Training & Convention Division

University of the Philippines Law Center

SUGGESTED ANSWERS
to the
2019 BAR EXAMINATIONS IN
MERCANTILE LAW

PART I

A.1.

Define the following terms:

(a) Trust fund doctrine (2%)

SUGGESTED ANSWER:

The trust fund doctrine provides that subscriptions to the capital stock
of a corporation constitute a fund to which the creditors have a right to look
for the satisfaction of their claims [Ong v. Tiu, 401 SCRA 1 (2003)]. The scope
of the doctrine when the corporation is insolvent encompasses not only the
capital stock, but also other property and assets generally regarded in equity
as a trust fund for the payment of corporate debts [Halley v. Printwell, Inc.,
G.R. No. 157549, May 30, 2011].

(b) Unfair competition (2%)

SUGGESTED ANSWER:

Unfair competition is the passing off or attempting to pass off upon the
public of the goods or business of one person as the goods or business of
another with the end and probable effect of deceiving the public. Passing off
takes place where a person, by imitative devices on the general appearance of
the goods, misleads prospective purchasers into buying his merchandise under
the impression that they are buying that of his competitors [Republic Gas
Corporation v. Petron Corporation, G.R. No. 194062, June 17, 2013].

(c) Insurable interest in property (2%)

SUGGESTED ANSWER:

Insurable interest in property is every interest in property, whether real

or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might indirectly damnify the insured. It may
consist of an existing interest, an inchoate interest founded on an existing
interest, or an expectancy coupled with an existing interest in that out of
which the expectancy arises (Sections 13 and 14, Insurance Code).

(d) Splitting of deposits (2%)

SUGGESTED ANSWER:

Splitting of deposits occurs whenever a deposit account with an

outstanding balance of more than the statutory maximum amount of insured
deposit maintained under the name of natural or juridical persons is broken
down and transferred into two or more accounts in the name/s of natural or
juridical persons or entities who have no beneficial ownership on transferred
deposits in their names within 120 days immediately preceding or during a
bank declared holiday or immediately preceding a closure order by the BSP
for the purpose of availing of the maximum deposit insurance coverage
(Section 11 , Philippine Deposit Insurance Corporation Charter, as amended
by Republic Act No. 9576).

A.2.

In May 2018, ABCCorp. 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%)

SUGGESTED ANSWER:

A derivative suit is an action filed by the stockholder in the name and on

behalf of the corporation to enforce a corporate right or cause of action to set
aside wrongful acts committed by its directors and/or officers [Ang, for and in
behalf of Sunrise Marketing v. Ang, G.R. No. 201675, June 19, 2013; Florete v.
Florete, G.R. No. 174909, January 20, 2016].

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 (b) Was Mr. X's filing of a derivative suit proper? Explain. (3%)

SUGGESTED ANSWER:

The filing of derivative suit is not proper. One of the requisites of

derivative suit is that the person filing the suit must be a stockholder of the
corporation at the time the acts or transactions subject of the action occurred
and the time the action was filed (Rule 8, Section 1, Interim Rules of
Procedure for Intramural-Corporate Controversies). In the present case, the
transaction subject of the derivative suit occurred when X was not yet a
stockholder. In fact, X only became a stockholder one year thereafter.

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%)

SUGESSTED ANSWER:

Pre-emptive right is the right of the stockholders to subscribe to any

and all issuance or disposition of shares of any class by the corporation in
proportion to their shareholding in the corporation. This means that except in
the cases provided by law, shares of stock the corporation should first be
offered to the stockholders prior to any offer to non-stockholders. This rule is
intended to prevent the dilution of stockholder’s equity stake in the
corporation (Section 39, Corporation Code; Section 38 of the Revised
Corporation Code).

(b) Is Ms. Z's contention correct? Explain. (3%)

SUGGESTED ANSWER:

Z’s contention is not correct. Pre-emptive right is not absolute. It may

be waived expressly or impliedly. Failure of the stockholder to exercise his
right within the period set forth by the corporation amounts to a waiver of
pre-emptive right.

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 A.4.

In 2016, X Corp. obtained a loan worth P50,000,000.00 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 P35,000,000.00, thereby leaving a
P15,000,000.00 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%)

SUGGESTED ANSWER:

Mr. P is not liable. The corporation being a mere artificial person can
only act through its representative. The corporate representative is not liable
for any act taken on behalf of the corporation unless he acted in bad faith or
with gross negligence in directing the affairs of the corporation or made
himself liable solidarily with the corporation. In this case, P, as President,
signed the loan document not for himself but on behalf of X Corporation.
Nothing in the facts indicated show that he bound himself liable with the
corporation or he acted in bad faith or with gross negligence.

(b) Should Y, Inc. be held liable? Explain. (2.5%)

SUGGESTED ANSWER:

Y, Inc. is not liable. Interlocking shareholders, directors and officers,

per se, is not enough reason to set aside the separate legal personalities of X
and Y.

Piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements, namely:

1) Control, not mere majority or complete stock control, but

complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that

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 the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
2) Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and
3) The aforesaid control and breach of duty must have
proximately caused the injury or unjust loss complained of
[Development Bank of the Philippines v. Hydro Resources
Contractors Corporation, G.R. No. 167603, March 13, 2013].

Control then is not enough. The facts do not show that the control over
the corporation was used to perpetuate fraud or violate a positive legal duty in
contravention of the J Bank’s right and that such control and breach of duty
was the proximate cause suffered by the Bank.

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%)

SUGGESTED ANSWER:

The case is not considered an intra-corporate dispute. To determine if a

case involves an intra-corporate controversy, the Supreme Court has
consistently applied two tests: the relationship test and the nature of the
controversy test. Under the relationship test, an intra-corporate controversy
arises when the conflict is "between the corporation, partnership or
association and its stockholders, partners, members or officers". The nature
of the controversy test examines the controversy in relation to the
"enforcement of the parties' correlative rights and obligations under the
Corporation Code and the internal and intra-corporate regulatory rules of the
corporation”. It is not yet certain that Mr. Y is a stockholder of Z Company.
Thus, the first test is not present. Even assuming that the parties are
stockholders of the corporation and as such, satisfy the relationship test, the
dispute is not rooted in the existence of intra-corporate relationship. The
action for injunction to stop the sale of shares does not pertain to the

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enforcement of the parties’ rights and obligations under the Corporation
Code.

(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%)

SUGGESTED ANSWER:

Yes, both relationship and nature of the controversy tests are present.
The dispute is between the stockholder and the corporation. The issue of
unpaid subscription pertains to the enforcement of their rights and
obligations under the Corporation Code.

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%)

SUGGESTED ANSWER:

The first contention is not tenable. Under the incontestability clause,

after a policy of life insurance made payable upon the death of the insured
shall have been in force during the lifetime of the insured for a period of two
years from the issuance of the policy or last reinstatement, the insurer must
make good on the policy even though the policy was obtained through fraud,
concealment or misrepresentation [Section 48 Insurance Code; Manila
Bankers v. Aban, G.R. No. 175666, July 29, 2013; Sun Life of Canada v. Sibya,
G.R. No. 211212, June 08, 2016]. Even if Mr. H had concealed or
misrepresented that he was previously diagnosed with colon cancer, XYZ can
no longer rescind the policy since it has been in force already for three years.

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 On the second contention, XYZ Insurance is liable despite the suicide of
Mr. H. Under the Insurance Code, the insurer is liable when suicide is
committed after the policy has been in force for a period of two years from the
date of issue or its last reinstatement (Section 180-A, Insurance Code). In this
case, Mr. H committed suicide three years after issuance of the policy; thus,
XYZ should be liable to the beneficiary of Mr. H.

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%)

SUGGESTED ANSWER:

The copy of the deed of sale faxed by Ms. K to Ms. J is not an electronic
document. The Supreme Court has already ruled that a facsimile transmission
cannot be considered as electronic evidence. It is not the functional equivalent
of an original under the Best Evidence Rule and is not admissible as electronic
evidence [MCC Industrial Sales Corp. v. Ssangyong Corp., G.R. No. 170633,
October 17, 2007].

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%)

SUGGESTED ANSWER:

Under this doctrine, the fair use of a copyrighted work for:

1) criticism, comment;
2) news reporting;

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 3) teaching including multiple copies for classroom use;
and
4) scholarship, research, and similar purposes

is not an infringement of copyright.

(b) Is KLM Printers, Inc.'s invocation of the doctrine of fair use proper in
this case? Explain. (3%)

SUGGESTED ANSWER:

In determining whether the use made of a work in any particular case is

fair use, the factors to be considered shall include:

a) The purpose and character of the use, including whether such

use is of a commercial nature or is for non-profit educational
purposes;
b) The nature of the copyrighted work;
c) The amount and substantiality of the portion used in relation to
the copyrighted work as a whole; and
d) the effect of the use upon the potential market for or value of
the copyrighted work (Section 185.1 of the Intellectual Property
Code).

Based on these factors, the invocation of the doctrine of fair use is not
proper. The reproduction of the copies is commercial in nature, where the
entire book is reproduced thereby violating the economic right of the author
and the offer to the public of copies of the book has an injurious effect upon
the potential market or value of the copyrighted work.

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%)

SUGGESTED ANSWER:

The requisites of patentability are novelty, inventive step and industrial

applicability.

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 a. Novelty. - An invention shall not be considered new if it forms part of
a prior art.

Prior art shall consist of:

 Everything which has been made available to the public

anywhere in the world, before the filing date or the priority
date of the application claiming the invention; and

 The whole contents of a published application for a patent,

utility model, or industrial design registration, filed or
effective in the Philippines, with a filing or priority date that
is earlier than the filing or priority date of the application.

b. Inventive Step. - An invention involves an inventive step if, having

regard to prior art, it is not obvious to a person skilled in the art at
the time of the filing date or priority date of the application claiming
the invention.

c. Industrial Applicability. - An invention that can be produced and

used in any industry shall be industrially applicable.

(b) Should X Pharmaceuticals, Inc.'s patent application for Disilopis be

granted? Explain. (2%)

SUGGESTED ANSWER:

No, the patent application for Disilopis should not be granted. The use
of the existing patent, although for a different purpose, will not satisfy the
elements of novelty and inventive step.

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

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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%)

SUGGESTED ANSWER:

The defense of W Hotel is tenable. Having a hotel establishment in the

Philippines with the trademark W is not the only way to prove actual use of
the trademark. In one case, the Supreme Court ruled that the use of the mark
on an interactive website sufficiently showing an intent towards realizing a
within-State commercial activity or interaction is considered actual use to
keep the trademark registration in force. That W Hotel was able to present
proof of actual booking transactions made by Philippine residents through
such website proves that the use of its "W" mark through its interactive
website is intended to produce a discernible commercial effect or activity
within the Philippines, or at the very least, seeks to establish commercial
interaction with local consumers. This is enough to keep its trademark
registration in force [W Land Holdings, Inc. v. Starwood Hotels And Resorts
Worldwide, Inc., G.R. No. 222366, December 4, 2017].

- END OF PART 1-

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 PART II

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%)

SUGGESTED ANSWER:

Insolvent shall refer to the financial condition of a debtor that is

generally unable to pay its or his liabilities as they fall due in the ordinary
course of business or has liabilities that are greater than its or his assets
(Section 4 (p) FRIA). Based on this definition of insolvency under FRIA, W
Medical may be considered insolvent even though its assets are more than its
liabilities as it can not pay its liabilities 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%)

SUGGESTED ANSWER:

No, W Medical Inc. can not file a petition for suspension of payment.
Such remedy is not available to a juridical insolvent debtor but only to
insolvent individual debtor (Section 94, FRIA).

(c) Assuming that W Medical, Inc. is considered "insolvent", what are the
legally recognized modes of rehabilitation it may opt to avail of? (3%)

SUGGESTED ANSWER:

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 W Medical Inc., may avail itself of any of the legally recognized modes
of rehabilitation:

A. Court-supervised which can be voluntary or involuntary

B. Pre-negotiated Rehabilitation
C. Out of Court or Informal Restructuring Agreement

(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%)

SUGGESTED ANSWER:

Yes, the Court may convert the rehabilitation into one of liquidation if
the debtor is insolvent and there is no substantial likelihood that the debtor
can be rehabilitated (Section 25 (c) FRIA).

B.12.

EFG, Inc. is indebted to Bank Y in the amount of P50,000,000.00. The loan

was secured by a surety ship 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%)

SUGGESTED ANSWER:

The case against Z Insurance Co should not be suspended despite the

commencement order. Under FRIA, the stay order, which is included in the
commencement order, does not cover a claim against the surety of the
insolvent debtor (Section 18 (c) FRIA) for the simple reason that it is not the
one subject of the petition for rehabilitation.

(b) Should the criminal case filed against Mr. P be suspended in light of the
Commencement Order? Explain. (2.5%)

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SUGGESTED ANSWER:

The criminal case against Mr. P is not suspended by the commencement

order. Under FRIA, the suspension of claims in corporate rehabilitation does
not extend to criminal action against the distressed corporation or its
directors and officers [Section 18 (g)]. This is because the prosecution of the
officers has no bearing on the pending rehabilitation of the insolvent debtor
[Panlilio v. Regional Trial Court, G.R. No. 173846, February 2, 2011].

B.13.

Enumerate at least two (2) rights of a data subject under the Data Privacy
Act. (2%)

SUGGESTED ANSWER:

The rights of the data subject under the Data Privacy Act are:

1. The right to be informed

a. on whether personal data pertaining to him or her shall be, are being,
or have been processed, including the existence of automated decision-
making and profiling;

b. and notified about the following information before the entry thereof
into the processing system of the personal information controller, or at the
next practical opportunity:
- Description of the personal data to be entered into the system;
- Purposes for which they are being or will be processed,
- Basis of processing, when processing is not based on the consent of data
subject;
- Scope and method of the personal data processing; Recipients or classes
of recipients to whom the personal data are or may be disclosed;
- Methods utilized for automated access, if the same is allowed by the
data subject, and the extent to which such access is authorized,
including meaningful information about the logic involved, as well as
the significance and the envisaged consequences of such processing for
the data subject;
- identity and contact details of the personal data controller or its
representative;
- period for which the information will be stored; and
- existence of their rights as data subjects (Section 34a, IRR).

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2. The right to access. This means reasonable access upon demand to the
following:
- Contents of his or her personal data that were processed
- Sources from which personal data were obtained
- Names and addresses of recipients of the personal data
- Manner by which such data were processed
- Reasons for the disclosure of the personal data to recipients, if any
- Information on automated processes where the data will, or is likely to,
be made as the sole basis for any decision that significantly affects or
will affect the data subject
- Date when his or her personal data concerning the data subject were
last accessed and modified
- The designation, name or identity, and address of the personal
information controller (Section 34c, IRR).

3. The right to object. The data subject shall have the right to object to the
processing of his or her personal data, including processing for direct
marketing, automated processing or profiling.

Rule: When a data subject objects or withholds consent, the personal

information controller shall no longer process the personal data
Exceptions:

a. The personal data is needed pursuant to a subpoena

b. The collection and processing are for obvious purposes, including, when
it is necessary for the performance of or in relation to a contract or
service to which the data subject is a party, or when necessary or
desirable in the context of an employer-employee relationship between
the collector and the data subject; or
c. The information is being collected and processed as a result of a legal
obligation (Section 34b, IRR).

4. The right to erasure or blocking. The data subject shall have the right to
suspend, withdraw or order the blocking, removal or destruction of his or
her personal data from the personal information controller’s filing system,
upon proof of any of the following grounds:

- The personal data is incomplete, outdated, false, or unlawfully obtained

- The personal data is being used for purpose not authorized by the data
subject
- The personal data is no longer necessary for the purposes for which
they were collected

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 - The data subject withdraws consent or objects to the processing, and
there is no other legal ground or overriding legitimate interest for the
processing
- The personal data concerns private information that is prejudicial to
data subject, unless justified by freedom of speech, of expression, or of
the press or otherwise authorized
- The processing is unlawful
- The personal information controller or personal information processor
violated the rights of the data subject (Section 34e, IRR).

5. The right to damages. The data subject shall be indemnified for any
damages sustained due to such inaccurate, incomplete, outdated, false,
unlawfully obtained or unauthorized use of personal data, taking into
account any violation of his or her rights and freedoms as data subject
(Section 34f, IRR).

6. The right to file a complaint

a. The complainant must have first informed, in writing, the personal

information controller or concerned entity of the privacy violation or
personal data breach to allow for appropriate action on the same; AND
b. the personal information controller or concerned entity did not take
timely or appropriate action on the claimed privacy violation or
personal data breach, or there is no response from the personal
information controller within fifteen (15) days from receipt of
information from the complaint; AND
c. the complaint is filed within six (6) months from the occurrence of the
claimed privacy violation or personal data breach, or thirty (30) days
from the last communiqué with the personal information controller or
concerned entity, whichever is earlier.

7. The right to rectify. The data subject has the right to dispute the
inaccuracy or error in the personal data and have the personal information
controller correct it immediately and accordingly, unless the request is
vexatious or otherwise unreasonable. If the personal data has been
corrected, the personal information controller shall ensure the accessibility
of both the new and the retracted information and the simultaneous receipt
of the new and the retracted information by the intended recipients
thereof: Provided, That recipients or third parties who have previously
received such processed personal data shall be informed of its inaccuracy
and its rectification, upon reasonable request of the data subject (Section
34d, IRR).

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8. Right to data portability – this right gives data subjects the mechanism to
obtain their personal data in an electronic or structured format from
personal information controllers if such personal data is being processed
through electronic means, and enables the further use of such personal
data by the data subjects (Section 36, IRR; Section 18, DPA).

Note: Any two of these rights should suffice to get full credit.

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%)

SUGGESTED ANSWER:

XYZ is not required to conduct a tender offer. While purchase of equity

securities covering 35% of the public company is subject to mandatory tender
offer, the equity securities should have been acquired during a 12-month
period (Rule 19.2). In this case, the additional 12% equity stake to bring
XYZ’s acquisition to 37% was acquired after 3 years from the first purchase
transaction. It is when the acquisition would result in ownership of over fifty
percent (50%) of the total outstanding equity securities of a public company
that the acquirer shall be required to make a tender offer, regardless of the
time he acquired the shares that brought his equity stake to over 50% of the
public company.

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
P5,000,000,000.00 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

16
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%)

SUGGESTED ANSWER:

Yes, the information that the corporation has just been awarded a P 5
billion construction contract by a reputable private company is material non-
public information. It has not been generally disclosed to the public and would
likely affect the market price of the security after being disseminated to the
public or would be considered by a reasonable person important under the
circumstances in determining his course of action whether to buy, sell or hold
the security (Section 27.2 of the Securities Regulation Code).

(b) Should Mr. P and Mr. B be held liable for. insider trading? Explain. (3%)

SUGGESTED ANSWER:

P is liable for insider trading because he bought shares of the company,

through his broker, while in the possession of material non-public
information.

B is also liable for insider trading. B became an insider after having

received by communication a material non-public information from P, who as
President of JKL is an actual insider (Sections 3.8 and 27 of Securities
Regulation Code). B is liable because he bought the shares of JKL while in the
possession of material non-public information.

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.

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 (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%)

SUGGESTED ANSWER:

The peso savings account of Mayor J with Bank P may be garnished.

The prohibition against examination or inquiry into bank deposits under R.A.
1405 is not a bar to the garnishment of the deposit because the disclosure is
only incidental to the execution process and there is nothing in the records of
Congress that would indicate that Philippine Currency bank deposits are
beyond the reach of judgment creditor [China Bank v. Ortega, G.R. No. L-
34964, January 31, 1973].

The dollar savings account with Bank D, however, can not be garnished.
Except in case of written consent of depositor or in case of court order for
violation of the Anti-Money Laundering law, foreign currency deposits are
exempt from garnishment under R.A. 6426 [GSIS v. Court of Appeals, G.R.
189206, June 8, 2011].

(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%)

SUGGESTED ANSWER:

Yes, the bank inquiry order may be issued, because one of the
exceptions to the rule prohibiting disclosure of Philippine currency bank
deposits is if the money deposited is the subject matter of litigation. The
foreign currency deposits, on the other hand, are exempt from court order
under R.A. 6426.

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.

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 (a) May the AMLC examine the bank accounts of the accused-public
officials even without seeking a prior court order? Explain. (2.5%)

SUGGESTED ANSWER:

The AMLC can not examine the bank accounts of the accused-public
officials without seeking a prior court order. Under the Anti-Money
Laundering law, the AMLC needs to obtain a bank inquiry order from the
Court of Appeals to inquire into funds and deposits if there is probable cause
in relation to an unlawful activity under AMLA. Bank inquiry order is not
necessary, only if the predicate crime is hijacking, kidnapping, terrorism,
murder, arson or violation of the Dangerous Drugs Law (Section 11 of R.A.
9160, as amended). In the present case, the predicate crime, graft and corrupt
practice act, does not fall within the exception.

(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%)

SUGGESTED ANSWER:

Yes, the AMLC may apply for a freeze order with the Court of Appeals.
It must establish the existence of probable cause that the funds and deposits it
wants to freeze relate to any of the unlawful activities under AMLA (Section
11 of RA 9160, as amended) [Subido Pagente Certeza, Mendoza and Binay Law
Offices v. Court of Appeals, GR No. 216914, December 6, 2016].

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 P200,000.00 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%)

SUGGESTED ANSWER:

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 No, the imitation of Mrs. T’s signature is not a material alteration.
Section 125 of the Negotiable Instruments Law (NIL) provides that there is
material alteration of an instrument in case of any alteration of date, the sum
payable, time or place of payment, number or relations of the parties, the
medium or currency in which payment is to be made, or which adds a place of
payment where no place of payment is specified, or any other change or
addition which alters the effect of the instrument in any respect is a material
alteration.

The imitation of Mrs. T’s signature is not considered as a material

alteration under the Negotiable Instruments Law but one of forgery.

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

SUGGESTED ANSWER:

The contention of Bank U is not tenable. A forged signature is wholly

inoperative and no right can be acquired under such forged signature (Section
23 of the NIL). In case of forgery of the drawer’s signature, as in the present
case, the loss shall be borne by the drawee bank. It should restore the account
of the depositor corresponding to the amount of the check deducted from its
account. The drawee bank is supposed to be familiar with the signature of the
drawer as its customer and shall be considered negligent for not detecting the
forgery [San Carlos Milling Co v. BPI, 59 Phil. 59].

Also, by accepting the instrument, the drawee-acceptor is bound to have

acknowledged the genuineness of the drawer’s signature. (Section 62 NIL).

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.

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

SUGGESTED ANSWER:

LMN is a common carrier. Common carrier are persons engaged in the

business of transporting or carrying passengers or goods or both, by land, air
and water, offering their services to the public, for compensation. The test
does not make a distinction whether the carrying is done as the principal or as
an auxiliary activity or that the carriage was periodic, occasional, episodic or
unscheduled or has limited clientele. It is not necessary that the transportation
services be offered to the general public. Offering the services even to a
narrow segment of the public suffices [Spouses Cruz v. Sun Holidays, GR No.
186312, June 29, 2010]. Thus, the fact that the transportation services are
offered only to the guests of the beach resort is immaterial. Transportation is
an integral part of LMN’s business.

ALTERNATIVE ANSWER:
LMN is a private carrier. It does not hold itself out to the public as
ready to act for all that desires its transportation services as it is limited to
guests of the beach resort. It only undertakes by special arrangement to
transport the guests of the resort from the city to the resort and vice-versa. It
also does not charge compensation for the transportation services.

(b) Assuming LMN, Inc. is a common carrier, may it be absolved from

liability on the ground of fortuitous event? Explain. (2%)

SUGGESTED ANSWER:

No, LMN Inc. is not absolved from liability. For such defense to be
tenable, the force majeure must have been the proximate and only cause of
the loss, and the carrier should have exercised due diligence to prevent or
minimize the loss, before, during and after the occurrence of the incident
[Spouses Cruz, ibid]. The carrier must likewise not be guilty of delay.

LMN can not validly invoke force majeure because it was guilty of
concurrent negligence in continuing with the ferry services despite the storm.

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

21
irrevocable letter of credit, payable on sight, issued by Bank I for the account of its
client, Mr. P, in the amount of Pl,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 Pl,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%)

SUGGESTED ANSWER:

Bank I’s refusal to reimburse Bank C is unwarranted. Under the

doctrine of independence, as long as the stipulated documents are presented,
the issuing bank has the obligation to pay even if the buyer should later on
refuse payment. The obligation to pay on the part of the issuing bank does not
depend on the fulfillment or non-fulfillment of the main contract underlying
the letter of credit but simply upon submission of the stipulated documents.
To allow Bank I to refuse to honor the Letter of Credit simply because it could
not collect first from Mr. P, the buyer, is to countenance a breach of the
Independence Principle [The Hongkong & Shanghai Banking Corporation,
Limited v. National Steel Corporation and Citytrust Banking Corporation (Now
Bank Of The Philippine Islands), G.R. No. 183486, February 24, 2016].

(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%)

SUGGESTED ANSWER:

Yes, Bank I may refuse Bank C’s claim for reimbursement if the
documents submitted by F Corp. were proven to be actually forged but were
nonetheless accepted by Bank C as sufficient.

Under the fraud exception principle, the beneficiary of the letter of

credit should not be entitled to payment if the following elements are present:

22
 a) there is fraud on the part of the beneficiary;
b) the fraud constitutes fraudulent abuse of the
independent purpose of the letter of credit and not only
fraud under the main agreement; and
c) irreparable injury might follow if beneficiary is paid.

The forged documents qualify as fraud sufficient to prevent payment to

F Corporation by Bank C and the right to reimbursement by Bank C from
Bank I. [Transfield Philippines v. Luzon Hydro Corporation, 443 SCRA 307].

- END OF PART II-

Nothing follows

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