
Artieda over-insured for Php. 9,000,000.00 in the life insurance policy issued by Sendino Surety Co.?
Explain.

ANS: Over-Insurance is applicable only to property when the same is insured for an amount greater
than the value of that property.
In life insurance, there is no limit as to the amount of insurance which may legally be placed upon
the life of a person, hence, no over-insurance to speak of. Further, life insurance is treated substantially
as a valued policy.

Q4. When Joshua Artieda died on January 4, 2017 and his wife Joyce Cuadra inherited the insured
house, was the fire insurance policy issued by Conanan Insurers, Inc. On January 3, 2017 avoided?
Explain.

ANS: No, the fire insurance policy is not avoided, it is merely suspended. A change of interest in any
part of the thing insured, unaccompanied by a corresponding change of interest in the insurance,
merely suspends the insurance to an equivalent extent, until the interest in the thing and the interest in
the insurance are vested in the same person.

PROBLEM: On February 14, 2017 Cheryl Durana issued and delivered the following instrument to
the payee Roxanne Ramos:

To: Agnes Carreon

Eagle’s Inn
San Jose, Antique

Pay to the order of Roxanne Ramos or bearer the sum of Php 22,000.00 on or before
February 26, 2017 at No. 2 Ledesma Street, Iloilo City.

(Sgd) Cheryl Durana

Kalibo, Aklan

Warning: Copy of the PROBLEM came from #31 of the quiz, whereas, copy of the
QUESTIONS came from #22.5 and #22.6, meaning they’re not for themselves, but let’s answer
base on the topic asked.

Q1. On January 6, 2017, after Agnes Carreon had accepted the subject instrument, and thereafter
lovely Labiogo enforces the same for payment against Agnes Carreon, may Agnes Carreon justifiably
refuse to pay on the ground that the signature of Cheryl Durana is forged?

ANS: In the absence of a contract to the contrary, the acceptor before maturity of the bill of exchange
by accepting it, engages that he will pay it according to the tenor of the note or his acceptance
respectively, and in default of such payment, the acceptor is bound to compensate any party to the bill
or any loss or damage sustained by him and caused by such default. Hence, on the case presented,
Carreon cannot refuse to pay because he already accepted the instrument and by such acceptance
warrants that the signature appearing on the instrument is genuine and is the signature of the drawer,

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 Durana.

Q2. If Agnes Carreon had dishonored the subject instrument by non-payment and necessary
proceedings on dishonor had been duly taken, and on January 7, 2017 Lovely Labiogo alternatively
enforced the subject instrument against Vanessa Alayon who refused to pay on the ground that she did
not deliver the subject instrument, may Vanessa Alayon nonetheless be compelled to pay the same and
be held liable thereon? Explain.

ANS:

_______________________
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