Mercantile Law Bar Examination Q & A (1990-2006) Page 1 of 103

ANSWERS TO BAR EXAMINATION

QUESTIONS IN
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Law..................................................................................................21
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Banks; Restrictions on Loan Accommodations (2002)
As part of the safeguards against imprudent
banking, the General Banking Law imposes
limits or restrictions on loans and credit
accommodations which may be extended by
banks. Identify at least two (2) of these limits
or restrictions and explain the rationale of
SUGGESTED
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(5%)
Any two (2) of the following limits or
restrictions on loan and credit transactions
which may be extended by banks, as part of
the safeguards against imprudent banking,
1
to wit: SBL Rules – (i.e., Single Borrower’s
Limit) rules are those promulgated by the
Bangko Sentral ng Pilipinas, upon the
authority of Section 35 of the General
Banking Law of 2000, which regulate the
total amount of loans, credit
accommodations and guarantees that may
be extended by a bank to any person,
partnership, association, corporation or other
entity. The rules seek to protect a bank from
making excessive loans to a single borrower
by prohibiting it from lending beyond a
specified ceiling.
2 DOSRI Rules – These rules
promulgated by the BSP, upon authority of
Section 5 of the General Banking Law of
2000, which regulate the amount of credit
accommodations that a bank may extend to
its
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page
Page 15
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bevs.a jueteng of
Banks;
to Rudy.
deposit Secrecy
except of Bank
“in Deposit;
cases Exceptions
where the (2006)
money operator. He
erroneously sent amount, she opened a dollar Gigi. May 161
Purisima Gigi scrahas 576;never
validly Secoppose been the
8 Anti-Graft charged
Lawsaid as or
Under
deposited
Banks; Republic orwith Act
invested
Restrictions onNo.1405is the
Loan (The Bank
subject
Accommodations matter (2006) the Banks; Secrecy
convicted of Bank Deposits (1995)
account her local bank, deposited issuance
amendedon byofBP any
the 195) crime.
ground Hethat maintains
the same several
Secrecy
of Pio is Law),
litigation”
$10,000 the and nor bank
president willdeposits
issued it of 4Western
matter checksarewhetherconsidered
Bank.
in the theHis
amount Michael
SUGGESTED
bank withdrew
ANSWER:
accounts and without
has
violates the law on secrecy of bank deposits? authority
purchased 5funds
houses of
Banks;
absolutely
moneywife Secrecy
of $2,000applied
was of Bank
confidentialfor a
“swindled.”
and
Deposits
loan
1 and (2000)
with
check may the
for not saidbe bank each
$1,000 to a) theThe
and lots
Explain Secrecy
partnership
your for answer. in ofthe Bank
amounts
his children from the Luansing Deposits
of P500th Act and
GP is a suspected
examined,
finance
payable inquired
an to jueteng
internet or cafe.
looked
different lordThe who
into loan by
individualsisofficer
any told
who prohibits,
US$50th
Realty, subject
Inc. to its he
for services
Since exclusionary
hedoes claims nothe clauses,
rendered
have any
rumored
person,
her
deposited to herbethe
government
that enjoying
application
same police
official,
in will
their and
bureau
not military
be
respectiveorapproved
office. dollar anyvisible
forpersonthe job, fromtheexamining,
benefit ofcompany inquiring
the partnership. reportedor his He
protection.
SUGGESTED
What The are
because
accounts the
sender The
ANSWER:
the envy
exceptions?
with bank
grant
differentof
of many
then (5%)
loans drug
brought
local tobanks. lords
related a civil who suit looking
deposited into all
the deposits
P500th
purchases to the Anti-Money Laundering of in whatever
his personal nature peso
The exceptions
hadinterests
not escaped
before the tothe the Bank
dragnet Secrecy
of the law,Law GP are with banksaccount
current or banking with institutions
Prosperity Bank incharged
the the
and
of bank directors, officers, andof the
RTC for the recovery Council (AMLC). Thereafter, AMLC
the following:
wasstockholders
summonedsent
erroneously to prohibited
a amount.
hearing of In thethe Philippines
US$50th which
in his by
personal law are
foreign declaredcurrency
1. SUGGESTED Special orisgeneral by
examination the course
General
of a
of the him with violation of the Anti-Money
Committee
trial, theLaw.
Banking onANSWER:
Racketeering
sender Explain presented
whether and Other testimonies
the loan of “absolutely
savings account
Laundering confidential”
Law.with Upon in
Eastern nature.
request Bank. of Manosa
the AMLC,
bank, authorized
Section
Syndicated 36Crimesof the by General
the
theBangko Banking Sentral Law ngof The partnership instituted an action to in becourt
bank officials
officer is correct. to of show
(5%) House
that the offunds were, in who merely overheard what
the bank disclosed to it Rudy's bank deposits appeared
Pilipinas'
2000
Representatives, Monetary
does not which Board,
entirely was inconducting
connection
prohibit directors awith or against
1.
a vague Can Michael,
Rudy
remark move Prosperity,
to dismiss and the Eastern
to a co-on
case to
a
fact, deposited
bank fraud or
in a bank
serious
by Socorro
irregularity.
and paid amounting to of P100a Bank Million.employeeSubsequently, he
officers
congressional
out to of
several the bank,
investigation
persons, directly “in
who or
aid indirectly,
of
participated in compel
ALTERNATIVE
the
employee ground Michael
ANSWER:
and that tohereturn
writing has the thecriminal
no subjectinfunds
same record?
his to
2. fromExamination
borrowing by an theindependent a) was
The charged
the complaint
partnership
in court
against
and
for violation
Manosalitigation
pending
of
will thenot Anti-
to
legislation”
the on the from
concealment involvement
and bank. of In
dissipation this and
police case,
of the (2.5%)
SUGGESTED
newspaper
Money
ANSWER:
column
Laundering is neither
Law. writing the inquiry nor
Auditor, hired by the Bank and for Bank, the which prosper
No.
orderUnder because the merely
Anti-Money any awithdrawal
vague
3.
Pio
military
amount is personnel,
the president
Disclosure thatuse. and
with
ofpossibly
Socorro
the
Western had
Depositor's
evenerroneously
of local
written disclosure both banks
contemplated by law.Laundering
to disallow Law,
Bank's
makes exclusive
Socorrohim moved an officer,
to strike director
out saidand testimonies remark
from of
Rudy his aaccounts.
would Bank beemployee
guilty of ato"money a co-employee laundering
government
received. officials, in the illegal activities of
permission.
stockholder
from the record of the said
invoking bank. the The
law General
on secrecy is not
At the
crime"the initial
disclosure
committed hearing contemplated
when of the the case bythe
proceeds law.courtIf an
of
suspected gambling and drug lords.
1 bank
Banking
of In case Law ofprovides
deposits. Impeachment. If foryou additional
were thewere Judge, anyone
ordered
"unlawful should be liable,
Prosperity
activity," tolike it will
produce jueteng bethethe recordsbank of
operations,
Subpoenaed to attend the investigation SUGGESTED ANSWER:
2 In
restrictions
would cases
you to
issueof Bribery
the an bankorder or dereliction
before
to strikeit can them of out?
lend to employee
Michael’s
are made who todisclosed
peso appearcurrent asthe havinginformation.
account, and Eastern
originated from
officers of certain identified banks with a b) Among the instances excepted from the
duty
SUGGESTED
its
Why? by a ANSWER:
directors Public
or Officer,A upon
officers. written orderapprovalof a of to producesources.
legitimate the records The money of hislaundering foreign
directive to them to bring the records and coverage of the Secrecy of Bank Deposits
competent
Ithe
willmajority
not strike court.
voteout of allthethe testimonies fromthe the currency
crime savings account.
is separate from the unlawful activity of
documents of bank deposits ofdirectors
individuals of ActCanare the Anti-graft
court cases. Prosperity
compel Hence Gigi may not
3
record. In
bank, excluding
mentioned
casesThe of
in the subpoenas,
money
testimonies
the director deposited/invested
of bank
concerned,
among them is
officials being a jueteng operator, andand Eastern
requires no
which, in Furthermore,
indicating turn,where is thethe subject of Litigation,
questioned dollar validly oppose
to disclose the issuance
the bankfordeposits of a subpoena
of Michael?
GP. required.
GP andANSWER: the banks opposed the production such dealings must previous conviction the unlawful activity
SUGGESTED
upon
accounts order of
were a competent
opened Court.in depositing duces tecum
Discuss
SUGGESTED for the bank records on her.
fully.
ANSWER:
beThe upon terms not less favorable toa the bank (See
Banks; also
Secrecy Sec. 3, Anti-Money Laundering Act
of
4. the
Yes. banks’
4 DOSRI opposition
misappropriated
records
Loans: sums
of
isLoans deposits
valid. must GP is
with be
on
not
their the
consideredpublic
Banks as Yes,
2. To farof as
asraise Bank the
funds Deposits
peso
for his (1991)
account
defense, is concerned.
Rudy sold
than those offered to others (Section 1326, of
Thethe 2001).
law
ground
of Bank
official.
likewise
that
Directors,
The no such
investigation
involved
inquiry
Officers,
in does is allowed
Stockholders
litigation not– involve
one
underand
whichone is Sec 2(RA
houses of RA 6832)
and1405 creating
lots allows
to a the
a friend. Commission
disclosure
Can Luansing to of
the Central
of the Law onBank's
exceptions Secrecy "Manual
to of
the Bank ofDeposits
prohibitionRegulations (RA for conduct a
bank deposits Thorough Fact-Finding
in case where Investigation
the money
related
among
Banks
interests.
the Other
and excepted Financialcases underagainst
Intermediaries, the Secrecy Realty, Inc. be compelled to transfer to the
1405 as
5 Bank
disclosure amended).
Loans of in excess
any Is
informationthe opposition
of(Melon
5% concerning
of the of
Bank's GP bank of buyer
the Failed
deposited is the
ownership Coup ofd’etat
subject the matter of Dec
houses of and 1989,
litigation.
lots?
of
cited in Deposits
Ranioso Act
v.Box;CA, G.R. No. Bank 117416, v Magsino
and
depositsthe banks
Capital
Banks; Secrecy
under&
Safety valid?
of
the
Surplus
Deposit BankLaw Explain.
Deposits
on (1994)
Secrecy
Liability of Bank Recommend
Since the case
SUGGESTED
(2.5%) Measures
ANSWER: filed against to MichaelPreventis aimed the
190 SCRA 633)
December
Miguel,
6 and
Deposits.
MN TheThe OP 8,
aBorrower
special2000).
Committee
rented aA
customs
waived violation
conducting
safety his agent
right
deposit of thisis
as
the
box charged
at Occurrence
Luansing
at recovering ofRealty,
Similar
the amount Attempts
Inc. ishe aAt a Violent
real
withdrew estate
from
provision
before
investigation
regards
SIBANK. the will
the
The is cause
Ombudsman
not
Secrecy
parties his
a competent or
of Bank
signed her
with position
having
court oracquired
Deposits
a contract to be
the
of Seizure
company,
the funds of Power of theand
hence is not for a Other
itpartnership, covered whichPurposes,
institution
amount
5. declared
7 Violation
property
Ombudsman
lease withvacant
outtheof of
authorized and
the the
Anti-Graft
proportion
conditions under erring
that: toand
the director
thehis
lawbank to or
salary, is in provides
under
he allegedly that the3deposited
Section Commission
of the Anti-Money in his may account,
ask the a
Laundering
issueofficer
Corrupt
violation
not aasubpoenasubjected
Practices
depository of the Act. to
forofthe the penal
Anti-Graft
the contents and
production provisions
ofofthe the of
Corrupt
safe Monetary
Act.
disclosure OnlyBoard of to disclose
banking
his bank information
institutions,
deposits insurance
would onbe
6.
bank the New
Coup
Practices
and record
has neitherCentral
d' etat
Act. the
involving Bank
Law
Thesuch Act.
(RA
Ombudsman
possession 6968,
disclosure. issued ofa
nor control No,
and/or towith
companies,
proper. grant respect
authority
securities to tothe examine
dealers foreign andanycurrency
bank
brokers,
7.
Banks;
Oct subpoena
the BIR Commissioner's
Secrecy
24,1990).
same; ofduces
theBank Deposits;
bank tecum assumed toauthority
Exceptions
theno Banco to verify
(2004)
interest de Cincoin account.trust
deposits,
pre-need Under orthe
companies Foreign
investment and other Currency
funds,entities Law,
or
The
a Lawcontents
decedent's
commanding
said on Secrecy Gross andEstate
its of Bank
representative
assumes and Deposits
a taxpayer's
no to furnish
liability in the the exemption
banking transactions
administering orto inthe the prohibition
otherwise name dealing of and/or against in
provides
request
Ombudsman
connection forthat all
a compromisedepositsof
records
therewith. of
The whatever
agreement
transactions
safety deposit nature
due bytoor box in disclosure
utilized
currency,by a person, of commodities
information
natural or concerning juridical,
or under bank
financial
with the banks
incapacity name or
to banking
pay
of his
Miguel,
had two keyholes: one for the guard key taxinstitutions
liability.
his wife are
and children. A deposits is
investigation
derivatives byare thecovered writteninstitutions.
Commission, consent
in any of bank
Hence,the
8.
absolutely
second Foreign confidential
subpoena Currency was in Deposits
nature
issued andby may foreign
expanding not the
Banks;
depositor.
or banking
Luansing Secrecy of BankInc.
institution
Realty, Deposits
in the (1998)
mayPhilippines,
not use the when Anti-
which remained with the bank; and the other
lenders
be for
examined, & investors inquired under PDs 1034. 1998 (20) An insurance to company is deluded
first theby including
renters' key. theor looked
production
The box can intoof be by any of
records
opened theMoney
Commission Laundering has Act reasonable refuse to ground
transfer to to
9.
person, Violations
government of the Anti-Money
official, bureau or office. 3.
into
believe In
the buyer disclosing
releasing
that said ownershipa Rudy's
check
deposits, bank
of theto
trustA accounts
for P35thand to
or investment
houses the
pay
lots.
friends
only with ofthe Miguel use of inboth saidkeys. bankThe andrenters in all its
10.
Laundering
Miguel
However, When moved
the Law.the
law State
to quash
provides exercises/invokes
the subpoenas
exceptions in its arguing AMLC,
for
funds, did
Treasury the bank violate
banking transactions have been to
or ANSWER: Bills (T-bills) any
which law?A (2.5%)
claims
branches
deposited and
certificatesextension of offices,
title in the specifically
box. But SUGGESTED
Police
that
certain Power.
(NOTA
they
instances. BENE:Which
violate Itthe
is suggested
Secrecy
of the ofthat
followingBank anyDeposits
6 of
may used
SUGGESTED
be en
inthe route
support
ANSWER:
on board
orofnot in an armored truck
furtherance of from
the
naming
later, the they them.
above discovered
beexceptions:
given that the
full credit) certificates The No,Law on Secrecy
bank did Bank Deposits
violate any islaw.
itself The
1.
notInLaw.cases
SUGGESTED
be of ANSWER:
In addition,
among the he contends that the a government
objectives of the said bank. The check
coup d’etat. is delivered
Does the to
2. Inwere
The cases
impeachment. bankgone. is
involvingMN
liable,andbased OP now on claimthe for
decisions of merely
bank a statutory
being enactment,
specified as and a it "covered
may,
subpoenas are in the nature of “fishing A who
above depositsnot
provision it toviolatehis account the (such Lawwith on XYZ
3. Indamages
Banks;
the
bribery Secrecy
cases
Supreme from
of
involvingBank SIBANK.
CourtDeposits
BIRin CA Is
(1990)the bank
Agro-Industrial liable? therefore,
institution" be modified,
under theorAnti-Money
amended Laundering as
expedition” or “general warrants” and are Bank of
Secrecy before
Bank the insurance
Deposits (RA company
1405)? realizes
Explain
Manosa, casesa briefly. newspaper(5%) andcolumnist, while by Law,
providing further exceptions therefrom),
4. In
inquiry.
Development
constitutionally of anti-graft
Corp. v. Court
impermissible corrupt
of Appeals, with respect 219 SCRA to it is isaobliged scam. toUpon report to therealization,
such AMLC covered the
making
5. In cases
practices.
426 a
(1993) deposit
whereand Sia in
thev.who a
money
Court bank, ofinvolvedoverheard
Appeals, is
222 the a
SCRA or and
evensuspicious
repealed, transactions,
expressly or impliedly, without by
thereby
private individuals are not under insurance company files an action against A
pretty
subject
SUGGESTED
24 bank
of
(1993). Inteller
those
ANSWER: informing thea Supreme
cases, contention coemployee Court a violating
subsequentany law.law. TheThis Secrecy of Bank
is defrauded
one of and the
investigation. Is Miguel’s tenable? for recovery of the amount
that No. Gigi,
Miguel’s a well
ruled that the renting out of safetyknown
contention public
is not official,
tenable.
deposithasThe Deposits
exceptions Act did to the not Secrecy
amount of to Banka contract Deposit
obtains a writ of preliminary attachment. In
inquiry
justboxes a few is ainto hundred
"special illegallykind pesos ofacquired in herwherein
deposit" property
bank between
Act. the depositors and depository
addition to the writ, the Bank is also served a
account
extends
the bank andis tothatthecases her where
depositary. next check such
In thewill property
absence in all ofis banks within the meaning of the non-
subpoena to examine the account records of
concealed
probability
any stipulation by being
bounce. prescribing held by
Manosa theor wrote
degreerecorded this in
of impairment clause of the Constitution. Even
A. The Bank declines to provide any
information
the
diligence in his newspaper
required, that of a column. good father Thus, of a if it did, the police power of the State is
information in response to the writ and
Gigi family is to be superior to the non-
moves to quash the subpoena invoking
secrecy of bank
 Mercantile Law Bar Examination Q & A (1990-2006) Page 18 19
Page of 103
of 103
Under Section
of the economy.6(F) of the
It shall
No. The RTC has no authority to restrain the National
promote Internal Revenuemonetary
and maintain Code, thestability
monetary board of the BSP from statutory Commissioner
and convertibilityof Internal
of theRevenue
Peso. can
authority to undertake receivership and inquire into the deposits of a decedent for
ultimate liquidation of a bank. Any opposition theTruth in Lending
purpose Act (1991)
of determining the gross estate
to such an action could be made to the court Dana Gianina
of such decedent. Apart purchased
from this on case,
a 36a BIR month
itself where assistance is sought. The action installment
inquiry into bank basis the cannot
deposits latest be model
made. of the
of the RTC where the proceeding is pending Nissan
Thus, Sentra3Sedan
exception may not caralways
from thebe Jobel Cars
appeal have to be made in the Court of Turning
Inc. Intoaddition
applicable. exception 4, an
to the inquiry into
advertised bankprice,
selling
Legal Tender (2000)
Appeals. deposits is possible
the latter imposed only in prosecutions
finance for
charges consisting
After many years of shopping in the Metro unexplained
of interests, wealth
feesunder the Anti-Graft
and service charges. andIt did
Manila area, housewife HW has developed Corrupt Practices Act, according
not, however, submit to Dana a written to the
the sound habit of making cash purchases Supreme
statementCourt in the casesforth
setting of Philippine
therein the
only, none on credit. In one shopping trip to National Bank v. Gancayco,
information required by the Truth15 SCRA 91 (1965)
in Lending
Mega Mall, she got the shock of her shopping However,
and Banco all other casesand of anti-graft and v.
Act (RAFilipino
3765).Savings
Nevertheless, Mortgage
the Bank
conditional
life for the first time, a store’s smart salesgirl corrupt
1
Purisima, practices
Has will
there not
been warrant an
substantial inquiry
deed 161 of SCRA
sale 576which(1988).
the parties executed
refused to accept her coins in payment for a intocompliance
bank deposits. of theThus, exception
aforesaid Act? 4 may
mentioned that the total amount indicated
not2alwaysIfbe applicable. Like any other
purchase worth not more than one hundred therein included such financeforegoing
your answer to the charges.
pesos. HW was paying seventy pesos in 25- exception,
questionitismustin the benegative,
interpreted strictly.
what is the effect
Exceptions 1, 2 and
of the violation on5,the
on contract?
the other hand, are
centavo coins and twenty five pesos in 10
provided
3 expressly
In the event in the
of aLaw on Secrecy
violation of theof Act,
centavo coins. Strange as it may seem, the
Bankwhat remedies may be availed of to
Depositors. They are available by Dana?
salesgirl told HW that her coins were not
SUGGESTED ANSWER: depositors at all times.
“legal
No. Thetender.” Do you
salesgirl’s agree with that
understanding the coins Banks; Secrecy of Bank Deposits; Garnishment (2001)
salesgirl in respect of her understanding of
are not legal tender is not correct. Coins are The Law on Secrecy of Bank Deposits,
“legal tender?” Explain (2%)
legal tender in amounts not exceeding fifty otherwise known as RA 1405, is intended to
pesos for denominations from twenty five encourage people to deposit their money in
centavos and above, and in amounts not banking institutions and also to discourage
exceeding twenty pesos for denominations private hoarding so that the same may be
PDIC Law vs. Secrecy
ten centavos and of Bank Deposits Act (1997)
less. properly utilized by banks to assist in the
An employee of a large manufacturing firm economic development of the country. Is a
earns a salary which is just a bit more than notice of garnishment served on a bank at
what he needs for a comfortable living. He is the instance of a creditor of a depositor
thus able to still maintain a P10,000 savings SUGGESTED ANSWER:
covered by the said law? State the reason(s)
account, a P20,000 checking account, a No. The notice of garnishment served on a
for your answer. (5%)
P30,000 money market placement and a bank at the instance of a creditor is not
P40,000 trust fund in a medium-size covered by the Law on Secrecy of Bank
by the PDIC. b) State which of the
commercial bank. a) State which of the four above Deposits. Garnishment is just a part of the
accounts are
accounts covered by
are deemed insured process of execution. The moment a notice of
the Law on Secrecy of Bank garnishment is served on a bank and there
Deposits.
SUGGESTED ANSWER: exists a deposit by the judgment debtor, the
a) The P10th savings account and the P20th bank is directly accountable to the sheriff, for
account are deemed insured by the PDIC. b)
checking the benefit of the judgment creditor, for the
The P10th savings account and the P20th whole amount of the deposit. In such event,
account are covered by the Law on Secrecy of
checking the amount of the deposit becomes, in effect,
Deposits.
Bank BSP; Receivership;
a subject of theJurisdiction
litigation.(1992)
Family Bank was placed under statutory
Responsibilities & Objectives of BSP (1998) receivership and subsequently ordered
What are the responsibilities and primary liquidated by the Central Bank (CB) due to
objectives of the BSP? (5%) fraud and irregularities in its lending
SUGGESTED ANSWER: operations which rendered it insolvent.
The BSP shall provide policy directions in the Judicial proceedings for liquidation were
areas of money, banking and credit. It shall thereafter commenced by the CB before the
have supervision over the operations of RTC. Family Bank opposed the petition.
banks and exercise such regulatory powers Shortly thereafter, Family Bank filed in the
as provided in the Central Bank Act and same court a special civil action against the
other pertinent laws over the operations of CB seeking to enjoin and dismiss the
finance companies and non-bank financial liquidation proceeding on the ground of grave
litigation. Explain
institutions your answer
performing or
quasi-banking abuse of discretion by the CB. The court
choice briefly.such
functions, (5%) as quasi-banks and poised to: 1) restrain the CB from closing
The
SUGGESTEDprimary
ANSWER:
institutions objective ofsimilar
performing the BSP is to
functions. Family Bank; and 2) authorize Family Bank to
maintain price stability conducive to a SUGGESTED ANSWER:
withdraw money from its deposits during the
balanced and sustainable growth
pendency of the case. If you were the Judge,
would you issue such orders? Why?
Mercantile LawLaw
Mercantile Bar Bar
Examination Q &Q
Examination A&
(1990-2006)
A (1990-2006) Page 20 21
22
Page of 103
103 their
of 103 loan of
Gregorio portfolios.
indebtedness dueCompany
500 bags,or owing,Xon
which
when there
2) If
without the is
sale
more, aproceeds
bona fide
toand
and transfer just
is
arrange dispute
made
the a) byas the wasaccount
Gregorio facedaccepted,
with
of the thegoods,dismal
is an entirely choice new
fixtures of business
or either
to the
deliveryamount
vendor, due as herof
andmortgagor,
installation electric
transferor
your new or homeassignor suspending
transaction.
subject matter its
(Yao operations
Ka ofSin theTrading
bulkor selling
sale.
v CA GR its 53820
consumption
who system.
theater producesrate. Is know
and
You Angelene’s
delivers
you willacontention
written
receivewaiver
a business.
June 15, 1992 It chose
209s763) the latter. Having struck a
SUGGESTED
valid? ANSWER:
of the provisions
statement on your credit of thecardBulk Sales Law from
purchases deal Bulk withSales Law; Obligation
Company Z, a of morethe Vendor
viable(2001) entity
No. Angelene’s
his
from creditors
the only legal an
as shown
bank containing recourse
by option
verifiedin
tothis
statement;
pay BOD;A Compensation
engaged is a merchant
in the same (1991) engaged
business, in the sale of X
Company a
case
and
only was to pay the
b) by a vendor,
a minimum electric
amount, bill
mortgagor, undertransferor or
which is usually After
sold itsmany
variety entireof difficult
goods
business and years, thewhich
merchandise.
to formercalled Because
without for
protest. Hertotal
assignor
1/36 of the failure
who is to
priceando sowere
justified
executor,
you MECO forto
administrator,
charged sacrifices
much of the fanfare on orthe
economic part
anycrisis,form he of publicity.
of the company’s
incurred In fact,
cut the electric
receiver,
your purchase. service
assignee
Did (Ceniza
in
Embassy v CA 218 or
insolvency,
Appliances S 290)
public directors,
indebtedness
evidence ABC Manufacturing
exists to X,the
that Y and Z. Inc
transaction waswasfinally
Thereafter, A
SUGGESTED ANSWER:
officer
comply with acting under judicial
the provisions of the process,
Truth in the sale earning
sold toentered
furtively substantial
B all the intostock profits.
of goods
to avoid the and Thus,
prying the
There is no need for Embassy Appliances to President
eyes ofinCompany
merchandise. bulk of his
proposed a)X’s goods
Whatto steps
creditors.to B.BOD
the (2%).
should
The that
A the
creditor
or transfer
Lending Act (RA is 3765)?
not covered by the Bulk Sales
comply
Bulk Corporation Law
with the Truth in Lending Act. The
Law.Sales Law; Obligation of the Vendor (1995) directors
banksSUGGESTED
undertake be
and other paid
ANSWER:
to effecta bonus
financial a valid equivalent
sale
institutions to
sued 15%
transaction
House ofis not Pizza a sale
(Pizza) on installment
is the owner basis.and Athemust
SUGGESTED
of prepare net
ANSWER:
company’s an income affidavitbefore statingtaxthe
Company X for violation of the Bulk Sales
Embassy
operator Appliances
of a is a seller on
nationwide cash basis.
chain of pizza Company
names
during theX ofviolated
preceding theyear.
all his creditors, Bulk Sales in this
The Law case,when
President’s X, Y,
BOD: Election of Aliens as members (2005) Law. Decide. (5%)
It isoutlets.
the credit House cardofcompanyLiquor which allows
(Liquor) is a retailer it sold
and its
Z, entire
their business
addresses,
proposal was unanimously approved by the to Company
the amount Z of their
A Korean national joined a corporation which
theofbuyer
all to enjoy
kinds of the privilege of paying the
liquor. furtively
SUGGESTED to avoid
ANSWER: the
BOD. A stockholder of ABC questioned thethe
credits and their prying
maturity. eyesA of
should its give
is engaged in the furniture manufacturing Yes, the Its stockholder as turn,agoods
valid andsold legal a
priceHouse of Foodsbasis.
on installment (Foods) has offered to creditors.
affidavit
bonus. Doesto manufactured
he Bhavewho,grounds in toshouldare
object? furnish
business. He was elected to the Board of ground to object to the payment to the
purchase all of the outlets, equipment, wholesale
copy to to each distributors
creditor and and notify
dealers. theThe creditors
Bulk Sales Law
Directors. To complement its furniture
fixtures and furniture of Pizza. Foods also directors
salethatof all of
there a bonus
or substantially
is a proposed equivalent allbulk
of itsto 15%
salestocks, of
in orderthe
not to
manufacturing business, the corporation company’s net income. The their law interests.
provides
in the
enable ordinarythe course
latter to of business,
protect
Bulkoffered
also Sales
engagedLaw; toCovered
purchase from (1994)
in the Transactions
logging business. With
Liquor all of its
b) theSuppose Aannual
submitted a false statement
moderately priced stock constituting 50% that
constitutes total
bulk sale. The compensation
transaction of the
being a on the
Stanrus
the Inc a department
additional logging activity, storecan withthe outlets in of directors, schedule in the of into his creditors.
preceding Whatcannot
year, is the effect of
its
SUGGESTED total inventory.
ANSWER: bulk sale, entering such transaction
Makati, national
Korean Mandaluyong, beand
stillLiquor Quezonof
a member City,
theis What exceed false
such10%statement of the as requirements
company’s to Vendee net income B.of
Yes, Both
just Pizza
as long and as sixty percent have creditors.
(60%) ofits the SUGGESTED
without complying ANSWER: with the
contemplating
Board of Directors? to refurbish
Explain. and(3%) renovate BOD;
Bulk Conflict
a)Bulk
Sales(2%) of Covered
There
Law; Interestwas (1994)
no30substantial
Transactions Code).compliance
(2006)
Boardlegal of requirements
Directors are must Pizza
Filipinos. and Liquor
Corporations theSUGGESTED
before income
Sales ANSWER:
tax
Law, (Sec
Company Corp X violated said
Makati store in order to introduce the most ABC If
Pursuant
with the
Pigger vendee
to
the aInc writ
Truth isdoes in not
of engaged
executionLendinghave in knowledge
raising
issued Act.byThe and law
the of
that comply
are and with
sixtystatepercent in (60%) order owned for byFoods to law.
modern
consummate the oftransactions?
the art equipment Discuss in fully. the
selling
Regional
provides falsity
hogs Trial inof
that the
the
Court the schedule,
local
in market.
"Express
creditor the Mr.
Bank
must salev. is
De
make valid.
Dios,
Don a full
Filipinos
merchandise can engage
display. To carry out itsof
in the business plan, it However, ifofthe vendee has
SUGGESTED ANSWER: one
Rubio," of the
disclosure its directors
sheriff thelevied while
credit sold knowledge
andtraveling
lost. abroad,
at public
The statement of
exploration,
intends development and utilization of
Pizza toand sell ALL of must
Liquor the existing prepare fixtures and
an affidavit met such
auction
that falsity,
a leather
8thephotocopying the sale
goodsamount
total is void
manufacturer
machines because
due ofincludeswho he
Don was the is in
natural
equipment resources.
(display (Art.
cases, XII, Sec.
wall
stating the names of all their creditors, their 2, 1987
decorations, bad faith.
interested
Rubio.
principalIs thein buying
sheriff's
and the sale pig
financial skins
covered byfrom
charges, the
the without
Constitution) The electionetc.) toofCrossroadsaliens as c) WhatANSWER: is the right
furniture,
addresses, counters,
the amounts of their credits and SUGGESTED
Philippines.
Bulk Sales
specifying Law?Mr the De
(5%) Dios ofset
amounts creditors
due upona each X, Y,portion
separate and Z if A
members
Department of
their respective the Board
Store. Thereafter, Of Directors
maturities. itPizza willengaging
buy
and and Liquor No.failed
The to comply
sale by with
sheriff the
at procedure/steps
public sale is not arequired by
company
thereof and started
would exporting
be pig
insufficient skins to and
in partially-nationalized
install new fixtures activities isand
allowed saleb) by under
law
a merchant.
A question
violation Section
of letter
the 8
Truth of(a)the
in hereof?
Bulk
Lending Act
must submit saidand equipment
affidavit to Foods which, in his foreign
unacceptable. contact but the pig skins exported
in proportion
continue to their
operations.
turn, should notify allowable
Crossroads
the creditors participation
wantsabout to the Sales
willLaw (1%)
SUGGESTED notitself provides
ANSWER:
adversely affect thatABC. it has
the no fellow
validity of the
were The not
recourse sourced of X, from Y, and Z is toHis question the
or
knowshare in
ALTERNATIVE the
from you which capital
ANSWER:
as counsel: of such entities.
1) Whether (Sec.
the application
contract to
itself.executors, administrators,
transaction is about to be concluded directors in ABC complained that he should
2-A, creditors
As Anti-Dummy
far asof Stanrus. validity of the sale from A to B so as to
intended
with sale
Pizza isLiquor
and Law)
“bulk
Liquor. Nothing
is concerned,
sale.” 2) Howin the canfactsit
it must receivers,
c) given
SUGGESTED
have Itassignees
would
ANSWER:
this allow
business in insolvency,
Dana
to ABC. to refuseor public
How payment
would
SUGGESTED
shows that ANSWER:
more than forty percent recover
Iofficers,
would decide the in goods
favor of and
Mr De merchandise
Dios. paid, to
ABC is
prepare
protect
BOD;
1) Yes.
an
itselfsale
Capacity
The offrom
affidavit
Directorsfuture
involves
stating
(1996)allclaims
fixturesof and of
the (40%)
names of all ofdecide
yousatisfy acting
financial on this under
charges process.
matter? or, if The Bulk Sales
already to
the Board
its of Directors
creditors, their are foreigners.
addresses, the amounts of engaged
Law their
in
only applies
recover the same.credits.
raising and
to the sale selling
Danaor may hogs
encumbrance in the
also initiate
Rodman,
equipment, thenot President
in thetheir of TF Co,course
ordinary wroteof a letter local market. The company that Mr De
their credits and respective maturities. of acriminal
merchant charges of goods, against merchandise
the creditor. or Dios
to Gregorio,
trade and the offering
regular toprosecution
sell to the latter
It must submit said affidavit to its buyer, who of 5,000
business had Consumer Protection Law
commodity done "in bulk" as defined byinthe
set up was to engage, as it did, the
bags of fertilizer
of Stanrus, Inc. at P100
(Sec 2 Act per3952,bag.asGregorio
amended) Bulk
export Sales of Law;
pigs Exclusions
skins. (1993)
There is thus no conflict
in turn, should notify the creditors about the ALTERNATIVE
Law itself. ANSWER:
signed his conformity to the letter-offer, and of c)
In the (Per Atty
annual
interest meeting
between Jomby of XYZ
Mr. Paras if u
De Corporation,
Dios andread ABCthe
transaction which is about to be concluded Metric System Law (1994)
2) Crossroads
paid Buta down-payment should require
of P50th. from A fewStanrus
days
with as his farseller. as Pizza is concerned, it is not theprovisions
Pigger
Angelene
Inc so asclosely)
stockholders
is a
makeUnder
unanimously
to
customer
the case adopted
ofcharges
thefall Truth
Meralco
within in
a
Electric
Inc.covered
later, submission
the Corporate
by the of aBulkwritten
SecretarySales waiver
of TFof
Law. So the
informed
Foods Bulkcan the Lending
resolution Observation:
conflict Act,
proposed said
of interest byThe
financial
the term
BOD
situation to“conflict
sell arethe
under of
valid,
Sales
Gregorio Lawofby
consummate thethe creditors
decision
the of as
transactiontheir shown
BOD bynot todoing
without Company
and interest”
Dana (MECO).
may is Because
susceptible
not refuse toof the
varied
payment abrupt
views rise
thereof.
substantially
law (Sec 34 Corp Code) all the fixtures and equipment
verified
ratify thestatements
anything. letter offer. orHowever,
to complysince with Gregorio
the in
Only electricity
and interpretations.
criminal rates,
charges Angelenemay complained
be initiated
used in and about its business. The President
requirements
had Bulk Sales Law; Obligation of the Vendor (1997) is,
already of
paid the
the Bulk Sales
down-payment, Law, that
TF BOD;withInterlocking
MECO Directors
insisting (1995)that she should be
against
of the the creditor.
Corporation approached you and asked
theThe seller
delivered sole must
500 notify
bags
proprietor of his of creditors
fertilizer which
a medium-size of the
Gregorio
grocery Chito
charged Santos is Act
the a (2000)
director
former ofrates. both Platinum However,
for Truth
legalinassistance
Lending to effect the sale. 1) What
termsshop, engaged in both wholesale also,
accepted. and conditions
TF made it of
clear the sale,
that theand delivery
and retail Corporation
Angelene
valid?
Embassy 2) What and
did are Kwik
not
AppliancesthetenderSilver
two any Corporation.
instances
sells payment. when He
steps
When should MECO’s you take
employeesso that the home
served salethe may theater
first 48-
before
should receiving
be considered
transactions, from an
sells vendee
theentirely any part “lock,
new
entire business of owns
the 1%
sale,
components of
transfer, the outstanding
that are capital
designed of
stock and
be hour notice of disconnection, Angelene
thestock
purchase
transaction. price,
andThereafter,
barrel” deliver to such
Gregorio
because vendee
sought
of his plan a to Platinum
mortgage
customized and or 40T ofentertainment
assignment
as Kwik. Platinum of stockcenters plans
of goods, tofor
written
enforcement swornof statement
the of the
letter-offer. names
Is there and
a protested.
enter into
merchandise,
wares, a MECO,
contract however,
with
provision, Kwikor did
that not
materials will implement
make
otherwise
emigrate
SUGGESTED ANSWER: abroad with his family. Is he consumers within the medium-to-high price
boththe 48-hour
incompanies notice of of disconnection. Instead,
addresses
binding
No,
Bulk
covered
there
Sales Law;
of
contractby
is no all his
thefor
binding
Covered
creditors
the
provisions5,000
contract
Transactions
together
bags
of theof with
Bulk
for the 5,000
(2000)
Sales than the
bracket. Most,earn
ordinary course
if very
not all,substantial
trade
of these and profits.
the regular
packages
theLaw?amount
fertilizer? of
InExplain.
the indebtedness
affirmative, due
what to eachbe
must (Secdone Theits
are
employees
contract
prosecution
sold onis of examined
presented
the
installmentbusiness at Angelene’s
the
of
basis, respective
the vendor
usually
electric
are
by
bags
Company of fertilizer.
X, engaged First, inthe the facts
businessdo not of 1. meter,
In meetings
orderchanged that the contract
theor transfer
same, willKwik.not
and be installed
2 SUGGESTED
Act
by 3952,
the partiesANSWER:
amended) so as to comply with the law? board deemed
not
means of to be
credit of a Platinum
sale
cards and
allowing a in
maximum
indicate
manufacturing
Yes. This that Rodman,
is car parts
a sale the and
of President
the stockofof
accessories, TF goods,
Co, voidable,
another.
bulk?
SUGGESTED whatAngelene,
Still,
ANSWER: conditions made will have no to be ofof
tender
was authorized 36 equal monthly payments. Preferred credit
operates
fixtures andbyentire
a factory the
withBOD to enter into
equipment,
business, not the in the 1) Thecomplied
payment. requirements with? Explain. of the Bulk Sales Law
said contract
machinery and ortools
thatofhe was
this empowered
forbusiness purpose. Thetoofdothe 2.
mustcards
MECO
If be
these of this
served
complied type
conditions a
with. are
second
are those
Thenot issued
48-hour
sellermet, how
deliversby
noticebanks,
to of
ordinary course or trade
so under some provision of the which regularly hold mall22, wide salesIt blitzes
manufactured
vendor. Before goodsreceivingare sold wholesale from the of
by-laws to TF
vendee thedisconnection
may
purchaserthis a listonofbe
contract June
hisratified?
creditors 1984.
Explain.
and the gave
Co. The
distributors facts do not also indicate that participated
Angelene untilinnotifies
5 bypm appliance
ofsuch 25,retailers
Junecreditors 1984 ofwithin like
any part and of the dealerspurchase throughout price, the the vendor purchaser in turn
Rodman Embassy Appliances. You are a buyer of a
must has
Philippines. been to
Company
deliver clothedXsuchwas withamong the apparent
vendee the a written which to pay.
the proposed sale at a stipulated time in As no payment had been
power to entities
execute thesworn,
contract home theater center at Embassy Appliances.
business
statement, dulyadversely of or
hit by agreements
the thenames
1997 and made,
advance. MECO cut Angelene’s electric service
similar to it. Second, TheJune salesclerk who isAngelene attendingcontends to you simply
Asian business
addresses all TF
crisis.
of Its Co
sales
creditors hasdropped
specifically
to whom with said on 28, 1984. that
informed
thevendor
declinemayGregorio
in car that it has not ratifiedwith the the swipes
the 48-hour your written credit card noticeon of the electronic
disconnection
besales
indebted,and itstogetheroperating
contract
costs for
escalated, the sale of 5,000 bags
while its creditor banks and of fertilizer approval
rule cannot machine
be invoked (which by momentarily
MECO prints
amount of
and
otherthat the delivery
financial institutions to tightened out your charge slip since you have unlimited
credit), tears the slip from the machine,
hands the same over to you for your
signature, and
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) 24 23
Page
Page of 103
of 103 Theto
which BOD of Xthe
invest Co,funds
actingofon a
Is a a) by-law his presence of
provision as director at the
X Corporation thestanding
corporation.authority
Robert of wants
the stockholders
the deadlock to
meeting
“rendering is not necessary
ineligible or if elected, to constitute
subject toa amend the by-laws, amended its by-laws so
broken.
removal,quorum a directorfor suchif hemeeting;
is also a director in a 1. asWhat are the remedies
to disqualify any of itsavailable
stockholdersto who is
b) his whose
corporation vote is business
not necessary for the
is in competition Robert
also under the Corp
a stockholder code to of
and director break
a the
with orapproval of the contract;
is antagonistic to saidand c) the
corporation” deadlock? Explain.
competitor from being elected to its BOD.
contract
SUGGESTED ANSWER: is fair and
valid and legal? State your reasons. (5%). reasonable under the 2. Are there any remedies to prevent the
Yes, the by-law provision is valid. It is the
circumstances. Y, a stockholder
paralyzation of theholding
businesssufficient assets
available to to
right of a corporation to protect itself against assure
Robert him underofPDa 902-A
seat while
in thethe BOD, filed a
petition
possible
At the harm meeting and prejudice
of the BOD ofthat Kwik may be
to approve theSUGGESTED
petition
to break with
ANSWER: the SECisfor
the deadlock a declaration of
pending
caused
contract, by itsChito competitors.
would haveThe position
to make sure ofthat 1. nullity
Robert ofcan
the petition
amended the SEC to arbitrate
by-laws. He alleged
litigation? Explain.
director
- a) thereis highly
is no fraud sensitive and confidential.
involved; and b) the the dispute, with such powers
among other things that as a stockholder, as he
To contract
say the least,is fair to andallow a person,
reasonable underwhothe is a provided
had in Sec 104
acquired of the
rights Corp Code.
inherent in stock
director incircumstances.
a corporation whose business is in 2. ownership
The SEC can suchappoint
as thea right
rehabilitation
to vote and be
competition with or is antagonistic to X receiver
SUGGESTED
voted uponor a management
ANSWER:
in the election of committee.
directors. Is the
SUGGESTED ANSWER:
Corporation, to become also a director in X No. There is no vested right of a stockholder
2. If the conditions relating to the quorum stockholder’s petition tenable? (5%)
Corporation would be harboring a conflict of to be elected as director. When a person
and required number of votes are not met, buys stock in a corporation he does so with
interest which is harmful to the latter
the contract
By-Laws; must qualifications
Validity; limiting be ratified of byBOD
the vote of the knowledge that its affairs are dominated
(Gokongwei Jr v SEC 89 S 336 (1979); 97 S 78
stockholders
members (2003) representing at least 2/3 of the by a majority of the stockholders. To this
(1980)).
To outstanding
prevent the entry
capital stock of in Marlo Enriquez,
a meeting called extent, the stockholder parted with his
whom it considered
for the as one antagonistic
purpose. Furthermore, the adverseto its personal right to regulate the disposition of
interests,
interestinto of Chito its Board
in the of Directors,
contract mustBayan
be his property which he invested in the capital
Corporation
disclosed and amended
the contract itsis fairarticles
and of stock of the corporation and surrendered it
BOD; Interlocking
incorporation
reasonable. and Directors
(Secs. 32 (1996)
by-laws and 33, to BPadd68)certain to the will of the majority of his fellow
Leonardo isof
qualifications thestockholders
Chairman and to President,
be elected Corporations have the power to make by-
incorporators or stockholders.
as while
members Raphael of its is a Director
Board of NT Corporation.
of Directors. When laws declaring a person employed in the
On one occasion,
presented for approval NT Co, at represented
a meeting of by its service of a rival company to be ineligible for
Leonardo and A Ent, a
stockholders duly called for the purpose, thesingle proprietorship the Corporation’s BOD. An amendment
owned by Raphael,
amendments entered into a dealership
were overwhelmingly ratified. which renders a director ineligible, or if
agreement
Marlo Enriquezwhereby broughtNT Co appointed
suits against Bayan A Ent elected, subjects him to removal, if he is also
SUGGESTED
as exclusive ANSWER: distributor of its amendments.
products in
Corporation to question the a director in a corporation whose business is
(perNorthern
Dondee) Luzon.
SUGGESTED The
ANSWER: SCIsreiterated
the dealership in theagreement
case of
Would in competition with or is antagonistic to the
SMCThe vs.the
valid? SEC action
dealership decided
Explain.
prosper?
agreement
in April Why? 11, (4%)
is voidable
1979, that at the
it By-Laws; Validity; limiting qualifications of BOD
option of NTby Co all
inasmuch as the facts do not other corporation is valid.
is recognized authorities that 'every members (2000)
indicate that
corporation has the thesameinherent was powerapproved by the
to adopt At the annual stockholders’ meeting of MS
BOD of NT Co before it
by-laws 'for its internal government, and to was signed or, Corporation, the stockholders unanimously
assuming
regulate such approval,
the conduct and prescribethat it was the rights passed a resolution authorizing the Board of
andapproved
duties ofunder the following
its members towards conditions:
itself and 1) Directors to amend the corporate by-laws so
Thatinthe
among the meeting of
presence
themselves ofinRaphael,
thereference
BOD at thewhich
to the
owner of A
the as to disqualify any stockholder who is also a
Ent,agreement
management of its was approved
affairs.'" was not law,
At common director or stockholder of a competing
the rulenecessary
was "that to constitute
the powera to quorum
makefor and
2) That the vote of Raphael was not business from being elected to the Board of
adopt such meeting;
bylaws was inherent in every Directors of MS Corporation. The by-laws
necessary for the approval of the
corporation as one of its necessary and were accordingly amended. GK, a stockholder
agreement; 3) That the agreement is fair
inseparable legal incidents. And it is settled of MS Corporation and a majority stockholder
and reasonable under the circumstances
throughout
ALTERNATIVE the United States that in the
ANSWER: of a competitor, sought election to the Board
(Sec 32 Corp Code)
absence of positive
The dealership agreement legislative is valid provisions
upon the of Directors of MS Corporation. His
limiting it, every
assumption that private
the same corporation
was approvedhas this by nomination was denied on the ground that he
inherent
the BOD power
of NTas Coonebefore of itsit wasnecessary
signed and and was ineligible to run for the position. Seeking
inseparable legal incidents,
that such approval was made independent
under the of a nullification of the offending disqualification
any specific enabling provision in its charterof SUGGESTED ANSWER:
following
Close Corporations;conditions:
Deadlocks 1) That the
(1995) presence provision,
The provision GK consults
in theyouamendedabout its by-laws
validity
or in ingeneral
Raphael,
Robert, the the
Rey meeting
and law, executed
owner
Ben such
ofof the BOD
A Ent, power
a joint of
at which self-
the
venture under the Corporation Code of the Phils. What
disqualifying any stockholder who is also a
government
agreement
agreement tobeing
form wasaessential
approved
close towas
corporation enable
notunderthe would your legal advice be? (3%)
director or stockholder of a competing
corporation
the Corpnecessary
Codeto accomplish
to constitute
the outstanding the apurposes
quorum of its
for
capital stock
2) That the vote of Raphael was not business from being elected to the Board of
creation."
such meeting;
of which the three of them would equally
necessary for the approval of the that any Directors of MS Corp is valid. The corporation
own. They also provided therein is empowered to adopt a code of by-laws for
agreement;
corporate act would3) That needthe the
agreementvote of is fair of
70% its government
ANSWER: not inconsistent with the Corp
theand reasonablecapital under stock.the circumstances SUGGESTED
outstanding The terms of 1. At the meetingdisqualifying
Code. Such of the BOD of provision
Platinumisto not
the(Sec 32 Corp Code) were
agreement
By-Laws; Validity; limiting qualifications of BOD accordingly inconsistent with the Corp
approve the contract, Chito would have toCode.
implemented By-Laws; Validity; limiting qualifications of BOD
members (1998)and the corresponding close make sure that
corporation was incorporated. After 3 years, members (2001)
Robert, Rey and Ben could not agree on the
business in
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page 26 25
Page of 103
of 103 stock Jennifer and Gabriel
may include laborowned the
notHere, limiting
be located. The theformalities
price to be paid, when
prescribed by the performedcontrolling for stocks
or services in MFF Co andrendered
actually CLO Inc,
lawright
for theof first the “lost” to not more to the
refusal isofexercised,
replacement bothcorporation.
family corporations. Due to serious
than 25%
certificate wereparcomplied
value, without any qualification
with. Eventually X disagreements, Jennifer assigned all her
Co whatsoever,
issued in substitutionis not in the of the “lost” It is merely Corporation:
articles. shares in Right
MFF of Repurchase
to Gabriel,ofwhile Shares;Gabriel
Trust Fund
stated Cert
certificate, in the of StockBy-laws.
No 2002. Therefore
Juan such Doctrine (2005)
assigned all his shares in CLO to Jennifer.
limitation
forthwith shall not
transferred be binding on the Under
for valuable what conditions
Subsequently, Jennifer andmay CLO fileda stocka
consideration
purchaser. the (GoSocknew & certificate
Sons & Sy toGui
Jose whoInc v corporation
Huat complaintacquire againstits own shares?
Gabriel and MFF (2%)in the
knewControversy;
IACnothing
19 Feb 87 Intra-Corporate
of Min
theRes)
previous (1994)sale to Pedro. SUGGESTED
SEC seeking ANSWER: to recover the corporate records
Because of disagreement
In time, the corporation was confronted with with the BOD and a In and funds ofthe
line with CLOtrust whichfund Gabriel doctrine
allegedly that
threat by the BOD
the conflicting claims of Jose and Pedro. The to expel her for generally renders it
refused to turn over, and which remained unlawful for thein
misconduct
controversy and
between inefficiency,
Pedro
BOD of X Co invited you to enlighten them on and Carissa
Jose, offered
should thecorporation
SUGGESTED ANSWER: to return
the offices of MFF. Is there an intra-corporate assets to the
inmatter
writing be tosubmitted
resign as to the
PresidentSEC or
and to the
memberregular Yes, there is an
stockholders intra-corporatecapital,
representing controversy a in
these questions; viz: a) If a suit were to be controversy in this case?
courts?
of theb) Between
BOD, and Jose and Pedro, this case. The fact
whom all her corporation may acquire its own shares only that, when the complaint
initiated in order to to sell
resolve tothe
the company
should
shares the therein for P300,000.00 Her offer to when againstthereGabrielexists and in theMFFbooks was filed with the
unrestricted
corporation so recognize as the rightful SEC
resign was “effective as soon as my shares retained earnings to cover the repurchase (per 2006, RTC’s Jurisdiction), Jennifer of
stockholder?
are fully paid.” At its meeting, the BOD Closed
1 and
shares. Corporation;
ELIMINATE
CLOThe were Restriction;
purposenofractional
longer
of Transfer
shares of
stockholders
the shares
arising
repurchase of MFF
of
How would you respond to the
accepted Carissa’s resignation, approved her above (1994)
out
sharesof
did stock
not must dividends;
divest bethe SEC
a (per
legitimate 2006, RTC’s
business
queries?
SUGGESTED
offer toANSWER:sell back her shares of stock to the Rafael 2 inherited
COLLECT
Jurisdiction)
purpose ofor itsfrom
of the corporation, COMPROMISE his
jurisdiction such uncle
anto:
over
as the10,000
case
a) The matter should be submitted to the shares of Sta. Ana Corporation, a close
company, and promised to buy the stocks on indebtedness inasmuch as toJennifer
the corporation
was a former arising out
regular courts – specifically in the Regional corporation. The of shares in have a par value of
a staggered basis. Carissa was informed of of unpaid
stockholder subscription MFF and a the
delinquency
controversy sale;arose
Trial Court where the principal office of the P10.00
3 to per share.
PURCHASE Rafael
delinquent
out of this relation. (SEC v CA GR 93832 Aug 23 notified sharesSta. Ana
sold
the BOD Resolution in a letter-agreement to Controversy; Intra-Corporate (2006) at P70.00 per
corporation is located. The controversy that91;he was sellingand his shares
which she affixed her consent. The during the
201s124) sale;
between Pedro and Jose is not an intra- What
share. to is
There an intra-corporate
being no or takers controversy?
among the
Company’s new President singed the 4 PAY dissenting
SUGGESTED ANSWER:
withdrawing
Carissa wants
corporate controversy. to sue the Company to collect (8%)
stockholders,
stockholders Rafael
entitled sold
to such the same
payment to his
under
promissory
b) If there is nonote. After payment
over-issuance of sharesP100,000 the An intra-corporate controversy is a conflict
the balance. If you were retained by Carissa cousin
the Vicente
Corporation (who
Code. is not
(Sees. a stockholder)
41 and 82, for
company
resulting defaulted in paying the balance of Thebetween stockholders,
Secretary members refused toortransfer partners
as her from lawyer, thewhere
two-transactions
will you fileof theJuan,
suit? A) Corporate
P700,000.
Corporation Code)
theP200,000.
corporation
SUGGESTED
Labor should
ANSWER:
Arbiter; b) RTC; recognize
or c) SEC? both Pedro theandshares the in corporation,
Vicente’s name association in the or corporate
The RTC has jurisdiction
and Jose as rightful stockholders. This is over this case which books because Alberto, one of of the
partnership regarding the regulation the
involves intra-corporate
without prejudice to the right of the controversy. As of corporation. The controversy
stockholders, opposed the transfer on the must arise out
2006, the applicable
corporation to claim against Juan for the rule is that there is a ground that the same violated the by-laws.of
of intra-corporate or partnership relations
TRANSFERRED
value of the sharesJURISDICTIONwhich Juan sold under Sec. 5.2
to Jose. the parties;
Alberto offeredortobetween buy thesuch shares corporation,
at P12.50
Corporation
of the Sole; SRC, Definition (2004)
the Commission’s jurisdiction perpartnership
share, as fixed or association
by the by-laws and the orState
a total
Whatover is aallcorporation
cases enumerated sole? under PD 902-A insofar
While
price ofthe as it concerns
by-laws
P125,000 of Sta.
only. their
Anaindividual
provides that
SUGGESTED
sec. 5 has ANSWER:been transferred to the Courts of thefranchises.
right of first It is further
refusal canrequired that the“at
be exercised
Section 110 of the Corporation
general jurisdiction or the appropriate Code defines a dispute
price not be intrinsically
exceeding 25%connected
more with the
than
a "corporation
Controversy;
Regional Trial sole" as one
Intra-Corporate
Court. formed for the
(1996) parregulation
value ofof such the corporation
shares, the Articles of
(Speed
purpose
In 1970, of administering
Magno joinedand AMD managing,
Co as aasJunior IncorporationDistributing simply
Corp., al. provides
etand v.Exchange that the
Court of Appeals, et al,
Is the Securities
trustee, the affairs,
Accountant. propertyrose
He steadily and from the ranks stockholders G.R. No. 149351, of Marchrecord17, 2004;“shall
Intestate have
Estate
Commission the venue for actions
temporalities
until he of any religious
became AMD’s denomination,
Executive VP. preferential of Alexander rightT.Tyv.to purchase
Court of Appeals, said shares.”
G.R. No.It
involving intra-corporate controversies?
sect or church. It is however
Subsequently, formed by the becausechief of his Is Rafael
112872,
is silent
SUGGESTED asbound
April
to by 2001).
19,
pricing.
ANSWER: the pricing proviso under
(2%)
archbishop,
involvement bishop, priest, minister,
in certain anomalies, rabbitheorAMD theNo, by-laws
pursuant of Sta. Ana Corporation?
to Subsection 5.2 of the
other
BOD presiding
considered elder of himsuchresigned
religious from the SUGGESTED Securities ANSWER:
Regulation Code, the quasi-judicial
Corporation:
denomination,
company Issuance
due sect of loss
to shares ofofconfidence.
or church. stock to pay for the Yes. In a closeofcorporation,
jurisdiction the Securities theand restriction
Exchange as
services (2005) Magno filed a complaint in the
Aggrieved, to Commission
the transfer to ofhearshares has
corporate cases,to be stated/
Janice
SECrendered
questioning some theconsultancy
validity of his work for annotated
includinginintra-corporate
the Articles controversies,
of Incorporation, under
XYZ Corporation.
termination, and Her compensation
seeking reinstatement included to his theSection
By-Laws 5 of Pres. Decree No. of
and the certificate stock.has
902-A, Thisbeen
shares
former of stock
position, therein.
with Can XYZ Corporation
backwages, vacation serves
expresslyas notice to the to
transferred person dealing with
the designated
issue
andshares
sick leave of stock to pay13th
benefits, for themonthservices
pay and such sharesTrial
Regional likeCourt.
Rafael in this tocase.
Pursuant a With
of Janice as itsbonus,
consultant? Discuss ALTERNATIVE ANSWER:
Christmas plus moral andyour exemplary such notice, he is bound by the pricing
SUGGESTED
answer. (2%)ANSWER: No,memorandum
statedRafaelin the is By-laws.
not boundcircularby issued by the proviso
the pricing Supreme
damages, attorney’s fees and costs. AMD Court,
Yes, provided the approval of stockholders under theonly particularly
By-laws of Sta designated
Ana Corporation.RTC
filed a motion to dismiss, arguing that the special
representing two-thirds (2/3) of the Under the commercial
corporation courts law, the in each judicialon
restrictions
SEC has no jurisdiction over cases of illegal
outstanding
SUGGESTEDcapital ANSWER: stock is obtained. theregion
right have to transferoriginalshares and exclusive must appear jurisdiction
in
dismissal, and has no power to award over such cases (See Intestate Estate of
As of 2006,
Although the factsthe applicable
indicate that rule theis that there is theControversy;
articles of incorporation
Intra-corporate; and in
Jurisdiction (1997)the by-
damages. Should the motion to dismiss be Alexander T.stockholder
Ty v.inCourt
a TRANSFERRED
consultancy work has JURISDICTION
already been under Sec. lawsJuan aswas wella as the ofcertificate
ofAppeals,
X Co. He G.R.
of No.
stock,
owned a
granted? Explain. 112872, April 19, 2001).
5.2 of the
"rendered" SRC, the Commission’s
constituting "previously contracted jurisdiction otherwise,
total of 500 the shares
same shall evidenced not be bybinding
Cert of on
overunder
debt," all casesSection enumerated under PD 902-A
39 of the Corporation anyStock
purchaserNo 1001. thereofHe sold in good faith. Moreover
the shares to Pedro.
sec.the
Code, 5 has been transferred
pre-emptive to the Courts of
rights of existing theAfter
restriction
gettingshall paid,not Juanbe indorsed
more onerous and than
general jurisdiction
stockholders need not be respected or the "in appropriate granting
delivered thesaid existing
Certificate stockholders
of Stock Noor1001 theto
REGIONAL
payment of a TRIAL
previously COURT. contracted debt," but corporation
Pedro. The the option to
following day,purchase
Juan went theto shares
the
onlyControversy;
with the Intra-Corporate (1996)
indicated stockholders' approval. of offices
the transferring stockholder with that such
of the corporation and claimed
Under Section 62 of the Corporation Code, reasonable term or period
his Certificate of Stock No 1001 was lost and stated therein.
consideration for the issuance of that, despite diligent efforts, the certificate
could
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SUGGESTED is One Million
for distribution
corporation?
ANSWER: (2.5%)to the Pesos victims of the non-stock
stockholders’
mandated corporation,
under meeting Sec.the 40at members
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of Manila are
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SUGGESTED
ManilaThe
Code. to share
ANSWER:
and its BOD
sale would inmeeting thevoid
be profits
atinacasehotel of ofinthe
any
What
Suppose number
are
that your
the of
operate a specialty restaurant that natural
comments
by-laws persons
of Xand Corp, not
suggested lesstothan
a mining
caters 2.a) The procedure
corporation
Makati
failure MM.
to because
meet Thethe in twin
by-laws securing
all present
are silent
approvals. theand approval
as future
to the
(Islamic
the general public in order to augment its all of
firm five
changes (5)
provides but
to not
the
that more
proposed
“The than
directors fifteen
articles? shall (15),
be of the
profits
place BOD
ALTERNATIVE
Directorate is of
belong
of as
meetings follows:
ANSWER:
the to ofthe
Philippines corporation.
the stockholders
v. Court of Appeals, and In
1 Divine a Corporation
notice ofnon-stock
the BODcan1997) sell
should thebe items
sent its
legal
SUGGESTED
relieved
funds? age
3)fromOneANSWER:
ofand
all the aoriginal
liability majority
for any trustees of whom
contract died are G.R.
converting No.
directors. 117897,
the
1) Who May shall 14, corporation
preside at the to toa
a)
residents
entered intoOnby the
of First
the
the Article,
Philippines,
corporation I would
with may suggest
any form
firm a all competitor,
the directors. TopThe Grade
notice Fashion
should Corporation.
state the
and the other two resigned because they stock
meetingcorporation by a mere2)amendment
of the directors? Can Ting, a of
that the corporate However, Divine Corporation must comply
private
SUGGESTED
in which
immigrated theANSWER:
the US.name
corporation
directors
to for
may
How any
be indicate
will lawful
interested.” the
the vacancies fact of
purpose. purpose
thestockholder,
Articles of the
stockholders’of meeting. didannual
Incorporation,
who not attend meeting
the non-stock
the in Manila,
1) Yes, (Sec
Thisdirector
is the
incorporation 36(9)
Asame byofusing the Corp
minimumeither Code) andasmaximum
“Toho long 2 withvalidity
AtSections
the meeting, 3, 4 corporate
and
each 5ofof the the Bulk Sales
project
Thus,
in the BOT be filled? acquired claims which corporation is deemed to have distributed anpassed at
question ofthe the resolutions
as the
number amount
Marketing of of donation
directors
Corporation” is
or reasonable.
required“Toh in
Marketing a stock Law,
should be namely:
approved (1)the bydeliverasamemajorityswornofstatement BOD of
overlapped with X’s claims and were meeting?
asset such
of the 3)corporation
Can i.e. itsthe
– stockholder profits,
corporation
Company,
necessary for the development and under
Incorporated.” Section 14(6) of the (notthe names
merely
question a
the and
majority
validityaddresses of of those
the of all the at
present
resolutions creditors
among its members, without a prior
2) Ifb)the purposes
Corporation The Third Code. ofArticle
the corporation
should indicate are the the to whom
meeting)
adopted the
(Observation:
by the vendor
The question ator themortgagor
is rather held mayin be
vague
operation of X’s mining properties. a) Is the
Corporation; Incorporation; Residency Requirements dissolution
2.b) The of
procedure theBOD corporation.
in securing
meeting
theUnder approval Sec
limited
City to the Municipality
or
his mining establishment
claims over and and the
above Province
that ofin indebted
Makati? more particularly
together question
with 1b.
the The question
amount of
by-law provision valid? Why? (3%) b) What 122, the
does non-stock
not specify that corporation
the conversion must
is from be
a
(2006)
maintenance
the
the Philippines,
corporation’s of theand library
claims? and
not merely (2%) museum the region as or of the stockholders
indebtedness
SUGGESTED ANSWER: due is as or follows:
owing to each of the
happens if director A is able to consummate dissolved
1 1) first.
non-stock corporation to a stock corporation.
Must
stated
as its
SUGGESTED inBOD all
the incorporators
problem,
ANSWER:may laterthe and directors
foundation
designate, to be its be
cannot saidThe Written
The
President
creditors;
candidate notice is(2)
presides
of apply
likely theto be
over
proposed the
the purchase
confused
meeting
because or
a) No. It a
residents
operate
place is in violation
of
ofspecialty
principalthe Philippines? of Section
restaurant
office. 32caters
(2.5%)
that of the to Corp investment
of the
mortgage of the and
directors,
money
words the“iftime if
toat the theand
there place
is noof
pro-rata
inception, the
position
Co is a of
Xpayment of
Code.
the c)general
SUGGESTED The Seventh
ANSWER:
public. In such Article case, must theadditionally
action of Chairman
stockholders’
bonanonstock fide provided
meeting
corporation.”
claims ofin
should theHence,
the By-Laws.
be sent
creditors;any to If there(3)
each
answer
and is
b)
the ANot
point
ALTERNATIVE allout
should
foundation directors
account
thewill
ANSWER: number and
be incorporators
toultra
the vires. intoneed
of corporation
shares for to be
which Corporation;
stockholder
the along De
position the
Facto
at hissame
of place
Chairmanlineof
Corporation should
(1994)
residence be treated
provided as in with By-
the
make a full detailed inventory of the stock of
2) If
the the
residents
profits
the actwhich
capital of the
ofstock
the he corporation
Philippines.
realized
is divided, fromis
as justified
Under the Section
well as theby par 10 A corporation
Laws,
shown
liberality)
on the the was
booksChairman created
of the corporation by a special
presides over
and law.the
goods, wares, merchandise, provisions or
the ofsecondary
the
transaction.
value thereof purpose
Corporation
He grabbed
or a statement of
Code, the
the business corporation
onlythat said stock of
a majority 3) theHow
Later,
deposited
meeting tooflaw
the
thewould creating
addressee
Directors you protect it
in
(Sec was
the 54 the
post interests
declared
Corp office
Code)at
materials, in bulk, and notify every creditor
whichor aincludes
the
opportunity incorporators
portion from the
thereofthe act needof
areoperating
to
corporation.
withoutbe residents a value.
(Section
par of the of postage
2)
invalid.
with the
No. creditors
May The such law
prepaid, of Divine
provides
corporation
or served Corporation?
that
claim the
personally. to be annual
a
least ten (10) days before transferring
restaurant,
Philippines.
34,(SecCorp14 Code) the Asfoundation
& 15 Corp Code) provided will
in be within
Section 23its of the 2
SUGGESTED
stockholders’
de possession.
factoAtcorporation?
SUGGESTED ANSWER:
ANSWER: meeting
the meeting, each of the projects shall be held in the
powersame to Code,
Corporation;
Corporation; do so.
Bulkonly
Commencement; SalesaLaw majority
(2005) Existence
Corporate of the members Considering
No.city A private that Divinemay
corporation Corporation
be created has
should or be municipality
approved bywhere the
the stockholders principal office
3) Since thethere
Divine
of
(2003) are
Corporation
Board onlyis2engaged
of Directors of the need members
in
to the of
be residents onlyentered
of underthe the a de facto
Corporation
Corporation stage of
Code.
is the dissolution
located. Only public For this with
representing at least 2/3 of outstanding
the
1. of BOT
manufacture
theWhenremaining does
Philippines. and
of garments there
a corporation is no
for export. quorum,
acquireIn the the ceasing
corporations
purpose, may
the oflaw its
beoperations,
created
also provides I would
under special
that invoke
Metro
capital stock. (Sec 42 BP 68)
theCorporation;
vacancies
corporate
course Incorporation;
will
existence?
of its have to
business, Requisites
itbe was filled (2002)
able uptoinobtain
a law.on
Corporation: behalf
Manila Sole of the
Proprietorshipa(2004)
is considered creditors the
city or municipality. protection
You
loans from individuals and financing a new
special
SUGGESTED have
meetingANSWER:been of asked
the membersto incorporate
(sec 29 Where
under
YKSSince a the
Trading private
Sec.principal
122
filed corporation
of a the complaint
place ofis business
Corporation created
for specific under
Code,
of MIC thatis
Corp)company
institutions.toHowever, be called due toFSB the drop Savings in the& a special
the
performance law,
proceeds there
with of
Pasig, MM, the holding of the annual is the
damagesno attempt
sale should
against at a valid
first
PWC be
Corporation;
2. CBY Power
& Co.,to Invest
Inc., Corporate
registered Funds withfor other
the incorporation. Such corporation cannot
Mortgage
demand for garments in the internationalthat
Bank, Inc. List the documents applied towards
Corporation
stockholders
ALTERNATIVE
for failure
meeting
ANSWER:
theto insettlement
deliver
Manila is claim
cement of the
proper.
Purpose
Securities
you
market, (1995)
must and
Divine Exchange
submit Corporation toCommission
thecould Securities its meet
not and
its a de
3)
ordered facto
obligations
No. bystatus.
The of
law
plaintiff. theallows corporation,
In the
its BOD
answer, before
to hold
PWC any
its
(Sec 51the
Under Corp)Bulk Sales Law, if the proceeds are
Stikki
articles Cement
Exchange Co
of incorporation. was organized
Commission Ittofailed,
(SEC) primarily
however,
to equipment
obtainfor a Corporation;
amount
meeting
denied Dissolution;
can
liability be
anywhere
on paid
the Methods toin the
ground, of Liquidation
the stockholders.
Philippines.
inter alia,(2001)
that The
obligations. It decided sell all its not; applied proportionately towards the
cement
for one reason
certificatemanufacturing.
oforincorporation
another, Anticipating
to have for FSB its by-laws
Savings & X
YKSCorporation
holding
has no shortened
of personality
the BOD meeting its
to corporate
sue, innot Makatilife
beingbywas
such as sewing machines, perma-press settlement of the accounts of the corporate
substantial
filedSUGGESTED
with,
Mortgage andprofits,
ANSWER:
registered
Bank, its President
Inc. (5%) by, the proposed that amending
proper its
incorporated, andArticles
and thethat ofthe
validity Incorporation.
of the resolutions ofItPWChas
machines,
Theinvest
Stikki
Commission. documents in
high
It a) a
speed
topower
nevertheless
sewers,
be submitted
plant
cutting
to the
project,
transacted b)
and
tables,
a and no debts,
debts to
but have
owns the a sale
prime ofPresident
the subject
property locatedmatters
was adopted by the Board in that meeting cannot
ironing tables,
Securities
concrete
did business
SUGGESTED road and
asproject,
a
ANSWER:
etc., as well
Exchange
corporationand c)
as its supplies
Commission
quarry
for sometime. (SEC) A in to not
Quezon Top authorized
Grade
City. How
to
Fashion
would
enter into
theCorp.,
said
a contract
as being
property
materials to Top Grade Fashion Corporation, withbeplaintiff
questioned. by the (Sec PWC 53 BoardCorp code)
of Directors,
to
The incorporate
transactions a new would company
constitute to be called
a sale of be "fraudulent
liquidated and
among void" and obtain satisfaction
operations
suit itswas for
commenced
competitor. limestone(5%) by in
its
1) How the
minority manufacture
would
Corporation;
hence the Nationality
contract is the
ultra five
of Corporationvires.stockholders
(1998)Trading
YKS of
the FSB
of cement.
stockholders Savings
proposed
"substantially &all
1)assailing
What Mortgage
investments? of the
the
corporate Bank,
Explain.
assets
continued of
approvals 2)you
Inc., toorobtain
Divine saidfrom
What theis
corporation? properties
the nationality
Discuss which are
two of deemed
a
methods corporation to
of still
classify
the the
certificate transaction?
of incorporation for said replied
be that
owned it by
is aDivine sole proprietorship
Corporation inowned
spite of
Describe
Corporation
votes are needed
existence the procedure
of CBY &for complying in securing
Co., Inc., because ofunder
with the these
test the SUGGESTED
liquidation.
organized ANSWER:
(5%) and incorporated under the laws
company, are: 1) Articles ofCode, Incorporation 2) by delivery
The YKS,
prime and tothat
property the the XPresident
ofbuyer. CorporationThe ofcreditors
PWC
can had
be can
approvals.
Sec.
SUGGESTED
non-adoption 40 of the
ANSWER:
and Corporation
registration of its the
by-laws. of a foreign country, but owned 100% by
1. Unless
Treasurer’s the power Affidavit; plant 3) and theordinary
Certificate concrete
of made
liquidated
collect it appear
among
on in the
the several
five credit letters
stockholders againstpresentedafter Divine
Wouldtransactions
the action not being
prosper? Why? "in the (6%) to the course SUGGESTED
Filipinos?
SUGGESTED ANSWER:
(2%)
ANSWER:
road in Corporation,
evidence thatwill he had if itauthority to sign
of project
Authority
business," are and
from reasonable
theone Monetary
"thereby necessary
Boardthe of the
Yes property
Underthe suit has
the been
control
and conveyed
prosper. testcannot by
Asofthe corporate
apay, solethe
Corporation;
manufacture the Conversion
BSP; ofwouldcement of beStock
by Corporation
Stikki (and (2001)
they of contracts
corporation
nationality,
proprietorship,
creditors onto behalf
can thethis
the five
apply offoreign
the forBoard
stockholders,
proprietor of Directors
corporation
of YKS
attachment byTrading onis the of
corporation rendered incapable 4) In case Divine Corporation violated the law,
4)
X company
do not appear Verification
is ato stock
be so),slip
corporation
then from the the
composed
approvalrecords oftheof of PWC.
dividing
Filipino
hasproperty Will the
or Nationality.
the capacity partitioning suit
to act Where
fraudulently prosper
it
and among or
thethere
sold. not?
themselves
personality
(See Reason
are grounds
People to v.
continuing the business or accomplishing what remedies are available to Top Grade Fashion
said the
of the SEC
Reyes
projects
ALTERNATIVE whether
family
by a
ANSWER: or
engaged
majority not of the
in
the proposed
the BOD real and name briefly.
in
sue any
forPWC.
Mapoy, two(5%)
piercing ofisthe
ItG.R. the
not
No. following
veil of ways:
necessary
48836, for 1)
corporate
September YKS by entity,
Trading
21, 1942) that
purpose for which it was incorporated." Corporation against Divine
Itratification
has
estate
the is business.
a already
sale and transfer
beenapproval
ofBecause
such in the
adopted
of bulkregional
by intheby another PHYSICAL
is,
to be DIVISION before
disregarding
incorporated or
the PARTITION
fiction,
it can based
the
sue. onthe
corporation
On
stockholders representing at least 2/3 ofUnder
contemplation
corporation,
crisis, the stockholders of
partnership the Bulk
decided or Sales Law.
association;
to convert the the Corporation?
SUGGESTED
proportion
ANSWER:
of
2)
will
other
If
SELLING
follow
hand,
the sale PWC
THE
thebythe valuesCorporation
isnationality
estopped
Divine of of their
from theasserting
controlling
did not
their5)
Sec. stock
outstanding 2 of Letter
the
corporation
capital Bulkundertaking
Sales
stock into Law,
would to
a
bebulk
a charitable change non- the
sale stockholdings;
thatmembers
its President
obtain the ororPROPERTY
required had stockholders,
no to a thirdto
authority
two-thirds (2/3)
person
since enter
vote the
of
As for andthe non-profit
quarry operations formortgage,
limestone, and dividing the proceeds be among
stockproposed
includes
necessary. any name sale, if already
transfer,
association by adopted
amending or by intocorporation
thethe contract,
outstanding willconsidering
thencapital considered
that,
stock, intheseveral
then
five
as the one
the same is ofanincorporation.
indispensable ingredient in stockholders init had proportion
theanother
assignment
articles corporation,
of all, or substantially a) partnership
Couldall, this ofbetheor Corporation;
and
of PWC's theletters,
transaction
Non-Stock
same. is void
Corporation itsto
(1993)
clothedDirectorate
. (Islamic Presidenttheir
of the
the 6)manufacture
association;
business Bank orWhy? certificate
trade of cement b)ofWould
theretofore deposit
and may,
conducted concerning by stockholdings;
The AB Fashionor Memorial
legally done? (3%) your withTopapparent
Grade
Philippines v. authority
Court of to Foundation
Corporation
Appeals, dealG.R. can
with
No, YKSwas
have
117897, the
answerX Company
the
therefore, paid-up
be be
vendor, is a non-stock
capital;
theconsidered
mortgagor,
same if at reasonably
the corporation?
transferor,
inception, or Why? 3) after the
incorporated
Corporation; determination
Articles ofas a void
Incorporation of the
non-profit,
(1990) valuenon-stockof the
purchase
Trading.
May 14, 1997) declared and recover the
7)
(2%) Letter
SUGGESTED
necessary
assignor. ANSWER:
toThisaccomplishisauthorizing
exactly the whatprimary the SEC in or
happened property,
Thecorporation
articles byof ASSIGNING
incorporation
in paid, order as orto toTRANSFERRING
beestablish
registered and
a) Yes, itof can purchase price well as damages
2)
Monetary
purpose
the case Can atbe Divine
Board
Stikki.bar. legally
In such ordone. its Induly
Corporation
case, converting
only sellthe the
authorized THE
in the PROPERTY
SEC
maintain contained
a to one
library
against the directors and officers who the
and stockholder
following
museum with
provisions
in the of
honor
therepresentative
stock of
aforesaid
ALTERNATIVE
approval corporation
items
ANSWER:
the BOD towould
to to a
its non-stock
competitor,
examine the bank
be necessary Top records
Grade obligation
-- a) “First on the
Article. part
The name of said of of stockholder to
1. The
corporation
8)
Fashion majority by a
Registration vote
Corporation? mere of the
amendment
What BOD areis necessary.
theof the
the deceased
ALTERNATIVE
undertook ANSWER:
the parents
transaction inthe
the incorporators.
violation of the
(Sec regarding
42 BP 68) the deposit of the paid-up capital; pay Forthe
corporation
Its other
violation
Articles four
shall of of
be stockholders
the
Toho
Incorporation Bulk
Marketing the
Sales amount/s
provided Law, forthea
The
articlesinvestment
Sheet; of incorporation,
requirements in
toa) a power
validly the sell plant
stock
the items? project, law.
in proportion
principal of
Company.”
board to the
officers trusteesvalue
of the of composed
the stockholding
Divine Corporation of 5
b) a concrete
corporation
Corporation;
SUGGESTED
Explain. road
isMeetings;
ANSWER: project,
not distributing andany
BOD & Stockholders c) quarry
of its (1993) of
b) each.
“Third
For such a transaction to be valid, it requires can be Article.
incorporators, held criminally The principal
which liable. office
authorized In addition, of such
to admit Top
new
operations
Under
assets to the of stockholders.
limestone
Articles of used inthe
Incorporation
On thenot only the
of Manila
contrary, Corporation;
corporation Incorporation;
shall be Requirements
located (2006)
favorable resolution of the Board of Directors of Divine Grade can
members. Thesue Articles Divine of in Region
Corporation
Incorporation III, in for
also
manufacture
theIndustrial
stockholders ofCorp,cement,
are itsis within
deemed to ofhave
principal the express
waived
place of What
such is the
municipalityminimum and
therein maximum
as its number
Board of
Corporation, but also the ratificatory vote damages.
allow the Violation
foundationof to thereceiveBulk Sales donations Law
or implied
theirbusiness
right to power
shall
share of
bein the
inthecorporation,
Pasig,
profits MM. of Thetheor at principal of incorporators
Directors may required
designate.” to incorporate a
would
from render
members. such As aofsale Jan fraudulent
30, 1993,and 60
least the
corporation same is
corporate offices are at the Ortigasto the
which is a gain not a loss stock corporation?
void. Since
members had Top been Grade admitted wouldbybethe compelled
BOT.
corporation. to return the goods to Divine Corporation,
 Mercantile
Mercantile LawLawBar Bar Examination
Examination Mercantile
Q &Q A& Page
Law Bar Examination Q & A (1990-2006)
A (1990-2006)
(1990-2006) 32 31
Page 103
of 103
ofPage 34 of 103 (BP
Philippines
stopping Page 68).
payment 33 of thereof,
103
b) are
Yes.silent,Whenthe
Assuming a corporation
that person
juridical is deemed
the corporation
has a to good
have Incorporator
Seldon
committed
SUGGESTED wastheSANSWER:
was
acting
breach elected
inofhis director
capacity
trust against and
asthe an
NOTE:the
continues(per
reputation Dondee)
power to tothat The law
declare
operate is simply
evenprovides
dividends
debased, with that
under aSec in
depleted
resulting Valid
president
officer of
interests – general
of Turtle.
the manager.
He
corporation was not wouldPart
acting of his
be in his
to
voting
43.
capital, trust
social Since agreement
would it hasthe
humiliation, is anmoral
the agreementin
power
stockholdersto writing
declare
damages ormay thebe emolument
personal is
emasculate the a Ford
capacity.right Expedition,
of minority which
Furthermore, the
no facts
whereby one or more stockholders of a corporation 3) XLowns. Foods Corporation guaranteed
dividends,
managers
awarded. beXY is a stock
solidarily
Moreover,
consentto transfer his or theirshares to a trustee incorporation.
liable
goodwill for can the be corporation
have
stockholdersbeen provided
to seek After a
which
redress few years,
would
for the S lost
indicate histhe
The
obligations provision
considered
orderto vestin the incurred
an of the
asset of
lattervoting Articles
byorthe the
other of Incorporation
corporation?
corporation.
rights pertaining
loan
corporate of
corporation. its
that thepositions sister
action
Filing of company
but
Seldon
such he
action was XL
refused Meat Products,
a to return
asdictated by an
that
SUGGESTED
TAKE
Explain.
to said at
(3%)
shares for a In
dissolution
ANSWER:
NOTE: the not
period case
the of FBN
assets
mentofst
exceeding of the
Inc.
five years vsupon the Inc.
SUGGESTED
motortovehicle
intent
derivative
ANSWER:
defraud
suit even claiming
Shamron
by a lone that by as a
himself
stockholder orisin
a) In
fulfithe face
the AMEC,
corporation January of the
shall berefusal
17, atutoryto
2005,
given of
theathe SCcreditor-
ruled that;
charitable Void – This is an ultra vires act on part of XL
stockholder
onecollusion
of the protections a substantial
with Turtle. Havingequity
extended acted
by law share,
intowhat he
banksFBNI to grant
contends
corporation more
does that not AMECconditions
loans,
prohibit the
is not following
the entitled
corporationare
to FoodsSuit:
Derivative Corporation,
Watered Stock and
(1993) is not one of the
and such he owns
minority that
considered portion
stockholdersas his of
duty the
against as corporate
an officer
abuses assets
ofof the
the
toolsfromavailable
moral damagesdividends to
because the stockholders to A powers ANSWER:
became
SUGGESTED aprovided
stockholder for ofinPrime Sec.Real 36 Estate
of the
declaring otherit is a corporation.
before dissolution. now in his possession.
corporation,
majority. Seldon Is the contention
should not be held of S
1)
replenish
Corporation; additional
capital,
Validity toofwit:subscription
Corporate to shares of stockNo.
Acts (1998) Corporation
The contention
Corporation;
Corporation Code.
Separate
(PREC) ofJuridical
SJuly
is not valid.
1991,The
Personality (1996) Ford
terms and valid? Explain
personally
Corporation; (5%) on
liable.
Voluntary Dissolution
10,
(2002)several
when he
A
The corporation
ofjuridical
thestockholders personofis byPeople stockholders
generally
conditions Power notInc or approved
entitled
(PPI) toby Expedition
was PRgiven
Co owns is
one owned
ashare
beach by by the
resort corporation.
another with stockholderThe
2) resolutions
Undersection
two
moral advances
investors; by
59 ofthe Cinorporation
damages the stockholders
specified
a special
because, C ode,in supra,aa to
stockholders’
unlike the
natural Name three
corporation has (3)legal
a methodspersonality by of which
separate a stock
to cottages.
qualify him Jaime,as the
a President
director. A was PR,not re-
voting trust
meeting:
person,
agreem ent may confer
corporation;
a)it Resolution
cannot
the upon a trustee not
increasing
experience the physical and corporation
distinct
occupied from
one may
ofthat
the be
of voluntarily
its
cottages stockholder.
for dissolved.
residential
only the stockholder's voting rights agreem butalso otherrights elected director in the July 1, 1992 annual
3)
authorized payment capital oflong
unpaid subscription by the What Explain
SUGGESTED
thebut each
corporation method.
ANSWER:
owns (5%)
is its own
suffering
pertaining to his or shares such as stock asof
sentiments
ent. thePPI;
The voting andas b) wounded purposes.
meeting
The three After
he methods
(3) Jaime’s
continued term
byto be
which expired,
a aregistered
stock PR
feelings,
trustagreem stockholders.
Resolution entis authorizing
serious
notentered anxiety, the
"for
five the BOD
mental
year- purpose to issue,
anguish
of circum property
foror shareholder
wanted and to of not
recover the
PREC. property
possession of any
of the cottage.
SUGGESTED ANSWER: corporation may be voluntarily dissolved are:
venting
cashthe
moral law
payment,
shock.againstmonopolies
the
The new period
Court and
sharesmof from Appeals the cites stockholder
WhenJaime herefused
1) Voluntary
was even stillhow
to substantial
a director,
surrender
Dissolution where the the
A cottage, equity
discovered
no creditors
b) No. As a general
illegalcombinations rule, ay the
in restraintoftrade be stockholders
orused or Corporation;
that
share on
that Set-Off;
Jan 5,
stockholder Unpaid
1991, Subscription
PREC
owns. issued(1994) free ofvote
proposed
Mambulao capital
Lumber stock Co. increase
v. PNB, in favor
et al.of to contending
affected.
are was that
Thisasis a done
stockholderby a majorityand former
the managers
forpurposes offraud." cannot
(section beextended
59,held solidarilyofthe
5th paragraph liable Victor
charge 10,000employed shares in MAIA
to X Corporation.
a lawyer whoHe
outside
justify
Corporation investors
the award who are
of non-stockholders.
in incurred moral
cases concept damages. President, he has a right
of thetodirectors, and of to possess of
resolution and at least
for the Code). Thus, the traditional
obligations byof a the subscribed
SUGGESTED
assisted in 1,500case
ANSWER:
a properties
court shares involving the PREC.
corporation
However,
voting trust agreem the ent Court's
primarily statement
where the
intended toinsingle
Mambulao
out enjoy2/3 thevote of of
stockholders, the corporation.
submitted Is
to the
corporation. Theto corporation has approved
a separate at Jaime’s contention ais not of correct. JaimeHe may
The foregoing
a stockholder's
that "a right resolutions
corporation vote from votinghiswere
may trust
other rights as
have a good by 1) P100
Can A
Jaime’s per
now share
bring
contention
Securities and
oran total
action
correct?
Exchange in P150,000.
the
Explain. name
Commission. of the
and
such distinct
stockholders
and personality
m ade irrevocablerepresenting from
forisaexecuted
lim 99% that
ofmay
ited duration the ofm the
total
ay madeownan shares
initial of
downstock in
payment PRissuance
Corp butofsuch
of P37,500.00.
reputation which, if besmirched, also be corporation
2) to
Voluntary question the
dissolution where the
creditors to
shares
stockholders
in practice becomor
Nevertheless,
outstanding managers.
ecapital
a legal
AMEC's pursuant
device
stock. The
wherebyto alatter
claim
The sole transfer
for are
of
moral
dissenter He ownership
was appointed doesPresident
not entitle andhimGeneralto the
a ground for the award of moral damages" is X without
are receiving
affected. This any is payment?
done by 2)
a Can
petitionX question
the stockholders
presumed
Thedamages
was Jimmy
execution to shares
falls beunder
aMorato
is
acting
who
a loan
effected
item insubjectto
owned7 ofgood the
Article
1% of
specific
faith
2219
the in of Manager.
thepossession Because of sueany specific
ofhimhis in property
disagreement the for
ofwith
an
provision oftheof
obiter voting
dictum.
voting trust
trustagreem agreem
agreementent. ent, therefore, m right of
dissolution A to which must behalf
be of the
filed corporation
with the
continuing the operation ofprovision
the on corporation.
1. AreaCivil
the
ay create
stock. the
dichotomresolutions
Code. y between This binding
the
whereby equitable the
or expressly
on corporation
the BOD,
the he resigned
ground
Securities
or a A
that
and
definite
andonly
has
Exchange
portion
demanded
one share
Commission,
thereof. insigned
his
The obligations
beneficial ownership
corporation
authorizes incurred
theoftheandcorporate
recovery itsthe by the
of shares
stockholders
periodmoral corporation
ofa including
damages Neither
in payment ofishis heunpaid
a the
co-owner salaries, ofissued
corporate
his cost of
stockholder, on the onecorporation
hand, is and the which
legaltitlealone thereto is name?
by a3)
Corporation; Cannot
majority
Power to of the
Invest shares
members
Corporate Fundsof tothe
in X be
board of
another
are those
cases Jimmy of of the
Morato,
libel, slanderthe made
dissenting
or any other form of property.
living allowance, Properties
his bonus,registered
and in the name
on the other hand. (Lee vs. CA, contingent Feb. 4, 1992) considered
directors,
Corporation as watered
verified
(1996) of hisare stock?
by the president or
liable
2. What therefor.
remedies,
stockholder?
defamation. Article However,
(3%)if 2219(7)
any, are does when
available the
to
not qualify of the corporation
reimbursement gasolineownedand by it as an
upon full secretary, and upon affirmative
corporation Morato?
SUGGESTED
whether is already
(2%)
ANSWER: insolvent, the directors MAIA
When Corporation
Stockholders
entity
or juridical representation may like
a corporation
separate admits
Jaime
and distinct
expenses. that
only
invest it owed
own
from its itsfunds in of
vote
Victor
shares of
Derivative Suit: the plaintiff
Requisites (2004) is a natural
paym
stockholders representing at least 2/3 of the
and 1. No. The resolutions are not binding on the stock
P40,000.
another in
but the told
corporation corporation.
him that
or Such
this
business will shares
be
or ofany
applied
for stock
aofficers
AA,person. minority become
Therefore,
stockholder, trustees
a entofthe
juridical
filed of athesuitbusiness
person such as stockholders.
3)
outstandingDissolution capital byhis shortening
stock. of the
corporation and
and assets of the corporation for the benefit
a corporation can its
validly stockholders
loan. complain including to the
do
other
SUGGESTEDunpaid
not represent
purposes?
ANSWER: balance of
specific subscription
corporate in
property.
against
Corporation; BB,
Jimmy
CC, DD,
Separate
Morato.
and
Juridical
While
EE, the
Personality
these (2000)foroflibelwere
holders
resolutions
or A corporation
corporate
the(Rebecca ofterm.
amount Boyer-Roxasmay This
invest
P100,000.00 is done
v CAits GRfunds
There bywas
100866
amendment
in noanother
Jul call92
14,
of the
any creditors
other
majority shares formand
of MOP of are liable
defamation
Corporation, for negligence
and claim
for an e- for of the articles of incorporation.
Marulas
Moreover, Creative
approved whereby Technology
the
the stockholders,
broadcast Inc.,
is the directors’
libelous per corporation
or notice
211s470) for or
the business
payment of orthe for
unpaid any other
or mismanagement.
moralmisappropriation
alleged damages. of corporate in funds.
business
se, approval, enterprise
the law implies which damages. engaged
is requiredIn bysuchlaw in the
such
a case, purpose
subscription. other
Corporation; than
Separate
VictorTrust the
Juridical
questioned primary
Personality
the purpose
set-off. 1)for
(1996)
The complaintofaverred,
manufacture computer inter mediaalia, that MOP
accessories; Corporation;
Richard
which it owns
wasVoting 90% of
organized Agreement
the shares
when(1992) of the
the said
case, does of annot exist. mistake or the want of May
evidence
Corporation
rents an
honest
is the corporation
office and store in space
whose at a A MAIA
capital
investment
set-off the
distressed
stock
is of company
GOM
approved
unpaid executed
Co.by On
subscription
a one
majority a ofvoting
occasion, the
2. Jimmy or
character Morato can petition
reputation of thethe SEC libeled
party (Now RTC) with victor’s claim forfor salaries? 2) ofWould your
behalf
commercial and for whose
building benefit
owned theby derivative
X. Being a BOD trust
GOM and agreement
represented
such by
approval a period
Richardis as
ratified three
Presidentby years
the
toonly
declare the 2 resolutions, as wellNeither
as any andanswer be the same if indeed there
goes
suit is brought.
start-up company,
in mitigation
In their
of damages.
capacityenjoyed as members overGeneral
60% of its outstanding paidahad up been in
shares
isMarulas some tonull a and
stockholders Manager
representing executed
at least contract
2/3 of the to
SUGGESTED ANSWER:
all actions
in such a case taken by the
the BOD thereunder,
plaintiff required call for the unpaid subscription?
of the Board
leniency in itsof rent
Directors,
payments; the majority
but after three 1) favor
No.
sell a
outstanding of
MAIA acannot
bank tosetoff
subdivision
capital whom
lot
stock.in theit was
favor unpaid
Written of indebted,
Tomas.
notice ofFor with
the
and void.
introduce evidence of actual damages as a
stockholders
years, adopted
X put precedent
a stopof to a resolution
it and asked
(2002) Marulas the Bank
subscription
failure of named
with
GOM asand
Victor’s
to developtrustee.
claim theforAdditionally,
salaries.
subdivision, the
Corporation;
condition Validity Corporate
to theActs recovery of some proposed Company
investment
mortgaged all
the
its
date,
properties
time and
to the
authorizing
president
Which of the andMOP Corporation
general manager, to withdraw
Y, who the
is a The unpaid subscription is not yet due as
damages. In following
this case, corporate
the broadcastsacts are are place Tomas
Bank.
of thefiledstockholders’
an action for rescission meeting at andwhich
suit. Pursuant
stockholder, to said
tose. pay resolution, theyourrentals there is noBecause
SUGGESTED ANSWER:of
call. the insolvency ofthe the
valid,
libelous
SUGGESTED void, peror
ANSWER: Thus,the
voidable? Indicate
AMEC back is entitledanswer such
to 2) damages
The
Yes.
proposal
action
The
Corporation;
Company,
against
will beGOM
may
reason
Recovery of
the
taken
prosper
isMoral
that
andup Richard.
against
Victor
Damages
Bank
must beWill
is
sent
GOM butto the
entitled
(1998)
foreclosed
to
corporate
amounting
Corporation;
by
No.moral writing
All the counsel
to a
the filed
hundred
Separateparagraph a
Juridical Motion
thousand
requisites for a valid derivative number to
Personality Dismiss
pesos
(1995)
of the or into eachaction prosper?
stockholder. Explain.
(Sec 42 Corp Code)
damages. In adefinitely not against Richard. Richard has a
theRonald
vacate
suit name
query,
exist the of
Shamthe case.
premises
followed
in this MOP
doing
byat Corporation.
business
yourthecorresponding
First, endwas
AA Should
under
of the
exemptthethe
month.name the payment
complaint
mortgaged offiled
his salaries
against
properties, which
XYZ as
and MAIAthehas
Corporation, highest
motion
of be
SHAMRON granted orremedies
denied?
Machineries Reason
(Shamron) briefly.
sold no legal
right
Luzon
bidder, personality
to
Tradingwithhold
acquired separate
in
Corporation
said payment and
properties of
alleged distinct
unpaid
and that from
assets its of
Marulas
fromanswer neither
exhaustingas paid
“Valid,”
his its debt or
“Void,” nor vacated
“Voidable,”
within the as to
the The three-year period prescribed insell,
(5%)Turtle
premises.
the caseX Mercantile
sued Marulas (Turtle)
and aforisdiesel farm that
the of
subscription.
President GOM.
&
Company. To If
do
General he so singed
would
Manager, the contract
violate
who Labor
is alsoto a the
corporation, may
and be. did If
notyour have toY make
answer collection
“Void,”
a Voting Trust Agreement having expired,
SUGGESTED ANSWER:
tractor. In payment, Turtle’s of President Lawshe (Apodaco
did so as
stockholder, vthe
suffered
NLRC President
mental
172 S 442) and General
anguish, fright, the
of
Yes,the
explain
demand the unpaid
on
suityour
the rentals,
willanswer.
Board
prosper plus
of In interest
case
Directors
against a
forandthecosts
“Voidable”
Marulas. Itand Corporation;
company
Manager
social Stock
humiliation demanded
Corporation
of GOMand the
(2001)
and serious
not in his turn-over
personal
anxiety as aand
of
is Manager
litigation.
answer,
latter
the to
onesue. Dick
Will
Here,the
specify
renting Seldon
what
such
the suit issued
prosper
conditions
a demand
office and store a check
against
must
would beX?for “XY”
be
space, transfer of all its assets and properties,
is a
capacity. recreational
of Mere the ownership club
tortuous by which was
Richard of ofXYZ 90%
P50th
Against
present
futile,
as Y?in
since
lessee, (5%)
or favor
the
from the of
complied
directors
owner Shamron.
withwho oftointomake
comprise
the A weekthethe X,
building, later, result
including
acts
food business, entered a contract with In its
organized
of the
Corporation. to the
counterclaim,
capital operatemanagement
stockXYZ aof Co
golf
GOM claimed
course
isand
not foroperation
to
of have
its
itself of
as Turtle
corporate
majority
lessor. soldactthe
(namely, valid.
BB,tractor
(5%)
CC, DD to
1)and Briccio
XL Foods
EE) are Industries
the the Company, claiming that under the Voting
its President Jose Cruz, whereby the latter suffered
members
sufficientmoral
with damages
an
ground original
to due
disregard to
authorized besmirched
his capital
separate
But
ones(Briccio)
Corporation,
the suitof
guilty for
against
the P60th.
whichwrong Briccio
Yiswill
engaged discovered
not prosper.
complained in the Y, asthat stock
of. fast- Trust Agreement, the
would supply the corporation with its meat reputation
legal or goodwill
of personality
P100M. Theabsent as aBank
articles result
aof was
of Luzon
incorporation
showing, constituted
for
president and general manager, and the
Second,
the AA
engine appearsof the to be
tractor stockholder
was at
reconditioned
also as
Trading
nor thetrustee
example Co’s
by-laws of the
complaint.
that did
he management
not
acted 1) May
provide Luzon
for
maliciously and operations
or in bad
timesothe and
he poultrymisappropriation
alleged
refused torequirements.
pay Creative
Turtle. As of
a result, Dick theCorporation;
Does the demand of the Company tally
stockholder
SUGGESTEDof
corporate
Marulas
ANSWER: Technology, ofallegations
Trading the(EPG
distribution
faith Company.
Co ofSeparate
recoverof the
dividends
Const Co
Juridical
vcomplaint?
damagesCA
Personality
although
GR based
103372 on
there(1999)
Jn is
22,92 a with
Inc., has funds.
Seldon
Voidable ordered
a – legal
A “Stop
personality
contract Payment”
of the separate of theand
corporation check
with (2%)As
the a
2)
provision result
concept
May of
XYZ perennial
ofCo a Voting
recover business
Trust
moral
that after its dissolution, the assets losses,
Agreement? a
Shamron
Third,
issuedthefromsuit
to sued is
Shamron. Turtle and
brought Dick Seldon.
on behalf and forThe 210s230)
distinct
one or more that
of its of the
directors corporation.
or trustees or corporation’s
Explain
SUGGESTED
damages?
SUGGESTED
shall bedemand briefly.
(3%)
ANSWER:
given to of net
ANSWER: worth
a charitable has been
corporation. wiped out.
Is tally
theShamron
benefit
liability of isof
obtained
the MOP a favorableInjudgment
Corporation.
corporation is that this of the No. The
InAa
SUGGESTED corporation,
fact, it
ANSWER: the
being
iscorporation?
now in company
an artificial
negative doesperson
territory. not
officers
holding
Conmart
connection, (Phils.)itvoidable,
co-defendants
Inc. held
was at
v. Securities
in the
Turtle option
andand of
Dick
Exchange suchSeldon “XY” stock Give reasons for
corporation and not32, that of its officers and XY with
whichis a has the
stock
Nonetheless, concept
nocorporation
feelings, of a did
because
emotions
the stockholders Voting
it
orisnot
senses,
like Trust
to
corporation
jointly and
Commission, 198 (Sec
severally
SCRA Corporation
73liable.
(1991)Comment that to Code).
grant
on the your answer? (5%)
stockholders who are not liable for corporate and Agreement.
organized
give which
up. as a The corporation
stock
cannot
Creditor-banks, Voting
experience Trust
however, and Agreement
there
physical
do not is
SUGGESTED
to the
decision ofANSWER:
corporation concerned
the Juridical
trial court. the right
Discuss of
fully.
Corporation;
liabilities.
2) Separate
The Personality of(2000) no merely
prohibition
suffering
share orconveys
the mental
confidence to the
in its Articles
anguish,of thetrustee
of the right
isIncorporation
not entitled
stockholders to
and to
Nine
The
withdrawing trial
individuals orBoard
court erred
dismissing
formed
of Directors
in
a
holding
the
private suit, XLthe
Dick
at Foods
corporation
Seldon,
vote
ALTERNATIVE
or its by-laws the
ANSWER: shares
for itmore
to declare of grantor/s. The
Corporation
President declared
and andTurtle,
GM stockholders
of paid cash jointly moral
refusedamages.
to grant loans.dividends.
a) What tools are
instance
pursuant oftothethe majority
provisions of the and and
Corporation Whenconsequence
replenish
a corporation of stockholders
foreclosure
capital? (3%) ofto
is organized the
as a mortgaged
stock
dividends
severally without
liable approval
with Turtle. of the
In issuing the available to the
directors
Code of who themselves are the persons
the properties would be alien
corporation and its articles of Incorporation to the Voting Trust
stockholders.
check
alleged to haveissued to Shamron and, thereafter,
Agreement and its effects.
or By-Laws
Mercantile LawLaw
Mercantile Bar Bar Mercantile
Examination Q &Q
Examination ALawA Bar Page
Examination Q & A (1990-2006)
(1990-2006)
& (1990-2006) 38 37
Page of 103
of 103
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Page Page 36
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or act of Congress. A private corporation subsequently
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Distinction;
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Stock
Schiera vs.
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Jaz, alleging
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(2004)
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dividend
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of GHQ
briefly.
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retention ismoney necessary and assetsunder special of stockholders owning or representing atas least
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Codeactually and
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for
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SUGGESTED
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of the is still the period
outstanding
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Term no legal of right the to
collect
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there (5%) is need 1)isDid one note
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and
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Effect:
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without
or winding
Expiration
Discuss with
the
of Corporate up. approval
reasons.
(2004)
stock
after divided
the date
corporate into
of shares
the
opportunity? merger and is authorized
agreement.
Explain. to
The corporate
NOTE: Under
stockholders
XYZ Corporation existence
Section 122
representing of the
entered as Cagainst
orporation
not
into less
a the Cthan
contract State.
ode, a2/3ofIt is
the principle of
contingencies. corporation whose corporate existence is of terminated
distribute
customer
SUGGESTED toANSWER:
raised thethe holders
defense of that suchwhile shares the of essential
the
lease outstanding
with to
ABC, the existence
capital
Inc., over stock
a piece at aa
of de infacto
regular
real
any manner continues to be a body corporate for three
Yes. Although
dividends
receivables or as of Malyn
allotments the of refused
date the of surplus the profits
the business or
merger corporation
special
estate
(3) years for meeting
afterits
that of
adissolution
term there
duly
20 be
years,
forpurposes called (1)
renewableaforvalid
ofprosecuting that forlaw
Dividends;
on before,
the basis
agreement Right;
was of Managing
nevertheless, the shares
transferred Corporation
using to thethe
held. (1991)
resources
All otherand purpose.
surviving under
andanother
defending which
Conformably
20suits years,
by and a providedcorporation
with Sec
againstitand that to le 50
XYZ's
and
enable might
ofittothe se be
ABC Management
credit standing Inc. company,
of receivables
the presented to the
Schiera DEF
and Corp (3) actuala written
incorporated, use or notice exercise in good its faith of of
corporations
corporation, are
those non-stock corporations. which were Code,
corporate term(2) a bona
is extended of in fide
close
the attempt
holding
accordance to
Dividends:
Mining
Jaz Declaration
clearly Co, of
the
demonstrated
created after the merger agreement remained Dividends
draft (2005)
of
that itsthe proposed
business corporate
ALTERNATIVE
organize
thewithregular powers
ANSWER:
as a conferred
corporation upon
affairs,
under it by
such law. law,
law. meeting
Four years sent afterto the shareholders
the culminating
term of XYZ
Under be what
Management
to could ownedhave circumstances
byContract.
been thesuccessfully may
As
absorbed ana pursued
corporation
incentive,
corporation. inABCthe willYes,and I will accept the case. The problem does
suffice. The
Corporation noticebut
expired, itself
still specified
within
in theexists the the period
declare
included
name dividends?
ofin the the would(2%)'
terms
closebe of distributed
compensation
corporation. that
More not A CORPORATION
indicate that there BY is ESTOPPEL
action by the BOD when
These receivables to the said subjectby
Theallowed
termination matter.
ofthe
the lifelease of a contract
corporate disposition
entity
for the does
SUGGESTED
importantly, ANSWER:
ABC wouldconformably beSchiera
entitledand to 10% Jaz of any stock persons
which is also assume
necessary to act
for the as a
declaration corporation of
stockholders with theare guilty
dissolution of notby itself cause the extinction or dim inution
extension and of the
No diverting
form of which dividends can
may be declared and 50% knowing
rights stock itoftothe
dividend.
and liabilities be lease
ofsuch without period,
entity. 27 authority
If the
XYZ to Corp.
three- do so. In
distribution
anddividend
liquidation DEF
theprocedures resources declare
under of the during New the
close SUGGESTED
notified
Dividends;
ANSWER:
ABC,
Declaration Inc.,
ofrule,thatwithout
Dividends it is exercising the
paid
SUGGESTED
lifetime by ANSWER:
corporation
Corporation ofthe the
Code? to corporation
Management
another
Discuss entity,
the
except
Contract.
equivalent
merits
from to 1)
of Would
this
yearextended
this
As acase, life has
general those expired persons A (1991) awill
cannot trustee
of itsbe rem orliable
bring a as
Whether
unrestricted
2) the
Was receivable
retained
it proper was
earnings for incurred
appearing
Malyn by
to the
on
file a option
receiver
During
general having
theto extend
been
annual
partners the
expressly
for lease.
designated
stockholders
all debts,ABC, ainingbyInc.,the
meeting,
liabilities and
you approve
fraud
argument. and (3%) badof such provision? If not, what
faith. derivative suit in the name ed of
to so arguing the
absorbed
its derivative
books.you corporation
Dividends must before orfor
bealternative?
paid inafter
amounts the objected
corporation,
Riza, a stockholder to the
within proposed
thatperiod,
proposed the boardextension,
to assets.
of directors
the body (or
that
SUGGESTED
would suit with
ANSWER:
suggest asaan prayer injunctive damages
corporation
trustees) itself, mincurred
concerning
ay be permi or an arising act
continue as
Itmay, that aasresult
took of
Irelief?
merger would
proportional
SUGGESTED notto
agreement,
Explain. approve
ANSWER: ora before
all stockholders proposed onstipulation
or after
the basis the in that
a part
theirof since the corporate unreserved
the corporation’s
actions. life of XYZ Corp. earned had
place before he became a"trustees" stockholder.
during the
Although
of the
approval management
outstanding thereof itstock is
bycontract
held a
theby close
that
SEC,them. the corporation,
the managing
Cash said or expired,
Distinction:
surplus be if itDividends
could no
capitalized vs.longer
Profit:
and stock opt
Cash to renew
Dividend
dividends
bythree-
legal im is vs.the be
However, the act complained of a
nevertheless
corporation,
receivable
property wouldasstill
dividends, theancan principles
additional
belong be todeclared the of
compensation separate
surviving from lease.
Stock
distributed
2) No. InXYZ
Dividend to
a Corp.
(2005)
the
derivative countered
stockholders, suit, that
plication
the withstanding
yearterm
arguing to
action , that is
continuing one, A may do so. com plete
juridical
to
corporation
such it, should
unrestrictedpersonality
under be Sec entitled
retained stillof
80 apply.
to 10%Corp.
the
earnings The
of any business
Code
by stock
a as the
owners
instituted/ lapseofbrought
Distinguish oftheits corporate
dividend
company, in theterm
from
the the
appointa
itprofit;
still has
stockholders,
name of the
cash
a
Foreign Corporation; “Doing Business” intrustee
the noora
of the
dividend
which
proper does corporation
resolution that
not may makeof is bestill
the any separate
declared.
Board distinction andasdistinct
of Stockholders
Directors. to by right
dividend to renew
a majority
corporation from
and the lease
stock
vote,
reliefs dividend.
can
are because
docorporate
prayed (2%)
anything.
for
receiverwh
quo As
therein
Philippines
warranto (1998)
the
Stockfrom
are assetsthethe
dividends, and proprietary
only ones
liabilities
however, entitled of interests
must to be
the receive
absorbed
declared ofstock its for SUGGESTED
chairman of proceedings
theiscorporation,
SUGGESTED ANSWER:
the
ANSWER: meeting,
by a minorityforhow involuntary
would m ayyou rule
liquidation.
o stockholder.
stockholders and directors. Consequently, WhenPROFITS
dissolution
SUGGESTED a foreign
are
ANSWER: of corporation
residual
XYZ Corp. amounts
has deemed
been
(PEPSI- to be
representing
instituted
by dividends
corporation
a properthat (Nielsen the surviving
resolution & Co of thecorporation
v Lepanto Mining
Board of 26 s The XYZ
on the law Corporation's
motion
does to declare
not qualify contention
stock
the term is not
actbeyond
dividends? “minority”
Effects; Winding Up business
Period of athat
Corporation “doing
As the
return business
chairman
of capital inof the
the
after Philippines?”
meeting,
deducting COLA I (3%)
would
of theIsrule
all corporate
wouldsince
569)
Directors inherit.the
I from
would existingadd unrestricted the (1997)
opportunity and the in terms
unsubscribed
retained by theof
meritorious.
SUGGESTED
Office
the Based
ANSWER:
of the on
number Solicitor
ofthe ruling
shares
thatperiod.
General.
PHILIPPINEowned by the a
Thecapital
corporation,
resource's stock used
of oncea dissolved,
pertain
corporation to thereafter
may the only close
be against
costs
contention
Supreme the
and of
Court motion
expenses
XYZ in Corp. considering
Philippine from
meritorious? revenues.
National that
Bank Explain aThe
vs.
earnings and ratified by stockholders stockholder
A foreign bringing is
corporation the deemedaction to
S, INC., inbe behalf
vs. “doing of
continues
corporation, to be a body
the orstanding corporate to for
sue three
and declaration
accumulated
briefly. (5%)of 209stock dividends
profits, fromXYZ should
year initially
towas year,
issued
representing for cash
at least property
two-thirds or
(2/8) for of the to business
services theCFI of Rizal,
corporation.inby the SCRA
(SMC
Philippines” v (1992).
Khanif176 itTHE isSCRA Corp.
COURT
continuing448)
years for
recover rendered
already purposes
remains with of
constituting theprosecuting
close and
corporation the
a demandable be taken
represent
3) dissolved
No. WATERED the
ipso facto BOD
corporate
SHARES and
upon are thereafter
theretained
OF those
expiration sold to
earningsbe
by
of its
outstanding capital stock of the corporation, body or substance
Dividends:
defending
and (Sec Sources
not suits ofCorp
Dividends;
by and Trust
against Fund
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corporation,
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JURISDICTION
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remains of ABC
liable Co,
to if any,
creditor. observed. Since
A corporation
incorporation
Corporation.
lies with
pricing the forRTC. themay
has
Upon the enter
effect
execution
shares, mayinto a joint
of changing
ofthe the venture.
or of
court’s
stockholder thesum corporation
paid
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general
payment internally,
shares, ofjurisdiction
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latter’sin his
or the
sharesno
capacityrights
and as
the certificate was not endorsed in favor Borrower
Stockholders; claimed
Voting that
Power a fresh
of Stockholders chattel (1990)
However,
restricting
decision,
TAKE NOTE:
invoke (or The
Xthe inasmuch
RTC
rights
Corporation
hisanybody has
appraisal of asany the
jurisdiction
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stockholders
found ‘joint
over the
to or class
be of the public
director
appropriate
interests inor
and third
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the persons
officer
company. Trial because
(Secosa
Court.
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corporation of
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Steven elserights for thatand matter), demand the mortgage
Mercy should
subscribed
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Delinquent; to 1,000 been
Unpaid executed
shares
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(1997) of of
cases
of venture’
shares,
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SUGGESTED
payment or
assets. hasof no
involves
ANSWER: precise
authorizing
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intra-corporatepreferences
plaintiffs definition,
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any
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ofErwin
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Francisco,
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the being
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full 156104,
amount so result
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only conclusion be no other than that the second loan was granted. a) Decide the
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a. Yes.
controversy.
respect
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take Mr.
superior
against Transfer
various
As X,of aits
to2006, of Certificates
forms.
stockholder
those the
present of Stock
of Itoutstanding
could
applicable take
holding
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rule is of Rosario
4,000
shares
past 7) The
29,said
case
2004).
fraudulent
and
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Evade
BOD
former ofthe
ratiocinate.
a lawful
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practices
President
Sheobligations
(4%)
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by 25%
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of
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corporation
favor of one During
like a judgment
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stockholder of
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is has
aofTRANSFERRED
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pre-emptive of resources
right owned
JURISDICTION
or shortening (not
to term
the the Directors
would its arevalidity liable and jointly
effectiveness anda)severally be what for
(Razon v IACYGRCorporation 74306 Mar 16,92 which 207s234) G.R.
of
chattel
meeting,
the
No.Corp.
balance
mortgage
112546,
can v.Mercy
before
was
December vote not the
11,
all
SEC.
registered,
1992).
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8)the capital
under
of No. Sec.
corporate
substantially000011.
involving
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incorporation)
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of
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between
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conditions all unpaid
Garcia,
sustained
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shares?
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ANSWER:
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1992).unpaid Avoid
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covered corporation.the
by second
the (Sec
trust loan31
fund is doctrine?
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SUGGESTED
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awas
heANSWER: rich
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merchant cannot
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to complete validly early payment,
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doctrine right
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of stock
A
he did a which
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corporation
defendant
own any not delinquent
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share may
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lawsuit October
in unfair
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corporation. have
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venture purchaser
consolidation.
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promote or obligations.
to shield objectives
1979).
all the rights of a stockholder.
over
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fiction
as the and because
applies
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affidavit
Stocks;
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Increase
him
good of
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to stock
faith
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if
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requiredthe
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trust
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fund
damages.
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A
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to these
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case.
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understood
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two
of
to bethe already
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corporations
theCivil &
owner(1996)
BODCode,been
(2001)
thereof. haveoffered
then a) the
a Can at is not
before
BOD
chattel impaired.
that, the
mortgage court
unless Thisdue is
rendered
law expressly to
payment
1989).
say, for
judgment,
is instance,
meanwhile
provides that Pablo
In When
same incorporation
1999, board may ashares
Corporation
of corporate
and he
directors A director,
chose
andpassed Ynot trustee,
to subscribe
a Explain
Corporation board or Suppose
that it X
corporation
may Corporation
purchase forthwith: has
its an authorized
own shares of as stock
A claim
corporation the cannot of
be stock
a party from to X?
it. “the sought
received,
foregoing hishe: lawyer’s
a)
mortgage could advice
no
is longer
made on how
forserve to
securing plana his
Chattel
owned Mortgage
officer
to them.
resolution
SUGGESTED be He,vs. After-Incurred
held
removing
substantially ANSWER: personally
therefore, X
all ofhas
from Obligations
liable
thehis waived with (1991)
position
stocks the
his
of asright
XA capital
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b)
by stock
utilizingRight
would ofmerely
P1M
(2001)not taxes.divided
be itsentitled
surplus intoto 100,000
the cash
profits overand
(3%) b) Would your answer be the same if the estate
director
obligation to of avoid
the
specified in theHisconditions
lawyer suggested
To secure
a) the
No. Assuming
corporation?
SUGGESTED
thereto and payment
ANSWER:
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corporationthe ansharesearlier may loan
were offer of them Suppose
sharesstockof
ALTERNATIVE
and that
stock
dividends
above X Corporation
with
ANSWER:
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subscribed were has of already
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declared each. anda)with
manager
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lost the of said
stockwhich corporation.
facts
certificate justify
in The
the
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conclusion
or if of
it that
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no other form purpose.” acapitalcorporation
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as director,
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enumerating
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authorized instances or
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to the
anyone.
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stolen isasmerely
transferred
ANSWER:
from
subsequent
him?
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anAextension
(2%) the loans
cannot which
officersclaimof are the
the payable
corporation.
himself,
incurred on
his 24
obligation wife Sep and
not 1997; and
his children
being specified (all in students
thethe
her b.
be Yes.
held
friend Mr. X
personally
Noreen, would
would liablehave
extendwith pre-emptive
the
to corporation
her, rights of the
cases
capital corporation
under
stock may the so
be that
Corporation
increased its BOD Code
to and
about where
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president,
personality ofof stock
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vice-president,
former, The that certificate
treasurerthe former ofand c)
and
affidavit, stillcould
is not
not vote in the
unemployed)
secured as stockholders
bypractical
mortgage. stockholders and
Karento
under
stock the the
executed
covering 50,000
following
in favor
said preferred
circumstances:
of
shares Noreen have shares.
abeen 1) duly
chattel When All stockholders
P1.5M.Corp
meeting allows
(3%) b)wishthe
scheduledGive to increase
acquisition
threeto take X’s
place authorized
of shares reasons such
onliabilities
26 Sept as
secretary.
controls the Upon complaint
policies of the filedlatter. with the
Added SEC, to 2 then Yes. transfer The all his mortgage
chattel assets and is notstock valid to
stockholders
he
mortgage assents
endorsed over by to her
A aof a entrusted
patently
and (Karen) stock unlawful
car. corporation
Isby the himact of
to shall
the
B. By capital
for in
a
1997.the stock.
corporation After
stockholder’s to complyingexercise
increase itswithof
capitalthe
appraisal
it held
this is thethatANSWER:
fact a manager
that Y Corporation could be removed controls the by as this
against corporation.
any Mr Pablo followed the
corporation;
enjoy
SUGGESTED
mortgage
his said pre-emptive
valid?
acts, 2) A When
isthenow righthe acts
estopped in bad
to subscribe from faithtoorall SUGGESTED
requirements
(2%) right,
Was the ANSWER:
failure actionofperson,
ofthe of law
bids the except
in on the
BOD theeach
increase
sale
on ofmortgagor,
ofof the
delinquent
mere
finances
A chattel resolution
of X
mortgage of
Corporation cannot board which of
effectively directors.
is merelysecure On
an a)
his recommendation
Two ways
executors ofand increasing of
administrators.his lawyer.
the Authorized 1 year later,
with gross
issues
claiming or said negligence
disposition
shares of
frominshares X, a of
bona any class, in
fide capital
shares,
foregoingstock, etc.) X
mattersissued an additional
valid? 1000
motion
adjunct,
after-incurred for
directing
ALTERNATIVE reconsideration,
business conduit
obligations.
the
ANSWER: affairs or
While
oftheXthe alleged
alter
a ego thatofhe
stipulation
corporation, Yor in Capital the court
SUGGESTED Stock rendered
of X corporation judgment to P1.5M against are: Pablo
proportion
Piercing the Corporate
purchaser to
who their
Veil
relied respective
(2004) onby shareholdings.
endorsement by sharesSUGGESTEDof the ANSWER:
same
ANSWER: value. a) Assume that the
could
Corporation
to b.
include only
Yes, Mr. be
(CIR X
after-incurredremoved
v
has Norton
preemptive &
obligations the
Harrison affirmative
right Co 11
over Sthe and
1)
b) The the Increaseplaintiff
arrangement the sought
number
between to
of
the enforce
shares
corporation this
How b) with
conflict
Yes.
does
A(1964))
of the Inthe
onetheinterest
certificate case
pierce ofof
where the thethe
stock. veil of in
corporation
certificate a resulting
corporate of in a) No. TheA period
stockholder presently of 30 holds days200 within out whichof the the
vote
714 of
50,000
chattel the stockholders
preferred
mortgage isthe shares
itself representing
not because they2/3 of
were judgment.
from
and its 100,000
President The to sheriff,
150,000
to the however,
extentshares that with it could
the
calls not
for
stock
fiction?
SUGGESTED damages
was ANSWER:losttoor stole frominvalid,
corporation, A, A its has thestockholders
a right or stockholder
1000 original ANSWER:
SUGGESTED can pay
shares. Wouldthe unpaid A havesubscription
a pre-
the not
obligation
Theto outstanding
veil
other offered
ofcannot,
corporate
persons; before
3) capital
however,
When by
fiction the
be stock.
may corporation
deemed be Is
pierced X’s for b) locate
same
the
When paymentany
par
should property
value of of
the
stockholder in
P10.00
latter’s the A name
each.
shares
exercise ofis Pablo
covered
the and
No. Stockholders’
claim the approval
certificate ofhe is consents
stocknecessary from to
the the
only thief had
The not
emptive plaintiff
right yetto expired.
can
200par avail
of the himself
new of the
issue of doctrine
1000
contention
by
for subscription.
automatically
proving
issuance
the has removal legally
of secured
in oftenable.
court
watered the thatbystocksthat
memberstheWhy? (5%)
mortgage
notion of the until
of legal
BOD. 2)piercing
therefore
by
pre-emptive
of theWhy? Increase
trust returned
right?fund
the veil ofvalue
doctrine.
(2%) the
corporate of
writ
The 100,000
only of execution
fiction which
who no right or title to the same. “One shares? (3%)
afterSUGGESTED
entity
For aor
the iswho,
new being
removal
ANSWER:
having
chattel of knowledge
mortgage
used a to or
corporate or an
defeatthereof,
addendum
officerpublicdoes
or shares
unsatisfied.
exceptions
b)
not SUGGESTED
can No. beThe to P15.00
ANSWER:
invoked What
from
delinquency the
when each.
remedy,
trust
a did fundif any,
not
corporation doctrine
deprive isis available
are
the
formed
who
c. The has lost
shares any movable
will be offered has been
tosecretary
existing hisa) Yes,
to the
convenience,forthwith
original file
chattel
justify with the
mortgage
wrong, corporate
protect is executed
fraud, or to
the the A would
plaintiff? have a
or used in avoiding a just obligation. Whilein
redemption
stockholder of hisof pre-emptive
redeemable
right to receive right
shares dividends to
and, it
employee,
unlawfully
stockholders, the vote
who of
deprived are the
thereof, BOD
entitled may is
to sufficient
recover
preemptive it
b) Three
200 practical reasons for a corporation
to objection
cover
defend
for from
the written
the
crime
purpose.
the thereto;
obligation
person or in 4)
the When
after entity
possession it he
has agrees
is
of been
thejust to
same.” hold
an isoftrue
the the
case
declared. newof
However,
that issue
close a family ofthe 1000
corporation, cash shares.
corporation whenA there
dividend ismaya be
right,
himself
Stocks;
Stockholders; at a price
personally
Sale, Transfer
Removal; fixed
ofand
Minority by the BOD,
Certificates of(1991)
Stock which
(2004) shall to increase
stockholder
should
declared beitsofatocapital
may record
deadlock
be applied stock
holding are:
andestate
by 200
the the 1)shares
SEC toorders
corporation in the
actually
instrument
(Art incurred.
559 or
NCC) alterAccordingly,
ego orDirector
adjunct unless such
of another organized pursue an tax; planning,
not
Piercing
Fouror be
solidarily
the less
Corporate
months than
liable
Veil
before the
with
(2006)
his thepar value
corporation; of such generate
X Corpo.
payment more
Accordingof the working to
appraisedthe capital;
Corp valueCode, each
of aCorp
Assuming
supplements
entity that
person. are the made, minority thedeath, block
chattel PX of assigned
the XYZ
mortgage to
whichthe is unpaid
not per subscription.
se illegal or (Sec
unlawful71 (Delpher
shares.or Trust
stockholder Fund Doctrine;
stockholder’s has the Intra-Corporate
pre-emptiveControversy right to all (1991)
in 100
Corporation
the sharesisof
problem stock
able
given to registered
would elect be only deemed in 1hisdirector
name
to in Trades Corp v share.
Code) IAC 157 SCRA 349) the factual
andfavor
secure of his
therefore,
only thewife loanand his
of P20,000 (Sec 5 Act issues of shares made
settings, however, indicate the existence by the corporation in of a
1505; Belgian Catholic Missionaries v Magallanes proportion to
lawsuit that could subject Pablo to a
Press 49p647)
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page 45 of 103
FiveWould
yearsthe seller-mortgagee
later after completing be payment
legally of situated as well as the LTO where the vehicle
thejustified
purchase in foreclosing
price, debtor on this second
obtained chattel
title to is registered. (Sec 4 Chattel Mortgage Law)
mortgage?
theSUGGESTED
lot. And even ANSWER: as the chattel mortgage on
theNo.house
The twowas mortgages were executed
still subsisting, to
debtor Credit Transactions (1999)
secure the payment
mortgaged to a bank the lot and of the unpaid Various buyers of lots in a subdivision
installmentsthereon
improvement for the purchase
to secureof a aloan.
new This
car. brought actions to compel either or both the
realWhen
estatethe mortgage
mortgage was on duly
the old car was and
registered developer and the bank to lease and deliver
Due foreclosed,
to business
annotated at thetheback
seller-mortgagee
reverses, title. isfailed
of the debtor deemed to free and clear the titles to their respective
paytohishave renounced
creditors. Theall other rights.
chattel mortgage A was lots.
foreclosure
foreclosed of additional
when the debtorproperty, that is,tothe
failed The problem arose because notwithstanding
new car the
reimburse covered
surety bycompany
the second formortgage
payments prior sales mostly on installments – made by
madeChattel
would onMortgage;
bethe Ownership
a nullity.
bond. In the of Thing Mortgagedsale,
foreclosure (1990) the developer to buyers, developer had
Zonee, who lives in Bulacan,
the surety company was awarded the house bought a 1988 mortgaged the whole subdivision to a
as model Toyota
the highest Corolla sedan on July 1, 1989
bidder. commercial bank. The mortgage was duly
Onlyfrom Anadelaida,
after the foreclosurewho lives saleindid Quezon City,
the surety executed and registered with the appropriate
for P300th,
company learnpaying
of the P150th as downpayment
real estate mortgage in governmental agencies. However, as the lot
andofpromising
favor the lending to pay the balance
investor on theinlot 3 equal
and buyers were completely unaware of the
thequarterly
improvement installments
thereon. beginning October 1,
Immediately, it mortgage lien of the bank, they religiously
1989.
filed Anadelaida
a complaint executed
praying for the a deed of saleofof
exclusion As
paidthe developer
the failed
installments dueto under
pay itstheir
loan,sale
the
thethe vehicle
house from in favor
the real of Zonee
estateand, to secure
mortgage. It mortgage
contracts. was foreclosed and the whole
was the unpaid balance
submitted that asofthe thechattel
purchase price,
mortgage subdivision was acquired by the bank as the
was had Zonee execute
executed a deed ofahead,
and registered chattelit was highest bidder. a) May the bank dispossess
Ten days after
mortgage on thevehicle
the executionin of the
Anadelaida’s priorindividual
purchasers lotsofor, alternatively, require
superior to the real estate mortgage.
Onabovementioned
the suggestion that
favor. documents,
a chattel Zonee
mortgage had onthe them to pay again for the paid lots?
car transferred and registered
a house- a real property- was a nullity, the in her name. b) Discuss
What(3%)are the rights of the bank vis-à-
Contemporaneously,
surety company countered Anadelaida had thethe
that when vis those buyers with remaining unpaid
chattel
chattel mortgage
mortgage was on executed,
the car registered
debtor was in the installments? Discuss. (3%)
notChattel
yet the Mortgage
owner of Registry
the lot of on
the which
Office ofthe Recommendation: Since the subject matter
the was
house Register
built.ofAccordingly,
Deeds of Quezon the houseCity.was a of these two (2) questions is not included
1 In Sep
personal 1989, the
Discuss
property Zonee
and sold
validity the
of the
a proper sedan to Jimbo
position
subject oftaken
a within the scope of the Bar Questions in
by without
the suretytelling
chattel mortgage. the
company. latter
(3%)that the car was Mercantile Law, as it is within Civil Law, it is
2 mortgaged Who has to aAnadelaida.
better claim Whento theZonee
house, failed
the suggested that whatever answer is given by
to pay
surety the firstorinstallment
company the lendingon OctoberExplain
investor? 1, the examinee, or the lack of answer should
(3%)1989, Anadelaida went to see Zonee and be given full credit. If the examinee gives a
3 discoveredWould that the latter
the position ofhad
the sold
suretythecompany
car to good answer, he should be given additional
be Jimbo.
bolstered a) Jimbo
by therefused
fact that to it
give up thetitle
acquired car onin a SUGGESTED ANSWER:
credit. No. The bank may not dispossess the
the ground
foreclosure salethat the chattel
conducted by mortgage
the Provincial 1
executed
Sheriff. Explain by (3%)
Zonee in favor of Anadelaida is prior purchasers of the individual lots, much
not valid because it was executed before the less require them to pay for the said lots.
car was registered in Zonee’s name, i.e., The bank has to respect the rights of the
before Zonee became the registered owner of prior purchasers of the individual lots. The
the car. Is the said argument meritorious? purchasers have the option to pay the
b) Jimbo also argued that even if the chattel installments of the mortgagee.
Explain your answer.
mortgage is valid, it cannot affect him 2 The bank has to respect the rights of
because it was not properly registered with the buyers with remaining unpaid
the government offices where it should be installments. The purchaser has the option to
registered. What government office is Jimbo pay the installments to the mortgagee who
SUGGESTEDto?
referring ANSWER: Mortgage (1999) the payments to the mortgage
should apply
a) Jimbo’s argument is not meritorious. Debtor purchased a parcel of land from a
Zonee became the owner of the property indebtedness.
Chattel Mortgage;
realty companyForeclosure (1997)
payable in five yearly
upon delivery; registration is not essential to Ritzinstallments.
bought a new car on
Under theinstallments whichtitle
contract of sale,
vest that ownership in the buyer. The provided for would
to the lot an acceleration clause
be transferred in the
upon full
execution of the chattel mortgage by the event of default.
payment of theTopurchase
secure payment
price. of the
buyer in favor of the seller, in fact, can But even
unpaid before full
installments, aspayment,
and whendebtordue, he
demonstrate the vesting of such ownership constructed
constituted twoachattel
house mortgages,
on the lot. Sometime
i.e., one
b) Jimbo
to the was referring to the Register of
mortgagor. overthereafter,
his very olddebtor mortgaged
car and the other the house to
covering
Deeds of Bulacan where Zonee was a secure his obligation arising
the new car that he had just bought as from the
resident. The Chattel Mortgage Law requires issuance
aforesaid, onofinstallments.
a bond needed in Ritz
After the conduct of
the registration to be made in the Office of defaulted on three installments, theduly
his business. The mortgage was seller-
the Register of Deeds of the province where registered
mortgagee with the proper
foreclosed chattel
on the old car. mortgage
The
the mortgagor resides and also in which the registry.
proceeds of the foreclosure were not enough
property is to satisfy the due obligation; hence, he
similarly sought to foreclose on the new car.
 Mercantile
Mercantile Law Bar Examination Page 46 of 103
Law Bar Examination Q & A (1990-2006)
Q & A (1990-2006) ToPage pay47 forPage 103
ofher 48
loan of 103
obtained
Because of business reverses, neither the from
(5) Stela,
The Liza
b.Integrity Bank
leaseconstitutedwhichingranted
– rentals Stela’s
belong favor Edzoto aathe
LDC countered
Borrower nor Mr. Timbol that it had wasbuilt ableon tothepay the chattel
loan in mortgage
2001 inHowever,
mortgagor. theoveramountanthe electric
ofmortgage generator.
P500,000. The
extends
mortgaged
loan. In June property2001, thewith Bank the extrajudicially
prior Cecil,
loanto wasarentals
creditor
not secured of Liza,
not yetbylevied
any
received on
assetattachment
of
when Edzo,the
knowledge
foreclosed theof two mortgageereal estate which mortgages,
had received theobligation
but generator.
it was guaranteed Stela filed
becomes due a third
and party
unconditionally claim.
the mortgagee and
withformal
the notice
Bank of asthe the lease.
onlya)bidder How would in the you Cecil opposed
solidarily
may by Edzo’s
ran the claim.
after the Rule
President said on and their
rentalscontrolling
for the
mortgagee
resolve the
foreclosure sale.and
dispute
On LDC? (3%) b)the
between
September Is the
16, 2001, the SUGGESTED
conflicting
stockholder,
payment ANSWER:
claims.
of the Eduardo
mortgage Z. debt. Ong, as
mortgagee
certificates of entitled
sale of to thethetwo lease rentals due
properties in Mortgage; Foreclosure;
accommodation surety. Effect of mere taking by creditor-
from Mortgage;
The loanExtrajudicial
mortgagor due Foreclose
(1992) (2006)
to Integrity
of property Bank fell due on
favor ofLDC the under
Bank the were lease agreement?
registered with (3%) the
Ten months later,
Recommendation:
Register of Deeds of Quezon City.both the Borrower
Since the and Mr.
subject A
matter of
Junereal
X 15,
& Co estate
2002.
obtainedmortgage
Despite a loanpleasmayfrom forbe foreclosed
extension
a local bank of in
Timbol were (2) able
these questions
twoto raise is not includedfunds
sufficient withintothe judicially
payment
the amount orbyextrajudicially.
Edzo, the bank
of P500th, In what instance as
demanded
mortgaging
redeem their scope of the Bar properties
respective Questions in Mercantile
from the may
immediatea mortgagee
security payment.
therefore extrajudicially
Because
its real foreclose banka
the property.
Bank, butLaw, theas Bank it is withinrefusedCivil to Law, permit it is SUGGESTED
real estateANSWER:
threatened
Subsequently, mortgage?
to proceed (5%)
the company againstapplied the surety, with the
suggested that whatever answer is given When a sale is made under a special power
redemption on the ground that the period for Eduardo
same Z. bank Ong,forEdzo decided
a Letter of to pay up
Credit (LC) all for
by the examinee, or the lack of answer inserted or attached to any real-estate
redemption had already expired, so that the its obligations
$200th in to
favor Integrity
of a foreign Bank. bank On June
to cover 20, the
should be given full credit. If the mortgage, thereafter given as security for the
Bank nowexaminee
SUGGESTED has absolute
ANSWER: ownership
gives a good answer, he should of both 2002, Edzo
importation paid of to Integrity
machinery. BankTo the full
guarantee
payment of money or the fulfillment of any
a. The be
properties. mortgagee
The
given Borrower
additionalhas credit.
aand better
Mr. rightTimbol than principal
payment amountof theofobligation
P500,000, plus the
under accrued
LC, the
other obligation, then the mortgagee may
cameLDC. to you Thetoday, mortgageSeptember extends15, 2002, to tothe interests company amounting
and itstoPresident P55,000. and As a Treasurer
result,
extrajudicially
The machinery foreclose
arrived the was
and realreleased estate to
findimprovements
out if the position introduced
of the Bank on the land, with Edzo
is correct. Mortgage;had
executed hardly a surety
Foreclosure any
(2003) cash left
agreement for operations
in the local
mortgage
the (Sec.
company 1, Act No.
under 3135, as amended).
a trust After receipt
Whatthe would declarations,
be your answer? amplifications,
State yourand and May decided
bank’s
the favor.
sale atto close
public its business.
auction bydefaulted
a bank ofinathe
SUGGESTED ANSWER: agreement. As the company
limitations
reasons (5%). established by law, whether the paying property the unpaid salaries
mortgaged to it bein of its employees,
nullified because
1 With respect to the real estate mortgage
estate remains in the possession of the How Edzo
the
would
payment
filed
price a
was
you,
of its
petition
as obligations,
extremely
judge
for insolvency
low?
thethe
Why?
insolvency
on bank
July 1, took
over the land and building owned by the Borrower, proceedings, possession rank
of the the respective
imported machinery.credits At orthe
mortgagor or passes into the hands of a third 2002. SUGGESTED ANSWER:
Primetime Corporation, a juridical body, the period claims sameof time, the five it (5)sought creditors mentionedthe
to foreclose
person (Art 2127 NCC). The notice given by
of redemption is only three (3) months, which above
mortgagedin terms propertyof preference
and to hold orthepriority
company
LDC to the mortgagee was not enough to Mortgage; Foreclosure (2003)
period already expired. SUGGESTED
against
as each
well ANSWER:
as other?
its (5%)
President and Treasurer, liable
remove the building from coverage of the The Becauseclaim ofoffailure
Handyman of Janette and forJeanne to
2 As to the real estate mortgage over the Did
under the
the takingAgreement.
Surety of Garage
possession P10,000
of the
mortgage considering that the building was has pay a their loan
specific lien to X Bank,
on the the latter
carresult
repaired. foreclosed
residential house and lot owned by Mr. Timbol, the machinery by the bank in the 1) full
built after the mortgage was constituted and on the mortgage constituted on their
period of redemption is one (1) year from the date payment of the obligations of the company
the notice was only as regards the lease and The property which was put(4)up claims by them as
of registration of the certificate of sale, which andremaining
its officers,four and 2) foreclosurehave of the
not as to the construction of the building. preference security
SUGGESTED fororthe payment
priority
ANSWER: against of each the loan. otherThe in
period has not yet expired in this case. mortgage?
Since the mortgagee was informed of the (1) price
the 1) paid
The
following for
No.taking the
4 –order:
claimofproperty
of the BIR
possession at the forthe
of foreclosure
unpaid machinery
lease and did not object to it, the mortgagee value sale wasbank
by added
the not
taxesdid enough
not result to inliquidate
full payment the of
became bound by the terms of the lease (2) obligation.
the obligations owing from the company In
No. 3The– bank
claim of sued
Joselyn for deficiency.
Reyes for and
when Remedies
Mortgage; it acquired (2003)the property as the highest Unlawful their
itsanswer, Janette
termination
officers. The taking and Jeanne of such did not deny
possession
bidder. Hence,
Carmakers, Inc., the soldmortgagee
a motor steps vehicle intoonthe (3) themust No.
be1considered
existence – of
claimthe of loanAce equipment
nor
merely the as fact of their in
a measure
shoes of basis
installment the mortgagorto Chari and acquires
Paredes. Thethe Suppliesorder as
default. to an
They, unpaid
protect however,
orseller;
further and
interposed
safeguardthethe
rights of
transaction
SUGGESTED the lessor
was
ANSWER: reflected under on Art 1768 of the (4)
a promissory defenses
bank’s No.that5 – claim
security of
the interest.
price at Dacion
the auction en pago was can
a)
noteThe
NCC. house is
byalways
This provision
1stexecuted
Alternative Answer:Charigives a favor
in real the property
oflessor even
the
Carmakers. right Integrity
extremely
only Bank.
be low and thatastheir
considered having loan, takendespite place
SUGGESTED ANSWER:
though
Theto Theitwas
appropriate
a.note was
mortgagee constructed
securedthe condominium
has
by a amortgageon a right
better land
building
overto not
the but the(PNB
the loanv Pineda
when adocuments,
creditor197 s accepts
1)was a and long-term loan
appropriates
belonging
car.after
building. to
paying Under
Contemporaneous the
the Art builder.
lessee 2127
with half
the However,
of ofthetheNCC,
execution the
value of which
the had
of Mortgage;
the ownershipnot yetof
Foreclosure of matured.
the goods
Improvements If (1999)
you
in were the
payment of a
parties may
and treat it astotime.
a all
personal property 2)
judge, The mereyou taking onoftheagainst
possession of
thethenote building
mortgage the atmortgage
extends that Should
improvements
deed, the lessor
Carmakers, on due how
Borrower would
obligation.
obtained rule
a loan case? Why? the
and constitute
refuse
theassigned
Inc., a
to reimburse
mortgaged chattel
property
the instruments mortgage
said amount,
regardless thereon.
theoflessee
sans recourse who (6%)mortgaged assets does not amount to
security of a mortgage
foreclosure. Foreclosure on arequires parcel of a land.
sale at
Such
to may
and mortgage
Adelantadowhen shall
remove the thebe
Finance valid
improvement and binding
improvements
Corporation. even Chari but
though
were While the mortgage was subsisting, borrower
onlytheon
defaulted the
land
introduced. parties.
will
in suffer
LDC her It will
damage
cannot not bind
thereby.
complain
obligations. or affect
otherwise,
Could public auction. The foreclosure, therefore,
b) The
SUGGESTED lending
ANSWER: investor hasthe a better claimit towas leased
has not for fifty
as yet yearsbeen the mortgaged property
effected.
third parties.
because
Adelantado it knew
Finance that
corporation property
take action to Land Development Company (LDC). The
Preference
the2nd house.of Credits
alternative The (2002)real estate mortgage
Answer: Mortgage; Redemption Period; Foreclosed Property
leasing
against bothwas mortgaged
Carmakers Inc., andwhen it built
Chari? Why? the mortgagee was duly advised of the lease.
As a. of
Assuming
covering June
the that 1, the
house 2002, and Edzo
office condominium
lot was Systems dulywas (2002)
(6%)condominium. Thereafter, LDC constructed on the
Corporation
duly constituted
registered and (Edzo)
bindswas the indebted
under the Condominium
parties and to third
the Primetime Corporation (the Borrower)
(1)
following Ace
Law, before
persons. Equipment
creditors:
On the LDCother Supplies
could hand, validly the– for various
constitute
chattelthe mortgaged
obtained property
a P10 an
Million, office condominium.
five-year term loan
Borrower defaulted on his loan and
personal
same computers
mortgage asona the and accessories
condominium,
house securingit should thesold to to
cause
credit from Universal Bank (the Bank) in 1996. As
mortgagee foreclosed the mortgage. At the
Edzo
of be on credit
therecorded amounting
surety company in the register to P300,000.
did not of affect
deeds the of the security for the loan and as required by the
(2) Handyman Garage – for mechanical foreclosure sale, the mortgagee was awarded
province or city where
rights of third parties such as the lending the land is situated an Bank, the Borrower gave the following
repairs
c) No. (parts
The and
chattel service)
mortgage performed
over the on house the property as the highest bidder. The
enabling or master
investor despite registration of the chattel deed showing, among collateral security in favor of the Bank: 1) a
corresponding
owned by mortgage
theCertificate
Borrower ofandSale was in
Edzo’s
which
others,
mortgage. company
was foreclosed
a car amounting
certificate didofnot theaffect to P10,000.
the rights
registered owner real estate over the landlocatedand
(3)
of and Joselyn
thirdofparties Reyes – former
like theholders employee
lending of executed
Quezon and after
City; the
2) lapse
the of
joint one andyear, title
several
all registered of investor.
any lien or building
wasTimbol,
consolidated in of
the
Edzo
Since who
the sued
encumbrance third Edzo on for
parties unlawful
are
the not
property termination
bound by the
that they promissory the note President Pr.name
of theof
Primo mortgagee.
Borrower; and
Mortgagee then applied with the RTC for the
of employment
chattel mortgage, and was
they able
are
consent to the registration of the deed. (Sec not to obtain
also bounda by 3) a real estate mortgage over the
issuance lot ofowneda writby of possession not only over
final
any4. judgment
enforcement
RA 4726). against Edzo
If ofthe for
itsmortgagee P100,000.
provisions. gaveThe its residential houseMr. andTimbol, also located in Quezon
(4) Bureau of Internal Revenue – for the land City.but also the condominium building.
foreclosure of such chattel
consent thereto, then LDC mortgageshould did not If
prevail. The mortgagee contended that the
unpaid value-added
SUGGESTED
bolster or addANSWER:anything taxes amounting
tothe positiontoof thewas
thecondominium
no consent was given, mortgage included all accessions,
Mortgage
P30,000.
surety vs. Levy (2003)
company.
included in the mortgage. improvements and accessories found on the
mortgaged property.
Mercantile LawLaw
Mercantile Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page Page54
50 53
52 49
of 103of 103103 Yes, Upon
Moreover,
relation,Onwhen Marchhis failure
insured
in
Purita 19,
the
Page 51
1993,
cannot toof pay
and
problem 103 the
insurer
a fire
be a razed
at loan
After
reinsurance
theno continuing
Will
over
1989, his
evidence
Petra’s
theciting building
is an
vehicle crisis
suit
Gcrcio inburned
insurance
of involving
prosper?
v.favor suicide
Sun ofdown,
against
Life, the
Explain.
IOU.
G.R. or Robin
liability
banking
When
No. arson filed
Anjo his or have
hand,
donee on due
theagreed building
there
of the date, isto no the
the
to
deceased. the bank
payment
double ground. foreclosed
insurance
Hence, ofGarapal
premium
she the
because
cannot by
Insurance
SUGGESTED
andclaim
which 23703, thefor
involvement
financial
defaulted, ANSWER:
fire
original
Septembersector
IOU loss
of with
insurer
inBX
foreclosed
28, the EFG.
in
1925;may
Asian these
the On
andincur Feb
region.
chattel
Go v.28,
in
events. favor 1994, BX mortgage
installments
the
also refused
be his to
insured
Concealment; on
and
with make
beneficiary. the
Materialpartial
the 3First
good lots, payment
Concealment;its which
obligation
Insurance were
has is been
Incontestability to Benjie
of
DoesNo,
EFG
the
demanded
BD
mortgage,
Redfern, Petra’s
denied
original
have G.R. suit
Robin’s
insured.
an
and payment
No. will
insurable
sought
47705, claim.not
to of
April prosper
On
interest
recover 25, April
the within
the
1841); 3,(assuming
1994,
insurance made subsequently
under
different
Clause at (1991)
the
the time
from thesold
insurance of forcontract.
loss,
insured onlywithP99th
then the
the atGarapal
1)insurer
Is
Second the
(2)that
Insurance;
the Robin
proceeds
meaning
deficiency.Neither
the
Double
sought policy
offromcan
Insurance
May the
of
reconsideration
the IOU life
the
Insurance Insured
(2005)
still insurance
two Code
recover take the
has
ofpolicies,
the
of
the cash
been
denial,
the thein becomes
Concealment;
foreclosure
Atty
Insurance
Insurance RobertoMaterial
liable.
Company. sale.
legally When Concealment
took Thereafter,
out
thesame
justified
The acar (2001)
life
inloss the
insurance
refusing
is bank
happened
true with filed
policy an
surrender
force
SUGGESTED
When does
SUGGESTED
but
premiums
Philippines for value,
ANSWER:
EFG (PD1460)?
deficiency? a
double period
ANSWER:
reiterated
for assign
Explain. insurance
which of
its
(2%) or less even
position.
IS had been than
exist? borrow 2
On March years on
faithfully from
20, A
on applied
ordinary
from
the 5th
payment
respect the
to the for
action
Dana
month, a
to interests non-medical
Benjie? for
Ins
the six the
Co Natlife
collection
months
2)insured
Is(DIC) onagreed
entitled
in insurance.
the 1of Sep the
two to 1989.
Yes.
saidIOU
the BDdate
policy
SUGGESTED
(2%)1995,
paying has
may
ANSWER:
Robin insurable
of
duringnoits
without longer
commenced theinterest
issue).
all the recover
beneficiary's
The in his
matters
judicial
time the bank
he action deficiency.
consent
which
was Juan period
alive. TheOn insured
deficiency.
collect
policies. 31 Augthe
of payment
on did A1990, not
contended
had
insurance inform
Roberto
not yet thatthe
policy? died.theinsurer
elapsed mortgage
DIC(UCPB that
refused
Under
deposit.
Under
(Nario
failed
against
StarbriteSection
v. In Art case
Philamlife,
toEFG. disclose 93
1484
refused of of
Should loss
G.R. ofthe
was of
the
No. Insurance
said
Robin’s
payment, NCC,
22796,
material deposit,
in
June
action Code,
a
and26,
contending be more
contract
relevant given that of
to General
c)
one As
to Judge,
SUGGESTED
week
contract
pay his
Insurance he Iprior
ANSWER: would
executed
beneficiaries allow
to
v. Masagana his
was the
because businessman
application
indivisible
Telamart, and
it discovered
G.R. forto
No.
1967);
there
BX ishad
particularly
sale
the
SUGGESTED
due double
of
approval
course? to the
personal
ANSWER:
no insurance
and
Explain.
insurable extent
property
issuance when
of
interestthe the there
amount
of theistherefore
price
and over-
in which
of
insurance 1)Yes.
recover
insurance,
consequently,
that
137172, hisAthe
Robert
April the
total
4, was
2001) time
loss
theexamined
had ofmisrepresented
of
. bank
Francis the
P5M had loss,
representing
and
can Benjie
confined
norecoverlegal right was the
atto
certain no
(3)No,
insurance
excess
is
policy. The
Robin’s
of
payable the
TheyInsured
with limit
in action
two
would to cannot
or
covered
installments, should
more
have add not
companies,
by another
the
the
affected be
PDIC
vendor given
Act, due
may, longer the owner of the property insured as
was not entitled receive the Good proceeds Life’s from full value
St. material
Luke’s
foreclose
Peninsula ofHospital
his
only
facts goods
thewhere
Insurance real
in which hewere
estate
his
Company, was lost
diagnosed
mortgage
application. but through
theand The
beneficiary
course.
covering
PBD will
among
SUGGESTED
action the
be on because
Is
same
damnified.
several
ANSWER:
his filing that
property,
options,
application, He would
of will the
the reduce
suffer
foreclose
either same request
by the the chattel
approving for latter
fire.he As failed
to the to redeem
creditor, the
Ithe would property. allow The
him law
from IS’s insurance coverage on his life and for beneficiaries
lung
leave has cancer.
outthe the right The
chattel
sued to insured
onmortgage,
deduct soon
basis
the amountthereafter
and
thatthen of to
DIC sue
can
amount
Starbrite which
reconsideration
insurable isthe first
correctdid beneficiary
notwith suspend respectmay the to been
running thea recover requires in property insurance that a ofperson
pecuniary
mortgage
it
also with oninterest
loss
theon
his of the
property. and
P300,000.00,
corresponding thingthe Is same sold,
Starbrite’s risk.
that
if one
adjustment is,Double
his
has
contention for died him
contest
unpaid infor athe
premiumplane
a the amount
supposed crash.
validity
from the to the insurer
Isinsurance
deficiency
of extent
judgment.
insurance liable or
If
policy
recover
insurance
of theand therefore
coverage
prescriptive adversely
onperiod the affect
property
ofminus his
one is of yearIS. can recover
insurance
bankhigher
valid?deposit
constituted, exists
premium
Explain? of where
half
should (5%) a million
or the
the same pesos
vendee’s
rejecting person thefailure same. to Insurance;
equivalent
considering
you were
only
proceeds. within the2the
Life Insurance;
to
that the the
Judge,
yearsproceeds
Assignment
value
factwould
from of you
concealed of
ofthe
the the
Policy policy
(1991)
credit
sustain
date had ofthe no if
hehe
issue
vested
The
stipulated right
beneficiary (Goin v.
theor in
Redfem,
insurance the G.R. property
No.
policy. 47705, Thus,insurance
April
in In when has insurable interest at the time of
sucha The policy of insurance upon his life, with thethe
a
insured
P200,000.00
pay cover
Moreover, by several which
atwo disclosureinsurers
is the maximum
more mayseparately have amount
installments. warranted SUGGESTED
SUGGESTED
SUGGESTED ANSWER:ANSWER:
ANSWER:
extended
bearing
contention
and during to
with of the the
the businessman
cause ofofthe
A?lifetime for
death the
insured. stocks-
of Decide
Insurable
25,robin
1941);
policy
respect
recoverable
case,
medical Interest:
of or
commenced
the
however, the
from Public
same
examination the Enemy
assignee judicial
subject
the PDIC. (2000)
vendor
of thereof
action
matter
Juan shall
by and must
against
Good have have
Life EFGno in face IIf The
in-trade Ivalue
No.issuance were
would the
concealed
of
which rule
of Judge,
the
P100th were fact
inpolicy
was Ifavor
would isand
assigned
mortgaged ofdismiss
material
also the by at the
tothe
Jose,
by action
the
insurance atime
the
(4)Assurance
Unless the policy allows, the insured?
the case. Why? (5%)
May a member
insurable
interests.
further
order for interest
action
(Geagonia on
it ofto the
March in MILF
against
v. Court
reasonablythe20,or property
of1995,
theits Insured
Appeals,breakawayinsured.
his
purchaser
assess G.R.ability
the No.BX, to Insurable
risk as being
approval
company.
when
married and
Interest;
the
man premature issuance
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legitimate ofAt
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group,
a
do
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114427,
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anyin Sayyaf,
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of
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counted beneficiary
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28, 1994 the
house when of not
Pablo2)
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onof While
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any agreement
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him.
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from collection
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materials.
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estimate
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said
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insurance
to attach
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execute this Good
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toevenpresumed
do have more Concealment; I wouldMaterial rule in clause favor Incontestabilityof the thepolicy insurance
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stocks
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trade
reason no requirement
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with BX
WGC
is1989) should automatic
are
insurance
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to company. either
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action in
then to
making collect
filed in apay or
inquiries. claimto foreclose
with notthat
because
necessary
v. Pineda, G.R. the No. right
that54216, ofJuan IOU Co totoforeclose
supply insure complete that
the assignee, insurer
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business
insurable
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claims
under
Coagainstfor the
interest P350th. in July
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insurance the 19,
life
Subsequently, Code of IS. of the
companies Itshe was are IS Clause
Tamicwould
ground
(1994)
a contractwhich
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was
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denied
not security.interest
notifiedfor These
the of inthe the
reason policy.
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chattel
information
Phils. What mortgage
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prohibited under
his the
previous
toinsurance
be insured circumstances
hospitalization
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himself
again
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that with on
insurance RSI suits are OnInsurable
SUGGESTED
prior are September
to
Interest;
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deliver,
Property
remedies,
Pablo 1990, Insurance
had Tan
although no
(2001)took an
insurable aaction life
premised
for
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public thesuch
enemy. policy on
information
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of
public life failure
constitutes
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insurance
enemy to
is apay an
(2005)
has
citizen 2 or
important
been or more in assignment.
misrepresentation Upon the otherafter hand, an the heirs
action is
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life.and then Interest; from Life vs. Property
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fire of PabloJQ,
insurance
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policysubject on
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factor
force obtained
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which
a
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period life
of insured
foreclosure
insurance
Good
Premiumsof 2 years
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policyor for
takes
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into interest.
Jose
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contended the
for that case.
recovery is not under entitled the to
policy, the
national
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gutted with the of which
interest
store the
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issued
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fire 6, with
1990. hethe He bought.
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an
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insurer
life insurance is undernot thesuch
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Philippines
insurance
partnership. isJulieatfrom war.filed Such
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her(See claims interest
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purchase
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of ofof
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Code, lossaA
by provision,
payable
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foreclosure insurance toonhis
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friend,
policy yet
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as hisdisappeared.
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orANSWER: not. (Seeexplicitly Jacob, Sun Ins
whether
however, Office Ltd
Anjo’s noof assignment
v without due noticethat toas the insurer
MILFinsured
given
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or
insurance.
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insurancefacts Abu are
(5%) entitled
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companies. isSunlife
to then
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return
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her can Co the groundin
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contract
brother,
company
the of of the
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mortgages.
misrepresentation
sale policy
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the already
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beneficiaries’ vests
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the factual settings in by aclaim
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CA
default
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premium
longer
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v wasCA mind
property
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of another paid. Mar
GR a that 13 insurance,
payment
and
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policy default
Yob 22, is and
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void a
Jojo,
expectation
245
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his
s 268)
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recovery.
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claims
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when
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rescinded
the case on the
of Suria property
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reason of the
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of
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insurer
fire problem
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breacha return
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orthe grocery
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business
of ofthe policy
benefit however,
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Code).ALTERNATIVEThe failure Material
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of the notice ofIncontestability
assignment
give noticeToofthe anyWHOLE insurance effected for
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foreclosure Tan in28Nov1989) as his application.
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insurance
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existence part
able
of a of tohis Insurable
life Clause
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JQ can (1998)
indivisibility
recover
Interest; Life vs. on ofProperty
a contract
the fire insurance
Insurance of real
(1997)security,
policy
covering
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secured thus preclude
the
obligationspremiums the must assignee
paid. first be from availed ofon
interest
stillforeclose
policy add
Clause for Yob P5M
(1997)
need notAvailable
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and to
have any thing
chattel
fully
Jojo as insured
coverhis
legal basis.
to Mortgagee-Creditor mortgage
his be exposed
stocks-in-
beneficiaries? validly
(2001) to any
as of
a) ARenato
such
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loss was
aof areal
saidissued
fire estate
insurance
contend a
condominium life
mortgage insurance
on
that the his or
unit. house
companya policy
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has
and thea
as
court
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Jacob contended
can no longer that add sheYob should and not be
Jojo as in claiming
by a rights under
creditor in preferencethe policy. to The
other failure
remedies
the
The
trade
Explain. perils
fromassured
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foreclosure, answers
risk
Debtor “A” issued a promissory note in the of against.
under
fire. “No” the
to thecircumstances
question had January
mortgage,
insurable
generous
no right 2, 1990.
only
interest
gesture meansHe names concealed
as that his a division
owner-insured.
neighborthe fact
or as a that
the As
blamed
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beneficiaries thepropertyomission,
in addition allegingto Diwata. that the
As the of notice
that did to
might not,
also
rescind
however,
be
the contract
invoked avoid by theas
him. policy;
b)
2
Three
the
amount months Inof
application P10M the
thereafter,by
for ininsurance
athe insurance,
life
favor a policy:
fire
law, is
of commercialmade
ofcould“Are the
accidental for
only
you actual
abankdefinite
be 3 years
partial
beneficiary
beneficiary.
rescission payment
must prior inIf to
the
A’s of athe
fire
house secured issuance
insurance
is obligation
destroyed of
policy,his
by does life
MLQ
fire, can
insurance
irrevocable agents
beneficiary, for completely
WGC, Diwata RSI and has EIC
acquired knew hence, upon thebe death doneof“during Jose, the the lifetime”
proceeds
value
period
origin
effectedbroke
suffering
Y secured of
of the
time
outby
for
from interest
aand and
payment
any mortgagethe
form therein
insured
default
of heart is
of destroyed
his the
surrenders
covering
illness?” limitIn
properties twoof
his insurance
successfully
not
B
cannot
of the insured warrant claim
recover policy,
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policy?
division
insurance seeing
b) A
or policy. a
of the
a-vested existence
right over ofportion
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Jacob's additional lifevalidly insurance would, in the absence of ayears designated and prior to
the the
policy,
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fact,
worth more insurance
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heart
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v Filipinas
pay his obtains
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For the
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insurance
beneficiary
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his
the
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recover
action. and
the the names
security
Ison the
insured. the hisgiven.
fire or
coverages
policy.
thereon.
correspondsAny and
additional that
In businessman
life
with she
insurance, was
beneficiaries not
there informedwill
is no limit to On neighbor March B 1,
the 1992,
beneficiary Renato because died of
of heart
A’s secret
SUGGESTED
prompted
many
Investment
indebtedness, ANSWER:
the
years. On
and 7the
despiteSep
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1991, to
demands file
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assured
GR madeat
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L-39806a is pro by rata A
SUGGESTED
contention
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property
estate,May
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in turn, such
insurance secured
beneficiaries
would policy, be debts
it is
tenable?
liable may
required
for theon the pursue that
about
reduce
1) No. the
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amount which that such
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the
rate,
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killed
Jan27,83
bank ininsured
amount
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plane
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latter
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five
instituted million
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that
rate disclose
may
has
apesos
insurance collection be
been taken suit No.
agreed for
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loan the
he The
love B. Ifincontestability
A dies,
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remedy
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have the
of can heirs
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foreclosure,
insurable file
clause
B successfully
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does
(2003)
interest or claim
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full,
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or
the
additional
beneficiary,
other
upon insurances
representing
company
to life.
and
enforce
insurance
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the
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recover,
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should
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case, than policy
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policy.
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In contention
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insurance, right. tenable?
for. (Go anv.
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because interest
Life
it claim SUGGESTED
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deducting
proceeds
Subsequently, andfrom the
returns
bank wholeYthe also premium
premiums filed any
paid.
foreclosure Is foryears havefrom
SUGGESTED
Promissory
Insurance
amount
Yes.
ANSWER:
The
Note:
due.
insurable the
Corporation
life
A issuance
Liability (2001)
favorable
insurance
interest of
a comprehensive
policy
in the
judgment the policy can on
condominium
inbeneficiary
question
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Ent insured
v
discovered
loss CA
SUGGESTED or
the decision
proceedings
May
G.R.
207 must
that
damage she
s
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of
recover
47705,
exist
at the
under when
time
the Prohibited
against insurance
on
April
the her
the
of 25,
the
policy
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for
fire1941)
insurance
loss,
company
security which the
given takes
has for
a)
X, No.
Y
motor Insurance;
September and
warrant
unit. In Z
vehicleproperty
anCash
23,
signed & 1990.
insurance
issuance ainsurance,
Carry Basis
The
promissory
ofto a (2003)
cover the
insured
writ note
of her died
in
brand
execution favor onwas on
Beneficiary;
2) No,
Assuming
insurance
effect because
stocks-in-trade Life
and Insurance;
policies? that
when she
were is
the
the guilty
Explain. loss
mortgaged of
occurs Beneficiaries
violation
to but
a of
need
creditor a
clause not must issued
What have ison January
insurable
meant by 9, 1990.
interest
“cash More
in
and the than
carry”property 2 in years
the
SUGGESTED ANSWER:
previously
justified?
the account. accrued. If because
you were the judge, how April
of
new A
any 26,
stating:
automobile. 1992,
property, “We or
She
not less
promise
paid,
exempt than and from 2
to
the years
pay
insurer
execution, A from on
(1998)
warranty/
does
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exist not
case
in condition.
the apply
formeantime.collection the
will
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life policy
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insurance, allowedhasaccountitnot had
insured.
isto September
business elapsed
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Code). B the
does insured,
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you obtained
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cases? (5%) on December
accepted
belonging 23,
31,
payment 1990.
2001
the in the
check.
judgment sum Before of P5,000.00”
debtor. the Therecheck
Juanbeen de
proceed.
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force
that But was forthe
insurable issued
2 years, Policy
foreclosure
interest from No. 8888
the
proceedings
exists date
at of the of The on
insurable
SUGGESTEDMarch
right interest
of 1,
ANSWER:
the 1992. in
insurer theThe house
to incontestability
rescind insured. is only clause
lost
Company
ofMidland
the fraud fire insurance
orInsurance
misrepresentation coverage for the
of thelife insurer or When
could should betheencashed,
benote no fell legal due,
Josieobstacle Awas sued forX aand
involved creditor Y who
in a to
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have
time atwhen toLife
Effects;
during Payment
thebe the dismissed.
contract of Co
of Premiums
lifetime isof onthe
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by whole
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insured,
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Z. applies.
the
Is the beneficiary
defense has
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motor up
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vehicle in full defense
accident
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her
right should
car to have
plan
(2006)
not forexist
separate
decision
foreclosure
businessman
of which
P20,000 ofat
the insurance
the
andthe on
insured time
the
August
insurance
proceedings, coverages
of loss.
creditor
was
19,
company 1989.
obtain
ignorant over
after Juan
not
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filing is
samepay
hisa on
b)
became
Insurance;
INCONTESTABILITY
Yes.
the policy.
SUGGESTED
impleaded
foreclosure
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insurer
Insurance Law
Co-Insurance
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life
on
insurance,
wreck.
has contracts
two
isvs. noRe-Insurance
CLAUSE
She years
it is action
such
sought
of have real
from
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payment
required
security.
the
in this
date
married
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in-trade?
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isstocks-
collection to Cynthia
Explain
Interest;
justified. caseInsurance
(3%) with
Property There
involving b) whom
Company
First
Insurance the he
Insurance
was has
offered
(1994)
same three
fraudulent
account to or that
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case. Distinguish
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defense
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ANSWER:
v CA is not
174 co-insurance
svalid.
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of X, re-Y, of
fault;
legitimate or when, by any default of the insured other
from the
issuance insurer. of the Could insurance the insurer contract be madeor of its
insure
In a Francis'
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concealment.
transaction, to children.
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of all thatrisks
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insurance.
interest
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Z under
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because the insured.
promissory there note was
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than actual fraud, the insurer never incurred anyliable under
CO-INSURANCE the insuranceis the coverage?
percentage (6%) in
Purita,
in the
Nat
insured
cause his
insurance
sum common-law
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policy
judgment,
than is the the Such
Beneficiary:
last
insured
perfected
Clause (1996) himself
being Effects:
reinstatement
contract the who Irrevocable
of case, within
took the
insurance Beneficiary
Z thewhich
policy
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to
not on his anthe
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the which
insured the
beneficiary.
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was the
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sheriff
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levied
obligationreferred
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you
while Purita
are the
fixed
Benjie’s
concealed, in
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mortgage own
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there procured
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Examination Q &Q Law
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(1990-2006) Page
Examination Q & A (1990-2006) Page58 57 55
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Mercantile LawLaw
Mercantile Bar Bar
Examination Q &Q
Examination A&
(1990-2006)
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Einstein )Z.bar,Ong, it its
were asalive
is creation.
Aaron, today the
quoting
SUGGESTED
from
Explain.
because hisause
ANSWER:
the portion
sale of ofexempted
is “Axilon”
an his book as the without
generic
transaction his the products
2) accommodation
An intention on which the
to infringe trademark is isnot used
S
his Medical
25, 1995.
Development
SUGGESTED
employees. drugs On
ANSWER:
In may
July 29,
Corporation
the be
first procured
1995,
place, another
has Joabonly
a did upon
creditor
better not Accordingly,
debtor,
and who
he filedfiled the
with the mural
surety.
theinsolvency belongs
Intellectual proceedings. to
Property DL.
beingpermission?
product isolated itself. (5%)
and not a sale to the public. must
The loan
necessary be of
due
nor the to
an same
Integrity
element kind. Bank The
in a electric
fellcase duesince on for fans
prescription
filed to ause petition made by a duly licensed However, BR and CT own the copyright,
right
commission
Insolvency; obligations the
any thatfor
logo
of the
survive involuntary
and two theemployees
(1997) tradename,insolvency to Office
produced
Copyright;
June (IPO) by
Infringement anBest application
Manufacturing
(1994) for patent cannot for his
sincephysician.
against
invent the The possibility
Carlito.
theprotective
device, and The itsinsolvency
benefits ofof court gave theory is 15,
infringement
there no 2002.
ofstipulation
relativity
Despite
of a patent. to the
expressed
pleas for extension of
contrary. in the
payment by Edzo, the
due course to the
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 68 67
Page of 103
of 103
b) Law on Discuss
Corporate the effects
Recovery of the SEC order
(2003) 1
rehabilitation In suspension
in of payments,with
accordance the debtor
a
of Xsuspension
Corporation on applied
the judicialfor itsforeclosure
rehabilitation rehabilitation
has sufficient plan approved
property by theall
to cover SEC.
his debts
and submitted
proceedings initiated a byrehabilitation
First Bank. (2%) plan which but foresees the impossibility of meeting them
c) called Would
for the theentry orderbyofit suspension
into a joint have venture SUGGESTED
when ANSWER:
they respectively fall due, whereas, in
anyagreement
effect on with the foreclosure
Y Corporation. proceedings
Under the f. insolvency,
To preserve thethe debtor assets
doesofnotthe have Debtor
initiated by Second
agreement, Bank? Explain
Y Corporation was(2%) to lend to X Corporation, the receiver may
sufficient property to pay all his debts in full; take custody
d) Corporation
Would the its order
creditoffacilities
suspension withhave
certain of, 2and control over, allofthe
In suspension existing the
payments, assets
anybanks
effecttoon the suit
obtain funds filed
notby only Third Bank? X
to operate andpurpose
property is toofsuspend
the corporation;
or delay payment evaluate of
e)
Explain. What
(2%)arebut
Corporation thealso
legal forconsequences
a part thereofofin a the existing
debts assets
which remainand liabilities,
unaffected earnings
although and a
rehabilitation receivership? (2%)
amount of P1 million as initial deposit in a operations
postponement of the corporation;
of payment is and determine
declared,
f) sinkingWhat fundmeasures may the receiver
to be augmented annually in thewhereas,
best way to salvagethe
in insolvency, and protect
object is to the
obtain
take to preserve the assets Suspension ofthe
Payments; Remedies (2003)
amounts equivalent to 10% of Debtor
of the yearly interest of
discharge investors
from all debtsand andcreditors.
liability;
Corporation? (2%) When is the remedy of declaration in a state
income from its operation of the business of X 3 In suspension of payments, no limit for
SUGGESTED ANSWER: of suspension of payments available to a
a. The SEC order of suspension of payment is X
Corporation. From this fund the creditors of
corporation? of indebtedness is required,
the
SUGGESTED amount
ANSWER:
Corporation
valid with respect weretotothe be paid
debtor annually, starting
corporation, (perwhereas,
dondee)in This insolvency,
remedythe is debts
available mustto a
but not with respect to the principalthe
from the second year of operations, with exceed P1,000
corporation when in it case of voluntary
experiences inability to
entire indebtedness
stockholders. The SEC tohas be jurisdiction
liquidated into 15 payinsolvency,
one's debts
Suspension orandmust
of Payments notStay
beOrder
liabilities,
vs. less than
and(2003)whereP1,000
the in
years.suspension
declare The creditors of X Corporation
of payments objected
with respect 1 case
petitioning of
has involuntary
sufficient
corporation insolvency.
property
either:
Distinguish the stay order in corporate to cover all its
to corporations, partnership or associations, be
to the plan because Y Corporation would debts but foresees
rehabilitation from theaimpossibility
declaration in of a state of
but taking
not with overrespect the to business
individuals. and assets of X meeting
Insolvency; them
suspension when
Voluntary
of they fall
Insolvency
payments? due (solvent
Proceeding
(4%) (1991)
SUGGESTED ANSWER: Could the court approve the plan
Corporation. but illiquid) or
Is SUGGESTED
the issuance
ANSWER: of an order, declaring a
b. SUGGESTED
The SECthe
despite order
ANSWER:
of suspension
objections of the of payment
creditors of X 2 has no
petition in a VoluntarysufficientInsolvency
property (insolvent)
proceeding
suspended the judicial
Corporation and could the creditorsproceedings initiated be but is under
Suspension
insolvent, the
of management
Payments;
mandatory theof
Rehabilitation
upon a Receiver (1999)
court?
by Rehabilitation;
the First Bank.
compelled Stay According
to Order
follow (2006)theto theplan? Supreme
Could Y SUGGESTED
Debtor ANSWER:
rehabilitation Corporation
receiver or a management and its principal
Court
The in a line
Corporation,
Blue Star of cases,
in managing the
Corporation suspension
thefiled order
business
with of
theX Assuming
stockholders
committee, that
the the filed petition
applicable withlaw was
the in due No. form
Securities
is P.D. and
applies to
Regional
Corporationsecured
TrialinCourt creditors and to the action
a petition forberehabilitation
the meantime, deemed to and substance
Exchange
902-A pursuant and
Commission
to Sec. that the
5 par.(SEC) assets of thefor
a petition
to on enforce
havethetaken-over
ground thethat X security
it foresaw against
Corporation the the
impossibility
itself? (6%) petitioner
rehabilitationare less and than his liabilities,
declaration of a state the of
corporation
of payingregardless
its obligationsof the stageas they thereof.
fall due. court
suspension of payments under PD 902-A.18
must adjudicate the insolvency (Sec The
SUGGESTED ANSWER:
Insolvency
objectiveLaw)
c. Finding
The order the of petition
suspensionsufficient in form and
of payments was for SEC to take control of the
Insolvency; Voluntary vs. Involuntary Solvency (1995)
substance, the court issued an Order corporation and all its assets and liabilities,
suspended the foreclosure proceedings Distinguish
appointing a rehabilitation receiver and staying
initiated by the Second Bank. While the earnings betweenand operations, voluntaryand insolvency
to determineand
the enforcement
What is is
the of all for
rationale claims
the Stay againstOrder?the involuntary
the feasibilityinsolvency.of continuing operations and
foreclosure against the property of a third SUGGESTED ANSWER:
corporation.
SUGGESTED ANSWER:
(5%) rehabilitating the company
party,
The itpurpose
is in reality
of theanstay action
orderto iscollect
intendedthe to In Generally,
voluntary insolvency,
the unsecured it for the benefit
is creditors
the debtorhad of
principal obligation owned by the or investors
himself and
who files creditors.
the petition
give the management committee manifested willingness to for insolvency,
cooperate with
corporation.
rehabilitation During
receiver the the time
leeway thatto the make while in involuntary insolvency, at least 3
Debtor Corporation. The secured creditors,
payment of the
the business viableprincipal obligation
again, without having is to creditors are the ones who file the petition for
however,
ALTERNATIVE expressed serious objections and
ANSWER:
suspended,
divert attentionthe and debtor corporation
resources to litigation is in insolvency against the insolvent debtor.
reservations.
The following are the distinctions:
considered
various to be
fora not inAirlines default and,
1 FirstIn Bank had insolvency,
already initiated judicial
ALTERNATIVE ANSWER: (Philippine v. Spouses
therefore, Nos.even the& right involuntary 3 or more
G.R.
Kurangking,
c. The suspension
76879
et al, G.R.
order No. to
77143,
does
enforce
October
146698,
not apply
3, the
1990;
September
to a foreclosure proceedings on the mortgage
security, whether
Rubberworld owned
[Phils.] Inc. by
v. the
NLRC, debtor-
G.R. No. creditors are required, whereas in voluntary
24,party
third 2002;mortgage
BF Homes,because
Inc. v. Court of Appeals,
in such a case, constituted on themay factory of Debtor
126773, April
corporation or of14,a1999;
thirdSobrejuanite
party, has v. not ASByet Dev. insolvency, one creditor be sufficient;
theCorp.,
creditG.R.
is not yet being enforced against Corporation.
arisen. No. 165675, September 30, 2005). It 2 In involuntary insolvency, the creditors
the corporation but against the third party Second Bank had already initiated foreclosure
also prevents a creditor from obtaining an must be residents of the Philippines, whose
mortgagor’s property. proceedings on a third-party mortgage
advantage
ANSWER:or preference over another with
credits or demand accrued in the Philippines,
SUGGESTED constituted on certain assets of the principal
respect
d. For the sameto actions
reason against
as in (c),the the corporation
order of and none of the creditors has become a
stockholders.
(Finasia Investments
suspension of payments and suspended
Finance Corpthe v. Court
suit of creditor
Third by Bankassignment
had already within 30 days
filed a suitprior to
against
Appeals,
filed G.
by Third R. No. 107002,
Bank vs.against October 7,1994) . thethefilingprincipal
of the petition, whereas
stockholders who had held in voluntary
Suspension
ALTERNATIVE
of Payment
ANSWER:
Insolvencythe principal
(1995) insolvency, these are not required.
stockholders. themselves liable jointly and severally for
d. Distinguish
The between
action againstsuspensionthe ofprincipal
payments 3 the In involuntary insolvency,
loans of Debtor Corporation the debtor
with said
and insolvency.
stockholders’ surety in favor of the must have done any of the acts of insolvency
SUGGESTED ANSWER: Bank.
corporation is not as After
enumerated
hearing,bythe Sec 20,directed
whereasthe in
In suspension of suspended
payments, the as itdebtor
is notisan not SEC
action against the corporation but against the voluntary insolvency, the
appointment of a rehabilitation receiverdebtor must not and
insolvent. He only needs time within which
stockholders whose personality have done any of said acts.
to convert his asset/s into cash is withseparate
which to ordered the suspension of all actions and
from that of the corporation. 4 claims In involuntary
against the insolvency,Debtor corporation the amount as well
pay his obligations when they fall due. In the
SUGGESTED ANSWER: of indebtedness
as against themust principal not be less than P1,000
stockholders. a)
e. case
Underof PDinsolvency,
902A, thetheappointment
debtor is insolvent,
of a whereas (2%)in the
voluntary
ALTERNATIVE ANSWER: Discuss validityinsolvency,
of the SEC itorder mustor
rehabilitation receiver willthan
that is, his assets are less his liabilities.
suspend all exceed P1,000.
The following are the distinctions: suspension?
actions for claims against the corporation 5 In involuntary insolvency, the petition
and the corporation will be placed under must be accompanied by a bond, whereas
such is not required in voluntary insolvency.
 Mercantile
Mercantile LawLaw
Bar Bar Mercantile
Examination
Examination Q &Q Law
A& ABar Examination Q & A (1990-2006)
(1990-2006)
(1990-2006) 70 71
Page
Page of 103
of 103 Page 72
TheAA of 103Page
entered
insurance 69aofcontract
into
company 103should
with
M/VThe
BVIlog Saad
agreed Dev
de Manila Co
to sell enters
with
to AC, ainto
a cargo Shipa voyage
of 500 tons
and BBthe
bear thru
SUGGESTED CC
loss tothe
to
ANSWER:transport ladies' wear
cargo because the from
COGSA;
charter
of iron Prescription
ore with
Merchandise left the XYZof Port
Broker,Claims
over of (2000)
the latter’s
Zamboanga
2,500 cubic meters vessel,
City of the It incurs
Manila
deviation tono
of liability
France
the vessel with unless
was it is also
transhipment
proper in order the
at negotiating
RC MV
bound imported
logs LadyLove.
for
at $27Manila. computer
perBefore
For
cubic one motherboards
the reason
meter Saad FOB. could
or another,
After fromit,
load bank
Taiwan.
to avoid Somehow
a peril, whichthe was goods
the strong were not loaded
the
M/VXYZ United
Ilogsold
inspecting States
Lady
de Manila the Love andato
hit
logs, CDhad Oslob
submerged them
issued ashipped
Maritime obstacle
purchase Coto b) Taiwan
at
typhoon. Bravo
The on Bank out
time.
running received
Hence, when
of provisionsfromthe Ciscogoods
was Bank
On
Manila
which
causing
order.the arrangements
aboard
to sinkan
itdecided to load
along oceangoingmade
withit for itsits upon cargo
own
cargo. instruction
A ship
account. by
arrived
a direct registered
in France, they
consequence mail an
of the irrevocable
arrived
proper deviation of
"off-season" letter
of
a) the
owned
salvor, May byconsignee,
BC Shipping
XYZ
Salvador, Inc.,H&T was Co Corporation
Company.validly ask
contracted When offorLA,
to the
the in credit
ALTERNATIVE
and
order AA issued
toANSWER:
was
avoid by
paidthe Delta
only
perilforBank thefor
of one-half thethe
typhoon. account
value of
California,
cargo arrived
rescission
refloat the vessel the
ofatthe SP
Manila Bank
P1seaport
forcharter ofparty?
Million. LA issued
and
What so, an
If delivered
kindcanof Theby
Y owner
Company
the buyer. of the inAA cargo
theclaimed bearsdamages
amount the loss from the
of US$10,000,000
to irrevocable
RC, the
Saad
average wascrate
recover theletter of credit
appeared
damages?
refloating To available
intact;
fee what
of P1extent?but atupon
million, sight b) If because
to cover
shipping in thethecase
company saleat of
andbar, itsthey
canned agent. stayed
fruit The too The
juices.
SUGGESTED
inforfavor
inspection
andOslob
ANSWER:
did
whose of BV
ofnot the for contents,
load
account the total
it should
for its purchase
RCbe?
own
it discovered
account,
Why? priceisofit long at the
beneficiary island, of making
the letter
defense of the respondents was prescription. it an ofimproper
credit was X
Particular
thethe logs. Average.
The The owner of themailedvesselto FE deviation.
Corporation Every deviation
which later not on specified
partially inavailed
that
(4%)bound items
by the letterinsideof party?
charter creditall
had was
c) been
Explain badly
the Considering that the ladies' wear suffered
shall shoulder the average. Generally Sec. 124of
itself ofisvalue,"
improper.
the letter (Sec.
of credit 125, Insurance
Bank with
damaged.
meaning ofthe
He instruction
did
“owner not profile hac “toany
viceforwardof theit toofthe
notice "loss as claimed byby AA, submitting
should theto
speaking,
beneficiary.” simpleThe or particular
letter of averages
credit provided Code)
Bravo Bank all documents relative to the
damage
vessel.” or In anything
what kind with ofanyone,
charter least
party of all
does prescriptive period be oneProper
year(2005) under the
include all expenses and damages caused to Carriage of Goods;
SUGGESTED
shipment ANSWER:
of Deviation;
the cans When of fruit juices. Bravo
withthat
this the
BCobtain? draft toCompany.
Shipping be drawnWhat is on he SP Bank
did was and Carriage of Goods by Sea Act, or ten years
theSUGGESTED
vessel or cargo
ANSWER: which have not inured to The
Under
Bank applicable
what paidcircumstances
X prescriptive
Corporation can period
a forvessel is
its ten partial
that
to a)
proceed it be directly
accompanied to your by,officeamong to other
consult under the Civil Code? Explain briefly.
XYZ may
thethings,
common ask for(Art.
benefit the 809, rescission andstating of the
are, years
properly
availment. under
proceed theto
Later, Civil Code.
ahowever,
port other The
it than
refused its(5%)
one-year further
aboutaparty
youcharter certification
whether if, ashe in
from AC,
should
thisby case, have it sold given that
the a SUGGESTED ANSWER:
prescriptive period under the Carriage offraud
therefore, to be borne only the owner of port of destination?
availment because Explain. of (4%)
suspicions of
the logs
notice of have been
damage and approved
how long prior a shipment
time he Deviation is proper:
vessel
Before
SUGGESTED
the before
loading
ANSWER: the charterer
ongavethe vessel tohas begun
chartered to
by AC, Goods by Sea Act applies in cases of loss or X
had inproperty
accordance
to initiate
which with
a suit the
beunder
rise
terms the
the
and same
provisionsconditions being causedpracticed upon it and, instead , sued
Myload
the
(Art. advicethewhile
logs
810) would
vessel
were and
inspected
general that
theor by
grossRC
purchaser
custom should
averages loads give
inspectors itof a) when
damages
Corporation to theby cargo.
circumstances
to recover The
what term over
it had"loss" which
paidas the
the of
notice the
Carriage
of purchase
the of
damage Goods order. by
sustained Sea Act
byrecover (CA
the 65). the master
neither
SUGGESTED ANSWER: nor theSupreme
owner ofCourt
the shipMitsuihas any
for
andhis
include "allown
representatives
the account.
damages Saad
of themay
and Bureau
expenses of cargo
Forestry,
which interpreted
latter.b)How bywould the you rule if youin were the
What
within would
damages3 days your
to and
the advice
that
extent hebe? ofhas (2%)
its to file
losses the
(Art suit
689 control; when necessary to comply with a
arewho certified caused
deliberately to the good in order condition to save and the O.S.K.
judge
Letters
Lines
to
of
Ltd. v.the
decide
Credit; Three
Court of Appeals, 287
controversy?
Distinct Contract (6%)SCRA
Relationships
b) If Oslob did not load Lady Love for warranty or avoid a
to recover
Code of
exportability
vessel, the
Commerce)
its cargo,oforthe damageboth logs. sustained
at the After same time, own
the loadingby its the was 366 (1998), contemplates a situation where
account,
cargo within it would
one yearbe bound
from theby the
date charter
of the peril,
no whether
delivery or
(2002)
at not all wasthe madeperil isby insured
the carrier of
fromcompleted,
a real andthe known Chiefrisk" Mate of the
(Art. 811). vesselBeing
party, but XYZ would have Explain
against; c) the
when three made (3) distinct
in good but perished
faith, intertwined
and
delivery
for issued
the common ofa themate cargoreceipt
benefit, to him. of theto
gross indemnify
cargo
averages which are the goods because the same had
grounds of belief in its necessity toindispensable
avoid a
or
COGSA;
Oslob Prescriptive
if it was Period
not (1995)
informed of the Charter uponcontract
reasonable relationships
gone out of commerce deteriorated or that are
stated that the logs
to be borne by the owners of the articles are in good condition. peril;
Bottomry
What is(1994)
the prescriptive in aorletterd) when of credit in good faith, for the
transaction.
Party
However,
saved (Art.at theAC
812). time
refused
In the of sale. to period
present (Art case
issue 689
theforrequired
actions
Code
there of is decayed
life, or
SUGGESTED
purpose
while
ofrelieving
ANSWER:
saving
in transit. In the present case,
another vessel in distress. (Sec.
human
Gigi obtained
involving
Commerce) lost aorloan from Jojo
damaged cargoCorporation,
under the of the shipment of ladies' wear was actually
certification
no c)
proof that the in vessel
the letter had oftocredit.
be put Because
afloat The three
Insurance
124, (3)
Code) distinct but(1992)
intertwined contract
payable
Carriage The ofterm
in “Owner
installments.
Goods by Sea Pro
GigiAct? Hac
executedVice ofathe COGSA;
delivered.
Prescription
Thethat
of Claims
"lossare of value" is not theintotal
to the absence
save itANSWER:
from of certification,
an imminent danger.FE Bank refused relationships Letters of Credit indispensable a letter of
Vessel,”
SUGGESTED
chattel mortgage is generally in favor understood
of Jojo whereby to be the she A local consignee sought to enforce judicially
ONE to YEAR
advance after payment
the deliveryon theofletter the of credit.
goods or 1) loss contemplated
transaction
credit
Carriage of Goods; are:
Exercise by the Carriage of Goods
charterer of the vessel
transferred “in favor of Jojo, its successors in the case of a claim against the Extraordinary
carrier for loss Diligenceof a
May
thebareboat
date Fe Bank
when be
the held
goods liable should under have the been of
letter by
1) Sea Between
(2005) Act. the applicant/buyer/importer and
and assigns, oralldemise
her title, charter
rights ... to
(Litonjua a vessel
Shipping shipment of drums of lubricating oil from
credit? Explain. 2) Under the facts above, the Letter of Credit:beneficiary/seller/exporter
Mortgage (2005)
delivered
of which
Co v National (Secis3(6),
Gigi Seamen’s COGSA)
the absolute Board owner.”
GR 51910 The StarJapan under the Carriage of Goods by Sea Act The
theShipping Lines accepted 100 cartons of –
seller, BV, argued that FE Bank, by accepting Ricardo mortgaged
applicant/buyer/importer his
to fishpond is the to oneAC Bank
who
Charter
10Aug1989)
chattel Party (2004)
mortgage was registered with the sardines
(COGSA) from afterMaster the carrier be delivered
had rejected to 555 its procures
the obligation
Under
Doctrine aCoast
charter
of Inscrutable to notify
party,
Fault (1995) him that
XXO Trading the Company to the
secure
Company letter ina Manila.
P1credit
of Million and
Only loan.
88obliges In ahimself
cartons separate
were to reimburse
Philippine Guard pursuant to PD 1521. demand. The carrier pleaded in its Answer
1. irrevocable
shipped
2 vessels sugar letter
coming to offrom credit
Coca-Cola the has been directions
Company
opposite through transaction,
the
delivered, issuing hebank
however, opened upon
these a letter
receipt
were of
in credit
of
bad the with
documents of
Gigi defaulted and had a total accountability the affirmative defense of prescription under
transmitted
SS Negros
collided
SUGGESTED with toeach
Shipping
ANSWER: it onother his
Corp., behalf,
dueinsured to hasfault confirmed
by Capitol
imputable the same
title,
condition. whilebank
555 the for
Company $500,000.00
beneficiary/seller/exporter
claimed in favor
from Star ofis the one
of P3M. But Jojo could not foreclose the the provisions of said Act inasmuch as the
the letter of credit. Consequently, FEas Bank but is HS whoBank, inLines a the
compliance foreign bank,
with to
themissing
contractpurchase
1)
toNo.
Insurance
mortgage both. The
onWhat letter
Company.
the are
vesselofthecredit
The provides
cargo
liabilities
because itarrived
of
sank the atwo Shipping
suit was brought value
by the of consignee
the afterofone sale ships
liable
condition
with under the
a certificationletter of
to of credit.
AC. Is
Without the such to outboard
the goods motors.to theLikewise,
buyer Ricardo
and delivers executed the documents
vessels
during ashortages.
with
typhoon. respectCoca-Cola
Meanwhile, thedemanded
damage
Lutang from
caused goods, as well as the damaged
(1) year from the delivery of the goods. In goods. Star
argument tenable? Explain. a Surety
of title Agreement
and draftinto favorthe ofissuing
AC Bank. bank
certification,
Capitol
them
Corporation Insurance
and there
their is
Co.
cargoes? no
which rendered salvage services obligation
P500.000 Explain. in on the
settlement Shipping
Theturn,
outboard
SUGGESTED theLines
ANSWER:
refused
consignee
motors
because
contended
arrived
the
andTheir that
were
formerthe to recover
SUGGESTED
2. part
for XXO
If it of ANSWER:
FE
cannot Bank
Trading. bevesseltoTheadvance
determined MM payment
Regional
which of the
Trial
of the Court,
two payment
failed
periodto present for the
a bill of was goods.
lading. Resolverelationship is
for refloating
Lutang Corporation’sthe lien suedshould Gigi. be Whose
given The claim of
delivered
governed of prescription
to 555
Ricardo,
by theCompany but heiswas
contract
suspended
not ableby
meritorious,
of sale. to the
letter
where
vessels of
the credit.
was civil at suit
fault
(Feati was filed,
resulting
Bank v CA "absolved
in196 the S the
collision,
576) with reasons the claim of 555 Company.
lien should be
preference.
2) No. FE The
Bank
given
lien may
preference,
of Jojo
have by that of
virtue
confirmed
of aJojo
the letter paywritten
even the extrajudicial
if itpurchase
fails price demand
to present a bill ofa)
thereof. itlading.
had
Canmade AC
or insurance
which
Lutang? party company,
should declaring
bear the that under
damage caused the (4%)against the carrier within the one-year period,
loanof of bottomry
credit when was
it extinguished
notified BV, that when
an the Bank2) takeaBetween
Although bill of lading
possession the
of istheissuing
the best bank
outboard evidence and the
Code of Commerce,
to the vessels and the cargoes? Explain. the shipping agent is pursuant to Article 1155 of the Civil Code
vessel sank.
irrevocable Under
letter such
of credit loaninthe on
has bottomry
been of beneficiary/seller/exporter
the
motors? contract
Why? b) of Cancarriage
AC Bank for –cargo,
The foreclose
also issuing bank is
3. civilly
Which liable
party forshoulddamages bear favor damage of third to the
Jojopersons
acted
transmitted not only as creditor but also asof the theproviding
the
neverthelessone that
mortgage that
such
over the
issues
the prescription
contract the
fishpond?can letter
exist of actions
of
Explain. even credit is and
vessels due andto to
the ittheon
cargoesits behalf.
conduct if the of Butthe
cause the
carrier's interrupted
undertakes when there is a written
insurer.
conditions Jojo’s right
in the to recover
letter of credit the amount
must of be
first without
(5%) a bill oftolading. pay the Like seller
anyupon otherreceipt of the
captain,
collision and
was the stipulation
a fortuitous in the
event? charter
Explain. extrajudicial demand by the creditors.
thecomplied
loan is predicated
with, namely on the
that safe
the arrival
draft beof
SUGGESTED
draft ANSWER:
contract, and
a contractproper of documents
carriage is aof titlea)and
meeting Has to
party exempting the owner from liability is a) SUGGESTED
the No, for
action inAC fact Bank has no to
prescribed? legal
Why? standing,
b) If the
theSUGGESTED
vessel
accompanied
ANSWER:
at the byport of destination.
a policy.
certification from The AC. of minds that gives rise to an obligation on upon
surrender the
ANSWER: documents the buyer
not
No.was against
The appeal public ofthe
Coca-Cola Coca-Cola
will not prosper. much lessaction
consignee’s a lien,action onwere the outboard
predicated motors.
ongoverned
SUGGESTED
right
Further, ANSWER:
lost when
confirmation vessel
of a sank
letter of(Sec
credit 17 thea) The
reimbursement.
part of the carrier taken Theirby
to the local the
relationship
transport consignee
is
goods.
appealed. Will its appeal prosper? Reason Insofar as
misdelivery AC Bank
or is concerned,
conversion of ofthe it has
goods,ofprivitywouldby
PD Under
1. Each
Carriage
Letters
1521)
must
briefly.
of of
be
Article
vessel
Goods:
Credit; 587
must
Deviation:
Liability
expressed.
(5%)
ofbearthe
ofLiability Code
its
a confirming
(Feati
own
(2005)
Bank
of damage.
v
Commerce,
and
CA notifying
196
Both
s 576)
has,
by the
Jurisprudence
with the
in fact,
terms
person
prescribed.
has ofheldthethat
ofCarriage
Ricardo
The
letter the
under
period credit
moment
the
one
issued
the
Surety
Onthea
bank shipping
ofclear
them
(1994) were
weather, agent
at fault.
M/V is civilly
(Art 827,
Sundo, liable for of
Code
carrying G.R.your
No.
year
the
carrier answer
L-18965,
under
bank.
receives thebe
the the
Octobercargosame?
30,for 1964;
of Explain
Goods Negre
transport, bybriefly.
v.
Sea
thenAct
damages
Commerce)
insured
In cargo,
letters in left
of favor
credit the of
inportthird
banking ofpersons
Manila due to the
bound
transactions, Agreement,
3)
Cabahug
(COGSA) Shippingand
Between
is not& ainterrupted
lien
Co.,the onissuing
G.R. the
No.by fishpond
L-19609, bank
adiligence
written based
Apriland the
its duty to
ALTERNATIVE exercise extraordinary
for conduct
2. Each of
Cebu.
distinguish of
While themthe
theatcarrier's
should
sea, the
liability bear
ofcaptain,
a their
vessel confirming and the
respective bank on the ANSWER:
29,extrajudicial
1966) real estate
applicant/buyer/importer demand. mortgage – Their
The provisions constituted
relationship
of Art is
arises . (Cia. Maritima
Star Shipping Lines v. Insurance
can refuse toCo. of North
honor 555
shipping
damages.
encountered
SUGGESTED
from agent
aSince
ANSWER:
a notifying strong can
bank. exemptbe
it cannot
typhoon himself
determined
forcing the as to therein.
governed
1155 of the
America, by NCC the terms
merely of the
apply and application
to prescriptive and
Company's
b) Yes, claim
agreement butfor for
only thethe missing
to issuance
enforce payment
of and the not of
letter
In
captain case
therefrom
which anything
tovessel
steer only isby
the wrong
at fault.happens
abandoning
vessel This
to the
theisnearest
the tovessel
the letterof
doctrine periods
damaged provided
goods. The for in said
Bill of Lading Code is the to of
of credit, aitequipment
confirming the principal
credit by loan
the of
bank. P1million secured by the
with all his
“inscrutable
island where fault.” for bank
stayed and
seven theincurs freight
days. liability
The he special laws
document such aslegally
COGSA except when
for real estateof title
mortgage that on the fishpond establishes the
3. may
vessel Nothe have
party
ran amount
outearned
shall of
of provisions the
beduring
held letter theof
liable
for its credit,
voyage.
since thewhile
Oncause thea otherwise
ownership of provided.
555 Company (Doleover v Maritimesaid Co 148 s
goods.
notifying
other
of thehand,
passengers. bank
collision does
assuming
Consequently, not
is fortuitous thereincur is
the event. any
bareboat
vessel liability.
The carrier b) If the consignee’s action were predicated
Assuming that the cargo was damaged 555118).
(National
onneeds
Union Fire Insurance
to present
Maritime Commerce
misdelivery the Bill
or conversion
ofof Pittsburg
Lading
of goods,
v.
to the
charter,
is not an
proceeded the
to stipulation
insurer.
Leyte to replenish in the charter
its supplies. party Stolt-Nielaen,
Letter
legallyof Credit;
claim G.R. No.
Certification
said 87958,
goods. from April 26, 1990)
Consignee (1993)
Letters
because of
of Credit;
such Liability
deviation,
exempting the owner from liability of a Notifying
who Bank is
between (2003)the
not provisions of the COGSA would be
Average;
inapplicable. Particular Average vs. General Average (2003)
a)
insurance
against What
company liability,
public policy and if
the any
because the owneris incurred
of the
public byatan Charter Party (1991) In these cases, the NCC
COGSA:
SUGGESTED
advising Prescription
ANSWER: of Claims/Actions (2004) prescriptive periods, including Art 1155 of
large is not involved (Home Insurance Co.credit
cargo bears or
the notifying
loss? bank
Explain. in a letter of v.
transaction?
American Steamship Agencies, Inc., 23 SCRA25 the NCC will apply (Ang v Compania Maritama
(1968). 133 s 600)
 Mercantile Law Bar Examination Q & A (1990-2006)
owner and the captain as the typhoon came
earlier and overtook the vessel. The vessel
sank and a number of passengers
disappeared with it.
Relatives of the missing passengers claimed
damages against the shipowner. The
shipowner set up the defense that under the
doctrine of limited liability, his liability was
co-extensive with his interest in the vessel.
.1 How will you advice the claimants?
As the vessel was totally lost, his liability had
Discuss the doctrine
also been extinguished. of limited liability in
maritime
law. (3%)
.2 Assuming that the vessel was insured, have been avoided if the captain of SS
SUGGESTED
may the ANSWER:
claimants go after the insurance
.1
proceeds? Under
(3%)the doctrine of limited liability in the MV Princes was not asleep at the time of
maritime law, the liability of the shipowner arising
from the operation of a ship is confined to the SUGGESTED
vessel, equipment, and freight, or insurance, if
any, so that if the shipowner abandoned the ship,Princess shall each bear their respective loss
equipment, and freight, his liability is
extinguished. However, the doctrine of limited suffered by their cargoes both shipowners
liability does not apply when the shipowner or are solidarily liable.
captain is guilty of negligence.
.2 Yes. In case of a lost vessel, the claimants
may go after the proceeds of the insurance
covering the vessel.
Doctrine of Inscrutable Fault (1997)
Explain the doctrine in Maritime accidents –
Doctrine of Inscrutable Fault
SUGGESTED ANSWER:
Under the “doctrine of inscrutable fault,”
where fault is established but it cannot be
determined which of the two vessels were at
fault, both shall be deemed to have been at
fault.
Doctrine of Inscrutable Fault (1998)
A severe typhoon was raging when the
vessel SS Masdaam collided with MV Princes.
It is conceded that the typhoon was the
major cause of the collision, although there
was a very strong possibility that it could
Masdaam was not drunk and the captain of
collisions. Who should bear the damages to
ANSWER:
the vessels and their cargoes? (5%)
The shipowners of SS Masdaam and MV
of vessels. For the losses and damages
Limited Liability Rule (1994)
Toni, a copra dealer, loaded 1000 sacks of
copra on board the vessel MV Tonichi (a
common carrier engaged in coastwise trade
owned by Ichi) for shipment from Puerto
Galera to Manila. The cargo did not reach
Manila because the vessel capsized and
When Toniall
sank with sued Ichi for damages based on
its cargo.
breach of contract, the latter invoked the
“limited liability rule.” 1) What do you
understand of the “rule” invoked by Ichi? 2)
Are there exceptions to the “limited liability
SUGGESTED ANSWER:
rule”?
1) By “limited liability rule” is meant that the
liability of a shipowner for damages in case
of loss is limited to the value of the vessel
involved. His other properties cannot be
reached by the parties entitled to damages.
2) Yes. When the ship owner of the vessel
involved is guilty of negligence, the “limited
liability rule” does not apply. In such case,
the ship owner is liable to the full extent of
(Mecenas
the damagesv CA sustained
180 s 83) by the aggrieved
parties
Limited Liability Rule (1997)
Explain the doctrine in Maritime accidents –
The Doctrine of Limited Liability
SUGGESTED ANSWER:
Under the “doctrine of limited liability” the
exclusively real and hypothecary nature of
maritime law operates to limit the liability of
the shipowner to the value of the vessel,
earned freightage and proceeds of the
insurance. However, such doctrine does not
apply if the shipowner and the captain are
Limited Liability
guilty of Rule (1999)
negligence.
Thinking that the impending typhoon was
still 24 hours away, MV Pioneer left port to
sail for Leyte. That was a miscalculation of
the typhoon signals by both the ship-
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page 74 73
Page of 103of 103andClaro
also already
the fact sightedthat A does Manila
MVengage
SuperFast, in retail trade. Besides, vessel
a passenger-cargo Matilde’s sale noton have the means
its radar screen. and resources
Manila had no to radar
invest
of the
owned byasbestos
SF Shipping productsCompany to Celeste,
plying the being P500th in the security
equipment. As for speed, agency. Don Claro was
wholesale,
inter-island the transaction
routes, was on its is way nottocovered by ALTERNATIVE
twice as ANSWER:
fast as Manila.
(Asbestos
the RetailIntegrated
Zamboanga Trade
City fromLaw vthe
Peralta
Manila 155portS when it 1) The prosecutor may establish the fact that
213)
accidentally, and without fault or negligence theAt P500th
the time would constitute
of the collision, a Manila
major failed to
Nationalized Activities or Undertakings
of anyone on the ship, hit a huge floating (1995) investment
follow Rule and19 yet
of A
the is not even
International electedRules of
Global
object. The KLaccident
Malaysia, a 100%
caused Malaysian
damage to the owned member
the Road of the whichBOD or one of
requires the officers.
2 vessels meeting
corporation,
vessel and loss desires to build a hotel
of an accompanying beach
crated Furthermore,
head on to itchange may also their becourse
shownby thateachA
resort
cargo in Samal Island,
of passenger PR. In Davaoorder to City, to take
lighten the does not even
vessel steering have tothe means (right)
starboard to raisesothe that
advantage
vessel and save of it
the fromincreased
sinkingtraffic
and inoforder tourists amount of P500th
each vessel mayand pass that onthetheofficers
port side or (left)
SUGGESTED ANSWER:
and boost the tourismtoindustry of the
the rest majority
of the of the directors
other. are foreigners.
to avoid risk of damage or loss of
1. Assuming that Global has US$100M to invest2) No. The mereManilafact ofsignaled
being a common that it would law
Philippines.
of the shipped items (none of which was turn to the port side and steered
wife of a foreigner
in a hotel beach resort in the Philippines, may accordingly, thus resulting in the collision. does not bring her within
located on the deck), some had to be
it be allowed to acquire the land on which to theDon ambit of the Anti-Dummy Law.
Claro’s
jettisoned. SF Shipping had the vessel ALTERNATIVE ANSWER:captain was off-duty and was
build the resort? If so, under what terms and 2) Yes. having Beinga drink at the ship’s
a common law wife, bar itatcan thebe time of
repaired at its port of destination. SF
conditions may Global acquire the land? the passengers
collision. a) who
Who died
would and you the owners
hold liable offor
the
Shipping thereafter filed a complaint presumed that she is the one running the
Discuss fully. the recover
cargoes
collision? damages
b) If Don from the
Claro facie owner
was at fault, of said
demanding all the other cargo owners to business,
SUGGESTED which
ANSWER:raises a prima
2. May Global be allowed to manage the hotel presumption may vessel?
the heirs of the
share in the total repair costs incurred by the of violation of the
I can hold the 2 vessels liable. In the problem Anti-dummy
beach resort? Explain. Law, (RA 6084).
company and in the value of the lost and given, whether on the basis of the factual
3. May Global be allowed to operate restaurants Nationalized Activities or Undertakings (1994)
jettisoned
SUGGESTEDcargoes.
ANSWER: In answer to the settings or under the doctrine of inscrutable
within the hotel beach resort? Explain.
complaint,
1. Global
SUGGESTED thecan
ANSWER: shippers’
securesole contention
a lease on the land. was As a Celeste, a domestic corporation wholly
fault, both vessels can be said to have been
that,The
No. under the Code
corporation
shippers’ with of aCommerce,
contention Malaysian each The
nationality,
is not valid. owned by Filipino citizens, is engaged in
guilty of negligence. The liability of the 2
damaged
owners of party
Global thecannotshould
cargo own beartheits
jettisoned, or
to his
land. save own the trading and operates as general contractor.
carriers for the death or injury of passengers
damage
2. from
vessel andGlobal
Yes, those can
sinking that did
andmanage not suffer
to save the
the hotel any
rest ofbeach It buys and resells the products of Matilde, a
and for the loss of or damage to the goods
losscargoes,
the orresort.
damage are were
There isnot
entitled obligated
no to
law to make
prohibiting
contribution. itThe
from domestic corporation, 90% of whose capital
arising from the collision is solidary. Neither
anyLimited Liability
contribution
managing
jettisoning of saidRule
in
the (2000)
favor
resort.
cargoes ofconstitute
those whogeneral did. Is stock is owned by aliens. All of Matilde’s
carrier may invoke the doctrine of last clear
MV
the3.
average Mariposa,
shippers’
Global may one
contention
loss which be ofvalid?
allowed
entitles five
theto passenger
Explain
operate
owners (2%) ships goods
restaurants are made in the Philippines from
chance which can only be relevant, if at all,
owned
thereofwithin by Marina
the beach from
to contribution Navigation
resort.theThis Co,
owner sank
is part
of theoff the
of the materials found or produced in the
between
SUGGESTED ANSWER:
the two vessels but not on the
coast of
vessel operation Mindoro
and also from of the while
the en
resort. route
owners of the to Iloilo City. Philippines. On the other hand, ECQ
claims
Yes, but is madesubjectby passengers
toFilipino
the doctrine or shippers
of limited
SF Shipping
More
cargoes than
saved.is not
200entitled
passengers perished in the Integrated
to contribution/ (Litonjua
a 100%
Shipping v National
owned
Seamen Board
reimbursement
disaster. Evidence for the costs showed of repairs
that on liability.
thetheship corporation The doctrine is to
and manufacturer of asbestos the effect thatGR the
51910
liability 10Aug1989)
of the shipowners would only be to
vessel
captainfromignored
the shippers. typhoon bulletins issued by products. Celeste and ECQ took part in a
Pag-asa during the 24-hour period publicthe bidding
extent of any remaining
conducted by MWSS value forofitsthe
immediately prior to the vessel’s departure vessel,
asbestos proceeds
pipe of
requirements. insurance, Celeste if any,
won and
the
Nationalized Activities or
from Manila. The bulletins warned all types of bid,earned
having freightage.
offered 13% Givenlower the thanfactual
that settings,
sea crafts to avoid the typhoon’s expected offered the shipowner
by ECQ; and himself
MWSS was not guilty
awarded theof
Undertakings
path near Mindoro. To make matters worse, contract negligence to supply and, therefore,
itsunder
asbestos the doctrine
pipes to from can
1) Is Celeste
well apply barred
(Amparo de los the Flag
Santos vLaw
CA 186
he took more load than was allowed for the Celeste. Limited
taking ECQ
part in sought
Liability to to
Rule; General
biddings nullify
Average
supply thethe award
Loss in s 69)
(2000)
ship’s rated
Nationalized Activitiescapacity.
or UndertakingsSued(1993)for damages by favor of Celeste.
X Shipping
government? Company
2) Did Celeste spent andalmost
Matilde a fortune
1) A
theinvested
victim’s P500th
surviving in a security
relatives, agency
Marina on Nav violatein refitting and repairing
the Anti-Dummy Law? its3) luxury passenger
Did Celeste
October 30, 1990.1)
Co contended Hethat wasits charged
liability, with if any, had andvessel, Matilde the MV Marina,
violate the Retail which Tradeplied the inter-
being
been a dummy of his friend,
extinguished with the a foreigner.
sinking Ifof MV Nationalization
island routesLaw? of theExplain.
company from La Union
youMariposa;
were the
SUGGESTED prosecutor,
and 2) thatwhat
ANSWER: evidence
assuming can not
it had in the north to Davao City in the south. The
youbeen
presentso to prove
extinguished, violation
such
Yes. The contentions of Marina Nav Co are of the
liability Anti-
should be SUGGESTED
MV Marina ANSWER: met an untimely fate during its
Dummy
limited Law?
meritorious. to 2)the Juana
The loss de
of lathe
captain Cruz,
of cargo.
MV a commonAre these
Mariposa is 1) No. The materials
post-repair voyage. offered
It sankinoff thethe bidscoast of
lawguilty
wife of
contentionsofanegligence
foreigner
meritorious wrested in the
in ignoring thecontrol
the context of of
typhoon submitted
Zambales while en route to La Unionfrom
are made in the Philippines from
a television
applicablefirm.
bulletins At the by
provisions
issued instanceof
PAGASA of
the the Codeand inof articles Manila. produced or grown inshowed
The investigation the Philippines,
that the
minority
Commerce?
overloadinggroup of thethe
(3%) firm, she
vessel. But was
onlycharged
the captain andcaptain
the bidder, aloneCeleste,
was negligent. is a domestic There entity.
were no
with violation of the Anti-Dummy
of the vessel MV Mariposa is guilty of Law. May The casualties in that disaster. Faced be
Flag Law does not apply. It can with a
shenegligence.
be convicted by the mere fact that she is invoked
claim onlyfor the against
payment a bidderof the who is not and
refitting a
SUGGESTED ANSWER: The ship owner is not. Therefore,
a common law wife of a foreigner? Explain. domestic
repair, entity,
X Shipping or against
company a domestic entity
the
1) A
Limited
ship orowner
allows permits can theinvoke
use orthe doctrine of
exploitation 2)
who No, since
offers Celeste is
imported merely aasserted
materials. dealer of
limitedLiability
or enjoyment
Rule; Doctrine of Inscrutable Fault
liability.
of a right, privilege or business, exemption
Matilde
SUGGESTEDand notfrom
ANSWER:an liability
alter ego onofthe the basis
latter. of the
(1991) hypothecary or limited liability rule under
the exercise or enjoyment of which is No. The
Celeste buys assertion
and sells ofon X Shipping
its own account Company is
In a collision between M/T Manila, a tanker, Article 587The ofMatilde.
the Code of Commerce. Is X
expressly reserved by the Constitution or the the not valid.
products of total destruction of the vessel
and M/V Don Claro, an inter-island vessel, Shipping Company’s assertion valid? Explain
laws to citizens of the Philippines, by the 3) Matilde
does not did not violate
affect the the Retail
liability of the Trade
ship owner
Don Claro sank and many of its passengers (3%).
foreigner not possessing the requisites Law forsince
repairs it does
on notvessel
the sell itscompleted
products to before its
drowned and died. All its cargoes were lost.
prescribed by the Constitution or the laws of consumers,
loss. but to dealers who resell them.
The collision occurred at nighttime but the Limiteddid Liability Rule;violate
General Average LossTrade
(2000)
the Philippines. The prosecutor should prove Neither Celeste the Retail
sea was calm, the weather fair and visibility
the above elements of the crime Law since, in the first place, it is not
was good. Prior to the collision and while still
prohibited to
4 nautical miles apart, Don
Mercantile LawLaw
Mercantile Bar Bar
Examination Q &Q
Examination A&
(1990-2006)
A (1990-2006) Page 76 77
Page of 103
75 of 103 Civil
backup
requires Code
in the 60%and other laws
processing
Filipino of of in
holding
prevented
does not fall
SUGGESTED Excel
under
ANSWER: from
thebecoming
category.aNeither
holder in general
goods,
land c) application
factories,
corporate andcan
ownership. d) itsstillownapply
due
doesA course,
SURETY
it appear asBONDsuchZfailure
that is habitually
is issued byengaged
or refusal a surety or suppletorily.
employees. Is EL engaged in retail trade?
insurance
constituted
in selling to bad companyfaith. public that designated
the general in favor of a ALTERNATIVE ANSWER:
Explain.
3) beneficiary,
Yes.
commodity. Not being Sincepursuant
athere
holder is innodue to which
course,
violation of the such The
c) The
SUGGESTED dismissal
Anti-dummy
ANSWER: by theLaw court was board
allows correct. A
company
Excel is subject acts to as
the
Retail Trade Law, there would likewise by no a surety
personal to the
defense debtor or The sale
check by
whether
representation EL of or
togenerators
not
the post-dated
extent toof government
or crossed,
actual and
obligor
which Po of
Press such can
violation of the Anti-Dummy Law. beneficiary.
set up against A CASH
Jose BOND
(State is offices,
is still agricultural
permissible a negotiable
foreign enterprises
instrument
investments and
and in factories
unless
a security
Retail Trade Law
Investment House in the
(1993) v IAC form 175of cash established by
S 310) arePablo
outside
corporations. theAccordingly,
is a general scope indorser, of the which
the term is not
President “retail
of
A foreign
a guarantor
Checks; firm Check
Crossed is engagedor
(1995)surety in theto business
secure of the business”
expressed
Acme may andin nomay,
the intherefore,
sit factual the BOD settings,ofbe themade
he cannot by
On Checks:
Oct 12, 1993,
manufacturing
obligation Crossed ofand Checks
Chelsea
another. (2005)
selling Straights,
rubber products a corp to the department store corporation but can do of
be said
held corporation.
liable for the However,
dishonor of sales
the so
What
engaged is
in thea crossed
manufacture
dealers who in turn sell them to others. It also check? of What
cigarettes, are the generators
d) Therealty
instrument.
in the byIn
Treasurer EL
StateoftoAcme
corporation. its may
Investment own House employees
not holdv IACthat(GR
effects
ordered
sells from
directly of crossing
toMoises
agricultural a check?
2,000 bales Explain.
of tobacco.
enterprises, constitute
position
72764 retail in
either
13Jul1989) salesthe court
, the and did
department are not proscribed.
store
go so far
SUGGESTED ANSWER: ALTERNATIVE ANSWER:
Chelsea
automotive issued assemblyto Moises plants, two public
crossed checks
utilities Under totheholdamendment
corporation
as or in
that the the fact toof the
realty crossing Retail
corporation Trade
would since
A Crossed Check under accepted banking In State Investment House v IAC (GR 72764
postdated
which buy 15 them Marin94 large andbulk, 15 Apr and94toinits full Law theintroduced
render Anti-Dummy
the instrumentby Law PD 714, prohibits the the
non-negotiable. term “retail
practice, crossing a check is done by writing 13Jul1989), the SC considered a crossed check
payment
officers and therefor.
employees. On 191) Jan Is 94
there Moises sold
violation business”
employment shall of notaliens include in such a manufacturer
nationalized
two parallel lines diagonally on the left top as subjecting a subsequent holder thereof to
to Dragon
of the Retail Investment
Trade Law? HouseExplain. at a 2) discount
May said (such
areasasof business EL) selling except tothose industrial
that calland for
portion of the checks. The crossing is special the contractual covenants of the payor and
the
firmtwooperatechecks drawn by
a canteen Chelsea
inside in his
the premises of commercial
highly technical users or consumers who use the
qualifications.
where the name of the bank or a business the payee. If such were the case, then the
favor.
its plant Moises
exclusively failed to fordeliver
its officialsthe balesand of products bought by them to render service to
institution is written between the two parallel instrument is (1991)
not one which can still be said
SUGGESTED
tobacco
employees
ANSWER:
as agreed
without despite violating Chelsea’s
the Retail Trade theRetail Trade Law
general public (eg government offices)
1) On
lines,thewhich assumption meansthat that the theforeign
drawee firmshould is to contain
Is theto Filipino an unconditional
common-law promise
wife of a to pay or
demand.
Act? Explain. Consequently, on 1 Mar 94 Chelsea and/or
Retail Trade Law; produce
Consignment or (1991)manufacture goods
doing
paybusinessonly with in thethe Philippines,
intervention the sale ofto that order
foreigner a sum certain in money. In the transfer
issued a “stop payment”Checks order on the 2 which
ABC are barred
Manufacturing in turn fromsold
Inc, a by
engaging by in
company them the retail
wholly (eg
theEffects
dealersof
company. of Crossed
agricultural enterprises, of non-negotiable
SUGGESTED
business? ANSWER: credits assignment, the
checks
1) issuedThe to Moises.
check may Dragon,
not claiming
bepublic to
encashed but only agricultural
owned by foreign enterprisesnationals, and factories).
manufactures
automotive assembly plants, and A Filipino
transferor common-law
does not assume wife of a foreigner
liability for theis
be a holder
in theisANSWER:
deposited bank. in due 2) The course, check filed
may a complaint
benotnegotiated (Goodyear
ALTERNATIVE
typewriters TiresANSWER:v Reyes Srdistributes
Gr 30063, Jly to 2,the 83
utilities
SUGGESTED wholesale and, therefore, in not of thewhich
faultbarred from
debtor ABC
engaging
or obligor. in retail
Accordinglybusiness. the
for collection
only once—to
Dragon cannot against one Trade Chelsea for the value of 1 Yes.
123s273). The
ABC check
consigns is crossed.
its It
typewriters should have
to and in
violation of the collect Retail from Chelsea.
Act (BF GoodrichThe v general
On the
court’s public
assumption
decision in 2 ways:
was that she acts for
correct.
the checks.
who
instruments has Rule
anareaccount on thewith
crossed complaint
checks a bank. whichof Dragon.
3)wereThe act forewarned
independent Mr. Noble
dealers who that
in turnit was sellissued
themofto for a
Reyes 121 s 363) her own behalf, and absent a violation the
Giveof your
crossing
2) Yes. The
intended legal the
to operation basis.
pay for the check serves
of2,000
the canteen as a warning
bales ofinside to specific
theAnti-Dummy purpose. Hence,
public; and, Law which prohibits a foreigner Mr Noble could not
tobacco the
the premises toholder
beexclusively that the
delivered check
tofor hasIt been
its officers
Moises. was and issued for2a be a holder inindividuals,
fromThrough
due course. He are
being either the realwho
is subject
proprietor notor an to
employees, definite would purpose,amount
therefore the obligation of Dragon to inquire so tothat
an he
input must
in the inquire if hethe
employees personal ofof ABC,defense
and who of breach
are paid of trust/
strictly
employee a person engaged in the retail
received
has
manufacturing theofcheck
process theand, pursuant
therefore,ofto that 2 purpose;Do
does agreement
athese
on ALTERNATIVE
commission by basis
arrangements
ANSWER: Mr. Pablo. Suchsale.
violate thedefense
RetailisTrade
as to the purpose issuance the trade, she would be for each
violating the Retail
not violate
crossed otherwise,the Retail
checks he Trade
before iscausing
notAct. a them
holder to be in due Law?An engagement
available in favorby ofaMr wife (including
Carlos against Mr
Trade Act.
Checks;ANSWER:
Crossed relationships)
Check (1994)
Retail course.
Trade Law (1996)
discounted. Failure on its part to make such common-law
Noble.
SUGGESTED of a foreigner in
WithChecks:
a
Retail Crossed
capital
Trade Lawof Checks
P2th
(1990) vs. Cancelled
Maria operates Checksa (2004)
stall a) PoThe
the Press
firstissued
retail trade in favor ofwould
arrangement
business, Jose athe
raises postdated
not be in
inquiry, which resulted in its bad faith, crossed
at aDistinguish
Acme
public Trading
market. clearly
Co SheInc, (1) a crossedcompany
trading
manufactures checks
soap from violation
presumption ofcheck,
thethat in payment
Retail she Trade
has ofLaw.
violatednewsprint The
the law
Anti-
Dragon cannot claim to be a holder in due which Jose promised
thatcancelled
wholly
she owned
sells checks;
to by
the foreign
general stockholders,
public. Her was applies
Dummy only Law.when Hence,the to sale
the deliver.
wifeis direct
is Jose
barred sold
to the
fromand
course. Moreover, the checks were sold, not negotiated the check to Excel Inc. at a
SUGGESTED
persuaded
common law ANSWER:
by Paulo
husband, Alva, which
MaLee, a Filipino,
whodid hasnottoa invest general
engaging public. in the A dealer
retail trade buysbusiness.
and sells for
endorsed,
A crossed by check
him toisDragonone with two parallel lines
in
pending 20% of
petition the outstanding
for naturalization, shares of stock of a anddiscount.
Retail
in hisTrade own Excel
Lawbehalf did and,
(1992) not ask Jose thethe
therefore, purpose
sale
become
drawn a diagonally
holder in due across course. its Not being
face or acrossa a of
A crossing
Cooperative the check.
purchased Since from Jose Y failed
Co on to
corporation
occasionally he
finances is forming
the which
purchase will
of engage
goods in to the general public is made by the dealer
holder
corner in due course, On
thereof. Dragon the is subject
other to the a
hand, deliver
installments the newsprint,
a rice mill Po
and ordered
made the
a drawee
down
for the
resale,department
and assists store business
in part
the management (the of and not by the manufacturer (Marsman & Co v
personal
cancelled
SUGGESTED defense
ANSWER: check on isthe one of Chelsea
marked or stamped ALTERNATIVE ANSWER:
bank
payment to stop payment
therefore. As on the
security check.
for theEfforts
the“department
business. store corporation”).
Is breach
there a violation ofthePaulo
the Retail also First Coconut Control Co GR39841 20June1988)
concerning is the a) The first arrangement violates the Retail
No, there
"paid"
Checks;
urged
Trade Crossed
Law? Acme noCheck
and/or violation
Explain.to (1996)ofof
"cancelled"
invest in
trust
the
40%
on
byRetail
or
of on
the
part
Trade
behalf ofof a of Excel toofcollect
payment the balance,from Pothe failed. Excel wants
Cooperative
Moises
Law. Maria
drawee Lim in
is
bank anot complying
manufacturer
to indicate with
who
payment his
sells to
thereof. the Trade Law because when ABC “consigned”
What are
outstanding the effects
shares of crossing
of2000stockbales a
of theofrealty to know
executed from
a you
chattel as counsel:
mortgage 1)
in What
favor are
of Y the
obligation
Checks;
general to deliver
Crossed
public, Checkthe
through (1991)
her stall in the public the typewriters, the transaction was one of
SUGGESTED
check?
corporationANSWER:
he is putting up to own the land effects
Corporation. of crossing
Y Co ina check?
turn 2)
assigned Whether its as
rights
tobacco.
The Mr
market, Pablo
effectsthe of sought
soapcrossingwhich to aborrow
check
she P200th
are
manufactures. as from Mr consignment
crossed sale.is In
check, it aconsignment
holder in due sale,
course? an
on which the department store will be built second
to indorser
the chattel and
mortgage holder to Zof Co the a 5% foreign
1 Carlos.
follows:
Inasmuch Theas
corporation? Carlos
checkher agreed
may not
capital
Explain tobeloan
does
your not
answer. the b)
encashed
exceed amount
but
May in
only agency
3) relationship
Whether Po’s is
defense createdof lackso ofit is as if
(the “realty corporation”). a) May Acme invest owned company doing business in the
the
deposited
P5th (it form in aofbank; a thepostdated check which was ABC sells
against
consideration directlyJoseas to
is the
also public
available through
as against its
Acme
in theisinvestonly
said P2th)
in
department then
realty she
store is considered
corporation? Philippines.
SUGGESTED ANSWER: The cooperative thereafter made
2 crossed
under The4a
Sec
Discuss. (i.e.
check
c) of May 2theparallel
may
the Retailbe lines
negotiated
Trade
President diagonally
Law
of only
as not
Acme, once to agents.
drawn
a b) Because
The Excel?
installment thepayments
second Cooperative
arrangement to Zwas Co.unable wouldto meet be
SUGGESTED ANSWER:
oneon
engagedwho the
BOD
foreigner, intop
has of
the an
sitleft
the portion
said
account
“retail
in the with
business.”of the
department a bank; check).
Inasmuch Before
store corporation? its obligations
violative of the in full, Trade
Retail Z Co filed Law, against
since it
thea
1) The effects of crossing a check
3 the
as he be
Maria’s due
May
The dateofof
a business
director
act the
of
is the
crossing not check,
realty
aa“retail
checkPablo discounted
corporation?
business,”
serves as a salecourt
is
are:1
suit for
done collection.
through The Coop
individuals
The check is for deposit only in the beingresisted
paid
thenit withto
Discuss.
the Noble
d) May
requirement Onthe due
in date,
Treasurer
Sec ofNoble
1that ofthe
the Acme,deposited
Retail contending
strictly on a that Z Co was illegally engaged in
commission
warning
the check
occupy
the holder
with
the same his
thereof
bank.
position The
in the
check
check
said
has
was
department account of the payee basis. The said
another
Trade
been issuedLaw that foreigner,
for onlya definitePhilippine purpose nationals
so that shall
the the
individualsretail trade
would business
then may be for actinghaving merelysold aas
store
dishonored. corporation?
Noble May
sued he
Pablo.be theThe treasurer
court of 2 The check be indorsed only
engage,
holder directly,
mustANSWER: or indirectly,
inquire if he has received the check in the retail consumer
agentsonce of the good as
manufacturer. opposed to
Sales, a producer
therefore,
SUGGESTED
said in favor of a person who has an
business
pursuant
The
the
dismissed torealty
is
court’s
Noble’s
inapplicable.
that corporation?
purpose,
decision
complaint.
wasFor this
otherwiseExplain.
Was
reason,
incorrect. hethe court’s
isthe
Pablo notand a madeitem.by
ALTERNATIVE The
ANSWER:
account suchCoopagents also allegeddeemed
with a bankare
that Z had direct
SUGGESTED
decision
participation
ANSWER:
correct?
of Ma Lee, Maria’s common Law b)
salesThe
violated
by 2nd
the thearrangement
Anti-Dummy
manufacturer. is not
Law. violative
Is Z guilty of of
holder
Carlos, in due beingcourse (See
immediate
a) Acme may not invest in the department Bataan Cigar
parties and to the 3 Trade TheLaw check is issued for a specific
husband,
Cigarette in
Factory,the management
Inc. v CA GR of
93048, the business
Mar 3, 1994; theviolating
Retail the Retail because
Trade Lawtypewriters
and the are
Anti-
instrument,
store
Retail Tradecorporation
Law (1996) are governed
since the Retail by the Trade rules Actof purpose
notSUGGESTED
consumption ANSWER: and the goods personorwhogoods takes itfor not
would
230privity.not be
s 643) Givena violationthe of the circumstances
factual Retail Trade of Dummy Law? Why?
EL allows,
Inc, a domesticin the case corporation
of corporations, with foreign Z Co in is not
accordance
only 100% personal, household and family use. guilty ofwith violating
said the
purpose Retail does Tradenot
Law thein problem,
relation toPablo the Anti-Dummy
has no valid Law.
excuse from Law and
become the aAnti-Dummy
holder in due Law.course The term
and is not
equity, manufactures electric
Filipino owned companies to engage in retail generators,
denying
andtrade.
sells them liability,
to the(State following investmentcustomers:House a) v IAC Negotiable Instruments Law
RETAIL
2) No.
entitledunder
It seller
to the
payment
is a crossed
Retail thereunder.
check
Trade Act requires
and Excel did not
b)
GRAcme
government 72764may invest
13July1989).
offices which inPablo
the
userealty undoubtedly
the generatorshad that the must be habitually engaged in
benefited
corporation,
during brownouts inon to the
the transaction.
assumption
render that To
public service, the b) hold take
Bond: Cash it in
Bond accordance
vs. Surety Bond
selling to the general public consumption with the
(2004) purpose for
otherwise
balance
agricultural of would
60% of also
enterprises ownership
whichcontravene of the
utilize thethe
latter basic which the
Distinguish
goods. check
Byclearly
consumption was
cashissued. goodsFailure
bond from
are meant on its
surety
rules ofas unjust
corporation,
generators is Filipinoenrichment.owned since the Even law in part
bond. to inquire as to said
“personal, family and household” purposes. A purpose,
negotiable instruments, the
merely Rice Mill
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page 80 of 103 alterationPage of Page
the78 79 of 103
of 103
instrument.
payment therefor through
(Traders the
Royal Clearing
Bank v. House,
RPN, G.R.XM Thedrawee-bank
serial numberbears is not the material loss to(BPI the Family Bank v.
BankNo. honored
138510,it.October Thereafter,10, 2002). Albert withdrew On April No.
negotiability 1, 1996,
Buenaventura,
G.R. of the
148196, Pentium
instrument. stopped 30,
September payment 2005). A
• P210,000
the Drawee-bank and closed canhis recover
account. from the of the check for failure
drawee-bank payingofonCD a Bytes
forgedtocheck deliver must
collecting bank (Great Eastern Life Ins. Co. b. Yes.
the As a general
computer.
be considered Thus, as rule,
when
paying theFund drawee
out of itsisfunds
House not and
When the check
v. Hongkong was returned
& Shanghai Bank, G.R. to him
No. after a liable under
(Samsung
deposited
cannot the the
charge check
Construction
check, the the because
amount Co. to
drawee there
Phils,
bank
the v.is no
drawer Far East
month,
18657,becauseWilliam
August even
23,1922)if the indorsement
discovered the alteration. on XM privity
Bank,
dishonored ofG.R.
contract between
it.No. 129015, 13, 2004). If the
XYZ Marketing,
August
Bankthe check deposited
recredited P210,000bytothe bank's
William’s If
asFund House
drawee-bank
payee, and files
ABC has aBank
complaint
charged against
as thedrawer'sdrawee account, bank.
current client is forged,
account, andcollecting bank is
sought reimbursement Pentium
the latter
However, and
if the CDaction
can Bytes
recover forsuch
taken theby payment
amount
the bank ofisthethe
from
bound by its
from ND Bank. ND Bank refused, warranties as anclaiming
indorser an G.R.
dishonored No.of107382,
drawee-bank
abuse check,
right which January
will the
(Associated 31, Bank
1996;
complaint
caused damage Bank
prosper?
v. of P. I.
not
Court of
and cannot set up
that XM Bank failed to return the altered defense of forgery v.
Explain.
only Case
to the
Appeals, Montessori
issuerANSWER:
SUGGESTED Internationale,
of the: checkThe complaintbut also to G.R.
filed theNo.
check asto against
it within drawee
24 hour bank (Associated
clearing period. by 149454,
Fundthe
payee, HouseMay
payee 28, 2004).
against
has a Pentium
cause ofwill actionnot
However,
Checks; Presentment the (1994)
drawer may be precluded or
Who, as between, XM Bank and No.
Bank v. Court of Appeals, G.R. ND 107382,
Bank, prosper
under quasi-delict. against CD Bytes will.
but the one
Checks; Liability; estopped drewisfrom setting up the 13, defense of
bearDrawee Bank (1995)
SUGGESTED
January ANSWER:31, Gemma anotcheck on September
should the1996).
loss? Explain. Fund House a holder in due course and,
ND Guzman
Mario Bank should issuedbear the loss
to Honesto if XM
Santos a Bank forgery
1990. The Pentium as against
holder presented the drawee-bank, to when it
therefore, can raisethe thecheckdefense the
of
returned
check for P50th the altered
as payment check fortoaND 2ndBankhandwithin is shown
draweeofbank that the
only on March drawer himself
5, 1994. had been
failure consideration against it. TheThe check
car.twenty
Without fourthehoursknowledge after of its Mario,
discovery of the bank guilty
dishonoredof gross the check negligence on the same as to have
in question was issued by Pentium to pay for
alteration.
Honesto changed Under the given
the amount facts, William
to P150th date.facilitated
After dishonor the by the forgery
drawee (Metropolitan
a computer (NOTAthat itBENE: ordered The from CD bank,
question Bytes. does
the
not
discovered
which alteration thecould alteration when thebyaltered
not be detected the Waterworks
holder
The computergave a v. Courtnotice
formal
not the having
of Appeals,
been of G.R. No.
dishonor
delivered, to L62943,
check was returned to him the after a month. It 143 SCRA qualify
20, July 14, term
1986 ). "forged check". An
naked eye. Honesto deposited altered Gemma
there was through
a failure
answer aaddressing
letter datedthe
of consideration. April 27,
The
liabilities of a
maywithsafely
check Shure Bank be assumedwhich forwarded that the William 1994. 1)
check discountedWhat is meant by “unreasonable
drawer with should Fund be House deemed by CD sufficient.
immediately advised
same to Progressive Bank for payment. XM Bank of such fact time” as
Bytes is a applied
crossedtocheck
Answers presentment?
addressing and this 2) Is of have
should
liabilities parties
and that the latter promptly notified ND Bank SUGGESTED ANSWER:
Progressive Bank without noticing the Gemma
put Drawee
Fund liable
House Bank
should to the versus
holder?
on inquiry. It should
likewise be Collecting
given full have
credit) Bank —
thereafter. 1) As applied to presentment for payment,
alteration paid Central
the check, Bank Circular
debiting P150th No. 9, as When the signature
ascertained of the drawer ischeck
forged,
amended, on which the decisions of the “reasonable the time: title of CD
is meant Bytes
not more to the than 6
from the account of Mario. Honesto withdrew or as between
the nature of the
the drawee-bank
latter’s possession. and collecting
Supreme Court in Hongkong & Shanghai months from the date of issue. Beyond said
the amount of P15th from Shure Bank and bank, this
Failing the respect,
drawee-bank sustains the loss,
Banking Corp v People’s period, in it is “unreasonable Fundtime” House and is deemed
the
disappeared. After receivingBank his bank& Trust Co and since
guilty of the
gross collecting
negligence bank does not to
amounting guarantee
legal
RepublicMario Bankdiscovered
vs CA the were based was check becomes stale.
statement,
SUGGESTED ANSWER:
alteration the Aside
absence
2) No. signature
of good formof faith
the the drawer.
and,
check thus,
being The
not payment
a holder of
already
andexpressly
demanded cancelled
restitution and from superseded
Progressive by CB in theGemma
due check by
course. Fund theHouse drawee can bank collect constitutes
from
The demand of Mario for restitution of the stale, is also discharged formof
No Discuss
Bank. 317 dated fullyDec the 23 1970.
rights and The thelatter was in (Philippine
the proximate National Bank v. Court
negligence since it Appeals,
has
amount of P150,000 to his account is tenable. CD Bytes
liability
Checks; as Acceptance
under
Effect; thethe latter
check, was
by the
being
the drawee immediate
a drawer
bank (1998) and the
turn amended
liabilities of the by CBconcerned.
parties Circular No 580, dated G.R.
duty
indorser
No.to L-26001,
know October
the 29, 1968).
signature of itsandclient-
Progressive Bank has no right to deduct said X draws aof
a person the check.
check
whose against
liability (See
ishis Bataan
current
secondary, Cigar
account
this is
Sept 19, 1977. As to altered checks, the new drawer.
amount from Mario’s account since the order Cigarette
with
due to the the Factory
givingvbranch
Ortigas CAthe
of et alnotice
of230 s of
Bonifacio643dishonor
GR Bank93048 in
rules provide that the drawee bank can still
of Mario is different. Moreover, Progressive Mar
favor
beyond 3, of
(b) 94) B. Although
the
Forged periodPayee's X does
allowed bynotlaw.
Signature: have The When giving
return them even after 4:00 pm of the next
Bank is liable for the negligence of its sufficient
of notice
drawee-bank funds,
of dishonor the bank
pays on
theAprilhonors
forged the check
27, check,
1994 isit must
day provided it does so within 24 hours from
employees in not noticing the alteration when
more it is presented
be than
consideredone (1)as monthfor payment.
paying fromout March
of its funds5, and
discovery of the alteration but in no event
which, though it cannot be detected by the Apparently,
1994 whencharge
cannot X has
the check conspired
the with
was dishonored.
amount so paidthe bank’s
toSincethe
beyond the
ALTERNATIVE ANSWER:period fixed or provided by law
naked eye, could be detected by a bookkeeper
it isaccount
not shown ofsothethat his ledger
Gemma
depositor. Incard
and thewould
such holderthe
case,
As XM
for BankProgressive
filing
between ofshould
a legal bear action
Bank theand byloss.
theWhen
Shure the
returning
magnifying instrument used by tellers. show
resided
bank thatin he still
the
becomes same has
liable sufficient
place,since theits funds.
period
primary within duty is
bank
drawee
Bank, it isagainst
bank
the (XM
formerthe that
Bank)
bankshould failed
sending to the
bear return
the same.the The bank files an action for recovery ofbethe
whichto to
verify give the notice
authenticityof dishonor of themustpayee's the
altered
Assuming
loss. Progressive checkthatBank to the
the failed collecting
relationship
to notify bank (ND
between
Shure the ALTERNATIVE
amount ANSWER:
paid to the
B because the check
same
2) Gemma time
signature that
(Traders
can no notice
Royal
stillsufficient would
Bank
be liablefunds. v. reach
Radio
under Decide the
Bank)
Bank that within
drawee bankwas
there the
and 24thehour
something clearing
collecting
wrong bank
withperiod is (c) if Forged
presented has
GemmaPhilippines
original sent
contract byfor
Network, mail.the (NIL
G.R. No.Sec 103 &
138510,
consideration of104; be
October
theprovided
evidenced
check within inby Sec some
the 4c ofwritten
clearing CBhour Circular
document,
rule of 9, 24
dated
the SUGGESTED
the
Far case
10,
East • ANSWER:
Indorsement:
2002;(5%)
Realty Drawer's
Westmont
Investment account
Bank v.Inc Ong, v G.R.
CA cannot
166 No.S
Feb
Checks;
hours. 17, 1949,
prescriptive
Material the Liability
period
Alterations; latter
would is be
(1999) absolved from
10 years. which
The bankthe
charged,
132560, check
cannot
January was
and 30,ifissued.
recover the amount
charged,
2002). he can paid to
recover
256)
Checks;
B for the Presentment
check. (2003)
When the bank honored the
A check
liability.
(Campos, for (See
P50,000.00
NIL HSBC5th edv was PB&Tdrawn
454-455) Co GRagainst
L-28226 Sep from the drawee-bank
(Associated Bank v. Court of Appeals,
drawee
30 1970; bank 35and s 140;madealsopayable
Rep Bank tovXYZ
CA GR 42725 A bank itissues
check, G.R. its
became No.ownan
107382 check.
acceptor.
January May the holder
As31,1996).
acceptor,
Checks; Forged Check; Effects (2006) holdbankthe
Marketing
Apr 22, 1991 or order.196 sThe 100)check was deposited the • bankbecame liable
Drawer thereunder
primarilyhas no and causeif he fails
directly of to action
Discuss the legal consequences when a bank –• prove presentment for payment,
with payee’s account at ABC Bank which liable to the payee/holder
against collecting bank, B. since theor duty of
honors a forged check. (5%) The recourse ofthe
the bank should
then sent the check for clearing to drawee
SUGGESTED ANSWER: • collecting
present bank bill is the
to onlydrawee tobethe against
forpayee. A
bank. X and its bookkeeper
collecting bankyour who
is not conspired
guilty of to make
negligence
TheDrawee bank refused when
legal consequences to honor a bankthe honors acceptance? Explain answers. (4%)
check on ground that the serial number X’s ledger show that he has
over a forged indorsement on checks for sufficient funds.
a forged check are as follows: ALTERNATIVE ANSWER:
1
thereof
(a) WhenIshadit proper
been for theSignature
altered.
Drawer's drawee
XYZ marketing bank is toForged: it has no way of ascertaining the
dishonor the check for the reason that it had been The bank can recover from B. This is solutio
sued drawee bank.
Drawee-bank by accepting the check cannot authority of the endorsement and when it
altered? indebiti because there is payment by the
set upExplain the defense(2%) of forgery, because by caused the checks to pass through the
bank to B (Manila when such payment is not due.
2 In instant suit, drawee bank contended clearing house Lighter beforeTransportation,
allowing withdrawal Inc. v. Court of
accepting the instrument, the drawee bank The checkAppeals, issued
G.R. No. by 50373,X to February
B as payee 15, had
1990). no On the
that XYZ Marketing
admits the as payee could
genuineness not sue theof
of signature of the proceeds thereof
Checks; Crossed Check (1996) sufficient funds. other hand, a collecting bank which
drawee bank as there was no privity between
Ondrawer
March 1, 1996,
(BPI Family Pentium
Bank vs. CompanyBuenaventuraordered G.R. Checks; Effects; Alterations;
endorses a Prescriptive
check bearing Period (1996) a forged
then. Drawee theorized that there was no basis to
a computer
No. 148196, fromSeptember
CD Bytes,30, and2005; issued a
Section 23, William issued to Albert
endorsement and presents a check for P10,000 it to the
Unless
make it a forgery
liable for the is attributable
check. Is this to the fault
contention
crossed
Negotiable
SUGGESTED check
ANSWER:
or negligence in the
Instruments
of amount
Law). of P30,000 post-
the drawer himself, the drawn on XM drawee Bank. Albert bank altered guarantees the all prior
correct? Explain. (3%)
dated
a. No. Mar
The 31,
serial 1996.
number Uponisreceipt of the
not a material amount ofendorsements
the check to P210,000 and
including the forged
remedy of the drawee-bank is against the
check,
particular
party CD Bytes
of
responsible discounted
the check. for Its the check
thealteration
forgery. with
does
Otherwise, deposited endorsement
the check to his account
itself and with should NDbe held
Fund
not House. material
constitute Bank. When liableND Bank presented the check
for
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page 82 83
84
Page of 103 of 103 delivered
b) Paragraph
Negotiable it to
Instrument:
Page 81Definition
Marie.
2 – of 103 &
negotiability
She
2. P2,500.00
a) liability
Celso
MP bought in the
has a event
I the
promise
usedrightcell that
totopay it should
collect
phone Pedro from
from payJR.
San YuJR or
Juan
Alex accepted
is “NOT
e) Maythe
Characteristics AFFECTED”
Pablo check
(2005) What in good
recover is afrom faitheither
negotiable as payment Mario or
through
andorder
preferred Benito.the oversight
cash Celso
sum or
ofisP2,500.
but a inadvertence.
MP party friendDespite
is asubsequent so to JR for goods
instrument?
Jose? Theshe interest
Givedelivered is to
the be computed
to Ruth.
characteristics Eventually,
ofataa particular
thethe
accepted two. stop order
However,
MR’s by
promissory Lim,has
Celso BPInote nevertheless
no right to claim
for P10,000. paid Ruth and is
SUGGESTED
time
regretted
negotiable determinable.
ANSWER: what she
instrument. (2%)didItand does not make the sum
apologized
Yu
against
JR upon
thought Felix presentation
of who converting is a party ofthethe note check.
subsequent into Limcash sued
to a) Camilo
uncertain
to Jun. Immediately ormay the not promise enforce
he directed saiddrawee
conditional.
the promissory
c)
Celso
by (Sgd.)
BPI Noel
for paying
(Sec
endorsing 60 and Castro
itagainst
66to NIL) hishisbrother
order. Decide KR. The the note
Paragraph
SUGGESTED against
ANSWER: 3 – Mario
bank to dishonor the check. When Marie negotiabilityand Jose. is The
“AFFECTED.”promissory
SUGGESTED
Incomplete
case. & Delivered
promissory ANSWER: (2004)
note is a piece of paper with the Negotiable
noteGiving
encashed atthe Instrument
the the time
check, maker it is
of was a written
forgery
the option being
dishonored. contract
payable
renders the to promise
AX,In2)athe
following Manila, event
businessman, June
hand-printedthat 3,Mr.1993 Lim,
was in fact,“MP
preparing
notation: hadfor WILL a for the
order,
1. conditional
Is Jun payment
the
liable d)to of
signature money
Marie?
Paragraph which
of (5%)
Pablo is intended
was
4 – negotiability essentialisfor
sufficient
business
PAY JR TEN triplegalabroad.
THOUSAND reasons As he tousually
PESOS issue INthe did stop
PAYMENTin the as a
the
“NOTsubstitute
SUGGESTED instrument
AFFECTED.”
ANSWER: for money to pass and passes
title from
to subsequent
payment
P10,000.00
past,HIS he CELLPHONE order,For
signed several he
value may sue
received,
checks BPI Ifor paying
promise
in blank and to Yes.
one This
person
parties.Giving Ato covers
another
forged
the option the
as
signature
to thedelivery
money, in
was
holder such of a not
inoperative
does an make
FOR 1 WEEK FROM TODAY.”
against
pay
entrusted Sergio his order.
Dee or The
order waiver
the executed
sum of by Mr incomplete
manner
(Sec promise
the as
23 to instrument,
NIL). conditional.
give a holder
Accordingly, under in due
theSection
course
parties 14the of
before
Below this them notation to MP’s his secretarysignature with with
Lim
P10,000.00
instruction did not
to to mean
in five
safeguard that
(5) it need
installments,
themthe and not exercise
with
fill ofthem the the
right
the Negotiable
to hold
forgery the are Instruments
instrument not free
juridically Law,
from which
related to
“8/1/00” next it, indicating date the
out due
first onlydiligence
installment
when to protect
payable
required the
on
to interest
October
pay of
5,
accounts its
1993 provides
Negotiability;
defenses
parties that
available
after therethe
Holder in
towasDue
prior prima
Course
forgeryparties. facie
(1992)
to authority
Suchallow such
promissory note. When JR presented MP’s
account
and holder. It is nothis amiss to state that on b) theCamilo
Perla
instrument
enforcement. part
brought must may
of aRuth
complynot togo
motor car
with against
fill-upSec.any
payable 1 of Pablo,
on of
thethe the
during
note tothe
hisKR, other
absence.theinstallments OB,
latter said onit or
secretary, wasbefore not the
filled a latter not having indorsed the instrument.
out the
fifthone drawee,
day of
thethe
of instrument unlesssucceeding
checks thebyinstrument month
placing her orhasname earlier material
installments
Negotiable particulars
Instrumentfrom thereof. Law toHaving
Automotive be Company done so,
considered for
negotiable under the law and so The characteristics of a a down
negotiable instrument
as been
thereafter.
the accepted
payee. She by it,
filledis not out boundthe to honor
amount, andP250th.
when She
negotiable. it ismade first completed payment before of it
P50this
could not be a valid substitute for cash. JR are;c) Camilo may enforce the instrument
(Sgd.)
payment
endorsed Lito Villa
todelivered
the holder of check
the check that negotiated to a
and executed a promissory note for theholder in due course like
took the and
ALTERNATIVE opposite
ANSWER: view, the insisting to KC, on whothe against Julian
b) TH
thereby
accepted is anitexcludes
indorsee
in good of
it a promissory
from
faith any
for liability
payment note if that
it of 1) Negotiability
Marie,
balance. it is The valid for because
-company
That quality
all purposes, orof
subsequently his Marie
attribute
and special
whereby a
note’s
1991 negotiability.
6b)ANSWER:
BPI“PAY would You not arebeaskedliable to
toreferee.
Mr Lim. indorsement topasses
Camilo, thereby making
gems
SUGGESTED
simply
were states:
thatto comply
KCopposing
sold with
to TOOB. JUAN
its stop
Later, TAN payment
OB ORtold ORDER
AX orderof bill,
may note
enforce
indorsed or check
the it within
note a
to or
reasonable
Reliable may pass
Financetime, from as ifhim to
hand
WhichMr
The
SUGGESTED of
Lim the
and
promissory
ANSWER: BPI are
note views
governed
is is correct?
negotiable by theiras own
it 2. Supposing
secondarily the
liable,check both was stolen
being while
parties in
after
400
what (Sec PESOS.”
she 61did NIL) The note
with regrets. hasAX notimelydate, directed
no place hand,
it had similar
Corporationbeen filled towhich
money, upfinanced so as to
strictly ingive
the the holder in
accordance
purchase.
Yes.
of agreement.
AX
complies
payment could with
and The
be Sec
no waiver
held 1, liable
NIL.
consideration executed
to KC. by
This
mentioned. MrisLim, a Ruth's
the possession
forgery. and aholdthief filled the blank
the bank due
withThecourse
the the
authority
promissory right to
given.
note read: the“For instrument
value and
case
It neither
• of signed
was anto beingdishonor
incomplete
Firstly, by one
it MKis of
the
incheck,
check.
future
writing
and fraud
which
written
Could
and signed or
has
under
AX
gross
been be
his d) the
check,
by the collectreceived,
Julian,
endorsed sum I
inandturn,
payable
promised delivered
for
to pay
may
himself it enforce
tofree
Automotive Marie from the
in
held
delivered. liable Under
negligence, to KC? would Answer
Section be 14and
valid. of reason
The
the problem briefly.
Negotiable instrument
payment for against
the goods Bert he who, by
purchased his forgery,
from
maker,
letterhead Noel Castro.
specifying the address, which defenses.
Company 2) Accumulation
or order at its of officeSecondary
in Legaspi Contracts as
(5%) does not indicate the promise
existence
Instruments
happens
• to Law,
Secondly,
be KC,
the
his residence. as a TH is of
holder fraud
in due
unconditional
accepted or
the her,
to theyhas
City,is rendered
are Jun liable
transferred
the sum
himself
of tofrom Marie
P200,000.00
primarily
oneifperson the liable.
with check
to another.
interest is at
gross
course,
pay
promissory a negligence
can
sum enforce
certain
note as on
payment
in the
money,
payment part of
ofthatthe
forBPI so
check
is, asas
P2,500.00
services to e) Pablo preserves
dishonored? (5%) his right to recover from
twelve (12%) percent per annum, payable in
if itDefenses;
warrant
rendered
•CX had been to
Forgery
liability
SH,filled
Thirdly, who
(2004)
it
on
is inits
up turn
payable
part.
strictly in demand
received
on accordance
the note
as no date
either
SUGGESTED
Manila
equal
Mario
ANSWER:
September
installments
or Jose 21,
of
who
1991.
P20,000.00
remain
monthly
parties
for
with maintained
the a checking account with No. Even though Marie
juridically related to him. Mario is still is a holder in due
from of Juan authority
maturity Tan given by
isasspecified.
payment forAX a his to OB and
prepaid cell ten
course, (10)
this months
is an starting
incomplete October
and 21, 1991.
withinUBANK, a Makati
reasonable Branch.
time. One of checks in considered
(sgd) Perla primarily liable toundelivered
Pablo. Pablo
phone •Fourth,
a stub
Incomplete card it fifty
of
and
isworth
payable
Delivered was(2005) 450 to pesos.
missing. Later, The he payee instrument, covered by Section 15 of the
order.
acknowledged having received the note on may, in case of dishonor, go after Jose who,
Brad discovered
was in desperate that Ms. DY need forged
of money his signature
to pay Negotiable
by
Pay his
to Note:
the Instruments
specialorder It indorsement,
is
of possible
Reliable Law. thatis
Finance Wherean answer
secondarily an
August The promissory
1, 2000. A to note is negotiable.
Bar reviewee had from All the
told TH,
hisand debtsucceeded to Pete, encash a loan P15,000 shark. Pete incomplete
liable. might
Corporation. instrument
Automotivehas
distinguish between
Company notblank been and
who requirements
happens to of Sec
be your 1 friend,
NIL arethat compliedTH with.
another branch
threatened to takeofBrad’s the bank. life if DYhe was ablenot
failed
is to
to delivered, special it willindorsements not, if completed of prior parties and
The sum
a holder in due to be paid is
course still certain
under Article despite
52 of the
pay. encash
Brad the andcheck Petewhen wentET, toa see friend, Señorita negotiatedBy: which without can
(Sgd) authority,
thereby
Managermaterially be a valid alter
that
Negotiable the sum
Instrumentsis to be paid
Law by(Act installments
2031) and
Isobel,guaranteed
Brad’s due rich execution,
cousin, and saying
asked thathershe if contract in the the above hands of any answers.
suggested holder, as The
(Sec 2b NIL)
therefore does innot enjoy the rights and
shewas coulda
Negotiabilityholder
sign a due
promissory course.
(2002)the statute. TH asks for our note Can in CX his recover
favor against
Because any
problem
Perla person, did
defaulted including
not clearly
in the Jun,
indicate
payment whose of the
protection
SUGGESTED
the money under
ANSWER:
from the bank? Reason briefly. Forgery;
signature Liabilities;
kind was of Prior
placed & Subsequent
indorsements thereon
made.Parties (1995)
before
in Yes,Which amount
CX ofcantherecoverof
followingP10,000.00 stipulations to pay or Pete.
features her installments, Reliable Finance Corporation
advice (5%)
SUGGESTED specifically
ANSWER: in from the bank.
connection withUnder the Alex
delivery. issued
Such a against
defense negotiable
is aher realfor PN
defense (promissory
even
Fearingof
Sectiona that
promissory
23 Pete
of the would
note (PN)
Negotiable killaffect
Brad, or
Instruments Señorita
do not initiated a case a sum of
note
a) KR being
is right.undated The and
promissory not mentioning
note is not a Indorser:
note)
against Irregular
a payable
holder Indorser
into due vs. course,
Benito Generalor Indorser
order
available in(2005)
payment
to note
a
Isobel affect
Law, acceded
its toa the
negotiability, request.
assuming She that affixed
the PN money. Perla argued that the promissory
place
negotiable. offorgery
payment
It is is
not real
anddefense.
issued any
to order The
consideration.
or forged
bearer. Distinguish
of
party certain
like Jun an goods.
whose irregularBenito
signature indorser
indorsed
appeared from
the a to
PN
prior
hercheck
issignature
otherwise on a
negotiable? piece of paper withto the is merely an assignment of credit, a non-
What
There is is
would noofwholly
your
word inoperative
advice
of be?Indicate
negotiability in relation
(2%). your
containing answer
CX. general
to Celsoindorser.
delivery. in payment (3%)of an existing obligation.
assurance
by writing
CX cannot Brad
the
be that
paragraph
held liable he will
number
thereon just fill
of the
by anyone,it up negotiable
SUGGESTED ANSWER:instrument open to all defenses
therein. It is not issued in accordance with Later Alextofound
available the assignor the goods to be defective.
later. Brad
stipulation
not even then
by filled in
oraNegotiable
feature
holder up
of due thePN
the blank
course. as shown paper,a
Under Irregular Indorser is not and, a party therefore, to the
Section 1 of the Instruments Lawof While inFinance
Reliable Celso’sCorporation possession is thea PN
not holder was
making below
forged a promissory
and
signatureyour
What defense or defenses can Señorita
note
corresponding
of the for
drawer, the amount
answer,
there is either
no instrument but he places his signature in in
P100,000.00. He then indorsed and delivered stolen
due course. by a)Dennis Is the who forged
promissory note aCelso’s
mere
Isobel “Affected”
b) valid
Theset instrument
fact up that or “Not
against the that affected.”
would
instrument
Pete? Explain. Explain
give isriseundated
(3%) (5%).
to a blank before delivery. He is not a party but
a)sameANSWER: The datecan of the PN is “February note30, signature and discounted it with Edgar, a
the
andcontract
SUGGESTED does not
towhich
Pete,
mention
who be accepted
the the basis
place
the source
oforpayment
asof he assignment
becomes one of credit
because or aofnegotiable
his signature in
b) defense The PN bears money lender who did not make inquiries
payment2002.”
Theliability
does
of the
noton militatethe part ofinterest
debt.
(personal the defense)
against drawer.payable
its The
on the
which
being
instrument?
theSUGGESTED
instrument.
about the ANSWER:
PN.
Why?
Because
Edgar
b) Is his Reliable
indorsed
signature
the
Finance
PN
he Corpis
to Felix,
last
Señorita day
draweeIsobel of
bank each can calendar
set up quarter
against at a
Pete rate
to is a holder
considered in due
an indorser course? andinheExplain briefly.
is problem
liable to is the
negotiable. The has dateno andright or
place authority
of payment a) The
a holder promissory in Indorser note
due course. the When a
Felix
that equal to
thematerial five
amount percentof funds (5%)deposited
P100,000.00 above thenot then While,
parties ain General
theare instrument. warrants that the
are touch
not the drawer's particulars requiredistowith make in
the 1.
negotiable
demanded What the
instrument, rights of
being Felix,
in if any,
compliance
prevailing
Forgery;
accordance
drawee 91-day
Liabilities;
with
bank. thePriorTreasury
& Subsequent
authority Bill
given rate toas
Parties (1990)
her to instrument
with against
the is payment
genuine,
Alex,
provisions Benito,
of thehe
of that
Sec Celso
PN has
1 NIL.
froma Alex
and good
Edgar?
Neither the
the
an instrument negotiable. latter refused to pay. Dennis could no longer
Jose (inloaned
published atMario
themention some
beginning money
is ofmade suchand, oftoPete
calendar title toExplain
it, that
Brad
The
c)
fact thethat
The
presence
no of Pete) and that any fact that
be located. theall prior parties
payable sum ishad to be capacity
paid with to
was evidence
quarter.
not a holder
consideration hisPN gives the maker
isindebtedness,
in due
not material. course Mario theexecuted
for acting
Consideration
option to
in contract;
SUGGESTED
2. Doesnor that
ANSWER: Celso the instrument at the time of
make paymenttoeither interest thathave any right against
the maturities are in stated Alex,
bad
is and
presumed. delivered
faith when Jose accepted ainpromissory
money or in
the note notequantity
as theSUGGESTED
indorsement
Benito and ANSWER: is valid
Felix? uncertain and subsisting;
Explain. the amount and
of palay or hisequivalent value. installments renders
payable
Negotiable
payment to
Instrument:
despite order.
Ambiguous
his knowledge Instruments that (1998)
it was that1. onFelix due(Sec has no
presentment, right tothe claim against will
instrument Alex,
d)
Jose The
endorsed PN gives
the note the toholder
Pablo. theBert option payable 2 NIL)
How
only do you treat
10,000.00 awas
thatpayment negotiable
allowed instrument
by Señorita be Benito
b) Yes, Reliable Finance Corporation is a the
accepted and Celso
or paid who or are
both parties
accepted prior to
and
either
fraudulently
Incomplete to require
Instruments; obtained Incomplete the in money
note
Delivered from or
Pablo to paidforgery
according
that
Isobel isduring
so ambiguoustheir meeting thatwith there Brad. is doubt holder
Checks; in of
Validity; due Celso’s
Waiverto its
courseof Bank’s signature
tenor,
given and
thefor
liability by ifDennis.
that
factual it is
require
and
Instruments the
endorsed
vs. maker
Incomplete it to to serve
Julian
Undelivered by as the bodyguard
forging
Instrument Pablo’s Parties
dishonored, to an
he instrument
will pay ifwho the are such
necessary prior
whether it is a bill or a note? (5%) settings.
negligence (1991) Said corporation apparently took the
or escort
signature.
(2006)
SUGGESTED ANSWER: ofJulian
the holder endorsed for 30 thedays. note to Negotiability
to the
proceedings (1993)
forgery
for cannot
dishonor be
are held
made. liable by any
SUGGESTED ANSWER: Mr. promissory
Lim issued note
a check for value,
drawn and
against there BPIare no
JunCamilo.
1. Where a) a May Camilo
negotiable enforce
instrument the said is so Discuss the
whonegotiability or at non-negotiability
a)was about Paragraph to leave 1 – for a business
negotiability istrip.
“NOT As Bank
of
party
indications
the in favor
following
became
that
of MritYu
notes
such
acquired
as payment itorinsubsequent
bad faith (Sec
of certain to
promissory
ambiguous
hisAFFECTED.”
usual practice,that notethere against
he is doubt
signedMario whetherand
several Jose?
it is
blank b)
a the
52 forgery.
NIL see However,
Salas v CA Edgar,
181 s 296)who became a
The date is not one of the shares of stock which he purchased. On the
bill May
checks. or aCamilo
note,
He go against
the
instructed holder Ruth, Pablo?
may his treatc) Mayit eitherto
secretary, party
Negotiability; to the instrument
Requisites (2000) subsequent to the
requirements for negotiability. same
1) Manila,day that September he issued the check to Yu,
1, 1993
fill Camilo
as a bill of
them asenforce
exchange
payment said or note
for a his against
promissory
obligations. Julian?
noteRuth d)
at
Limforgery
ordered and BPIwho to stop indorsed payment. the same Per to Felix,
his Against
filled one whom
election. check can withJulian her have name theasright payee, of can be held liable by the latter.
standard banking practice, Lim was made to
recourse?
placed P30,000.00 thereon, endorsed and sign a waiver of BPI’s
Mercantile LawLaw
Mercantile Bar Bar
Examination Q &Q
Examination A&
(1990-2006)
A (1990-2006) Page 86 85
Page of 103
of 103
A, single proprietor
latter became of a
a holder
be Negotiable
duly taken, Instrument:he Negotiable
will payDocument the amountvs. business
thereof. concern,
As suchisholder, about to Napoleon
leave for cana
thereof to the
Negotiable holder,
Instrument or to any subsequent
(2005) business
proceed trip and, as
against he so often
Richard Clinton. does on
Distinguish
indorser who may a negotiable
be compelled document
to pay. from a these occasions, signs several checks in
negotiable instrument. (2%) Negotiable
blank. Instruments;
He instructs Bearer
B, his Instrumentsto(1997)
secretary,
C is not liable
SUGGESTED ANSWER: to F since the latter cannot safekeep the checks and fill them to
A delivers a bearer instrument outB.when
B then
Negotiable
trace his title to Instrument
the former. have Therequisites
signature of of
Sec. andspecially
as required indorsesto pay it to C and Cduring
accounts later indorses
his
C in1 of
thethe NIL, a holder
supposed of this instrument
indorsement by him to have D it in blank
absence. B fills to out
D. Eone steals thechecks
of the instrument by from
was right of recourse
forged by X. C againstcan raise intermediate
the defense parties
of D and,
placing her forging
name the signature
as payee, fillsof in D,thesucceeds
who are secondarily
forgery since it was his signature that was liable, Holder in due in “negotiating”
amount, endorses and it todelivers
F who acquires the check theto
course
ALTERNATIVE
forged. may
ANSWER: have rights better than instrument
C who acceptsin it good
in good faith and
faith asfor value. a)
payment forIf,
As transferor,
a general endorser, its subject B is is secondarily
money and liablethe for any
goods soldreason,
to B. B the regretsdrawee bank refuses
her action and to
to Instrument
F. C is liable to isF property
itself since it of is value.
due to the honor theshe check,
tells A what did. can F enforce
A directs the Bank the in
On the of
negligence otherC inhand, placing negotiable
the notedocument in his SUGGESTED ANSWER:
timeinstrument against the drawer? Cb) In case of
does that
drawer not contain
enabledrequisites
X to stealofthe Sec.same1 ofand NIL, it Yes, Atocan dishonor
be held the check.
liable to C, When assuming that
the dishonor
encashes the of theit check
check, is by both the
dishonored. Can drawee
A
has the
forge no signature
secondary of liability
C relative of intermediate
to the the latter gave notice of dishonor to A. This is
be and
heldof the
liabledrawer,
to C? can Finstrumenthold any of B, C and D
parties, transferee
indorsement in favor of merely D. As between steps into C andthe a case
SUGGESTED anANSWER:
incomplete but
liable
a) Yes. as secondarily
The on the instrument?
shoes
F who areofboth the innocent
transferor, its subject
parties, it is Carewhose goods delivered it instrument
was entrusted was topayable
B, the to bearer
and the is
negligence instrument
the proximate is merely cause evidence
of the of as it was
secretary of aA.bearer
Moreover, instrument.
under the It could
doctrine be
title;
loss. Hencething of valuesuffer
C should are the the goods
loss. mentioned negotiated by mere
of comparative negligence, as between A delivery despite the
Negotiable
in the Instruments;
Negotiable Instrument;
document. incomplete
Negotiabilityand(1997)
undelivered andpresence
C, both innocentof specialparties, indorsements.
it was the The forged
Can a bill
instruments; of in
holder exchange
due course or (2000)a promissory note signatureofisAunnecessary
negligence in entrustingtothe presume
check to theB
PN qualify
makesas a apromissory
negotiable note instrumentfor P5,000.00,
if – Negotiable
juridical
which Instruments;
is the relation
proximate kinds
between of negotiable
cause orofamong
the instrument;
loss.the
buta.leavesit the is not name of the payee in blank words of negotiability
parties prior to(2002) the forgery and the parties
b.
dated; or
because the
he day wantedand the to month,
verify but its not the
correct A. Define the
after the forgery. following: The(1) onlya negotiable
party who can
year of
spelling its maturity,
first. He mindlessly is given; leftorthe note on promissory note,
raise the defense of forgery(2) a bill of exchange
against a and holder
topc.of hisitdesk is payable
at thetoend of the workday. Negotiable
(3) a check.Instrument:
(3%) Identification
in due course is the person whose signature (2005)
Whend.
“cash”’ itornames the
he returned two following morning, the B. b)
You
State OnlyandB
are
is forged. and
PedroexplainC canwhether
Cruz. be held
Draft theliable
the by
appropriate F. The
following are
notealternative
was missing. drawees It turned up later when X instrument
instruments
contract
negotiable language at the
under for time
the (1) of the
Negotiable
your forgery
negotiable was
Instruments Law:
SUGGESTED ANSWER:
presented it to PN for payment. Before X, T, 1)
(5%)payable
promissory Postal to
noteMoneyand Order;
bearer, being
(2) your a check,
bearer each instrument.
who a)turned
Yes. Date out toishave not filched
a material the note particular
from 2) Moreover,
containing A certificate
thethe of elements
instrument
essential timewas depositof a which
indorsed in
PN’s office, had endorsed the note afterof
required by Sec 1 NIL for the negotiability states
blank“This
negotiable is D.
byinstrument
C to to D, certify
(2%) that
whose signaturebearer was has
an instrument.
inserting his own name in the blank space as
SUGGESTED
forgedANSWER:
deposited byinE thiscannot bank the liable
be held sum of by F. FOUR
b) No. The time for payment is not A. (1) A negotiable
Negotiable
THOUSAND Instruments;
PESOS promissory
bearer note is liabilities
instruments;
(P4,000.00) anonly,of
the payee. PN dishonored the note,
determinable in this case. The year is not unconditional
3) makerLetters
repayable and to promise
of credit;
indorsers
the (2001)in writing
depositor 200made daysbyafter
contending that he did not authorize its
stated. one
4) A
date.”person
issued
Warehouse to
a another,
promissory signed
note by
payablethe maker,
to B or
completion
c) Yes. Sec and 9d delivery.
NIL makes But X the saidinstrument
he had
engaging
5) bearer.
receipts; to
TreasuryA pay onwarrants
delivered demand
the note or at
to a
payable B.fixed fromor
B indorsed a
no payable
participation in, or knowledge
to bearer because the name of about, thethe
determinable
specific
the note fund. to future
C. C placed time, a the sum note certain
in hisin
pilferage and alteration of the note and
b) payee
Can thedoes payee notinpurport
a promissoryto be the notename be a of money
SUGGESTED
drawer, toANSWER:
order
whichorwas bearer.
stolen by the janitor X. X
therefore he enjoys the rights of a holder in 1) indorsedPostal Money Order
any person.
“holder in due course” within the meaning of
dued)course the note to D by–forgingNon-Negotiable
C’s
A bill under
the Negotiable may the Negotiable
not
Instruments be addressed Instruments
Law (Actto2031)? two or (2) Aitbillisof governed
as signature. exchange is
by an
D indorsed the note to unconditional
postal rules
E whoand in
Law. Who
moreyour is correct
drawees and why? (3%)
Explain answer.in(2%) the alternative or in order
turnindelivered
regulation writing
which addressed
may
the note beto by one
inconsistent
F, personinwith
a holder todue
succession,
SUGGESTED ANSWER: to be negotiable (Sec 128 NIL). another,
thecourse,
NIL and signedit can
without byonly the be person
indorsement. giving
negotiated Discuss it,
once. the
a) To
PN dois soright.makes Thethe instrument is incomplete
order conditional. requiring
SUGGESTED the person
ANSWER: to whom it is addressed
individual liabilities to F of A, B and C. (5%)
andNegotiable
undelivered.
Instruments; It Bearer
did Instrument
not create (1998) any to A is on
2) pay liabledemandto F. As
A certificate or theat maker
of atime
fixeddeposit of the which
or
Richard
contract that Clinton
would makes bind PNatopromissoryan obligation note (3) A check
promissory
states
determinable“Thisis future
a bill
note,
is to of A exchange
is directly
certify
time a sumthatdrawnorbearer on
primarily
certain a
in has
payable
to pay to bearer
the amount and delivers the same to
thereof. bank
money payable
liable
deposited totoorder on
F, who
in ordemand.
this is abearer.
tobank holder
the insum due course.
of FOUR
b) A payee in
Aurora a promissory
Page. Aurora note Page,cannot be a
however, Despite the presence
THOUSAND PESOS of the special only,
(P4,000.00)
“holder in due course”
“Payable
endorses it to X in this manner: within
to X. the
Signed: meaning
Aurora of B. (1) Negotiable
indorsements
repayable to theondepositor the note, 200 thesedays do not after
the Negotiable Instruments Page.” Law, because a promissory
detract
date.” – from notethe - fact thatas
Non-Negotiable a bearer
it does not
Later,
payee is X,an without
immediate endorsing
party inthe promissory
relation to instrument,
comply with thelike the promissory
requisites of Sec. 1note of NILin
thenote,
maker. transfers
The payee andis delivers
subject tothe same to
whatever 3) question,
Letters of credit
is always negotiable - by Non- mere
Napoleon.
defenses, real of The note available
personal, is subsequently
to the B, as a general
Negotiable
delivery, until itindorser,
is indorsed is liable to F
restrictively “For
ALTERNATIVE
of ANSWER:
dishonored
maker by Richardnote.
the promissory Clinton. May Napoleon 4) secondarily,
DepositWarehouse
Only.” and receipts
warrants- that Non-Negotiable
the
b) A payee against
proceed can be a “holder
Richard in due for
Clinton course.”
the note? for instrument
the sameisas Bill ofand
genuine Lading it merely
in all respects
A holder
SUGGESTED
(5%) is defined
ANSWER: as the payee or indorsee represents good, not
what it purports tomoney.
be; that he has good title
Yes.instrument
of the Richard Clinton who is is liable to Napoleon
in possession of it. to it; that all prior parties had capacity to
under
Every holderthe is promissory
deemed prima note. facieThe noteto be madea 5) contract;
Treasury that he warrants payable from
has no knowledge of anya
by Richard
holder in due course. Clinton is a bearer instrument. specific fund -would
fact which Non-Negotiable
impair the validity being payable of the
Negotiable
Despite special Instruments;
indorsement Incompletemade by Aurora outinstrument
of a particular fund. it valueless; that at the
or render
DeliveredInstruments;
Page thereon, the note Comparative
remained a bearer time of his indorsement, the instrument is
Negligence
instrument(1997) and can be negotiated by mere
valid and subsisting; and that on due
delivery. When X delivered and transferred presentment, it shall be accepted or paid, or
the note to Napoleon, the both, according to its tenor, and that if it be
dishonored and the necessary proceedings
on dishonor
 Mercantile
Mercantile Law Bar Examination Page 88 of 103
Law Bar Examination Q & A (1990-2006)
Q & A (1990-2006) YES!Page 87 of is
Dagul 103 an
2. If Pedro pays the said P20,000 to Y, Pedro accommodation
Commercial Banking party
Co. The because
By-laws ofinSaad therequires
case at that
canNegotiable
recoverInstruments;
the amount Requisitesfrom (1996)
X. X is the bar, he isissued
checks essentially,
by it must be a signed
person by thewho signsand
President as the
What are the party
accommodated requisitesor the of party
a negotiableultimately maker without
Treasurer receiving any
or the Vice-President. Since consideration,
the Treasurer was
SUGGESTED
instrument?
liable for the ANSWER:instrument. Pedro is only an signs as C
absent, anrequested
accommodation the Vice-President party merely
to co-sign the for
check,
The requisitesparty.
accommodation of a negotiable
Otherwise,instrument it would beare thewhich
purposethe latter ofreluctantly
lendingdid. the Thecredit
check was of his name.
delivered to B.
as follows: a) It must
unjust enrichment on the part of X if he is be in writing and And Theas an
check accommodation
was dishonored upon party
presentment he cannot
on due date for
notdrawer;
signed
Parties; payby b)the
to Accommodation It must
Pedro. maker contain
Party (2003) an unconditional
or setinsufficiency
up lack of consideration
of funds. a) Is Saad liable against any as an
on the check
promise
Susan Kawada or orderborrowed P500,000 from XYZ accommodation
holder, even asparty? to one b) If who
it is not,iswhonotthen, under theinabove
a holder
Bank whichsum
to pay a required certain her,in together
money; c)with It must
Rosebe Parties;
duefacts, Holder
is/are the
course. in Due Course (1993)
accommodation party?
payable
Reyes who to didorder or to bearer;
not receive and d) Where
any amount from Larry issued a negotiable promissory note to
thethe instrument
bank, to execute is addressed to a drawee,
a promissory note he Evelyn and authorized the latter to fill up the
payable must to thebe namedbank, or or otherwise
its order indicated
on statedtherein SUGGESTED
amount ANSWER:
in blank with his loan account in the
reasonable
with certainty.
maturities. The note was executed as so (Sec 1 NIL) a.) Saad
sum of P1,000. is not liable on
However, the check
Evelyn inserted as an
agreed. What kind of liability was incurred by accommodation party.
P5,000 in violation of the instruction. She The act of the
Notice Dishonor (1996) corporation
negotiated the in noteaccommodating
to Julie who had a friend of the
Rose, that of an accommodation party or that
WhenANSWER:
SUGGESTED is notice of dishonor not required to President, is ultra vires
knowledge of the infirmity. Julie in turn v CA GR (Crisologo-Jose
of a solidary debtor? Explain. (4%)
(perbeDondee)
given toRose may be held liable. Rose is
the drawer? 80599, 15Sep1989).
negotiated said note to WhileDeviitfor may valuebe legally
and
an SUGGESTED
accommodationANSWER: party. Absence of who possible
had no for the
knowledge corporation,
of the whose
infirmity. business
1)
Notice of dishonor
consideration is inis not therequirednatureto be of an is to provide financial accommodations in the
given to the drawer in any of of the followingof Can Devi enforce the note against Larry and
accommodation. Defense absence if ordinary
she can, course
for how of business,
much? Explain. such 2) as one
cases: a) Where
consideration cannot thebe drawer
validlyand drawee are
interposed by given byDevi a financing company
Supposing endorses the notetotobe an
Baby
accommodation party against a holder inisdue
the same person; b) When the drawee a SUGGESTED
for
ANSWER:
accommodation
value but who hasparty, this situation,
knowledge of the
not having
fictitious capacity
person or ato contract; c) When the
person b) Considering
1) Yes, Devi can that
enforce both thethe President and
Parties;
course. Accommodation Party (2003) however,
infirmity, can isthenot the case
latter enforce innegotiable
the bar problem.
Juandrawer
Sy purchasedis the person from to “A” whom the Center
Appliance Vice-President
promissory note were signatories
against Larry inthe the note
to the
amount
oneinstrument
generator is setpresented
on installment for payment;
with chattel d) against Larry?
accommodation,
of P5,000. Devi is a holder they themselves in due course can andbe
Where the drawer
mortgage in favor of the vendor. After has no right to expect or thesubject
breachto ofthe trust liabilities
committed of accommodation
by Evelyn
require
getting thathold theofdrawee or acceptor
the generator set, willJuan
honor Sythe parties
cannot be to setthe up instrument
by Larry against in their Devipersonal
instrument; e) Where
immediately sold it without consent of the the drawer has capacity
because it is(Crisologo-Jose
a personal defense. v CA 15Sep1989) As a holder
countermanded
vendor. Juan Sy was payment
criminally (Seccharged with Parties;
in due Accommodation
course, Devi is not Partysubject
(1996) to such
To settle
estafa. 114 the NIL)
case extra judicially, Juan Sy 2) Nora
Yes. applied
Baby
personal defense. is for
not aa loan
holder of inP100th
due course with BUR
paid the sum of P20,000 and for the balance Bank. she
because By way has of accommodation,
knowledge of the breach Nora’sof
Parties; Accommodation
of P5,000.00 he executed Partya(1990)
promissory note sister,
trust Vilma, executed
committed by Evelynaagainst promissory Larrynote in
for To
said accommodate
amount with Carmen, Ben Lopez maker
as anof a favor
which is of
just BUR Bank. When
a personal defense. NoraBut defaulted,
having
promissory note,
accommodation party. Juan Sy failed Jorge signed as indorser
to pay BURthe
taken Bank sued Vilma,
instrument fromdespiteDevi, aits knowledge
holder in
thethereon,
balance.and 1) Whatthe instrument
is the liability wasof negotiated
Ben duethat VilmaBaby
course, receivedhas all nothe part of the
rights ofloan.
a May
to Raffy,
Lopez as an aaccommodation
holder for value. At theExplain.
party? time Raffy SUGGESTED ANSWER:
Vilma
holder in bedueheld liable?
course. Baby Explain.
did not participate
took the instrument, Yes,breach
Vilma of may be committed
held liable. by Vilma is an
SUGGESTED
2) What ANSWER:
is the liability ofhe Juanknew Sy?Jorge to be an in the trust Evelyn
1) Ben Lopez, as an
accomodation party only. When the accommodation party, is accommodation party. As such, she is liable
who filled the blank but filled up the
liable as maker to the
promissory note was not paid, and Raffy holder up to the sum on the instrument to a holder for value such
instrument with P5,000 instead of P1,000 as
of discovered
P5,000 even if he did not
that Carmen had no funds, he receive any as
Parties;BUR
Holder Bank.
in Due This
Course is true
(1996) even if BUR Bank
instructed by Larry (Sec 58 NIL)
consideration
sued Jorge. for Jorge thepleads
promissory in defensenote. the Thisfactis Whatwasconstitutes
aware at the time itintook
a holder due the instrument
thethat
nature he had of accommodation.
endorsed the instrument But Ben Lopez without that Vilma
SUGGESTED
course? ANSWER: is merely an accommodation party
canreceiving
ask for reimbursement
value therefor, from and the Juan Sy, the
further fact A holder in due course
and received no partisofone thewho loanhas (See taken
Sec 29,
accommodation
that Raffy knew party.
that at the time he took the the instrument under the following
NIL; Eulalio Prudencio v CA GR L-34539, Jul 14, 86
2) Juan
SUGGESTED Sy is liable to the extent of P5,000 in
ANSWER: 1 Parties;
143 sThat
conditions: 7)Accommodation
it is complete Partyand (1998) regular upon
instrument
Yes. Jorge isJorge
liable. hadSec not 29 received
of the NIL any value
provides
the hands of a holder in due course (Sec 14 For
its face; the purpose of lending his name without
or
that consideration of any kind forishis
NIL). If an
Benaccommodation
Lopez paid theparty promissory liablenote, on the 2 receivingThat he value becametherefore, holder Pedro makes it
of it before a
indorsement.
instrument to Is
a Jorge
holder liable?
for Discuss.
value,
Juan Sy has the obligation to reimburse Ben was overdue and without notice that it had X
note for P20,000 payable to the order of
notwithstanding
Lopez for the amount the holder
paid. IfatJuan the timeSy pays of beenwho in turn negotiates
previously dishonored, it to if Y,suchthewas latterthe
takingtosaid
directly the instrument
holder of the knew him to benote,
promissory only 1.
knowing
fact; May that Y recover Pedrofrom is not Pedro
a party if theforlatter
value.
an accommodation
or he pays Ben Lopez party. for theThis is the nature
reimbursement 3 interposes
“September
That he took the15,itabsence
in2002good of faithconsideration?
and for
of or
thethe essenceby
payment of the
accommodation.
latter to the holder, value; (3%)
Parties; Accommodation Party (1991) “For2. value
Supposing
Parties; Accommodation
the instrument Party
is discharged. (2005) 4 Thatreceived,
at theunder timeI herebyitthe
was same
promise facts,
negotiated to Pedro
pay
to
On June
Dagul has 1, 1990,
a Abusiness
obtained a loan of P100th from B,with
arrangement payable Juan Santos
pays or
the order
said the
P20,000 sum of
may TENhe recover
him, he
SUGGESTED
had no
ANSWER:
notice of any infirmity in the
not later than
Facundo. The 20Dec1990.
latter Bwould requiredlendA to issuemoneyhim a check
to THOUSAND the same PESOS amount(P10,000) from thirty
X?of(2%) (30) days
instrument
1. Yes. Y or
can defect
recover in the from titlePedro. the person
Pedro is an
for that amount to be dated
another, through Dagul, whose name would 20Dec1990. Since he does not from date hereof.
negotiating
accommodation it. (Sec party. 52, NIL) Absence of
have any checking account,
appear in the promissory note as the lender.A, with the knowledge of B,
requested
Dagul would his friend,
thenC, immediately
President of Saad Banking
indorse Corpthe consideration
(Signed) Pedro Cruz is in the nature of an
note(Saad) to
to accommodate
Facundo. him. C agreed,
Is he signed
Dagul a check
an for accommodation. Defense of absence of
SUGGESTED
the ANSWER:
aforesaid amount
accommodation party? Explain. (2%) dated 20Dec 1990, drawn against Saad’s to: consideration
Philippine cannot
National be validly interposed by
account with the ABC Bankaccommodation
Escolta, Manila party against a holder in due
course.
Branch”
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page Page90
92 93 89
91
of 103 of 103 Awho gave hadhim
course
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certificate
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work
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of
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The payment
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her
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The
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circumstances
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To the Thus,
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requirements.
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course is Dizon
Inc. nothing
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not
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athe stocks
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price, at with
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Enrico firm, the
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Reyes filed drawee
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indicates
the
complaint dishonored
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a franchise
degree 400 aor
for sacks of it.its
collection 2002,
andexchange
the heirs, EFto discovered
Rizalinsisting
understanding Manila
priced and
at it
that
that that
P20within
although
is not perthe note
Manila.
share.
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because AB was
Firstly,
When
would
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certificate
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when
the
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Regional ofor
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A
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buys 2)and a
of the
grounds bag. to excuse her from completing have use onlyof
Certificate two
inside
of organizations:
public information?
Convenience one
(1998) to own the
is16a,only
significance”
b) sufficient
stipulations TheCA a available
period is,
applicant
grounds
in
146, inof
a contract 12
asadditionbetween
tomonths.
must
amended) ofprove
excuse to immediate
being
carriage her public a parties sells
material,
from
of passengers
U.S. listed
director safely
or officersecurities to or
of, their for destination
the
a person accounts
controlling, of
c) units?
1 or against
c)The
a Explain. parties
The
applicant
stipulation person who
must
limiting are not
intends
prove
the sum holders
that to the
that in due
acquire
may be its facilities
The
immediately
clients ofallthe
Batong over combined
Bakal
raisesthe the businesses
Corporation
world, who filed
presumption convey and
with
that tothe
their
necessity.
such fact
completing
common as
carrier would
her are units. likely,
valid: The on
same beingcould made
be controlled by, or under common control with,
develop
Board
such andof Energy
failure produce ancontentapplication materials, a and
forcarrier’s
course.
operation
recovered
generally equity
undertaken ofC’s
by the
available,theknowledge
shares
bypublic
shipper
her toof a or
service
affect
children that
public
owner
the A market
is
proposed
or by aother
company
to minor
90% and
price does
ofthat
the buy theand sell
issuer, 3)isaattributable
instructions person to EOL
whose to the
through
relationship the or
thea
valuenot prevent
would
authorization
of the goods result Cto from
inin
do case being
ownership
business of extent,
loss awill holder
of
due more
promote
toPub inthan
theft. another
due Internet. Certificate
fault to
or EOL operateof Public
negligence.
has nothe facilities
Convenience
In
offices, the employees
case and provide
for
atgives
bar, the the
oror
of security
authorized to a significant
representatives (Sec 16n or which former relationship to the issuer
course. 50% C took
ofHalili
the saidthe promissory
a shares. note from a mass purpose
fact media
representativesof deathofand commercial
supplying
and
outside injury electricof the power
bus and
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2
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person that properin
would thesand
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769) of loss,as gave him access to a the factU.S. The website
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lights
passengers to the factory
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presumption employees living
d) holder
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destruction
especially The for
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orvalue,
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deterioration must
B.under
146 as be of
the financially
amended)
goods
circumstances on account Parties;
has iconsHolder
significance for inmany
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countries,
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security or
Parties;
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Regulation
incondition
in determining his course of action in the
Due Course; the of Indorsement
proposed
the vehicle in blank
service
used in Communications
1996
icon within2.2)
negligence
“For the
Eva
Filipino compound.
issued
on will
the
Traders” be
to
part
that is not generally available, or 4) a person
theThe
Imeldaof flagship
application
the
containing a check
carrier. entity
the inwas
The
and(2002)
the meeting
contract the
of responsibilities
carriage, the carrier’s incident liabilityto itsis which
theopposed
day’s will must
amount
carrier
prices own by
of
ofsuchthe
P50th
rebut
U.S. facilities
Bulacan
post-dated
suchsecurities
listed of the
Electric
presumption. Sepof Corporation
30,
expressed
lightInsiderof such
(2004) factors as the degree of who learns a fact from any the
A. AB
its operation.
limited issued
to the value a promissory
of the goods note
appearing for P1,000
in the in conglomerate
1995,contending
as
Otherwise,
U.S. security
dollars and
that
andfor
the provide
the
their awith
conclusion Batong
diamond content
Philippine can Bakal
ring
be toproperly
peso to the beother
specificity,
Ms. OB wasthe extent
employed of its
in MAS difference
Investment from foregoing
Carriage; insiders
Fortuitous Event (1995) knowledge that the
Boundary
payable
Powers of the System
to
Public CD (2005)
or
Service his order
Commission on September
(1993) 15, new
sold 3b. corporation
It
Corporation
on
made is one
commission.
that thehas which,
which, not
carrier On in in
secured
Sep turn,
addition
failed 15, will
toa to operate
being
franchise
1995,
exercise to
bill of
information lading unless
generally the shipper
available or owner
previously, declares equivalent.
person
SUGGESTED fromGrace
ANSWER: whom Gonzales, he learns a resident
the fact of is such
Bank.
Baldo
2002.
Manipulative
The City WIC,
ofis
CD
Practices
Manila a driver
aindorsedmedical
(2001)
passed ofthedrug Yellow
an company,
note
ordinance Cab
in blankCompany and those
ImeldaM. Dizon
facilities
material,
operate Trucking
andwould and
maintain be entered
providelikely an the
to into
electric a
services.
affect hauling
the
plant. WWW
market
Is the
a
andhigher its nature
retained
underprovincial
delivered
value (5%)
the thethe
and reliability
Bank
boundarysame toto assess
system.
EF.several
GH
(Sec
whether While
stole
30 it par
the isnote
cruising
c Makati,
an
contract
CommunicationsAnegotiated
extraordinary
No.insider iscertificate
with
(Secdiligence
a regular the
30b,customer
of
Fairgoods
seeks
check
RSA)
public
your Co
toof MT
asconvenience
required
the website
whereby
professional
by law.
the may
Suppose
banning A is the owner
buses of
from the city. inactive
The price
opposition’s
investment
and of a security
which contention
paid the to a significant
correct?
amount extent
(5%)
of P40th on
RSecAct)
desirable behas been
granted purchasing
to Batong and
Bakal selling
Corporation,
along EF
from
securities.
ordinance theTotocreate
was and makeon
South
challenged aExpressway,
an tender
September
appearance
as invalidoffer for Baldo’s
of 14,
under DOP2002
active cab SUGGESTED
adviceformer
being
to her.
securities on
Eva bound
whether
made
ANSWER: failed
through
itself
generallyorsell
toEOL tothe
notwith
haul
its the
available,
ring, the
reorganized
usesolatter’s
orshe
of one
her
2000
company,
figured in a
a drug
collision, manufacturer.
killing his OB though
sacks of notSoya possessing
bean meal a from Manila
thepresented
trading Public forService
such it to AB for
securities,
Act by X payment. When asked business
which it
returned
American activity
a reasonable
to Imelda
Express would
credit be
onperson
Sep
card. considered
19, would
Grace1995. a public
consider
has
overheard
by AB, GH said in the CD utility
Unable requiring
especiallyto retrieve a franchise
her check, or certificate
Eva withdrew or any
never traveled outside the Philippines. After a
other form of authorization
series of erroneous stock picks, she had from the
government.
incurred a netWhat indebtednesswill be your advice? Explain
of US$30,000.
(5%)
with EOL, at which time she cancelled her
American Express credit card. After a
 Page 94 of 103
1 The stipulation is considered
unreasonable, unjust and contrary to public
policy under Article 1745 of the Civil Code.
2 The stipulation limiting the carrier’s
liability to the value of the goods appearing
in the bill of lading unless the shipper or
owner declares a higher value, is expressly
recognized in Article 1749 of the Civil Code.

SUGGESTED ANSWER:
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) 96 95
Page
Page of 103
of 103 OnXone
didoccasion,
not declare a greater
Reynaldo
turned
person who out that the
wants to ride ticketthewassame inadvertently
to signal value despite
contracted AM tothe fact that
transport forthe clerk
a fee, 100 had
hiscut and wrongly
intention to board. worded.
A public PALutility
employees bus, sacks called his attention
of rice from Manila to the stipulation
to Tarlac. However, in the
oncemanning
it stops, theis airport’s
in effect makingground services
a AMticket.failed Decide
to deliver thethe case cargo,(5%)because its
nevertheless
continuous offer scheduled
to bus riders. her to It isflythetwoduty hours truck SUGGESTED ANSWER: when the driver stopped
was hijacked
later aboard
of common theirofplane.
carriers She agreed
passengers to stop and in Bulacan to did
Even if he visitnot hissign the ticket, X is bound
girlfriend.
arrived
their in Hongkong
conveyances for a safely.
reasonable The aircraft
length of used bya) the stipulation
May Reynaldo that anyhold claimAM for loss liable as a
timebyin Far EasttoAirlines
order afford developed
passengersengine an cannot
common exceed P250 for each luggage. He
carrier?
trouble, and
opportunity did not
to board and makeenter,it to andHongkong
they arebut did
b) not declare
May AMaset higherup the value. X is entitled
hijacking as a defense
returned
liable for injuriesto Manila.
suffered Vivian sued both airlines,
by boarding toto P500
defeat for the two
Reynaldo’s luggages
claim? lost.
Common
SUGGESTED
Carriage; Carrier;ofDefenses;
ANSWER:
Valuation Damaged Limitation
Cargo (1993) of Liability (2001)
PAL and Far
passengers East, for
resulting from damages
the sudden because of
SUGGESTED ANSWER: a) Reynaldo
Supposethirteen
A shipped Amaywas hold riding
pieces AM onofTrucking
an airplane
luggage liable of aas
through
her having
starting unable to
up or jerking take the
of their Far East flight.
conveyances
(per dondee) No, there was breach of a common
LG common Airlines carrier carrier.
from when The
Teheran the facts
accident that
to Manila happenedAM as
Could
while they either
are doingor both so.airlines
Santiago, be heldby liable to
contract
(Dangwa Transand Co that v CAshe95582
was accommodated
Oct 7,91of the Trucking
and A operates
suffered only
serious
evidenced by LG Air Waybill which disclosed two trucks
injuries. for
In an hire on
action
Vivian?and
stepping Why? (6%)
standing on the platform
well with the assistance of PAL employees to
202s574) a
that by selectiveactualbasis,
A against
the the
gross caters
common only
weightcarrier,of the tothe a latter
luggage few
bus, is already considered a passenger and is
take Carrier;
Common the flight Dutywithout
to Examineundue Baggages; delay. Railway customers, does not
was 180 kg. Z did not declare an inventoryin
claimed that 1) there make
was a regular
stipulation or
ofthe
entitled to Carrier;
all theDefenses
rights and (2002)protection
andCommon
Airline (1992) scheduled
ticket issuedtrips, to Aand does
absolutely
the contents or the value of the 13 pieces of not
exempting have a
the
pertaining
Why was to adefense
is the contractofofdue carriage.
Marino a passenger on a diligence
train. Another in the •certificate
carrier
luggage. thefrom law
After does
of public the not
liability said distinguish
convenience
from between
are
the passenger’s
pieces of of no
luggage
selection and
passenger, Juancho, had taken supervision of an employee
a gallon of one
moment whose
death as
or principal
injuries adbusiness
arrived in Manila, the consignee was able notices activity
were is
posted the by to
not available
gasoline placed in to aa plastic
common bag carrier?
into the (2%)same carrying
claim the from of persons
common the carrier
cargo or goods
dispensing
broker oronly
both 12and
with the
pieces,
SUGGESTED ANSWER:
coach where Marino was riding. The gasoline anyone
with who weight
extraordinary
a total doesdiligence
suchof 174 carrying
ofkg.theXonly
carrier,as an
advised andthe2)
The defense of due diligence in the selection
ignited and exploded causing injury to Marino ancillary
A was
airline of activity,
given
the loss a discount
of one of on thehis plane
13 pieces fare of
and supervision of an employee is not
who filed a civil suit for damages against the thereby
•luggage the and reducing
law the the
ofavoids liability
making
contents anyof distinction
the common
thereof. Efforts
available to a common carrier because the
railway company claiming that Juancho of carrier
between
the airline awith
person respect tothe
or enterprise
to trace A inmissing
particular.
offering luggagea) Are
degree of diligence required of a common
should have been subjected to inspection by were those
transportation valid defenses?
fruitless. service
Since on (1%)
the b) What
a regular
airline are the
orfailed to
carrier is not the diligence of a good father of
its conductor. The railway company defenses
scheduled
comply with available
basisthe and demand oneto anyoffering
of X common
to such
produce carrier
service theto
a family but extraordinary diligence, i.e., SUGGESTED ANSWER:
disclaimed liability resulting from the on limit
anNo.
missing
a) or exempt
occasional,
luggage,
These are Xitnot
from
episodic
filed an
validliability?
oraction (4%)
unscheduled
defenses for because
breach
diligence of the greatest skill and utmost
explosion
Common contending
Carrier; Defenses; thatFortuitous
it was unaware
Events (1994) of basis,
of contractand
they are with contrary damages to lawagainst as theyLG areAirlines.
in
foresight.
theMarites,
contents of the plastic bag
a paying bus passenger, was hit and invoking the law
•In violation
its answer, of therefrains from making
LGextraordinary
Airlines alleged athat the
diligence
theabove
right of her Juancho
left eyetoby privacy.
a stonea)hurled Should atthe
the distinction
Warsaw
required between
Convention
of common awhich
carrier
carriers. offering
limits theits
(Article liability
1757,
railway company be held liable
bus by an unidentified bystander as the bus for damages? services
of the
1758 to
carrier, the
New Civil general
if any, Code)with respect one
public and to cargowho to
b) If
wasit were
SUGGESTED speeding
ANSWER:an airline
through company involved,
the National Highway. b) The
offers
a sum of defenses
services$20 or per available
solicits
kilo or businessto anyonly
$9.07 common
per from a
pound,
would
a) No. The railway company is notExplain
The your
bus answer
owner’s be the
personnel same? lost no
liabletime forin carrier
narrow
unless to limitvalue
asegment
higher orthe
of exempt
isgeneral it from
declared inliability
populationadvance are:
briefly.
bringingInMarites
damages. overland to transportation,
the provincial hospital the SUGGESTED 1 ANSWER:
and additional observance
charges ofare extraordinary
paid by the
where carrier
common she was is confined
not bound and nortreated.
empowered Marites Yes.
passenger diligence,
Unless and the thecontents
conditions of ofa thecargo contract are
wantsan
to make to examination
sue the bus company on the contents for damages of as set2 forth
declared or the orinthe the proximate
contents air of acause
waybill, of the
lost expressly
luggage
and seeks
packages your advice
or bags, particularly whether those she can are
subject incident
proved by
the contract is athe fortuitous
ofsatisfactory event or
the carriage offorce
evidence cargo
SUGGESTED ANSWER: majeure,
legally hold
handcarried bythe bus company liable. What
passengers. other
to the than the self-serving
Warsaw Convention. declaration Mayof one the
Marites canan not legally hold the bus company 3the contract
b) If it were
will you advise airline
her?company, the common party,
allegation ofactLG or omission
Airlinesbeofbe
should thesustained?
enforcedshipper as itor
liable. There
carrier should be made is no showing
liable. that
In case anyof such
air owner of the goods,
is the only reasonable basis to arrive at a
Explain.
incident previously happened so as to 4 the
carriers, it is not lawful to carry flammable just award. The character
passenger of theor goods
shipper or is
imposein
materials anpassenger
obligationaircrafts,
on part of and theairline defects in the packing or in the
bound by the terms of the passenger ticket
companies may open and investigatewarn the
personnel of the bus company to Common Carrier (1996)
or the containers,
waybill. (Panamaand v Rapadas 209 s 67)
passengers
suspicious packagesand toand takecargoes
the necessary(RA 6235) Define5a common ordercarrier?
or act of competent public
precaution.
Common Carrier; Test Such hurling of a stone
(1996) Common
SUGGESTED Carrier; Duration
ANSWER:
authority, withoutofthe Liability
common(1996) carrier
Whatconstitutes
is the test fortuitous
for determining event inwhetherthis case. or The A common
A bus carrier is
being guilty of even simpleto
of GL Transit a
on person,
its way corporation,
Davao
negligence
Common Carrier; Defenses; anLimitation
insurer.of(Pilapil
Liability v (1998) firm or(Article
stopped association
to enable engaged
a passenger in the
to business
alight. At
notbusonecompany
is a common is notcarrier? CA 1734, NCC).
X took
180 s 346)
SUGGESTED a plane
ANSWER: from Manila bound for Davao of that
carrying
moment, or transporting
Santiago, whopassengers had been or
Thevia testCebu where there whether
for determining was a change or notofone goods
waiting or forboth, a ride,by boarded
land, water the bus. or However,
air for
is aplanes.
common X arrived
carrier in Davao safely
is whether the person but to his or compensation,
the bus driveroffering failed toits services
notice Santiago to whothe
dismay,
entity, for somehis two suitcases
business were left
purpose and behind
with in public
was(Art still 1732,
standing Civilon Code)
the bus platform, and
Cebu.orThe
general airline
limited company
clientele, assured
offers X that the
the service Common
stepped Carrier;
onBreach of Contract; Damages
the accelerator. Because (2003)of the
of carrying or transporting passengers or but
suitcases would come in the next flight Vivian
sudden motion, Santiago slipped andwhich
Martin was booked by PAL, fell
theyornever
goods both did. X claimed P2,000 for the loss
for compensation. acted
downassuffering a ticketing seriousagent injuries. of MayFar SantiagoEast
Common
of both Carriers; Defensesbut
suitcases, (1996)
the airline was willing SUGGESTED
Airlines, for ANSWER:
a round trip flight on the latter’s
hold GL Transit liable for breach of contract
1) AM
to pay Trucking,
only P500 a smallbecausecompany, the airlineoperates ticket Santiago
aircraft, from may hold GL Transit liable forThe
Manila-Hongkong-Manila.
of carriage? Explain.
twostipulated
trucks forthat hireunless
on selective
a higher basis.
value It was ticket was cut by an of
breach of contract carriage. of
employee It was
PAL.the The
caters only toany
declared, a few
claim customers,
for loss cannotand itsexceed trucks p.m.duty on of05 the driver,
January
ticket showed that Vivian was scheduledwhen
2002 he
aboardstoppedFar the bus,
East’s to
do P250
not make for eachregular piece or ofscheduled
luggage.trips. It
X reasoned to do
Flight
leave no act
F007.
Manila that
5:30would
atVivian arrived haveatthethe effect Ninoy of
doesoutnot that evenhe didhave nota certificate of public and in
sign the stipulation increasing
Aquino the perilAirport
International to a passengeran hour such before as
convenience.
fact had not even read it. theSantiago
time scheduled while he was in her attempting
ticket, but to board was
toldthe same.
that Far WhenEast’sa Flightbus is F007 not in hadmotion leftthereat
is no
12:10 p.m.necessity
It for a
Mercantile Law Bar Examination Q & A (1990-2006)
sardines and kidnapped the driver and his
helper, releasing them in Cebu City only 2
days later.
Pedro Rabor sought to recover from
Alejandro the value of the sardines. The
latter contends that he is not liable therefore
because he is not a common carrier under
the Civil Code and, even granting for the
sake of argument that he is, he is not liable
for the occurrence of the loss as it was due
to a cause beyond his control. If you were
SUGGESTED ANSWER:
the judge, would you sustain the contention
If I were the Judge, I would hold Alejandro as
of Alejandro?
having engaged as a common carrier. A
person who offers his services to carry
passengers or goods for a fee is a common
carrier regardless of whether he has a
certificate of public convenience or not,
whether it is his main business or incidental
to such business, whether it is scheduled or
unscheduled service, and whether he offers
his services to the general public or to a
I will however, sustain the contention of
limited few (De Guzman v CA GR 47822
Alejandro that he is not liable for the loss of
27Dec1988)
the goods. A common carrier is not an insurer
of the cargo. If it can be established that the
loss, despite the exercise of extraordinary
diligence, could not have been avoided,
liability does not ensue against the carrier.
The hijacking by 3 armed men of the truck
used by Alejandro is one of such cases (De
Common
Guzman vs. Private
v CA Carrier; 27Dec1988).
GR 47822 Defenses (2002)
(Pedro de Guzman v CA L-47822 Dec 22,88
Name two (2) characteristics which 168s612)
differentiate a common carrier from a private SUGGESTED ANSWER:
SUGGESTED ANSWER:
carrier. (3%). b) AM Trucking may not set up the hijacking
Two (2) characteristics that differentiate a as a defense to defeat Reynaldo’s claim as
common carrier from a private carrier are: the facts given do not indicate that the same
1 A common carrier offers its service to the
was attended by the use of grave or
public; a private carrier does not.
irresistible threat, violence, or force. It would
2 A common carrier is required to observe
appear that the truck was left unattended by
extraordinary diligence; a private carrier is not so
its driver and was taken while he was visiting
required.
his girlfriend. (Pedro de Guzman v CA L-47822
Common
Dec 22,88Carriers; Liability
168 scra 612for). Loss (1991)
Alejandor Camaling of Alegria, Cebu, is
engaged in buying copra, charcoal, firewood,
and used bottles and in reselling them in
Cebu City. He uses 2 big Isuzu trucks for the
purpose; however, he has no certificate of
public convenience or franchise to do
business as a common carrier. On the return
trips to Alegria, he loads his trucks with
various merchandise of other merchants in
Alegria and the neighboring municipalities of
Badian and Ginatilan. He charges them
freight rates much lower than the regular
rates. In one of the return trips, which left
Cebu City at 8:30 p.m. 1 cargo truck was
loaded with several boxes of sardines, valued
at P100th, belonging to one of his customers,
Pedro Rabor. While passing the zigzag road
between Carcar and Barili, Cebu, which is
midway between Cebu City and Alegria, the
truck was hijacked by 3 armed men who took
all the boxes of
 Mercantile
Mercantile LawLaw
Bar Bar Examination
Examination Q &QA& A (1990-2006)
(1990-2006) Page 98 97
Page of 103of 103“received
policy and for shipment”
therefore void and and
seemingly inadequate despite its efforts of contained
inexistent. an entry indicating
(Art. 1409[1], transshipment
Civil Code)
Trust Receipts
improving Law; Liability
the same. Pasok for Transportation,
estafa (1991) in Hongkong. The President of JRT personally
Mr.
Inc., Noble,
now applies as for
thethe President
issuanceoftoABC it by Trading
the received and signed the bill of lading and
IncTransportation
Land executed a trust receipt and
Franchising in favor of BPI Kabit System;
despite the entries,Agent ofhe thedelivered
Registered Owner the (2005)
Bank to secure the
Regulatory Board of a certificate of public importation by his corresponding check in payment of thepassenger
Procopio purchased an Isuzu
company of certain
convenience for the same Manila-Tarlac- goods. After release and jeepney
freight. Thefrom shipmentEnteng, wasa delivered
holder of at a certificate
the
sale route.
Manila of the Could imported
Bayan goods, Bus Lines, theInc.,
proceeds port ofofpublic
discharge convenience
but the buyer for the refused operation
to of
SUGGESTED ANSWER: public
fromthe
invoke the“prior
sale operator”
were not rules turned over to BPI. accept
against theutility
anahaw vehicle plying the
fans because thereCalamba-Los
was
(per Dondee)
SUGGESTED
Would BPI No,
ANSWER:
be Bayan
justified BusinLines, filing Inc.,
a case for no Baños
on-boardroute. While and
bill of lading, Procopio
there was continued
Pasok Transportation, Inc.? Why? (6%)
BPI
cannot would
invoke be
the
estafa against Noble? justified
“prior in
operator” filing a case for
rules offering thesince jeepney for were public transport
transshipment the goods
estafa
against under
Pasok PD 115 against
Transportation, Inc.Noble.
because The fact services, inheHongkong did not have
transferred from the registration
MV Pacific, the of
that
such the trust
“Prior or Oldreceipt
Operator wasRule” issued in favor
under the of a the vessel,
vehicle to transferred in a his name. Neither
feeder MV Oriental, mother
bank,
Public instead
Service of aapplies
Act only seller,asto secureof the
a policy did he secure that for the himself
vessel. JRT argued sameacannot certificate
be of
theimportation
law of the Public of the goodsCommission
Service did not preclude to public convenience forbecause
its operation. Thus,
considered transshipment both
theaapplication
issue certificate of of public
the Trust Receipt Law.
convenience to a(PD per the records
vessels belong to theofsame the shipping
Land Transportation
115) operator
second Under the whenlaw,prior any operator
officer orisemployee Franchising and Regulatory Board, Enteng
company. 1) Was there transshipment?
of a corporation
rendering sufficient,responsible
adequate and for the violation remained its registered owner and operator.
ALTERNATIVE ANSWER: Explain 2) JRT further argued that assuming
of a trust
satisfactory receipt
service, and is whosubjectin allto the penal
things One day, while the jeepney was traveling
The filing of a case for estafa under the penal that there was transshipment, it cannot be
andliability
respects thereunder
is complying (Sia withv Peoplethe rule and
166s655) southbound,
deemed to have it collided
agreed thereto with evena ten-wheeler
if it
provisions of the RPC would not be justified.
regulation of the Commission. In the facts of truckthe ownedofby Emmanuel. Thesuch driver of the
It has been held in Sia v People (161 s 655) signed Procopiobill sued lading
Emmanuel containingfor damages, entry
but
the case at bar, Bayan Bus Lines service truck admitted responsibility for shipping
the accident,
that corporate officers and directors are not because it was made known
the latter moved to dismiss the case on the to the
became seemingly inadequate despite its explaining that the truck lost its brakes.
criminally liable for a violation of said Code. 2 lines from
SUGGESTED
ground the
thatstart
ANSWER: that
Procopio transshipment
is not the real party was in
efforts of improving the same. Hence, in the
conditions
Registered Owner;are required
Conclusive before(1990)
Presumption a corporate prohibited interest since he is not the registered that,
1) Yes. under
Transshipment the letter
is the of credit
act of and
taking owner
interest of providing efficient public transport
Johnny
officerownsmay a be Sarao jeepney.
criminally He asked
liable for anhis offense therefore,
cargo
of it had
outjeepney.
the of one no ship intention
and loading
Resolve the tomotion
allow
it in with
services,
1 the use of must the 'prior be aoperator' and
neighbor
committed Van There
ifbyhethecould operate
corporation; specific
the
viz:saidprovision of transshipment
another.
SUGGESTED
reasons. It is of the subject
immaterial
ANSWER:
(3%) whether cargo. Is the
or not the
the 'priority
law of filing' rules
mandating a shall is untenable
corporation to act or not to argument
Theperson,
motion to or dismiss should
jeepney under Van’s certificate of public same tenable?
firm, Reason.
entity owns the betwo denied
n this case.
act; andVan agreed and, accordingly, because Procopio,
convenience. vessels. (Magellan v CAas201 thes 102)real owner of the
Johnny2registered There his must
jeepney be anunder explicit Vanstatement in2) No. JRT is is
jeepney, bound
the real by theparty terms of the bill
in interest. of
Procopio
the law itself that,
name. On June 10, 1990, one of the in case of such violation bylading
falls when
under it accepted
the Kabit the bill
system. of lading
However, the
a corporation,
passenger jeepneys operated the officers by andVan directors with full knowledge
legal restriction as of its contents
regards the which
Kabit system
bumped thereof
Tomas. areTomas
to be personally
was injuredand andcriminally
in included
does transshipment
not apply in in thisHongkong.
case because the
liable
due time, hetherefore.
filed a complaint for damages Acceptance
public at under large suchis notcircumstances
deceived nor involved.
against Van and his driver for the injuries he makes
(Limthe v. bill
Court of lading
of Appeals,a binding G.R.contract.
No. 125817,
suffered. The court rendered judgment in (Magellan
In
Trust Receipts Law
Januaryv16,
any of
Ca 201
event,
2002, s 102)
Procoprio
citing Baliwag Transit v.
is deemed
favor of Tomas and ordered Van and his Court Appeals, G.R. No. 57493, to be "the
January 7,
driver, jointly and severally, to pay Tomas agent" of the registered
Receipts Law; Acts & Omissions; Covered (2006) (First
1987)
Trust owner.
The Sheriff levied on the jeepney belonging Malayan Leasing v. Court of Appeals, G.R.
actual and moral damages, attorney’s fees, What acts or omissions are penalized
to Johnny but registered in the name of Van. No. 91378, June 9,1992; and "F" Transit Co.,
and costs. under the Trust Receipts Law? (2.5%)
Johnny filed a 3rd party claim with the Sheriff Inc. v. ANSWER:
SUGGESTED NLRC, G.R. Nos, 88195-96, January
alleging ownership of the jeepney levied Maritime
The27, 1994)
Trust Commerce;
Receipts Law Bareboat(P.D. (2003)
No. 115)
upon and stating that the jeepney was declares the failure to turn of
For the transportation over itsgoods
cargoorfrom the
registered in the name of Van merely to proceeds realized from sale thereof, Kobe,
Port of Manila to the Port of as a Japan,
enable Johnny to make use of Van’s
Kabit System (2005) criminal offense under Art. 315(l)(b) of M/V Ilog of
Osawa & Co., chartered “bareboat”
certificate of public convenience. May the Karagatan
Revised Penal Corporation.
Code. The lawM/V Ilog met a sea
is violated
Discuss
SUGGESTED ANSWER: the “kabit system” in land accident resulting in the loss of the cargo and
Sheriff proceed with the public auction of whenever the entrustee or person to whom
transportation
Yes, the Sheriff may and its legal
proceed withconsequences.
the thereceipts
death of some of the seamen manning the
Johnny’s
SUGGESTED jeepney.
ANSWER: Discuss with reasons. trust were issued fails to: (a) return
(2%) sale of Johnny’s jeepney. In
auction vessel. Who should bear the loss of the cargo
The kabit system (Metropolitan Bank v. Tonda, G.R. No. 134436, August
contemplation of lawisasan arrangement
regards the public where a theSUGGESTED
16,and
goods covered
thethe ANSWER: by the trust receipts; or
death of the seamen?
person granted a
and third persons, the vehicle is considered certificate of public (b) 2000).
return
(per Dondee) proceeds
Osawaofand the Co. saleWhy? of said
shall
(4%)
bear the
Is lack of intent to defraud a bar to the
theconvenience
property of the allows other persons
registered operator to operate goods
loss because under a demise or bareboat
prosecution of these acts or omissions?
theirvmotor
Trans-Shipment;
(Santos SibugBill vehicles
104 S 520)under
of Lading; his license,
binding contract (1993) for a charter,ANSWER: the charterer (Osawa & Co.) mans
SUGGESTED
(2.5%)
JRTfee
Inc or percentage
entered of theirwith
into a contract earnings
C Co of (Lim v. No.theThevessel
Trust with Receiptshis own Lawpeopleis violated and becomes,
Court
Japan to of Appeals
export and Gonzalez,
anahaw fans valued G.R, at No. 125817, in effect,
whenever thethe owner for
entrustee theto:
fails voyage
(1) turn orover
service
JanuaryAs
$23,000. 16,payment
2002, citing thereof,Baliwag Trannit
a letter of v. Court thestipulated,
proceeds ofsubject the saletoofliabilitythe goods, for or damages
(2)
of Appeals,
credit was issued G.R. to No.JRT 57493,by the January
buyer. 1987) The
7, The caused
return the by goods negligence.
covered by the trust
law enjoining the kabit
letter of credit required the issuance of an system aims to Prior Operator
receipts if the goods Rule (2003)are not sold. The mere
identifybill the
on-board of ladingperson responsible
and prohibited thefor an Bayan
failure Bus Lines
to account or return had gives beenrise tooperating
the
accident
transshipment. in order
The to protect
President of the
JRT riding
then public. satisfactorily
crime which is a
malum bus service
prohibitum. overThere theis route
The law does not penalize the parties to a
The policy
contracted has no agent
a shipping force when to ship the public at Manila to Tarlac and vice versa via the
kabit agreement. But the kabitthesystem is no requirement to prove intent to defraud
large
anahaw is neither
fanstothrough deceived nor involved. McArthur Highway. With G.R. the No. upgrading
164317, of the
contrary public O Containers Lines, (Ching v. Secretary of Justice,
specifying the requirements of the letter of new North Expressway,
February 6, 2006; Colinares v. Court of Appeals, Bayan Bus Lines
credit. However, the bill of lading issued by service became
G.R. No. 90828, September 5, 2000; Ong v. Court
the shipping lines bore the notation of Appeals, G.R. No. 119858, April 29, 2003).
Mercantile Law Bar Examination Q & A (1990-2006) Page 99 of 103
b. The interest cannot be considered Trusts Receipt Law (2003)
usurious. The Usury Law has been PB & Co., Inc., a manufacturer of steel and
suspended in its application, and the interest steel products, imported certain raw
rates are made “floating.” materials for use by it in the manufacture of
its products. The importation was effected
Warehouse Receipts Law through a trust receipt arrangement with AB
Banking corporation. When it applied for the
Bill of Lading (1998) issuance by AB Banking Corporation of a
letter of credit, PB & Co., Inc., did not make
1. What do you understand by a “bill of
2. Explain(2%)
the two-fold character of a “bill of any representation to the bank that it would
lading?”
lading.” (3%) be selling what it had imported. It failed to
SUGGESTED ANSWER: pay the bank. When demand was made upon
1. A bill of lading may be defined as a written it to account for the importation, to return
acknowledgement of the receipt of goods and the articles, or to turn-over the proceeds of
an agreement to transport and to deliver them the sale thereof to the bank, PB & Co., Inc.,
at a specified place to a person named therein also failed. The bank sued PB & Co.’s
or on his order. President who was the signatory of the trust
2. A bill of lading has a two-fold character, receipt for estafa. The President put up the
namely, a) it is a receipt of the goods to be defense that he could not be made liable
transported; and b) it constitutes a contract of because there was no deceit resulting in the
carriage of the goods. violation of the trust receipt. He also
SUGGESTED ANSWER:
submitted that there
No, the defenses arewas
notnosustainable.
violation of The
the
trust
lack receipt
of deceitbecause the raw
should not materials were
be sustained
not sold the
because but mere
used by the to
failure corporation in the
account for
manufacture
importation, orofreturn
its products. Would
the articles those
constitutes
defenses
the abuse be of
sustainable?
confidence Why? (6%)crime of
in the
estafa. The fact that the goods aren’t sold
but are used in the manufacture of its
products is immaterial because a violation of
the trust receipts law happened when it
failed to account for the goods or return
Usury Law
them to the Bank upon demand.
Usury Law (199)
These conditions are not met in the penal Borrower obtained a loan from a money
provisions of the RPC on trust receipts. lending enterprise for which he issued a
promissory note undertaking to pay at the
Trust Receipts Law; Liability for Estafa (1997) end of a period of 30 days the principal plus
A buys goods from a foreign supplier using his interest at the rate 5.5% per month plus 2%
credit line with a bank to pay for the goods. per annum as service charge.
Upon arrival of the goods at the pier, the bank On maturity of the loan, borrower failed to
requires A to sign a trust receipt before A is pay the principal debt as well as the
allowed to take delivery of the goods. The trust stipulated interest and service charge.
receipt contains the usual language. A 1 he was
Hence, How sued.
would you dispose of the
disposes of the goods and receives payment issues raised by the borrower?
but does not pay the bank. The bank files a 2 That the stipulated interest rate is
criminal action against A for violation of the excessive and unconscionable? (3%)
Trust Receipts Law. A asserts that the trust 3 Is the interest rate usurious? (3%)
receipt is only to secure his debt and that a Recommendation: Since the subject matter
criminal action cannot lie against him because
SUGGESTED ANSWER: of these two (2) questions is not included
that
No. Violationbe
would of violative of hisis constitutional
a trust receipt criminal as within the scope of the Bar Questions in
right against “imprisonment
it is punished as estafa under forArt
nonpayment
315 of theof Mercantile Law, it is suggested that whatever
a debt.” Is he correct?
RPC. There is a public policy involved which answer is given by the examinee, or the lack
of answer should be given full credit. If the
is to assure the entruster the reimbursement SUGGESTED ANSWER:
examinee gives a good answer, he should be
of the amount advanced or the balance a. The rate
given of interest
additional of 5.5% per month is
credit.
thereof for the goods subject of the trust excessive and unconscionable.
receipt. The execution of the trust receipt or
the use thereof promotes the smooth flow of
commerce as it helps the importer or buyer
of the goods covered thereby.

Delivery of Goods; Requisites (1998)
Luzon Warehousing Co received from Pedro
200 cavans of rice for deposit in its
warehouse for which a negotiable receipt was
issued. While the goods were stored in said
warehouse, Cicero obtained a judgment
against Pedro for the recover of a sum of
money. The sheriff proceeded to levy upon
the goods on a writ of execution and directed
the warehouseman to deliver the goods. Is
SUGGESTED ANSWER:
the warehouseman under obligation to
No. There was a valid negotiable receipt as
comply with the sheriffs order? (5%)
there was a valid delivery of 200 cavans of
rice for deposit. In such case, the
warehouseman (LWC) is not obliged to
deliver the 200 cavans of rice deposited to
any person, except to the one who can
1
comply surrender
with sec the8 of receipt
the ofWarehouse
which he is a can surrender the receipt which is in its
holder;
Receipts Law, namely:
2 willing to sign a receipt for the delivery requirements which will oblige the
of the goods; and
3 pays the warehouseman’s liens that is, sign a receipt for the delivery of the rice, and
his fees and advances, if any.
The sheriff cannot comply with these
requisites especially the first, as he is not
the holder of the receipt.
Delivery of the Goods (1991)
When is a warehouseman bound to deliver
the goods, upon a demand made either by
the holder of a receipt for the goods or by
SUGGESTED ANSWER:
the depositor?
The warehouseman is bound to deliver the
goods upon demand made either by the
holder of the receipt for the goods or by the
depositor if the demand is accompanied by
1 an offer to satisfy the warehouseman’s
lien,
2 an offer to surrender the receipt, if
negotiable, with such indorsements as would be
necessary for the negotiation thereof,
Page 100 of 103
3. and readiness and willingness to sign
when the goods are delivered if so requested
by the warehouseman (Sec 8 Warehouse
Receipts Law).
Garnishment or Attachment of Goods (1999)
A Warehouse Company received for
safekeeping 1000 bags of rice from a
merchant. To evidence the transaction, the
Warehouse Company issued a receipt
expressly providing that the goods be
delivered to the order of said merchant. A
month after, a creditor obtained judgment
against the said merchant for a sum of
money. The sheriff proceeded to levy on the
rice and directed the Warehouse Company to
1
deliver What
to himadvice will you give
the deposited rice. the
Warehouse Company? Explain (2%)
2 Assuming that a week prior to the
levy, the receipt was sold to a rice mill on
the basis of which it filed a claim with the
sheriff. Would the rice mill have better rights
SUGGESTED ANSWER:
to the rice than the creditor? Explain your
1
answer.The 1000 bags of rice were delivered
(2%)
to the Warehouse Company by a merchant,
and a negotiable receipt was issued therefor.
The rice cannot thereafter, while in the
possession of the Warehouse Company, be
attached by garnishment or otherwise, or be
levied upon under an execution unless the
receipt be first surrendered to the
warehouseman, or its negotiation enjoined.
The Warehouse Company cannot be
compelled to deliver the actual possession of
the rice until the receipt is surrendered to it or
impounded by the court.
2 Yes. The rice mill, as a holder for
value of the receipt, has a better right to the
rice than the creditor. It is the rice mill that
possession and can comply with the other
warehouseman to deliver the rice, namely, to
to pay the warehouseman’s liens and fees
and other charges.
 Mercantile Q
Mercantile Law Bar Examination Law
& ABar Examination Q & A (1990-2006)Page
(1990-2006) 103
101 of Page103 102 equal of 103
protection
SN Warehouse canof file
law an clause
this
There additional
was noduty, the current
misdelivery bylow theprice carrierof 2. of the Chief
The Constitution.
INTERPLEADER Justice Fourth,
to compel also EJthere
said is
and Melchor
that no the to
sugar
since the in the cargoworld was market
consideredwill surely consignedpull the to impairment
litigate must
judiciary against of"safeguard
due
each process
otherthe here
for the because
ownership
liberty" and
domestic
the Sugarprice Miscellaneous
central to levels
per the lower than theOrder”
“Shipper’s cost violators
of the goods.
"nurture of the
the law17
Sec.
prosperity" willofbetheofpunished
Warehouse
our people. only
to producer
(Eastern domestic
Shipping Lines sugar
v CA– 190 a situation
s 512) that after
Receipts
Explain "proper
this Law trial."
states,Fifth,
philosophy. "If
Cite the
more issue
than one
Decisions ofof "just
the
ALTERNATIVE
could spell ANSWER:
the demise of the Phil sugar compensation"
person Court
Supreme does
claimsimplementing
the title notorarise,
possession
each because
of of thesethe
the
Energy Regulatory Commission: theJurisdiction
There was misdelivery. The of &B/LPowerwas a SUGGESTED
property
goods, ANSWER:
theofof Mrs.
warehouse
industry. a) Discuss validity this twin beacons theBC Chiefis not
may, being
Justice. either expropriated.
(2.5%) as a
(2004)
proposal to impose an additional levy onit was
negotiable document of title because TheOn Chief Justice's
the contrary,
defense to an action philosophy
as abrought
citizen of "Safeguarding
LVM, Mrs.
against him BC for
CG,imported
toacustomer,
the “Shipper’ssugarsued (3%) MERALCO
Order.”b) Would Hence, inthe
the thecommon
proposalMM Liberty,
is Nurturing
freely allowed
non-delivery of the Prosperity"
to engage
goods orinas embodies
domestic
an original the
Regional Trial Court todelivered
disclose the the cargobasis to of Supreme Court's
trade inapproach in decision-making
be consistent with the tenets of the World the
carrier should have timber
suit, whichever LVM.
is appropriate, require all
theTradecomputation
Central only upon of
Organization (WTO)? (3%) the
surrender purchased of the power
B/L. The in Tariff
the exercise
and Customs of its
Code:
known claimants to interplead." constitutional
Violation of Customs power
Laws of
adjustment
non-surrender (PPA).ofThe
Recommendation: thetrial B/L court
will
Since ruled
make theititliable
had to
subject judicial review
Unpaid Seller;
(2004) whichof the
Negotiation provides:
Receipt (1993) In cases
no holders
jurisdiction in dueover
matter of these
course. the two case (2) because,
questions is asnot involving
A purchased
The liberty,
Collector ofthe
from Sscales
Customs 150 cavans of justice
ordered ofthe should
palay on
seizure
Ownership
contended of
byGoods
included Stored
the within
defendant, (1992)
the scope of the Bar
the customer weight
credit.
and heavily
A deposited
forfeiture against
of new the government
palay in W’s
electronic and in
appliances
notTo only
guaranteeQuestions
demandedthe payment
in Mercantile of a loan
a breakdown Law, obtained
itof is favor of by
warehouse.
shipped theTONW poor,
issued
Corp.to the A aoppressed,
from negotiableforthe
Hongkong
from a bank,
MERALCO's suggested
bill Raul with that
pledged whatever
respect 500to answer
balesPPAof isbut
given marginalized,
warehouse
violation of the
receipt
customsdispossessed
inlaws
the namebecauseand of the
A.they weak;
were
tobaccobydeposited
questioned asthe well examinee,
theinimposition or the lack
a warehouse of thetoofsaid
answer
PPA, andfalsely
thatdeclared
Thereafter, laws and
A negotiated
as used action that
the receipt
office equipment restrict
to B whoand
should be given full credit.
bank and
a matter toendorsed
be decided in blank by the BoardIf ofthe
the warehouse fundamental
purchased
then rights
the said
undervalued come
forreceiptto the
purposes court
for value "withina
and
of customs
receipt. examinee gives a good answer, heloan,
should
Energy,
SUGGESTED theBeforeregulatory
ANSWER: Raul could agency paywhichfor the should heavy
good
duties.presumption
faith.
TON1) Who
filed against theirbefore
has a better
a complaint constitutional
right theto theMM
SUGGESTED ANSWER:
the be
tobacco given additional
disappeared credit.
from the suit. Is
alsoa) The
have proposal
jurisdiction to overimpose the an additional
instant duty validity.
deposit,
Regional OnS, thetheother
Trial unpaid
Court hand,
forvendor as aorgeneral
replevin, b, the rule,
alleging that
Thewarehouse.
trial court's Who rulingshould is correct.
bear the Asloss held
– the in
the on imported
trial court's sugar
ruling on top
correct oforthe not? current
Reason tariff thethe
Supreme
purchaser
Customs ofCourt
the must
receipt
officials erredadopt
forin valuea deferential
the and in good
Manila
SUGGESTED
pledgor ElectricANSWER: Company v. Court of Appeals,
rate
briefly. is or the bank?
valid, not being Why? prohibited by the
The (5%)
271SCRA pledgor
417 (1997), should the bearBoard the loss. of Energy In the or respectful
faith? Why?
classification
SUGGESTED ANSWER:
attitude
2)andWhen towards
can the
valuation actions taken by
ofwarehouseman
its shipment,
Constitution. It would enable producers to theas
begovernmental
obliged
well as tothe
in agencies
deliver
issuance that
the palay
of the have A? primary
towarrant of
hadpledge
the power of a warehouse
to regulate receipt and fix the power ownership
rates 1) B has a better right than S. The right of
realize reasonable profits, and would allow responsibility
seizure. The for the economic
Collector moved todevelopment
dismiss the
to of
be the charged goodsbyremain franchised with electric
depositor or his
utilities the unpaid seller, S, to the goods was
the sugar industry of the country to survive. of the
suit country; and
for implementing
lack only when anthe actpart
hasofbeen
transferee.
likeb) MERALCO. Any
In factcontract
pursuant
No. The proposal would not be consistent or toreal security,
Executive Decisions
defeated
SUGGESTED by of
ANSWER:the jurisdiction
act ofthe on
A in"safeguarding
endorsing theofthe
among
Order No. them a of pledge, does notpower amount to clearly
trial made
court. or
Shouldexecutedthe with
Collector'sgrave abuse
motion beof
with the478 tenets(April 17,
the1998),WTO this
which call has
for the The
liberty"
receipt
discretion
Collector's
include
to B.
does
motion
the
thoseshould
Court get
be granted.
involving
involved
the
beenor result
transferred in an assumption
to
liberalization of trade. However, such the Energy of risk of
Regulatory loss by granted
2) The Section
Under or denied?
warehouseman
constitutionality 602(g)
of Reason
ofcan
Presidential thebe briefly. and to in
obliged
Tariff (5%)
Proclamation
the creditor.(nowmayThe policy issues.
Board
proposal the beWarehouseEnergy Receipts
acceptable within Law
Regulatory the deliver
No.Customs the
1017 (David palay
Code, v.theto Bureau
A if BG.R.
Arroyo, negotiates
of Customs
No. 171390, back
has
did not deviate
Commission).
allowable Under
period fromSection this rule.the
under 43(u) WTO of thefor May the 3,receipt
exclusive
2006); to A. validity
original
the Injurisdiction
that case, A becomes
over
of Calibrated seizure Pre-a
Right
Electric to the
Power ofGoods (2005)
Industry Reform Act of 2001, holder NOTE:
again
and forfeiture
emptive Response (This
of the
cases question
(CPR) receipt,
under is outside
and A
the tariff
and B.P. can
Big. 880the
andcoverage
or of
adjustment
JojoEnergy
deposited the local
several industry
cartons of goods with
thePower Regulatory Commission
of the State: Regulating of Domestic Trade (2004) hasSN PublicBar
comply
thecustoms the
with Examinations.
laws.
AssemblySec 8 of Act ItWarehouse
is therefore
the(Bayan recommended
v. Ermita,
whatever
Warehouse
original and exclusive
In its exercise
Corporation.
of police
The
jurisdiction
power andover
corresponding
businessall G.R.Validity
Receipts Law. answer
that
No. of169848,
stipulations excusing
April
made by the candidate
25, warehouseman
2006); andfrom the
should
Fourwarehouse
ACID Problems of Philippine
receipt was Judiciary
issued to (2006)
the order of negligence given
be (2000) full credit.)
cases contesting
regulation, the power rates.
legislature of LVM State legality of Executive Order No. 464 and the
In several
Jojo. Hepolicy endorsed addressesthe warehouseextensively receipt to EJ S stored hardware
passed a law prohibiting aliens from President's exercise materials
of Executive in thePrivilege
bonded
covered
who paid by media the value since of his the
appointment
goods deposited. on On the
warehouse other of hand,
W, a cases
licensed that relate
warehouseman to
engaging in domestic timber trade. Violators (Senate of the Philippines v. Ermita, G.R. No.
Before EJ
December 21,could2005,withdrawChief Justice the goods,
ArtemioMelchor V. "nurturing
under the theGeneralprosperity"
Bonded of the
Warehouse people
Law
including dummies would, after proper trial, 169777, April 20, 2006).
informed vowed
Panganiban SN Warehouse
to leave a Corporation
judiciary that the include
(Act 3893the question
as amended). the constitutionality
W issued the of
be
goods fined and imprisoned
belonged to him or deported. Mrs.
characterized by "four Ins"and andwere to focustaken in by Jojo thecorresponding
Mining Law (La Bugal-B'Laan
warehouse receiptv.inRamos,the form
BC,
without a citizen of LVM but married to ZC, an
solving thehis "four consent.
ACID" problemsMelchor wants that to get the G.R.heNo. 127882,
ordinarily Dec.
uses for1,such2004) and the
purpose in WTO
the
alien
goods,the merchant
but EJhas of PNG,
alsoa wants
betterto filed suit
withdraw to invalidate
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justiceto the in the
our same.
goods? Government
course Deregulation
Agreement of(Tanada
his business. vs.
v. Privatization
Angara,
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Why? or exempt from its coverage their
ANSWER:
ANSWER: (2004)
country.
She Explain
contended this "four
that office, Ins" and
the lawChief "four
is, inter alia, May 2,1997).
required under Section 2 of the Warehouse
Upontimber
EJ has business.
assuming
a betterhis right to the goods, Justice
being What is the Law difference between government
ACID"
gravelyproblems. oppressive and discriminatory. It Receipts (Act 2137 as amended) are
Panganiban
covered byvowed a negotiable to lead document a judiciary of title, Negotiable
deregulation Documents and of Title
the (1992)
privatization of receipt
an
violated
characterized the Universal
by the "four Declaration
Ins:"issued of Human
Integrity, embodied in the form. In addition, the
namely the warehouse receipts to the Forissued
a cargo
SUGGESTED
industry? ANSWER:
Explain of machinery
briefly. (2%) shipped from
Rights (UDHR)
Independence, passedand
Industry in 1948 by the United to Sderegulation
contains a stipulation that W or
"order of Jojo." Under the Intelligence;Sales provisions one of Government
abroad to a be sugar central is the
inthe relaxation
Dumaguete,
thatNations,
is morally of which
courageous LVM is to a member,
resist she said,
influence, would
removal not
of regulatoryresponsible for
constraints loss
on firms of allor or
the Civil Code on negotiable documents of Negros Oriental, the Bill of materials
Lading (B/L)
as well as indifference
interference, the reciprocity provisions of the any portion of the hardware
title, and under the and insolence.
provisions of He the individuals,
stipulated with a order,”
view to promoting
World
envisions Trade
a judiciary Organization
that isLaw, (WTO)
impervious Agreement covered“to byand shipper’s
the market-oriented
receipt even ifwith such notice
loss is of
Warehouse Receipts when to goods the competition
arrival to be addressed to the approaches
Central. The
of 1994,
plague of undue of which PNG and LVM are parties. causedpricing,
by the negligenceentry, of W or his other
deposited with influence
the bailee brought
are covered about by a toward
cargo arrived at output, destinationS and
itsemployees. and was
Aside
kinship, from denying
relationship, them equal
friendship protection,
and representatives
related economic or
decisions. endorsed
negotiable document of title, the released to the Central without surrender of
according
fellowship. Hetocalls BC, the law judiciary
will also deprive her and negotiated
Privatization ofthe antheindustry
warehouse receipt
refers to to theB,
endorsement andon the
delivery of the to battle
document thewho B/L on basis of the latter’s
family
thetransfers
"Four ACID"their livelihood
problems without due process transfer demanded
of ownership delivery of the
andcarrier goods.
controlfree by andW the
ownership of thecorroding goods toour the undertaking to hold the
nor
justice just ANSWER:
system: compensation.
(1) Assuming that the could notANSWER:
government deliver
of assets,becausefirms the
and goods were
operations
transferee.
SUGGESTED By limited operation access to justice
of law, by the Subsequently,
SUGGESTED
harmless from a Bank
anyfound to
liability. whom the central
thelegal
poor;
Mrs. system
BC's of LVM is
(2)contention
corruption; similar
(3) tenable. to ours,
incompetence; would in
was nowhere
No.
an I do not
industry
indebted, to tobe
agree
private with
claimed in his
thethewarehouse.
contention
investors. cargo and HeW.
of
transferee obtains theisdirect
not obligation First,
of the the
andMrs.
UDHR (4) BC's delay
does contention
notin the
purport beto tenable
delivery limit of the orright
quality not? of claims
Political
The Law; heWTOis
stipulation not
(1999) liable
that W because
would
presented the original of the B/L stating that notof the
be free-
bailee to hold the goods
(NOTA in his
BENE: name." It (Art.
is
Reason
judgments.
states briefly.
The (5%)
judicial department should from-liability
Government
theresponsible
Central had clause
plans
for the
failed stipulated
toloss
toimposeof allits
settle orin
an theportion
any
obligationsreceipt.
additional
1513, (like Civil LVM)
Code; to regulate
Section
respectfully domestic
41, Warehouse
suggested trade.
discharge dutyDo on
of theyou
the agree with
imported
hardware sugar W’soncontention?
materials top of the by
covered Explain.
current
the
Receipts its
Second, the
Law) functions
WTO
Since thatEJwith Agreement
is the
all Bar transparency,
holder
Candidates involves
of the with Bank.
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international If SN Warehouse
and trade
dignity. between Corporation states isor Was (5%)
tariff rate.even
receipt
there The ifintent
misdelivery such lossisbytothe
isensure
carrierthat
caused bytothe the
the
warehouse receipt, he has
receive a the
2.5% better
bonus right
for to
uncertain as not
governments, to the who is
domestic entitled
trade in to theor
timber landed cost ofconsidering
negligence
sugar central ofsugar
W or shall not non-surrender
be lower or
his representative
the than
the goods. SN Warehouse is obliged to hold above question
property,
other what is the
commodities. properof
regardless
Third, recourse
the answer)
nationality ofisthe an P800
SUGGESTED per
employees
of the bag.
ANSWER:
B/L? Why? This The
is void. is the law price
requires at thatwhich a
the goods
SUGGESTED in his name.
ANSWER:
corporation? Explain.
accepted norm for making classifications that locally produced sugar would
warehouseman should exercise due diligence be sold in order
do not run counter to the to inenable
the care sugar and custody producers to realize
of the things
reasonable
deposited profits. Without
in his warehouse.