2015-2019 Bar Qs To Answer in Mercantile Law

2019 Bar Examinations
A.1.
Define the following terms:
(a) Trust fund doctrine (2%)

Trust fund doctrine is a concept in Corporation Law where the creditors’ claims are protected in several
instances such as but not limited to:
a. Subscribed capital stock. The creditors can go after the stockholders who have not fully paid their
subscriptions.
b. The corporation cannot release dividends without unrestricted retained earnings as this would violate
the trust fund.
(b) Unfair competition (2%)
Unfair competition happens when there is a confusing similarity in the goods of one and the goods of
another with the intention to deceive the public.
(c) Insurable interest in property (2%)
Insurable interest in property is when a person would be pecuniarily affected if the property would be
lost, damaged or destroyed. It is required to insure a property and must exist at the perfection of the
contract and the loss thereof.
(d) Splitting of deposits (2%)
Splitting of deposits is a prohibited act under the law on banking where a person splits his deposit to
different accounts without beneficial ownership to take advantage of the PDIC insurance.
A.2.
In May 2018, ABC Corp. entered into a merchandising contract which terms and conditions were totally lopsided in
favor of the counterparty, XYZ, Inc. As a result, ABC Corp. suffered tremendous financial losses.
A year after, or in May 2019, Mr. X became a stockholder of ABC Corp. Learning about the circumstances
surrounding the merchandising contract, Mr. X filed a derivative suit against ABC Corp. 's directors to claim
damages on behalf of ABC Corp. due to their mismanagement.
(a) What is a derivative suit? (2%)

A derivative suit is a suit filed in behalf of the corporation to defend a wrong or injustice against the
corporation. Its requisites are the following:
a. The stockholder representing the suit is a stockholder when the subject action was done;
b. The stockholder has exhausted the remedies available under the AOI, by-laws of the corporation;
c. There is no appraisal right;
d. The suit is not a nuisance suit;
e. The corporation is made a party to the suit.
(b) Was Mr. X's filing of a derivative suit proper? Explain. (3%)
No, Mr. X’s filing of a derivative suit is not proper.
A derivative suit may be filed if the following are present:

a. The stockholder representing the suit is a stockholder when the subject action was done;
b. The stockholder has exhausted the remedies available under the AOI, by-laws of the corporation;
c. There is no appraisal right;
d. The suit is not a nuisance suit;
e. The corporation is made a party to the suit.
In the case at bar, the requisites of a derivative suit are not present. A derivative suit cannot be filed
since Mr. X was not even a stockholder when the merchandising contract was voted or agreed upon.
Thus, Mr. X’s filing of a derivative suit is not proper.
A.3.
In June 2018, DEF Corp. sent notices to its stockholders informing them of the corporation's issuance of new shares
of stock. The notice included a reminder that, pursuant to DEF Corp.' s Articles of Incorporation, any stockholder
who fails to exercise his or her pre-emptive right within three (3) weeks from receipt of notice would be considered to
have waived the same.
Ms. Z, a stockholder of DEF Corp., failed to exercise her pre-emptive right within the said period. However, she
claimed that she did not validly waive her right to do so because a waiver must be expressed in writing.
(a) Explain the concept of pre-emptive right under the Corporation Code. (2 %)
A pre-emptive right under the Corporation Code is a right given to stockholders to subscribe to the
issuances of new shares of stock by the corporation in proportion to their stockholdings.
(b) Is Ms. Z's contention correct? Explain. (3%)
Ms. Z’s contention is not correct.
Under the Corporation Code, a pre-emptive right may be limited, restricted or denied if there is a
provision in the corporation’s Articles of Incorporation.
In the case at bar, DEF’s Corp.’s AOI explicitly states that failure to exercise the pre-emptive right within
three weeks would be considered a waiver. Thus, the waiver need not be expressed in writing as the
AOI already states what constitutes a waiver to the pre-emptive right.
A.4.
In 2016, X Corp. obtained a loan worth ₱50,000,000.00 from J Bank, which was secured by a third-party mortgage
executed by Y, Inc. in favor of X Corp. Since X Corp. was not able to settle its loan obligation to J Bank when it fell
due, and despite numerous demands, J Bank foreclosed the mortgaged properties. The properties were sold in a
foreclosure sale for ₱35,000,000.00, thereby leaving a ₱15,000,000.00 deficiency. For failure of X Corp. to pay said
deficiency, J Bank filed a complaint for sum of money against X Corp., its President, Mr. P, and Y, Inc.
With respect to Mr. P, J Bank argued that he should be held solidarily liable together with X Corp. because he
signed the loan document on behalf of X Corp. in his capacity as President. On the other hand, J Bank contended
that Y, Inc. should also be held solidarily liable because the shareholdings of both corporations are identically
owned and their operations are controlled by the same people; hence, Y, Inc. is a mere alter ego of X Corp.
(a) Should Mr. P be held liable? Explain. (2.5%)

Mr. P cannot be held solidarily liable with X Corp merely because he signed the loan document in behalf
of X Corp as President.
Under the Revised Corporation Code, a corporation acquires a separate personality from that of its
directors and stockholders. By virtue of this doctrine, stockholders cannot be held personally liable for
the corporation’s liabilities.
In the case at bar, Mr. P was merely acting for and in behalf of the corporation as President. Mr. P did
not solidarily hold himself liable in his personal capacity by signing the document. X Corp has a separate
personality from Mr. P. Thus, X Corp’s liability should not extend to Mr. P’s personal property.
(b) Should Y, Inc. be held liable? Explain. (2.5%)
Y, Inc. cannot be held liable as an alter ego of X Corp.
Under the Revised Corporation Code, a corporation acquires a separate personality from that of its
directors and stockholders. The Supreme Court has held that an exception to this rule is the piercing of
the veil of corporate fiction. Piercing of the Veil may be applied when a corporation uses another
corporation as a mere alter ego, to perpetrate fraud, evade liabilities, and conceal unlawful activities.
However, the Supreme Court has held that the fact that the shareholdings of both corporations are
identically owned and controlled by the same people do not necessarily constitute the application of the
exception
In the case at bar, there are no facts that would admit the exception of piercing the corporate veil. It must
be proven that X Corp used Y Inc as a mere alter ego to perpetrate fraud, evade liabilities or conceal
unlawful acts. Thus, Y Inc. cannot be held liable as it is considered to have a separate personality of its
own.
A.5.
Mr. Y filed a case captioned as "Injunction with Prayer for Status Quo Order, Temporary Restraining Order and
Damages" against Z Company to prohibit the latter from selling shares which Mr. Y purportedly bought from Z
Company. Mr. Y alleged that the subscription for the said shares was already partly paid by him, but the subject
shares were nonetheless being offered for sale by Z Company to the corporation's other stockholders.
(a) Is the case filed by Mr. Y against Z Company considered an intra-corporate dispute? Explain.
(2.5%)
Yes, the case filed by Mr. Y against Z Company is not an intra-corporate dispute.
An intra-corporate dispute requires two test: the relationship test and the nature of the controversy test.
Under the relationship test, it is an intra-corporate dispute when it is between the following persons:
- stockholders and the corporation
- the stockholders and stockholders
- the corporation and the state
- the corporation and the public
Under the nature of the controversy test, the issue of the dispute is the enforcement of the rights and
obligations of a party under the corporation code and internal rules of the corporation.
(b) Assuming that it was Z Company which instead filed a case against Mr. Y in order to collect the
unpaid balance of his stock subscriptions, is the case considered an intra-corporate dispute?
Explain. (2.5%)
A.6.
In January 2016, Mr. H was issued a life insurance policy by XYZ Insurance Co., wherein his wife, Mrs. W, was
designated as the sole beneficiary. Unbeknownst to XYZ Insurance Co., however, Mr. H had been previously
diagnosed with colon cancer, the fact of which Mr. H had concealed during the entire time his insurance policy was
being processed.
In January 2019, Mr. H unfortunately committed suicide. Due to her husband's death, Mrs. W, as beneficiary, filed a
claim with XYZ Insurance Co. to recover the proceeds of the late Mr. H's life insurance policy. However, XYZ
Insurance Co. resisted the claim, contending that: 1. the policy is void ab initio because Mr. H fraudulently
concealed or misrepresented his medical condition, i.e., his colon cancer; and 2. as an insurer in a life insurance
policy, it cannot be held liable in case of suicide. Rule on each of XYZ Insurance Co.'s contentions. (5%)
Rule on each of XYZ Insurance Co.'s contentions. (5%)
Both contentions of XYZ Insurance Co. are untenable.
It is a rule in Insurance Law that a life insurance becomes incontestable after two years from perfection or
two years from reinstatement. This means that the insurer can no longer contest the validity of the life
insurance after two years. The two year period is for the benefit of both the insurer and the insured; that
during this time, the insurer can investigate if any fraudulent concealment or misrepresentation was done by
the insured, and the insured to be assured that his policy will no longer voided after the two year period.
On the contention of colon cancer, though Mr. H fraudulently concealed or misrepresented his medical
condition, XYZ Insurance Co. can no longer dispute the validity of the life insurance because of the
incontestability clause. Mr. H was issued a life insurance in January 2016 and died in 2019. More than two
years have already lapsed. Thus, the life insurance is considered incontestable.
On the contention of suicide, it has been held by the Supreme Court that suicide is included under the
incontestability clause. The insurer is liable for suicide on two instances: (1) when the insured commits
suicide before the two year period because of insanity, and (2) when the incontestability clause has set in.
Since more than two years has lapsed, XYZ Co. is liable for suicide.
A.7.
Ms. J offered to sell her car to Ms. K, an interested buyer. Consequently, Ms. J emailed Ms. K a copy of the
proposed Deed of Sale covering the same. After agreeing to its terms, Ms. K printed and then signed the emailed
copy of the Deed of Sale. She then faxed it to Ms. J who signed the faxed copy.
Is the copy of the Deed of Sale faxed by Ms. K to Ms. J considered an electronic document under the
Electronic Commerce Act? Explain. (2%)
No, it is not considered an electronic document.
A.8.
KLM Printers, Inc. operated a small outlet located at the ground floor of a university building in Quezon City. It
possessed soft copies of certain textbooks on file, and would print "book-alikes" of these textbooks (or in other
words, reproduced the entire textbooks) upon order and for a fee. It would even display samples of such "book-
alikes" in its stall for sale to the public.
Upon learning of KLM Printers, Inc.'s activities, the authors of the textbooks filed a suit against it for copyright
infringement. In its defense, KLM Printers, Inc. invoked the doctrine of fair use, contending that the "book-alikes" are
being used for educational purposes by those who avail of them.
(a) What is the doctrine of fair use? (2%)

The doctrine of fair use allows the copy of copyrighted works even without the consent of the copyright
owner when it is used for education, research, scientific and other similar purposes.
(b) Is KLM Printers, Inc.'s invocation of the doctrine of fair use proper in this case? Explain. (3%)
No, the invocation of the doctrine of fair use is not proper in this case.
Under the Intellectual Property Law, a copy of a book may be allowed under the doctrine of fair use if it
is done for educational purposes and it does not substantially copy the essence of the work.
In the case at bar, KLM Printer’s activities are not considered as fair use as what are printed are the
entirety of the book, displaying such for sale to the public. KLM’s actions infringes on the author’s
economic right to distribute and sell the book.
Thus, the doctrine of fair use cannot be used in this case.
A.9.
X Pharmaceuticals, Inc. has been manufacturing the antibiotic ointment Marvelopis, which is covered by a patent
expiring in the year 2020. In January 2019, the company filed an application for a new patent for Disilopis, which,
although constituting the same substance as Marvelopis, is no longer treated as an antibiotic but is targeted and
marketed for a new use, i.e., skin whitening.
(a) What are the three (3) requisites of patentability under the Intellectual Property Code? (3%)
The three (3) requisites of patentability under the IPC are the following:
(1) that the process be new or novel;
(2) that it has an inventive step; and
(3) that it is industrially applicable.
(b) Should X Pharmaceuticals, Inc.'s patent application for Disilopis be granted? Explain. (2%)
No, X Pharmaceuticals, Inc.’s patent application for Disilopis should not be granted.
Under the Intellectual Property Code, a discovery of a new method or use for a drug or medicine is not
considered patentable.
In the case at bar, X Pharmaceuticals cannot patent Disilopis as it is merely the same substance as a
previous, Marvelopis. It does not include any new, inventive step that would make it patentable. It merely
market the same product for a new and different use.
A.10.
In 2005, W Hotels, Inc., a multinational corporation engaged in the hospitality business, applied for and was able to
register its trademark "W" with the Intellectual Property Office of the Philippines (IPO) in connection with its hotels
found in different parts of the world.
In 2009, a Filipino corporation, RST Corp., filed before the IPO a petition for cancellation of W Hotels, Inc.'s "W"
trademark on the ground of non-use, claiming that W Hotels, Inc. failed to use its mark in the Philippines because it
is not operating any hotel in the country which bears the "W" trademark.
In its defense, W Hotels, Inc. maintained that it has used its "W" trademark in Philippine commerce, pointing out that
while it did not have any hotel establishment in the Philippines, it should still be considered as conducting its
business herein because its hotel reservation services, albeit for its hotels abroad, are made accessible to Philippine
residents through its interactive websites prominently displaying the "W" trademark. W Hotels, Inc. also presented
proof of actual booking transactions made by Philippine residents through such websites.
Is W Hotels, Inc.'s defense against the petition for cancellation of trademark tenable? Explain. (5%)
Yes, W Hotels, Inc’s defense against the petition for cancellation of trademark is tenable.
It has been held by the Supreme Court that a website that is accessible in the Philippines is considered as
actual use of trademark.
In the case at bar, the website of W Hotels, Inc. allows buyers to book transactions for hotels abroad, and
consistently displays the W trademark. This constitutes as actual use of the trademark as the mark is made
visible to the Philippine residents who are able to trust and purchase through the website since they are able
to distinguish that it is the international W Hotels that is offering their services.
B.11.
W Medical, Inc. operated a full-service hospital named WMed. Using its stockholders' advances and a mortgage
loan from Bank X, W Medical, Inc. commenced the construction of a new 11-storey WMed Annex Building.
Unfortunately, due to financial constraints, only seven (7) floors were constructed and the WMed Annex Building
remained unfinished.
Despite the non-completion of the WMed Annex Building, W Medical, Inc. continued its operations and earned
modest revenues. While W Medical, Inc.'s assets are more than its liabilities and it is able to turn a monthly profit, it
could not pay its loan installments to Bank X as they fall due.
(a) What is the concept of "insolvency" under the Financial Rehabilitation and Insolvency Act
(FRIA)? May W Medical, Inc. be considered "insolvent" under the FRIA? Explain. (3%)
Insolvency under FRIA means that a person is incapable of paying its liabilities as they fall due or its
liabilities are greater than its assets.
W Medical, Inc. can be considered as insolvent as it could not pay its loan installments to Bank X as
they fall due.
(b) Assuming that W Medical, Inc. is considered "insolvent", may it file a petition for suspension of
payments under the FRIA? Explain. (2%)
No, W Medical, Inc. cannot file a petition for suspension of payments under the FRIA.
Under the FRIA, suspension of payments is a remedy available for a natural person, and not a juridical
person.
In the case at bar, W Medical Inc. is a juridical person. Thus, it cannot file a petition for suspension of
payments.
(c) Assuming that W Medical, Inc. is considered "insolvent", what are the legally recognized modes
of rehabilitation it may opt to avail of? (3%)
The legally recognized modes of rehabilitation that W Medical, Inc. may avail under FRIA are the
following:
1. Voluntary Rehabilitation
2. Involuntary Rehabilitation
3. Pre-Negotiated Court Rehabilitation
4. Out of Court Rehabilitation
(d) If W Medical, Inc. files a petition for rehabilitation before the court, is it possible for the
rehabilitation proceedings to be converted into one for liquidation? Explain. (2%)
Yes, it is possible for the rehabilitations proceedings to be converted into one for liquidation.
Under the FRIA, any rehabilitation proceeding may be converted into for liquidation. If the court sees that
the corporation is incapable of rehabilitation such that the rehabilitation plan is not feasible, the court
may convert it to liquidation to protect both the creditors and the debtor corporation.
B.12.
EFG, Inc. is indebted to Bank Y in the amount of ₱50,000,000.00. The loan was secured by a suretyship agreement
issued by Z Insurance Co.
Due to EFG, Inc's default, Bank Y filed a case against Z Insurance Co. as surety. There is also a pending criminal
case for violation of the Bouncing Checks Law against the President of EFG, Inc., Mr. P, who signed the check as
signatory for the company.
Unable to meet its obligations as they fell due, EFG, Inc. filed a petition for rehabilitation. Finding the petition
sufficient in form and substance, the court issued a Commencement Order, which was thereafter published.
(a) Should the case filed against Z Insurance Co. be suspended in light of the Commencement
Order? Explain. (2.5%)
No, the case against Z Insurance Co. should not be suspended in light of the Commencement Order.
Under the FRIA, claims against the surety are not covered under the Commencement Order. Surety
agreements, though cannot exist without the principal obligation, is primary and distinct from the debt.
In the case at bar, Z Insurance Co. is merely acting as a surety of EFG, Inc., thus the case can continue
despite the Commencement Order.
(b) Should the criminal case filed against Mr. P be suspended in light of the Commencement Order?
Explain. (2.5%)
No, the criminal case filed against Mr. P should not be suspended in light of the Commencement Order.
Under the FRIA, criminal claims may be pursued against the directors, officers or stockholders of the
corporation despite the Commencement Order. What is stayed are collection claims against the
corporation.
In the case at bar, the criminal case may be pursued against Mr. P as it is not a collection claim against
the corporation but a criminal action.
B.13.
Enumerate at least two (2) rights of a data subject under the Data Privacy Act. (2%)
1. Right to access the information that was given by the data subject to the personal data controller.
2. Right to have the wrong information of the data subject be removed from the database of the personal
data controller and replaced with the correct information.
B.14.
ABC Corp. is a company which shares are listed in the Philippine Stock Exchange. In 2015, 25% of ABC Corp.'s
shareholdings were acquired by XYZ, Inc., while 40% of the same were acquired by RST, Inc., both of which are
non-listed private corporations. Meanwhile, the remaining 35% of ABC Corp.'s shareholdings are held by the public.
In 2018, or three years (3) after it acquired its 25% stake in ABC Corp., XYZ, Inc. sought to obtain an additional 12%
shareholding in ABC Corp. by purchasing some of the shares owned by RST, Inc. therein. The new acquisition will
not, however, result in XYZ, Inc. gaining majority control of ABC Corp.'s Board.
Is XYZ, Inc. required to conduct a tender offer? Explain. (3%)
No, XYZ, Inc. is not required to conduct a tender offer.
A tender offer is a public offer made by a corporation or an individual when it seeks to acquire a certain
percentage of a corporation’s equity. One
B.15.
Mr. P, the President of JKL, Inc. which shares are listed in the Philippine Stock Exchange, was notified that the
corporation has just been awarded a ₱5,000,000,000.00 construction contract by a reputable private company.
Before this information could be disclosed to the public, Mr. P called his stockbroker to purchase 20,000 shares of
JKL, Inc. He also mentioned the transaction to his brother, Mr. B. Mr. B, who was not involved at all in the business
of JKL, Inc., also bought 50,000 shares of JKL, Inc. because of the tip disclosed to him by Mr. P.
(a) Is the information disclosed by Mr. P to Mr. B considered as material nonpublic information for
purposes of insider trading? Explain. (2%)
Yes, the information disclosed by Mr. P to Mr. B is considered a material non-public information for
purposes of insider trading.
A material non-public information for purposes of insider trading is an information that would materially
affect the decision of the public to purchase shares or equity in a corporation and such information has
not been disclosed to the public or has been disclosed but no substantial period of time has passed for
the public to process the information.
In the case at bar, the information that Mr. P acquired as a director is considered as material nonpublic
information as it would likely induce the public to purchase more shares as it has the potential effect to
increase the value of JKL, Inc. shares. The award of a 5B project will affect the public as even Mr. P and
Mr. B purchased more shares of JKL, Inc. knowing its effect on the public.
(b) Should Mr. P and Mr. B be held liable for insider trading? Explain. (3%)
Yes, both Mr. P and Mr. B may be held liable for insider trading.
An insider is one who is a director, officer or stockholder of a corporation, or one who received
information from a director, officer or stockholder of a corporation regarding a material information.
Insider trading is done when an insider sells and buys shares of a corporation holding a material
information.
In the case at bar, as a director of JKL, Inc., Mr. P is clearly an insider. Mr. B is also considered an
insider as he obtained the information from Mr. P, a director of JKL. Being insiders, both purchased
shares of JKL when the information has not become public, thus both are liable for insider trading.
B.16.
Mayor J has two (2) bank accounts: 1. a Peso savings account with Bank P; and 2. a U.S. Dollar savings account
with Bank D.
In 2018, Mayor J's former business partner, Mr. K, filed a civil case for collection of sum of money against him.
In the same year, a criminal case for Direct Bribery under the Revised Penal Code was filed against Mayor J. It was
alleged in the Information that in exchange for the expeditious approval of various permits and licenses, Mayor J
received kickbacks which amounts were deposited to his bank accounts.
(a) In the event Mayor J is held ultimately liable in the civil case filed by Mr. K, may Mayor J's bank
accounts in Bank P and Bank D be subject to garnishment? Explain. (2.5%)
(b) Assuming that the prosecution in the criminal case sought from the court an inquiry of Mayor J's
bank accounts in Bank P and Bank D, may a bank inquiry order be issued? Explain. (2.5%)
B.17.
Several public officials were charged before the Sandiganbayan for violation of the Anti-Graft and Corrupt Practices
Act involving the anomalous award of a multi-billion contract to Corporation Z. The Information alleged that each of
the accused received kickbacks from Corporation Z in exchange for the dispensation of certain bidding
requirements, and that the said kickbacks were deposited to the accused's respective bank accounts in the
Philippines. Upon request of the Office of the Ombudsman, the Compliance and Investigation Staff of the Anti-
Money Laundering Council (AMLC) conducted an intelligence database search. The search revealed that there
were remittances to the bank accounts of the accused with six (6) different banks.
(a) May the AMLC examine the bank accounts of the accused-public officials even without seeking a
prior court order? Explain.(2.5%)
(b) May a court order be issued ex parte for the freezing of the bank accounts of the accused-public
officials upon application of the AMLC? If so, in what instance may this be done and which court can
issue such order? Explain. (2.5%)
B.18.
Mrs. T maintained a checking account with Bank U. While Mrs. T was abroad, she left her checkbook inside her
office drawer, which she kept under lock and key. However, Mrs. T's long-time secretary, Ms. S, knew where the
checkbook was hidden. Ms. S then broke the lock on the office drawer, took one of Mrs. T's blank checks, and
succeeded to encash ₱200,000.00 from Bank U by imitating Mrs. T's signature. As soon as Mrs. T returned from
abroad and discovered the incident, she immediately reported the matter to Bank U, seeking that the transaction be
reversed. However, the bank refused, contending that Mrs. T should bear the loss arising from the forgery.
(a) Is the imitation of Mrs. T's signature considered as a material alteration under the Negotiable
Instruments Law? Explain. (2.5%)
(b) Is Bank U's contention tenable? Explain. (2.5%)
B.19.
LMN, Inc. operates a beach resort in a secluded island off the coast of Puerto Princesa City, Palawan. It operates
three (3) motorized boats to ferry its guests from the city proper to the island resort and vice-versa. During one rainy
morning, the guests were informed that the ferry services for that day were cancelled due to a storm forecast. In
order to appease the apparent dismay of most of the guests who will miss their flight back to Manila, the boat
captain of one of LMN, Inc.'s motorized boats decided to push through with its trip back to the city. Shortly after the
boat sailed, the storm hit and the winds and waves became stronger, causing engine trouble to the boat.
Unfortunately, the boat capsized and sank, resulting in the death of one of the passengers, Mr. X.
This prompted Mr. X's heirs to file a complaint for damages against LMN, Inc., which they alleged to be a common
carrier. In its defense, LMN, Inc. maintained that it is not a common carrier because its boats are not available to the
general public but only ferry resort guests and employees.
(a) May LMN, Inc. be considered a common carrier? Explain. (3%)
(b) Assuming LMN, Inc. is a common carrier, may it be absolved from liability on the ground of
fortuitous event? Explain. (2%)
B.20.
F Corp., a corporation engaged in the export of fertilizers, entered into a sale of its products with Mr. P. In this
relation, Bank C, F Corp.'s bank, received an irrevocable letter of credit, payable on sight, issued by Bank I for the
account of its client, Mr. P, in the amount of ₱1,000,000.00 to cover the purchase price of the sale. In the letter of
credit, Bank C was designated as the confirming bank.
After being presented the required documents under the letter of credit, Bank C issued in favor of F Corp. a
cashier's check in the amount of ₱1,000,000.00.
Bank C then informed Bank I of the payment made pursuant to the letter of credit. Thereafter, Bank C transmitted
the documents presented by F Corp. to Bank I and sought to be reimbursed for the amount it paid to F Corp.
Bank I, however, refused to reimburse Bank C for the reason that it received an e-mail coming from Mr. P that the
latter will not make any payment to Bank I in relation to the letter of credit because the products shipped to him by F
Corp. were of substandard quality.
(a) Is Bank I's refusal to reimburse Bank C warranted? Explain. (3%)
(b) Assuming that the documents submitted by F Corp. were proven to be actually forged but were
nonetheless accepted by Bank C as sufficient, may Bank I refuse Bank C's claim for reimbursement?
Explain. (2%)
Yeti Export Corporation (YEC), thru its President, negotiated for Yahoo Bank of Manila {YBM) to issue a letter of
credit to course the importation of electronic parts from China to be sold and distributed to various electronic
manufacturing companies in Manila. YBM issued the letter of credit and forwarded it to its correspondent bank,
Yunan Bank (YB) of Beijing, to notify the Chinese exporters to submit the bill of lading in the name of YBM covering
the goods to be exported to Manila and to pay the Chinese exporters the purchase price upon verification of the
authenticity of the shipping documents.
The electronic parts arrived in the Port of Manila, and YBM released them to the custody of YEC as an entrustee
under a trust receipt. When YEC unpacked the imported parts in its warehouse, it found that they were not only of
inferior quality but also did not fit the descriptions contained in the bill of lading. YEC refused to pay YBM the
amount owed under the trust receipt. YBM thereafter commenced the following:
(a) Civil suit to hold YB liable for failure to ensure that the electronic parts loaded for exportation in China
corresponded with those described in the bill of lading. Is there any merit in the case against YB? (2.5%)
(b) Criminal suit against YEC and its President for estafa, and sought the payment of the amount covered in
the trust receipt. The defense of the YEC President is that he cannot be held liable for a transaction of the
corporation, of which he only acted as an officer, and that it is YEC as the principal that should be held liable
under the trust receipt, which was entered into in the name of YEC and pursuant to YEC's corporate
purposes. He cited as his legal ground the "Doctrine of Separate Juridical Personality." Is the President's
contention meritorious? (2.5%)
II
Yolanda executed and signed a promissory note with all the requisites for negotiability being present, except for the
amount which was left blank. She kept the promissory note in her desk and decided to place the amount at a later
date. The indicated payee, Yohann, managed to obtain the promissory note from Yolanda's desk and filled out the
amount for the sum of PhP 10 million, which was the amount actually lent by him to Yolanda, but excluding the
agreed interest. Yohann later endorsed and delivered the check to Yvette, under circumstances that would
constitute the latter to be a holder in due course.
(a) May Yvette hold Yolanda liable on the note? (2.5%)
(b) Would your answer be the same if the promissory note was actually completed by Yolanda (including the
amount of PhP 10 million), but stolen from her desk by Yohann? Can Yvette enforce the note against
Yolanda? (2.5%)
III
On November 23, 2017, Yas Ysmael (Ysmael) loaned the amount of PhP 5 million to Yarn & Thread Corporation
(YTC), through its President, Ylmas Yektas (Yektas), which loan was evidenced by a Promissory Note (PN), which
reads as follows:
Date: _______
Within one year from date hereof, I promise to pay to the order of YAS YSMAEL, the sum of PhP 5 million with
interest at 120% per annum.
YARN & THREAD Corporation
By:
(Sgd.)
Ylmas Yektas
Yektas was the controlling stockholder of YTC at the time the PN was issued. As security for the payment of the
PN, Yektas issued and delivered to Ysmael a postdated personal check covering the face value of the PN drawn
from his account with Yellow Bell Bank and Trust Company. The proceeds of the loan under the PN were used by
YTC as working capital.
A year later, Ysmael inserted the date of "November 23, 2017" on the date section of the PN, and made a formal
demand upon YTC, through Yektas, to pay the note, but which was refused on the ground that Yektas was no
longer the President and controlling shareholder of YTC. By this time, all the shares of YTC had already been sold
to a new group of investors. Ysmael deposited the personal check issued by Yektas which was dishonored. He then
filed a collection suit against YTC and Yektas including the accrued interest.
The defendants raised the following defenses in the collection suit. Rule on the merits of each defense. (2% each)
(a) A PN issued with a blank date is one that is not payable on demand or on a fixed or determinable future
time, and therefore the insertion of the date constituted material alteration that nullified it, so that no cause
of action arose.
(b) Yektas cannot be made liable on the PN since he signed in his capacity as President of YTC, which fact
was known to Ysmael although not indicated on the PN.
(c) Yektas signed the PN merely as an accommodation to YTC. As he received no consideration for the PN,
it is void for lack of consideration.
(d) YTC, now owned by new owners, cannot be held liable on the PN since it was entered into by its former
owner and President, which act the new Board of Directors did not ratify.
(e) The PN .is void for being in violation of the Usury Law seeking interest at an unconscionable rate of
120% p.a.
IV
Ysidro, a paying passenger, was on board Bus No. 904 owned and operated by Yatco Transportation Company
(Yatco). He boarded the bus at Munoz, Nueva Ecija with Manila as his final destination. He was seated on the first
row, window seat on the left side of the bus. As the bus was negotiating the national highway in front of the public
market of Gerona, Tarlac, the bus came to a full stop because of the traffic. The driver of the bus took this
opportunity to check on the tires of the bus and to relieve himself. As he was alighting from the bus to do these, an
unidentified man standing along the highway hurled a huge rock at the left side of the bus and hit Ysidro between
his eyes. He lost consciousness and immediately the driver, with the conductor, drove the bus to bring him to the
nearest hospital. He expired before the bus could reach the hospital.
Ysidro's wife and children brought a civil action to collect damages from Yatco, alleging that as a common carrier, it
was required to exercise extraordinary diligence in ensuring the safety of its passengers. They contended that, in
case of injuries and/or death on the part of any of its passengers, the common carrier is presumed to be at fault. In
its defense, Yatco alleged that it is not an absolute insurer of its passengers and that Ysidro's death was not due to
any defect in the means of transport or method of transporting passengers, or the negligent acts of its employees.
Since the accident was due to the fault of a stranger over whom the common carrier had no control, or of which it
did not have any prior knowledge to be able to prevent it, the cause of Ysidro's death should be considered a
fortuitous event and not the liability of the common carrier.
(a) Is a common carrier presumed to be at fault whenever there is death or injury to its passengers,
regardless of the cause of death or injury? (2.5%)
(b) What kind of diligence is required of common carriers like Yatco for the protection of its passengers?
(2.5%)
(c) Will your answer be the same as your answer in (b) above, if the assailant was another paying
passenger who boarded the bus and deliberately stabbed Ysidro to death? (2.5%)
Yellow Fin Tuna Corporation (Yellow Fin), a domestic corporation, applied for a credit facility in the amount of PhP
50 million with Yengzi Financial Corporation (YFC). The application was approved and the Credit Agreement was
signed and took effect. Ysko and Yuan, Yellow Fin Chairman and President, respectively, executed a Continuing
Suretyship Agreement in favor of YFC wherein they guaranteed the due and full payment and performance of
Yellow Fin's guarantee obligations under the credit facility. YFC soon discovered material inconsistencies in the
financial statements given by Yellow Fin, drawing YFC to conclude that Yellow Fin committed misrepresentation.
Under the Credit Agreement, any misrepresentation by Yellow Fin or its sureties will constitute an event of default.
YFC thus called an event of default and filed a complaint for sum of money against Yellow Fin, Ysko, and Yuan.
Immediately thereafter, Yellow Fin filed a petition for rehabilitation. The court suspended the proceedings in YFC's
complaint until the rehabilitation court disposed of the petition for rehabilitation. YFC posits that the suspension of
the proceedings should only be with respect to Yellow Fin but not with respect to Ysko and Yuan.
Is YFC correct? (2.5%)
VI
Shortly after Yin and Yang were wed, they each took out separate life insurance policies on their lives, and mutually
designated one another as sole beneficiary. Both life insurance policies provided for a double indemnity clause, the
cost for which was added to the premium rate. During the last 10 years of their marriage, the spouses had faithfully
paid for the annual premiums over the life policies from both their salaries. Unfortunately, Yin fell in love with his
officemate, Vessel, and they carried on an affair. After two years, their relationship bore them a daughter named
Vinsel. Without the knowledge of Yang, Yin changed the designation of the beneficiary to an "irrevocable
designation" of Vinsel and Vessel jointly. When Yang learned of the affair, she was so despondent that, having
chanced upon Yin and Vessel on a date, she rammed them down with the car she was driving, resulting in Vin's
death and Vessel's complete loss of mobilization. Yang was sued for parricide, and while the case was pending,
she filed a claim on the proceeds of the life insurance of Yin as irrevocable beneficiary, or at least his legal heir, and
opposed the claims on behalf of Vessel and her daughter Vinsel. Yang claimed that her designation as beneficiary
in Vin's life insurance policy was irrevocable, in the nature of one "coupled with interest," since it was made in
accordance with their mutual agreement to designate one another as sole beneficiary in their respective life policies.
She also claimed that the beneficiary designation of Vessel and the illegitimate minor child Vinsel was void being
the product of an illicit relationship, and therefore without "insurable interest."
(a) Is Yang correct in saying that her designation as beneficiary was irrevocable? (2.5%)
(b) Do Vessel and Vinsel have "insurable interest" on the life of Yin? (2.5%)
VII
Yelp Pictures Inc. (Yelp Pictures), a movie production company based in California, USA, entered into a contract
with Yehey Movies Inc., a Filipino movie production and distribution company which is registered in the Philippines
under the Securities Regulation Code (SRC) and listed in the Philippine Stock Exchange Inc. (PSE), for the
exclusive distribution in the Philippines of movies produced in the USA by Yelp Pictures. Yehey Movies is currently
owned 85% by Yavic Yamson, and the balance, by the public in the Philippines. For purposes of entering into the
contract, suing for breach of such contract, and prosecuting unauthorized showing of movies produced by Yelp
Pictures, it appointed Atty. Yson, a local lawyer, as its attorney-in-fact.
Simultaneously with the execution of the film distribution agreement, Yehey Movies also granted Yelp Pictures an
option to acquire up to 40% of the total outstanding capital stock in Yehey Movies post-exercise of the option, at the
option price of PhP .01 per number of shares covered by the option, exercisable within a period of one (1) year from
the date of the grant, at the exercise price of PhP 100 per share. Once exercised, Yelp Pictures was granted the
right to nominate two (2) directors to the Board of Yehey Movies, and Yavic Yamson agreed to vote all his shares
for the election of directors to be nominated by Yelp Pictures.
(a) May the acts of entering into the film distribution contract, the subsequent execution and performance of
the terms of the contract in the Philippines, and the appointment of Atty. Yson, be considered as act of
"doing business" in the Philippines that will require Yelp Pictures to register as a foreign corporation and
obtain a license to do business in the Philippines? (2.5%)
(b) Will your answer in (a) be the same if Yelp Pictures exercises the option, becomes a substantial
shareholder, and is able to elect two (2) directors in the Board of Yehey Movies? (2.5%)
(c) Must the option granted to Yelp Pictures be registered under the SRC? (2.5%)
VIII
Yenkell Cement Corporation (YCC) is a public corporation whose shares are listed at the PSE. It is 60% owned by
Yenkell Holdings Corporation (YHC) and 20% by Yengco Exploration Inc. (YEI). The remaining 20% is held by the
public. YHC is a private non-listed corporation which, in turn, is 60% owned by Yatlas Mines Inc. (YMI), and 40% by
Yacnotan Consolidated Inc. (YCI). On August 8, 2008, the Board of Directors of YEI passed a resolution approving
the acquisition of 50% and 25% of the shares held by YMI and YCI, respectively, in the authorized capital stock of
YHC.
Yolly, one of the staff members in the office of the Corporate Secretary of YEI, was immediately asked to type the
resolution and file the disclosure with the PSE and the Securities and Exchange Commission (SEC). Before doing
that, she secretly called her brother who works with a stock brokerage company, to purchase, in the name of Yolly's
husband, 5,000 shares in YCC. After the acquisition was disclosed to the SEC and the PSE, the market price of
YCC increased by 50%.
(a) In acquiring 75% of the total capital stock of YHC, should YEI be required to do a mandatory tender
offer? (2.5%)
(b) Can Yolly be held liable for insider trading? (2.5%)
IX
Yangchou lnc.'s (YI) Articles of Incorporation (AOI) provides for two (2) types of shares of stock: common and
preferred shares. Its AOI further provides that "the preferred shares shall have a guaranteed annual dividend of 3%
of the par value." Its By-Laws also specifically provides that "preferred shareholdings shall be cumulative and
participating." No other terms of preference are provided for preferred shares in either the AOI or By-Laws of YI.
For the first five years of operations, the company was operating at a loss. At the end of the sixth year, YI realized a
net profit of PhP 100 million, and unrestricted retained earnings of PhP 30 million. The YI Board of Directors
declared and paid out dividends of 1 % on common shares, and 5% on preferred shares, which amounted to a total
of PhP 30 million.
However, the preferred shareholders made a formal demand that they be given an additional 3% dividend for each
of the five (5) years based on the preferred shares features of "cumulative and participating," and an additional 1 %
given to the common shareholders, which could all be accommodated within the remaining balance of the net
profits.
Should Yi's Board heed the demand of its preferred shareholders? (2.5%)
Ybarra is the registered shareholder of 500 shares in Yakal Inc., of which only 50% has been paid up, but for which
the corporation had erroneously issued a covering certificate of stock for the entire 500 shares. Ybarra sells the
entire 500 shares for cash pursuant to a notarized Deed of Sale in favor of Ynchon, and which certificate was duly
endorsed and delivered. When Ynchon presented the Deed of Sale and the endorsed certificate of stock, as well as
proof of payment to the Bureau of Internal Revenue (BIR) of the tax due on the sale of shares, the Corporate
Secretary of Yakal Inc. refused to register the sale on the ground of lack of written authority from Ybarra to cancel
the certificate and have the shares registered in the name of Ynchon.
(a) Does Ynchon have a cause of action to file a petition for mandamus to compel the corporation to register
the 500 shares in his name in the corporation books? (2.5%)
(b) Who is liable to pay the remaining unpaid 50% balance - Ybarra or Ynchon? (2.5%)
XI
Yenetic Corporation wants to increase its Authorized Capital Stock (which is currently fully subscribed and issued)
to be able to increase its working capital to undertake business expansions.
The Board of Directors consults with you as legal counsel on the proper answers to the following issues: (2.5%
each)
(a) Can Yenetic's AOI be formally amended to remove the right of appraisal on all dissenting stockholders in
all matters under the law which requires a ratification vote of the stockholders?
(b) If the increase in Authorized Capital Stock is formally submitted to the stockholders in a meeting duly
called for the purpose, what is the vote necessary for the stockholders' ratification, and may the dissenting
stockholders exercise their appraisal right?
(c) Once the increase in the Authorized Capital Stock of Yenetic has been legally effected with the SEC, can
the new shares from the unissued shares be offered to a new limited group of investors without having to
offer them to the shareholders of record since no pre-emptive right is provided for in the AOI and By-laws of
Yenetic?
XII
Yashtag Holdings, lnc.'s (Yashtag Holdings) AOI states that its primary purpose is "to invest in real and personal
properties of every kind or otherwise acquire and deal with stocks, bonds, and other securities or evidence of
indebtedness of any other corporation, and to hold or to own, use, sell, deal in, and dispose of, any such stock." It
further states that it has an authorized capital stock of PhP 1 million, all of which have been fully subscribed and
paid up.
Yashtag Holdings' President, Mr. Yokada, convinced Yeh, Yah, and Yo to lend/invest money with Yashtag, which
money will be invested in a sister company, Yashtag Realty, Inc. (Yashtag Realty), a corporation that develops
premium real estate projects in the Philippines. For the amount loaned/invested, Yashtag Holdings issued two (2)
postdated checks to each lenderflnvestor, one representing the principal amount, and the other covering the
guaranteed interest that ranged between 18-32% p.a. On the maturity dates of the checks, the individual
lender/investor can review the loans/investment, and may either collect only the interest or roll over the same with
the principal amounts. Eventually, the bursting of the real estate bubble brought about a serious financial crisis
around the world, including the Philippines. Yashtag Realty collapsed and with it Yashtag Holdings defaulted in the
payment of its loans/investments, as well as the dishonor of the tens of thousands of postdated checks issued to its
various lenders/investors.
Yeh, Yah, and Yo filed several charges against Yashtag Holdings and its President, making them solidarily liable for
the investments they failed to recover. Yeh, Yah, and Yo proved that Yashtag Holdings, acting through Mr. Yokada,
was able to get a total of PhP 800 million of loans/investments from the public under the scheme, and from which
Mr. Yokada, as the controlling stockholder, was able to withdraw a total amount of PhP 300 million for his personal
account and entered into the books of Yashtag Holdings as "Advances to Stockholders." Mr. Yokada pleads as a
defense that he cannot be made personally liable on the claim of the group under the doctrines of "Separate
Juridical Personality" and "Limited Liability."
(a) What are the doctrines of "Separate Juridical Personality" and "Limited Liability"? (2.5%)
(b) Decide on the merits of Mr. Yokada's defense against being made liable for Yashtag Holdings'
obligations. (2.5%)
XIII
YBC Bank extended a loan of PhP 50 million to Mr. Yamato secured by a real estate mortgage (REM) on a large
tract of land. The covering Transfer Certificate of Title (TCT) of the property mortgaged did not indicate any
encumbrance or lien on it, and the bank was able to obtain a certified true copy of the TCT from the Register of
Deeds showing that the owner's copy submitted to the bank was a genuine title. The Loan Agreement provided an
escalation clause which stated that, at the anniversary date of the loan, YBC Bank was granted the option to
increase the interest rate whenever there would be an increase in the Bangko Sentral ng Pilipinas' prevailing rates.
Three years later, Mr. Yamato received a formal notice from YBC Bank raising the interest rate of the loan based on
the escalation clause provided for in the Loan Agreement. Mr. Yamato refused to pay based on the increased
interest rate that was effected without his consent. YBC Bank insists on the binding effect of the escalation clause
appearing on their Loan Agreement.
Mr. Yamato subsequently defaulted on the loan and vanished. Thus, YBC Bank extrajudicially foreclosed on the
REM, and was the highest bidder at the public auction sale. It was only then that the bank determined that there
were actually two separate TCTs issued for the property and one of which was in the name of Mr. Yamsuan who
occupied the property after having bought it earlier from Mr. Yamato.
(a) Can YBC Bank unilaterally increase the interest rates on the loan? (2.5%)
(b) Is YBC Bank a mortgagee buyer in good faith? Is it preferred over Mr. Yamsuan? (2.5%)
XIV
On June 21, 2008, Yate took out a life insurance policy on her life in the amount of PhP 10 million and named her
husband Vandy and daughter as joint irrevocable beneficiaries. Before the policy was issued and the premiums
were paid, Yate underwent a medical checkup with a physician accredited by the insurer, and the only result found
was that she was suffering from high blood pressure. Yate was previously diagnosed by a private physician of
having breast cancer which she did not disclose to the insurer in her application, nor to the insurer's accredited
physician because by then, she was told that she was already cancer-free after undergoing surgery which removed
both her breasts. She was later diagnosed with psychotic tendency that graduated into extreme despondency. She
was found dead hanging in her closet 36 months after the issuance of the policy. The police authorities declared it
to be a case of suicide. The policy did not include suicide as an excepted risk.
(a) Can the insurer raise the issue of failure to disclose that she had cancer as a cause for denying the
claim of the beneficiaries? (2.5%)
(b) Are the beneficiaries entitled to receive the proceeds of the life insurance notwithstanding the fact that
the cause of death was suicide? (2.5%)
XV
A distinctive-tasting pastillas is well-known throughout the country as having been developed within a close-knit
women's group in Barangay San Ysmael which is located along a very busy national highway. Its popularity has
encouraged the setting up of several shops selling similar delicacies, with the most famous product being the
pastillas of "Barangay San Ysmael." Eventually, the pastillas of Aling Voling under the brand name "Ysmaellas"
began to attract national distinction. Aling Voling therefore registered it as a copyright with the National Library. Her
neighbor, Aling Yasmin, realizing the commercial value of the brand, started using the term "Ysmaellas" for her
pastillas but used different colors. Aling Yasmin registered the brand name "Ysmaellas" with the Intellectual
Property Office (IPO).
(a) Can Aling Voling successfully obtain court relief to prohibit Aling Yasmin from using the brand name
"Ysmaellas" in her products on the basis of her (Aling Yoling's) copyright? What is the difference between
registration as a copyright and registration as a trade or brand name? (2.5%)
(b) Can Aling Yasmin seek injunctive relief against Aling Voling from using the brand name "Ysmaellas," the
latter relying on the doctrine of "prior use" as evidenced by her prior copyright registration? (2.5%)
(c) Can Aling Voling seek the cancellation of Aling Yasmin's trademark registration of the brand name
"Ysmaellas" on the ground of "Well Known Brand" clearly evidenced by her (Aling Yoling's) prior copyright
registration, actual use of the brand, and several magazine articles? (2.5%)
XVI
Yosha was able to put together a mechanical water pump in his garage consisting of suction systems capable of
drawing water from the earth using less human effort than what was then required by existing models. The water
pump system provides for a new system which has the elements of novelty and inventive steps. Yosha, while
preparing to have his invention registered with the IPO, had several models of his new system fabricated and sold
in his province.
(a) Is Yosha's invention no longer patentable by virtue of the fact that he had sold several models to the
public before the formal application for registration of patent was filed with the IPO? (2.5%)
(b) If Yosha is able to properly register his patent with the IPO, can he prevent anyone who has possession
of the earlier models from using them? (2.5%)
XVII
Yvan was a slot machine operator supervisor in a casino operated by the Philippine Amusement and Gaming
Corporation (PAGCOR). On the basis of an intelligence report, he was found, in connivance with some slot machine
customers, to have padded the credit meter readings of slot machines in the casino where he was employed. After
being served with notice and opportunity to contest the findings, he was found guilty of the charges and ordered
dismissed by PAGCOR. After receiving his copy of the order for dismissal, he claimed to have sent to the Board of
PAGCOR his motion for reconsideration through facsimile transmission. After a considerable time, when his motion
for reconsideration was unacted upon, he filed an action with the Civil Service Commission (CSC) for illegal
dismissal. PAGCOR claimed that his action has prescribed because it was filed more than 15 days after his
dismissal became final. Yvan claimed that there was no final decision yet because the Board of PAGCOR has not
yet acted on his motion for reconsideration. He presented a copy of his facsimile transmission addressed to the
Board of PAGCOR seeking reconsideration of his dismissal, and the fact that there has been no action taken. He
claimed that based on the Electronic Commerce Act of 2000, his facsimile transmission should be considered like
any genuine and authentic paper pleading. PAGCOR denied having received it and was able to prove that the
telephone number of PAGCOR used in the facsimile transmission was wrong. CSC denied his complaint on
account of prescription. He appealed CSC's dismissal in court.
(a) Was CSC correct in dismissing the case? (2.5%)
(b) Can Yvan's bank be ordered by the court to disclose if there were unreasonable increases in his bank
deposit when the alleged acts were committed? (2.5%)
XVIII
Through various acts of graft and bribery, Mayor Ycasiano accumulated a large amount of wealth which he
converted into U.S. dollars and deposited in a Foreign Currency Deposit Unit (FCDU) account with the Yuen Bank
(YB). On a tip given by the secretary of the mayor, the Anti-Money Laundering Council (AMLC) sent an order to YB
to confirm the amount of U.S. dollars that Mayor Ycasiano had in his FCDU account. YB claims that, under the
Foreign Currency Deposit Act (R.A. No. 6426, as amended), a written permission from the depositor is the only
instance allowed for the examination of FCDU accounts. YB alleges that AMLC on its own cannot order a banking
institution to reveal matters relating to bank accounts.
(a) Is the legal position of YB, in requiring written permission from the depositor, correct? (2.5%)
(b) Does AMLC have the power to order a banking institution to reveal matters relating to bank accounts?
(2.5%)
I.
A.
Absolute Timber Co. (ATC) has been engaged in the logging business in lsabela. To secure one of its shipments of
logs to be transported by Andok Shipping Co., ATC purchased a marine policy with an "all risks" provision. Because
of a strong typhoon then hitting Northern Luzon, the vessel sank and the shipment of logs was totally lost. ATC filed
its claim, but the insurer denied the claim on several grounds, namely: (1) the vessel had not been seaworthy; (2)
the vessel's crew had lacked sufficient training; (3) the improper loading of the logs on only one side of the vessel
had led to the tilting of the ship to that side during the stormy voyage; and (4) the extremely bad weather had been a
fortuitous event.
ATC now seeks your legal advice to know if its claim was sustainable. What is your advice? Explain your answer.
(3%)
B.
The newly restored Ford Mustang muscle car was just released from the car restoration shop to its owner, Seth, an
avid sportsman. Given his passion for sailing, he needed to go to a round-the-world voyage with his crew on his
brand-new 180-meter yacht. Hearing about his coming voyage, Sean, his bosom friend, asked Seth if he could
borrow the car for his next roadshow. Sean, who had been in the business of holding motor shows and promotions,
proposed to display the restored car of Seth in major cities of the country. Seth agreed and lent the Ford Mustang to
Sean. Seth further expressly allowed Sean to use the car even for his own purposes on special occasions during his
absence from the country. Seth and Sean then went together to Bayad Agad Insurance Co. (BAIC) to get separate
policies for the car in their respective names.
SAIC consults you as its lawyer on whether separate policies could be issued to Seth and Sean in respect of the
same car.
(a) What is insurable interest? (2%)
(b) Do Seth and Sean have separate insurable interests? Explain Briefly your answer(3%)
II.
A.
Morgan, a lawyer, received a lot of diving and other water sports equipment as payment of his professional fees by
Dennis, his client in a child custody case. Dennis owned a diving and water sports dealership in Anilao, Batangas.
Morgan decided to name Dennis as entrustee because he did not have any experience in selling such specialized
sports equipment. They executed a trust receipt agreement, with Morgan as entruster and Dennis as entrustee.
Before the sports equipment could be sold, a strong typhoon hit Batangas. Anilao and other parts of Batangas
experienced power outage. Taking advantage of the total darkness, unidentified thieves destroyed the padlocks of
the establishment of Dennis, and carted off the equipment inside.
Morgan demanded that Dennis pay the value of the stolen equipment, but the latter refused on the ground that he
also had suffered from the effects of the typhoon, and insisted that the cause of the loss was a fortuitous event or
force majeure.
Is the justification of Dennis warranted? Explain your answer. (4%)
B.
Safe Warehouse, Inc. (Safe) issued on various dates negotiable warehouse receipts to Peter, Paul and Mary
covering certain goods deposited by the latter with the former. Peter, Paul and Mary then negotiated and endorsed
the warehouse receipts to Cyrus, Magnus and Charles upon payment by the latter of valuable consideration for the
warehouse receipts. Cyrus, Magnus and Charles were not aware of, nor were they parties to any irregularity or
infirmity affecting the title or the face of the warehouse receipts.
On due dates of the warehouse receipts, Cyrus, Magnus and Charles demanded that Safe surrender the goods to
them. Safe refused because its warehouseman's claim must first be paid. Cyrus, Magnus and Charles refused to
pay, and insisted that such claim was the liability of Peter, Paul and Mary.
(a) What is a warehouseman's claim? (3%)

(b) Is Safe's refusal to surrender the goods to Cyrus, Magnus and Charles legally justified? Explain your
answer. (3%)
III.
A.
Data Realty, Inc. (DRI) was engaged in realty development. The family of Matteo owned 100°/o of the capital stock
of ORI. Matteo was also the President and Chairman of the Board of Directors. Other members of Matteo's family
held the major positions in ORI. Because of a nasty takeover fight with D&E Realty Co., Inc. (D&E), another realty
developer, for the control of a smaller realty company with vast landholdings, ORI and D&E engaged in an
expensive litigation that eventually led to a money judgment being rendered in favor of D&E.
Meantime, DRI, facing inability to pay its liabilities as they fall due but still holding substantial assets, filed a petition
for voluntary rehabilitation. Trying to beat the consequences of rehabilitation proceedings, D&E moved in the trial
court for the issuance of a writ of execution. The trial court also happened to be the rehabilitation court. The writ of
execution was issued.
Serving the writ of execution, Merto, the court sheriff who had just passed his Credit Transactions subject in law
school, garnished Matteo's bank accounts, and levied his real properties, including his house and lot in Makati.
Are the garnishment and levy of Matteo's assets lawful and proper? Explain your answer. (4%)
B.
Sid used to be the majority stockholder and President of Excellent Corporation (Excellent). When Meridian Co., Inc.
(Meridian), a local conglomerate, took over control and ownership of Excellent, it brought along its team of officers.
Sid thus became a minority stockholder and a minority member of the Board of Directors. Excellent, being the
leading beverage manufacturer in the country, became the monopoly when Meridian's own beverage business was
merged with Excellent's, thereby making Excellent virtually the only beverage manufacturer in the country.
Left out and ignored by the management, Sid became a fiscalizer of sorts, questioning during the Board meetings
the direction being pursued by Excellent's officers.
Ultimately, Sid demanded the inspection of the books and other corporate records of Excellent. The management
refused to comply, saying that his right as a minority stockholder has been much reduced.
State under what conditions may Sid properly assert his right to inspect the books and other corporate records of
Excellent. Explain your answer. (3%)
IV.
Procopio, a Director and the CEO of Parisian Hotel Co., Inc. (Parisian), was charged along with other company
officials with several counts of estafa in connection with the non-remittance of SSS premiums the company had
collected from its employees. During the pendency of the cases, Parisian filed a petition for rehabilitation. The court,
finding the petition to be sufficient in form and substance, issued a commencement order together with a stay or
suspension order.
Citing the commencement order, Procopio and the other officers facing the criminal charges moved to suspend the
proceedings in the estafa cases.
(a) What is a commencement order, and what is the effect of its issuance? Explain your answer. (4%)
(b) Suppose you are the trial judge, will you grant the motion to suspend of Procopio, et al.? Explain your
answer. (4%)
V.
A.
Under the Nell Doctrine, so called because it was first pronounced by the Supreme Court in the 1965 ruling in Nell
v. Pacific Farms, Inc. (15 SCRA 415), the general rule is that where one corporation sells or otherwise transfers all
of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor.
State the exceptions to the Nell Doctrine. (4%)
B.
Santorini Corporation (Santorini) was in dire straits. In order to firm up its financial standing, it agreed to entertain
the merger and takeover offer of Proficient Corporation (Proficient), the leading company in their line of business.
Erica, the major stockholder of Santorini, strongly opposed the merger and takeover. The matter of the merger and
takeover by Proficient was included in the agenda of the next meeting of Santorini's Board of Directors. However,
owing to Erica's serious illness that required her to seek urgent medical treatment and care in Singapore, she failed
to attend the meeting and was consequently unable to cast her vote. The Board of Directors approved the merger
and takeover. At the time of the meeting, Santorini had been in the red for a number of years owing to its recurring
business losses and reverses.
Erica seeks your legal advice regarding her right as a stockholder opposed to the corporate action. Explain your
answer. (4%)
C.
Samito is the President and a Director of Lucky Bank (Lucky}, a commercial bank holding its main office in Makati.
His brother, Othello, owned a big fishing business based in Malabon. Othello applied for a loan of PSO Million with
Lucky. Othello followed the ordinary banking procedures in all the stages of the processing of his application. When
required, he made the necessary arrangements to guarantee the loan. Thus, in addition to the real estate mortgage,
Othello executed a joint and solidary suretyship, issued postdated checks, and submitted all other requirements
prescribed by Lucky.
When the loan application was about to be approved and the proceeds released, BG Company, a keen competitor
of Othello in the fishing industry, wrote to the Board of Directors and the management of Lucky questioning the loan
on the ground of conflict of interest due to Samito and Othello being brothers, citing the legal restriction against bank
exposure of directors, officers, stockholders or their related interests (DOSRI).
(a) What are the three restrictions imposed by law on DOSRI transactions? (4%)
(b) Is BG Company's opposition based on conflict of interest and violation of the restrictions on DOSRI
transactions legally and factually correct? Explain your answer. (4%)
VI.
A.
Hortencio owned a modest grocery business in Laguna. Because of the economic downturn, he incurred huge
financial liabilities. He remained afloat only because of the properties inherited from his parents who had both come
from landed families in Laguna. His main creditor was Puresilver Company (Puresilver), the principal supplier of the
merchandise sold in his store. To secure his credit with Puresilver, he executed a real estate mortgage with a
dragnet clause involving his family's assets worth several millions of pesos.
Nonetheless, Hortencio, while generally in the black, now faces a situation where he is unable to pay his liabilities as
they fall due in the ordinary course of business. What will you advise him to do to resolve his dire financial
condition? Explain your answer. (5%)
B.
Wyatt, an internet entrepreneur, engaged in a sideline business of creating computer programs for selected clients
on a per project basis and for servicing basic computer problems of his friends and family members. His main job
was being an IT consultant at Futurex Co., a local computer company.
Because of his ill-advised investments in the stock market and the fraud perpetrated against him by his trusted
confidante, Wyatt was already drowning in debt, that is, he had far more liabilities than his entire assets.
What legal recourse remained available to Wyatt? Explain your answer. (5%)
VII.
A.
Virtucio was a composer of llocano songs who has been quite popular in the llocos Region. Pascuala is a professor
of music in a local university with special focus on indigenous music. When she heard the musical works of Virtucio,
she purchased a CD of his works. She copied the CD and sent the second copy to her Music instructions for the
class to listen to the CD and analyze the works of Virtucio.
Did Pascuala thereby infringe Virtucio's copyright? Explain your answer. (4%)
B.
Super Biology Corporation (Super Biology) invented and patented a miracle medicine for the cure of AIDS. Being
the sole manufacturer, Super Biology sold the medicine at an exorbitant price. Because of the sudden prevalence of
AIDS cases in Metro Manila and other urban areas, the Department of Health (DOH) asked Super Biology for a
license to produce and sell the AIDS medicine to the public at a substantially lower price. Super Biology, citing the
huge costs and expenses incurred for research and development, refused.
Assuming you are asked your opinion as the legal consultant of the DOH, discuss how you will resolve the matter.
(4%)
VIII.
A.
Flora, a frequent traveller, found a purse concealed between the cushions of a large sofa inside the VIP lounge in
NAIA while she was waiting for her flight to be called. Inside the purse was a very valuable diamond-studded
necklace. She decided not to turn over the purse to the airport management, and instead to keep it. On her return
from her travels, she had a dependable jeweller appraise the necklace, and the latter told her that the necklace was
easily worth at least ₱5,000,000.00 in the open market. To test the appraisal, she pawned the necklace for
₱2,000,000.00. She then deposited the entire amount in her checking account with Metro Bank. Promptly, Metro
Bank reported the transaction to the Anti-Money Laundering Council (AMLC).
Given that her appropriation of the necklace was theft, may Flora be successfully prosecuted for money laundering?
Explain briefly your answer. (4%)
B.
Prosperous Bank is a domestic bank with head office in Makati. It handles the banking requirements of thousands of
clients.
The AMLC initiated a discreet investigation of the financial transactions of Lorenzo, a suspected drug trafficker
based in Naga City. The intelligence group of the AMLC, in coordination with the counterpart group from the PDEA
and the NBI, gathered ample evidence establishing Lorenzo's unlawful drug activities. The AMLC had probable
cause that his deposits and investments in various banks, including Prosperous Bank, were related to money
laundering.
Accordingly, the AMLC now transmits to Prosperous Bank a formal demand to allow its agents to examine the
banking transactions of Lorenzo, but Prosperous Bank refuses the demand.
Is Prosperous Bank's refusal justified? Explain your answer. (4%)
IX.
A.
Alfred issued a check for ₱1,000.00 to Benjamin, his friend, as payment for an electronic gadget. The check was
drawn against Alfred's account with Good Bank. Benjamin then indorsed the check specially in favor of Cesar.
However, Cesar misplaced the check. Dexter, a dormmate of Cesar, found the check, altered its amount to
₱91,000.00, and forged Cesar's indorsement by way of a blank indorsement in favor of Felix, a known jeweler. Felix
then caused the deposit of the check in his account with Solar Bank. As collecting bank, Solar Bank stamped "all
previous indorsements guaranteed" on the check. Seeing such stamp of the collecting bank, Good Bank paid the
amount of ₱91,000.00 on the check.
May Good Bank claim reimbursement from Alfred? Explain your answer. (4%)
B.
In 2006, Donald, an American temporarily residing in Cebu City, issued to Rhodora a check for $50,000.00 drawn
against Wells Fargo Bank with offices in San Francisco, California. Rhodora negotiated the check and delivered it to
Yaasmin, a Filipina socialite who frequently travelled locally and internationally. Because of her frequent travels,
Yaasmin misplaced the check. It was only 11 years later on, in 2017, when she found the check inside a diary kept
in her vault in her Hollywood, California house.
Discuss and explain the rights of Yaasmin on the check. (4%)
X.
Wisconsin Transportation Co., Inc. (WTC) owned and operated an inter-island de luxe bus service plying the Manila-
Batangas-Mindoro route. Three friends, namely: Aurelio, Jerome and Florencio rode on the same WTC bus from
Manila bound for Mindoro. Aurelio purchased a ticket for himself. Jerome, being a boyhood friend of the bus driver,
was allowed a free ride by agreeing to sit during the trip on a stool placed in the aisle. Florencio, already penniless
after spending all of his money on beer the night before, just stole a ride in the bus by hiding in the on-board toilet of
the bus.
During the trip, the bus collided with another bus coming from the opposite direction. The three friends all suffered
serious physical injuries.
What are WTC's liabilities, if any, in favor of Aurelio, Jerome and Florencio? Explain your answer. (4%)
XI.
TRUE or FALSE - Explain briefly your answer.
(a) A conviction under the Trust Receipts Law shall bar a prosecution for estafa under the Revised Penal
Code. (2%)
(b) The term capital in relation to public utilities under Sec. 11, Art. XII of the 1987 Constitution refers to the
total outstanding capital stock comprising both common and non-voting preferred shares. (2%)
(c) Forgery is a real defense but may only be raised against a holder not in due course. (2%)
(d) News reports are not copyrightable. (2%)
(e) The law on life insurance prohibits double insurance. (2%)
XII.
Onassis Shipping, Inc. (Onassis) operated passenger vessels and cargo trucks, and offered its services to the
general public. In line with its vision and mission to protect the environment, Go-Green Asia (Go-Green), an NGO
affiliated with Greenpeace, entered into a contract with Onassis whereby Go-Green would operate with its own crew
the MN Dolphin, an ocean-going passenger vessel of Onassis.
While on its way to Palawan carrying Go-Green's invited guests who were international and local observers desirous
of checking certain environmental concerns in the area, the MN Dolphin encountered high waves and strong winds
caused by a typhoon in the West Philippine Sea. The rough seas led to serious physical injuries to some of the
guests.
Discuss the liabilities of Onassis and Go-Green to the passengers of the M/V Dolphin. Explain briefly your answer.
(3%)
What does "doing business in the Philippines" under the Foreign Investments Act of 1991 mean? (5%)
II
Jason is the proud owner of a newly-built house worth PS million. As a protection against any possible loss or
damage to his house, Jason applied for a fire insurance policy thereon with Shure Insurance Corporation (Shure) on
October 11, 2016 and paid the premium in cash. It took the company a week to approve Jason's application. On
October 18, 2016, Shure mailed the approved policy to Jason which the latter received five (5) days later. However,
Jason's house had been razed by fire which transpired a day before his receipt of the approved policy. Jason filed a
written claim with Shure under the insurance policy. Shure prays for the denial of the claim on the ground that the
theory of cognition applies to contracts of insurance.
Decide Jason's claim with reasons. (5%)
III
ABC Appliances Corporation (ABC) is a domestic corporation engaged in the production and sale of televisions and
other appliances. YYY Engineers, a Taiwanese company, is the manufacturer of televisions and other appliances
from whom ABC actually purchases appliances. From 2000, when ABC started doing business with YYY, it has
been using the mark "TTubes" in the Philippines for the television units that were bought from YYY. In 2015, YYY
filed a trademark application for "TTubes." Later, ABC also filed its application. Both claim the right over the
trademark "TTubes" for television products. YYY relies on the principle of "first to file" while ABC involves the
"doctrine of prior use."
[a] Does the fact that YYY filed its application ahead of ABC mean that YYY has the prior right over the
trademark? Explain briefly. (2.5%)
[b] Does the prior registration also mean a conclusive assumption that YYY Engineers is in fact the owner of
the trademark "TTubes?" Briefly explain your answer. (2.5%)
IV
X's "MINI-ME" burgers are bestsellers in the country. Its "MINI-ME" logo, which bears the color blue, is a registered
mark and has been so since the year 2010. Y, a competitor ofX, has her own burger which she named "ME-TOO"
and her logo thereon is printed in bluish-green. When X sued Y for trademark infringement, the trial court ruled in
favor of the plaintiff by applying the Holistic Test. The court held that Y infringed on X's mark since the dissimilarities
between the two marks are too trifling and frivolous such that Y's "ME-TOO," when compared to X's "MINI-ME," will
likely cause confusion among consumers.
Is the application of the Holistic Test correct? (5%)
MS Brewery Corporation (MS) is a manufacturer and distributor of the popular beer "MS Lite." It faces stiff
competition from BA Brewery Corporation (BA) whose sales of its own beer product, "BA Lighter," has soared to
new heights. Meanwhile, sales of the "MS Lite" decreased considerably. The distribution and marketing personnel of
MS later discovered that BA has stored thousands of empty bottles of "MS Lite" manufactured by MS in one of its
warehouses. MS filed a suit for unfair competition against BA before the Regional Trial Court (RTC). Finding a
connection between the dwindling sales of MS and the increased sales of BA, the RTC ruled that BA resorted to
acts of unfair competition to the detriment of MS. Is the RTC correct? Explain. (5%)
VI
Nautica Shipping Lines (Nautica) bought a second hand passenger ship from Japan. It modified the design of the
bulkhead of the deck of the ship to accommodate more passengers. The ship sunk with its passengers in Tablas
Strait due to heavy rains brought by the monsoon. The heirs of the passengers sued Nautica for its liability as a
common carrier based on the reconfiguration of the bulkhead which may have compromised the stability of the ship.
Nautica raised the defense that the monsoon is a fortuitous event and, at most, its liability is prescribed by the
Limited Liability Rule. Decide with reasons. (5%)
VII
A railroad track of the Philippine National Railway (PNR) is located near a busy intersection of Puyat Avenue and
Osmefia Highway. One afternoon, the intersection was heavily congested, as usual. Juan, the driver of a public
utility jeepney (PUJ), drove onto the railroad tracks but could go no farther because of the heavy traffic at the
intersection. After the jeepney stopped right on the railroad track, it was hit and overturned by a PNR train, resulting
in the death of Kim, a passenger of the PUJ, and injuries to Juan and his other passengers. Juan, the injured
passengers and Kim's family sued the PNR for damages for its negligence. It was established that the steel pole
barrier before the track was broken, and that the PNR had the last clear chance of avoiding the accident. On the
other hand, the PNR raised the defense that the track is for the exclusive use of the train and that motorists are
aware that it is negligence per se to stop their vehicles on the tracks. Decide the case and explain. (5%)
VIII
In 2015, Total Bank (Total) proposed to sell to Royal Bank (Royal) its banking business for P 10 billion consisting of
specified assets and liabilities. The parties reached an eventual agreement, which they termed as "Purchase and
Assumption (P & A) Agreement," in which Royal would acquire Total's specified assets and liabilities, excluding
contingent claims, with the further stipulation that it should be approved by the Bangko Sentral ng Pilipinas (BSP).
BSP imposed the condition that Total should place in escrow Pl billion to cover for contingent claims against it. Total
complied. After securing the approval of the BSP, the two banks signed the agreement. BSP thereafter issued a
circular advising all bank and non-bank intermediaries that effective January 1, 2016, "the banking activities of Total
Bank and Royal Bank have been consolidated and the latter has carried out their operations since then."
[a] Was there a merger and consolidation of the two banks in point of the Corporation Code? Explain. (2.5%)
[b] What is meant by a de facto merger? Discuss. (2.5%)
IX
X insured his life for P20 million. X, plays golf and regularly exercises everyday, hence is considered in good health.
He did not know, however, that his frequent headache is really caused by his being hypertensive. In his application
form for a life insurance for himself, he did not put a check to the question if he is suffering from hypertension,
believing that because of his active lifestyle, being hypertensive is a remote possibility. While playing golf one day, X
collapsed at the fairway and was declared dead on arrival at the hospital. His death certificate stated that X suffered
a massive heart attack.
[a] Will the beneficiary of X be entitled to the proceeds of the life insurance under the circumstances, despite
the non-disclosure that he is hypertensive at the time of application? (2.5%)
[b] IfX died in an accident instead of a heart attack, would the fact of X's failure to disclose that he is
hypertensive be considered as material information? (2.5%)
After securing a Pl million loan from B, A drew in B's favor a bill of exchange with C as drawee. The bill reads:
"October 1, 2016. Pay to the order of B the sum of P1 million. To: C (drawee). Signed, A." A then delivered the bill to
B who, however, lost it. It turned out that it was stolen by D, B's brother. D lost no time in forging B's signature and
negotiated it to E who acquired it for value and in good faith.
May E recover on the bill from C, the drawee? Explain. (5%)
XI
Royal Links Golf Club obtained a loan from a bank which is secured by a mortgage on a titled lot where holes 1, 2, 3
and 4 are located. The bank informed the Board of Directors (Board) that if the arrearages are not paid within thirty
(30) days, it will extra-judicially foreclose the mortgage. The Board decided to offer to the members 200 proprietary
membership shares, which are treasury shares, at the price of P175,000.00 per share even when the current market
value is P200,000.00.
In behalf and for the benefit of the corporation, Peter, a stockholder, filed a derivative suit against the members of
the Board for breach of trust for selling the shares at P25,000.00, lower than its market value, and asked for the
nullification of the sales and the removal of the board members. Peter claims the Club incurred a loss of PS million.
The Board presented the defense that in its honest belief any delay in the payment of the arrearages will be
prejudicial to the Club as the mortgage on its assets will be foreclosed and the sale at a lower price is the best
solution to the problem. Decide the suit and explain. (5%)
XII
X owns 10,000 shares in Z Telecoms Corp. As he is in immediate need of money, he offered to sell all his shares to
his friend, Y, at a bargain price. Upon receipt of the purchase price from Y, X proceeded to indorse in blank the
certificates of shares and delivered these to Y. The latter then went to the corporate secretary of Z Telecoms Corp.
and requested the transfer of the shares in his name. The corporate secretary refused since X merely indorsed the
certificates in blank to Y. According to the corporate secretary, the certificates should have been specifically
indorsed to the purchaser, Y. Was the corporate secretary justified in declining Y's request? Discuss. (5%)
XIII
C Corp. is the direct holder of 10% of the shareholdings in U Corp., a nonlisted (not public) firm, which in turn owns
62% of the shareholdings in H Corp., a publicly listed company. The other principal stockholder in H Corp. is C
Corp. which owns 18% of its shares. Meanwhile, the majority stocks in U Corp. are owned by B Corp. and V Corp.
at 22% and 30%, respectively. B Corp. and V Corp. later sold their respective shares in U Corp. to C Corp., thereby
resulting in the increase of C Corp.'s interest in U Corp., whether direct or indirect, to more than 50%.
[a] Explain the Tender Offer Rule under the Securities Regulation Code. (2.5%)
[b] Does the Tender Offer Rule apply in this case where there has been an indirect acquisition of the
shareholdings in H Corp. by C Corp.? Discuss. (2.5%)
XIV
X, a government official, has a number of bank accounts in T Bank containing millions of pesos. He also opened
several trust accounts in the same bank which specifically covered the placement and/or investment of funds. X was
later charged with graft and corruption before the Sandiganbayan (SB) by the Ombudsman. The Special Prosecutor
filed a motion praying for a court order authorizing it to look into the savings and trust accounts of X in T Bank. X
opposed the motion arguing that the trust accounts are not "deposits" under the Law on Secrecy of Bank Deposits
(Rep. Act No. 1405). Is the contention of X correct? Explain. (5%)
XV
ABC Corp. is engaged in the pawnshop business involving cellphones, laptops and other gadgets of value. In order
to expand its business and attract investors, it offered to any person who invests at least Pl 00,000.00 a "Promissory
Note" where it obligated itself to pay the holder a 50% return on investment within one month. Due to the attractive
offer, many individuals invested in the company but not one of them was able to realize any profit after one month.
Has ABC Corp. violated any law with its scheme? Explain. (5%)
XVI
Henry is a board director in XYZ Corporation. For being the "fiscalizer" in the Board, the majority of the board
directors want him removed and his shares sold at auction, so he can no longer participate even in the stockholders'
meetings. Henry approaches you for advice on whether he can be removed as board director and stockholder even
without cause. What is your advice? Explain "amotion" and the procedure in removing a director. (5%)
XVII
PJ Corporation (PJ) obtained a loan from ABC Bank (ABC) in the amount of P10 million for the purchase of 100
pieces of ecodoors. Thereafter, a Letter of Credit was obtained by PJ against such loan. The beneficiary of the
Letter of Credit is Scrap Metal Corp. (Scrap Metal) in Beijing, China. Upon arrival of 100 pieces of ecodoors, PJ
executed a Trust Receipt in favor of ABC to cover for the value of the ecodoors for its release to PJ. The terms of
the Trust Receipt is that any proceeds from the sale of the ecodoors will be delivered to ABC as payment. After the
ecodoors were sold, PJ, instead of paying ABC, used the proceeds of the sale to order from Scrap Metal another
100 pieces of ecodoors but using another bank to issue a new Letter of Credit fully covered by such proceeds.
PJ refused to pay the proceeds of the sale of the first set of ecodoors to ABC, claiming that the ecodoors that were
delivered were defective. It then instructed ABC not to negotiate the Letter of Credit that was issued in favor of
Scrap Metal.
[a] Explain what is a "Letter of Credit" as a financial device and a "Trust Receipt" as a security to the Letter
of Credit. (2.5%)
[b] As counsel of ABC, you are asked for advice on whether or not to grant the instruction of PJ. What will be
your advice? (2.5%)
XVIII
B Bank, a large universal bank, regularly extends revolving credit lines to business establishments under what it
terms as socially responsible banking and private business partnership relations. All loans that are extended to
clients have a common "Escalation Clause," to wit: "B Bank hereby reserves its right to make successive increases
in interest rates in accordance with the bank's adopted policies as approved by the Monetary Board; Provided that
each successive increase shall be with the written assent of the depositor."
[a] X, a regular client of the bank, contends that the "Escalation Clause" is unfair, unconscionable and
contrary to law, morals, public policy and customs. Rule on the issue and explain. (2.5%)
[b] Suppose that the "Escalation Clause" instead reads: "B Bank hereby reserves the right to make
reasonable increases in interest rates in accordance with bank policies as approved by the Monetary Board;
Provided, there shall be corresponding reasonable decreases in interest rates as approved by the Monetary
Board." Would this be valid? Explain. (2.5%)
XIX
In 2015, R Corp., a domestic company that is wholly owned by Filipinos, filed its opposition to the applications for
Mineral Production Sharing Agreements (MPSA) of O Corp., P Corp., and Q Corp. which were pending before the
Panel of Arbitrators (POA) of the Department of Environment and Natural Resources (DENR). The three
corporations wanted to undertake exploration and mining activities in the province of Isabela. The oppositor alleged
that at least 60% of the capital shareholdings of the applicants are owned by B Corp., a 100% Chinese corporation,
in violation of Sec. 2, Art. XII of the Constitution. The applicants countered that they are qualified corporations as
defined under the Philippine Mining Act of 1995 and the Foreign Investments Act of 1991 since B Corp. holds only
40% of the capital stocks in each of them and not 60% as alleged by R Corp.
The Summary of Significant Accounting Policies statement of B Corp. reveals that the joint venture agreements of B
Corp. with Sigma Corp. and Delta Corp. involve the 0 Corp., P Corp., and Q Corp. The ownership of the layered
corporations and joint venture agreements show that B Corp. practically exercises control over the 0, P and Q
corporations. 0, P and Q corporations contend that the control test should be applied and its MPSA applications
granted. On the other hand, R Corp. argues that the "grandfather rule" should be applied. Decide with reasons. (5%)
XX
Company X issued a Bank A Check No. 12345 in the amount of P500,000.00 payable to the Bureau of Internal
Revenue (BIR) for the company's taxes for the third quarter of 1997. The check was deposited with Bank B, the
collecting bank with which the BIR has an account. The check was subsequently cleared and the amount of
P500,000.00 was deducted from the company's balance. Thereafter, Company X was notified by the BIR of its non-
payment of its unpaid taxes despite the P500,000.00 debit from its account. This prompted the company to seek
assistance from the proper authorities to investigate on the matter.
The results of the investigation disclosed that unknown then to Company X, its chief accountant Bonifacio Santos is
part of a syndicate that devised a scheme to syphon its funds. It was discovered that though deposited, the check
was never paid to the BIR but was passed on by Santos to Winston Reyes, Bank B's branch manager and Santos'
co-conspirator. Instead of bringing the check to the clearing house, Reyes replaced Check No. 12345 with a
worthless check bearing the same amount, and tampered documents to cover his tracks. No amount was then
credited to the BIR. Meanwhile, Check No. 12345 was subsequently cleared and the amount therein credited into
the accounts of fictitious persons, to be later withdrawn by Santos and Reyes.
Company X then sued Bank B for the amount of P500,000.00 representing the amount deducted from its account.
Bank B interposed the defense that Company X was guilty of contributory negligence since its confidential employee
Santos was an integral part of the scheme to divert the proceeds of Check No. 12345. Is Company X entitled to
reimbursement from Bank B, the collecting bank? Explain. (5%)
I.
A. Nadine has a checking account with Fair & Square Bank. One day, she lost her checkbook and the finder
was able to forge her signature and encash the forged check. Will Nadine be able to recover the amount
debited from her checking account from Fair & Square Bank? Justify your answer. (3%)
B. Is a manager's check as good as cash? Why or why not? (2%)

C. When can you treat a bill of exchange as a promissory note? (3%)
II.
A. Novette entered into a contract for the purchase of certain office supplies. The goods were shipped. While
in transit, the goods were insured by Novette. Does she have an insurable interest over the goods even
before delivery of the same to her? Explain. (2%)
B. Will an insurance policy be binding even if the premium is unpaid? What if it were partially paid? (3%)
III.
A. Discuss the three-fold character of a bill of lading. (3%)
B. What is a "Jason clause" in a charter party? (2%)
C. Are common carriers liable for injuries to passengers even if they have observed ordinary diligence and
care? Explain. (2%)
IV.
A. Maine Den, Inc. opened an irrevocable letter of credit with Fair Bank, in connection with Maine Den, Inc.'
s importation of spare parts for its textile mills. The imported parts were released to Maine Den, Inc. after it
executed a trust receipt in favor of Fair Bank. When Maine Den, Inc. was unable to pay its obligation under
the trust receipt, Fair Bank sued Maine Den, Inc. for estafa under the Trust Receipts Law. The court,
however, dismissed the suit. Was the dismissal justified? Why or why not? (3%)
B. Does the rule "res perit domino" apply in trust receipt transactions? Explain. (2%)
V.
A. A standby letter of credit was issued by ABC Bank to secure the obligation of X Company to Y Company.
Under the standby letter of credit, if there is failure on the part of X Company to perform its obligation, then Y
Company will submit to ABC Bank a certificate of default (in the form prescribed under the standby letter of
credit) and ABC Bank will have to pay Y Company the defaulted amount. Subsequently, Y Company
submitted to ABC Bank a certificate of default notwithstanding the fact that X Company was not in default.
Can ABC Bank refuse to honor the certificate of default? Explain. (3%)
B. Is the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce
applicable to commercial letters of credit issued by a domestic bank even if not expressly mentioned in such
letters of credit? What is the basis for your answer? (3%)
VI.
A. DEF Corporation has retained surplus profits in excess of 100% of its paid-in capital stock. However, it is
unable to declare dividends, because it had entered into a loan agreement with a certain creditor wherein
the declaration of dividends is not allowed without the consent of such creditor. If DEF Corporation cannot
obtain this consent, will it be justified in not declaring dividends to its stockholders? Explain. (3%)
B. What is "watered stock" and what is the legal consequence of the issuance of such stock? (3%)
VII.
A. A foreign company has been exporting goods to a Philippine company for several years now. When the
Philippine company failed to pay the latest exportation, the foreign company sued to collect in the
Philippines. The Philippine company interposed the defense that the foreign company was doing business in
the Philippines without a license; hence, could not sue before a Philippine court. Is this defense tenable?
Explain your answer. (3%)
B. Define:
1. Doctrine of apparent authority (2%)
2. Trust fund doctrine (2%)
VIII.
Barn filed an action to enjoin SN Company's Board of Directors from selling a parcel of land registered in the
corporation's name, to compel the corporation to recognize Barn as a stockholder with 50 shares, to allow him to
inspect the corporate books, and to claim damages against the corporation and its officers. Subsequently, the
corporation and the individual defendants moved to dismiss the complaint since the corporation's certificate of
registration was revoked by the SEC during the pendency of Barn's case on the ground of non-compliance with
reportorial requirements. The special commercial court granted the motion and reasoned that only an action for
liquidation of assets can be maintained when a corporation has been dissolved and Barn cannot seek reliefs which
in effect lead to the continuation of the corporation's business. The court also ruled that it lost jurisdiction over the
intra-corporate controversy upon the dissolution of the corporation.
a.) Was the court correct? (3%)
b.) Four years later, SN Company files an action against Barn to recover corporate assets allegedly held by
the latter for liquidation. Will this action prosper? (3%)
IX.
A. Able Corporation sold securities to 21 non-qualified buyers during a 15-month period, without registering
the securities with the Securities and Exchange Commission. Did Able Corporation violate the Securities
Regulation Code? Explain. (2%)
B. Securities issued by the Philippine government are "exempt securities" and, therefore, need not be
registered with the Securities and Exchange Commission prior to their sale or offering to the public in the
Philippines. What is the rationale behind this exemption? (2%)
C. Why is the Securities Regulation Code called a "truth in securities law"? (2%)
X.
Mr. and Mrs. Reyes invested their hard-earned savings in securities issued by LEAD Bank. After discovering that
the securities sold to them were not registered with the SEC in violation of the Securities Regulation Code, the
spouses Reyes filed a complaint for nullity of contract and for recovery of a sum of money with the RTC. LEAD Bank
moved to dismiss the case on the ground that it is the SEC that has primary jurisdiction over actions involving
violations of the Securities Regulation Code. If you were the judge, how would you rule on the motion to dismiss?
(3%)
XI.
A. Why is the Bangko Sentral ng Pilipinas considered a lender of last resort? (2%)
B. Distinguish a conservator from a receiver of a bank. (2%)
C. What is insider trading? (2%)
XII.
A. Raymond invested his money in securities issued by the Philippine government, through his bank.
Subsequently, the Bureau of Internal Revenue asked his bank to disclose his investments. His bank refused
the request for disclosure on the ground that the investments are confidential under the Secrecy of Bank
Deposits Law (Republic Act No. 1405, as amended). Is the bank's refusal justified? Defend your answer.
(2%)
B. First Bank received an order of garnishment over a client's peso and dollar deposits in First Bank. Should
First Bank comply with that order? Explain. (3%)
XIII.
A. A commercial bank wants to acquire shares in a cement manufacturing company. Do you think it can do
that? Why or why not? (2%)
B. A court found the interest charged by a bank as excessive and unconscionable and struck down the
contractual stipulation on interest. If you were the judge, what would you impose as the applicable interest
rate? State your legal basis. (2%)
C. What is the single borrower's limit? (2%)
XIV.
A. Differentiate trademark, copyright and patent from each other. (6%)
B. What is the doctrine of equivalents? (2%)
C. In what ways would a case for infringement of trademark be different from a case for unfair competition?
(3%)
XV.
CHEN, Inc., a Taiwanese company, is a manufacturer of tires with the mark Light Year. From 2009 to 2014, Clark
Enterprises, a Philippine registered corporation, imported tires from CHEN, Inc. under several sales contracts and
sold them here in the Philippines. In 2015, CHEN, Inc. filed a trademark application with the Intellectual Property
Office (IPO) for the mark Light Year to be used for tires. The IPO issued CHEN, Inc. a certificate of registration
(COR) for said mark. Clark Enterprises sought the cancellation of the COR and claimed it had a better right to
register the mark Light Year. CHEN, Inc. asserted that it was the owner of the mark and Clark Enterprises was a
mere distributor. Clark Enterprises argued that there was no evidence on record that the tires it imported from
CHEN, Inc. bore the mark Light Year and Clark Enterprises was able to prove that it was the first to use the mark
here in the Philippines. Decide the case. (4%)
XVI.
A. On the anti-money laundering laws:
1. What is the distinction between a "covered transaction report" and a "suspicious transaction
report"? (2%)
2. Does the Anti-Money Laundering Council have the authority to freeze deposits? Explain. (2%)
B. On foreign investments:
1. A foreign company has a distributor in the Philippines. The latter acts in his own name and
account. Will this distributorship be considered as doing business by the foreign company in the
Philippines? (3%)
2. ABC Corporation was organized in Malaysia but has a branch in the Philippines. It is entirely
owned by Filipino citizens. Can you consider ABC Corporation a Philippine national? (2%)

2015-2019 Bar Qs To Answer in Mercantile Law

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2019 Bar Examinations

Define the following terms:

(a) Trust fund doctrine (2%)

(a) What is a derivative suit? (2%)

A derivative suit may be filed if the following are present:

Thus, Mr. X’s filing of a derivative suit is not proper.

(a) Should Mr. P be held liable? Explain. (2.5%)

Rule on each of XYZ Insurance Co.'s contentions. (5%)

Both contentions of XYZ Insurance Co. are untenable.

No, it is not considered an electronic document.

(a) What is the doctrine of fair use? (2%)

Thus, the doctrine of fair use cannot be used in this case.

Is XYZ, Inc. required to conduct a tender offer? Explain. (3%)

No, XYZ, Inc. is not required to conduct a tender offer.

(b) Is Bank U's contention tenable? Explain. (2.5%)

(a) May LMN, Inc. be considered a common carrier? Explain. (3%)

(a) Is Bank I's refusal to reimburse Bank C warranted? Explain. (3%)

2018 Bar Examinations

(a) May Yvette hold Yolanda liable on the note? (2.5%)

YARN & THREAD Corporation

Is YFC correct? (2.5%)

(b) Can Yolly be held liable for insider trading? (2.5%)

(a) Was CSC correct in dismissing the case? (2.5%)

2017 Bar Examinations

(a) What is insurable interest? (2%)

Is the justification of Dennis warranted? Explain your answer. (4%)

(a) What is a warehouseman's claim? (3%)

State the exceptions to the Nell Doctrine. (4%)

Is Prosperous Bank's refusal justified? Explain your answer. (4%)

Discuss and explain the rights of Yaasmin on the check. (4%)

TRUE or FALSE - Explain briefly your answer.

(d) News reports are not copyrightable. (2%)

(e) The law on life insurance prohibits double insurance. (2%)

2016 Bar Examinations

Decide Jason's claim with reasons. (5%)

Is the application of the Holistic Test correct? (5%)

[b] What is meant by a de facto merger? Discuss. (2.5%)

May E recover on the bill from C, the drawee? Explain. (5%)

2015 Bar Examinations

B. Is a manager's check as good as cash? Why or why not? (2%)

A. Discuss the three-fold character of a bill of lading. (3%)

B. What is a "Jason clause" in a charter party? (2%)

1. Doctrine of apparent authority (2%)

2. Trust fund doctrine (2%)

a.) Was the court correct? (3%)

B. Distinguish a conservator from a receiver of a bank. (2%)

C. What is insider trading? (2%)

C. What is the single borrower's limit? (2%)

A. Differentiate trademark, copyright and patent from each other. (6%)

B. What is the doctrine of equivalents? (2%)

A. On the anti-money laundering laws:

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