1989 BAR EXAMINATION

1989 BAR. No. I (2)

After one year of operation, Safe Realty, Inc., wanted to declare

dividends to its stockholders. Ramos, its President, asked Santos, its
Treasurer, whether this is feasible, considering the financial standing
of the corporation. Santos reported that the corporation posted a P1
M profit and its real estate has appreciated in value to the tune of P4
M. The Board then declared dividends to its stockholders computed on
the basis of P5 M representing profits and appreciation in value of its
real estate. Is the dividend declaration proper? Reasons.

UPLC Suggested Answer:

(2) The dividend declaration is improper. Dividends may be

declared only out of unrestricted retained earnings (Art. 43,
Corporation Code) and, as understood in generally accepted
accounting principles, such declaration would preclude its being
sourced from mere increments in the value of corporate assets which
may fluctuate from time to time.

SUGGESTED ONE-SENTENCE ANSWER:

The dividend declaration is improper because according to the
Corporation Code, dividends may be declared only out of unrestricted
retained earnings.

ISSUE:
Whether or not the dividend declaration is proper.

LEGAL BASIS:
Art. 43, Corporation Code which states that: No corporation shall
conclude a management contract with another corporation unless such
contract shall have been approved by the board of directors and by
stockholders owning at least the majority of the outstanding capital
stock, or by at least a majority of the members in the case of a non-
stock corporation, of both the managing and the managed corporation,
at a meeting duly called for the purpose: Provided, That (1) where a
stockholder or stockholders representing the same interest of both the
managing and the managed corporations own or control more than
one-third (1/3) of the total outstanding capital stock entitled to vote of
the managing corporation; or (2) where a majority of the members of
the board of directors of the managing corporation also constitute a
majority of the members of the board of directors of the managed
corporation, then the management contract must be approved by the
stockholders of the managed corporation owning at least two-thirds
(2/3) of the total outstanding capital stock entitled to vote, or by at
least two-thirds (2/3) of the members in the case of a non-stock
corporation. No management contract shall be entered into for a
period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to any
contract whereby a corporation undertakes to manage or operate all or
substantially all of the business of another corporation, whether such
contracts are called service contracts, operating agreements or
otherwise: Provided, however, That such service contracts or operating
agreements which relate to the exploration, development, exploitation
or utilization of natural resources may be entered into for such periods
as may be provided by the pertinent laws or regulations. (n)

MAGIC WORD/S:
a. dividends
b. profits
c. stockholder

Question No. III (2)

(2) X applied for life insurance with Metropolitan Life Insurance

Company. The application contained this question: “Have you ever had
any ailment or disease of x x x (b) the stomach or intestines, liver,
kidney or genitourinary organ?” X, a laundry woman who has no
medical knowledge answered “No.” The application was approved,
premium was paid and six months later, X died from cancer of the
stomach. The post medical examination of X shows that she had the
cancer at the time she applied for a policy. Can the beneficiary of X
collect on the policy? Reasons.

UPLC Suggested Answer:

(2) The beneficiary of X cannot collect on the policy.
Concealment, as a defense against liability by the insurer, may either
be intentional or unintentional (see Sec. 27, Insurance Code, as
amended by B.P. 874, revoking the rule in the Ng Gan Ze case, G.R.
30685, 30 May 1983). Lack of knowledge on the part of the insured
about her ailment will not preclude the insurer from raising the
defense (see Tang vs. Court of Appeals, G.R. L-48563, 25 May 1979).
The insurer may be held in estoppel only if, having known of the
concealed or misrepresented fact, still accepts the payment of
premium (B.P. 874) which is not the situation in this case.

Alternative Answer:
The beneficiary of X can collect on the policy. There being no
indication that there was knowledge of any ailment or disease, and
considering the nature of cancer, there can be no concealment.
Concealment by its very term, whether intentional or unintentional,
still requires knowledge.

SUGGESTED ONE-SENTENCE ANSWER:

The beneficiary of X cannot collect on the policy because according to
the law, lack of knowledge on the part of the insured may still be an
unintentional concealment.

SUGGESTED ONE-SENTENCE ANSWER (ALTERNATIVE):

The beneficiary of X can collect on the policy because the law provides
that concealment by its very term, whether intentional or
unintentional, still requires knowledge.

ISSUE:
Whether or not the beneficiary of X can collect on the policy.

LEGAL BASIS:
Art. 1332 supplements Art. 24 of the Civil Code which provides that:
“In all contractual, property or other relations, when one of the parties
is at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the court
must be vigilant for his protection.”

MAGIC WORD/S:
1. Medical knowledge

QUESTION NO. 11:

(1) X shipped thru M/V Kalayaan, spare parts worth

P500,000.00. The bill of lading limits the liability of the carrier to
P500.00 and contains a notation indicating the amount of the letter of
credit (i.e., P500,000.00) which X obtained from a bank to import the
spare parts. The spare parts were not delivered to X so S sued the
carrier for P500,000.00. Decide.

(2) X boarded an airconditioned Pantranco Bus bound for

Baguio. X was given notice that the carrier is not liable for baggage
brought in by passengers. X kept in his custody his attache case
containing $10,000.00. In Tarlac, all the passengers, including X,
were told to get off and to take their lunch, the cost of which is
included in the ticket. X left his attache case on his seat as the door of
the bus was locked. After lunch and when X returned to the bus, he
discovered that his attache case was missing. A vendor said that a
man picked the lock of the door, entered the bus and ran away with
the attache case. What, if any, is the liability of the carrier?

Answer:

(1) The limit liability stipulated in a bill of lading is subordinated

to a declaration therein of the actual value of the goods. Since the bill
of lading itself contains a notation indicating the true value of the
goods shipped (supported by the letter of credit), X can sue the carrier
on the basis of such true value. (see National Development
Corporation vs. Court of Appeals, G.R. L-49407, and Maritime Co.
vs. Court of Appeals, G.R. L-49469, 18 August 1988).

SUGGESTED ONE-SENTENCE ANSWER:

The liability of the carrier on the basis of such true value of the goods
because the law provides that, the limit stipulated in a bill of lading is
subordinated to a declaration therein of the actual value of the goods.

ISSUE:
Whether or not the courier has liability over undelivered spare parts.

LEGAL BASIS:
Under Article 1733 of the Civil Code, common carriers from the nature
of their business and for reasons of public policy are bound to observe
extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them according to all...
circumstances of each case. Accordingly, under Article 1735 of the
same Code, in all cases other than those mentioned in Article 1734
thereof, the common carrier shall be presumed to have been at fault
or to have acted negligently, unless it proves that it has observed
the... extraordinary diligence required by law.

MAGIC WORD/S:
 1. Carrier

(2) Hand-carried luggages of passengers are governed by the

rules on necessary deposits. Under Article 2000 of the Civil Code the
responsibility of the depository shall, among other cases, include the
loss of property of the guest caused by strangers but not that which
may proceed from force majeure. Article 2001 of the same Code
considers an act of a thief as not one of force majeure unless done
with the use of arms or through an irresistable force. Accordingly, the
carrier may, given the factual setting in the problem, still be held liable
(See Art. 1754, Civil Code).

SUGGESTED ONE-SENTENCE ANSWER:

Yes, the courier is still liable according to the law because the
responsibility of the depository shall, among other cases, include the
loss of property of the guest caused by strangers but not that which
may proceed from force majeure

ISSUE:
Whether or not the X can collect for damages from Pantranco Bus.

LEGAL BASIS:
The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or
deterioration. Article 1754. The provisions of articles 1733 to 1753
shall apply to the passenger's baggage which is not in his personal
custody or in that of his employee

MAGIC WORD/S:
1. Common carrier