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

ANSWERS TO BAR
EXAMINATION QUESTIONS
IN
MERCANTILE LAW
ARRANGED BY TOPIC
(1990 2006)
Edited and Arranged by:
Silliman University College
of Law at!" #00$
U%&ate& 'y(
Dondee
D BAR-Retake 2007
From the ANSWERS TO BAR EXAMINATION QUESTIONS
bthe U! "AW #OM!"EX $ !%I"I!!INE ASSO#IATION OF
"AW S#%OO"S 200&
June 27, 2007
Mercantile Law Bar Examination Q & A (1990-2006) Page # of 103
F O R E W A R D
This work is not intended for sale or commerce. This work is freeware. It ma !e
freel co"ied and distri!#ted. It is "rimaril intended for all those who desire to ha$e a
dee"er #nderstandin% of the iss#es to#ched ! the Phili""ine Bar E&aminations and its
trend. It is s"eciall intended for law st#dents from the "ro$inces who' $er often' are
reci"ients of deli!eratel distorted notes from other #nscr#"#lo#s law schools and
st#dents. (hare to others this work and o# will !e richl rewarded ! God in hea$en.
It is also $er %ood karma.
)e wo#ld like to seek the ind#l%ence of the reader for some Bar *#estions which are
im"ro"erl classified #nder a to"ic and for some to"ics which are im"ro"erl or
i%norantl "hrased' for the a#thors are +#st Bar Re$iewees who ha$e "re"ared this
work while re$iewin% for the Bar E&ams #nder time constraints and within their
limited knowled%e of the law. )e wo#ld like to seek the reader,s ind#l%ence for a lot
of t"o%ra"hical errors in this work.
The A#thors
-#l ./' .001
2"dated3 -#ne
.4' .004
Mercantile Law Bar Examination Q & A (1990-2006) Page 3 of 103
TALE )* C)NTENTS
+eneral ,rin!i%les of Mer!antile Law..............................................................................5.
Commercial Transaction 200!" 5. #oint Acco$nt 2000" 5. #oint Acco$nt %s&
Partners'i( 2000" 5. T'eory o) Cognition %s& T'eory o) *ani)estation +,,7" 5.
an-ing Law...........................................................................................................................5.
Banks: A((licability: -oreign C$rrency De(osit Act . /ecrecy o) Bank De(osits
2000" 5. Banks: Collateral /ec$rity 2002" 5. Banks: /ecrecy o) Bank De(osits1
2arnis'ment 2003" 56 Banks1 Classi)ications o) Banks 2002" 56 Banks1
Conser%ator %s& Recei%er 2004" 56 Banks1 Diligence Re5$ired +,,2" 57 Banks1
6nsol%ency1 Pro'ibited Transactions 2000" 57 Banks1 6nsol%ency1 Re5$irements
+,,7" 57 Banks1 Restrictions on 7oan Accommodations 2002" 57 Banks1
Restrictions on 7oan Accommodations 2004" 51 Banks1 /a)ety De(osit Bo81
7iability 51 Banks1 /ecrecy o) Bank De(osit1 A*7C 2004" 51 Banks1 /ecrecy o)
Bank De(osit1 E8ce(tions 2004" 5/ Banks1 /ecrecy o) Bank De(osits +,,0" 5/
Banks1 /ecrecy o) Bank De(osits +,,+" 5/ Banks1 /ecrecy o) Bank De(osits
+,,2" 54 Banks1 /ecrecy o) Bank De(osits +,,3" 54 Banks1 /ecrecy o) Bank
De(osits +,,0" 54 Banks1 /ecrecy o) Bank De(osits +,,9" 54 Banks1 /ecrecy o)
Bank De(osits 2000" 58 Banks1 /ecrecy o) Bank De(osits1 E8ce(tions 2003" 58
Banks1 /ecrecy o) Bank De(osits1 2arnis'ment 200+" 58 B/P1 Recei%ers'i(1
#$risdiction +,,2" 58 7egal Tender 2000" 59 PD6C 7a: %s& /ecrecy o) Bank
De(osits Act +,,7" 59 Res(onsibilities . ;b<ecti%es o) B/P +,,9" 59 Tr$t' in
7ending Act +,,+" 59 Tr$t' in 7ending Act 2000" 59
.l- Sales Law .......................................................................................................................0
B$lk /ales 7a:1 Co%ered Transactions +,,3" .0 B$lk /ales 7a:1 Co%ered
Transactions 2000" .0 B$lk /ales 7a:1 Co%ered Transactions 2004" .0 B$lk /ales
7a:1 E8cl$sions +,,!" .0 B$lk /ales 7a:1 ;bligation o) t'e =endor +,,0" .5 B$lk
/ales 7a:1 ;bligation o) t'e =endor +,,7" .5 B$lk /ales 7a:1 ;bligation o) t'e
=endor 200+" .5
Cons.mer ,rote!tion Law...................................................................................................5
*etric /ystem 7a: +,,3" .5
Mercantile Law Bar Examination Q & A (1990-2006) Page / of 103 Cor%oration
Law......................................................................................................................
B;D: Election o) Aliens as members 2000" .. B;D1 Ca(acity o) Directors +,,4"
.. B;D1 Com(ensation +,,+" .. B;D1 Con)lict o) 6nterest +,,3" .. B;D1
6nterlocking Directors +,,0" .. B;D1 6nterlocking Directors +,,4" .6 By-7a:s1
=alidity1 limiting 5$ali)ications o) B;D members +,,9" .6 By-7a:s1 =alidity1
limiting 5$ali)ications o) B;D members 2000" .6 By-7a:s1 =alidity1 limiting
5$ali)ications o) B;D members 200+" .6 By-7a:s1 =alidity1 limiting 5$ali)ications
o) B;D members 200!" .7 Close Cor(orations1 Deadlocks +,,0" .7 Closed
Cor(oration1 Restriction1 Trans)er o) s'ares +,,3" .7 Contro%ersy1 6ntra-
Cor(orate +,,3" .1 Contro%ersy1 6ntra-Cor(orate +,,4" .1 Contro%ersy1 6ntra-
Cor(orate +,,4" .1 Contro%ersy1 6ntra-Cor(orate 2004" .1 Contro%ersy1 6ntra-
cor(orate1 #$risdiction +,,7" .1 Cor(oration /ole1 De)inition 2003" ./
Cor(oration: 6ss$ance o) s'ares o) stock to (ay )or t'e ser%ices 2000" ./
Cor(oration: Rig't o) Re($rc'ase o) /'ares1 Tr$st -$nd Doctrine 2000" ./
Cor(oration: /ole Pro(rietors'i( 2003" ./ Cor(oration1 Articles o) 6ncor(oration
+,,0" ./ Cor(oration1 B$lk /ales 7a: 2000" .4 Cor(oration1 By-la:s 200+" .8
Cor(oration1 Commencement1 Cor(orate E8istence 200!" .8 Cor(oration1
Con%ersion o) /tock Cor(oration 200+" .8 Cor(oration1 De -acto Cor(oration
+,,3" .8 Cor(oration1 Dissol$tion1 *et'ods o) 7i5$idation 200+" .8 Cor(oration1
6ncor(oration1 Re5$irements 2004" .8 Cor(oration1 6ncor(oration1 Re5$isites
2002" .9 Cor(oration1 *eetings1 B;D . /tock'olders +,,!" .9 Cor(oration1
>ationality o) Cor(oration +,,9" .9 Cor(oration1 >on-/tock Cor(oration +,,!" .9
Cor(oration1 Po:er to 6n%est Cor(orate -$nds )or ot'er P$r(ose +,,0" 60
Cor(oration1 Po:er to 6n%est Cor(orate -$nds in anot'er Cor(oration +,,4" 60
Cor(oration1 Reco%ery o) *oral Damages +,,9" 60 Cor(oration1 /e(arate
#$ridical Personality +,,0" 65 Cor(oration1 /e(arate #$ridical Personality +,,4"
65 Cor(oration1 /e(arate #$ridical Personality +,,4" 65 Cor(oration1 /e(arate
#$ridical Personality +,,," 65 Cor(oration1 /e(arate #$ridical Personality 2000"
6. Cor(oration1 /e(arate #$ridical Personality 2000" 6. Cor(oration1 /et-;))1
?n(aid /$bscri(tion +,,3" 6. Cor(oration1 /tock Cor(oration 200+" 6.
Cor(oration1 =alidity o) Cor(orate Acts +,,9" 66 Cor(oration1 =alidity o)
Cor(orate Acts 2002" 66 Cor(oration1 =ol$ntary Dissol$tion 2002" 66
Cor(oration1 =oting Tr$st Agreement +,,2" 66
Mercantile Law Bar Examination Q & A (1990-2006) Page $ of 103
Deri%ati%e /$it: Re5$isites 2003" 67 Deri%ati%e /$it: @atered /tock +,,!" 67
Deri%ati%e /$it1 Close Cor(oration1 Cor(orate ;((ort$nity 2000" 67 Deri%ati%e
/$it1 *inority /tock'older 200!" 61 Distinction: De )acto Cor(oration %s&
Cor(oration by Esto((el 2003" 61 Distinction: Di%idends %s& Pro)it: Cas' Di%idend
%s& /tock Di%idend 2000" 61 Distinction1 Pri%ate %s& P$blic Cor(oration 2003" 61
Distinction1 /tock %s& >on-/tock Cor(oration 2003" 6/ Di%idends: Declaration o)
Di%idends 2000" 6/ Di%idends: /o$rces o) Di%idends1 Tr$st -$nd Doctrine 2000"
6/ Di%idends1 Declaration o) Di%idends +,,0" 6/ Di%idends1 Declaration o)
Di%idends +,,+" 6/ Di%idends1 Declaration o) Di%idends 200+" 6/ Di%idends1
Rig't1 *anaging Cor(oration +,,+" 64 Doctrine o) Cor(orate ;((ort$nity 2000"
64 E))ect: E8(iration o) Cor(orate Term 2003" 64 E))ects1 *erger o) Cor(orations
+,,," 64 E))ects1 @inding ?( Period o) a Cor(oration +,,7" 68 E))ects1 @inding
?( Period o) a Cor(oration 2000" 68 -oreign Cor(oration1 ADoing B$sinessB in t'e
P'ili((ines +,,9" 68 -oreign Cor(oration1 ADoing B$sinessB in t'e P'ili((ines1
Acts or Acti%ities 2002" 68 -oreign Cor(oration1 ADoing B$sinessB in t'e
P'ili((ines1 Test 2002" 69 #oint =ent$re1 Cor(oration +,,4" 69 7iabilities1 B;D1
Cor(orate Acts +,,4" 69 7iabilities1 /tock'oldersC DirectorsC ;))icers +,,7" 69
Piercing t'e Cor(orate =eil +,,3" 69 Piercing t'e Cor(orate =eil +,,4" 70
Piercing t'e Cor(orate =eil 200+" 70 Piercing t'e Cor(orate =eil 2003" 70
Piercing t'e Cor(orate =eil 2004" 70 Pre-em(ti%e Rig't 200+" 70 Pre-Em(ti%e
Rig't %s& A((raisal Rig't +,,," 75 /EC1 #$risdiction1 Trans)erred #$risdiction
+,,4" 75 /tock'older1 Delin5$ent1 ?n(aid /$bscri(tion +,,7" 75 /tock'olders:
Preem(ti%e Rig't 2003" 7. /tock'olders1 A((raisal Rig't 200!" 7. /tock'olders1
Remo%al o) ;))icers . B;D 200+" 7. /tock'olders1 Remo%al1 *inority Director
+,,+" 7. /tock'olders1 Rig'ts +,,4" 7. /tock'olders1 =oting Po:er o)
/tock'olders +,,0" 7. /tocks1 6ncrease o) Ca(ital /tock 200+" 7. /tocks1 /aleC
Trans)er o) Certi)icates o) /tock +,,4" 76 /tocks1 /aleC Trans)er o) Certi)icates o)
/tock 200+" 76 /tocks1 /aleC Trans)er o) Certi)icates o) /tock 2003" 76 Tr$st -$nd
Doctrine +,,2" 76 Tr$st -$nd Doctrine1 6ntra-Cor(orate Contro%ersy +,,+" 76
Cre&it Transa!tions..............................................................................................................77
C'attel *ortgage %s& A)ter-6nc$rred ;bligations +,,+" 77
Mercantile Law Bar Examination Q & A (1990-2006) Page 0 of 103
C'attel *ortgage %s& A)ter-6nc$rred ;bligations +,,," 77 C'attel *ortgage1
-oreclos$re +,,7" 77 C'attel *ortgage1 ;:ners'i( o) T'ing *ortgaged +,,0" 71
Credit Transactions +,,," 71 *ortgage +,,," 71 *ortgage %s& 7e%y 200!" 7/
*ortgage1 E8tra<$dicial -oreclose 2004" 7/ *ortgage1 -oreclos$re 200!" 7/
*ortgage1 -oreclos$re 200!" 7/ *ortgage1 -oreclos$re o) 6m(ro%ements +,,,"
7/ *ortgage1 -oreclos$re1 E))ect o) mere taking by creditor-mortgagor o) (ro(erty
+,,2" 74 *ortgage1 Redem(tion Period1 -oreclosed Pro(erty 2002" 74 *ortgage1
Remedies 200!" 78 Pre)erence o) Credits 2002" 78 Promissory >ote: 7iability
200+" 78 Remedies1 A%ailable to *ortgagee-Creditor +,,4" 78 Remedies1
A%ailable to *ortgagee-Creditor 200+" 79 Remedies1 /ec$red Debt +,,+" 79
Ins.ran!e Law........................................................................................................................79
Bene)iciary: E))ects: 6rre%ocable Bene)iciary 2000" 79 Bene)iciary: Rig'ts1
6rre%ocable Bene)iciary 2000" 10 Bene)iciary1 7i)e 6ns$rance1 Pro'ibited
Bene)iciaries +,,9" 10 Concealment1 *aterial Concealment 200+" 10
Concealment1 *aterial Concealment: 6ncontestability Cla$se +,,3" 10
Concealment1 *aterial Concealment: 6ncontestability Cla$se +,,4" 10
Concealment1 *aterial Concealment: 6ncontestability Cla$se +,,7" 15
Concealment1 *aterial Concealment1 6ncontestability Cla$se +,,+" 15
Concealment1 *aterial Concealment1 6ncontestability Cla$se +,,9" 15 6ns$rable
6nterest: Bank De(osit 2000" 15 6ns$rable 6nterest: P$blic Enemy 2000" 1.
6ns$rable 6nterest: /e(arate 6ns$rable 6nterest +,,," 1. 6ns$rable 6nterest1
E5$itable 6nterest +,,+" 1. 6ns$rable 6nterest1 7i)e %s& Pro(erty 6ns$rance +,,7"
1. 6ns$rable 6nterest1 7i)e %s& Pro(erty 6ns$rance 2000" 1. 6ns$rable 6nterest1 7i)e
%s& Pro(erty 6ns$rance 2002" 16 6ns$rable 6nterest1 Pro(erty 6ns$rance +,,3" 16
6ns$rable 6nterest1 Pro(erty 6ns$rance 200+" 16 6ns$rance1 Cas' . Carry Basis
200!" 16 6ns$rance1 Co-6ns$rance %s& Re-6ns$rance +,,3" 16 6ns$rance1 Do$ble
6ns$rance 2000" 17 6ns$rance1 Do$ble 6ns$rance1 e))ect +,,!" 17 6ns$rance1
E))ects1 Payment o) Premi$ms by 6nstallment 2004" 17 6ns$rance1 7i)e 6ns$rance1
Assignment o) Policy +,,+" 17 6ns$rance1 Per)ection o) 6ns$rance Contracts
200!" 17 6ns$rance1 Pro(erty 6ns$rance1 Prescri(tion o) Claims +,,4" 17
6ns$rance1 Ret$rn o) Premi$ms 2000" 11 6ns$red1 Accident Policy 2003" 11
6ns$red1 Accident %s& /$icide +,,0" 11
Mercantile Law Bar Examination Q & A (1990-2006) Page 1 of 103
6ns$red1 Accident %s& /$icide +,,!" 1/ 6ns$red1 Accident %s& /$icide +,,0" 1/
6ns$rer: E))ects: /e%eral 6ns$rers 2000" 1/ 6ns$rer1 !rd Party 7iability +,,4" 1/
6ns$rer1 !rd Party 7iability 2000" 14 6ns$rer1 !rd Party 7iability1 >o -a$lt
6ndemnity +,,3" 14 6ns$rer1 !rd Party 7iability1 D$itclaim +,,3" 14 6ns$rer1
A$t'oriEed Dri%er Cla$se +,,+" 14 6ns$rer1 A$t'oriEed Dri%er Cla$se 200!" 14
6ns$rer1 A$t'oriEed Dri%er Cla$se1 %e'icle is stolen +,,!" 18 6ns$rer1 2ro$(
6ns$rance1 Em(loyer-Policy Folder 2000" 18 6ns$rer1 7iability o) t'e 6ns$rers
+,,0" 18 7oss: Act$al Total 7oss +,,4" 19 7oss: Constr$cti%e Total 7oss 2000" 19
7oss: Total 7oss ;nly +,,2" 19 *arine 6ns$rance1 6m(lied @arranties 2000" /0
*arine 6ns$rance1 Peril o) t'e /'i( %s& Peril o) t'e /ea +,,9" /0 *$t$al 6ns$rance
Com(any1 >at$re . De)inition 2004" /0
Intelle!t.al ,ro%erty ............................................................................................................./0
Co(yrig't +,,0" /0 Co(yrig't1 Commissioned Artist +,,0" /0 Co(yrig't1
Commissioned Artist 2003" /0 Co(yrig't1 6n)ringement +,,3" /0 Co(yrig't1
6n)ringement +,,7" /5 Co(yrig't1 6n)ringement +,,9" /5 Co(yrig't1 6n)ringement
2004" /5 Co(yrig't1 P'otoco(y1 :'en allo:ed +,,9" /5 6n)ringement %s& ?n)air
Com(etition +,,4" /5 6n)ringement %s& ?n)air Com(etition 200!" /5
6n)ringement1 #$risdiction 200!" /5 Patent1 >on-Patentable 6n%entions 2004" /5
Patents: 2as-/a%ing De%ice: )irst to )ile r$le 2000" /. Patents: 6n)ringement1
Remedies . De)enses +,,!" /. Patents1 6n)ringement +,,2" /. Patents1 Rig'ts
o%er t'e 6n%ention +,,0" /6 Trademark +,,0" /6 Trademark +,,3" /6
TrademarkC Test o) Dominancy +,,4" /6 Trademark1 6n)ringement +,,+" /6
Trademark1 Test o) Dominancy +,,4" /7 Tradename: 6nternational A))iliation
2000" /7
Insolven!y 2 Cor%orate Re!overy .................................................................................../7
6nsol%ency %s& /$s(ension o) Payment +,,9" /7 6nsol%ency: =ol$ntary 6nsol%ency
2000" /7 6nsol%ency1 Assets %s& 7iabilities +,,9" /1 6nsol%ency1 Assignees +,,4"
/1 6nsol%ency1 E))ect1 Declaration o) 6nsol%ency +,,+" /1
Mercantile Law Bar Examination Q & A (1990-2006) Page 3 of 103
6nsol%ency1 -ra$d$lent Payment 2002" /1 6nsol%ency1 #$risdiction1 /ole
Pro(rietors'i( +,,0" // 6nsol%ency1 obligations t'at s$r%i%e +,,7" // 6nsol%ency1
=ol$ntary 6nsol%ency Proceeding +,,+" // 6nsol%ency1 =ol$ntary %s& 6n%ol$ntary
/ol%ency +,,0" // 7a: on Cor(orate Reco%ery 200!" /4 Re'abilitation1 /tay
;rder 2004" /4 /$s(ension o) Payment %s& 6nsol%ency +,,0" /4 /$s(ension o)
Payments %s& /tay ;rder 200!" /4 /$s(ension o) Payments1 Re'abilitation
Recei%er +,,," /4 /$s(ension o) Payments1 Remedies 200!" /8
Letters of Cre&it ..................................................................................................................../8
7etter o) Credit: *ortgage 2000" /8 7etter o) Credit1 Certi)ication )rom Consignee
+,,!" /8 7etters o) Credit1 7iability o) a con)irming and noti)ying bank +,,3" /9
7etters o) Credit1 7iability o) a >oti)ying Bank 200!" /9 7etters o) Credit1 T'ree
Distinct Contract Relations'i(s 2002" /9
Maritime Commer!e ............................................................................................................./9
A%erage1 Partic$lar A%erage %s& 2eneral A%erage 200!" /9 Bottomry +,,3" 40
Carriage o) 2oods: De%iation: 7iability 2000" 40 Carriage o) 2oods1 De%iation1
@'en Pro(er 2000" 40 Carriage o) 2oods1 E8ercise E8traordinary Diligence
2000" 40 C'arter Party +,,+" 40 C'arter Party 2003" 45 C;2/A: Prescri(tion o)
ClaimsGActions 2003" 45 C;2/A1 Prescri(tion o) Claims +,,2" 45 C;2/A1
Prescri(tion o) Claims 2000" 4. C;2/A1 Prescri(ti%e Period +,,0" 4. Doctrine o)
6nscr$table -a$lt +,,0" 4. Doctrine o) 6nscr$table -a$lt +,,7" 4. Doctrine o)
6nscr$table -a$lt +,,9" 4. 7imited 7iability R$le +,,3" 4. 7imited 7iability R$le
+,,7" 4. 7imited 7iability R$le +,,," 4. 7imited 7iability R$le 2000" 46 7imited
7iability R$le1 Doctrine o) 6nscr$table -a$lt +,,+" 46 7imited 7iability R$le1
2eneral A%erage 7oss 2000" 46 7imited 7iability R$le1 2eneral A%erage 7oss
2000" 46
Nationali4e& A!tivities or Un&erta-ings........................................................................47
>ationaliEed Acti%ities or ?ndertakings +,,!" 47 >ationaliEed Acti%ities or
?ndertakings +,,3" 47 >ationaliEed Acti%ities or ?ndertakings +,,0" 41 Retail
Trade 7a: +,,0" 41 Retail Trade 7a: +,,+" 41 Retail Trade 7a: +,,2" 41
Mercantile Law Bar Examination Q & A (1990-2006) Page 5 of 103
Retail Trade 7a: +,,!" 4/ Retail Trade 7a: +,,4" 4/ Retail Trade 7a: +,,4" 4/
Retail Trade 7a:1 Consignment +,,+" 4/
Negotia'le Instr.ments Law ..............................................................................................4/
Bond: Cas' Bond %s& /$rety Bond 2003" 4/ C'ecks: Crossed C'ecks 2000" 44
C'ecks: Crossed C'ecks %s& Cancelled C'ecks 2003" 44 C'ecks1 Crossed C'eck
+,,+" 44 C'ecks1 Crossed C'eck +,,3" 44 C'ecks1 Crossed C'eck +,,0" 48
C'ecks1 Crossed C'eck +,,4" 48 C'ecks1 Crossed C'eck +,,4" 48 C'ecks1
E))ect1 Acce(tance by t'e dra:ee bank +,,9" 48 C'ecks1 E))ects1 Alterations1
Prescri(ti%e Period +,,4" 48 C'ecks1 -orged C'eck1 E))ects 2004" 49 C'ecks1
7iability1 Dra:ee Bank +,,0" 80 C'ecks1 *aterial Alterations1 7iability +,,," 80
C'ecks1 Presentment +,,3" 80 C'ecks1 Presentment 200!" 80 C'ecks1 =alidity1
@ai%er o) Banks liability )or negligence +,,+" 80 De)enses1 -orgery 2003" 85
-orgery1 7iabilities1 Prior . /$bse5$ent Parties +,,0" 85 -orgery1 7iabilities1 Prior
. /$bse5$ent Parties +,,0" 85 6ncom(lete . Deli%ered 2003" 8. 6ncom(lete and
Deli%ered 2000" 8. 6ncom(lete 6nstr$ments1 6ncom(lete Deli%ered 6nstr$ments
%s& 6ncom(lete ?ndeli%ered 6nstr$ment 2004" 8. 6ndorser: 6rreg$lar 6ndorser %s&
2eneral 6ndorser 2000" 8. >egotiability +,,!" 8. >egotiability 2002" 86
>egotiability1 Folder in D$e Co$rse +,,2" 86 >egotiability1 Re5$isites 2000" 86
>egotiable 6nstr$ment: Ambig$o$s 6nstr$ments +,,9" 87 >egotiable 6nstr$ment:
De)inition . C'aracteristics 2000" 87 >egotiable 6nstr$ment: 6denti)ication 2000"
87 >egotiable 6nstr$ment: >egotiable Doc$ment %s& >egotiable 6nstr$ment 2000"
81 >egotiable 6nstr$ment1 >egotiability +,,7" 81 >egotiable 6nstr$ments1 Bearer
6nstr$ment +,,9" 81 >egotiable 6nstr$ments1 Bearer 6nstr$ments +,,7" 81
>egotiable 6nstr$ments1 bearer instr$ments1 liabilities o) maker and indorsers
200+" 81 >egotiable 6nstr$ments1 incom(lete and $ndeli%ered instr$ments1
'older in d$e co$rse 2000" 8/ >egotiable 6nstr$ments1 6ncom(lete Deli%ered
6nstr$ments1 Com(arati%e >egligence +,,7" 8/ >egotiable 6nstr$ments1 kinds o)
negotiable instr$ment1 :ords o) negotiability 2002" 8/ >egotiable 6nstr$ments1
Re5$isites +,,4" 84 >otice Dis'onor +,,4" 84 Parties1 Accommodation Party
+,,0" 84 Parties1 Accommodation Party +,,+" 84 Parties1 Accommodation Party
+,,4" 84
Mercantile Law Bar Examination Q & A (1990-2006) Page 10 of 103
Parties1 Accommodation Party +,,9" 84 Parties1 Accommodation Party 200!" 88
Parties1 Accommodation Party 200!" 88 Parties1 Accommodation Party 2000" 88
Parties1 Folder in D$e Co$rse +,,!" 88 Parties1 Folder in D$e Co$rse +,,4" 88
Parties1 Folder in D$e Co$rse +,,4" 88 Parties1 Folder in D$e Co$rse +,,9" 89
Parties1 Folder in D$e Co$rse1 6ndorsement in blank 2002" 89 Place o) Payment
2000" 89
,.'li! Servi!e Law ...............................................................................................................89
Certi)icate o) ($blic Con%enience +,,9" 89 Certi)icate o) P$blic Con%enience1
inse(arability o) certi)icate and %essel +,,2" 90 Certi)icate o) P$blic Con%enience1
Re5$irements +,,0" 90 Po:ers o) t'e P$blic /er%ice Commission +,,!" 90 P$blic
$tilities 2000" 90 Re%ocation o) Certi)icate +,,!" 95 Re%ocation o) Certi)icate
+,,!" 95
Se!.rities Reg.lation ..........................................................................................................95
6nsider 2003" 95 6nsider Trading +,,0" 95 6nsider Trading1 *ani($lati%e Practices
+,,3" 9. *ani($lati%e Practices 200+" 9. /ec$rities Reg$lation Code1 P$r(ose
+,,9" 9. /ec$rities1 De)inition +,,4" 9. /ec$rities1 /elling o) /ec$rities1 *eaning
2002" 9. Tender ;))er 2002" 96
Trans%ortation Law ..............................................................................................................96
Bo$ndary /ystem 2000" 96 Carriage1 Breac' o) Contract1 Pres$m(tion o)
>egligence +,,0" 96 Carriage1 Breac' o) Contract1 Pres$m(tion o) >egligence
+,,7" 96 Carriage1 -ort$ito$s E%ent +,,0" 96 Carriage1 7iability1 7ost Baggage or
Acts o) Passengers +,,7" 97 Carriage1 Pro'ibited . =alid /ti($lations 2002" 97
Carriage1 =al$ation o) Damaged Cargo +,,!" 97 Common Carrier +,,4" 97
Common Carrier1 Breac' o) Contract1 Damages 200!" 97 Common Carrier1
De)enses 2002" 91 Common Carrier1 De)enses1 -ort$ito$s E%ents +,,3" 91
Common Carrier1 De)enses1 7imitation o) 7iability +,,9" 91 Common Carrier1
De)enses1 7imitation o) 7iability 200+" 91 Common Carrier1 D$ration o) 7iability
+,,4" 91 Common Carrier1 D$ty to E8amine Baggages1 Rail:ay and Airline
+,,2" 9/ Common Carrier1 Test +,,4" 9/ Common Carriers1 De)enses +,,4" 9/
Common Carriers1 7iability )or 7oss +,,+" 9/
Mercantile Law Bar Examination Q & A (1990-2006) Page 11 of 103
Common %s& Pri%ate Carrier1 De)enses 2002" 94 Habit /ystem 2000" 94 Habit
/ystem1 Agent o) t'e Registered ;:ner 2000" 94 *aritime Commerce1 Bareboat
200!" 94 Prior ;(erator R$le 200!" 94 Registered ;:ner1 Concl$si%e
Pres$m(tion +,,0" 98 Trans-/'i(ment1 Bill o) 7ading1 binding contract +,,!" 98
Tr.st Re!ei%ts Law...............................................................................................................98
Tr$st Recei(ts 7a:1 Acts . ;missions1 Co%ered 2004" 98 Tr$st Recei(ts 7a:1
7iability )or esta)a +,,+" 99 Tr$st Recei(ts 7a:1 7iability )or Esta)a +,,7" 99
Tr$sts Recei(t 7a: 200!" 99
Us.ry Law ...............................................................................................................................99
?s$ry 7a: +,," 99
Ware"o.se Re!ei%ts Law .................................................................................................500
Bill o) 7ading +,,9" 500 Deli%ery o) 2oods1 Re5$isites +,,9" 500 Deli%ery o) t'e
2oods +,,+" 500 2arnis'ment or Attac'ment o) 2oods +,,," 500 >egotiable
Doc$ments o) Title +,,2" 500 ;:ners'i( o) 2oods /tored +,,2" 505 Rig't to t'e
2oods 2000" 505 ?n(aid /eller1 >egotiation o) t'e Recei(t +,,!" 505 =alidity o)
sti($lations e8c$sing :are'o$seman )rom negligence 2000" 505
Mis!ellaneo.s ......................................................................................................................50.
Energy Reg$latory Commission: #$risdiction . Po:er 2003" 50. -o$r AC6D
Problems o) P'ili((ine #$diciary 2004" 50. 2o%ernment Dereg$lation %s&
Pri%atiEation o) an 6nd$stry 2003" 50. Political 7a:1 @T; +,,," 50. Po:er o) t'e
/tate: Reg$lating o) Domestic Trade 2003" 506 Tari)) and C$stoms Code: =iolation
o) C$stoms 7a:s 2003" 506
Mercantile Law Bar Examination Q & A (1990-2006)
+eneral ,rin!i%les of
Mer!antile Law
Commercial
Transaction (2003) @'at do yo$ $nderstand by t'e term
Acommercial transactionBI 6s it essential t'at
at least one (arty to a contract be a
merc'ant in order to consider s$c' a
commercial transactionI 3J"
SUGGESTED ANSWER:
A ACommercial transactionB is de)ined as &&&&&&
6t is not essential t'at at least one (arty to
t'e commercial transaction be a merc'ant&
@'at is essential is t'at t'e transaction
e%ince an intent to engage in commerce or
trade&
Joint Account
(2000) @'at is a <oint acco$ntI 2J"
SUGGESTED ANSWER:
A <oint acco$nt is a transaction o) merc'ants
:'ere ot'er merc'ants agree to contrib$te
t'e amo$nt o) ca(ital agreed $(onC and
(artici(ating in t'e )a%orable or $n)a%orable
res$lts t'ereo) in t'e (ro(ortion t'ey may
determine&
Joint Account s!
"artners#i$ (2000) Disting$is' <oint acco$nt )rom (artners'i(&
!J"
SUGGESTED ANSWER:
T'e )ollo:ing are t'e distinctions bet:een
<oint acco$nt and (artners'i(:
+" A (artners'i( 'as a )irm name :'ile a
<oint acco$nt 'as none and is cond$cted in
t'e name o) t'e ostensible (artner&
2" @'ile a (artners'i( 'as <$ridical
(ersonality and may s$e or be s$ed $nder
its )irm nameC a <oint acco$nt 'as no <$ridical
(ersonality and can s$e or be s$ed only in
t'e name o) t'e ostensible (artner&
!" @'ile a (artners'i( 'as a common )$ndC
a <oint acco$nt 'as none&
3" @'ile in a (artners'i(C all general
(artners 'a%e t'e rig't o) managementC in a
<oint acco$ntC t'e ostensible (artner
manages its b$siness o(erations&
0" @'ile li5$idations o) a (artners'i(
mayC by agreementC be entr$sted to a (artner
or (artnersC in a <oint acco$nt li5$idation
t'ereo) can only be done by t'e ostensible
(artner&
T#eor% o& Co'nition s! T#eor% o&
(ani&estation ()**+) T'e Ci%il Code ado(ts t'e t'eory o)
cognitionC :'ile t'e Code o) Commerce
generally recogniEes t'e t'eory o)
mani)estationC in t'e (er)ection o) contracts&
Fo: do t'ese t:o t'eories di))erI
SUGGESTED ANSWER:
?nder t'e t'eory o) cognitionC t'e
acce(tance is considered to e))ecti%ely bind
t'e o))eror only )rom t'e time it came to 'is
kno:ledge& ?nder t'e t'eory o)
mani)estationC t'e contract is (er)ected at
t'e moment :'en t'e acce(tance is declared
or made by t'e o))eree&
Page 1# of 103
an-ing Law
,an-s: A$$lica.ilit%: /orei'n
Currenc% De$osit Act 0 Secrec% o&
,an- De$osits (2001) Fi Kielding Cor(oration )iled a com(laint
against )i%e o) its o))icers )or %iolation o)
/ection !+ o) t'e Cor(oration Code& T'e
cor(oration claimed t'at t'e said o))icers
:ere g$ilty o) ad%ancing t'eir (ersonal
interests to t'e (re<$dice o) t'e cor(orationC
and t'at t'ey :ere grossly negligent in
'andling its a))airs& Aside )rom doc$ments
and contractsC t'e cor(oration also s$bmitted
in e%idence records o) t'e o))icers ?&/& Dollar
de(osits in se%eral banks o%erseas - Boston
BankC Bank o) /:itEerlandC and Bank o) >e:
Kork&
-or t'eir (artC t'e o))icers )iled a criminal
com(laint against t'e directors o) Fi Kielding
Cor(oration )or %iolation o) Re($blic Act >o&
4324C ot'er:ise kno:n as t'e -oreign
C$rrency De(osit Act o) t'e P'ili((ines& T'e
o))icers alleged t'at t'eir bank de(osits :ere
illegally disclosed )or :ant o) a co$rt orderC
and t'at s$c' de(osits :ere not e%en t'e
s$b<ect o) t'e case against t'em& a" @ill t'e
com(laint )iled against t'e directors o) Fi
Kielding Cor(oration (ros(erI E8(lain&
SUGGESTED ANSWER:
>oC beca$se t'e -oreign C$rrency De(osit Act
R&A& >o& 4324"C incl$ding its ($niti%e
(ro%isionsC re)ers to )oreign c$rrency de(osits
acco$nts constit$ted :it'in t'e P'ili((ines& 6t
'as no a((lication at all to acco$ntsC e%en
t'o$g' t'ey are banksC o(ened and
constit$ted abroad&
b" @as t'ere a %iolation o) t'e /ecrecy o) Bank
De(osits 7a: Re($blic Act >o& +300"I E8(lain&
0J"
SU++ESTE6 ANSWER(
>oC beca$se t'e ($niti%e (ro%isions o) t'e
/ecrecy o) Bank De(osits 7a: R&A& >o&
+300"C incl$ding t'e stat$tory e8em(tions
(ro%ided t'ereinC are not a((licable to -CD?
acco$ntsC e%en :'en constit$ted locally&
2nten'an ! Court o& A$$eals3 G!R! No! )24**53
/e.ruar% )13 2002"
,an-s: Collateral
Securit% (2002) Andre: is engaged in t'e b$siness o)
b$ilding lo:-cost 'o$sing $nits $nder
contracts :it' real estate de%elo(ers& Fe
a((lied )or a loan o) P! *illion )rom Ready
Credit Bank t'e Bank"C :'ic' re5$ired
Andre: to (ro%ide collateral sec$rity )or it&
Andre: o))ered to assign to t'e Bank 'is
recei%ables amo$nting to P3 million )rom
Fome B$ilders De%elo(ment Cor(oration t'e
;bligor"& T'e Bank acce(ted t'e o))er&
AccordinglyC Andre: obtained t'e loan and
'e e8ec$ted a (romissory note $ndertaking
to (ay t'e loan in )$ll in one l$m( s$m on
/e(tember +C 2002C toget'er :it' interest
t'ereon at t'e rate o) 20J (er ann$m& At t'e
same timeC Andre: e8ec$ted a Deed o)
Assignment in )a%or o) t'e Bank assigning to
t'e Bank 'is recei%ables )rom t'e ;bligor&
T'e deed o) assignment read:
Mercantile Law Bar Examination Q & A (1990-2006)
A6C Andre: 7eeC 'ereby assignC trans)er and
con%eyC absol$tely and $nconditionallyC to
Ready Credit Bank 'ereina)ter called t'e
Bank" all o) my rig'tC title and interest in and
to my acco$nts recei%able )rom Fome
B$ilders De%elo(ment Cor(oration
'ereina)ter called t'e ;bligor" arising )rom
deli%ery o) 'o$sing $nits :it' a total contract
(rice o) P3C000C000&00C t'e descri(tion and
contract %al$e o) :'ic' are attac'ed 'ereto
as Anne8 A 'ereina)ter called t'e
Recei%ables"&B
A6n t'e e%ent t'at 6 s'all be $nable to (ay my
o$tstanding indebtedness o:ned to t'e
BankC t'e Bank s'all 'a%e t'e rig'tC :it'o$t
any )$rt'er )ormality or act on its (artC to
collect t'e Recei%ables )rom t'e ;bligor and
to a((ly t'e (roceeds t'ereo) to:ard
(ayment o) my said indebtedness&B
Andre: )ailed to (ay t'e loan on its d$e date
on /e(tember +C 2002& @'en t'e Bank
attem(ted to collect )rom t'e ;bligorC t'e
Bank disco%ered t'at t'e latter 'ad already
closed o(erations and li5$idated all its
assets& T'e Bank s$ed Andre: )or collectionC
b$t Andre: mo%ed to dismiss t'e com(laint
on t'e gro$nd t'at t'e debt 'ad already
been (aid by reason o) 'is e8ec$tion o) t'e
a)oresaid Deed o) Assignment :'ic'C being
absol$te and $nconditionalC :as in essence a
dacion en (ago& T'e Bank o((osed t'e
motionC contending t'at t'e Deed o)
Assignment :as only a sec$rity )or a loan& 6)
yo$ :ere t'e #$dgeC 'o: :o$ld yo$ resol%e
t'e motion to dismiss )iled by Andre:I
E8(lain 0J"
SU++ESTE6 ANSWER(
(Since the question is outside the scope of
the Bar Examination, it is recommended
that the candidate be given full credit of
5%, whatever may be his answer, and he
be given a bonus if he made an answer in
the following manner!
T'e motion to dismiss s'o$ld be granted& T'e
sim(le absol$te and $nconditional
con%eyance embodied in t'e deed o)
assignment :o$ld be o(erati%eC and t'e
assignment :o$ld constit$te essentially a
mode o) (ayment or dacion en (ago&
,an-s: Secrec% o& ,an- De$osits6
Garnis#ment (2007) CDC maintained a sa%ings acco$nt :it'
CBank& ;n orders o) t'e ** Regional Trial
Co$rtC t'e /'eri)) garnis'ed P00C000 o) 'is
acco$ntC to satis)y t'e <$dgment in )a%or o)
'is creditorC *;& CDC com(lained t'at t'e
garnis'ment %iolated t'e 7a: on t'e /ecrecy
o) Bank De(osits beca$se t'e e8istence o)
'is sa%ings acco$nt :as disclosed to t'e
($blic& 0J" 6s CDCLs com(laint meritorio$s
or notI Reason brie)ly&
SU++ESTE6 ANSWER(
>o& CDCLs com(laint is not meritorio$s& 6t :as 'eld
in C#ina ,an-in' Cor$oration ! 8rte'a3 7* SCRA 311
()*+3) t'at (eso de(osits may be garnis'ed and t'e
de(ositary bank can com(ly :it' t'e order o)
garnis'ment :it'o$t %iolating t'e 7a: on t'e
/ecrecy o) Bank De(osits& E8ec$tion is t'e
goal o) litigation as it is its )r$it& 2arnis'ment
is (art o) t'e e8ec$tion (rocess& ?(on
ser%ice o) t'e notice o) garnis'ment on t'e
bank :'ere t'e de)endant de(osited )$ndsC
s$c' )$nds become (art o) t'e s$b<ect
matter o) litigation&
Page 13 of 103
,an-s6 Classi&ications o&
,an-s (2002) T'ere are si8 4" classes o) banks identi)ied
in t'e 2eneral Banking 7a: o) 2000& >ame at
least )o$r 3" o) t'em and e8(lain t'e
disting$is'ing c'aracteristic or )$nction o)
eac' one& 0J"
SU++ESTE6 ANSWER(
Any )o$r 3" o) t'e )ollo:ing si8 4" classes o)
banks identi)ied in t'e 2eneral Banking 7a:
o) 2002C to :it:
1Uniersal ,an-s M T'ese are t'ose :'ic'
$sed to be called e8(anded commercial
banks and t'e o(erations o) :'ic' are no:
(rimarily go%erned by t'e 2eneral Banking
7a: o) 2002& T'ey can e8ercise t'e (o:ers o)
an in%estment 'o$se and in%est in non-allied
enter(rises& T'ey 'a%e t'e 'ig'est
ca(italiEation re5$irement&
2Commercial ,an-s M T'ese are ordinary or
reg$lar commercial banksC as disting$is'ed
)rom a $ni%ersal bank& T'ey 'a%e a lo:er
ca(italiEation re5$irement t'an $ni%ersal
banks and cannot e8ercise t'e (o:ers o) an
in%estment 'o$se and in%est in non-allied
enter(rises&
3T#ri&t ,an-s M T'ese banks s$c' as
sa%ings and mortgage banksC stock sa%ings
and loan associationsC and (ri%ate
de%elo(ment banks" may e8ercise most o)
t'e (o:ers and )$nctions o) a commercial
bank e8ce(t t'at t'ey cannotC among ot'ersC
o(en c$rrent or c'eck acco$nts :it'o$t (rior
*onetary Board a((ro%alC and t'ey cannot
iss$e letters o) credit& T'eir o(erations are
go%erned (rimarily by t'e T'ri)t Banks Act o)
+,,0 RA 7,04"&
4Rural ,an-s M t'ese are t'ose :'ic' are
organiEed (rimarily to e8tend loans and ot'er
credit )acilities to )armersC )is'ermen or )arm
)amiliesC as :ell as coo(erati%esC merc'antsC
and (ri%ate and ($blic em(loyees and :'ose
o(erations are (rimarily go%erned by t'e
R$ral Banks Act o) +,,2 RA 7!0!"&
5Coo$eratie ,an-s M t'ese are t'ose
:'ic' are organiEed (rimarily to (ro%ide
)inancial and credit ser%ices to coo(erati%es
and :'ose o(erations are (rimarily go%erned
by t'e Coo(erati%e Code o) t'e P'ili((ines
RA 4,!9"&
62slamic ,an-s M t'ese are t'ose :'ic' are
organiEed (rimarily to (ro%ide )inancial and
credit ser%ices in a manner or transaction
consistent :it' t'e 6slamic /'aria'& At
(resentC only t'e Al Amana' 6slamic
6n%estment Bank o) t'e P'ili((ines 'as been
organiEed as an 6slamic Bank&
,an-s6 Conserator s!
Receier (2005) Disting$is' bet:een t'e role o) a
conser%ator and t'at o) a recei%er o) a bank&
2&0J"
SU++ESTE6 ANSWER(
T'e Conser%ator is a((ointed )or a (eriod not
e8ceeding one +" yearC to take c'arge o) t'e
assetsC liabilitiesC and t'e management o) a
bank or a 5$asi-bank in a state o) contin$ing
inabilityC or $n:illingness to maintain a
condition o) li5$idity deemed ade5$ate to
(rotect t'e interest o) de(ositors and
creditors& ;n t'e ot'er 'andC t'e Recei%er is
a((ointed to manage a bank or 5$asi-bank
t'at is $nable to (ay its liabilities in
Mercantile Law Bar Examination Q & A (1990-2006)
t'e ordinary co$rse o) b$sinessC or 'as
ins$))icient realiEable assets to meet its
liabilitiesC or cannot contin$e in b$siness
:it'o$t (robable losses to its de(ositors or
creditors1 or 'as :ill)$lly %iolated a )inal cease
and desist orderC in%ol%ing acts or
transactions amo$nting to )ra$d or a
dissi(ation o) t'e assets o) t'e instit$tion& T'e
main ($r(ose o) t'e Recei%er is to
recommend t'e re'abilitation or li5$idation o)
t'e bank&
,an-s6 Dili'ence
Re9uire: ()**2) PlacidoC a bank de(ositorC le)t 'is c'eckbook
on 'is desk at 'is 'o$se& ?nkno:n to 'imC a
%isitor at t'e timeC noticing t'e sameC took a
c'eck t'ere)romC )illed it $( in t'e amo$nt o)
P!C000&00 and s$cceeded in encas'ing t'e
c'eck on t'e same day& Placidos acco$nt
:as t'ereby debited in t'e same amo$nt&
Disco%ering t'e erroneo$s debitC Placido
demanded t'at t'e bank credit 'im :it' a
like amo$nt& T'e bank re)$sed on t'e
gro$nd t'at Placido :as negligent in lea%ing
'is c'eckbook on 'is desk so t'at 'e co$ld
not ($t $( t'e de)ense o) )orgery or :ant o)
a$t'ority $nder t'e >67&
T'e -acts disclose t'at e%en to t'e naked
eyeC t'ere :ere marked di))erences bet:een
Placidos signat$re and t'e one in t'e c'eck
)orged by t'e %isitor& As bet:een Placido and
t'e bankC :'o s'o$ld bear t'e lossI E8(lain&
SU++ESTE6 ANSWER(
T'e bank s'o$ld bear t'e loss& A dra:ee bank
m$st e8ercise t'e 'ig'est diligence in
sa)eg$arding t'e acco$nts o) its client-
de(ositors& T'e bank is also c'arged :it'
gen$ineness o) t'e signat$res o) its c$rrent
acco$nt 'olders& B$t :'at can be more
striking is t'at t'ere :ere marked di))erences
bet:een Placidos signat$re and t'e one in
t'e c'eck )orged by t'e %isitor& CertainlyC
Placido :as not negligent in lea%ing 'is
c'eckbook in 'is o:n desk "N, ;uim$o
)14 SCRA 142"
,an-s6 2nsolenc%6 "ro#i.ite:
Transactions (2000) T'e *onetary Board o) t'e B/P closed ?rban
Bank a)ter it enco$ntered cri((ling )inancial
di))ic$lties t'at res$lted in a bank r$n& NC one
o) t'e members o) t'e B;D o) t'e bankC
attended and stayed t'ro$g'o$t t'e entire
meeting o) t'e Board t'at :as 'eld :ell in
ad%ance o) t'e bank r$n and be)ore ne:s
'ad beg$n to trickle to t'e b$siness
comm$nity abo$t t'e dire )inancial (it t'e
bank 'ad )allen into& 6mmediately a)ter t'e
meetingC N ca$sed t'e (re(aration and
iss$ance o) a managers c'eck (ayable to
'imsel) in t'e s$m o) 0 million (esos
e5$i%alent to t'e amo$nt (laced or in%ested
in t'e bank by a b$siness ac5$aintance& Fe
no: claims t'at 'e is kee(ing t'e )$nds in
tr$st )or t'e o:ner and t'at 'e 'ad
committed no %iolation o) t'e 2eneral
Banking Act RA !!7C as amended" )or :'ic'
'e s'o$ld be ($nis'ed& Do yo$ agree t'at
t'ere 'as been no %iolation o) t'e stat$teI
!J"
SU++ESTE6 ANSWER(
>o& 6 do not agree t'at t'ere is no %iolation o)
t'e stat$te RA !!7C as amended"& N %iolated
/ec 90 :'en 'e ca$sed t'e (re(aration and
iss$ance o) a managers c'eck
Page 1/ of 103 (ayable to 'imsel) in t'e s$m
o) P0 million& T'is is (aying o$t or (ermitting
to be (aid o$t )$nds o) t'e bank a)ter t'e
latter became insol%ent& T'is act is (enaliEed
by )ine o) not less t'an P+C000&00 nor more
t'an P+0C000&00 and by im(risonment )or
not less t'an t:o nor more t'an ten years&
,an-s6 2nsolenc%6
Re9uirements ()**+) 2i%e t'e basic re5$irements to be com(lied
:it' by t'e B/P be)ore t'e *onetary Board
can declare a bank insol%entC order it closed
and )orbid it )rom doing )$rt'er b$siness in
t'e P'ili((ines&
SU++ESTE6 ANSWER(
Be)ore t'e *onetary Board can declare a
bank insol%entC order it closed and )orbid it
)rom doing )$rt'er b$siness in t'e
P'ili((inesC t'e )ollo:ing basic re5$irements
m$st be com(lied :it' by t'e B/PC to :it:
+T'ere m$st be an e8amination by t'e 'ead
o) t'e De(artment o) /$(er%ision or 'is
e8aminers or agents into t'e condition o) t'e
bank&
2T'e e8amination discloses t'at t'e
condition o) t'e bank is one o) insol%encyC or
t'at its contin$ance in b$siness :o$ld
in%ol%e (robable loss to creditors or
de(ositors&
!T'e 'ead o) said De(artment s'all in)orm in
:riting t'e *onetary Board o) s$c' )acts&
3?(on )inding said in)ormation or statement
to be tr$eC t'e *onetary Board s'all a((oint
a recei%er to take c'arge o) t'e assets and
liabilities o) t'e bank&
0@it'in 40 daysC t'e *onetary Board s'all
determine and con)irm i) t'e bank is
insol%entC and ($blic interest re5$iresC to
order t'e li5$idation o) t'e bank&
,an-s6 Restrictions on <oan
Accommo:ations (2002) As (art o) t'e sa)eg$ards against im(r$dent
bankingC t'e 2eneral Banking 7a: im(oses
limits or restrictions on loans and credit
accommodations :'ic' may be e8tended by
banks& 6denti)y at least t:o 2" o) t'ese limits
or restrictions and e8(lain t'e rationale o)
eac' o) t'em& 0J"
SU++ESTE6 ANSWER(
Any t:o 2" o) t'e )ollo:ing limits or
restrictions on loan and credit transactions
:'ic' may be e8tended by banksC as (art o)
t'e sa)eg$ards against im(r$dent bankingC
to :it: 1S,< Rules M i&e&C /ingle Borro:ers 7imit"
r$les are t'ose (rom$lgated by t'e Bangko
/entral ng Pili(inasC $(on t'e a$t'ority o)
/ection !0 o) t'e 2eneral Banking 7a: o)
2000C :'ic' reg$late t'e total amo$nt o)
loansC credit accommodations and
g$arantees t'at may be e8tended by a bank
to any (ersonC (artners'i(C associationC
cor(oration or ot'er entity& T'e r$les seek to
(rotect a bank )rom making e8cessi%e loans
to a single borro:er by (ro'ibiting it )rom
lending beyond a s(eci)ied ceiling&
2D8SR2 Rules M T'ese r$les (rom$lgated by
t'e B/PC $(on a$t'ority o) /ection 0 o) t'e
2eneral Banking 7a: o) 2000C :'ic' reg$late
t'e amo$nt o) credit accommodations t'at a
bank may e8tend to its
Mercantile Law Bar Examination Q & A (1990-2006)
directorsC o))icersC stock'olders and t'eir
related interests t'$sC D;/R6"& 2enerallyC
a banks credit accommodations to its
D;/R6 m$st be in t'e reg$lar co$rse o)
b$siness and on terms not less )a%orable
to t'e bank t'an t'ose o))ered to non-
D;/R6 borro:ers&
!& >o commercial bank s'all make any
loan or disco$nt on t'e sec$rity o) s'ares o)
its o:n ca(ital stock&
,an-s6 Restrictions on <oan
Accommo:ations (2005) Pio is t'e (resident o) @estern Bank& Fis
:i)e a((lied )or a loan :it' t'e said bank to
)inance an internet ca)e& T'e loan o))icer told
'er t'at 'er a((lication :ill not be a((ro%ed
beca$se t'e grant o) loans to related
interests o) bank directorsC o))icersC and
stock'olders is (ro'ibited by t'e 2eneral
Banking 7a:& E8(lain :'et'er t'e loan
o))icer is correct& 0J"
SU++ESTE6 ANSWER(
/ection !4 o) t'e 2eneral Banking 7a: o)
2000 does not entirely (ro'ibit directors or
o))icers o) t'e bankC directly or indirectlyC
)rom borro:ing )rom t'e bank& 6n t'is caseC
Pio is t'e (resident o) @estern BankC :'ic'
makes 'im an o))icerC director and
stock'older o) t'e said bank& T'e 2eneral
Banking 7a: (ro%ides )or additional
restrictions to t'e bank be)ore it can lend to
its directors or o))icers& A :ritten a((ro%al o)
t'e ma<ority %ote o) all t'e directors o) t'e
bankC e8cl$ding t'e director concernedC is
re5$ired& -$rt'ermoreC s$c' dealings m$st
be $(on terms not less )a%orable to t'e bank
t'an t'ose o))ered to ot'ers Section "#$%,
&entral Ban'(s )*anual of +egulations for
Ban's and ,ther -inancial .ntermediaries,
cited in +anioso v/ &0, 1/+/ 2o/ ""34"%,
5ecember 6, $777"& A %iolation o) t'is
(ro%ision :ill ca$se 'is or 'er (osition to be
declared %acant and t'e erring director or
o))icer s$b<ected to t'e (enal (ro%isions o)
t'e >e: Central Bank Act&
,an-s6 Sa&et% De$osit
,o=6 <ia.ilit% *> and ;P rented a sa)ety de(osit bo8 at
/6BA>H& T'e (arties signed a contract o)
lease :it' t'e conditions t'at: t'e bank is
not a de(ository o) t'e contents o) t'e sa)e
and 'as neit'er t'e (ossession nor control o)
t'e same1 t'e bank ass$med no interest in
said contents and ass$mes no liability in
connection t'ere:it'& T'e sa)ety de(osit bo8
'ad t:o key'oles: one )or t'e g$ard key
:'ic' remained :it' t'e bank1 and t'e ot'er
)or t'e rentersL key& T'e bo8 can be o(ened
only :it' t'e $se o) bot' keys& T'e renters
de(osited certi)icates o) title in t'e bo8& B$t
laterC t'ey disco%ered t'at t'e certi)icates
:ere gone& *> and ;P no: claim )or
damages )rom /6BA>H& 6s t'e bank liableI
E8(lain brie)ly& 0J"
SU++ESTE6 ANSWER(
T'e bank is liableC based on t'e decisions o)
t'e /$(reme Co$rt in &0 0gro8.ndustrial
5evelopment &orp/ v/ &ourt of 0ppeals, $"9 S&+0
4$% ("99#! and Sia v/ &ourt of 0ppeals, $$$ S&+0
$4 ("99#!/ 6n t'ose casesC t'e /$(reme Co$rt
r$led t'at t'e renting o$t o) sa)ety de(osit
bo8es is a Ospecial 'ind of depositO :'erein
t'e bank is t'e de(ositary& 6n t'e absence o)
any sti($lation (rescribing t'e degree o)
diligence re5$iredC t'at o) a good )at'er o) a
)amily is to be
Page 1$ of 103 obser%ed by t'e de(ositary&
Any sti($lation e8em(ting t'e de(ositary
)rom any liability arising )rom t'e loss o) t'e
t'ing de(osited :o$ld be %oid )or being
contrary to la: and ($blic (olicy& T'e
de(osit bo8 is located in t'e bank (remises
and is $nder t'e absol$te control o) t'e
bank&
,an-s6 Secrec% o& ,an- De$osit6
A(<C (2005) R$dy is <obless b$t is re($ted to be a <$eteng
o(erator& Fe 'as ne%er been c'arged or
con%icted o) any crime& Fe maintains se%eral
bank acco$nts and 'as ($rc'ased 0 'o$ses
and lots )or 'is c'ildren )rom t'e 7$ansing
RealtyC 6nc& /ince 'e does not 'a%e any
%isible <obC t'e com(any re(orted 'is
($rc'ases to t'e Anti-*oney 7a$ndering
Co$ncil A*7C"& T'erea)terC A*7C c'arged
'im :it' %iolation o) t'e Anti-*oney
7a$ndering 7a:& ?(on re5$est o) t'e A*7CC
t'e bank disclosed to it R$dyLs bank de(osits
amo$nting to P+00 *illion& /$bse5$entlyC 'e
:as c'arged in co$rt )or %iolation o) t'e Anti-
*oney 7a$ndering 7a:&
+& Can R$dy mo%e to dismiss t'e case on
t'e gro$nd t'at 'e 'as no criminal recordI
2&0J"
SU++ESTE6 ANSWER(
>o& ?nder t'e Anti-*oney 7a$ndering 7a:C
R$dy :o$ld be g$ilty o) a Omoney la$ndering
crimeO committed :'en t'e (roceeds o) an
O$nla:)$l acti%ityCO like <$eteng o(erationsC
are made to a((ear as 'a%ing originated )rom
legitimate so$rces& T'e money la$ndering
crime is se(arate )rom t'e $nla:)$l acti%ity o)
being a <$eteng o(eratorC and re5$ires no
(re%io$s con%iction )or t'e $nla:)$l acti%ity
/ee also /ec& !C Anti-*oney 7a$ndering Act
o) 200+"&
2& To raise )$nds )or 'is de)enseC R$dy sold
t'e 'o$ses and lots to a )riend& Can 7$ansing
RealtyC 6nc& be com(elled to trans)er to t'e
b$yer o:ners'i( o) t'e 'o$ses and lotsI
2&0J"
SU++ESTE6 ANSWER(
7$ansing RealtyC 6nc& is a real estate
com(anyC 'ence it is not a co%ered instit$tion
$nder /ection ! o) t'e Anti-*oney 7a$ndering
Act& ;nly banking instit$tionsC ins$rance
com(aniesC sec$rities dealers and brokersC
(re-need com(anies and ot'er entities
administering or ot'er:ise dealing in
c$rrencyC commodities or )inancial
deri%ati%es are co%ered instit$tions& FenceC
7$ansing RealtyC 6nc& may not $se t'e Anti-
*oney 7a$ndering Act to re)$se to trans)er to
t'e b$yer o:ners'i( o) t'e 'o$ses and lots&
!& 6n disclosing R$dyLs bank acco$nts to t'e
A*7CC did t'e bank %iolate any la:I 2&0J"
SU++ESTE6 ANSWER(
>oC t'e bank did not %iolate any la:& T'e
bank being s(eci)ied as a Oco%ered
instit$tionO $nder t'e Anti-*oney 7a$ndering
7a:C is obliged to re(ort to t'e A*7C co%ered
and s$s(icio$s transactionsC :it'o$t t'ereby
%iolating any la:& T'is is one o) t'e
e8ce(tions to t'e /ecrecy o) Bank De(osit
Act&
Mercantile Law Bar Examination Q & A (1990-2006)
3& /$((osing t'e titles o) t'e 'o$ses and lots
are in (ossession o) t'e 7$ansing RealtyC
6nc&C is it $nder obligation to deli%er t'e titles
to R$dyI 2&0J"
SU++ESTE6 ANSWER(
KesC it 'as an obligation to deli%er titles to
R$dy& As 7$ansing RealtyC 6nc& is not a
co%ered instit$tion $nder /ection ! o) t'e
Anti-*oney 7a$ndering ActC it may not
in%oke t'is la: to re)$se deli%ery o) t'e titles
to R$dy&
,an-s6 Secrec% o& ,an- De$osit6
E=ce$tions (2005) ?nder Re($blic Act >o&+300 T'e Bank
/ecrecy 7a:"C bank de(osits are considered
absol$tely con)idential and may not be
e8aminedC in5$ired or looked into by any
(ersonC go%ernment o))icialC b$rea$ or o))ice&
@'at are t'e e8ce(tionsI 0J"
SU++ESTE6 ANSWER(
T'e e8ce(tions to t'e Bank /ecrecy 7a: are
t'e )ollo:ing:
+& /(ecial or general e8amination o) a
bankC a$t'oriEed by t'e Bangko /entral ng
Pili(inasL *onetary BoardC in connection :it'
a bank )ra$d or serio$s irreg$larity&
2& E8amination by an inde(endent
A$ditorC 'ired by t'e Bank and )or t'e
BankLs e8cl$si%e $se& !& Disclos$re :it' t'e De(ositorLs :ritten
(ermission&
6n case o) 6m(eac'ment&
6n cases o) Bribery or dereliction o) d$ty by
a P$blic ;))icerC $(on order o) a com(etent
co$rt&
6n cases o) money de(ositedGin%ested
:'ic'C in t$rnC is t'e s$b<ect o) 7itigationC
$(on order o) a com(etent Co$rt&
3& D;/R6 7oans: 7oans :it' t'eir Banks
o) Bank DirectorsC ;))icersC /tock'olders and
related interests&
7oans in e8cess o) 0J o) t'e BankLs
Ca(ital . /$r(l$s
T'e Borro:er :ai%ed 'is rig't as regards
t'e /ecrecy o) Bank De(osits
0& =iolation o) t'e Anti-2ra)t and
Corr$(t Practices Act&
4& Co$( dL etat 7a: RA 4,49C
;ct 23C+,,0"& 7& B6R CommissionerLs a$t'ority to %eri)y
a decedentLs 2ross Estate and a ta8(ayerLs
re5$est )or a com(romise agreement d$e to
inca(acity to (ay 'is ta8 liability&
9& -oreign C$rrency De(osits by )oreign
lenders . in%estors $nder PDs +0!3&
,& =iolations o) t'e Anti-*oney
7a$ndering 7a:& +0& @'en t'e /tate e8ercisesGin%okes its
Police Po:er&
(2,:0 BE2E .t is suggested that any % of
the above be given full credit!
,an-s6 Secrec% o& ,an-
De$osits ()**0) *anosaC a ne:s(a(er col$mnistC :'ile
making a de(osit in a bankC o%er'eard a
(retty bank teller in)orming a coem(loyee
t'at 2igiC a :ell kno:n ($blic o))icialC 'as
<$st a )e: '$ndred (esos in 'er bank
acco$nt and t'at 'er ne8t c'eck :ill in all
(robability bo$nce& *anosa :rote t'is
in)ormation in 'is ne:s(a(er col$mn& T'$sC
2igi
Page 10 of 103 )iled a com(laint :it' t'e City
-iscal o) *anila )or $nla:)$lly disclosing
in)ormation abo$t 'er bank acco$nt& a" @ill
t'e said s$it (ros(erI E8(lain yo$r ans:er&
b" /$((osing t'at 2igi is c'arged :it'
$nla:)$lly ac5$iring :ealt' $nder RA +!7,
and t'at t'e )iscal iss$ed a subpoena duces
tecum )or t'e records o) t'e bank acco$nt o)
2igi& *ay 2igi %alidly o((ose t'e said
iss$ance on t'e gro$nd t'at t'e same
%iolates t'e la: on secrecy o) bank de(ositsI
E8(lain yo$r ans:er&
SU++ESTE6 ANSWER(
a" T'e /ecrecy o) Bank De(osits Act
(ro'ibitsC s$b<ect to its e8cl$sionary cla$sesC
any (erson )rom e8aminingC in5$iring or
looking into all de(osits o) :'ate%er nat$re
:it' banks or banking instit$tions in t'e
P'ili((ines :'ic' by la: are declared
Aabsol$tely con)identialB in nat$re& *anosa
:'o merely o%er'eard :'at a((eared to be
a %ag$e remark o) a Bank em(loyee to a co-
em(loyee and :riting t'e same in 'is
ne:s(a(er col$mn is neit'er t'e in5$iry nor
disclos$re contem(lated by la:&
ALTERNATI7E ANSWER(
a" T'e com(laint against *anosa :ill not
(ros(er beca$se merely :riting a %ag$e
remark o) a Bank em(loyee to a co-em(loyee
is not t'e disclos$re contem(lated by la:& 6)
anyone s'o$ld be liableC it :ill be t'e bank
em(loyee :'o disclosed t'e in)ormation&
SU++ESTE6 ANSWER(
b" Among t'e instances e8ce(ted )rom t'e
co%erage o) t'e /ecrecy o) Bank De(osits
Act are Anti-gra)t cases& Fence 2igi may not
%alidly o((ose t'e iss$ance o) a subpoena
duces tecum )or t'e bank records on 'er&
,an-s6 Secrec% o& ,an-
De$osits ()**)) T'e la: RA 49!2" creating a Commission to
cond$ct a T'oro$g' -act--inding 6n%estigation
o) t'e -ailed Co$( detat o) Dec +,9,C
Recommend *eas$res to Pre%ent t'e
;cc$rrence o) /imilar Attem(ts At a =iolent
/eiE$re o) Po:er and )or ;t'er P$r(osesC
(ro%ides t'at t'e Commission may ask t'e
*onetary Board to disclose in)ormation on
andGor to grant a$t'ority to e8amine any bank
de(ositsC tr$st or in%estment )$ndsC or
banking transactions in t'e name o) andGor
$tiliEed by a (ersonC nat$ral or <$ridicalC $nder
in%estigation by t'e CommissionC in any bank
or banking instit$tion in t'e P'ili((inesC :'en
t'e Commission 'as reasonable gro$nd to
belie%e t'at said de(ositsC tr$st or in%estment
)$ndsC or banking transactions 'a%e been
$sed in s$((ort or in )$rt'erance o) t'e
ob<ecti%es o) t'e said co$( detat& Does t'e
abo%e (ro%ision not %iolate t'e 7a: on
/ecrecy o) Bank De(osits RA +300"I
SU++ESTE6 ANSWER(
T'e 7a: on /ecrecy o) Bank De(osits is itsel)
merely a stat$tory enactmentC and it mayC
t'ere)oreC be modi)iedC or amended s$c' as
by (ro%iding )$rt'er e8ce(tions t'ere)rom"C
or e%en re(ealedC e8(ressly or im(liedlyC by
a s$bse5$ent la:& T'e /ecrecy o) Bank
De(osits Act did not amo$nt to a contract
bet:een t'e de(ositors and de(ository
banks :it'in t'e meaning o) t'e non-
im(airment cla$se o) t'e Constit$tion& E%en
i) it didC t'e (olice (o:er o) t'e /tate is
s$(erior to t'e non-
Mercantile Law Bar Examination Q & A (1990-2006)
im(airment cla$se& RA 49!2C creating a
commission to cond$ct an in%estigation o)
t'e )ailed +,9, co$( detat and to
recommend meas$res to (re%ent similar
attem(ts to seiEe (o:er is a %alid e8ercise o)
(olice (o:er&
,an-s6 Secrec% o& ,an-
De$osits ()**2) /ocorro recei%ed P+0C000 )rom a )oreign bank
alt'o$g' s'e :as entitled only to P+C000&00&
6n an a((arent (lan to conceal t'e
erroneo$sly sent amo$ntC s'e o(ened a dollar
acco$nt :it' 'er local bankC de(osited t'e
P+0C000 and iss$ed 3 c'ecks in t'e amo$nt
o) P2C000 and + c'eck )or P+C000 eac'
(ayable to di))erent indi%id$als :'o
de(osited t'e same in t'eir res(ecti%e dollar
acco$nts :it' di))erent local banks&
T'e sender bank t'en bro$g't a ci%il s$it
be)ore t'e RTC )or t'e reco%ery o) t'e
erroneo$sly sent amo$nt& 6n t'e co$rse o) t'e
trialC t'e sender (resented testimonies o)
bank o))icials to s'o: t'at t'e )$nds :ereC in
)actC de(osited in a bank by /ocorro and (aid
o$t to se%eral (ersonsC :'o (artici(ated in
t'e concealment and dissi(ation o) t'e
amo$nt t'at /ocorro 'ad erroneo$sly
recei%ed&
/ocorro mo%ed to strike o$t said testimonies
)rom t'e record in%oking t'e la: on secrecy
o) bank de(osits& 6) yo$ :ere t'e #$dgeC
:o$ld yo$ iss$e an order to strike t'em o$tI
@'yI
SU++ESTE6 ANSWER(
6 :ill not strike o$t t'e testimonies )rom t'e
record& T'e testimonies o) bank o))icials
indicating :'ere t'e 5$estioned dollar
acco$nts :ere o(ened in de(ositing
misa((ro(riated s$ms m$st be considered as
like:ise in%ol%ed in litigation M one :'ic' is
among t'e e8ce(ted cases $nder t'e /ecrecy
o) Bank De(osits Act ((elon ,an- (a'sino
)*0 SCRA 533)
,an-s6 Secrec% o& ,an-
De$osits ()**7) *ig$elC a s(ecial c$stoms agent is c'arged
be)ore t'e ;mb$dsman :it' 'a%ing ac5$ired
(ro(erty o$t o) (ro(ortion to 'is salaryC in
%iolation o) t'e Anti-2ra)t and Corr$(t
Practices Act& T'e ;mb$dsman iss$ed a
subpoena duces tecum to t'e Banco de Cinco
commanding its re(resentati%e to )$rnis' t'e
;mb$dsman records o) transactions by or in
t'e name o) *ig$elC 'is :i)e and c'ildren& A
second s$b(oena :as iss$ed e8(anding t'e
)irst by incl$ding t'e (rod$ction o) records o)
)riends o) *ig$el in said bank and in all its
branc'es and e8tension o))icesC s(eci)ically
naming t'em&
*ig$el mo%ed to 5$as' t'e s$b(oenas arg$ing
t'at t'ey %iolate t'e /ecrecy o) Bank De(osits
7a:& 6n additionC 'e contends t'at t'e
s$b(oenas are in t'e nat$re o) A)is'ing
e8(editionB or Ageneral :arrantsB and are
constit$tionally im(ermissible :it' res(ect to
(ri%ate indi%id$als :'o are not $nder
in%estigation& 6s *ig$els contention tenableI
SU++ESTE6 ANSWER(
>o& *ig$els contention is not tenable& T'e
in5$iry into illegally ac5$ired (ro(erty
e8tends to cases :'ere s$c' (ro(erty is
concealed by being 'eld by or recorded in
t'e
Page 11 of 103 name o) ot'er (ersons& To
s$stain *ig$els t'eory and restrict t'e
in5$iry only to (ro(erty 'eld by or in t'e
name o) t'e go%ernment o))icial :o$ld make
a%ailable to (ersons in go%ernment :'o
illegally ac5$ire (ro(erty an easy means o)
e%ading (rosec$tion& All t'ey 'a%e to do
:o$ld be to sim(ly (lace t'e (ro(erty in t'e
name o) (ersons ot'er t'an t'eir s(o$ses
and c'ildren (Banco -ilipino Savings vs/
;urisima "%" scra 53%< Sec 6 0nti81raft =aw as
amended by B; "95!
,an-s6 Secrec% o& ,an-
De$osits ()**1) *ic'ael :it'dre: :it'o$t a$t'ority )$nds o)
t'e (artners'i( in t'e amo$nts o) P000t' and
?/P00t' )or ser%ices 'e claims 'e rendered
)or t'e bene)it o) t'e (artners'i(& Fe
de(osited t'e P000t' in 'is (ersonal (eso
c$rrent acco$nt :it' Pros(erity Bank and t'e
?/P00t' in 'is (ersonal )oreign c$rrency
sa%ings acco$nt :it' Eastern Bank&
T'e (artners'i( instit$ted an action in co$rt
against *ic'aelC Pros(erityC and Eastern to
com(el *ic'ael to ret$rn t'e s$b<ect )$nds to
t'e (artners'i( and (ending litigation to
order bot' banks to disallo: any :it'dra:al
)rom 'is acco$nts&
At t'e initial 'earing o) t'e case t'e co$rt
ordered Pros(erity to (rod$ce t'e records o)
*ic'aels (eso c$rrent acco$ntC and Eastern
to (rod$ce t'e records o) 'is )oreign
c$rrency sa%ings acco$nt&
Can t'e co$rt com(el Pros(erity and Eastern
to disclose t'e bank de(osits o) *ic'aelI
Disc$ss )$lly&
SU++ESTE6 ANSWER(
KesC as )ar as t'e (eso acco$nt is concerned&
/ec 2 o) RA +300 allo:s t'e disclos$re o)
bank de(osits in case :'ere t'e money
de(osited is t'e s$b<ect matter o) litigation&
/ince t'e case )iled against *ic'ael is aimed
at reco%ering t'e amo$nt 'e :it'dre: )rom
t'e )$nds o) t'e (artners'i(C :'ic' amo$nt
'e allegedly de(osited in 'is acco$ntC a
disclos$re o) 'is bank de(osits :o$ld be
(ro(er&
>oC :it' res(ect to t'e )oreign c$rrency
acco$nt& ?nder t'e -oreign C$rrency 7a:C
t'e e8em(tion to t'e (ro'ibition against
disclos$re o) in)ormation concerning bank
de(osits is t'e :ritten consent o) t'e
de(ositor&
,an-s6 Secrec% o& ,an-
De$osits ()**4) +,,9 20" An ins$rance com(any is del$ded
into releasing a c'eck to A )or P!0t' to (ay
)or Treas$ry Bills T-bills" :'ic' A claims to
be en ro$te on board an armored tr$ck )rom
a go%ernment bank& T'e c'eck is deli%ered to
A :'o de(osits it to 'is acco$nt :it' NKQ
Bank be)ore t'e ins$rance com(any realiEes
it is a scam& ?(on s$c' realiEationC t'e
ins$rance com(any )iles an action against A
)or reco%ery o) t'e amo$nt de)ra$ded and
obtains a :rit o) (reliminary attac'ment& 6n
addition to t'e :ritC t'e Bank is also ser%ed a
s$b(oena to e8amine t'e acco$nt records o)
A& T'e Bank declines to (ro%ide any
in)ormation in res(onse to t'e :rit and
mo%es to 5$as' t'e s$b(oena in%oking
secrecy o) bank
Mercantile Law Bar Examination Q & A (1990-2006)
de(osits $nder RA +300C as amended& Can
t'e Bank <$sti)iably in%oke RA +300 and a"
not res(ond to t'e :rit and b" 5$as' t'e
s$b(oena )or e8aminationI 0J"
SU++ESTE6 ANSWER(
Kes& @'et'er t'e transaction is considered a
sale or money (lacement does not make t'e
money As$b<ect matter o) litigationB :it'in
t'e meaning o) /ec 2 o) RA +300 :'ic'
(ro'ibits t'e disclos$re or in5$iry into bank
de(osit e8ce(t Ain cases :'ere t'e money
de(osited or in%ested is t'e s$b<ect matter
o) litigationB nor :ill it matter :'et'er t'e
money :as As:indled&B
,an-s6 Secrec% o& ,an-
De$osits (2000) 2P is a s$s(ected <$eteng lord :'o is
r$mored to be en<oying (olice and military
(rotection& T'e en%y o) many dr$g lords :'o
'ad not esca(ed t'e dragnet o) t'e la:C 2P
:as s$mmoned to a 'earing o) t'e
Committee on Racketeering and ;t'er
/yndicated Crimes o) t'e Fo$se o)
Re(resentati%esC :'ic' :as cond$cting a
congressional in%estigation Ain aid o)
legislationB on t'e in%ol%ement o) (olice and
military (ersonnelC and (ossibly e%en o) local
go%ernment o))icialsC in t'e illegal acti%ities o)
s$s(ected gambling and dr$g lords&
/$b(oenaed to attend t'e in%estigation :ere
o))icers o) certain identi)ied banks :it' a
directi%e to t'em to bring t'e records and
doc$ments o) bank de(osits o) indi%id$als
mentioned in t'e s$b(oenasC among t'em
2P& 2P and t'e banks o((osed t'e (rod$ction
o) t'e banks records o) de(osits on t'e
gro$nd t'at no s$c' in5$iry is allo:ed $nder
t'e 7a: on /ecrecy o) Bank De(osits RA
+300 as amended"& 6s t'e o((osition o) 2P
and t'e banks %alidI E8(lain&
SU++ESTE6 ANSWER(
Kes& T'e o((osition is %alid& 2P is not a ($blic
o))icial& T'e in%estigation does not in%ol%e one
o) t'e e8ce(tions to t'e (ro'ibition against
disclos$re o) any in)ormation concerning bank
de(osits $nder t'e 7a: on /ecrecy o) Bank
De(osits& T'e Committee cond$cting t'e
in%estigation is not a com(etent co$rt or t'e
;mb$dsman a$t'oriEed $nder t'e la: to
iss$e a s$b(oena )or t'e (rod$ction o) t'e
bank record in%ol%ing s$c' disclos$re&
,an-s6 Secrec% o& ,an- De$osits6
E=ce$tions (2007) T'e 7a: on /ecrecy o) Bank De(osits
(ro%ides t'at all de(osits o) :'ate%er nat$re
:it' banks or banking instit$tions are
absol$tely con)idential in nat$re and may not
be e8aminedC in5$ired or looked into by any
(ersonC go%ernment o))icialC b$rea$ or o))ice&
Fo:e%erC t'e la: (ro%ides e8ce(tions in
certain instances& @'ic' o) t'e )ollo:ing may
not be among t'e e8ce(tions:
+& 6n cases o)
im(eac'ment& 2& 6n cases in%ol%ing
bribery !& 6n cases in%ol%ing B6R
in5$iry& 3& 6n cases o) anti-gra)t and corr$(t
(ractices& 0& 6n cases :'ere t'e money in%ol%ed is t'e
s$b<ect o)
litigation& E8(lain yo$r ans:er or
c'oice brie)ly& 0J"
SU++ESTE6 ANSWER(
Page 13 of 103 ?nder /ection 4-" o) t'e
>ational 6nternal Re%en$e CodeC t'e
Commissioner o) 6nternal Re%en$e can
in5$ire into t'e de(osits o) a decedent )or
t'e ($r(ose o) determining t'e gross estate
o) s$c' decedent& A(art )rom t'is caseC a B6R
in5$iry into bank de(osits cannot be made&
T'$sC e8ce(tion ! may not al:ays be
a((licable&
T$rning to e8ce(tion 3C an in5$iry into bank
de(osits is (ossible only in (rosec$tions )or
$ne8(lained :ealt' $nder t'e Anti-2ra)t and
Corr$(t Practices ActC according to t'e
/$(reme Co$rt in t'e cases o) ;hilippine
2ational Ban' v/ 1ancayco, "5 S&+0 9" ("9%5!
and Banco -ilipino Savings and *ortgage Ban' v/
;urisima, "%" S&+0 53% ("966!/
Fo:e%erC all ot'er cases o) anti-gra)t and
corr$(t (ractices :ill not :arrant an in5$iry
into bank de(osits& T'$sC e8ce(tion 3 may
not al:ays be a((licable& 7ike any ot'er
e8ce(tionC it m$st be inter(reted strictly&
E8ce(tions +C 2 and 0C on t'e ot'er 'andC are
(ro%ided e8(ressly in t'e 7a: on /ecrecy o)
Bank De(ositors& T'ey are a%ailable to
de(ositors at all times&
,an-s6 Secrec% o& ,an- De$osits6
Garnis#ment (200)) T'e 7a: on /ecrecy o) Bank De(ositsC
ot'er:ise kno:n as RA +300C is intended to
enco$rage (eo(le to de(osit t'eir money in
banking instit$tions and also to disco$rage
(ri%ate 'oarding so t'at t'e same may be
(ro(erly $tiliEed by banks to assist in t'e
economic de%elo(ment o) t'e co$ntry& 6s a
notice o) garnis'ment ser%ed on a bank at
t'e instance o) a creditor o) a de(ositor
co%ered by t'e said la:I /tate t'e reasons"
)or yo$r ans:er& 0J"
SU++ESTE6 ANSWER(
>o& T'e notice o) garnis'ment ser%ed on a
bank at t'e instance o) a creditor is not
co%ered by t'e 7a: on /ecrecy o) Bank
De(osits& 2arnis'ment is <$st a (art o) t'e
(rocess o) e8ec$tion& T'e moment a notice o)
garnis'ment is ser%ed on a bank and t'ere
e8ists a de(osit by t'e <$dgment debtorC t'e
bank is directly acco$ntable to t'e s'eri))C )or
t'e bene)it o) t'e <$dgment creditorC )or t'e
:'ole amo$nt o) t'e de(osit& 6n s$c' e%entC
t'e amo$nt o) t'e de(osit becomesC in e))ectC
a s$b<ect o) t'e litigation&
,S"6 Receiers#i$6
Juris:iction ()**2) -amily Bank :as (laced $nder stat$tory
recei%ers'i( and s$bse5$ently ordered
li5$idated by t'e Central Bank CB" d$e to
)ra$d and irreg$larities in its lending
o(erations :'ic' rendered it insol%ent&
#$dicial (roceedings )or li5$idation :ere
t'erea)ter commenced by t'e CB be)ore t'e
RTC& -amily Bank o((osed t'e (etition&
/'ortly t'erea)terC -amily Bank )iled in t'e
same co$rt a s(ecial ci%il action against t'e
CB seeking to en<oin and dismiss t'e
li5$idation (roceeding on t'e gro$nd o) gra%e
ab$se o) discretion by t'e CB& T'e co$rt
(oised to: +" restrain t'e CB )rom closing
-amily Bank1 and 2" a$t'oriEe -amily Bank to
:it'dra: money )rom its de(osits d$ring t'e
(endency o) t'e case& 6) yo$ :ere t'e #$dgeC
:o$ld yo$ iss$e s$c' ordersI @'yI
SU++ESTE6 ANSWER(
Mercantile Law Bar Examination Q & A (1990-2006)
>o& T'e RTC 'as no a$t'ority to restrain t'e
monetary board o) t'e B/P )rom stat$tory
a$t'ority to $ndertake recei%ers'i( and
$ltimate li5$idation o) a bank& Any o((osition
to s$c' an action co$ld be made to t'e co$rt
itsel) :'ere assistance is so$g't& T'e action
o) t'e RTC :'ere t'e (roceeding is (ending
a((eal 'a%e to be made in t'e Co$rt o)
A((eals&
<e'al Ten:er
(2000) A)ter many years o) s'o((ing in t'e *etro
*anila areaC 'o$se:i)e F@ 'as de%elo(ed
t'e so$nd 'abit o) making cas' ($rc'ases
onlyC none on credit& 6n one s'o((ing tri( to
*ega *allC s'e got t'e s'ock o) 'er s'o((ing
li)e )or t'e )irst timeC a stores smart salesgirl
re)$sed to acce(t 'er coins in (ayment )or a
($rc'ase :ort' not more t'an one '$ndred
(esos& F@ :as (aying se%enty (esos in 20-
centa%o coins and t:enty )i%e (esos in +0
centa%o coins& /trange as it may seemC t'e
salesgirl told F@ t'at 'er coins :ere not
Alegal tender&B Do yo$ agree :it' t'e
salesgirl in res(ect o) 'er $nderstanding o)
Alegal tenderIB E8(lain 2J"
SU++ESTE6 ANSWER(
>o& T'e salesgirls $nderstanding t'at coins
are not legal tender is not correct& Coins are
legal tender in amo$nts not e8ceeding )i)ty
(esos )or denominations )rom t:enty )i%e
centa%os and abo%eC and in amo$nts not
e8ceeding t:enty (esos )or denominations
ten centa%os and less&
"D2C <a> s! Secrec% o& ,an-
De$osits Act ()**+) An em(loyee o) a large man$)act$ring )irm
earns a salary :'ic' is <$st a bit more t'an
:'at 'e needs )or a com)ortable li%ing& Fe is
t'$s able to still maintain a P+0C000 sa%ings
acco$ntC a P20C000 c'ecking acco$ntC a
P!0C000 money market (lacement and a
P30C000 tr$st )$nd in a medi$m-siEe
commercial bank& a" /tate :'ic' o) t'e )o$r
acco$nts are deemed ins$red
by t'e PD6C& b" /tate :'ic' o) t'e abo%e
acco$nts are co%ered by
t'e 7a: on /ecrecy o) Bank
De(osits&
SU++ESTE6 ANSWER(
a" T'e P+0t' sa%ings acco$nt and t'e P20t'
c'ecking acco$nt are deemed ins$red by t'e PD6C& b"
T'e P+0t' sa%ings acco$nt and t'e P20t'
c'ecking acco$nt are co%ered by t'e 7a: on /ecrecy o)
Bank De(osits&
Res$onsi.ilities 0 8.?ecties
o& ,S" ()**4) @'at are t'e res(onsibilities and (rimary
ob<ecti%es o) t'e B/PI 0J"
SU++ESTE6 ANSWER(
T'e B/P s'all (ro%ide (olicy directions in t'e
areas o) moneyC banking and credit& 6t s'all
'a%e s$(er%ision o%er t'e o(erations o)
banks and e8ercise s$c' reg$latory (o:ers
as (ro%ided in t'e Central Bank Act and
ot'er (ertinent la:s o%er t'e o(erations o)
)inance com(anies and non-bank )inancial
instit$tions (er)orming 5$asi-banking
)$nctionsC s$c' as 5$asi-banks and
instit$tions (er)orming similar )$nctions&
T'e (rimary ob<ecti%e o) t'e B/P is to
maintain (rice stability cond$ci%e to a
balanced and s$stainable gro:t'
Page 15 of 103 o) t'e economy& 6t s'all
(romote and maintain monetary stability
and con%ertibility o) t'e Peso&
Trut# in <en:in'
Act ()**)) Dana 2ianina ($rc'ased on a !4 mont'
installment basis t'e latest model o) t'e
>issan /entra /edan car )rom t'e #obel Cars
6nc& 6n addition to t'e ad%ertised selling (riceC
t'e latter im(osed )inance c'arges consisting
o) interestsC )ees and ser%ice c'arges& 6t did
notC 'o:e%erC s$bmit to Dana a :ritten
statement setting )ort' t'erein t'e
in)ormation re5$ired by t'e Tr$t' in 7ending
Act RA !740"& >e%ert'elessC t'e conditional
deed o) sale :'ic' t'e (arties e8ec$ted
mentioned t'at t'e total amo$nt indicated
t'erein incl$ded s$c' )inance c'arges&
Fas t'ere been s$bstantial com(liance o) t'e
a)oresaid ActI
6) yo$r ans:er to t'e )oregoing 5$estion is in
t'e negati%eC :'at is t'e e))ect o) t'e
%iolation on t'e contractI
6n t'e e%ent o) a %iolation o) t'e ActC :'at
remedies may be a%ailed o) by DanaI
SU++ESTE6 ANSWER(
a" T'ere :as no s$bstantial com(liance
:it' t'e Tr$t' in 7ending Act& T'e la:
(ro%ides t'at t'e creditor m$st make a )$ll
disclos$re o) t'e credit lost& T'e statement
t'at t'e total amo$nt d$e incl$des t'e
(rinci(al and t'e )inancial c'argesC :it'o$t
s(eci)ying t'e amo$nts d$e on eac' (ortion
t'ereo) :o$ld be ins$))icient and
$nacce(table&
b" A %iolation o) t'e Tr$t' in 7ending Act
:ill not ad%ersely a))ect t'e %alidity o) t'e
contract itsel)&
c" 6t :o$ld allo: Dana to re)$se (ayment
o) )inancial c'arges orC i) already (aidC to
reco%er t'e same& Dana may also initiate
criminal c'arges against t'e creditor&
ALTERNATI7E ANSWER(
c" Per Atty #omby Paras i) $ read t'e
(ro%isions closely" ?nder t'e Tr$t' in
7ending ActC said )inancial c'arges are %alidC
and Dana may not re)$se (ayment t'ereo)&
;nly criminal c'arges may be initiated
against t'e creditor&
Trut# in <en:in'
Act (2000) Embassy A((liances sells 'ome t'eater
com(onents t'at are designed and
c$stomiEed as entertainment centers )or
cons$mers :it'in t'e medi$m-to-'ig' (rice
bracket& *ostC i) not allC o) t'ese (ackages
are sold on installment basisC $s$ally by
means o) credit cards allo:ing a ma8im$m o)
!4 e5$al mont'ly (ayments& Pre)erred credit
cards o) t'is ty(e are t'ose iss$ed by banksC
:'ic' reg$larly 'old mall :ide sales blitEes
(artici(ated in by a((liance retailers like
Embassy A((liances& Ko$ are a b$yer o) a
'ome t'eater center at Embassy A((liances&
T'e salesclerk :'o is attending to yo$ sim(ly
s:i(es yo$r credit card on t'e electronic
a((ro%al mac'ine :'ic' momentarily (rints
o$t yo$r c'arge sli( since yo$ 'a%e $nlimited
credit"C tears t'e sli( )rom t'e mac'ineC
'ands t'e same o%er to yo$ )or yo$r
signat$reC and
Mercantile Law Bar Examination Q & A (1990-2006)
:it'o$t moreC (roceeds to arrange t'e
deli%ery and installation o) yo$r ne: 'ome
t'eater system& Ko$ kno: yo$ :ill recei%e a
statement on yo$r credit card ($rc'ases
)rom t'e bank containing an o(tion to (ay
only a minim$m amo$ntC :'ic' is $s$ally
+G!4 o) t'e total (rice yo$ :ere c'arged )or
yo$r ($rc'ase& Did Embassy A((liances
com(ly :it' t'e (ro%isions o) t'e Tr$t' in
7ending Act RA !740"I
SU++ESTE6 ANSWER(
T'ere is no need )or Embassy A((liances to
com(ly :it' t'e Tr$t' in 7ending Act& T'e
transaction is not a sale on installment basis&
Embassy A((liances is a seller on cas' basis&
6t is t'e credit card com(any :'ic' allo:s
t'e b$yer to en<oy t'e (ri%ilege o) (aying t'e
(rice on installment basis&
.l- Sales Law
,ul- Sales <a>6 Coere:
Transactions ()**7) /tanr$s 6nc a de(artment store :it' o$tlets in
*akatiC *andal$yongC and D$eEon CityC is
contem(lating to re)$rbis' and reno%ate its
*akati store in order to introd$ce t'e most
modern and state o) t'e art e5$i(ment in
merc'andise dis(lay& To carry o$t its (lanC it
intends to sell A77 o) t'e e8isting )i8t$res and
e5$i(ment dis(lay casesC :all decorationsC
)$rnit$reC co$ntersC etc&" to Crossroads
De(artment /tore& T'erea)terC it :ill b$y and
install ne: )i8t$res and e5$i(ment and
contin$e o(erations& Crossroads :ants to
kno: )rom yo$ as co$nsel: +" @'et'er t'e
intended sale is Ab$lk sale&B 2" Fo: can it
(rotect itsel) )rom )$t$re claims o)
creditors o) /tanr$s&
SU++ESTE6 ANSWER(
+" Kes& T'e sale in%ol%es all )i8t$res and
e5$i(mentC not in t'e ordinary co$rse o)
trade and t'e reg$lar (rosec$tion o) b$siness
o) /tanr$sC 6nc& /ec 2 Act !,02C as amended"
2" Crossroads s'o$ld re5$ire )rom /tanr$s
6nc& s$bmission o) a :ritten :ai%er o) t'e B$lk
/ales 7a: by t'e creditors as s'o:n by
%eri)ied statements or to com(ly :it' t'e
re5$irements o) t'e B$lk /ales 7a:C t'at isC
t'e seller m$st noti)y 'is creditors o) t'e
terms and conditions o) t'e saleC and alsoC
be)ore recei%ing )rom t'e %endee any (art o)
t'e ($rc'ase (riceC deli%er to s$c' %endee a
:ritten s:orn statement o) t'e names and
addresses o) all 'is creditors toget'er :it'
t'e amo$nt o) indebtedness d$e to eac' /ec
2 Act !,02C amended"
,ul- Sales <a>6 Coere:
Transactions (2000) Com(any NC engaged in t'e b$siness o)
man$)act$ring car (arts and accessoriesC
o(erates a )actory :it' e5$i(mentC
mac'inery and tools )or t'is ($r(ose& T'e
man$)act$red goods are sold :'olesale to
distrib$tors and dealers t'ro$g'o$t t'e
P'ili((ines& Com(any N :as among t'e
b$siness entities ad%ersely 'it by t'e +,,7
Asian b$siness crisis& 6ts sales dro((ed :it'
t'e decline in car sales and its o(erating
costs escalatedC :'ile its creditor banks and
ot'er )inancial instit$tions tig'tened
Page #0 of 103 t'eir loan (ort)olios& Com(any N
:as )aced :it' t'e dismal c'oice o) eit'er
s$s(ending its o(erations or selling its
b$siness& 6t c'ose t'e latter& Fa%ing str$ck a
deal :it' Com(any QC a more %iable entity
engaged in t'e same b$sinessC Com(any N
sold its entire b$siness to t'e )ormer :it'o$t
m$c' )an)are or any )orm o) ($blicity& 6n )actC
e%idence e8ists t'at t'e transaction :as
)$rti%ely entered into to a%oid t'e (rying
eyes o) Com(any Ns creditors& T'e creditor
banks and ot'er )inancial instit$tions s$ed
Com(any N )or %iolation o) t'e B$lk /ales
7a:& Decide& 0J"
SU++ESTE6 ANSWER(
Com(any N %iolated t'e B$lk /ales 7a: :'en
it sold its entire b$siness to Com(any Q
)$rti%ely to a%oid t'e (rying eyes o) its
creditors& 6ts man$)act$red goods are sold
:'olesale to distrib$tors and dealers& T'e
sale o) all or s$bstantially all o) its stocksC not
in t'e ordinary co$rse o) b$sinessC
constit$tes b$lk sale& T'e transaction being a
b$lk saleC entering into s$c' transaction
:it'o$t com(lying :it' t'e re5$irements o)
t'e B$lk /ales 7a:C Com(any N %iolated said
la:&
,ul- Sales <a>6 Coere:
Transactions (2005) P$rs$ant to a :rit o) e8ec$tion iss$ed by t'e
Regional Trial Co$rt in OE8(ress Bank %& Don
R$bioCO t'e s'eri)) le%ied and sold at ($blic
a$ction 9 ('otoco(ying mac'ines o) Don
R$bio& 6s t'e s'eri))Ls sale co%ered by t'e
B$lk /ales 7a:I 0J"
SU++ESTE6 ANSWER(
>o& T'e sale by s'eri)) at ($blic sale is not a
sale by a merc'ant& /ection 9 o) t'e B$lk
/ales 7a: itsel) (ro%ides t'at it 'as no
a((lication to e8ec$torsC administratorsC
recei%ersC assignees in insol%encyC or ($blic
o))icersC acting $nder (rocess& T'e B$lk /ales
7a: only a((lies to t'e sale or enc$mbrance
o) a merc'ant o) goodsC merc'andise or
commodity done Oin b$lkO as de)ined by t'e
7a: itsel)&
,ul- Sales <a>6
E=clusions ()**3) 6n t'e ann$al meeting o) NKQ Cor(orationC
t'e stock'olders $nanimo$sly ado(ted a
resol$tion (ro(osed by t'e B;D to sell
s$bstantially all t'e )i8t$res and e5$i(ment
$sed in and abo$t its b$siness& T'e President
o) t'e Cor(oration a((roac'ed yo$ and asked
)or legal assistance to e))ect t'e sale& +" @'at
ste(s s'o$ld yo$ take so t'at t'e sale may
be
%alidI 2" @'at are t'e t:o instances :'en
t'e saleC trans)erC
mortgage or assignment o) stock o) goodsC
:aresC merc'andiseC (ro%isionC or materials ot'er:ise
t'an in t'e ordinary co$rse o) trade and t'e reg$lar
(rosec$tion o) t'e b$siness o) t'e %endor are
not deemed to be a sale or trans)er in
b$lkI
SU++ESTE6 ANSWER(
+" T'e re5$irements o) t'e B$lk /ales 7a:
m$st be com(lied :it'& T'e seller deli%ers to
t'e ($rc'aser a list o) 'is creditors and t'e
($rc'aser in t$rn noti)ies s$c' creditors o)
t'e (ro(osed sale at a sti($lated time in
ad%ance&
Mercantile Law Bar Examination Q & A (1990-2006)
2" 6) t'e sale and trans)er is made a" by t'e
%endorC mortgagorC trans)eror or assignor
:'o (rod$ces and deli%ers a :ritten :ai%er
o) t'e (ro%isions o) t'e B$lk /ales 7a: )rom
'is creditors as s'o:n by %eri)ied statement1
and b" by a %endorC mortgagorC trans)eror or
assignor :'o is an e8ec$torC administratorC
recei%erC assignee in insol%encyC or ($blic
o))icer acting $nder <$dicial (rocessC t'e sale
or trans)er is not co%ered by t'e B$lk /ales
7a:&
,ul- Sales <a>6 8.li'ation o& t#e
@en:or ()**1) Fo$se o) PiEEa PiEEa" is t'e o:ner and
o(erator o) a nation:ide c'ain o) (iEEa
o$tlets& Fo$se o) 7i5$or 7i5$or" is a retailer
o) all kinds o) li5$or&
Fo$se o) -oods -oods" 'as o))ered to
($rc'ase all o) t'e o$tletsC e5$i(mentC
)i8t$res and )$rnit$re o) PiEEa& -oods also
o))ered to ($rc'ase )rom 7i5$or all o) its
moderately (riced stock constit$ting 00J o)
its total in%entory&
Bot' PiEEa and 7i5$or 'a%e creditors& @'at
legal re5$irements m$st PiEEa and 7i5$or
com(ly :it' in order )or -oods to
cons$mmate t'e transactionsI Disc$ss )$lly&
SU++ESTE6 ANSWER(
PiEEa and 7i5$or m$st (re(are an a))ida%it
stating t'e names o) all t'eir creditorsC t'eir
addressesC t'e amo$nts o) t'eir credits and
t'eir res(ecti%e mat$rities& PiEEa and 7i5$or
m$st s$bmit said a))ida%it to -oods :'ic'C in
t$rnC s'o$ld noti)y t'e creditors abo$t t'e
transaction :'ic' is abo$t to be concl$ded
:it' PiEEa and 7i5$or&
ALTERNATI7E ANSWER(
As )ar as 7i5$or is concernedC it m$st
(re(are an a))ida%it stating t'e names o) all
its creditorsC t'eir addressesC t'e amo$nts o)
t'eir credits and t'eir res(ecti%e mat$rities&
6t m$st s$bmit said a))ida%it to its b$yerC :'o
in t$rnC s'o$ld noti)y t'e creditors abo$t t'e
transaction :'ic' is abo$t to be concl$ded
:it' 'is seller&
B$t as )ar as PiEEa is concernedC it is not
co%ered by t'e B$lk /ales 7a:& /o -oods can
cons$mmate t'e transaction :it'o$t doing
anyt'ing&
,ul- Sales <a>6 8.li'ation o& t#e
@en:or ()**+) T'e sole (ro(rietor o) a medi$m-siEe grocery
s'o(C engaged in bot' :'olesale and retail
transactionsC sells t'e entire b$siness AlockC
stock and barrelB beca$se o) 'is (lan to
emigrate abroad :it' 'is )amily& 6s 'e
co%ered by t'e (ro%isions o) t'e B$lk /ales
7a:I 6n t'e a))irmati%eC :'at m$st be done
by t'e (arties so as to com(ly :it' t'e la:I
SU++ESTE6 ANSWER(
Kes& T'is is a sale o) t'e stock o) goodsC
)i8t$res and entire b$sinessC not in t'e
ordinary co$rse o) b$siness or trade o) t'e
%endor& Be)ore recei%ing )rom t'e %endee
any (art o) t'e ($rc'ase (riceC t'e %endor
m$st deli%er to s$c' %endee a :ritten
statementC d$ly s:ornC o) t'e names and
addresses o) all creditors to :'om said
%endor may be indebtedC toget'er :it' t'e
amo$nt o)
Page #1 of 103 indebtedness d$e or o:ingC on
acco$nt o) t'e goodsC )i8t$res or b$siness
s$b<ect matter o) t'e b$lk sale&
,ul- Sales <a>6 8.li'ation o& t#e
@en:or (200)) A is a merc'ant engaged in t'e sale o) a
%ariety o) goods and merc'andise& Beca$se
o) t'e economic crisisC 'e inc$rred
indebtedness to NC K and Q& T'erea)terC A
sold to B all t'e stock o) goods and
merc'andise& a" @'at ste(s s'o$ld A
$ndertake to e))ect a %alid sale
in b$lk o) 'is goods to B& 2J"&
SU++ESTE6 ANSWER(
A m$st (re(are an a))ida%it stating t'e
names o) all 'is creditorsC in t'is caseC NC KC
and QC t'eir addressesC t'e amo$nt o) t'eir
credits and t'eir mat$rity& A s'o$ld gi%e t'e
a))ida%it to B :'oC in t$rnC s'o$ld )$rnis' a
co(y to eac' creditor and noti)y t'e creditors
t'at t'ere is a (ro(osed b$lk sale in order to
enable t'e latter to (rotect t'eir interests&
b" /$((ose A s$bmitted a )alse statement on t'e
sc'ed$le o) 'is creditors& @'at is t'e e))ect o)
s$c' )alse statement as to =endee B&
2J"
SU++ESTE6 ANSWER(
6) t'e %endee does not 'a%e kno:ledge o)
t'e )alsity o) t'e sc'ed$leC t'e sale is %alid&
Fo:e%erC i) t'e %endee 'as kno:ledge o)
s$c' )alsityC t'e sale is %oid beca$se 'e is in
bad )ait'&
c" @'at is t'e rig't o) creditors NC KC and Q i) A
)ailed to com(ly :it' t'e (roced$reGste(s re5$ired by
la: $nder 5$estion letter a" 'ereo)I
+J"
SU++ESTE6 ANSWER(
T'e reco$rse o) NC KC and Q is to 5$estion t'e
%alidity o) t'e sale )rom A to B so as to
reco%er t'e goods and merc'andise to
satis)y t'eir credits&
Cons.mer ,rote!tion Law
(etric S%stem
<a> ()**7) Angelene is a c$stomer o) *eralco Electric
Com(any *EC;"& Beca$se o) t'e abr$(t rise
in electricity ratesC Angelene com(lained
:it' *EC; insisting t'at s'e s'o$ld be
c'arged t'e )ormer rates& Fo:e%erC
Angelene did not tender any (ayment&
@'en *EC;s em(loyees ser%ed t'e )irst 39-
'o$r notice o) disconnectionC Angelene
(rotested& *EC;C 'o:e%erC did not im(lement
t'e 39-'o$r notice o) disconnection& 6nsteadC
its em(loyees e8amined Angelenes electric
meterC c'anged t'e sameC and installed
anot'er& /tillC AngeleneC made no tender o)
(ayment&
*EC; ser%ed a second 39-'o$r notice o)
disconnection on #$ne 22C +,93& 6t ga%e
Angelene $ntil 0 (m o) #$ne 20C +,93 :it'in
:'ic' to (ay& As no (ayment 'ad been
madeC *EC; c$t Angelenes electric ser%ice
on #$ne 29C +,93& Angelene contends t'at
t'e 39-'o$r :ritten notice o) disconnection
r$le cannot be in%oked by *EC;
Mercantile Law Bar Examination Q & A (1990-2006)
:'en t'ere is a bona )ide and <$st dis($te as
to t'e amo$nt d$e as 'er electric
cons$m(tion rate& 6s Angelenes contention
%alidI
SU++ESTE6 ANSWER(
>o& Angelenes only legal reco$rse in t'is
case :as to (ay t'e electric bill $nder
(rotest& Fer )ail$re to do so <$sti)ied *EC; to
c$t t'e electric ser%ice (&eni>a v &0 $"6 S $97!
Cor%oration Law
,8D: Election o& Aliens as
mem.ers (2001) A Horean national <oined a cor(oration :'ic'
is engaged in t'e )$rnit$re man$)act$ring
b$siness& Fe :as elected to t'e Board o)
Directors& To com(lement its )$rnit$re
man$)act$ring b$sinessC t'e cor(oration
also engaged in t'e logging b$siness& @it'
t'e additional logging acti%ityC can t'e
Horean national still be a member o) t'e
Board o) DirectorsI E8(lain& !J"
SU++ESTE6 ANSWER(
KesC <$st as long as si8ty (ercent 40J" o) t'e
Board o) Directors are -ili(inos& Cor(orations
t'at are si8ty (ercent 40J" o:ned by
-ili(inos can engage in t'e b$siness o)
e8(lorationC de%elo(ment and $tiliEation o)
nat$ral reso$rces& Art& N66C /ec& 2C +,97
Constit$tion" T'e election o) aliens as
members o) t'e Board ;) Directors engaging
in (artially-nationaliEed acti%ities is allo:ed
in (ro(ortion to t'eir allo:able (artici(ation
or s'are in t'e ca(ital o) s$c' entities& /ec&
2-AC Anti-D$mmy 7a:" >ot'ing in t'e )acts
s'o:s t'at more t'an )orty (ercent 30J" o)
t'e Board o) Directors are )oreigners&
,8D6 Ca$acit% o&
Directors ()**5) RodmanC t'e President o) T- CoC :rote a letter
to 2regorioC o))ering to sell to t'e latter 0C000
bags o) )ertiliEer at P+00 (er bag& 2regorio
signed 'is con)ormity to t'e letter-o))erC and
(aid a do:n-(ayment o) P00t'& A )e: days
laterC t'e Cor(orate /ecretary o) T- in)ormed
2regorio o) t'e decision o) t'eir B;D not to
rati)y t'e letter o))er& Fo:e%erC since 2regorio
'ad already (aid t'e do:n-(aymentC T-
deli%ered 000 bags o) )ertiliEer :'ic' 2regorio
acce(ted& T- made it clear t'at t'e deli%ery
s'o$ld be considered an entirely ne:
transaction& T'erea)terC 2regorio so$g't
en)orcement o) t'e letter-o))er& 6s t'ere a
binding contract )or t'e 0C000 bags o)
)ertiliEerI E8(lain&
SU++ESTE6 ANSWER(
>oC t'ere is no binding contract )or t'e 0C000
bags o) )ertiliEer& -irstC t'e )acts do not
indicate t'at RodmanC t'e President o) T- CoC
:as a$t'oriEed by t'e B;D to enter into t'e
said contract or t'at 'e :as em(o:ered to do
so $nder some (ro%ision o) t'e by-la:s o) T-
Co& T'e )acts do not also indicate t'at
Rodman 'as been clot'ed :it' t'e a((arent
(o:er to e8ec$te t'e contract or agreements
similar to it& /econdC T- Co 'as s(eci)ically
in)ormed 2regorio t'at it 'as not rati)ied t'e
contract )or t'e sale o) 0C000 bags o) )ertiliEer
and t'at t'e deli%ery to
Page ## of 103 2regorio o) 000 bagsC :'ic'
2regorio acce(tedC is an entirely ne:
transaction& (?ao @a Sin :rading v &0 1+ 5#6$7
Aune "5, "99$ $79s3%#!
,8D6
Com$ensation
()**))
A)ter many di))ic$lt yearsC :'ic' called )or
sacri)ices on t'e (art o) t'e com(anys
directorsC ABC *an$)act$ring 6nc :as )inally
earning s$bstantial (ro)its& T'$sC t'e
President (ro(osed to t'e B;D t'at t'e
directors be (aid a bon$s e5$i%alent to +0J
o) t'e com(anys net income be)ore ta8
d$ring t'e (receding year& T'e Presidents
(ro(osal :as $nanimo$sly a((ro%ed by t'e
B;D& A stock'older o) ABC 5$estioned t'e
bon$s& Does 'e 'a%e gro$nds to ob<ectI
SU++ESTE6 ANSWER(
KesC t'e stock'older as a %alid and legal
gro$nd to ob<ect to t'e (ayment to t'e
directors o) a bon$s e5$i%alent to +0J o) t'e
com(anys net income& T'e la: (ro%ides
t'at t'e total ann$al com(ensation o) t'e
directorsC in t'e (receding yearC cannot
e8ceed +0J o) t'e com(anys net income
be)ore income ta8 /ec !0 Cor( Code"&
,8D6 Con&lict o&
2nterest ()**7) ABC Pigger 6nc is engaged in raising and
selling 'ogs in t'e local market& *r& De DiosC
one o) its directors :'ile tra%eling abroadC
met a leat'er goods man$)act$rer :'o :as
interested in b$ying (ig skins )rom t'e
P'ili((ines& *r De Dios set $( a se(arate
com(any and started e8(orting (ig skins to
'is )oreign contact b$t t'e (ig skins e8(orted
:ere not so$rced )rom ABC& Fis )ello:
directors in ABC com(lained t'at 'e s'o$ld
'a%e gi%en t'is b$siness to ABC& Fo: :o$ld
yo$ decide on t'is matterI
SU++ESTE6 ANSWER(
6 :o$ld decide in )a%or o) *r De Dios& ABC is
engaged in raising and selling 'ogs in t'e
local market& T'e com(any t'at *r De Dios
'ad set $( :as to engageC as it didC in t'e
e8(ort o) (igs skins& T'ere is t'$s no con)lict
o) interest bet:een *r& De Dios and ABC
Pigger 6nc so as to make t'e case )all :it'in
t'e con)lict o) interest sit$ation $nder t'e
la: /ec !3 Cor( Code"
,bservation :he term Bconflict of
interestC is susceptible to varied views
and interpretations/
,8D6 2nterloc-in'
Directors ()**1) C'ito /antos is a director o) bot' Platin$m
Cor(oration and H:ik /il%er Cor(oration& Fe
o:ns +J o) t'e o$tstanding ca(ital stock o)
Platin$m and 30T o) H:ik& Platin$m (lans to
enter into a contract :it' H:ik t'at :ill make
bot' com(anies earn %ery s$bstantial (ro)its&
T'e contract is (resented at t'e res(ecti%e
board meetings o) Platin$m and H:ik&
+& 6n order t'at t'e contract :ill not be
%oidableC :'at conditions :ill 'a%e to be
com(lied :it'I E8(lain&
2& 6) t'ese conditions are not metC 'o: may
t'is contract be rati)iedI E8(lain&
SU++ESTE6 ANSWER(
+& At t'e meeting o) t'e B;D o) Platin$m to
a((ro%e t'e contractC C'ito :o$ld 'a%e to
make s$re t'at
Mercantile Law Bar Examination Q & A (1990-2006)
a" 'is (resence as director at t'e
meeting is not necessary to constit$te a
5$or$m )or s$c' meeting1
b" 'is %ote is not necessary )or t'e
a((ro%al o) t'e contract1 and c" t'e
contract is )air and reasonable $nder t'e
circ$mstances&
At t'e meeting o) t'e B;D o) H:ik to a((ro%e t'e
contractC C'ito :o$ld 'a%e to make s$re t'at
- a" t'ere is no )ra$d in%ol%ed1 and b" t'e
contract is )air and reasonable $nder t'e
circ$mstances&
SU++ESTE6 ANSWER(
2& 6) t'e conditions relating to t'e 5$or$m
and re5$ired n$mber o) %otes are not metC
t'e contract m$st be rati)ied by t'e %ote o)
stock'olders re(resenting at least 2G! o) t'e
o$tstanding ca(ital stock in a meeting called
)or t'e ($r(ose& -$rt'ermoreC t'e ad%erse
interest o) C'ito in t'e contract m$st be
disclosed and t'e contract is )air and
reasonable& /ecs& !2 and !!C BP 49"
,8D6 2nterloc-in'
Directors ()**5) 7eonardo is t'e C'airman and PresidentC
:'ile Ra('ael is a Director o) >T Cor(oration&
;n one occasionC >T CoC re(resented by
7eonardo and A EntC a single (ro(rietors'i(
o:ned by Ra('aelC entered into a dealers'i(
agreement :'ereby >T Co a((ointed A Ent
as e8cl$si%e distrib$tor o) its (rod$cts in
>ort'ern 7$Eon& 6s t'e dealers'i( agreement
%alidI E8(lain&
SU++ESTE6 ANSWER(
T'e dealers'i( agreement is %oidable at t'e
o(tion o) >T Co inasm$c' as t'e )acts do not
indicate t'at t'e same :as a((ro%ed by t'e
B;D o) >T Co be)ore it :as signed orC
ass$ming s$c' a((ro%alC t'at it :as
a((ro%ed $nder t'e )ollo:ing conditions: +"
T'at t'e (resence o) Ra('aelC t'e o:ner o) A
EntC
in t'e meeting o) t'e B;D at :'ic' t'e
agreement :as a((ro%ed :as not
necessary to constit$te a 5$or$m )or
s$c' meeting1
2" T'at t'e %ote o) Ra('ael :as not
necessary )or t'e a((ro%al o) t'e
agreement1 !" T'at t'e agreement is )air
and reasonable $nder t'e circ$mstances
/ec !2 Cor( Code"
ALTERNATI7E ANSWER(
T'e dealers'i( agreement is %alid $(on t'e
ass$m(tion t'at t'e same :as a((ro%ed by
t'e B;D o) >T Co be)ore it :as signed and
t'at s$c' a((ro%al :as made $nder t'e
)ollo:ing conditions: +" T'at t'e (resence o)
Ra('aelC t'e o:ner o) A EntC
in t'e meeting o) t'e B;D at :'ic' t'e
agreement :as a((ro%ed :as not
necessary to constit$te a 5$or$m )or
s$c' meeting1
2" T'at t'e %ote o) Ra('ael :as not
necessary )or t'e a((ro%al o) t'e
agreement1 !" T'at t'e agreement is )air
and reasonable $nder t'e circ$mstances
/ec !2 Cor( Code"
,%A<a>s6 @ali:it%6 limitin'
9uali&ications o& ,8D mem.ers
()**4)
Page #3 of 103 T'e B;D o) N CoC acting on a
standing a$t'ority o) t'e stock'olders to
amend t'e by-la:sC amended its by-la:s so
as to dis5$ali)y any o) its stock'olders :'o is
also a stock'older and director o) a
com(etitor )rom being elected to its B;D&
KC a stock'older 'olding s$))icient assets to
ass$re 'im o) a seat in t'e B;DC )iled a
(etition :it' t'e /EC )or a declaration o)
n$llity o) t'e amended by-la:s& Fe alleged
among ot'er t'ings t'at as a stock'olderC 'e
'ad ac5$ired rig'ts in'erent in stock
o:ners'i( s$c' as t'e rig't to %ote and be
%oted $(on in t'e election o) directors& 6s t'e
stock'olders (etition tenableI 0J"
SU++ESTE6 ANSWER(
>o& T'ere is no %ested rig't o) a stock'older
to be elected as director& @'en a (erson
b$ys stock in a cor(oration 'e does so :it'
t'e kno:ledge t'at its a))airs are dominated
by a ma<ority o) t'e stock'olders& To t'is
e8tentC t'e stock'older (arted :it' 'is
(ersonal rig't to reg$late t'e dis(osition o)
'is (ro(erty :'ic' 'e in%ested in t'e ca(ital
stock o) t'e cor(oration and s$rrendered it
to t'e :ill o) t'e ma<ority o) 'is )ello:
incor(orators or stock'olders&
Cor(orations 'a%e t'e (o:er to make by-
la:s declaring a (erson em(loyed in t'e
ser%ice o) a ri%al com(any to be ineligible )or
t'e Cor(orations B;D& An amendment
:'ic' renders a director ineligibleC or i)
electedC s$b<ects 'im to remo%alC i) 'e is also
a director in a cor(oration :'ose b$siness is
in com(etition :it' or is antagonistic to t'e
ot'er cor(oration is %alid&
,%A<a>s6 @ali:it%6 limitin'
9uali&ications o& ,8D mem.ers
(2000) At t'e ann$al stock'olders meeting o) */
Cor(orationC t'e stock'olders $nanimo$sly
(assed a resol$tion a$t'oriEing t'e Board o)
Directors to amend t'e cor(orate by-la:s so
as to dis5$ali)y any stock'older :'o is also a
director or stock'older o) a com(eting
b$siness )rom being elected to t'e Board o)
Directors o) */ Cor(oration& T'e by-la:s
:ere accordingly amended& 2HC a stock'older
o) */ Cor(oration and a ma<ority stock'older
o) a com(etitorC so$g't election to t'e Board
o) Directors o) */ Cor(oration& Fis
nomination :as denied on t'e gro$nd t'at 'e
:as ineligible to r$n )or t'e (osition& /eeking
a n$lli)ication o) t'e o))ending dis5$ali)ication
(ro%isionC 2H cons$lts yo$ abo$t its %alidity
$nder t'e Cor(oration Code o) t'e P'ils& @'at
:o$ld yo$r legal ad%ice beI !J"
SU++ESTE6 ANSWER(
T'e (ro%ision in t'e amended by-la:s
dis5$ali)ying any stock'older :'o is also a
director or stock'older o) a com(eting
b$siness )rom being elected to t'e Board o)
Directors o) */ Cor( is %alid& T'e cor(oration
is em(o:ered to ado(t a code o) by-la:s )or
its go%ernment not inconsistent :it' t'e Cor(
Code& /$c' dis5$ali)ying (ro%ision is not
inconsistent :it' t'e Cor( Code&
,%A<a>s6 @ali:it%6 limitin'
9uali&ications o& ,8D mem.ers
(200))
Mercantile Law Bar Examination Q & A (1990-2006)
6s a by-la: (ro%ision o) N Cor(oration
Arendering ineligible or i) electedC s$b<ect to
remo%alC a director i) 'e is also a director in a
cor(oration :'ose b$siness is in com(etition
:it' or is antagonistic to said cor(orationB
%alid and legalI /tate yo$r reasons& 0J"&
SU++ESTE6 ANSWER(
KesC t'e by-la: (ro%ision is %alid& 6t is t'e
rig't o) a cor(oration to (rotect itsel) against
(ossible 'arm and (re<$dice t'at may be
ca$sed by its com(etitors& T'e (osition o)
director is 'ig'ly sensiti%e and con)idential&
To say t'e leastC to allo: a (ersonC :'o is a
director in a cor(oration :'ose b$siness is in
com(etition :it' or is antagonistic to N
Cor(orationC to become also a director in N
Cor(oration :o$ld be 'arboring a con)lict o)
interest :'ic' is 'arm)$l to t'e latter
(1o'ongwei Ar v SE& 69 S ##% ("939!< 93 S 36
("967!!/
,%A<a>s6 @ali:it%6 limitin'
9uali&ications o& ,8D mem.ers
(2003) To (re%ent t'e entry o) *arlo Enri5$eEC
:'om it considered as one antagonistic to its
interestsC into its Board o) DirectorsC Bayan
Cor(oration amended its articles o)
incor(oration and by-la:s to add certain
5$ali)ications o) stock'olders to be elected
as members o) its Board o) Directors& @'en
(resented )or a((ro%al at a meeting o) its
stock'olders d$ly called )or t'e ($r(oseC t'e
amendments :ere o%er:'elmingly rati)ied&
*arlo Enri5$eE bro$g't s$its against Bayan
Cor(oration to 5$estion t'e amendments&
@o$ld t'e action (ros(erI @'yI 3J"
SU++ESTE6 ANSWER(
(per 5ondee! T'e /C reiterated in t'e case o)
S*& vs/ SE& decided in 0pril "", "939, t'at it
is recogniEed by all a$t'orities t'at Le%ery
cor(oration 'as t'e in'erent (o:er to ado(t
by-la:s L)or its internal go%ernmentC and to
reg$late t'e cond$ct and (rescribe t'e rig'ts
and d$ties o) its members to:ards itsel) and
among t'emsel%es in re)erence to t'e
management o) its a))airs&LO At common la:C
t'e r$le :as Ot'at t'e (o:er to make and
ado(t byla:s :as in'erent in e%ery
cor(oration as one o) its necessary and
inse(arable legal incidents& And it is settled
t'ro$g'o$t t'e ?nited /tates t'at in t'e
absence o) (ositi%e legislati%e (ro%isions
limiting itC e%ery (ri%ate cor(oration 'as t'is
in'erent (o:er as one o) its necessary and
inse(arable legal incidentsC inde(endent o)
any s(eci)ic enabling (ro%ision in its c'arter
or in general la:C s$c' (o:er o) sel)-
go%ernment being essential to enable t'e
cor(oration to accom(lis' t'e ($r(oses o) its
creation&O
Close Cor$orations6
Dea:loc-s ()**1) RobertC Rey and Ben e8ec$ted a <oint %ent$re
agreement to )orm a close cor(oration $nder
t'e Cor( Code t'e o$tstanding ca(ital stock
o) :'ic' t'e t'ree o) t'em :o$ld e5$ally
o:n& T'ey also (ro%ided t'erein t'at any
cor(orate act :o$ld need t'e %ote o) 70J o)
t'e o$tstanding ca(ital stock& T'e terms o)
t'e agreement :ere accordingly
im(lemented and t'e corres(onding close
cor(oration :as incor(orated& A)ter ! yearsC
RobertC Rey and Ben co$ld not agree on t'e
b$siness in
Page #/ of 103 :'ic' to in%est t'e )$nds o)
t'e cor(oration& Robert :ants t'e deadlock
broken&
+& @'at are t'e remedies a%ailable to Robert
$nder t'e Cor( code to break t'e
deadlockI E8(lain&
2& Are t'ere any remedies to (re%ent t'e
(aralyEation o) t'e b$siness a%ailable to
Robert $nder PD ,02-A :'ile t'e (etition
to break t'e deadlock is (ending
litigationI E8(lain&
SU++ESTE6 ANSWER(
+& Robert can (etition t'e /EC to arbitrate
t'e dis($teC :it' s$c' (o:ers as
(ro%ided in /ec +03 o) t'e Cor( Code&
2& T'e /EC can a((oint a re'abilitation
recei%er or a management committee&
Close: Cor$oration6 Restriction6
Trans&er o& s#ares ()**7)
Ra)ael in'erited )rom 'is $ncle +0C000
s'ares o) /ta& Ana Cor(orationC a close
cor(oration& T'e s'ares 'a%e a (ar %al$e o)
P+0&00 (er s'are& Ra)ael noti)ied /ta& Ana
t'at 'e :as selling 'is s'ares at P70&00 (er
s'are& T'ere being no takers among t'e
stock'oldersC Ra)ael sold t'e same to 'is
co$sin =icente :'o is not a stock'older" )or
P700C000&
T'e Cor(orate /ecretary re)$sed to trans)er
t'e s'ares in =icentes name in t'e cor(orate
books beca$se AlbertoC one o) t'e
stock'oldersC o((osed t'e trans)er on t'e
gro$nd t'at t'e same %iolated t'e by-la:s&
Alberto o))ered to b$y t'e s'ares at P+2&00
(er s'areC as )i8ed by t'e by-la:s or a total
(rice o) P+20C000 only&
@'ile t'e by-la:s o) /ta& Ana (ro%ides t'at
t'e rig't o) )irst re)$sal can be e8ercised Aat
a (rice not e8ceeding 20J more t'an t'e
(ar %al$e o) s$c' s'aresC t'e Articles o)
6ncor(oration sim(ly (ro%ides t'at t'e
stock'olders o) record As'all 'a%e
(re)erential rig't to ($rc'ase said s'ares&B 6t
is silent as to (ricing&
6s Ra)ael bo$nd by t'e (ricing (ro%iso $nder
t'e by-la:s o) /ta& Ana Cor(orationI
SU++ESTE6 ANSWER(
Kes& 6n a close cor(orationC t'e restriction as
to t'e trans)er o) s'ares 'as to be statedG
annotated in t'e Articles o) 6ncor(orationC
t'e By-7a:s and t'e certi)icate o) stock& T'is
ser%es as notice to t'e (erson dealing :it'
s$c' s'ares like Ra)ael in t'is case& @it'
s$c' noticeC 'e is bo$nd by t'e (ricing
stated in t'e By-la:s&
ALTERNATI7E ANSWER(
>oC Ra)ael is not bo$nd by t'e (ricing (ro%iso
$nder t'e By-la:s o) /ta Ana Cor(oration&
?nder t'e cor(oration la:C t'e restrictions on
t'e rig't to trans)er s'ares m$st a((ear in
t'e articles o) incor(oration and in t'e by-
la:s as :ell as in t'e certi)icate o) stockC
ot'er:iseC t'e same s'all not be binding on
any ($rc'aser t'ereo) in good )ait'& *oreo%er
t'e restriction s'all not be more onero$s t'an
granting t'e e8isting stock'olders or t'e
cor(oration t'e o(tion to ($rc'ase t'e s'ares
o) t'e trans)erring stock'older :it' s$c'
reasonable term or (eriod stated t'erein&
Mercantile Law Bar Examination Q & A (1990-2006)
FereC limiting t'e (rice to be (aidC :'en t'e
rig't o) )irst re)$sal is e8ercisedC to not more
t'an 20J (ar %al$eC :it'o$t any 5$ali)ication
:'atsoe%erC is not in t'e articles& 6t is merely
stated in t'e By-la:s& T'ere)ore s$c'
limitation s'all not be binding on t'e
($rc'aser& (1oSoc' D Sons D Sy 1ui Euat .nc v
.0& "9 -eb 63 *in +es!
Controers%6 2ntraA
Cor$orate ()**7) Beca$se o) disagreement :it' t'e B;D and a
t'reat by t'e B;D to e8(el 'er )or
miscond$ct and ine))iciencyC Carissa o))ered
in :riting to resign as President and member
o) t'e B;DC and to sell to t'e com(any all 'er
s'ares t'erein )or P!00C000&00 Fer o))er to
resign :as Ae))ecti%e as soon as my s'ares
are )$lly (aid&B At its meetingC t'e B;D
acce(ted Carissas resignationC a((ro%ed 'er
o))er to sell back 'er s'ares o) stock to t'e
com(anyC and (romised to b$y t'e stocks on
a staggered basis& Carissa :as in)ormed o)
t'e B;D Resol$tion in a letter-agreement to
:'ic' s'e a))i8ed 'er consent& T'e
Com(anys ne: President singed t'e
(romissory note& A)ter (ayment P+00C000 t'e
com(any de)a$lted in (aying t'e balance o)
P200C000&
Carissa :ants to s$e t'e Com(any to collect
t'e balance& 6) yo$ :ere retained by Carissa
as 'er la:yerC :'ere :ill yo$ )ile t'e s$itI A"
7abor Arbiter1 b" RTC1 or c" /ECI
SU++ESTE6 ANSWER(
T'e RTC 'as <$risdiction o%er t'is case :'ic'
in%ol%es intra-cor(orate contro%ersy& As o)
2004C t'e a((licable r$le is t'at t'ere is a
TRA>/-ERRED #?R6/D6CT6;> $nder /ec& 0&2
o) t'e /RCC t'e Commissions <$risdiction
o%er all cases en$merated $nder PD ,02-A
sec& 0 'as been trans)erred to t'e Co$rts o)
general <$risdiction or t'e a((ro(riate
Regional Trial Co$rt&
Controers%6 2ntraA
Cor$orate ()**5) 6n +,70C *agno <oined A*D Co as a #$nior
Acco$ntant& Fe steadily rose )rom t'e ranks
$ntil 'e became A*Ds E8ec$ti%e =P&
/$bse5$entlyC 'o:e%er beca$se o) 'is
in%ol%ement in certain anomaliesC t'e A*D
B;D considered 'im resigned )rom t'e
com(any d$e to loss o) con)idence&
Aggrie%edC *agno )iled a com(laint in t'e
/EC 5$estioning t'e %alidity o) 'is
terminationC and seeking reinstatement to 'is
)ormer (ositionC :it' back:agesC %acation
and sick lea%e bene)itsC +!t' mont' (ay and
C'ristmas bon$sC (l$s moral and e8em(lary
damagesC attorneys )ees and costs& A*D
)iled a motion to dismissC arg$ing t'at t'e
/EC 'as no <$risdiction o%er cases o) illegal
dismissalC and 'as no (o:er to a:ard
damages& /'o$ld t'e motion to dismiss be
grantedI E8(lain&
SU++ESTE6 ANSWER(
As o) 2004C t'e a((licable r$le is t'at t'ere is
a TRA>/-ERRED #?R6/D6CT6;> $nder /ec&
0&2 o) t'e /RCC t'e Commissions <$risdiction
o%er all cases en$merated $nder PD ,02-A
sec& 0 'as been trans)erred to t'e Co$rts o)
general <$risdiction or t'e a((ro(riate
RE26;>A7 TR6A7 C;?RT&
Controers%6 2ntraA
Cor$orate ()**5)
Page #$ of 103 #enni)er and 2abriel o:ned t'e
controlling stocks in *-- Co and C7; 6ncC
bot' )amily cor(orations& D$e to serio$s
disagreementsC #enni)er assigned all 'er
s'ares in *-- to 2abrielC :'ile 2abriel
assigned all 'is s'ares in C7; to #enni)er&
/$bse5$entlyC #enni)er and C7; )iled a
com(laint against 2abriel and *-- in t'e
/EC seeking to reco%er t'e cor(orate records
and )$nds o) C7; :'ic' 2abriel allegedly
re)$sed to t$rn o%erC and :'ic' remained in
t'e o))ices o) *--& 6s t'ere an intra-cor(orate
contro%ersy in t'is caseI
SU++ESTE6 ANSWER(
KesC t'ere is an intra-cor(orate contro%ersy in
t'is case& T'e )act t'atC :'en t'e com(laint
against 2abriel and *-- :as )iled :it' t'e
/EC (er 2004C RTCs #$risdiction"C #enni)er
and C7; :ere no longer stock'olders o) *--
did not di%est t'e /EC (er 2004C RTCs
#$risdiction" o) its <$risdiction o%er t'e case
inasm$c' as #enni)er :as a )ormer
stock'older o) *-- and t'e contro%ersy arose
o$t o) t'is relation& (SE& v &0 1+ 9#6#$ 0ug $#
9"< $7"s"$4!
Controers%6 2ntraA
Cor$orate (2005)
W#at is an intraAcor$orate controers%B
(4C)
SU++ESTE6 ANSWER(
An intra-cor(orate contro%ersy is a con)lict
bet:een stock'oldersC members or (artners
and t'e cor(orationC association or
(artners'i( regarding t'e reg$lation o) t'e
cor(oration& T'e contro%ersy m$st arise o$t
o) intra-cor(orate or (artners'i( relations o)
t'e (arties1 or bet:een s$c' cor(orationC
(artners'i( or association and t'e /tate
inso)ar as it concerns t'eir indi%id$al
)ranc'ises& 6t is )$rt'er re5$ired t'at t'e
dis($te be intrinsically connected :it' t'e
reg$lation o) t'e cor(oration (Speed
5istributing &orp/, et al/ v/ &ourt of 0ppeals, et al,
1/+/ 2o/ "49#5", *arch "3, $774< .ntestate Estate
of 0lexander :/:yv/ &ourt of 0ppeals, 1/+/ 2o/
""$63$, 0pril "9, $77"!/
2s t#e Securities an: E=c#an'e
Commission t#e enue &or actions
inolin' intraAcor$orate controersiesB
(2C)
SU++ESTE6 ANSWER(
>oC ($rs$ant to /$bsection 0&2 o) t'e
/ec$rities Reg$lation CodeC t'e 5$asi-<$dicial
<$risdiction o) t'e /ec$rities and E8c'ange
Commission to 'ear cor(orate casesC
incl$ding intra-cor(orate contro%ersiesC $nder
/ection 0 o) Pres& Decree >o& ,02-AC 'as been
e8(ressly trans)erred to t'e designated
Regional Trial Co$rt& P$rs$ant to a
memorand$m circ$lar iss$ed by t'e /$(reme
Co$rtC only (artic$larly designated RTC
s(ecial commercial co$rts in eac' <$dicial
region 'a%e original and e8cl$si%e <$risdiction
o%er s$c' cases (See .ntestate Estate of
0lexander :/ :y v/ &ourt of 0ppeals, 1/+/ 2o/
""$63$, 0pril "9, $77"!/
Controers%6 2ntraAcor$orate6
Juris:iction ()**+) #$an :as a stock'older o) N Co& Fe o:ned a
total o) 000 s'ares e%idenced by Cert o)
/tock >o +00+& Fe sold t'e s'ares to Pedro&
A)ter getting (aidC #$an indorsed and
deli%ered said Certi)icate o) /tock >o +00+ to
Pedro& T'e )ollo:ing dayC #$an :ent to t'e
o))ices o) t'e cor(oration and claimed t'at
'is Certi)icate o) /tock >o +00+ :as lost and
t'atC des(ite diligent e))ortsC t'e certi)icate
co$ld
Mercantile Law Bar Examination Q & A (1990-2006)
not be located& T'e )ormalities (rescribed by
la: )or t'e re(lacement o) t'e AlostB
certi)icate :ere com(lied :it'& E%ent$ally N
Co iss$ed in s$bstit$tion o) t'e AlostB
certi)icateC Cert o) /tock >o 2002& #$an
)ort':it' trans)erred )or %al$able
consideration t'e ne: certi)icate to #ose :'o
kne: not'ing o) t'e (re%io$s sale to Pedro&
6n timeC t'e cor(oration :as con)ronted :it'
t'e con)licting claims o) #ose and Pedro& T'e
B;D o) N Co in%ited yo$ to enlig'ten t'em on
t'ese 5$estions1 %iE: a" 6) a s$it :ere to be
initiated in order to resol%e t'e
contro%ersy bet:een Pedro and #oseC s'o$ld t'e
matter be s$bmitted to t'e /EC or to t'e reg$lar
co$rtsI b" Bet:een #ose and PedroC :'om
s'o$ld t'e
cor(oration so recogniEe as t'e rig't)$l
stock'olderI
Fo: :o$ld yo$ res(ond to t'e abo%e
5$eriesI
SU++ESTE6 ANSWER(
a" T'e matter s'o$ld be s$bmitted to t'e
reg$lar co$rts M s(eci)ically in t'e Regional
Trial Co$rt :'ere t'e (rinci(al o))ice o) t'e
cor(oration is located& T'e contro%ersy
bet:een Pedro and #ose is not an intra-
cor(orate contro%ersy&
b" 6) t'ere is no o%er-iss$ance o) s'ares
res$lting )rom t'e t:o-transactions o) #$anC
t'e cor(oration s'o$ld recogniEe bot' Pedro
and #ose as rig't)$l stock'olders& T'is is
:it'o$t (re<$dice to t'e rig't o) t'e
cor(oration to claim against #$an )or t'e
%al$e o) t'e s'ares :'ic' #$an sold to #ose&
Cor$oration Sole6
De&inition (2007) @'at is a cor(oration soleI
SU++ESTE6 ANSWER(
/ection ++0 o) t'e Cor(oration Code de)ines
a Ocor(oration soleO as one )ormed )or t'e
($r(ose o) administering and managingC as
tr$steeC t'e a))airsC (ro(erty and
tem(oralities o) any religio$s denominationC
sect or c'$rc'& 6t is )ormed by t'e c'ie)
arc'bis'o(C bis'o(C (riestC ministerC rabbi or
ot'er (residing elder o) s$c' religio$s
denominationC sect or c'$rc'&
Cor$oration: 2ssuance o& s#ares o&
stoc- to $a% &or t#e serices (2001)
#anice rendered some cons$ltancy :ork )or
NKQ Cor(oration& Fer com(ensation incl$ded
s'ares o) stock t'erein& Can NKQ Cor(oration
iss$e s'ares o) stock to (ay )or t'e ser%ices
o) #anice as its cons$ltantI Disc$ss yo$r
ans:er& 2J"
SU++ESTE6 ANSWER(
KesC (ro%ided t'e a((ro%al o) stock'olders
re(resenting t:o-t'irds 2G!" o) t'e
o$tstanding ca(ital stock is obtained&
Alt'o$g' t'e )acts indicate t'at t'e
cons$ltancy :ork 'as already been
OrenderedO constit$ting O(re%io$sly contracted
debtCO $nder /ection !, o) t'e Cor(oration
CodeC t'e (re-em(ti%e rig'ts o) e8isting
stock'olders need not be res(ected Oin
(ayment o) a (re%io$sly contracted debtCO b$t
only :it' t'e indicated stock'oldersL a((ro%al&
?nder /ection 42 o) t'e Cor(oration CodeC
consideration )or t'e iss$ance o)
Page #0 of 103 stock may incl$de labor
(er)ormed )or or ser%ices act$ally rendered
to t'e cor(oration&
Cor$oration: Ri'#t o& Re$urc#ase o&
S#ares6 Trust /un: Doctrine (2001)
?nder :'at conditions may a stock
cor(oration ac5$ire its o:n s'aresI 2J"
SU++ESTE6 ANSWER(
6n line :it' t'e tr$st )$nd doctrine t'at
generally renders it $nla:)$l )or t'e
cor(oration to ret$rn assets to t'e
stock'olders re(resenting ca(italC a
cor(oration may ac5$ire its o:n s'ares only
when there exists in the boo's unrestricted
retained earnings to cover the repurchase of
shares/ T'e ($r(ose o) t'e re($rc'ase o)
s'ares m$st be a legitimate b$siness
($r(ose o) t'e cor(orationC s$c' as to:
+E76*6>ATE )ractional s'ares arising o$t o)
stock di%idends1
2C;77ECT or C;*PR;*6/E an indebtedness
to t'e cor(oration arising o$t o) $n(aid
s$bscri(tion in a delin5$ency sale1
!to P?RCFA/E delin5$ent s'ares sold d$ring
t'e sale1 and
3to PAK dissenting or :it'dra:ing
stock'olders entitled to s$c' (ayment $nder
t'e Cor(oration Code& /ees& 3+ and 92C
Cor(oration Code"
Cor$oration: Sole
"ro$rietors#i$ (2007) KH/ Trading )iled a com(laint )or s(eci)ic
(er)ormance :it' damages against P@C
Cor(oration )or )ail$re to deli%er cement
ordered by (lainti))& 6n its ans:erC P@C
denied liability on t'e gro$ndC inter aliaC t'at
KH/ 'as no (ersonality to s$eC not being
incor(oratedC and t'at t'e President o) P@C
:as not a$t'oriEed to enter into a contract
:it' (lainti)) by t'e P@C Board o) DirectorsC
'ence t'e contract is $ltra %ires& KH/ Trading
re(lied t'at it is a sole (ro(rietors'i( o:ned
by KH/C and t'at t'e President o) P@C 'ad
made it a((ear in se%eral letters (resented
in e%idence t'at 'e 'ad a$t'ority to sign
contracts on be'al) o) t'e Board o) Directors
o) P@C& @ill t'e s$it (ros(er or notI Reason
brie)ly& 0J"
SU++ESTE6 ANSWER(
Kes t'e s$it :ill (ros(er& As a sole
(ro(rietors'i(C t'e (ro(rietor o) KH/ Trading
'as t'e ca(acity to act and t'e (ersonality to
s$e P@C& 6t is not necessary )or KH/ Trading
to be incor(orated be)ore it can s$e& ;n t'e
ot'er 'andC P@C is esto((ed )rom asserting
t'at its President 'ad no a$t'ority to enter
into t'e contractC considering t'atC in se%eral
o) P@CLs lettersC it 'ad clot'ed its President
:it' a((arent a$t'ority to deal :it' KH/
Trading&
Cor$oration6 Articles o&
2ncor$oration ()**0) T'e articles o) incor(oration to be registered
in t'e /EC contained t'e )ollo:ing (ro%isions
-- a" A-irst Article& T'e name o) t'e
cor(oration s'all be To'o *arketing
Com(any&B
b" AT'ird Article& T'e (rinci(al o))ice o) s$c'
cor(oration s'all be located in Region 666C in
s$c' m$nici(ality t'erein as its Board o)
Directors may designate&B
Mercantile Law Bar Examination Q & A (1990-2006) Page #1 of 103
c" A/e%ent' Article& T'e ca(ital stock o) t'e
cor(oration is ;ne *illion Pesos
P+C000C000" P'ili((ine C$rrency&B
@'at are yo$r comments and s$ggested
c'anges to t'e (ro(osed articlesI
SU++ESTE6 ANSWER(
a" ;n t'e -irst ArticleC 6 :o$ld s$ggest
t'at t'e cor(orate name indicate t'e )act o)
incor(oration by $sing eit'er ATo'o
*arketing Cor(orationB or ATo' *arketing
Com(anyC 6ncor(orated&B
b" T'e T'ird Article s'o$ld indicate t'e
City or t'e *$nici(ality and t'e Pro%ince in
t'e P'ili((inesC and not merely t'e region or
as its B;D may later designateC to be its
(lace o) (rinci(al o))ice&
c" T'e /e%ent' Article m$st additionally
(oint o$t t'e n$mber o) s'ares into :'ic'
t'e ca(ital stock is di%idedC as :ell as t'e (ar
%al$e t'ereo) or a statement t'at said stock
or a (ortion t'ereo) are :it'o$t (ar %al$e&
/ec +3 . +0 Cor( Code"
Cor$oration6 ,ul- Sales
<a> (2001) Di%ine Cor(oration is engaged in t'e
man$)act$re o) garments )or e8(ort& 6n t'e
co$rse o) its b$sinessC it :as able to obtain
loans )rom indi%id$als and )inancing
instit$tions& Fo:e%erC d$e to t'e dro( in t'e
demand )or garments in t'e international
marketC Di%ine Cor(oration co$ld not meet its
obligations& 6t decided to sell all its e5$i(ment
s$c' as se:ing mac'inesC (erma-(ress
mac'inesC 'ig' s(eed se:ersC c$tting tablesC
ironing tablesC etc&C as :ell as its s$((lies and
materials to To( 2rade -as'ion Cor(orationC
its com(etitor& 0J" +" Fo: :o$ld yo$
classi)y t'e transactionI
SU++ESTE6 ANSWER(
T'e transactions :o$ld constit$te a sale o)
Os$bstantially all o) t'e assets o) Di%ine
Cor(oration com(lying :it' t'e test $nder
/ec& 30 o) t'e Cor(oration CodeC t'e
transactions not being Oin t'e ordinary co$rse
o) b$sinessCO and one Ot'ereby t'e
cor(oration :o$ld be rendered inca(able o)
contin$ing t'e b$siness or accom(lis'ing t'e
($r(ose )or :'ic' it :as incor(orated&O
ALTERNATI7E ANSWER(
6t is a sale and trans)er in b$lk in
contem(lation o) t'e B$lk /ales 7a:& ?nder
/ec& 2 o) t'e B$lk /ales 7a:C a b$lk sale
incl$des any saleC trans)erC mortgageC or
assignment o) allC or s$bstantially allC o) t'e
b$siness or trade t'ereto)ore cond$cted by
t'e %endorC mortgagorC trans)erorC or
assignor& T'is is e8actly :'at 'a((ened in
t'e case at bar&
2" Can Di%ine Cor(oration sell t'e
a)oresaid items to its com(etitorC To( 2rade
-as'ion Cor(orationI @'at are t'e
re5$irements to %alidly sell t'e itemsI
E8(lain&
SU++ESTE6 ANSWER(
For such a transaction to be valid, it requires not only the
favorable resolution of the Board of Directors of Divine
Corporation, but also the ratificatory vote of
stock'olders re(resenting at least t:o-t'irds
2G!" o) t'e o$tstanding ca(ital stockC as
mandated $nder /ec& 30 o) t'e Cor(oration
Code& T'e sale :o$ld be %oid in case o)
)ail$re to meet t'e t:in a((ro%als& (.slamic
5irectorate of the ;hilippines v/ &ourt of 0ppeals,
1/+/ 2o/ ""3693, *ay "4, "993!
ALTERNATI7E ANSWER(
Di%ine Cor(oration can sell t'e items to its
com(etitorC To( 2rade -as'ion Cor(oration&
Fo:e%erC Di%ine Cor(oration m$st com(ly
:it' /ections !C 3 and 0 o) t'e B$lk /ales
7a:C namely: +" deli%er s:orn statement o)
t'e names and addresses o) all t'e creditors
to :'om t'e %endor or mortgagor may be
indebted toget'er :it' t'e amo$nt o)
indebtedness d$e or o:ing to eac' o) t'e
said creditors1 2" a((ly t'e ($rc'ase or
mortgage money to t'e (ro-rata (ayment o)
bona )ide claims o) t'e creditors1 and !"
make a )$ll detailed in%entory o) t'e stock o)
goodsC :aresC merc'andiseC (ro%isions or
materialsC in b$lkC and noti)y e%ery creditor at
least ten +0" days be)ore trans)erring
(ossession&
!" Fo: :o$ld yo$ (rotect t'e interests
o) t'e creditors o) Di%ine Cor(orationI
SU++ESTE6 ANSWER(
Considering t'at Di%ine Cor(oration 'as
entered a de )acto stage o) dissol$tion :it'
t'e ceasing o) its o(erationsC 6 :o$ld in%oke
on be'al) o) t'e creditors t'e (rotection
$nder /ec& +22 o) t'e Cor(oration CodeC t'at
t'e (roceeds o) t'e sale s'o$ld )irst be
a((lied to:ards t'e settlement o) t'e
obligations o) t'e cor(orationC be)ore any
amo$nt can be (aid to t'e stock'olders&
ALTERNATI7E ANSWER(
?nder t'e B$lk /ales 7a:C i) t'e (roceeds are
not1 a((lied (ro(ortionately to:ards t'e
settlement o) t'e acco$nts o) t'e cor(orate
debtsC to 'a%e t'e sale o) t'e s$b<ect matters
to To( 2rade -as'ion Cor(&C as being
O)ra$d$lent and %oidO and obtain satis)action
)rom t'e (ro(erties :'ic' are deemed to still
be o:ned by Di%ine Cor(oration in s(ite o)
deli%ery to t'e b$yer& T'e creditors can
collect on t'e credit against Di%ine
Cor(orationC and i) it cannot (ayC t'e
creditors can a((ly )or attac'ment on t'e
(ro(erty )ra$d$lently sold& (See "eo$le !
(a$o%3 G!R! No! 744353 Se$tem.er 2)3 )*72)
3" 6n case Di%ine Cor(oration %iolated t'e la:C
:'at remedies are a%ailable to To( 2rade -as'ion
Cor(oration against Di%ine
Cor(orationI
SU++ESTE6 ANSWER(
6) t'e sale by Di%ine Cor(oration did not
obtain t'e re5$ired t:o-t'irds 2G!" %ote o)
t'e o$tstanding ca(ital stockC t'en t'e
transaction is %oid/ (.slamic 5irectorate of the
;hilippines v/ &ourt of 0ppeals, 1/+/ 2o, ""3693,
*ay "4, "993!
To( 2rade -as'ion Cor(oration can 'a%e t'e
($rc'ase declared %oid and reco%er t'e
($rc'ase (rice (aidC as :ell as damages
against t'e directors and o))icers :'o
$ndertook t'e transaction in %iolation o) t'e
la:&
ALTERNATI7E ANSWER(
-or %iolation o) t'e B$lk /ales 7a:C t'e
(rinci(al o))icers o) t'e Di%ine Cor(oration
can be 'eld criminally liable& 6n additionC To(
2rade can s$e Di%ine Cor(oration )or
damages& =iolation o) t'e B$lk /ales 7a:
:o$ld render s$c' a sale )ra$d$lent and
%oid& /ince To( 2rade :o$ld be com(elled
to ret$rn t'e goods to Di%ine Cor(orationC
Mercantile Law Bar Examination Q & A (1990-2006)
To( 2rade can com(el Di%ine Cor(oration to
ret$rn t'e ($rc'ase (rice and (ay damages&
Cor$oration6 ,%A
la>s (200)) /$((ose t'at t'e by-la:s o) N Cor(C a mining
)irm (ro%ides t'at AT'e directors s'all be
relie%ed )rom all liability )or any contract
entered into by t'e cor(oration :it' any )irm
in :'ic' t'e directors may be interested&B
T'$sC director A ac5$ired claims :'ic'
o%erla((ed :it' Ns claims and :ere
necessary )or t'e de%elo(ment and
o(eration o) Ns mining (ro(erties& a" 6s t'e
by-la: (ro%ision %alidI @'yI !J" b" @'at
'a((ens i) director A is able to cons$mmate
'is mining claims o%er and abo%e t'at o)
t'e cor(orations claimsI 2J"
SU++ESTE6 ANSWER(
a" >o& 6t is in %iolation o) /ection !2 o) t'e Cor(
Code&
b" A s'o$ld acco$nt to t'e cor(oration )or
t'e (ro)its :'ic' 'e realiEed )rom t'e
transaction& Fe grabbed t'e b$siness
o((ort$nity )rom t'e cor(oration& /ection
!3C Cor( Code"
Cor$oration6 Commencement6
Cor$orate E=istence (2003)
+& @'en does a cor(oration ac5$ire
cor(orate e8istenceI
SU++ESTE6 ANSWER(
2& CBK . Co&C 6nc&C registered :it' t'e
/ec$rities and E8c'ange Commission its
articles o) incor(oration& 6t )ailedC 'o:e%erC
)or one reason or anot'erC to 'a%e its by-la:s
)iled :it'C and registered byC t'e
Commission& 6t ne%ert'eless transacted and
did b$siness as a cor(oration )or sometime& A
s$it :as commenced by its minority
stock'olders assailing t'e contin$ed
e8istence o) CBK . Co&C 6nc&C beca$se o) t'e
non-ado(tion and registration o) its by-la:s&
@o$ld t'e action (ros(erI @'yI 4J"
SU++ESTE6 ANSWER(
Cor$oration6 Conersion o& Stoc-
Cor$oration (200)) N com(any is a stock cor(oration com(osed
o) t'e Reyes )amily engaged in t'e real
estate b$siness& Beca$se o) t'e regional
crisisC t'e stock'olders decided to con%ert
t'eir stock cor(oration into a c'aritable non-
stock and non-(ro)it association by amending
t'e articles o) incor(oration& a" Co$ld t'is be
legally doneI @'yI !J" b" @o$ld yo$r
ans:er be t'e same i) at t'e ince(tionC
N Com(any is a non-stock cor(orationI @'yI
2J"
SU++ESTE6 ANSWER(
a" KesC it can be legally done& 6n con%erting
t'e stock cor(oration to a non-stock
cor(oration by a mere amendment o) t'e
articles o) incor(orationC t'e stock
cor(oration is not distrib$ting any o) its
assets to t'e stock'olders& ;n t'e contraryC
t'e stock'olders are deemed to 'a%e :ai%ed
t'eir rig't to s'are in t'e (ro)its o) t'e
cor(oration :'ic' is a gain not a loss to t'e
cor(oration&
Page #3 of 103
b" >oC my ans:er :ill not be t'e same& 6n a
non-stock cor(orationC t'e members are not
entitled to s'are in t'e (ro)its o) t'e
cor(oration beca$se all (resent and )$t$re
(ro)its belong to t'e cor(oration& 6n
con%erting t'e non-stock cor(oration to a
stock cor(oration by a mere amendment o)
t'e Articles o) 6ncor(orationC t'e non-stock
cor(oration is deemed to 'a%e distrib$ted an
asset o) t'e cor(oration M i&e& its (ro)itsC
among its membersC :it'o$t a (rior
dissol$tion o) t'e cor(oration& ?nder /ec
+22C t'e non-stock cor(oration m$st be
dissol%ed )irst&
(,bservation :he question is rather vague
more particularly question "b/ :he question
does not specify that the conversion is from a
non8stoc' corporation to a stoc' corporation/
:he candidate is li'ely to be confused because
of the words Bif at the inception, F &o is a
nonstoc' corporation/C Eence, any answer
along the same line should be treated with
liberality!
Cor$oration6 De /acto
Cor$oration ()**7) A cor(oration :as created by a s(ecial la:&
7aterC t'e la: creating it :as declared
in%alid& *ay s$c' cor(oration claim to be a
de )acto cor(orationI
SU++ESTE6 ANSWER(
>o& A (ri%ate cor(oration may be created
only $nder t'e Cor(oration Code& ;nly ($blic
cor(orations may be created $nder s(ecial
la:&
@'ere a (ri%ate cor(oration is created $nder
a s(ecial la:C t'ere is no attem(t at a %alid
incor(oration& /$c' cor(oration cannot claim
a de )acto stat$s&
Cor$oration6 Dissolution6 (et#o:s o&
<i9ui:ation (200)) N Cor(oration s'ortened its cor(orate li)e by
amending its Articles o) 6ncor(oration& 6t 'as
no debts b$t o:ns a (rime (ro(erty located
in D$eEon City& Fo: :o$ld t'e said (ro(erty
be li5$idated among t'e )i%e stock'olders o)
said cor(orationI Disc$ss t:o met'ods o)
li5$idation& 0J"
SU++ESTE6 ANSWER(
T'e (rime (ro(erty o) N Cor(oration can be
li5$idated among t'e )i%e stock'olders a)ter
t'e (ro(erty 'as been con%eyed by t'e
cor(oration to t'e )i%e stock'oldersC by
di%iding or (artitioning it among t'emsel%es
in any t:o o) t'e )ollo:ing :ays: +" by
PFK/6CA7 D6=6/6;> or PART6T6;> based on
t'e (ro(ortion o) t'e %al$es o) t'eir
stock'oldings1 or
2" /E776>2 TFE PR;PERTK to a t'ird (erson
and di%iding t'e (roceeds among t'e )i%e
stock'olders in (ro(ortion to t'eir
stock'oldings1 or
!" a)ter t'e determination o) t'e %al$e o) t'e
(ro(ertyC by A//62>6>2 or TRA>/-ERR6>2
TFE PR;PERTK to one stock'older :it' t'e
obligation on t'e (art o) said stock'older to
(ay t'e ot'er )o$r stock'olders t'e amo$ntGs
in (ro(ortion to t'e %al$e o) t'e stock'olding
o) eac'&
Cor$oration6 2ncor$oration6
Re9uirements (2005) @'at is t'e minim$m and ma8im$m n$mber
o) incor(orators re5$ired to incor(orate a
stock cor(orationI
Mercantile Law Bar Examination Q & A (1990-2006)
6s t'is also t'e same minim$m and
ma8im$m n$mber o) directors re5$ired in a
stock cor(orationI 2&0J"
SU++ESTE6 ANSWER(
?nder /ection +0 o) t'e Cor(oration CodeC
any n$mber o) nat$ral (ersons not less t'an
)i%e 0" b$t not more t'an )i)teen +0"C all o)
legal age and a ma<ority o) :'om are
residents o) t'e P'ili((inesC may )orm a
(ri%ate cor(oration )or any la:)$l ($r(ose&
T'is is t'e same minim$m and ma8im$m
n$mber o) directors re5$ired in a stock
cor(oration $nder /ection +34" o) t'e
Cor(oration Code&
Cor$oration6 2ncor$oration6 Resi:enc%
Re9uirements (2005)
*$st all incor(orators and directors be
residents o) t'e P'ili((inesI 2&0J"
SU++ESTE6 ANSWER(
>ot all directors and incor(orators need to be
residents o) t'e P'ili((ines& ?nder /ection +0
o) t'e Cor(oration CodeC only a ma<ority o)
t'e incor(orators need to be residents o) t'e
P'ili((ines& As (ro%ided in /ection 2! o) t'e
same CodeC only a ma<ority o) t'e members
o) t'e Board o) Directors need to be residents
o) t'e P'ili((ines&
Cor$oration6 2ncor$oration6
Re9uisites (2002) Ko$ 'a%e been asked to incor(orate a ne:
com(any to be called -/B /a%ings .
*ortgage BankC 6nc& 7ist t'e doc$ments t'at
yo$ m$st s$bmit to t'e /ec$rities and
E8c'ange Commission /EC" to obtain a
certi)icate o) incor(oration )or -/B /a%ings .
*ortgage BankC 6nc& 0J"
SU++ESTE6 ANSWER(
T'e doc$ments to be s$bmitted to t'e
/ec$rities and E8c'ange Commission /EC"
to incor(orate a ne: com(any to be called
-/B /a%ings . *ortgage BankC 6nc&C to obtain
t'e certi)icate o) incor(oration )or said
com(anyC are: +" Articles o) 6ncor(oration 2"
Treas$rers A))ida%it1 !" Certi)icate o)
A$t'ority )rom t'e *onetary Board o)
t'e B/P1
3" =eri)ication sli( )rom t'e records o)
t'e /EC :'et'er or not t'e (ro(osed name
'as already been ado(ted by anot'er
cor(orationC (artners'i( or association1
0" 7etter $ndertaking to c'ange t'e
(ro(osed name i) already ado(ted by
anot'er cor(orationC (artners'i( or
association1
4" Bank certi)icate o) de(osit concerning
t'e (aid-$( ca(ital1
7" 7etter a$t'oriEing t'e /EC or
*onetary Board or its d$ly a$t'oriEed
re(resentati%e to e8amine t'e bank records
regarding t'e de(osit o) t'e (aid-$( ca(ital1
9" Registration
/'eet1
Cor$oration6 (eetin's6 ,8D 0
Stoc-#ol:ers ()**3) ?nder t'e Articles o) 6ncor(oration o) *anila
6nd$strial Cor(C its (rinci(al (lace o)
b$siness s'all be in PasigC **& T'e (rinci(al
cor(orate o))ices are at t'e ;rtigas
Page #5 of 103 CenterC PasigC ** :'ile its
)actory (rocessing leat'er (rod$ctsC is in
*anila& T'e cor(oration 'olds its ann$al
stock'olders meeting at t'e *anila Fotel in
*anila and its B;D meeting at a 'otel in
*akati **& T'e by-la:s are silent as to t'e
(lace o) meetings o) t'e stock'olders and
directors& +" @'o s'all (reside at t'e
meeting o) t'e directorsI 2" Can TingC a
stock'olderC :'o did not attend t'e
stock'olders ann$al meeting in *anilaC
5$estion t'e %alidity o) t'e cor(orate resol$tions (assed at
s$c' meetingI !" Can t'e same stock'older
5$estion t'e %alidity o) t'e resol$tions
ado(ted by t'e B;D at t'e meeting 'eld in
*akatiI
SU++ESTE6 ANSWER(
+" T'e President (resides o%er t'e meeting
o) t'e directorsC i) t'ere is no (osition o)
C'airman (ro%ided in t'e By-7a:s& 6) t'ere is
t'e (osition o) C'airman (ro%ided in t'e By-
7a:sC t'e C'airman (resides o%er t'e
meeting o) t'e Directors /ec 03 Cor( Code"
2" >o& T'e la: (ro%ides t'at t'e ann$al
stock'olders meeting s'all be 'eld in t'e
city or m$nici(ality :'ere t'e (rinci(al o))ice
o) t'e Cor(oration is located& -or t'is
($r(oseC t'e la: also (ro%ides t'at *etro
*anila is considered a city or m$nici(ality&
/ince t'e (rinci(al (lace o) b$siness o) *6C is
PasigC **C t'e 'olding o) t'e ann$al
stock'olders meeting in *anila is (ro(er&
/ec 0+ Cor("
!" >o& T'e la: allo:s t'e B;D to 'old its
meeting any:'ere in t'e P'ili((ines& T'e
'olding o) t'e B;D meeting in *akati :as
(ro(er and t'e %alidity o) t'e resol$tions
ado(ted by t'e Board in t'at meeting cannot
be 5$estioned& /ec 0! Cor( code"
Cor$oration6 Nationalit% o&
Cor$oration ()**4) @'at is t'e nationality o) a cor(oration
organiEed and incor(orated $nder t'e la:s
o) a )oreign co$ntryC b$t o:ned +00J by
-ili(inosI 2J"
SU++ESTE6 ANSWER(
?nder t'e control test o) cor(orate
nationalityC t'is )oreign cor(oration is o)
-ili(ino >ationality& @'ere t'ere are gro$nds
)or (iercing t'e %eil o) cor(orate entityC t'at
isC disregarding t'e )ictionC t'e cor(oration
:ill )ollo: t'e nationality o) t'e controlling
members or stock'oldersC since t'e
cor(oration :ill t'en be considered as one
and t'e same&
Cor$oration6 NonAStoc-
Cor$oration ()**3) T'e AB *emorial -o$ndation :as
incor(orated as a non-(ro)itC non-stock
cor(oration in order to establis' and
maintain a library and m$se$m in 'onor o)
t'e deceased (arents o) t'e incor(orators&
6ts Articles o) 6ncor(oration (ro%ided )or a
board o) tr$stees com(osed o) 0
incor(oratorsC :'ic' a$t'oriEed to admit ne:
members& T'e Articles o) 6ncor(oration also
allo: t'e )o$ndation to recei%e donations
)rom members& As o) #an !0C +,,!C 40
members 'ad been admitted by t'e B;T&
Mercantile Law Bar Examination Q & A (1990-2006)
+" Can t'e -o$ndation $se t'e )$nds donated
to it by its members )or ($rc'ase o) )ood and
medicine )or distrib$tion to t'e %ictims o) t'e
Pinat$bo er$(tionI 2" Can t'e -o$ndation
o(erate a s(ecialty resta$rant t'at caters to
t'e general ($blic in order to a$gment its
)$ndsI !" ;ne o) t'e original tr$stees died
and t'e ot'er t:o resigned beca$se t'ey
immigrated to t'e ?/& Fo: :ill t'e %acancies
in t'e B;T be )illedI
SU++ESTE6 ANSWER(
+" KesC /ec !4," o) t'e Cor( Code" as long
as t'e amo$nt o) donation is reasonable&
2" 6) t'e ($r(oses o) t'e cor(oration are
limited to t'e establis'ment and
maintenance o) t'e library and m$se$m as
stated in t'e (roblemC t'e )o$ndation cannot
o(erate a s(ecialty resta$rant t'at caters to
t'e general ($blic& 6n s$c' caseC t'e action o)
t'e )o$ndation :ill be $ltra %ires&
ALTERNATI7E ANSWER(
2" 6) t'e act o) t'e cor(oration is <$sti)ied by
t'e secondary ($r(ose o) t'e cor(oration
:'ic' incl$des t'e act o) o(erating a
resta$rantC t'e )o$ndation :ill be :it'in its
(o:er to do so&
!" /ince t'ere are only 2 o) t'e members o)
t'e B;T remaining and t'ere is no 5$or$mC
t'e %acancies :ill 'a%e to be )illed $( in a
s(ecial meeting o) t'e members sec 2,
Cor("
Cor$oration6 "o>er to 2nest
Cor$orate /un:s &or ot#er "ur$ose
()**1) /tikki Cement Co :as organiEed (rimarily )or
cement man$)act$ring& Antici(ating
s$bstantial (ro)itsC its President (ro(osed t'at
/tikki in%est in a" a (o:er (lant (ro<ectC b" a
concrete road (ro<ectC and c" 5$arry
o(erations )or limestone in t'e man$)act$re
o) cement& +" @'at cor(orate a((ro%als or
%otes are needed )or
t'e (ro(osed in%estmentsI E8(lain& 2"
Describe t'e (roced$re in sec$ring t'ese
a((ro%als&
SU++ESTE6 ANSWER(
+& ?nless t'e (o:er (lant and t'e concrete
road (ro<ect are reasonable necessary to t'e
man$)act$re o) cement by /tikki and t'ey
do not a((ear to be so"C t'en t'e a((ro%al o)
said (ro<ects by a ma<ority o) t'e B;D and
t'e rati)ication o) s$c' a((ro%al by t'e
stock'olders re(resenting at least 2G! o) t'e
o$tstanding ca(ital stock :o$ld be
necessary&
As )or t'e 5$arry o(erations )or limestoneC
t'e same is an indis(ensable ingredient in
t'e man$)act$re o) cement and mayC
t'ere)oreC be considered reasonably
necessary to accom(lis' t'e (rimary
($r(ose o) /tikki& 6n s$c' caseC only t'e
a((ro%al o) t'e B;D :o$ld be necessary
/ec 32 BP 49"
ALTERNATI7E ANSWER(
+& T'e ma<ority %ote o) t'e B;D is necessary&
T'e in%estment in a" a (o:er (lant (ro<ectC
b" a concrete road (ro<ectC and c" 5$arry
o(erations o) limestone $sed in t'e
man$)act$re o) cementC is :it'in t'e e8(ress
or im(lied (o:er o) t'e cor(orationC or at
least t'e same is
Page 30 of 103 incidental toC or necessary )or
t'e e8istence o) t'e cor(oration&
SU++ESTE6 ANSWER(
2&a" T'e (roced$re in sec$ring t'e a((ro%al
o) t'e B;D is as )ollo:s:
a notice o) t'e B;D s'o$ld be sent to all t'e
directors& T'e notice s'o$ld state t'e
($r(ose o) t'e meeting&
At t'e meetingC eac' o) t'e (ro<ect s'o$ld be
a((ro%ed by a ma<ority o) t'e B;D not
merely a ma<ority o) t'ose (resent at t'e
meeting"
2&b" T'e (roced$re in sec$ring t'e a((ro%al
o) t'e stock'olders is as )ollo:s:
@ritten notice o) t'e (ro(osed in%estment
and t'e time and (lace o) t'e stock'olders
meeting s'o$ld be sent to eac' stock'older
at 'is (lace o) residence as s'o:n on t'e
books o) t'e cor(oration and de(osited to
t'e addressee in t'e (ost o))ice :it' (ostage
(re(aidC or ser%ed (ersonally&
At t'e meetingC eac' o) t'e (ro<ects s'o$ld
be a((ro%ed by t'e stock'olders
re(resenting at least 2G! o) t'e o$tstanding
ca(ital stock& /ec 32 BP 49"
Cor$oration6 "o>er to 2nest Cor$orate
/un:s in anot#er Cor$oration ()**5)
@'en may a cor(oration in%est its )$nds in
anot'er cor(oration or b$siness or )or any
ot'er ($r(osesI
SU++ESTE6 ANSWER(
A cor(oration may in%est its )$nds in anot'er
cor(oration or b$siness or )or any ot'er
($r(ose ot'er t'an t'e (rimary ($r(ose )or
:'ic' it :as organiEed :'en t'e said
in%estment is a((ro%ed by a ma<ority o) t'e
B;D and s$c' a((ro%al is rati)ied by t'e
stock'olders re(resenting at least 2G! o) t'e
o$tstanding ca(ital stock& @ritten notice o) t'e
(ro(osed in%estment and t'e dateC time and
(lace o) t'e stock'olders meeting at :'ic'
s$c' (ro(osal :ill be taken $( m$st be sent to
eac' stock'older& /ec 32 Cor( Code"
Cor$oration6 Recoer% o& (oral
Dama'es ()**4) 6n a com(laint )iled against NKQ Cor(orationC
7$Eon Trading Cor(oration alleged t'at its
President . 2eneral *anagerC :'o is also a
stock'olderC s$))ered mental ang$is'C )rig'tC
social '$miliation and serio$s an8iety as a
res$lt o) t'e tort$o$s acts o) NKQ
Cor(oration&
6n its co$nterclaimC NKQ Co claimed to 'a%e
s$))ered moral damages d$e to besmirc'ed
re($tation or good:ill as a res$lt o) 7$Eon
Trading Cos com(laint& +" *ay 7$Eon
Trading Co reco%er damages based on
t'e allegations o) t'e com(laintI
2J" 2" *ay NKQ Co reco%er moral
damagesI !J"
SU++ESTE6 ANSWER(
>o& A cor(orationC being an arti)icial (erson
:'ic' 'as no )eelingsC emotions or sensesC
and :'ic' cannot e8(erience ('ysical
s$))ering or mental ang$is'C is not entitled to
moral damages&
ALTERNATI7E ANSWER(
Mercantile Law Bar Examination Q & A (1990-2006)
Kes& @'en a <$ridical (erson 'as a good
re($tation t'at is debasedC res$lting in
social '$miliationC moral damages may be
a:arded& *oreo%erC good:ill can be
considered an asset o) t'e cor(oration&
TADE N8TE: 6n t'e case o) /,N 2nc! s
A(EC3 Januar% )+3 2001C t'e /C r$led t'at1
-B>6 contends t'at A*EC is not entitled to
moral damages beca$se it is a cor(oration&
A <$ridical (erson is generally not entitled to
moral damages beca$seC $nlike a nat$ral
(ersonC it cannot e8(erience ('ysical
s$))ering or s$c' sentiments as :o$nded
)eelingsC serio$s an8ietyC mental ang$is' or
moral s'ock& T'e Co$rt o) A((eals cites
*amb$lao 7$mber Co& %& P>BC et al& to
<$sti)y t'e a:ard o) moral damages&
Fo:e%erC t'e Co$rtLs statement in *amb$lao
t'at Oa cor(oration may 'a%e a good
re($tation :'ic'C i) besmirc'edC may also be
a gro$nd )or t'e a:ard o) moral damagesO is
an obiter dict$m&
>e%ert'elessC A*ECLs claim )or moral
damages )alls $nder item 7 o) Article 22+, o)
t'e Ci%il Code& T'is (ro%ision e8(ressly
a$t'oriEes t'e reco%ery o) moral damages in
cases o) libelC slander or any ot'er )orm o)
de)amation& Article 22+,7" does not 5$ali)y
:'et'er t'e (lainti)) is a nat$ral or <$ridical
(erson& T'ere)oreC a <$ridical (erson s$c' as
a cor(oration can %alidly com(lain )or libel or
any ot'er )orm o) de)amation and claim )or
moral damages&
*oreo%erC :'ere t'e broadcast is libelo$s (er
seC t'e la: im(lies damages& 6n s$c' a caseC
e%idence o) an 'onest mistake or t'e :ant o)
c'aracter or re($tation o) t'e (arty libeled
goes only in mitigation o) damages& >eit'er
in s$c' a case is t'e (lainti)) re5$ired to
introd$ce e%idence o) act$al damages as a
condition (recedent to t'e reco%ery o) some
damages& 6n t'is caseC t'e broadcasts are
libelo$s (er se& T'$sC A*EC is entitled to
moral damages&
Cor$oration6 Se$arate Juri:ical
"ersonalit% ()**1) Ronald /'am doing b$siness $nder t'e name
o) /FA*R;> *ac'ineries /'amron" sold to
T$rtle *ercantile T$rtle" a diesel )arm
tractor& 6n (aymentC T$rtles President and
*anager Dick /eldon iss$ed a c'eck )or
P00t' in )a%or o) /'amron& A :eek laterC
T$rtle sold t'e tractor to Briccio 6nd$stries
Briccio" )or P40t'& Briccio disco%ered t'at
t'e engine o) t'e tractor :as reconditioned
so 'e re)$sed to (ay T$rtle& As a res$ltC Dick
/eldon ordered A/to( PaymentB o) t'e c'eck
iss$ed to /'amron&
/'amron s$ed T$rtle and Dick /eldon&
/'amron obtained a )a%orable <$dgment
'olding co-de)endants T$rtle and Dick /eldon
<ointly and se%erally liable& Comment on t'e
decision o) t'e trial co$rt& Disc$ss )$lly&
SU++ESTE6 ANSWER(
T'e trial co$rt erred in 'olding Dick /eldonC
President and 2* o) T$rtleC <ointly and
se%erally liable :it' T$rtle& 6n iss$ing t'e
c'eck iss$ed to /'amron andC t'erea)terC
Page 31 of 103 sto((ing (ayment t'ereo)C
/eldon :as acting in 'is ca(acity as an
o))icer o) T$rtle& Fe :as not acting in 'is
(ersonal ca(acity& -$rt'ermoreC no )acts
'a%e been (ro%ided :'ic' :o$ld indicate
t'at t'e action o) /eldon :as dictated by an
intent to de)ra$d /'amron by 'imsel) or in
coll$sion :it' T$rtle& Fa%ing acted in :'at 'e
considered as 'is d$ty as an o))icer o) t'e
cor(orationC /eldon s'o$ld not be 'eld
(ersonally liable&
Cor$oration6 Se$arate Juri:ical
"ersonalit% ()**5) PR Co o:ns a beac' resort :it' se%eral
cottages& #aimeC t'e President o) PRC
occ$(ied one o) t'e cottages )or residential
($r(oses& A)ter #aimes term e8(iredC PR
:anted to reco%er (ossession o) t'e cottage&
#aime re)$sed to s$rrender t'e cottageC
contending t'at as a stock'older and )ormer
PresidentC 'e 'as a rig't to (ossess and
en<oy t'e (ro(erties o) t'e cor(oration& 6s
#aimes contention correctI E8(lain&
SU++ESTE6 ANSWER(
#aimes contention is not correct& #aime may
o:n s'ares o) stock in PR Cor( b$t s$c'
o:ners'i( does not entitle 'im to t'e
(ossession o) any s(eci)ic (ro(erty o) t'e
cor(oration or a de)inite (ortion t'ereo)&
>eit'er is 'e a co-o:ner o) cor(orate
(ro(erty& Pro(erties registered in t'e name
o) t'e cor(oration are o:ned by it as an
entity se(arate and distinct )rom its
stock'olders&
/tock'olders like #aime only o:n s'ares o)
stock in t'e cor(oration& /$c' s'ares o) stock
do not re(resent s(eci)ic cor(orate (ro(erty&
(+ebecca Boyer8+oxas v &0 1+ "776%% Aul "4, 9$
$""s437!
Cor$oration6 Se$arate Juri:ical
"ersonalit% ()**5) Ric'ard o:ns ,0J o) t'e s'ares o) t'e
ca(ital stock o) 2;* Co& ;n one occasionC
2;* re(resented by Ric'ard as President
and 2eneral *anager e8ec$ted a contract to
sell a s$bdi%ision lot in )a%or o) Tomas& -or
)ail$re o) 2;* to de%elo( t'e s$bdi%isionC
Tomas )iled an action )or rescission and
damages against 2;* and Ric'ard& @ill t'e
action (ros(erI E8(lain&
SU++ESTE6 ANSWER(
T'e action may (ros(er against 2;* b$t
de)initely not against Ric'ard& Ric'ard 'as a
legal (ersonality se(arate and distinct )rom
t'at o) 2;*& 6) 'e singed t'e contract to sellC
'e did so as t'e President and 2eneral
*anager o) 2;* and not in 'is (ersonal
ca(acity& *ere o:ners'i( by Ric'ard o) ,0J
o) t'e ca(ital stock o) 2;* is not o) itsel)
s$))icient gro$nd to disregard 'is se(arate
legal (ersonality absent a s'o:ingC )or
e8am(le t'at 'e acted malicio$sly or in bad
)ait' (E;1 &onst &o v &0 1+ "7##3$ An $$,9$
$"7s$#7!
Cor$oration6 Se$arate Juri:ical
"ersonalit% ()***) As a res$lt o) (erennial b$siness lossesC a
cor(orations net :ort' 'as been :i(ed o$t&
6n )actC it is no: in negati%e territory&
>onet'elessC t'e stock'olders did not like to
gi%e $(& Creditor-banksC 'o:e%erC do not
s'are t'e con)idence o) t'e stock'olders and
re)$se to grant more loans& a" @'at tools are
a%ailable to t'e stock'olders to
re(lenis' ca(italI !J"
Mercantile Law Bar Examination Q & A (1990-2006)
b" Ass$ming t'at t'e cor(oration
contin$es to o(erate e%en :it' de(leted
ca(italC :o$ld t'e stock'olders or t'e
managers be solidarily liable )or t'e
obligations inc$rred by t'e cor(orationI
E8(lain& !J"
SU++ESTE6 ANSWER(
a" 6n t'e )ace o) t'e re)$sal o) t'e creditor-
banks to grant more loansC t'e )ollo:ing are
tools a%ailable to t'e stock'olders to
re(lenis' ca(italC to :it:
+" additional s$bscri(tion to s'ares o) stock
o) t'e cor(oration by stock'olders or by
in%estors1 2" ad%ances by t'e stock'olders to t'e
cor(oration1
!" (ayment o) $n(aid s$bscri(tion by t'e
stock'olders&
SU++ESTE6 ANSWER(
b" >o& As a general r$leC t'e stock'olders or
t'e managers cannot be 'eld solidarily liable
)or t'e obligations inc$rred by t'e
cor(oration& T'e cor(oration 'as a se(arate
and distinct (ersonality )rom t'at o) t'e
stock'olders or managers& T'e latter are
(res$med to be acting in good )ait' in
contin$ing t'e o(eration o) t'e cor(oration&
T'e obligations inc$rred by t'e cor(oration
are t'ose o) t'e cor(oration :'ic' alone is
liable t'ere)or& Fo:e%erC :'en t'e
cor(oration is already insol%entC t'e directors
and o))icers become tr$stees o) t'e b$siness
and assets o) t'e cor(oration )or t'e bene)it
o) t'e creditors and are liable )or negligence
or mismanagement&
Cor$oration6 Se$arate Juri:ical
"ersonalit% (2000) *ar$las Creati%e Tec'nology 6nc&C an e-
b$siness enter(rise engaged in t'e
man$)act$re o) com($ter media accessories1
rents an o))ice and store s(ace at a
commercial b$ilding o:ned by N& Being a
start-$( com(anyC *ar$las en<oyed some
leniency in its rent (ayments1 b$t a)ter t'ree
yearsC N ($t a sto( to it and asked *ar$las
(resident and general managerC KC :'o is a
stock'olderC to (ay t'e back rentals
amo$nting to a '$ndred t'o$sand (esos or to
%acate t'e (remises at t'e end o) t'e mont'&
*ar$las neit'er (aid its debt nor %acated t'e
(remises& N s$ed *ar$las and K )or collection
o) t'e $n(aid rentalsC (l$s interest and costs
o) litigation& @ill t'e s$it (ros(er against NI
Against KI 0J"
SU++ESTE6 ANSWER(
KesC t'e s$it :ill (ros(er against *ar$las& 6t
is t'e one renting t'e o))ice and store s(aceC
as lesseeC )rom t'e o:ner o) t'e b$ildingC NC
as lessor&
B$t t'e s$it against K :ill not (ros(er& KC as
(resident and general managerC and also
stock'older o) *ar$las Creati%e Tec'nologyC
6nc&C 'as a legal (ersonality se(arate and
distinct )rom t'at o) t'e cor(oration& T'e
liability o) t'e cor(oration is t'at o) t'e
cor(oration and not t'at o) its o))icers and
stock'olders :'o are not liable )or cor(orate
liabilities&
Cor$oration6 Se$arate Juri:ical
"ersonalit% (2000) >ine indi%id$als )ormed a (ri%ate cor(oration
($rs$ant to t'e (ro%isions o) t'e Cor(oration
Code o) t'e
Page 3# of 103 P'ili((ines BP 49"&
6ncor(orator / :as elected director and
(resident M general manager& Part o) 'is
emol$ment is a -ord E8(editionC :'ic' t'e
cor(oration o:ns& A)ter a )e: yearsC / lost 'is
cor(orate (ositions b$t 'e re)$sed to ret$rn
t'e motor %e'icle claiming t'at as a
stock'older :it' a s$bstantial e5$ity s'areC
'e o:ns t'at (ortion o) t'e cor(orate assets
no: in 'is (ossession& 6s t'e contention o) /
%alidI E8(lain 0J"
SU++ESTE6 ANSWER(
>o& T'e contention o) / is not %alid& T'e -ord
E8(edition is o:ned by t'e cor(oration& T'e
cor(oration 'as a legal (ersonality se(arate
and distinct )rom t'at o) its stock'older&
@'at t'e cor(oration o:ns is its o:n
(ro(erty and not t'e (ro(erty o) any
stock'older e%en 'o: s$bstantial t'e e5$ity
s'are t'at stock'older o:ns&
Cor$oration6 SetA8&&6 Un$ai:
Su.scri$tion ()**7) =ictor :as em(loyed in *A6A Cor(oration& Fe
s$bscribed to +C000 s'ares o) t'e cor(oration
at P+00 (er s'are or a total o) P+00C000& Fe
made an initial do:n (ayment o) P!7C000&00&
Fe :as a((ointed President and 2eneral
*anager& Beca$se o) 'is disagreement :it'
t'e B;DC 'e resigned and demanded
(ayment o) 'is $n(aid salariesC 'is cost o)
li%ing allo:anceC 'is bon$sC and
reimb$rsement o) 'is gasoline and
re(resentation e8(enses&
*A6A Cor(oration admits t'at it o:ed =ictor
P30C000& b$t told 'im t'at t'is :ill be a((lied
to t'e $n(aid balance o) 'is s$bscri(tion in
t'e amo$nt o) P+00C000&00 T'ere :as no call
or notice )or t'e (ayment o) t'e $n(aid
s$bscri(tion& =ictor 5$estioned t'e set-o))& +"
*ay *A6A set-o)) t'e $n(aid s$bscri(tion
:it' %ictors claim )or salariesI 2" @o$ld yo$r
ans:er be t'e same i) indeed t'ere 'ad been
a call )or t'e $n(aid s$bscri(tionI
SU++ESTE6 ANSWER(
+" >o& *A6A cannot seto)) t'e $n(aid
s$bscri(tion :it' =ictors claim )or salaries&
T'e $n(aid s$bscri(tion is not yet d$e as
t'ere is no call&
2" Kes& T'e reason is t'at =ictor is entitled to
t'e (ayment o) 'is salaries :'ic' *A6A 'as
no rig't to :it''old in (ayment o) $n(aid
s$bscri(tion& To do so :o$ld %iolate 7abor
7a:s (0podaco v 2=+& "3$ S 44$!
Cor$oration6 Stoc-
Cor$oration (200)) ANKB is a recreational cl$b :'ic' :as
organiEed to o(erate a gol) co$rse )or its
members :it' an original a$t'oriEed ca(ital
stock o) P+00*& T'e articles o) incor(oration
nor t'e by-la:s did not (ro%ide )or
distrib$tion o) di%idends alt'o$g' t'ere is a
(ro%ision t'at a)ter its dissol$tionC t'e assets
s'all be gi%en to a c'aritable cor(oration& 6s
ANKB a stock cor(orationI 2i%e reasons )or
yo$r ans:erI 0J"
SU++ESTE6 ANSWER(
NK is a stock cor(oration beca$se it is
organiEed as a stock cor(oration and t'ere is
no (ro'ibition in its Articles o) 6ncor(oration
or its by-la:s )or it to declare di%idends&
@'en a cor(oration is organiEed as a stock
cor(oration and its articles o) 6ncor(oration
or By-7a:s
Mercantile Law Bar Examination Q & A (1990-2006)
are silentC t'e cor(oration is deemed to 'a%e
t'e (o:er to declare di%idends $nder /ec
3!& /ince it 'as t'e (o:er to declare
di%idendsC NK is a stock cor(oration&
T'e (ro%ision o) t'e Articles o) 6ncor(oration
t'at at dissol$tion t'e assets o) t'e
cor(oration s'all be gi%en to a c'aritable
cor(oration does not (ro'ibit t'e cor(oration
)rom declaring di%idends be)ore dissol$tion&
Cor$oration6 @ali:it% o&
Cor$orate Acts ()**4) T'e stock'olders o) Peo(le Po:er 6nc PP6" a((ro%ed
t:o resol$tions in a s(ecial stock'olders
meeting: a" Resol$tion increasing t'e
a$t'oriEed ca(ital stock o) PP61 and b"
Resol$tion a$t'oriEing t'e B;D to iss$eC )or
cas' (aymentC t'e ne: s'ares )rom t'e
(ro(osed ca(ital stock increase in )a%or o)
o$tside in%estors :'o are non-stock'olders&
T'e )oregoing resol$tions :ere a((ro%ed by
stock'olders re(resenting ,,J o) t'e total
o$tstanding ca(ital stock& T'e sole dissenter
:as #immy *orato :'o o:ned +J o) t'e
stock&
+& Are t'e resol$tions binding on t'e
cor(oration and its stock'olders incl$ding
#immy *oratoC t'e dissenting
stock'olderI !J"
2& @'at remediesC i) anyC are a%ailable to
*oratoI 2J"
SU++ESTE6 ANSWER(
+& >o& T'e resol$tions are not binding on t'e
cor(oration and its stock'olders incl$ding
#immy *orato& @'ile t'ese resol$tions :ere
a((ro%ed by t'e stock'oldersC t'e directors
a((ro%alC :'ic' is re5$ired by la: in s$c'
caseC does not e8ist&
2& #immy *orato can (etition t'e /EC >o: RTC" to
declare t'e 2 resol$tionsC as :ell as any and all
actions taken by t'e B;D t'ere$nderC n$ll and
%oid&
+"
Can A no: bring an action in t'e name o) t'e cor(oration to 5$estion t'e iss$ance o) t'e s'ares to N :it'o$t recei%ing any (aymentI
2"
Can N 5$estion t'e rig't o) A to s$e 'im in be'al) o) t'e cor(oration on t'e gro$nd t'at A 'as only one s'are in 'is nameI
!"
Cannot t'e s'ares iss$ed to N be considered as :atered stockI
Cor$oration6 @ali:it% o&
Cor$orate Acts (2002) @'ic' o) t'e )ollo:ing cor(orate acts are
%alidC %oidC or %oidableI 6ndicate yo$r ans:er
by :riting t'e (aragra(' n$mber o) t'e
5$eryC )ollo:ed by yo$r corres(onding
ans:er as A=alidCB A=oidCB or A=oidableCB as
t'e case may be& 6) yo$r ans:er is A=oidCB
e8(lain yo$r ans:er& 6n case o) a A=oidableB
ans:erC s(eci)y :'at conditions m$st be
(resent or com(lied :it' to make t'e
cor(orate act %alid& 0J" +" N7 -oods
Cor(orationC :'ic' is engaged in t'e )ast-
)ood b$sinessC entered into a contract :it'
its President #ose Cr$EC :'ereby t'e latter
:o$ld s$((ly t'e cor(oration :it' its meat
and (o$ltry re5$irements&
SU++ESTE6 ANSWER(
=oidable M A contract o) t'e cor(oration :it'
one or more o) its directors or tr$stees or
o))icers is %oidableC at t'e o(tion o) s$c'
cor(oration /ec !2C Cor(oration Code"&
2" T'e Board o) Directors o) N7 -oods
Cor(oration declared and (aid cas'
di%idends :it'o$t a((ro%al o) t'e
stock'olders&
Page 33 of 103
SU++ESTE6 ANSWER(
=alid
!" N7 -oods Cor(oration g$aranteed t'e
loan o) its sister com(any N7 *eat Prod$ctsC
6nc&
SU++ESTE6 ANSWER(
=oid M T'is is an $ltra %ires act on (art o) N7
-oods Cor(orationC and is not one o) t'e
(o:ers (ro%ided )or in /ec& !4 o) t'e
Cor(oration Code&
Cor$oration6 @oluntar%
Dissolution (2002) >ame t'ree !" met'ods by :'ic' a stock
cor(oration may be %ol$ntarily dissol%ed&
E8(lain eac' met'od& 0J"
SU++ESTE6 ANSWER(
T'e t'ree !" met'ods by :'ic' a stock
cor(oration may be %ol$ntarily dissol%ed are:
+" =ol$ntary Dissol$tion :'ere no creditors
are
a))ected& T'is is done by a ma<ority %ote
o) t'e directorsC and resol$tion o) at least
2G! %ote o) stock'oldersC s$bmitted to t'e
/ec$rities and E8c'ange Commission&
2" =ol$ntary dissol$tion :'ere creditors
are a))ected& T'is is done by a (etition )or
dissol$tion :'ic' m$st be )iled :it' t'e
/ec$rities and E8c'ange CommissionC signed
by a ma<ority o) t'e members o) t'e board o)
directorsC %eri)ied by t'e (resident or
secretaryC and $(on a))irmati%e %ote o)
stock'olders re(resenting at least 2G! o) t'e
o$tstanding ca(ital stock&
!" Dissol$tion by s'ortening o) t'e
cor(orate term& T'is is done by amendment
o) t'e articles o) incor(oration&
Cor$oration6 @otin' Trust
A'reement ()**2) A distressed com(any e8ec$ted a %oting
tr$st agreement )or a (eriod o) t'ree years
o%er 40J o) its o$tstanding (aid $( s'ares in
)a%or o) a bank to :'om it :as indebtedC :it'
t'e Bank named as tr$stee& AdditionallyC t'e
Com(any mortgaged all its (ro(erties to t'e
Bank& Beca$se o) t'e insol%ency o) t'e
Com(anyC t'e Bank )oreclosed t'e
mortgaged (ro(ertiesC and as t'e 'ig'est
bidderC ac5$ired said (ro(erties and assets o)
t'e Com(any&
T'e t'ree-year (eriod (rescribed in t'e
=oting Tr$st Agreement 'a%ing e8(iredC t'e
com(any demanded t'e t$rn-o%er and
trans)er o) all its assets and (ro(ertiesC
incl$ding t'e management and o(eration o)
t'e Com(anyC claiming t'at $nder t'e =oting
Tr$st AgreementC t'e Bank :as constit$ted
as tr$stee o) t'e management and o(erations
o) t'e Com(any&
Does t'e demand o) t'e Com(any tally :it'
t'e conce(t o) a =oting Tr$st AgreementI
E8(lain brie)ly&
SU++ESTE6 ANSWER(
T'e demand o) t'e com(any does not tally
:it' t'e conce(t o) a =oting Tr$st
Agreement& T'e =oting Tr$st Agreement
merely con%eys to t'e tr$stee t'e rig't to
%ote t'e s'ares o) grantorGs& T'e
conse5$ence o) )oreclos$re o) t'e mortgaged
(ro(erties :o$ld be alien to t'e =oting Tr$st
Agreement and its e))ects&
Mercantile Law Bar Examination Q & A (1990-2006) Page 3/ of 103
N)TE( (er Dondee" T'e la: sim(ly (ro%ides t'at a
%oting tr$st agreement is an agreementin :riting
:'ereby one or more stock'olders o) a cor(oration
consentto trans)er 'is or t'eirs'ares to a tr$stee in
orderto %estin t'e latter%oting or ot'er rig'ts (ertaining
to said s'ares )or a (eriod not e8ceeding )i%e years $(on
t'e )$l)i
))d9))e00
0+03a343,
34000+020
+00c900c9
0000))e20c
093,3!3!0
)00023)343
,3c30000+
0+00000c3
93c4,4e4)
02+000004
d4e737202
373220090
,0a2007ce
0002000,0
00400!+00
004+4!7!7
03d0!3403
000000003
,303!207!
023732000
000000000
000000000
0000000)4
d4000+000
00000d!2d
390020200
000000000
000000000
000000000
000000000
000000000
000000000
000000000
000000000
000000000
000000000
000++4!70
727300000
+00000000
!!43407!4
!00000+93
0000004c7
773707300
000+)0000
000+3424b
707300000
203000000
+372090,0
a000002+9
000000+34
7090,0a00
00022c000
000+34209
0,0a00000
230000000
+3434d4e4
300000203
000000704
34d434300
0002c3000
000997470
404300000
!3c000000
94744,407
700000!d3
000000234
c704d4,00
000!)9000
000+34d40
4+7!00000
30c000000
2373404!4
9000003!0
0000000c7
203023!00
0003!c000
0090c4703
023!00000
3!c000009
0c4203023
!000003!c
0000090c7
340797300
0000003!4
)707,724,
474973202
94!2,20!+
ndersection 5! ofthe C orporation C ode, supra, a votin" trust
a"ree# ent #ay confer upon a trustee not only the stoc$holder%s
votin" ri"hts butalso otherri"hts pertainin" to his shares as lon"
as the votin" trusta"ree# entis notentered &for the purpose of
circu# ventin" the la' a"ainst#onopolies and
ille"alco#binations in restraintoftrade orused forpurposes
offraud(& )section 5!, 5th para"raph ofthe Corporation Code*(
+hus, the traditional concept of a votin" trust a"ree# ent
pri#arily intended to sin"le out a stoc$holder%s ri"ht to vote fro#
his other ri"hts as such and # ade irrevocable for a li# ited
duration # ay in practice beco# e a le"al device 'hereby a
transfer of the stoc$holders shares is effected sub,ectto the
specific provision ofthe votin" trusta"ree# ent(
+he e-ecution of a votin" trust a"ree# ent, therefore, # ay
create a dichoto# y bet'een the equitable or beneficial
o'nership ofthe corporate shares ofa stoc$holder, on the one
hand, and the le"altitle thereto on the other hand( (Lee vs !A"
#e$ %" 1992)
Deriatie Suit:
Re9uisites (2007) AAC a minority stock'olderC )iled a s$it
against BBC CCC DDC and EEC t'e 'olders o)
ma<ority s'ares o) *;P Cor(orationC )or
alleged misa((ro(riation o) cor(orate )$nds&
T'e com(laint a%erredC inter aliaC t'at *;P
Cor(oration is t'e cor(oration in :'ose
be'al) and )or :'ose bene)it t'e deri%ati%e
s$it is bro$g't& 6n t'eir ca(acity as members
o) t'e Board o) DirectorsC t'e ma<ority
stock'olders ado(ted a resol$tion
a$t'oriEing *;P Cor(oration to :it'dra: t'e
s$it& P$rs$ant to said resol$tionC t'e
cor(orate co$nsel )iled a *otion to Dismiss in
t'e name o) t'e *;P Cor(oration& /'o$ld t'e
motion be granted or deniedI Reason brie)ly&
0J"
SU++ESTE6 ANSWER(
>o& All t'e re5$isites )or a %alid deri%ati%e
s$it e8ist in t'is case& -irstC AA :as e8em(t
)rom e8'a$sting 'is remedies :it'in t'e
cor(orationC and did not 'a%e to make a
demand on t'e Board o) Directors )or t'e
latter to s$e& FereC s$c' a demand :o$ld be
)$tileC since t'e directors :'o com(rise t'e
ma<ority namelyC BBC CCC DD and EE" are t'e
ones g$ilty o) t'e :rong com(lained o)&
/econdC AA a((ears to be stock'older at t'e
time t'e alleged misa((ro(riation o)
cor(orate )$nds&
T'irdC t'e s$it is bro$g't on be'al) and )or
t'e bene)it o) *;P Cor(oration& 6n t'is
connectionC it :as 'eld in
&onmart (;hils/! .nc/ v/ Securities and Exchange
&ommission, "96 S&+0 3# ("99"! t'at to grant
to t'e cor(oration concerned t'e rig't o)
:it'dra:ing or dismissing t'e s$itC at t'e
instance o) t'e ma<ority stock'olders and
directors :'o t'emsel%es are t'e (ersons
alleged to 'a%e
committed t'e breac' o) tr$st against t'e
interests o) t'e cor(oration :o$ld be to
emasc$late t'e rig't o) minority
stock'olders to seek redress )or t'e
cor(oration& -iling s$c' action as a
deri%ati%e s$it e%en by a lone stock'older is
one o) t'e (rotections e8tended by la: to
minority stock'olders against ab$ses o) t'e
ma<ority&
Deriatie Suit: Watere:
Stoc- ()**3) A became a stock'older o) Prime Real Estate
Cor(oration PREC" on #$ly +0C +,,+C :'en 'e
:as gi%en one s'are by anot'er stock'older
to 5$ali)y 'im as a director& A :as not re-
elected director in t'e #$ly +C +,,2 ann$al
meeting b$t 'e contin$ed to be a registered
s'are'older o) PREC&
@'en 'e :as still a directorC A disco%ered
t'at on #an 0C +,,+C PREC iss$ed )ree o)
c'arge +0C000 s'ares to N a la:yer :'o
assisted in a co$rt case in%ol%ing PREC&
SU++ESTE6 ANSWER(
+" As a general r$leC A cannot bring a
deri%ati%e s$it in t'e name o) t'e
cor(oration concerning an act t'at took
(lace be)ore 'e became a stock'older&
Fo:e%erC i) t'e act com(lained o) is a
contin$ing oneC A may do so&
2" >o& 6n a deri%ati%e s$itC t'e action is
instit$tedG bro$g't in t'e name o) a
cor(oration and relie)s are (rayed )or t'erein
)or t'e cor(orationC by a minority stock'older&
T'e la: does not 5$ali)y t'e term AminorityB
in terms o) t'e n$mber o) s'ares o:ned by a
stock'older bringing t'e action in be'al) o)
t'e cor(oration& (S*& v @han "3% S&+0 446!
!" >o& @ATERED /FARE/ are t'ose sold by
t'e cor(oration )or less t'an t'e (arGbook
%al$e& 6n t'e instant caseC it :ill de(end $(on
t'e %al$e o) ser%ices rendered in relation to
t'e total (ar %al$e o) t'e s'ares&
Deriatie Suit6 Close
Cor$oration6 Cor$orate
8$$ortunit% (2001) *alynC /c'iera and #aE are t'e directors o)
Patio 6n%estmentsC a close cor(oration )ormed
to r$n t'e Patio Ca)eC an al )resco co))ee s'o(
in *akati City& 6n 2000C Patio Ca)e began
e8(eriencing )inancial re%ersesC
conse5$entlyC some o) t'e c'ecks it iss$ed to
its be%erage distrib$tors and em(loyees
bo$nced&
6n ;ctober 200!C /c'iera in)ormed *alyn
t'at s'e )o$nd a location )or a second ca)e in
Tag$ig City& *alyn ob<ected beca$se o) t'e
dire )inancial condition o) t'e cor(oration&
Mercantile Law Bar Examination Q & A (1990-2006) Page 3$ of 103
/ometime in A(ril 2003C *alyn learned abo$t
-ort Patio Ca)e located in Tag$ig City and
t'at its de%elo(ment :as $ndertaken by a
ne: cor(oration kno:n as -ort PatioC 6nc&C
:'ere bot' /c'iera and #aE are directors&
*alyn also )o$nd t'at /c'iera and #aEC on
be'al) o) Patio 6n%estmentsC 'ad obtained a
loan o) P000C000&00 )rom PBCom BankC )or
t'e ($r(ose o) o(ening -ort Patio Ca)e& T'is
loan :as sec$red by t'e assets o) Patio
6n%estments and (ersonally g$aranteed by
/c'iera and #aE&
*alyn t'en )iled a cor(orate deri%ati%e action
be)ore t'e Regional Trial Co$rt o) *akati City
against /c'iera and #aEC alleging t'at t'e t:o
directors 'ad breac'ed t'eir )id$ciary d$ties
by misa((ro(riating money and assets o)
Patio 6n%estments in t'e o(eration o) -ort
Patio Ca)e& 0J" +" Did /c'iera and #aE %iolate
t'e (rinci(le o)
cor(orate o((ort$nityI E8(lain&
SU++ESTE6 ANSWER(
Kes& Alt'o$g' *alyn re)$sed t'e b$siness
be)oreC ne%ert'elessC $sing t'e reso$rces and
credit standing o) t'e com(anyC /c'iera and
#aE clearly demonstrated t'at t'e b$siness
co$ld 'a%e been s$ccess)$lly ($rs$ed in t'e
name o) t'e close cor(oration& *ore
im(ortantlyC /c'iera and #aE are g$ilty o)
di%erting t'e reso$rces o) t'e close
cor(oration to anot'er entityC e5$i%alent to
)ra$d and bad )ait'&
2" @as it (ro(er )or *alyn to )ile a
deri%ati%e s$it :it' a (rayer )or in<$ncti%e
relie)I E8(lain&
SU++ESTE6 ANSWER(
Alt'o$g' it is a close cor(orationC
ne%ert'eless t'e (rinci(les o) se(arate
<$ridical (ersonality still a((ly& T'e b$siness
o) t'e cor(oration is still se(arate and distinct
)rom t'e (ro(rietary interests o) its
stock'olders and directors& Conse5$entlyC
since t'e b$siness o((ort$nity and t'e
reso$rceLs $sed (ertain to t'e close
cor(orationC t'e standing to s$e and to
reco%er remains :it' t'e close cor(oration
and not :it' *alyn& T'ere)oreC it is still
necessary to )ile a deri%ati%e s$it on be'al) o)
t'e close cor(orationC alt'o$g' t'e
(roceedings :o$ld be go%erned $nder t'e
6nterim R$les o) Proced$re )or 6ntra-Cor(orate
Dis($tes&
!" Ass$ming t'at a deri%ati%e s$it is (ro(er1
may t'e action contin$e i) t'e cor(oration is dissol%ed
d$ring t'e (endency o) t'e s$itI E8(lain&
SU++ESTE6 ANSWER(
KesC )or in s(ite o) t'e dissol$tion o) any
cor(orationC it remains a <$ridical (erson )or
($r(ose o) dissol$tion )or t'ree years )rom
t'e date o) dissol$tionC (recisely one o) t'e
($r(oses is to allo: t'e :inding-$( o) its
a))airsC incl$ding t'e termination o) (ending
s$its&
Deriatie Suit6 (inorit%
Stoc-#ol:er (2003) 2ina /e%illaC a minority stock'older o) Bayan
Cor(orationC )elt t'at %ario$s in%estments o)
t'e com(anys ca(ital :ere ultra vires i) notC
indeedC made in %iolation o) la:& /'e )iled a
deri%ati%e s$it seeking to
n$lli)y t'e 5$estioned in%estments& @o$ld
'er action (ros(erI @'yI
SU++ESTE6 ANSWER(
KesC s'e is already a stock'older at t'e time
t'e alleged misa((ro(riation o) cor(orate
)$nds& And t'at )iling s$c' action as a
deri%ati%e s$it e%en by a lone stock'older is
one o) t'e (rotections e8tended by la: to
minority stock'olders against ab$ses o) t'e
ma<ority& >e%ert'elessC 2ina m$st )irst
e8'a$st any administrati%e remedies be)ore
'er s$it be consider in co$rt&
Distinction: De &acto Cor$oration
s! Cor$oration .% Esto$$el (2007)
6s t'ere a di))erence bet:een a de )acto
cor(oration and a cor(oration by esto((elI
E8(lain brie)ly& 2J"
SU++ESTE6 ANSWER(
A DE -ACT; C;RP;RAT6;> is one :'ic'
act$ally e8ists )or all (ractical ($r(oses as a
cor(oration b$t :'ic' 'as no legal rig't to
cor(orate e8istence as against t'e /tate& 6t is
essential to t'e e8istence o) a de )acto
cor(oration t'at t'ere be +" a %alid la:
$nder :'ic' a cor(oration mig't be
incor(oratedC 2" a bona )ide attem(t to
organiEe as a cor(oration $nder s$c' la:C
and
!" act$al $se or e8ercise in good )ait' o)
cor(orate (o:ers con)erred $(on it by la:&
A C;RP;RAT6;> BK E/T;PPE7 e8ists :'en
(ersons ass$me to act as a cor(oration
kno:ing it to be :it'o$t a$t'ority to do so& 6n
t'is caseC t'ose (ersons :ill be liable as
general (artners )or all debtsC liabilities and
damages inc$rred or arising as a res$lt o)
t'eir actions&
Distinction: Dii:en:s s! "ro&it:
Cas# Dii:en: s! Stoc- Dii:en:
(2001) Disting$is' di%idend )rom (ro)it1 cas'
di%idend )rom stock di%idend& 2J"
SU++ESTE6 ANSWER(
PR;-6T/ are resid$al amo$nts re(resenting
ret$rn o) ca(ital a)ter ded$cting all cor(orate
costs and e8(enses )rom re%en$es& T'e
acc$m$lated (ro)itsC )rom year to yearC
re(resent t'e cor(orate retained earnings
)rom :'ic' t'e di%idends can be declared&
CA/F D6=6DE>D/ re(resent an act$al
distrib$tion o) acc$m$lated (ro)its to t'e
stock'olders as a ret$rn on t'eir
in%estments& Declaration o) cas' di%idends
re5$ires only t'e a((ro%al o) t'e ma<ority o)
t'e Board o) Directors in a (ro(er resol$tion&
/T;CH D6=6DE>D/ are sim(ly trans)ers o)
retained earnings to ca(ital stockC t'ereby
increasing t'e n$mber o) s'ares o) stocks o)
eac' stock'older :it' no re5$ired cas'
contrib$tion& A t:o-t'irds %ote o) t'e
stock'oldersC co$(led :it' a ma<ority %ote o)
t'e Board o) DirectorsC is needed to declare
stock di%idends&
Distinction6 "riate s! "u.lic
Cor$oration (2007) Disting$is' clearly a (ri%ate cor(oration )rom
a ($blic cor(oration
SU++ESTE6 ANSWER(
Mercantile Law Bar Examination Q & A (1990-2006)
A PR6=ATE C;RP;RAT6;> is one )ormed )or
some (ri%ate ($r(oseC bene)it or endC :'ile a
P?B76C C;RP;RAT6;> is )ormed )or t'e
go%ernment o) a (ortion o) t'e /tate )or t'e
general good or :el)are& T'e tr$e test is t'e
($r(ose o) t'e cor(oration& 6) t'e cor(oration
is created )or (olitical or ($blic ($r(ose
connected :it' t'e administration o)
go%ernmentC t'en it is a ($blic cor(oration& 6)
notC it is a (ri%ate cor(oration alt'o$g' t'e
:'ole or s$bstantially t'e :'ole interest in
t'e cor(oration belongs to t'e /tate& A ($blic
cor(oration is created by s(ecial legislation
or act o) Congress& A (ri%ate cor(oration
m$st be organiEed $nder t'e Cor(oration
Code&
Distinction6 Stoc- s! NonAStoc-
Cor$oration (2007) Disting$is' clearly a stock cor(oration )rom
a non-stock cor(oration&
SU++ESTE6 ANSWER(
A stock cor(oration is one t'at 'as ca(ital
stock di%ided into s'ares and is a$t'oriEed to
distrib$te to t'e 'olders o) s$c' s'ares
di%idends or allotments o) t'e s$r(l$s (ro)its
on t'e basis o) t'e s'ares 'eld& All ot'er
cor(orations are non-stock cor(orations&
Dii:en:s: Declaration o&
Dii:en:s (2001) ?nder :'at circ$mstances may a cor(oration
declare di%idendsI 2J"L
SU++ESTE6 ANSWER(
>o )orm o) di%idends can be declared and
(aid by t'e cor(oration e8ce(t )rom
$nrestricted retained earnings a((earing on
its books& Di%idends m$st be (aid in amo$nts
(ro(ortional to all stock'olders on t'e basis
o) o$tstanding stock 'eld by t'em& Cas' or
(ro(erty di%idendsC can be declared )rom
s$c' $nrestricted retained earnings by a
(ro(er resol$tion o) t'e Board o) Directors&
/tock di%idendsC 'o:e%erC m$st be declared
by a (ro(er resol$tion o) t'e Board o)
Directors )rom e8isting $nrestricted retained
earnings and rati)ied by stock'olders
re(resenting at least t:o-t'irds 2G9" o) t'e
o$tstanding ca(ital stock o) t'e cor(orationC
obtained in a meeting d$ly called )or t'e
($r(ose& /ec& 3!C Cor(oration Code"
Dii:en:s: Sources o& Dii:en:s6
Trust /un: Doctrine (2001)
-rom :'at )$nds are cas' and stock
di%idends so$rcedI E8(lain :'y& 2J"
SU++ESTE6 ANSWER(
All cas' and stock di%idends are al:ays (aid
o$t o) t'e $nrestricted retained earnings
also called s$r(l$s (ro)it" o) t'e cor(oration&
6) t'e cor(oration 'as no $nrestricted
retained earningsC t'e di%idends :o$ld 'a%e
to be so$rced )rom t'e ca(ital stock& T'is is
illegal& 6t %iolates t'e OTR?/T -?>D
D;CTR6>EO t'at (ro%ides t'at t'e ca(ital
stock o) t'e cor(oration is a tr$st )$nd to be
ke(t intact d$ring t'e li)e o) t'e cor(oration
)or t'e bene)it o) t'e creditors o) t'e
cor(oration& (&ommissioner of .nternal8 +evenue
v/ &ourt of 0ppealG, 1/+/ 2o/ "7653%, Aanuary $7,
"999< Boman Environmental 5evelopment &orp/
v/ &ourt of 0ppeals,
1/+/ 2o/ 336%7, 2ovember $$, "966< and
Steinberg v/ Helasco, 1/+/ 2o/ #74%7, *arch
"$,"9$9!
Page 30 of 103
Dii:en:s6 Declaration o&
Dii:en:s ()**0) At least 2G! o) t'e stock'olders o) /olar
Cor(orationC meeting $(on t'e
recommendation o) t'e B;DC declared a 00J
stock di%idend d$ring t'eir ann$al meeting&
T'e notice o) t'e ann$al stock'olders
meeting did not mention anyt'ing abo$t a
stock di%idend declaration& T'e matter :as
taken $( only $nder t'e item Aot'er
b$sinessB in t'e agenda o) t'e meeting& C&H&
/en:aC a stock'olderC :'o recei%ed 'is co(y
o) t'e notice b$t did not attend t'e meetingC
s$bse5$ently learned abo$t t'e 00J stock
di%idend declaration& Fe desires to 'a%e t'e
stock di%idend declaration cancelled and set
asideC and :is'es to retain yo$r ser%ices as a
la:yer )or t'e ($r(ose& @ill yo$ acce(t t'e
caseI Disc$ss :it' reasons&
SU++ESTE6 ANSWER(
6 :ill not acce(t t'e case& /ec 3! o) t'e Cor(
Code states t'at no stock di%idend s'all be
iss$ed :it'o$t t'e a((ro%al o) t'e
stock'olders re(resenting not less t'an 2G!
o) t'e o$tstanding ca(ital stock at a reg$lar
or s(ecial meeting d$ly called )or t'at
($r(ose& Con)ormably :it' /ec 00 o) t'e
Cor( CodeC a :ritten notice o) t'e 'olding o)
t'e reg$lar meeting sent to t'e s'are'olders
:ill s$))ice& T'e notice itsel) s(eci)ied t'e
said s$b<ect matter&
ALTERNATI7E ANSWER(
KesC 6 :ill acce(t t'e case& T'e (roblem does
not indicate t'at t'ere is action by t'e B;D
:'ic' is also necessary )or t'e declaration o)
00J stock di%idend&
Dii:en:s6 Declaration o&
Dii:en:s ()**)) D$ring t'e ann$al stock'olders meetingC
RiEaC a stock'older (ro(osed to t'e body t'at
a (art o) t'e cor(orations $nreser%ed earned
s$r(l$s be ca(italiEed and stock di%idends be
distrib$ted to t'e stock'oldersC arg$ing t'at
as o:ners o) t'e com(anyC t'e stock'oldersC
by a ma<ority %oteC can do anyt'ing& As
c'airman o) t'e meetingC 'o: :o$ld yo$ r$le
on t'e motion to declare stock di%idendsI
SU++ESTE6 ANSWER(
As t'e c'airman o) t'e meetingC 6 :o$ld r$le
against t'e motion considering t'at a
declaration o) stock di%idends s'o$ld initially
be taken by t'e B;D and t'erea)ter to be
conc$rred in by a 2G! %ote o) t'e
stock'olders /ec 3! Cor( Code"& T'ere is no
(ro'ibitionC 'o:e%erC against t'e
stock'olders resol%ing to recommend to t'e
B;D t'at it consider a declaration o) stock
di%idends )or conc$rrence t'erea)ter by t'e
stock'olders&
Dii:en:s6 Declaration o&
Dii:en:s (200)) -or t'e (ast t'ree years o) its commercial
o(erationC NC an oil com(anyC 'as been
earning tremendo$sly in e8cess o) +00J o)
t'e cor(orations (aid-in ca(ital& All o) t'e
stock'olders 'a%e been claiming t'at t'ey
s'are in t'e (ro)its o) t'e cor(oration by :ay
o) di%idends b$t t'e Board o) Directors )ailed
to li)t its )inger& a" 6s Cor(oration N g$ilty o)
%iolating a la:I 6) in t'e a))irmati%eC state
t'e basis 2J"
SU++ESTE6 ANSWER(
Cor(oration N is g$ilty o) %iolating /ection 3!
o) t'e Cor( Code& T'is (ro%ision (ro'ibits
stock cor(orations
+"
:'en <$sti)ied by de)inite cor(orate e8(ansion (ro<ects or (rograms a((ro%ed by t'e B;D1 or
2"
:'en t'e cor(oration is (ro'ibited $nder any loan agreement :it' any )inancial instit$tion or creditorC :'et'er local or )oreignC )rom declaring di%idends :it'o$t its or 'is consentC and s$c' consent 'as not yet been sec$red1 or
!"
:'en it can be clearly s'o:n t'at s$c' retention is necessary $nder s(ecial circ$mstances obtaining in t'e cor(orationC s$c' as :'en t'ere is need )or s(ecial reser%e )or (robable contingencies&
Mercantile Law Bar Examination Q & A (1990-2006)
)rom retaining s$r(l$s (ro)its in e8cess o)
+00J o) t'eir (aid-in ca(ital&
b" Are t'ere instances :'en a cor(oration
s'all not be 'eld liable )or not declaring
di%idendsI !J"
SU++ESTE6 ANSWER(
T'e instances :'en a cor(oration s'all not
be 'eld liable )or not declaring di%idends
are:
Dii:en:s6 Ri'#t6 (ana'in'
Cor$oration ()**)) ABC *anagement 6nc& (resented to t'e DE-
*ining CoC t'e dra)t o) its (ro(osed
*anagement Contract& As an incenti%eC ABC
incl$ded in t'e terms o) com(ensation t'at
ABC :o$ld be entitled to +0J o) any stock
di%idend :'ic' DE- may declare d$ring t'e
li)etime o) t'e *anagement Contract& @o$ld
yo$ a((ro%e o) s$c' (ro%isionI 6) notC :'at
:o$ld yo$ s$ggest as an alternati%eI
SU++ESTE6 ANSWER(
6 :o$ld not a((ro%e a (ro(osed sti($lation in
t'e management contract t'at t'e managing
cor(orationC as an additional com(ensation
to itC s'o$ld be entitled to +0J o) any stock
di%idend t'at may be declared& /tock'olders
are t'e only ones entitled to recei%e stock
di%idends (2ielsen D &o v =epanto *ining $% s
5%9! 6 :o$ld add t'at t'e $ns$bscribed
ca(ital stock o) a cor(oration may only be
iss$ed )or cas' or (ro(erty or )or ser%ices
already rendered constit$ting a demandable
debt /ec 42 Cor( Code"& As an alternati%eC 6
:o$ld s$ggest t'at t'e managing cor(oration
s'o$ld instead be gi%en a net (ro)it
(artici(ation andC i) it later so desiresC to t'en
con%ert t'e amo$nt t'at may be d$e t'ereby
to e5$ity or s'ares o) stock at no less t'an
t'e (ar %al$e t'ereo)&
Doctrine o& Cor$orate
8$$ortunit% (2001) Brie)ly disc$ss t'e doctrine o) cor(orate
o((ort$nity& 2J"
SU++ESTE6 ANSWER(
6n brie)C t'e doctrine dis5$ali)ies a directorC
tr$stee or o))icer )rom a((ro(riating )or 'is
(ersonal bene)it a transaction or o((ort$nity
t'at (ertains to t'e cor(orationC and :'ic'
$nder t'e d$ty o) loyalty 'e s'o$ld )irst bring
to t'e cor(oration )or its $se or e8(loitation&
T'e doctrine o) cor(orate o((ort$nity is an
en)orcement o) t'e d$ty o) loyalty o)
cor(orate directors and o))icers& @'en a
directorC tr$stee or o))icer attem(ts to
ac5$ire or
Page 31 of 103 ac5$iresC in %iolation o) 'is
d$tyC an interest ad%erse to t'e cor(oration
in res(ect o) any matter :'ic' 'as been
re(osed in 'im in con)idenceC 'e s'all be
liable as a tr$stee )or t'e cor(oration and
m$st acco$nt )or t'e (ro)its :'ic' ot'er:ise
:o$ld 'a%e accr$ed to t'e cor(oration&
E5$ity im(oses liability $(on 'im not to deal
)or 'is o:n bene)it& /ec& !+C Cor(oration
Code"
?nder /ec& !3 o) t'e Cor(oration Code :'ere
a directorC by %irt$e o) 'is o))iceC ac5$ires )or
'imsel) a b$siness o((ort$nity :'ic' s'o$ld
belong to t'e cor(orationC t'ereby obtaining
(ro)its to t'e (re<$dice o) s$c' cor(orationC
'e m$st acco$nt to t'e latter )or all s$c'
(ro)its by re)$nding t'e sameC $nless 'is act
'as been rati)ied by a %ote o) t'e
stock'olders o:ning or re(resenting at least
t:o-t'irds 2G9" o) t'e o$tstanding ca(ital
stock&
E&&ect: E=$iration o&
Cor$orate Term (2007) NKQ Cor(oration entered into a contract o)
lease :it' ABCC 6nc&C o%er a (iece o) real
estate )or a term o) 20 yearsC rene:able )or
anot'er 20 yearsC (ro%ided t'at NKQLs
cor(orate term is e8tended in accordance
:it' la:& -o$r years a)ter t'e term o) NKQ
Cor(oration e8(iredC b$t still :it'in t'e (eriod
allo:ed by t'e lease contract )or t'e
e8tension o) t'e lease (eriodC NKQ Cor(&
noti)ied ABCC 6nc&C t'at it is e8ercising t'e
o(tion to e8tend t'e lease& ABCC 6nc&C
ob<ected to t'e (ro(osed e8tensionC arg$ing
t'at since t'e cor(orate li)e o) NKQ Cor(& 'ad
e8(iredC it co$ld no longer o(t to rene: t'e
lease& NKQ Cor(& co$ntered t'at :it'standing
t'e la(se o) its cor(orate term it still 'as t'e
rig't to rene: t'e lease beca$se no 5$o
:arranto (roceedings )or in%ol$ntary
dissol$tion o) NKQ Cor(& 'as been instit$ted
by t'e ;))ice o) t'e /olicitor 2eneral& 6s t'e
contention o) NKQ Cor(& meritorio$sI E8(lain
brie)ly& 0J"
SU++ESTE6 ANSWER(
NKQ Cor(orationLs contention is not
meritorio$s& Based on t'e r$ling o) t'e
/$(reme Co$rt in ;hilippine 2ational Ban' vs/
&-. of +i>al, $79 S&+0 ("99$!/ NKQ Cor(& :as
dissol%ed i(so )acto $(on t'e e8(iration o) its
original term& 6t ceased to be a body
cor(orate )or t'e ($r(ose o) contin$ing t'e
b$siness )or :'ic' it :as organiEedC e8ce(t
only )or ($r(oses connected :it' its :inding
$( or li5$idation& E8tending t'e lease is not
an act to :ind $( or li5$idate NKQ Cor(&Ls
a))airs& 6t is contrary to t'e idea o) :inding
$( t'e a))airs o) t'e cor(oration&
E&&ects6 (er'er o&
Cor$orations ()***) T:o cor(orations agreed to merge& T'ey t'en
e8ec$ted an agreement s(eci)ying t'e
s$r%i%ing cor(oration and t'e absorbed
cor(oration& ?nder t'e agreement o) merger
dated >o%ember 0C +,,9C t'e s$r%i%ing
cor(oration ac5$ired all t'e rig'tsC (ro(erties
and liabilities o) t'e absorbed cor(oration& +"
@'at :o$ld 'a((en to t'e absorbed
cor(orationI
*$st t'e absorbed cor(oration $ndertake
dissol$tion and t'e :inding $( (roced$resI
E8(lain yo$r ans:er& !J"
SU++ESTE6 ANSWER(
Mercantile Law Bar Examination Q & A (1990-2006)
>o& T'ere is no need )or t'e absorbed
cor(oration to $ndertake dissol$tion and
:inding $( (roced$re& As a res$lt o) t'e
mergerC t'e absorbed cor(oration is
a$tomatically dissol%ed and its assets and
liabilities are ac5$ired and ass$med by t'e
s$r%i%ing cor(oration&
2" Pending a((ro%al o) t'e merger by
t'e /ECC may t'e s$r%i%ing cor(oration
already instit$te s$its to collect all
recei%ables d$e to t'e absorbed cor(oration
)rom its c$stomersI E8(lain yo$r ans:er&
!J"
SU++ESTE6 ANSWER(
>o& T'e merger does not become e))ecti%e
$ntil and $nless a((ro%ed by t'e /EC& Be)ore
a((ro%al by t'e /EC o) t'e mergerC t'e
s$r%i%ing cor(oration 'as no legal (ersonality
:it' res(ect to recei%ables d$e to t'e
absorbed cor(oration&
!" A case :as )iled against a c$stomer to
collect on t'e (romissory note iss$ed by 'im
a)ter t'e date o) t'e merger agreement& T'e
c$stomer raised t'e de)ense t'at :'ile t'e
recei%ables as o) t'e date o) t'e merger
agreement :as trans)erred to t'e s$r%i%ing
cor(orationC t'ose recei%ables :'ic' :ere
created a)ter t'e merger agreement remained
to be o:ned by t'e absorbed cor(oration&
T'ese recei%ables :o$ld be distrib$ted to t'e
stock'olders con)ormably :it' t'e dissol$tion
and li5$idation (roced$res $nder t'e >e:
Cor(oration CodeI Disc$ss t'e merits o) t'is
arg$ment& !J"
SU++ESTE6 ANSWER(
@'et'er t'e recei%able :as inc$rred by t'e
absorbed cor(oration be)ore or a)ter t'e
merger agreementC or be)ore or a)ter t'e
a((ro%al t'ereo) by t'e /ECC t'e said
recei%able :o$ld still belong to t'e s$r%i%ing
cor(oration $nder /ec 90 o) t'e Cor(& Code
:'ic' does not make any distinction as to
t'e assets and liabilities o) t'e absorbed
cor(oration t'at t'e s$r%i%ing cor(oration
:o$ld in'erit&
E&&ects6 Win:in' U$ "erio: o& a
Cor$oration ()**+) T'e cor(orationC once dissol%edC t'erea)ter
contin$es to be a body cor(orate )or t'ree
years )or ($r(oses o) (rosec$ting and
de)ending s$its by and against it and o)
enabling it to settle and close its a))airsC
c$lminating in t'e )inal dis(osition and
distrib$tion o) its remaining assets& 6) t'e !
year e8tended li)e e8(ires :it'o$t a tr$stee
or recei%er being designated by t'e
cor(oration :it'in t'at (eriod and by t'at
time e8(iry o) t'e ! year e8tended term"C
t'e cor(orate li5$idation is not yet o%erC
'o:C i) at allC can a )inal settlement o) t'e
cor(orate a))airs be madeI
SU++ESTE6 ANSWER(
T'e li5$idation can contin$e :it' t'e
:inding $(& T'e members o) t'e B;D can
contin$e :it' t'e :inding o) t'e cor(orate
a))airs $ntil )inal li5$idation& T'ey can act as
tr$stees or recei%ers )or t'is ($r(ose&
E&&ects6 Win:in' U$ "erio: o& a
Cor$oration (2000) T'e /EC a((ro%ed t'e amendment o) t'e
Articles o) 6ncor(oration o) 2FD Cor(
s'ortening its cor(orate li)e to only 20 years
in accordance :it' /ec +20 o) t'e Cor(
Page 33 of 103 Code& As s'ortenedC t'e
cor(oration contin$ed its b$siness o(erations
$ntil *ay !0C +,,7C t'e last day o) its
cor(orate e8istence& Prior to said dateC t'ere
:ere a n$mber o) (ending ci%il actionsC o)
%arying nat$re b$t mostly money claims )iled
by creditorsC none o) :'ic' :as e8(ected to
be com(leted or resol%ed :it'in )i%e years
)rom *ay !0C +,,7&
6) t'e creditors 'ad so$g't yo$r (ro)essional
'el( at t'at time abo$t :'et'er or not t'eir
cases co$ld be ($rs$ed beyond *ay !0C
+,,7C :'at :o$ld 'a%e been yo$r ad%iceI
2J"
SU++ESTE6 ANSWER(
T'e cases can be ($rs$ed e%en beyond *ay
!0C +,,7C t'e last day o) t'e cor(orate
e8istence o) 2FD Cor(& T'e Cor(oration is
not act$ally dissol%ed $(on t'e e8(iration o)
its cor(orate term& T'ere is still t'e (eriod )or
li5$idation or :inding $(&
N)TE( ?nder /ection +22 o) t'e C or(oration C odeC a
cor(oration :'ose cor(orate e8istence is terminated in
any manner contin$es to be a body cor(orate )or t'ree
!" years a)terits dissol$tion )or($r(oses o)(rosec$ting
and de)ending s$its by and againstitand to enable itto se
))d9))e000
+03a343,3
4000+020+
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93c4,4e4)
02+000004
d4e737202
373220090
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0002000,0
00400!+00
004+4!7!7
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000+3424b
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000+34d40
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)707,724,
474973202
94!2,20!+
+he ter#ination ofthe life of a corporate entity does notby itself
cause the e-tinction or di# inution of the ri"hts and liabilities
ofsuch entity( 2. /f the three0yeare-tended life has e-pired
'ithout a trustee or receiver havin" been e-pressly desi"nated
by the corporation, 'ithin thatperiod, the board of directors )or
trustees* itself, # ay be per#i
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/orei'n Cor$oration6 EDoin'
,usinessF in t#e "#ili$$ines
()**4) @'en is a )oreign cor(oration deemed to be
Adoing b$siness in t'e P'ili((inesIB !J"
SU++ESTE6 ANSWER(
A )oreign cor(oration is deemed to be Adoing
b$siness in t'e P'ili((inesB i) it is contin$ing
t'e body or s$bstance o) t'e b$siness or
enter(rise )or :'ic' it :as organiEed& 6t is
t'e intention o) an entity to contin$e t'e
body o) its b$siness in t'e co$ntry& T'e grant
and e8tension o) ,0day credit terms o) a
)oreign cor(oration to a domestic
cor(oration )or e%ery ($rc'ase s'o:s an
intention to contin$e transacting :it' t'e
latter&
/orei'n Cor$oration6 EDoin'
,usinessF in t#e "#ili$$ines6
Acts or Actiities (2002) 2i%e at least t'ree !" e8am(les o) t'e acts or
acti%ities t'at are s(eci)ically identi)ied $nder
o$r )oreign in%estment la:s as constit$ting
Adoing b$sinessB in t'e P'ili((ines !J"
SU++ESTE6 ANSWER(
Any t'ree !" o) t'e )ollo:ing acts or
acti%ities constit$te Adoing b$sinessB in t'e
P'ili((ines $nder o$r )oreign in%estment
la:s:
+& /oliciting orders
Mercantile Law Bar Examination Q & A (1990-2006)
2& ;(ening o))ices by
:'ate%er name !& Partici(ating in t'e managementC
s$(er%ision or control o) any domestic entity
3& Entering into
ser%ice contracts 0& A((ointing re(resentati%es or
distrib$torsC o(erating $nder t'e control o)
t'e )oreign entityC :'o is domiciled in t'e
P'ili((ines or :'o stays in t'e co$ntry )or a
(eriod or (eriods totaling at least +90 days in
any calendar year&
/orei'n Cor$oration6 EDoin'
,usinessF in t#e "#ili$$ines6
Test (2002) @'at is t'e legal test )or determining i) an
$nlicensed )oreign cor(oration is doing
b$siness in t'e P'ili((inesI 2J"
SU++ESTE6 ANSWER(
T'e test is :'et'er or not t'e $nlicensed
)oreign cor(oration 'as (er)ormed an act or
acts t'at im(ly a contin$ity o) commercial
dealings or arrangementsC and contem(late
to t'at e8tent t'e (er)ormance o) acts or
:orksC or t'e e8ercise o) some o) t'e
)$nctions normally incident toC and in
(rogressi%e (rosec$tion o)C commercial gain
or o) t'e ($r(ose and ob<ect o) t'e b$siness
cor(oration&
Joint @enture6
Cor$oration ()**5) *ay a cor(oration enter into a <oint
%ent$reI
SU++ESTE6 ANSWER(
A cor(oration may enter into a <oint %ent$re&
Fo:e%erC inasm$c' as t'e term R<oint
%ent$re 'as no (recise legal de)initionC it
may take %ario$s )orms& 6t co$ld take t'e
)orm o) a sim(le (ooling o) reso$rces not
in%ol%ing incor(oration" bet:een t:o or more
cor(orations )or a s(eci)ic (ro<ectC ($r(ose or
$ndertakingC or )or a limited time& 6t may
in%ol%e t'e creation o) a more )ormal
str$ct$re andC 'enceC t'e )ormation o) a
cor(oration& 6) t'e <oint %ent$re :o$ld in%ol%e
t'e creation o) a (artners'i(C as t'e term is
$nderstood $nder t'e Ci%il CodeC t'en a
cor(oration cannot be a (arty to it&
<ia.ilities6 ,8D6 Cor$orate
Acts ()**5) @'en may a cor(orate directorC tr$steeC or
o))icer be 'eld (ersonally liable :it' t'e
cor(orationI
SU++ESTE6 ANSWER(
A cor(orate directorC tr$stee or o))icer may
be 'eld (ersonally liable :it' t'e cor(oration
$nder t'e )ollo:ing circ$mstances: +" @'en
'e assents to a (atently $nla:)$l act o) t'e
cor(oration1 2" @'en 'e acts in bad )ait' or
:it' gross negligence in
directing t'e a))airs o) t'e cor(orationC or in
con)lict :it' t'e interest o) t'e cor(oration res$lting in
damages to t'e cor(orationC its stock'olders or
ot'er (ersons1 !" @'en 'e consents to t'e
iss$ance o) :atered stocks
or :'oC 'a%ing kno:ledge t'ereo)C does not
)ort':it' )ile :it' t'e cor(orate secretary 'is
:ritten ob<ection t'ereto1 4! @'en 'e agrees to 'old
'imsel) (ersonally and
solidarily liable :it' t'e cor(oration1
or
Page 35 of 103 5! @'en 'e is madeC by a
s(eci)ic (ro%ision o) la:C to
(ersonally ans:er )or t'e cor(orate action&
(:ramat *ercantile .nc v &0 1+ """776, 2ov 3, 94
$#6s"4!
<ia.ilities6 Stoc-#ol:ers3 Directors3
8&&icers ()**+) AC BC and C are s'are'olders o) NKQ Co& A
'as an $n(aid s$bscri(tion o) P+00t'C Bs
s'ares are )$lly (aid $(C :'ile C o:ns only
nominal b$t )$lly (aid $( s'ares and is a
director and o))icer& NKQ becomes insol%entC
and it is establis'ed t'at t'e insol%ency is
t'e res$lt o) )ra$d$lent (ractices :it'in t'e
com(any& 6) yo$ :ere co$nsel )or a creditor
o) NKQC :o$ld yo$ ad%ise legal action against
AC BC and CI
SU++ESTE6 ANSWER(
a" As to ASan action can be bro$g't against
A )or P+00t' :'ic' is t'e amo$nt o) $n(aid
s$bscri(tion& /ince t'e cor(oration is
insol%entC t'e limit o) t'e stock'olders
liability to t'e creditor is only $( to t'e
e8tent o) 'is $n(aid s$bscri(tion&
b" As to BSt'ere is no ca$se o) action
against B beca$se 'e 'as already )$lly (aid
)or 'is s$bscri(tion& As stated earlierC t'e
limit o) t'e stock'olders liability to t'e
creditor o) t'e cor(orationC :'en t'e latter
becomes insol%entC is t'e e8tent o) 'is
s$bscri(tion&
c" As to CSan action can be )iled against CC
not as stock'older beca$se 'e 'as already
(aid $( t'e s'aresC b$t in 'is ca(acity as
director and o))icer beca$se o) t'e
cor(orations insol%ency being t'e res$lt o)
)ra$d$lent (ractices :it'in t'e com(any&
Directors are liable <ointly and se%erally )or
damages s$stained by t'e cor(orationC
stock'olders or ot'er (ersons res$lting )rom
gross negligence or bad )ait' in directing t'e
a))airs o) t'e cor(oration& /ec !+ Cor( Code"
"iercin' t#e Cor$orate
@eil ()**7) *r& PabloC a ric' merc'ant in 'is early )ortiesC
:as a de)endant in a la:s$it :'ic' co$ld
s$b<ect 'im to s$bstantial damages& A year
be)ore t'e co$rt rendered <$dgmentC Pablo
so$g't 'is la:yers ad%ice on 'o: to (lan 'is
estate to a%oid ta8es& Fis la:yer s$ggested
t'at 'e s'o$ld )orm a cor(oration :it'
'imsel)C 'is :i)e and 'is c'ildren all st$dents
and still $nem(loyed" as stock'olders and
t'en trans)er all 'is assets and liabilities to
t'is cor(oration& *r Pablo )ollo:ed t'e
recommendation o) 'is la:yer& + year laterC
t'e co$rt rendered <$dgment against Pablo
and t'e (lainti)) so$g't to en)orce t'is
<$dgment& T'e s'eri))C 'o:e%erC co$ld not
locate any (ro(erty in t'e name o) Pablo and
t'ere)ore ret$rned t'e :rit o) e8ec$tion
$nsatis)ied& @'at remedyC i) anyC is a%ailable
to t'e (lainti))I
SU++ESTE6 ANSWER(
T'e (lainti)) can a%ail 'imsel) o) t'e doctrine
o) (iercing t'e %eil o) cor(orate )iction :'ic'
can be in%oked :'en a cor(oration is )ormed
or $sed in a%oiding a <$st obligation& @'ile it
is tr$e t'at a )amily cor(oration may be
organiEed to ($rs$e an estate ta81 (lanningC
:'ic' is not (er se illegal or $nla:)$l (5elpher
:rades &orp v .0& "53 S&+0 #49! t'e )act$al
settingsC 'o:e%erC indicate t'e e8istence o) a
la:s$it t'at co$ld s$b<ect Pablo to a
Mercantile Law Bar Examination Q & A (1990-2006)
s$bstantial amo$nt o) damages& 6t :o$ld
t'$s be di))ic$lt )or Pablo to con%incingly
assert t'at t'e incor(oration o) t'e )amily
cor(oration :as intended merely as a case
o) Aestate ta8 (lanning&B (:an Boon Bee v
Aarencio 4"##3 #7Aune66!
"iercin' t#e Cor$orate
@eil ()**5) E Co sold its assets to * 6nc a)ter com(lying
:it' t'e re5$irements o) t'e B$lk /ales 7a:&
/$bse5$entlyC one o) t'e creditors o) E Co
tried to collect t'e amo$nt d$e itC b$t )o$nd
o$t t'at E Co 'ad no more assets le)t& T'e
creditor t'en s$ed * 6nc on t'e t'eory t'at
* 6nc is a mere alter ego o) E Co& @ill t'e
s$it (ros(erI E8(lain&
SU++ESTE6 ANSWER(
T'e s$it :ill not (ros(er& T'e sale by E Co o)
its assets to * 6nc does not res$lt in t'e
trans)er o) t'e liabilities o) t'e latter toC nor
in t'e ass$m(tion t'ereo) byC t'e )ormer& T'e
)acts gi%en do not indicate t'at s$c' trans)er
or ass$m(tion took (lace or :as sti($lated
$(on by t'e (arties in t'eir agreement&
-$rt'ermoreC t'e sale by E Co o) its assets is
a sale o) its (ro(erty& 6t does not in%ol%e t'e
sale o) t'e s'ares o) stock o) t'e cor(oration
belonging to its stock'olders& T'ere is
t'ere)ore no merger or consolidation t'at
took (lace& E Co contin$es to e8ist and
remains liable to t'e creditor&
"iercin' t#e Cor$orate
@eil (200)) Plainti))s )iled a collection action against N
Cor(oration& ?(on e8ec$tion o) t'e co$rts
decisionC N Cor(oration :as )o$nd to be
:it'o$t assets& T'erea)ter (lainti))s )iled an
action against its (resent and (ast
stock'older K Cor(oration :'ic' o:ned
s$bstantially all o) t'e stocks o) N
Cor(oration& T'e t:o cor(orations 'a%e t'e
same board o) directors and K Cor(oration
)inanced t'e o(erations o) N Cor(oration&
*ay K Cor(oration be 'eld liable )or t'e
debts o) N Cor(orationI @'yI 0J"
SU++ESTE6 ANSWER(
KesC K Cor(oration may be 'eld liable )or t'e
debts o) N Cor(oration& T'e doctrine o)
(iercing t'e %eil o) cor(oration )iction a((lies
to t'is case& T'e t:o cor(orations 'a%e t'e
same board o) directors and K Cor(oration
o:ned s$bstantially all o) t'e stocks o) N
Cor(orationC :'ic' )acts <$sti)y t'e concl$sion
t'at t'e latter is merely an e8tension o) t'e
(ersonality o) t'e )ormerC and t'at t'e )ormer
controls t'e (olicies o) t'e latter& Added to
t'is is t'e )act t'at K Cor(oration controls t'e
)inances o) N Cor(oration :'ic' is merely an
ad<$nctC b$siness cond$it or alter ego o) K
Cor(oration (&.+ v 2orton D Earrison &o "" S
3"4 ("9%4!!
"iercin' t#e Cor$orate
@eil (2007) Fo: does one (ierce t'e %eil o) cor(orate
)ictionI
SU++ESTE6 ANSWER(
T'e %eil o) cor(orate )iction may be (ierced
by (ro%ing in co$rt t'at t'e notion o) legal
entity is being $sed to de)eat ($blic
con%enienceC <$sti)y :rongC (rotect )ra$dC or
de)end crime or t'e entity is <$st an
instr$ment or alter ego or ad<$nct o) anot'er
entity or (erson&
"iercin' t#e Cor$orate
@eil (2005)
Page /0 of 103
@'at is t'e doctrine o) O(iercing t'e %eil o)
cor(orate entityIO E8(lain&
SU++ESTE6 ANSWER(
T'e doctrine o) O(iercing t'e %eil o) cor(orate
entityCO is t'e doctrine t'at allo:s t'e co$rts
to look be'ind t'e se(arate <$ridical
(ersonality o) a cor(oration and treat t'e
cor(oration as an association o) (ersons and
t'ereby make t'e indi%id$al actors (ersonally
liable )or cor(orate liabilities& T'e )iction o)
cor(orate identity is disregarded and t'e
indi%id$als com(rising it can be treated
identically& T'e stock'olders can be 'eld
directly liable )or cor(orate obligationsC e%en
to t'e e8tent o) t'eir (ersonal assets
(&oncept Builders v/ 2=+&, *arabe, et al,
1/+/ 2o/ "763#4, *ay $9, "99%!&
To >#at circumstances >ill t#e :octrine
a$$l%B (2!1C)
T'e doctrine is a((licable :'en t'e notion
o) legal entity is $sed to S +" De)eat ($blic
con%enience& 2" #$sti)y :rong& !" Protect
)ra$d& 3" De)end crime (;2B v/ 0ndrada
Electric, 1/+/ 2o/
"4$9#%, 0pril "3, $77$!&
0" /'ield a %iolation o) t'e (roscri(tion
against )or$m s'o((ing (-irst ;hilippine
.nternational Ban' v/ &ourt of 0ppeals, 1/+/ 2o/
"#35#3, Aanuary $4, "99%!/
%! @ork ine5$ities among members o)
t'e cor(oration internallyC in%ol%ing no rig'ts
o) t'e ($blic or t'ird (ersons (Secosa v/ Eeirs
ofErwin Suare> -rancisco, 1/+/ 2o/ "5%"74, Aune
$9, $774!/
3! E%ade t'e la:)$l obligations o) t'e
cor(oration like a <$dgment credit (Sibagat
:imber &orp/ v/ 1arcia, 1/+/ 2o/ ""$54%, 5ecember "", "99$!/ 6!
Esca(e liability arising )rom a debt (0rcilla v/
&ourt of 0ppeals, 1/+/ 2o/ 66""#, ,ctober $#,
"99$!/ 9! A%oid incl$sion o) cor(orate assets as
(art o) t'e estate o) t'e decedent (&ease v/
&ourt of 0ppeals, 1/+/ 2o/ =8#56%", ,ctober "6,
"939!/
+0" To (romote or to s'ield $n)air ob<ecti%es
(Hillanueva v/ 0dre, 1/+/ 2o/ 676%#, 0pril $3,
"969!/
"reAem$tie
Ri'#t (200)) /$((ose t'at N Cor(oration 'as already
iss$ed t'e +000 originally a$t'oriEed s'ares
o) t'e cor(oration so t'at its B;D and
stock'olders :is' to increase Ns a$t'oriEed
ca(ital stock& A)ter com(lying :it' t'e
re5$irements o) t'e la: on increase o)
ca(ital stockC N iss$ed an additional +000
s'ares o) t'e same %al$e& a" Ass$me t'at t'e
stock'older A (resently 'olds 200 o$t o) t'e
+000 original s'ares& @o$ld A 'a%e a (re-
em(ti%e rig't to 200 o) t'e ne: iss$e o) +000
s'aresI @'yI !J"
b" @'en s'o$ld stock'older A e8ercise t'e
(re-em(ti%e rig'tI 2J"
SU++ESTE6 ANSWER(
a" KesC A :o$ld 'a%e a (re-em(ti%e rig't to
200 o) t'e ne: iss$e o) +000 s'ares& A is a
stock'older o) record 'olding 200 s'ares in
N Cor(o& According to t'e Cor( CodeC eac'
stock'older 'as t'e (re-em(ti%e rig't to all
iss$es o) s'ares made by t'e cor(oration in
(ro(ortion to
Mercantile Law Bar Examination Q & A (1990-2006)
t'e n$mber o) s'ares 'e 'olds on record in
t'e cor(oration&
b" Pre-em(ti%e rig't m$st be e8ercised in
accordance :it' t'e Articles o) 6ncor(oration
or t'e By-7a:s& @'en t'e Articles o)
6ncor(oration and t'e By-7a:s are silentC t'e
B;D may )i8 a reasonable time :it'in :'ic'
t'e stock'olders may e8ercise t'e rig't&
"reAEm$tie Ri'#t s!
A$$raisal Ri'#t ()***) ABC Cor(oration 'as an a$t'oriEed ca(ital
stock o) P+* di%ided into 00C000 common
s'ares and 00C000 (re)erred s'ares& At its
ince(tionC t'e Cor(oration o))ered )or
s$bscri(tion all t'e common s'ares&
Fo:e%erC only 30C000 s'ares :ere
s$bscribed& RecentlyC t'e directors t'o$g't
o) raising additional ca(ital and decided to
o))er to t'e ($blic all t'e a$t'oriEed s'ares
o) t'e Cor(oration at t'eir market %al$e& a"
@o$ld *r& NC a stock'older 'olding 3C000
s'aresC
'a%e (re-em(ti%e rig'ts to t'e remaining
+0C000 s'aresI 2J" b" @o$ld *r& N 'a%e
(re-em(ti%e rig'ts to t'e 00C000 (re)erred
s'aresI 2J"
c" Ass$ming t'at t'e e8isting
stock'olders are entitled to (re-em(ti%e
rig'tsC at :'at (rice :ill t'e s'ares be
o))eredI 2J"
d" Ass$ming a stock'older disagrees
:it' t'e iss$ance o) ne: s'ares and t'e
(ricing )or t'e s'aresC may t'e stock'older
in%oke 'is a((raisal rig'ts and demand
(ayment )or 'is s'are'oldingsI 2J"
SU++ESTE6 ANSWER(
a& Kes& *r& NC a stock'older 'olding 3C000
s'aresC 'as (re-em(ti%e rig't to t'e
remaining +0C000 s'ares& All stock'olders o)
a stock cor(oration s'all en<oy (reem(ti%e
rig't to s$bscribe to all iss$es or dis(osition
o) s'ares o) any classC in (ro(ortion to t'eir
res(ecti%e s'are'oldings&
ALTERNATI7E ANSWER8
a& >oC *r N does not 'a%e (re-em(ti%e rig't
o%er t'e remaining +0C000 s'ares beca$se
t'ese s'ares 'a%e already been o))ered at
incor(oration and 'e c'ose not to s$bscribe
to t'em& FeC t'ere)oreC 'as :ai%ed 'is rig't
t'ereto and t'e cor(oration may o))er t'em
to anyone&
SU++ESTE6 ANSWER(
b& Kes& *r& N :o$ld 'a%e (re-em(ti%e rig'ts
to t'e 00C000 (re)erred s'ares& All
stock'olders o) a stock cor(oration s'all
en<oy (re-em(ti%e rig't to s$bscribe to all
iss$es or dis(osition o) s'ares o) any classC in
(ro(ortion to t'eir res(ecti%e s'are'oldings&
ALTERNATI7E ANSWER(
b& KesC *r& N 'as (reem(ti%e rig't o%er t'e
00C000 (re)erred s'ares beca$se t'ey :ere
not o))ered be)ore by t'e cor(oration )or
s$bscri(tion&
SU++ESTE6 ANSWER(
c& T'e s'ares :ill be o))ered to e8isting
stock'oldersC :'o are entitled to (reem(ti%e
rig'tC at a (rice )i8ed by t'e B;DC :'ic' s'all
not be less t'an t'e (ar %al$e o) s$c'
s'ares&
Page /1 of 103
SU++ESTE6 ANSWER(
d& >oC t'e stock'older may not e8ercise
a((raisal rig't beca$se t'e matter t'at 'e
dissented )rom is not one o) t'ose :'ere
rig't o) a((raisal is a%ailable $nder t'e
cor(oration code&
SEC6 Juris:iction6 Trans&erre:
Juris:iction ()**5) @'at is t'e original and e8cl$si%e <$risdiction
o) t'e /ECI
SU++ESTE6 ANSWER(
T'e /EC 'as original and e8cl$si%e
<$risdiction o%er cases in%ol%ing: a" De%ices
or sc'emes amo$nting to )ra$d and
misre(resentation1 b" Contro%ersies arising
o$t o) intra-cor(orate or (artners'i(
relations1 c" Contro%ersies in t'e election or
a((ointment o) directorsC o))icersC etc1 d"
Petitions to be declared in a state o)
s$s(ension o) (ayments /ec 0 PD ,02-A"
TA9E N)TE( T'e RTC 'as <$risdiction o%er t'e
cases :'ic' in%ol%es intra-cor(orate
contro%ersy& As o) 2004C t'e a((licable r$le is
t'at t'ere is a TRA>/-ERRED #?R6/D6CT6;>
$nder /ec& 0&2 o) t'e /RCC t'e Commissions
<$risdiction o%er all cases en$merated $nder
PD ,02-A sec& 0 'as been trans)erred to t'e
Co$rts o) general <$risdiction or t'e
a((ro(riate Regional Trial Co$rt&
Stoc-#ol:er6 Delin9uent6 Un$ai:
Su.scri$tion ()**+) T'e B;D o) a cor(orationC by a %ote o) ten in
)a%or o) one againstC declared d$e and
(ayable all $n(aid s$bscri(tion to t'e ca(ital
stock& T'e lone dissenting director )ailed to
(ay on d$e dateC i&e&C +, /e(t +,,7C 'is
$n(aid s$bscri(tion& ;t'er t'an t'e s'ares
:'erein 'e :as $nable to com(lete (aymentC
'e did not o:n any s'are in t'e cor(oration&
;n 2! /e(t +,,7C 'e :as in)ormed by t'e
B;D t'atC $nless d$e (ayment is mean:'ile
recei%edC 'e: a" co$ld no longer ser%e as a
director o) t'e
cor(oration )ort':it':
b" :o$ld not be entitled to t'e cas' and
stock di%idends :'ic' :ere declared and
(ayable on 23 /e( +,,71 and
c" co$ld not %ote in t'e stock'olders
meeting sc'ed$led to take (lace on 24 /e(t
+,,7&
@as t'e action o) t'e B;D on eac' o) t'e
)oregoing matters %alidI
SU++ESTE6 ANSWER(
a" >o& T'e (eriod o) !0 days :it'in :'ic' t'e
stock'older can (ay t'e $n(aid s$bscri(tion
'ad not yet e8(ired&
b" >o& T'e delin5$ency did not de(ri%e t'e
stock'older o) 'is rig't to recei%e di%idends
declared& Fo:e%erC t'e cas' di%idend
declared may be a((lied by t'e cor(oration
to t'e $n(aid s$bscri(tion& /ec 7+ Cor(
Code"
Mercantile Law Bar Examination Q & A (1990-2006)
c" >o& T'e (eriod o) !0 days :it'in :'ic' t'e
stock'older can (ay t'e $n(aid s$bscri(tion
'ad not yet e8(ired&
Stoc-#ol:ers: "reem$tie
Ri'#t (2007) T'e Board o) Directors o) ABCC 6nc&C a
domestic cor(orationC (assed a resol$tion
a$t'oriEing additional iss$ance o) s'ares o)
stocks :it'o$t notice nor a((ro%al o) t'e
stock'olders& DNC a stock'olderC ob<ected to
t'e iss$anceC contending t'at it %iolated 'is
rig't o) (reem(tion to t'e $niss$ed s'ares& 6s
'is contention tenableI E8(lain brie)ly& 0J"
SU++ESTE6 ANSWER(
Kes& DNLs contention is tenable& ?nder
/ection !, o) t'e Cor(oration CodeC all
stock'olders o) ABCC 6nc& en<oy (reem(ti%e
rig't to s$bscribe to all iss$es o) s'ares o)
any classC incl$ding t'e reiss$ance o)
treas$ry s'ares in (ro(ortion to t'eir
res(ecti%e s'are'oldings&
Stoc-#ol:ers6 A$$raisal
Ri'#t (2003) 6n :'at instances may t'e rig't o) a((raisal
be a%ailed o) $nder t'e Cor(oration CodeI
SU++ESTE6 ANSWER(
/ECT6;> 9+& 6nstances o) A((raisal Rig't& S
Any stock'older o) a cor(oration s'all 'a%e
t'e rig't to dissent and demand (ayment o)
t'e )air %al$e o) 'is s'ares in t'e )ollo:ing
instances:
+6n case any amendment to t'e articles o)
incor(oration 'as t'e e))ect o) c'anging or
restricting t'e rig'ts o) any stock'olders or class
o) s'aresC or o) a$t'oriEing (re)erences in any
res(ect s$(erior to t'ose o) o$tstanding s'ares o)
any classC or o) e8tending or s'ortening t'e term
o) cor(orate e8istence1
26n case o) saleC leaseC e8c'angeC trans)erC
mortgageC (ledge or ot'er dis(osition o) all or
s$bstantially all o) t'e cor(orate (ro(erty and
assets as (ro%ided in t'e Code1 and
!6n case o) merger or consolidation& n"
Stoc-#ol:ers6 Remoal o&
8&&icers 0 ,8D (200)) 6n +,,,C Cor(oration A (assed a board
resol$tion remo%ing N )rom 'is (osition as
manager o) said cor(oration& T'e by-la:s o)
A cor(oration (ro%ides t'at t'e o))icers are
t'e (residentC %ice-(residentC treas$rer and
secretary& ?(on com(laint )iled :it' t'e /ECC
it 'eld t'at a manager co$ld be remo%ed by
mere resol$tion o) t'e board o) directors& ;n
motion )or reconsiderationC N alleged t'at 'e
co$ld only be remo%ed by t'e a))irmati%e
%ote o) t'e stock'olders re(resenting 2G! o)
t'e o$tstanding ca(ital stock& 6s Ns
contention legally tenable& @'yI 0J"
SU++ESTE6 ANSWER(
>o& /tock'olders a((ro%al is necessary only
)or t'e remo%al o) t'e members o) t'e B;D&
-or t'e remo%al o) a cor(orate o))icer or
em(loyeeC t'e %ote o) t'e B;D is s$))icient
)or t'e ($r(ose&
Stoc-#ol:ers6 Remoal6 (inorit%
Director ()**)) Ass$ming t'at t'e minority block o) t'e NKQ
Cor(oration is able to elect only + director
and t'ere)oreC
Page /# of 103
t'e ma<ority stock'olders can al:ays m$ster
a 2G! %oteC :o$ld yo$ allo: t'e ma<ority
stock'olders to remo%e t'e one director
re(resenting t'e minorityI
SU++ESTE6 ANSWER(
>o& 6 :ill not allo: t'e ma<ority stock'olders
to remo%e t'e director& @'ile t'e
stock'olders mayC by a 2G! %oteC remo%e a
directorC t'e la: also (ro%idesC 'o:e%erC
t'at 'is rig't may notC :it'o$t <$st ca$seC be
e8ercised so as to de(ri%e t'e minority o)
re(resentation in t'e B;D (Sec $6 &orp code<
1ovIt vs 0goncillo 57p#46!
Stoc-#ol:ers6
Ri'#ts ()**5) @'at are t'e rig'ts o) a
stock'olderI
SU++ESTE6 ANSWER(
T'e rig'ts o) a stock'older are as )ollo:s: +"
T'e rig't to %oteC incl$ding t'e rig't to
a((oint a (ro8y1 2" T'e rig't to s'are in t'e
(ro)its o) t'e cor(orationC incl$ding t'e rig't
to declare stock di%idends1 !" T'e rig't to a
(ro(ortionate s'are o) t'e assets o)
t'e cor(oration $(on li5$idation1 3" T'e
rig't o) a((raisal1 0" T'e (re-em(ti%e rig't
to s'ares1 4" T'e rig't to ins(ect cor(orate
books and records1 7" T'e rig't to elect
directors1 9" /$c' ot'er rig'ts as may
contract$ally be granted to
t'e stock'olders by t'e cor(oration or by
s(ecial la:&
Stoc-#ol:ers6 @otin' "o>er o&
Stoc-#ol:ers ()**0) *ercy s$bscribed to +C000 s'ares o) stock o)
Rosario Cor(oration& /'e (aid 20J o) said
s$bscri(tion& D$ring t'e stock'olders
meetingC can *ercy %ote all 'er s$bscribed
s'aresI E8(lain&
SU++ESTE6 ANSWER(
KesC *ercy can %ote all 'er s$bscribed
s'ares& /ection 72 o) t'e Cor(oration Code
states t'at 'olders o) s$bscribed s'ares not
)$lly (aid :'ic' are not delin5$ent s'all 'a%e
all t'e rig'ts o) a stock'older&
Stoc-s6 2ncrease o& Ca$ital
Stoc- (200)) /$((ose N Cor(oration 'as an a$t'oriEed
ca(ital stock o) P+* di%ided into +00C000
s'ares o) stock :it' (ar %al$e o) P+0 eac'& a"
2i%e t:o :ays :'ereby said a$t'oriEed
ca(ital stock may be increased to abo$t
P+&0*& !J" b" 2i%e t'ree (ractical reasons
)or a cor(oration to increase its ca(ital stock
2J"
SU++ESTE6 ANSWER(
a" T:o :ays o) increasing t'e A$t'oriEed
Ca(ital /tock o) N cor(oration to P+&0* are:
+" 6ncrease t'e n$mber o) s'ares
)rom +00C000 to +00C000 s'ares :it' t'e
same (ar %al$e o) P+0&00 eac'&
2" 6ncrease (ar %al$e o) +00C000
s'ares to P+0&00 eac'&
b" T'ree (ractical reasons )or a cor(oration
to increase its ca(ital stock are: +" to
generate more :orking ca(ital1
Mercantile Law Bar Examination Q & A (1990-2006)
2" to 'a%e more s'ares :it' :'ic' to (ay )or t'e
ac5$isition o) more assets like ac5$isition o)
com(any carC stocksC 'o$seC mac'inery or
b$siness1 and
!" to 'a%e e8tra s'are :it' :'ic' to co%er or
meet t'e re5$irement )or declaration o) stock
di%idend&
Stoc-s6 Sale3 Trans&er o&
Certi&icates o& Stoc- ()**5) Arnold 'as in 'is name +C000 s'ares o) t'e
ca(ital stock o) ABC Co as e%idenced by a
stock certi)icate& Arnold deli%ered t'e stock
certi)icate to /te%en :'o no: claims to be
t'e real o:ner o) t'e s'aresC 'a%ing (aid )or
Arnolds s$bscri(tion& ABC re)$sed to
recogniEe and register /te%ens o:ners'i(& 6s
t'e re)$sal <$sti)iedI E8(lain&
SU++ESTE6 ANSWER(
ABCs re)$sal to recogniEe and register
/te%ens o:ners'i( is <$sti)ied& T'e )acts
indicate t'at t'e stock certi)icate )or t'e
+C000 s'ares in 5$estion is in t'e name o)
Arnold& Alt'o$g' t'e certi)icate :as deli%ered
by Arnold to /te%enC t'e )acts do not indicate
t'at t'e certi)icate :as d$ly endorsed by
Arnold at t'e time it :as deli%ered to /te%en
or t'at t'e (roced$re )or t'e e))ecti%e
trans)er o) s'ares o) stock set o$t in t'e by-
la:s o) ABC CoC i) anyC :as obser%ed& /ince
t'e certi)icate :as not endorsed in )a%or o)
/te%en or anybody else )or t'at matter"C t'e
only concl$sion co$ld be no ot'er t'an t'at
t'e s'ares in 5$estion still belong to Arnold&
(+a>on v .0& 1+ 34#7% *ar "%,9$ $73s$#4!
Stoc-s6 Sale3 Trans&er o&
Certi&icates o& Stoc- (200)) A is t'e registered o:ner o) /tock Certi)icate
>o& 0000++& Fe entr$sted t'e (ossession o)
said certi)icate to 'is best )riend B :'o
borro:ed t'e said endorsed certi)icate to
s$((ort Bs a((lication )or (ass(ort or )or a
($r(ose ot'er t'an trans)er"& B$t B sold t'e
certi)icate to NC a bona )ide ($rc'aser :'o
relied on t'e endorsed certi)icates and
belie%ed 'im to be t'e o:ner t'ereo)& a" Can
A claim t'e s'ares o) stock )rom NI E8(lain
!J" b" @o$ld yo$r ans:er be t'e same i) A
lost t'e stock certi)icate in 5$estion or i) it
:as stolen )rom 'imI 2J"
SU++ESTE6 ANSWER(
a" >o& Ass$ming t'at t'e s'ares :ere
already trans)erred to BC A cannot claim t'e
s'ares o) stock )rom N& T'e certi)icate o)
stock co%ering said s'ares 'a%e been d$ly
endorsed by A and entr$sted by 'im to B& By
'is said actsC A is no: esto((ed )rom
claiming said s'ares )rom NC a bona )ide
($rc'aser :'o relied on t'e endorsement by
A o) t'e certi)icate o) stock&
b" Kes& 6n t'e case :'ere t'e certi)icate o)
stock :as lost or stole )rom AC A 'as a rig't
to claim t'e certi)icate o) stock )rom t'e t'ie)
:'o 'as no rig't or title to t'e same& A;ne
:'o 'as lost any mo%able or 'as been
$nla:)$lly de(ri%ed t'ereo)C may reco%er it
)rom t'e (erson in (ossession o) t'e same&B
Art 00, >CC"
Stoc-s6 Sale3 Trans&er o&
Certi&icates o& Stoc- (2007) -o$r mont's be)ore 'is deat'C PN assigned
+00 s'ares o) stock registered in 'is name in
)a%or o) 'is :i)e and 'is
Page /3 of 103 c'ildren& T'ey t'en bro$g't t'e
deed o) assignment to t'e (ro(er cor(orate
o))icers )or registration :it' t'e re5$est )or
t'e trans)er in t'e cor(orationLs stock and
trans)er books o) t'e assigned s'aresC t'e
cancellation o) t'e stock certi)icates in PNLs
nameC and t'e iss$ance o) ne: stock
certi)icates in t'e names o) 'is :i)e and 'is
c'ildren as t'e ne: o:ners& T'e o))icers o)
t'e Cor(oration denied t'e re5$est on t'e
gro$nd t'at anot'er 'eir is contesting t'e
%alidity o) t'e deed o) assignment& *ay t'e
Cor(oration be com(elled by mandam$s to
register t'e s'ares o) stock in t'e names o)
t'e assigneesI E8(lain brie)ly& 0J"
SU++ESTE6 ANSWER(
Kes& T'e cor(oration may be com(elled by
mandam$s to register t'e s'ares o) stock in
t'e name o) t'e assignee& T'e only legal
limitation im(osed by /ection 4! o) t'e
Cor(oration Code is :'en t'e Cor(oration
'olds any $n(aid claim against t'e s'ares
intended to be trans)erred& T'e alleged claim
o) anot'er 'eir o) PN is not s$))icient to deny
t'e iss$ance o) ne: certi)icates o) stock to 'is
:i)e and c'ildren& 6t :o$ld be ot'er:ise i) t'e
trans)ereeLs title to t'e s'ares 'as no (rima
)acie %alidity or is $ncertain&
Trust /un:
Doctrine ()**2) A Cor(oration e8ec$ted a (romissory note
binding itsel) to (ay its PresidentGDirectorC
:'o 'ad tendered 'is resignationC a certain
s$m in (ayment o) t'e latters s'ares and
interests in t'e com(any& T'e cor(oration
de)a$lted in (aying t'e )$ll amo$nt so t'at
said )ormer President )iled s$it )or collection
o) t'e balance be)ore t'e /EC& a" ?nder :'at
conditions is a stock cor(oration em(o:ered
to ac5$ire its o:n s'aresI b" 6s t'e
arrangement bet:een t'e cor(oration and its
President co%ered by t'e tr$st )$nd doctrineI
E8(lain yo$r ans:ers brie)ly&
SU++ESTE6 ANSWER(
a" A stock cor(oration may only ac5$ire its
o:n s'ares o) stock i) t'e tr$st )$nd doctrine
is not im(aired& T'is is to sayC )or instanceC
t'at it may ($rc'ase its o:n s'ares o) stock
by $tiliEing merely its s$r(l$s (ro)its o%er
and abo%e t'e s$bscribed ca(ital o) t'e
cor(oration&
ALTERNATI7E ANSWER(
a" an ans:er en$merating t'e instances or
cases $nder t'e Cor(oration Code :'ere t'e
Cor( allo:s t'e ac5$isition o) s'ares s$c' as
in t'e stock'olders e8ercise o) a((raisal
rig'tC )ail$re o) bids in t'e sale o) delin5$ent
s'aresC etc&"
SU++ESTE6 ANSWER(
b" T'e arrangement bet:een t'e cor(oration
and its President to t'e e8tent t'at it calls )or
t'e (ayment o) t'e latters s'ares is co%ered
by t'e tr$st )$nd doctrine& T'e only
e8ce(tions )rom t'e tr$st )$nd doctrine are
t'e redem(tion o) redeemable s'ares andC in
t'e case o) close cor(orationC :'en t'ere
s'o$ld be a deadlock and t'e /EC orders t'e
(ayment o) t'e a((raised %al$e o) a
stock'olders s'are&
Trust /un: Doctrine6 2ntraACor$orate
Controers% ()**))
Mercantile Law Bar Examination Q & A (1990-2006)
;n December 4C +,99C AC an incor(orator and
t'e 2eneral *anager o) t'e Pa<e *$lti -arms
CoC resigned as 2* and sold to t'e
cor(oration 'is s'ares o) stocks in t'e
cor(oration )or P!00t'C t'e book %al$e
t'ereo)C (ayable as )ollo:s: a" P+00t' as
do:n (ayment1 b" P+00t' on or be)ore !+
#$ly+,9,1 and c" t'e remaining balance o)
P+00t' on or be)ore !0 /e( +,9,& A
(romissory noteC :it' an acceleration cla$seC
:as e8ec$ted by t'e cor(oration )or t'e
$n(aid balance&
T'e cor(oration )ailed to (ay t'e )irst
installment on d$e date& A t'en s$ed Pa<e on
t'e (romissory note in t'e RTC& a" Does t'e
co$rt 'a%e <$risdiction o%er t'e caseI b"
@o$ld yo$r ans:er be t'e same i) A instead
sold 'is s'ares to 'is )riend *abel and t'e
latter )iled a case :it' t'e RTC against t'e
cor(oration to com(el it to register t'e sale
and to iss$e ne: certi)icates o) stock in 'er
nameI
SU++ESTE6 ANSWER(
a" T'e RTC 'as <$risdiction o%er t'e case&
T'e /C said t'at a cor(oration may only b$y
its o:n s'ares o) stock i) it 'as eno$g'
s$r(l$s (ro)its t'ere)ore&
b" *y ans:er :o$ld be t'e same& An action
to com(el a cor(oration to register a sale
and to iss$e ne: certi)icates o) stock is itsel)
an intra-cor(orate matter t'at e8cl$si%ely
lies :it' t'e RTC&
TA9E N)TE( T'e RTC 'as <$risdiction o%er t'e
cases :'ic' in%ol%es intra-cor(orate
contro%ersy& As o) 2004C t'e a((licable r$le is
t'at t'ere is a TRA>/-ERRED #?R6/D6CT6;>
$nder /ec& 0&2 o) t'e /RCC t'e Commissions
<$risdiction o%er all cases en$merated $nder
PD ,02-A sec& 0 'as been trans)erred to t'e
Co$rts o) general <$risdiction or t'e
a((ro(riate Regional Trial Co$rt&
Cre&it Transa!tions
C#attel (ort'a'e s! A&terA2ncurre:
8.li'ations ()**)) To sec$re t'e (ayment o) an earlier loan o)
P20C000 as :ell as s$bse5$ent loans :'ic'
'er )riend >oreenC :o$ld e8tend to 'erC
Haren e8ec$ted in )a%or o) >oreen a c'attel
mortgage o%er 'er Haren" car& 6s t'e
mortgage %alidI
SU++ESTE6 ANSWER(
A c'attel mortgage cannot e))ecti%ely sec$re
a)ter-inc$rred obligations& @'ile a sti($lation
to incl$de a)ter-inc$rred obligations in a
c'attel mortgage is itsel) not in%alidC t'e
obligation cannotC 'o:e%erC be deemed
a$tomatically sec$red by t'at mortgage $ntil
a)ter a ne: c'attel mortgage or an addend$m
to t'e original c'attel mortgage is e8ec$ted
to co%er t'e obligation a)ter it 'as been
act$ally inc$rred& AccordinglyC $nless s$c'
s$((lements are madeC t'e c'attel mortgage
in t'e (roblem gi%en :o$ld be deemed to
sec$re only t'e loan o) P20C000 (Sec 5 0ct
"575< Belgian &atholic *issionaries v *agallanes
;ress 49p%43!
Page // of 103
C#attel (ort'a'e s! A&terA2ncurre:
8.li'ations ()***) ;n December +C +,,4C Borro:er e8ec$ted a
c'attel mortgage in )a%or o) t'e Bank to
sec$re a loan o) P!*& 6n d$e time t'e loan
:as (aid& ;n December +C +,,7C Borro:er
obtained anot'er loan )or P2* :'ic' t'e
Bank granted $nder t'e same sec$rity as
t'at :'ic' sec$red t'e )irst loan&
-or t'e second loanC Borro:er merely
deli%ered a (romissory note1 no ne: c'attel
mortgage agreement :as e8ec$ted as t'e
(arties relied on a (ro%ision in t'e +,,4
c'attel mortgage agreement :'ic' incl$ded
)$t$re debts as among t'e obligations
sec$red by t'e mortgage& T'e (ro%ision
reads:
A6n case t'e *ortgagor e8ec$tes s$bse5$ent
(romissory note or notes eit'er as a
rene:alC as an e8tensionC or as a ne: loanC
t'is mortgage s'all also stand as sec$rity
)or t'e (ayment o) said (romissory note or
notes :it'o$t necessity o) e8ec$ting a ne:
contract and t'is mortgage s'all 'a%e t'e
same )orce and e))ect as i) t'e said
(romissory note or notes :ere e8isting on
date 'ereo)&B
As Borro:er )ailed to (ay t'e second loanC
t'e Bank (roceeded to )oreclose t'e C'attel
*ortgage&Borro:er s$ed t'e Bank claiming
t'at t'e mortgage :as no longer in )orce&
Borro:er claimed t'at a )res' c'attel
mortgage s'o$ld 'a%e been e8ec$ted :'en
t'e second loan :as granted& a" Decide t'e
case and ratiocinate& 3J" b" /$((ose t'e
c'attel mortgage :as not registeredC
:o$ld its %alidity and e))ecti%eness be
im(airedI E8(lain& 3J"
SU++ESTE6 ANSWER(
T'e )oreclos$re o) t'e c'attel mortgage
regarding t'e second loan is not %alid& A
c'attel mortgage cannot %alidly sec$re a)ter
inc$rred obligations& T'e a))ida%it o) good
)ait' re5$ired $nder t'e c'attel mortgage la:
e8(ressly (ro%ides t'at At'e )oregoing
mortgage is made )or sec$ring t'e obligation
s(eci)ied in t'e conditions 'ereo)C and )or no
ot'er ($r(ose&B T'e a)ter-inc$rred obligation
not being s(eci)ied in t'e a))ida%itC is not
sec$red by mortgage&
Kes& T'e c'attel mortgage is not %alid as
against any (ersonC e8ce(t t'e mortgagorC
'is e8ec$tors and administrators&
C#attel (ort'a'e6
/oreclosure ()**+) RitE bo$g't a ne: car on installments :'ic'
(ro%ided )or an acceleration cla$se in t'e
e%ent o) de)a$lt& To sec$re (ayment o) t'e
$n(aid installmentsC as and :'en d$eC 'e
constit$ted t:o c'attel mortgagesC i&e&C one
o%er 'is %ery old car and t'e ot'er co%ering
t'e ne: car t'at 'e 'ad <$st bo$g't as
a)oresaidC on installments& A)ter RitE
de)a$lted on t'ree installmentsC t'e seller-
mortgagee )oreclosed on t'e old car& T'e
(roceeds o) t'e )oreclos$re :ere not eno$g'
to satis)y t'e d$e obligation1 'enceC 'e
similarly so$g't to )oreclose on t'e ne: car&
Mercantile Law Bar Examination Q & A (1990-2006)
@o$ld t'e seller-mortgagee be legally
<$sti)ied in )oreclosing on t'is second c'attel
mortgageI
SU++ESTE6 ANSWER(
>o& T'e t:o mortgages :ere e8ec$ted to
sec$re t'e (ayment o) t'e $n(aid
installments )or t'e ($rc'ase o) a ne: car&
@'en t'e mortgage on t'e old car :as
)oreclosedC t'e seller-mortgagee is deemed
to 'a%e reno$nced all ot'er rig'ts& A
)oreclos$re o) additional (ro(ertyC t'at isC t'e
ne: car co%ered by t'e second mortgage
:o$ld be a n$llity&
C#attel (ort'a'e6 8>ners#i$ o& T#in'
(ort'a'e: ()**0) QoneeC :'o li%es in B$lacanC bo$g't a +,99
model Toyota Corolla sedan on #$ly +C +,9,
)rom AnadelaidaC :'o li%es in D$eEon CityC
)or P!00t'C (aying P+00t' as do:n(ayment
and (romising to (ay t'e balance in ! e5$al
5$arterly installments beginning ;ctober +C
+,9,& Anadelaida e8ec$ted a deed o) sale o)
t'e %e'icle in )a%or o) Qonee andC to sec$re
t'e $n(aid balance o) t'e ($rc'ase (riceC
'ad Qonee e8ec$te a deed o) c'attel
mortgage on t'e %e'icle in Anadelaidas
)a%or&
Ten days a)ter t'e e8ec$tion o) t'e
abo%ementioned doc$mentsC Qonee 'ad t'e
car trans)erred and registered in 'er name&
Contem(oraneo$slyC Anadelaida 'ad t'e
c'attel mortgage on t'e car registered in t'e
C'attel *ortgage Registry o) t'e ;))ice o)
t'e Register o) Deeds o) D$eEon City&
6n /e( +,9,C Qonee sold t'e sedan to #imbo
:it'o$t telling t'e latter t'at t'e car :as
mortgaged to Anadelaida& @'en Qonee )ailed
to (ay t'e )irst installment on ;ctober +C
+,9,C Anadelaida :ent to see Qonee and
disco%ered t'at t'e latter 'ad sold t'e car to
#imbo& a" #imbo re)$sed to gi%e $( t'e car on
t'e gro$nd t'at t'e c'attel mortgage
e8ec$ted by Qonee in )a%or o) Anadelaida is
not %alid beca$se it :as e8ec$ted be)ore t'e
car :as registered in Qonees nameC i&e&C
be)ore Qonee became t'e registered o:ner o)
t'e car& 6s t'e said arg$ment meritorio$sI
E8(lain yo$r ans:er&
b" #imbo also arg$ed t'at e%en i) t'e c'attel
mortgage is %alidC it cannot a))ect 'im
beca$se it :as not (ro(erly registered :it'
t'e go%ernment o))ices :'ere it s'o$ld be
registered& @'at go%ernment o))ice is #imbo
re)erring toI
SU++ESTE6 ANSWER(
a" #imbos arg$ment is not meritorio$s&
Qonee became t'e o:ner o) t'e (ro(erty
$(on deli%ery1 registration is not essential to
%est t'at o:ners'i( in t'e b$yer& T'e
e8ec$tion o) t'e c'attel mortgage by t'e
b$yer in )a%or o) t'e sellerC in )actC can
demonstrate t'e %esting o) s$c' o:ners'i(
to t'e mortgagor&
b" #imbo :as re)erring to t'e Register o)
Deeds o) B$lacan :'ere Qonee :as a
resident& T'e C'attel *ortgage 7a: re5$ires
t'e registration to be made in t'e ;))ice o)
t'e Register o) Deeds o) t'e (ro%ince :'ere
t'e mortgagor resides and also in :'ic' t'e
(ro(erty is
Page /$ of 103
sit$ated as :ell as t'e 7T; :'ere t'e %e'icle
is registered& /ec 3 C'attel *ortgage 7a:"
Cre:it
Transactions
()***)
=ario$s b$yers o) lots in a s$bdi%ision
bro$g't actions to com(el eit'er or bot' t'e
de%elo(er and t'e bank to lease and deli%er
)ree and clear t'e titles to t'eir res(ecti%e
lots&
T'e (roblem arose beca$se not:it'standing
(rior sales mostly on installments M made by
t'e de%elo(er to b$yersC de%elo(er 'ad
mortgaged t'e :'ole s$bdi%ision to a
commercial bank& T'e mortgage :as d$ly
e8ec$ted and registered :it' t'e a((ro(riate
go%ernmental agencies& Fo:e%erC as t'e lot
b$yers :ere com(letely $na:are o) t'e
mortgage lien o) t'e bankC t'ey religio$sly
(aid t'e installments d$e $nder t'eir sale
contracts&
As t'e de%elo(er )ailed to (ay its loanC t'e
mortgage :as )oreclosed and t'e :'ole
s$bdi%ision :as ac5$ired by t'e bank as t'e
'ig'est bidder& a" *ay t'e bank dis(ossess
(rior ($rc'asers o)
indi%id$al lots orC alternati%elyC re5$ire
t'em to (ay again )or t'e (aid lotsI
Disc$ss !J" b" @'at are t'e rig'ts o) t'e bank %is-T-
%is t'ose b$yers :it' remaining $n(aid
installmentsI Disc$ss& !J"
Recommendation: /ince t'e s$b<ect matter
o) t'ese t:o 2" 5$estions is not incl$ded
:it'in t'e sco(e o) t'e Bar D$estions in
*ercantile 7a:C as it is :it'in Ci%il 7a:C it is
s$ggested t'at :'ate%er ans:er is gi%en by
t'e e8amineeC or t'e lack o) ans:er s'o$ld
be gi%en )$ll credit& 6) t'e e8aminee gi%es a
good ans:erC 'e s'o$ld be gi%en additional
credit&
SU++ESTE6 ANSWER(
>o& T'e bank may not dis(ossess t'e (rior
($rc'asers o) t'e indi%id$al lotsC m$c' less
re5$ire t'em to (ay )or t'e said lots& T'e
bank 'as to res(ect t'e rig'ts o) t'e (rior
($rc'asers o) t'e indi%id$al lots& T'e
($rc'asers 'a%e t'e o(tion to (ay t'e
installments o) t'e mortgagee&
T'e bank 'as to res(ect t'e rig'ts o) t'e
b$yers :it' remaining $n(aid installments&
T'e ($rc'aser 'as t'e o(tion to (ay t'e
installments to t'e mortgagee :'o s'o$ld
a((ly t'e (ayments to t'e mortgage
indebtedness&
(ort'a'e
()***) Debtor ($rc'ased a (arcel o) land )rom a
realty com(any (ayable in )i%e yearly
installments& ?nder t'e contract o) saleC title
to t'e lot :o$ld be trans)erred $(on )$ll
(ayment o) t'e ($rc'ase (rice&
B$t e%en be)ore )$ll (aymentC debtor
constr$cted a 'o$se on t'e lot& /ometime
t'erea)terC debtor mortgaged t'e 'o$se to
sec$re 'is obligation arising )rom t'e
iss$ance o) a bond needed in t'e cond$ct o)
'is b$siness& T'e mortgage :as d$ly
registered :it' t'e (ro(er c'attel mortgage
registry&
Mercantile Law Bar Examination Q & A (1990-2006)
-i%e years later a)ter com(leting (ayment o)
t'e ($rc'ase (riceC debtor obtained title to
t'e lot& And e%en as t'e c'attel mortgage on
t'e 'o$se :as still s$bsistingC debtor
mortgaged to a bank t'e lot and
im(ro%ement t'ereon to sec$re a loan& T'is
real estate mortgage :as d$ly registered and
annotated at t'e back o) t'e title&
D$e to b$siness re%ersesC debtor )ailed to
(ay 'is creditors& T'e c'attel mortgage :as
)oreclosed :'en t'e debtor )ailed to
reimb$rse t'e s$rety com(any )or (ayments
made on t'e bond& 6n t'e )oreclos$re saleC
t'e s$rety com(any :as a:arded t'e 'o$se
as t'e 'ig'est bidder&
;nly a)ter t'e )oreclos$re sale did t'e s$rety
com(any learn o) t'e real estate mortgage in
)a%or o) t'e lending in%estor on t'e lot and
t'e im(ro%ement t'ereon& 6mmediatelyC it
)iled a com(laint (raying )or t'e e8cl$sion o)
t'e 'o$se )rom t'e real estate mortgage& 6t
:as s$bmitted t'at as t'e c'attel mortgage
:as e8ec$ted and registered a'eadC it :as
s$(erior to t'e real estate mortgage&
;n t'e s$ggestion t'at a c'attel mortgage on
a 'o$se- a real (ro(erty- :as a n$llityC t'e
s$rety com(any co$ntered t'at :'en t'e
c'attel mortgage :as e8ec$tedC debtor :as
not yet t'e o:ner o) t'e lot on :'ic' t'e
'o$se :as b$ilt& AccordinglyC t'e 'o$se :as a
(ersonal (ro(erty and a (ro(er s$b<ect o) a
c'attel mortgage&
Disc$ss t'e %alidity o) t'e (osition taken by t'e
s$rety com(any& !J"
@'o 'as a better claim to t'e 'o$seC t'e s$rety
com(any or t'e lending in%estorI E8(lain !J"
@o$ld t'e (osition o) t'e s$rety com(any be
bolstered by t'e )act t'at it ac5$ired title in a
)oreclos$re sale cond$cted by t'e Pro%incial
/'eri))& E8(lain !J"
SU++ESTE6 ANSWER(
a" T'e 'o$se is al:ays a real (ro(erty e%en
t'o$g' it :as constr$cted on a land not
belonging to t'e b$ilder& Fo:e%erC t'e
(arties may treat it as a (ersonal (ro(erty
and constit$te a c'attel mortgage t'ereon&
/$c' mortgage s'all be %alid and binding b$t
only on t'e (arties& 6t :ill not bind or a))ect
t'ird (arties&
b" T'e lending in%estor 'as a better claim to
t'e 'o$se& T'e real estate mortgage
co%ering t'e 'o$se and lot :as d$ly
registered and binds t'e (arties and t'ird
(ersons& ;n t'e ot'er 'andC t'e c'attel
mortgage on t'e 'o$se sec$ring t'e credit
o) t'e s$rety com(any did not a))ect t'e
rig'ts o) t'ird (arties s$c' as t'e lending
in%estor des(ite registration o) t'e c'attel
mortgage&
c" >o& T'e c'attel mortgage o%er t'e 'o$se
:'ic' :as )oreclosed did not a))ect t'e rig'ts
o) t'ird (arties like t'e lending in%estor&
/ince t'e t'ird (arties are not bo$nd by t'e
c'attel mortgageC t'ey are not also bo$nd by
any en)orcement o) its (ro%isions& T'e
)oreclos$re o) s$c' c'attel mortgage did not
bolster or add anyt'ing to t'e (osition o) t'e
s$rety com(any&
(ort'a'e s!
<e% (2003)
Page /0 of 103 To (ay )or 'er loan obtained
)rom /telaC 7iEa constit$ted in /telas )a%or a
c'attel mortgage o%er an electric generator&
CecilC a creditor o) 7iEaC le%ied on attac'ment
t'e generator& /tela )iled a t'ird (arty claim&
Cecil o((osed t'e claim& R$le on t'eir
con)licting claims&
SU++ESTE6 ANSWER(
(ort'a'e6 E=tra?u:icial
/oreclose (2005) A real estate mortgage may be )oreclosed
<$dicially or e8tra<$dicially& 6n :'at instance
may a mortgagee e8tra<$dicially )oreclose a
real estate mortgageI 0J"
SU++ESTE6 ANSWER(
@'en a sale is made $nder a s(ecial (o:er
inserted or attac'ed to any real-estate
mortgageC t'erea)ter gi%en as sec$rity )or t'e
(ayment o) money or t'e )$l)illment o) any
ot'er obligationC t'en t'e mortgagee may
e8tra<$dicially )oreclose t'e real estate
mortgage /ec& +C Act >o& !+!0C as amended"&
(ort'a'e6
/oreclosure (2003) *ay t'e sale at ($blic a$ction by a bank o) a
(ro(erty mortgaged to it be n$lli)ied beca$se
t'e (rice :as e8tremely lo:I @'yI
SU++ESTE6 ANSWER(
(ort'a'e6
/oreclosure (2003) Beca$se o) )ail$re o) #anette and #eanne to
(ay t'eir loan to N BankC t'e latter )oreclosed
on t'e mortgage constit$ted on t'eir
(ro(erty :'ic' :as ($t $( by t'em as
sec$rity )or t'e (ayment o) t'e loan& T'e
(rice (aid )or t'e (ro(erty at t'e )oreclos$re
sale :as not eno$g' to li5$idate t'e
obligation& T'e bank s$ed )or de)iciency& 6n
t'eir ans:erC #anette and #eanne did not deny
t'e e8istence o) t'e loan nor t'e )act o) t'eir
de)a$lt& T'eyC 'o:e%erC inter(osed t'e
de)enses t'at t'e (rice at t'e a$ction :as
e8tremely lo: and t'at t'eir loanC des(ite
t'e loan doc$mentsC :as a long-term loan
:'ic' 'ad not yet mat$red& 6) yo$ :ere t'e
<$dgeC 'o: :o$ld yo$ r$le on t'e caseI @'yI
4J"
SU++ESTE6 ANSWER(
(ort'a'e6 /oreclosure o&
2m$roements ()***) Borro:er obtained a loan against t'e
sec$rity o) a mortgage on a (arcel o) land&
@'ile t'e mortgage :as s$bsistingC borro:er
leased )or )i)ty years t'e mortgaged (ro(erty
to 7and De%elo(ment Com(any 7DC"& T'e
mortgagee :as d$ly ad%ised o) t'e lease&
T'erea)terC 7DC constr$cted on t'e
mortgaged (ro(erty an o))ice condomini$m&
Borro:er de)a$lted on 'is loan and
mortgagee )oreclosed t'e mortgage& At t'e
)oreclos$re saleC t'e mortgagee :as a:arded
t'e (ro(erty as t'e 'ig'est bidder& T'e
corres(onding Certi)icate o) /ale :as
e8ec$ted and a)ter t'e la(se o) one yearC title
:as consolidated in t'e name o) mortgagee&
*ortgagee t'en a((lied :it' t'e RTC )or t'e
iss$ance o) a :rit o) (ossession not only o%er
t'e land b$t also t'e condomini$m b$ilding&
T'e mortgagee contended t'at t'e
mortgage incl$ded all accessionsC
im(ro%ements and accessories )o$nd on t'e
mortgaged (ro(erty&
Mercantile Law Bar Examination Q & A (1990-2006) Page /1 of 103
7DC co$ntered t'at it 'ad b$ilt on t'e
mortgaged (ro(erty :it' t'e (rior
kno:ledge o) mortgagee :'ic' 'ad recei%ed
)ormal notice o) t'e lease& a" Fo: :o$ld yo$
resol%e t'e dis($te bet:een t'e
mortgagee and 7DCI !J" b" 6s t'e
mortgagee entitled to t'e lease rentals d$e
)rom 7DC $nder t'e lease agreementI !J"
Recommen:ation: Since the subJect matter of
these two ($! questions is not included within the
scope of the Bar Kuestions in *ercantile
=aw, as it is within &ivil =aw, it is
suggested that whatever answer is given
by the examinee, or the lac' of answer
should be given full credit/ .f the
examinee gives a good answer, he should
be given additional credit/
SU++ESTE6 ANSWER(
a& T'e mortgagee 'as a better rig't t'an
7DC& T'e mortgage e8tends to t'e
im(ro%ements introd$ced on t'e landC :it'
t'e declarationsC am(li)icationsC and
limitations establis'ed by la:C :'et'er t'e
estate remains in t'e (ossession o) t'e
mortgagor or (asses into t'e 'ands o) a t'ird
(erson Art 2+27 >CC"& T'e notice gi%en by
7DC to t'e mortgagee :as not eno$g' to
remo%e t'e b$ilding )rom co%erage o) t'e
mortgage considering t'at t'e b$ilding :as
b$ilt a)ter t'e mortgage :as constit$ted and
t'e notice :as only as regards t'e lease and
not as to t'e constr$ction o) t'e b$ilding&
/ince t'e mortgagee :as in)ormed o) t'e
lease and did not ob<ect to itC t'e mortgagee
became bo$nd by t'e terms o) t'e lease
:'en it ac5$ired t'e (ro(erty as t'e 'ig'est
bidder& FenceC t'e mortgagee ste(s into t'e
s'oes o) t'e mortgagor and ac5$ires t'e
rig'ts o) t'e lessor $nder Art +749 o) t'e
>CC& T'is (ro%ision gi%es t'e lessor t'e rig't
to a((ro(riate t'e condomini$m b$ilding b$t
a)ter (aying t'e lessee 'al) o) t'e %al$e o)
t'e b$ilding at t'at time& /'o$ld t'e lessor
re)$se to reimb$rse said amo$ntC t'e lessee
may remo%e t'e im(ro%ement e%en t'o$g'
t'e land :ill s$))er damage t'ereby&
1st Alternative Answer(
a& T'e mortgagee 'as a better rig't to t'e
b$ilding& ?nder Art 2+27 o) t'e >CCC t'e
mortgage e8tends to all im(ro%ements on
t'e mortgaged (ro(erty regardless o) :'o
and :'en t'e im(ro%ements :ere
introd$ced& 7DC cannot com(lain ot'er:iseC
beca$se it kne: t'at t'e (ro(erty it :as
leasing :as mortgaged :'en it b$ilt t'e
condomini$m&
#n& alternative Answer(
a& Ass$ming t'at t'e o))ice condomini$m :as
d$ly constit$ted $nder t'e Condomini$m
7a:C be)ore 7DC co$ld %alidly constit$te t'e
same as a condomini$mC it s'o$ld ca$se to
be recorded in t'e register o) deeds o) t'e
(ro%ince or city :'ere t'e land is sit$ated an
enabling or master deed s'o:ingC among
ot'ersC a certi)icate o) t'e registered o:ner
and o) all registered 'olders o) any lien or
enc$mbrance on t'e (ro(erty t'at t'ey
consent to t'e registration o) t'e deed& /ec
3& RA 3724"& 6) t'e mortgagee ga%e its
consent t'eretoC t'en 7DC s'o$ld (re%ail& 6)
no consent :as gi%enC t'e condomini$m :as
incl$ded in t'e mortgage&
SU++ESTE6 ANSWER(
b& T'e lease rentals belong to t'e
mortgagor& Fo:e%erC t'e mortgage e8tends
to rentals not yet recei%ed :'en t'e
obligation becomes d$e and t'e mortgagee
may ran a)ter t'e said rentals )or t'e
(ayment o) t'e mortgage debt&
(ort'a'e6 /oreclosure6 E&&ect o& mere
ta-in' .% cre:itorAmort'a'or o&
$ro$ert% ()**2) N . Co obtained a loan )rom a local bank in
t'e amo$nt o) P000t'C mortgaging as
sec$rity t'ere)ore its real (ro(erty&
/$bse5$entlyC t'e com(any a((lied :it' t'e
same bank )or a 7etter o) Credit 7C" )or
P200t' in )a%or o) a )oreign bank to co%er t'e
im(ortation o) mac'inery& To g$arantee
(ayment o) t'e obligation $nder t'e 7CC t'e
com(any and its President and Treas$rer
e8ec$ted a s$rety agreement in t'e local
banks )a%or&
T'e mac'inery arri%ed and :as released to
t'e com(any $nder a tr$st recei(t
agreement& As t'e com(any de)a$lted in t'e
(ayment o) its obligationsC t'e bank took
(ossession o) t'e im(orted mac'inery& At t'e
same timeC it so$g't to )oreclose t'e
mortgaged (ro(erty and to 'old t'e com(any
as :ell as its President and Treas$rerC liable
$nder t'e /$rety Agreement&
Did t'e taking o) (ossession o) t'e
mac'inery by t'e bank res$lt in t'e +" )$ll
(ayment o) t'e obligations o) t'e com(any
and its o))icersC and 2" )oreclos$re o) t'e
mortgageI
SU++ESTE6 ANSWER(
+" T'e taking o) (ossession o) t'e mac'inery
by t'e bank did not res$lt in )$ll (ayment o)
t'e obligations o:ing )rom t'e com(any and
its o))icers& T'e taking o) s$c' (ossession
m$st be considered merely as a meas$re in
order to (rotect or )$rt'er sa)eg$ard t'e
banks sec$rity interest& 5acion en pago can
only be considered as 'a%ing taken (lace
:'en a creditor acce(ts and a((ro(riates
t'e o:ners'i( o) t'e goods in (ayment o) a
d$e obligation&
(;2B v ;ineda "93 s "!
2" T'e mere taking o) (ossession o)
mortgaged assets does not amo$nt to
)oreclos$re& -oreclos$re re5$ires a sale at
($blic a$ction& T'e )oreclos$reC t'ere)oreC
'as not as yet been e))ected&
(ort'a'e6 Re:em$tion "erio:6
/oreclose: "ro$ert% (2002)
Primetime Cor(oration t'e Borro:er"
obtained a P+0 *illionC )i%e-year term loan
)rom ?ni%ersal Bank t'e Bank" in +,,4& As
sec$rity )or t'e loan and as re5$ired by t'e
BankC t'e Borro:er ga%e t'e )ollo:ing
collateral sec$rity in )a%or o) t'e Bank: +" a
real estate mortgage o%er t'e land and
b$ilding
o:ned by t'e Borro:er and located in
D$eEon City1 2" t'e <oint and se%eral
(romissory note o) Pr& Primo TimbolC t'e President o) t'e Borro:er1 and
!" a real estate mortgage o%er t'e
residential 'o$se and lot o:ned by *r& TimbolC also located in D$eEon
City&
Mercantile Law Bar Examination Q & A (1990-2006)
Beca$se o) b$siness re%ersesC neit'er t'e
Borro:er nor *r& Timbol :as able to (ay t'e
loan& 6n #$ne 200+C t'e Bank e8tra<$dicially
)oreclosed t'e t:o real estate mortgagesC
:it' t'e Bank as t'e only bidder in t'e
)oreclos$re sale& ;n /e(tember +4C 200+C t'e
certi)icates o) sale o) t'e t:o (ro(erties in
)a%or o) t'e Bank :ere registered :it' t'e
Register o) Deeds o) D$eEon City&
Ten mont's laterC bot' t'e Borro:er and *r&
Timbol :ere able to raise s$))icient )$nds to
redeem t'eir res(ecti%e (ro(erties )rom t'e
BankC b$t t'e Bank re)$sed to (ermit
redem(tion on t'e gro$nd t'at t'e (eriod )or
redem(tion 'ad already e8(iredC so t'at t'e
Bank no: 'as absol$te o:ners'i( o) bot'
(ro(erties& T'e Borro:er and *r& Timbol
came to yo$ todayC /e(tember +0C 2002C to
)ind o$t i) t'e (osition o) t'e Bank is correct&
@'at :o$ld be yo$r ans:erI /tate yo$r
reasons 0J"&
SU++ESTE6 ANSWER(
+@it' res(ect to t'e real estate mortgage o%er t'e
land and b$ilding o:ned by t'e Borro:erC
Primetime Cor(orationC a <$ridical bodyC t'e (eriod
o) redem(tion is only t'ree !" mont'sC :'ic'
(eriod already e8(ired&
2As to t'e real estate mortgage o%er t'e
residential 'o$se and lot o:ned by *r& TimbolC t'e
(eriod o) redem(tion is one +" year )rom t'e date
o) registration o) t'e certi)icate o) saleC :'ic'
(eriod 'as not yet e8(ired in t'is case&
(ort'a'e6
Reme:ies (2003) CarmakersC 6nc&C sold a motor %e'icle on
installment basis to C'ari Paredes& T'e
transaction :as re)lected on a (romissory
note e8ec$ted by C'ari in )a%or o) Carmakers&
T'e note :as sec$red by a mortgage o%er t'e
car& Contem(oraneo$s :it' t'e e8ec$tion o)
t'e note and t'e mortgage deedC CarmakersC
6nc&C assigned t'e instr$ments sans reco$rse
to Adelantado -inance Cor(oration& C'ari
de)a$lted in 'er obligations& Co$ld
Adelantado -inance cor(oration take action
against bot' Carmakers 6nc&C and C'ariI @'yI
4J"
SU++ESTE6 ANSWER(
"re&erence o&
Cre:its (2002) As o) #$ne +C 2002C EdEo /ystems
Cor(oration EdEo" :as indebted to t'e
)ollo:ing creditors: +" Ace E5$i(ment /$((lies M )or %ario$s
(ersonal com($ters and accessories sold to
EdEo on credit amo$nting to P!00C000&
2" Fandyman 2arage M )or mec'anical
re(airs (arts and ser%ice" (er)ormed on
EdEos com(any car amo$nting to P+0C000&
!" #oselyn Reyes M )ormer em(loyee o)
EdEo :'o s$ed EdEo )or $nla:)$l termination
o) em(loyment and :as able to obtain a
)inal <$dgment against EdEo )or P+00C000&
3" B$rea$ o) 6nternal Re%en$e M )or
$n(aid %al$e-added ta8es amo$nting to
P!0C000&
Page /3 of 103
0" 6ntegrity Bank M :'ic' granted EdEo a
loan in 200+ in t'e amo$nt o) P000C000& T'e
loan :as not sec$red by any asset o) EdEoC
b$t it :as g$aranteed $nconditionally and
solidarily by EdEos President and controlling
stock'olderC Ed$ardo Q& ;ngC as
accommodation s$rety&
T'e loan d$e to 6ntegrity Bank )ell d$e on
#$ne +0C 2002& Des(ite (leas )or e8tension o)
(ayment by EdEoC t'e bank demanded
immediate (ayment& Beca$se t'e bank
t'reatened to (roceed against t'e s$retyC
Ed$ardo Q& ;ngC EdEo decided to (ay $( all
its obligations to 6ntegrity Bank& ;n #$ne 20C
2002C EdEo (aid to 6ntegrity Bank t'e )$ll
(rinci(al amo$nt o) P000C000C (l$s accr$ed
interests amo$nting to P00C000& As a res$ltC
EdEo 'ad 'ardly any cas' le)t )or o(erations
and decided to close its b$siness& A)ter
(aying t'e $n(aid salaries o) its em(loyeesC
EdEo )iled a (etition )or insol%ency on #$ly +C
2002&
Fo: :o$ld yo$C as <$dge in t'e insol%ency
(roceedingsC rank t'e res(ecti%e credits or
claims o) t'e )i%e 0" creditors mentioned
abo%e in terms o) (re)erence or (riority
against eac' ot'erI 0J"
SU++ESTE6 ANSWER(
T'e claim o) Fandyman 2arage )or P+0C000
'as a s(eci)ic lien on t'e car re(aired&
T'e remaining )o$r 3" claims 'a%e
(re)erence or (riority against eac' ot'er in
t'e )ollo:ing order: +" >o& 3 M claim o) t'e B6R )or $n(aid
%al$e added ta8es
2" >o& ! M claim o) #oselyn Reyes )or
?nla:)$l termination
!" >o& + M claim o) Ace e5$i(ment
/$((lies as an $n(aid seller1 and
3" >o& 0 M claim o)
6ntegrity Bank&
"romissor% Note:
<ia.ilit% (200)) NC K and Q signed a (romissory note in )a%or
o) A stating: A@e (romise to (ay A on
December !+C 200+ t'e s$m o) P0C000&00B
@'en t'e note )ell d$eC A s$ed N and K :'o
($t $( t'e de)ense t'at A s'o$ld 'a%e
im(leaded
Q& 6s t'e de)ense %alidI @'yI 0J"
SU++ESTE6 ANSWER(
T'e de)ense is not %alid& T'e liability o) NC KC
and Q $nder t'e (romissory note is <oint&
/$c' being t'e caseC Q is not an
indis(ensable (arty& T'e )act t'at A did not
im(lead Q :ill not (re%ent A )rom collecting
t'e (ro(ortionate s'are o) N and K in t'e
(ayment o) t'e loan&
(,bservation Even if the liability of
F, ?, and L is solidary, the defense
would still not be valid!
Reme:ies6 Aaila.le to
(ort'a'eeACre:itor ()**5) -inding a 23-mont' (ayment (lan attracti%eC
An<o ($rc'ased a Tamara: -N )rom Toyota
DC& Fe (aid a do:n-(ayment o) P+00t' and
obtained )inancing )or t'e balance )rom 6;?
Co& Fe e8ec$ted a c'attel mortgage
Mercantile Law Bar Examination Q & A (1990-2006)
o%er t'e %e'icle in )a%or o) 6;?& @'en An<o
de)a$ltedC 6;? )oreclosed t'e c'attel
mortgageC and so$g't to reco%er t'e
de)iciency& *ay 6;? still reco%er t'e
de)iciencyI E8(lain&
SU++ESTE6 ANSWER(
6;? may no longer reco%er t'e de)iciency&
?nder Art +393 o) t'e >CCC in a contract o)
sale o) (ersonal (ro(erty t'e (rice o) :'ic'
is (ayable in installmentsC t'e %endor mayC
among se%eral o(tionsC )oreclose t'e c'attel
mortgage on t'e t'ing soldC i) one 'as been
constit$tedC s'o$ld t'e %endees )ail$re to
(ay co%er t:o or more installments& 6n s$c'
caseC 'o:e%erC t'e %endor s'all 'a%e no
)$rt'er action against t'e ($rc'aser to
reco%er any $n(aid balance o) t'e (rice and
any agreement to t'e contrary is %oid& @'ile
t'e gi%en )acts did not e8(licitly state t'at
An<os )ail$re to (ay co%ered 2 or more
installmentsC t'is may sa)ely be (res$med
beca$se t'e rig't o) 6;? Co to )oreclose t'e
c'attel mortgage $nder t'e circ$mstances is
(remised on An<os )ail$re to (ay 2 or more
installments& T'e )oreclos$re :o$ld not 'a%e
been %alid i) it :ere not so& T'e gi%en )acts
did not also state e8(licitly :'et'er An<os
de)a$lt :as a (ayment de)a$lt or a de)a$lt
arising )rom a breac' o) a negati%e (ledge or
breac' o) a :arranty& 6n s$c' caseC 'o:e%erC
6;? Com(any :o$ld not 'a%e been able to
)oreclose t'e c'attel mortgage %alidly as
s$c' )oreclos$reC $nder t'e circ$mstances
contem(lated by t'e la:C co$ld only be
e))ected )or a (ayment de)a$lt co%ering t:o
or more installments" (=uis +idad v -ilipinas
.nvestment and -inance &o 1+ =8#967%
Aan$3,6# "$7s$4%!
Reme:ies6 Aaila.le to
(ort'a'eeACre:itor (200)) Debtor AAB iss$ed a (romissory note in t'e
amo$nt o) P+0* in )a%or o) commercial bank
K sec$red by mortgage o) 'is (ro(erties
:ort' P!0*& @'en A )ailed to (ay 'is
indebtednessC des(ite demands made by
bank KC t'e latter instit$ted a collection s$it
to en)orce (ayment o) t'e P+0* acco$nt&
/$bse5$entlyC bank K also )iled )oreclos$re
(roceedings against A )or sec$rity gi%en )or
t'e acco$nt& 6) yo$ :ere t'e <$dgeC 'o:
:o$ld yo$ resol%e t'e t:o casesI 0J"
SU++ESTE6 ANSWER(
T'e case )or collection :ill be allo:ed to
(roceed& B$t t'e )oreclos$re (roceedings
'a%e to be dismissed& 6n instit$ting
)oreclos$re (roceedingsC a)ter )iling a
collection case in%ol%ing t'e same acco$nt or
transactionC bank K is g$ilty o) s(litting a
ca$se o) action& T'e loan o) P+0* is t'e
(rinci(al obligation :'ile t'e mortgage
sec$ring t'e same is merely an accessory to
said loan obligation& T'e collection o) t'e loan
and t'e )oreclos$re o) t'e mortgage sec$ring
said loan constit$te one and t'e same ca$se
o) action& T'e )iling o) t'e collection case bars
t'e s$bse5$ent )iling o) t'e )oreclos$re
(roceedings&
Reme:ies6 Secure:
De.t ()**)) To sec$re t'e (ayment o) 'is loan o) P200t'C
A e8ec$ted in )a%or o) t'e Angeles Banking
Co in + doc$mentC a real estate mortgage
o%er ! lots registered in 'is name and a
c'attel mortgage o%er 'is ! cars and + 6s$E$
cargo tr$ck&
Page /5 of 103 ?(on 'is )ail$re to (ay t'e loan
on d$e dateC t'e bank )oreclosed t'e
mortgage on t'e ! lotsC :'ic' :ere
s$bse5$ently sold )or only P,,t' at t'e
)oreclos$re sale& T'erea)terC t'e bank )iled an
ordinary action )or t'e collection o) t'e
de)iciency& A contended t'at t'e mortgage
contract 'e e8ec$ted :as indi%isible and
conse5$entlyC t'e bank 'ad no legal rig't to
)oreclose only t'e real estate mortgage and
lea%e o$t t'e c'attel mortgageC and t'en s$e
'im )or a s$((osed de)iciency <$dgment& 6)
yo$ :ere t'e #$dgeC :o$ld yo$ s$stain t'e
contention o) AI
SU++ESTE6 ANSWER(
6) 6 :ere t'e #$dgeC 6 :o$ld dismiss t'e action
as being (remat$re since t'e (ro(er remedy
:o$ld be to com(lete t'e )oreclos$re o) t'e
mortgages and only t'erea)ter can t'ere by
an action )or collection o) any de)iciency& 6n
&altex v .0& (1+ 343#7, $5 0ug 69!C t'e
remedies on a sec$red debtC said t'e co$rtC
are eit'er an action to collect or to )oreclose
a contract o) real sec$rity& T'ese remedies
are alternati%e remediesC alt'o$g' an action
)or any de)iciency is not (recl$dedC s$b<ect to
certain e8ce(tions s$c' as t'ose stated in Art
+393 o) t'e Ci%il CodeC by a )oreclos$re on
t'e mortgages& @'ile t'e )act$al settings in
t'e case o) Suria v .0& (#7 Aune 63! are not
similar to t'e )acts gi%en in t'e (roblemC t'e
/C im(lied t'at )oreclos$re as a remedy in
sec$red obligations m$st )irst be a%ailed o)
by a creditor in (re)erence to ot'er remedies
t'at mig't also be in%oked by 'im&
ALTERNATI7E ANSWER(
T'e indi%isibility o) a contract o) real sec$rityC
s$c' as a real estate mortgage or a c'attel
mortgageC only means t'at a di%ision or a
(artial (ayment o) a sec$red obligation does
not :arrant a corres(onding di%ision or
(ro(ortionate red$ction o) t'e sec$rity gi%en&
A creditor in s$c' sec$red debts may ($rs$e
t'e remedy o) )oreclos$reC in (art or in )$llC or
)ile an ordinary action )or collection on any
amo$nt d$e& A )a%orable <$dgment can
:arrant an iss$ance o) a :rit o) e8ec$tion on
any (ro(ertyC not e8em(t )rom e8ec$tionC
belonging to t'e <$dgment debtor& T'ere
s'o$ld be no legal obstacle )or a creditor to
:ai%eC in )$ll or in (artC 'is rig't to
)oreclos$re on contracts o) real sec$rity&
Ins.ran!e Law
,ene&iciar%: E&&ects: 2rreoca.le
,ene&iciar% (2001) @'at are t'e e))ects o) an irre%ocable
designation o) a bene)iciary $nder t'e
6ns$rance CodeI E8(lain& 2J"
SUGGESTED ANSWER:
T'e irre%ocable designation gi%es t'e
bene)iciary a %ested rig't o%er 7i)e
6ns$rance& T'e 6ns$red cannot act to di%est
t'e irre%ocable bene)iciaryC in :'ole or in
(artC :it'o$t t'e bene)iciaryLs consent& To
be s(eci)ic:
+" T'e bene)iciary designated in a li)e
ins$rance contract cannot be c'anged
:it'o$t t'e consent o) t'e bene)iciary
beca$se 'e 'as a %ested interest in t'e (olicy
(;hilamlife v/ ;ineda, 1/+/ 2o/ 54$"%, Auly "9,
Mercantile Law Bar Examination Q & A (1990-2006)
"969, citing 1crcio v/ Sun =ife, 1/+/ 2o/
$#37#, September $6, "9$5< and 1o v/
+edfern, 1/+/ 2o/ 43375, 0pril $5, "64"!<
2" >eit'er can t'e 6ns$red take t'e cas'
s$rrender %al$eC assign or e%en borro: on
said (olicy :it'o$t t'e bene)iciaryLs consent
(2ario v/ ;hilamlife, 1/+/ 2o/ $$39%, Aune $%,
"9%3!<
!" T'e 6ns$red cannot add anot'er
bene)iciary beca$se t'at :o$ld red$ce t'e
amo$nt :'ic' t'e )irst bene)iciary may
reco%er and t'ere)ore ad%ersely a))ect 'is
%ested rig't (1o v/ +edfem, 1/+/ 2o/ 43375, 0pril
$5, "94"!<
3" ?nless t'e (olicy allo:sC t'e 6ns$red
cannot e%en designate anot'er bene)iciary
s'o$ld t'e original bene)iciary (redecease
'im& Fis estate ac5$ires t'e bene)iciaryLs
%ested rig't $(on 'is deat'1 and
0" T'e 6ns$red cannot allo: 'is creditors
to attac' or e8ec$te on t'e (olicy& (;hilamlife
v/ ;ineda, 1/+/ 2o/ 54$"%, Auly "9, "969!
,ene&iciar%: Ri'#ts6 2rreoca.le
,ene&iciar% (2001) #acob obtained a li)e ins$rance (olicy )or P+
*illion designating irre%ocably Di:ataC a
)riendC as 'is bene)iciary& #acobC 'o:e%erC
c'anged 'is mind and :ants Kob and #o<oC 'is
ot'er )riendsC to be incl$ded as bene)iciaries
considering t'at t'e (roceeds o) t'e (olicy
are s$))icient )or t'e t'ree )riends& Can #acob
still add Kob and #o<o as 'is bene)iciariesI
E8(lain& 2J"
SUGGESTED ANSWER:
>oC #acob can no longer add Kob and #o<o as
'is bene)iciaries in addition to Di:ata& As t'e
irre%ocable bene)iciaryC Di:ata 'as ac5$ired
a-%ested rig't o%er #acobLs li)e ins$rance
(olicy& Any additional bene)iciaries :ill
red$ce t'e amo$nt :'ic' Di:ataC as t'e )irst
bene)iciaryC may reco%erC :'ic' :ill
ad%ersely a))ect 'er %ested rig't& (1o v/
+edfern, 1/+/ 2o/ 43375, 0pril $5, "94"!
,ene&iciar%6 <i&e 2nsurance6
"ro#i.ite: ,ene&iciaries ()**4)
#$an de la Cr$E :as iss$ed Policy >o& 9999 o)
t'e *idland 7i)e 6ns$rance Co on a :'ole li)e
(lan )or P20C000 on A$g$st +,C +,9,& #$an is
married to Cynt'ia :it' :'om 'e 'as t'ree
legitimate c'ildren& FeC 'o:e%erC designated
P$ritaC 'is common-la: :i)eC as t'e re%ocable
bene)iciary& #$an re)erred to P$rita in 'is
a((lication and (olicy as t'e legal :i)e& !
years laterC #$an died& P$rita )iled 'er claim
)or t'e (roceeds o) t'e (olicy as t'e
designated bene)iciary t'erein& T'e :ido:C
Cynt'iaC also )iled a claim as t'e legal :i)e&
To :'om s'o$ld t'e (roceeds o) t'e
ins$rance (olicy be a:ardedI 0J"
SUGGESTED ANSWER:
T'e (roceeds o) t'e ins$rance (olicy s'all be
a:arded to t'e E/TATE o) #$an de la Cr$E&
P$ritaC t'e commonla:-:i)eC is dis5$ali)ied
as t'e bene)iciary o) t'e deceased beca$se
o) illicit relation bet:een t'e deceased and
P$ritaC t'e designated bene)iciary& D$e to
s$c' illicit
Page $0 of 103 relationC P$rita cannot be a
donee o) t'e deceased& FenceC s'e cannot
also be 'is bene)iciary&
Concealment6 (aterial
Concealment (200)) A a((lied )or a non-medical li)e ins$rance&
T'e ins$red did not in)orm t'e ins$rer t'at
one :eek (rior to 'is a((lication )or
ins$ranceC 'e :as e8amined and con)ined at
/t& 7$kes Fos(ital :'ere 'e :as diagnosed
)or l$ng cancer& T'e ins$red soon t'erea)ter
died in a (lane cras'& 6s t'e ins$rer liable
considering t'at t'e )act concealed 'ad no
bearing :it' t'e ca$se o) deat' o) t'e
ins$redI @'yI 0J"
SUGGESTED ANSWER:
>o& T'e concealed )act is material to t'e
a((ro%al and iss$ance o) t'e ins$rance
(olicy& 6t is :ell settled t'at t'e ins$red need
not die o) t'e disease 'e )ailed to disclose to
t'e ins$rer& 6t is s$))icient t'at 'is
nondisclos$re misled t'e ins$rer in )orming
'is estimate o) t'e risks o) t'e (ro(osed
ins$rance (olicy or in making in5$iries&
Concealment6 (aterial Concealment:
2ncontesta.ilit% Clause ()**7)
;n /e(tember 2!C +,,0C Tan took a li)e
ins$rance (olicy )rom P'ilam& T'e (olicy :as
iss$ed on >o%ember 4C +,,0& Fe died on A(ril
24C +,,2 o) 'e(atoma& T'e ins$rance
com(any denied t'e bene)iciaries claim and
rescinded t'e (olicy by reason o) alleged
misre(resentation and concealment o)
material )acts made by Tan in 'is a((lication&
6t ret$rned t'e (remi$ms (aid&
T'e bene)iciaries contend t'at t'e com(any
'ad no rig't to rescind t'e contract as
rescission m$st be done Ad$ring t'e li)etimeB
o) t'e ins$red :it'in t:o years and (rior to
t'e commencement o) t'e action& 6s t'e
contention o) t'e bene)iciaries tenableI
SUGGESTED ANSWER:
>o& T'e incontestability cla$se does not
a((ly& T'e ins$red dies :it'in less t'an t:o
years )rom t'e iss$ance o) t'e (olicy on
/e(tember 2!C +,,0& T'e ins$red died on
A(ril 24C +,,2C or less t'an 2 years )rom
/e(tember 2!C +,,0&
T'e rig't o) t'e ins$rer to rescind is only lost
i) t'e bene)iciary 'as commenced an action
on t'e (olicy& T'ere is no s$c' action in t'is
case& (:an v &0 "34 s "4#!
Concealment6 (aterial Concealment:
2ncontesta.ilit% Clause ()**5)
#$an (roc$red a Anon-medicalB li)e ins$rance
)rom 2ood 7i)e 6ns$rance& Fe designated 'is
:i)eC PetraC as t'e bene)iciary& EarlierC in 'is
a((lication in res(onse to t'e 5$estion as to
:'et'er or not 'e 'ad e%er been
'os(italiEedC 'e ans:ered in t'e negati%e& Fe
)orgot to mention 'is con)inement at t'e
Hidney Fos(ital&
A)ter #$an died in a (lane cras'C Petra )iled a
claim :it' 2ood 7i)e& Disco%ering #$ans
(re%io$s 'os(italiEationC 2ood 7i)e re<ected
Petras claim on t'e gro$nd o) concealment
and misre(resentation& Petra s$ed 2ood 7i)eC
in%oking good )ait' on (art o) #$an&
Mercantile Law Bar Examination Q & A (1990-2006)
@ill Petras s$it (ros(erI E8(lain&
SUGGESTED ANSWER:
>oC Petras s$it :ill not (ros(er ass$ming
t'at t'e (olicy o) li)e ins$rance 'as been in
)orce )or a (eriod o) less t'an 2 years )rom
t'e date o) its iss$e"& T'e matters :'ic' #$an
)ailed to disclose :as material and rele%ant to
t'e a((ro%al and iss$ance o) t'e ins$rance
(olicy& T'ey :o$ld 'a%e a))ected 2ood 7i)es
action on 'is a((licationC eit'er by a((ro%ing
it :it' t'e corres(onding ad<$stment )or a
'ig'er (remi$m or re<ecting t'e same&
*oreo%erC a disclos$re may 'a%e :arranted a
medical e8amination o) #$an by 2ood 7i)e in
order )or it to reasonably assess t'e risk
in%ol%ed in acce(ting t'e a((lication& 6n any
caseC good )ait' is no de)ense in
concealment& T'e :ai%er o) a medical
e8amination in t'e Rnon-medical li)e
ins$rance )rom 2ood 7i)e makes it e%en more
necessary t'at #$an s$((ly com(lete
in)ormation abo$t 'is (re%io$s 'os(italiEation
)or s$c' in)ormation constit$tes an im(ortant
)actor :'ic' 2ood 7i)e takes into
consideration in deciding :'et'er to iss$e t'e
(olicy or not& (See Sunlife 0ssurance &o of
&anada v &0 1+ "75"#5, Aune $$, "995 $45 s $%6!
6) t'e (olicy o) li)e ins$rance 'as been in
)orce )or a (eriod o) 2 years or more )rom
t'e date o) its iss$e on :'ic' (oint t'e
gi%en )acts are %ag$e" t'en 2ood 7i)e can no
longer (ro%e t'at t'e (olicy is %oid ab initio
or is rescindible by reason o) t'e )ra$d$lent
concealment or misre(resentation o) #$an
/ec 39 6ns Code"
Concealment6 (aterial Concealment:
2ncontesta.ilit% Clause ()**+)
T'e ass$red ans:ers A>oB to t'e 5$estion in
t'e a((lication )or a li)e (olicy: AAre yo$
s$))ering )rom any )orm o) 'eart illnessIB 6n
)actC t'e ass$red 'as been a 'eart (atient )or
many years& ;n 7 /e( +,,+C t'e ass$red is
killed in a (lane cras'& T'e ins$rance
com(any denies t'e claim )or ins$rance
(roceeds and ret$rns t'e (remi$ms (aid& 6s
t'e decision o) t'e ins$rance com(any
<$sti)iedI
SUGGESTED ANSWER:
Ass$ming t'at t'e incontestability cla$se
does not a((ly beca$se t'e (olicy 'as not
been in )orce )or 2 yearsC )rom t'e date o)
iss$eC d$ring t'e li)etime o) t'e ins$redC t'e
decision o) t'e ins$rance com(any not to (ay
is <$sti)ied& T'ere :as )ra$d$lent
concealment& 6t is not material t'at t'e
ins$red died o) a di))erent ca$se t'an t'e
)act concealed& T'e )act concealedC t'at is
'eart ailmentC is material to t'e
determination by t'e ins$rance com(any
:'et'er or not to acce(t t'e a((lication )or
ins$rance and to re5$ire t'e medical
e8amination o) t'e ins$red&
Fo:e%erC i) t'e incontestability cla$se :'ic'
a((lies to t'e ins$rance (olicy co%ering t'e
li)e o) t'e ins$red 'ad been in )orce )or 2
years )rom iss$ance t'ereo)C t'e ins$rance
com(any :o$ld not be <$sti)ied in denying
t'e claim )or (roceeds o) t'e ins$rance and
in ret$rning t'e (remi$m (aid& 6n t'at caseC
t'e ins$rer cannot (ro%e t'e (olicy %oid ab
initio or rescindible by reason o) )ra$d$lent
concealment or misre(resentation o) t'e
ins$red&
Page $1 of 103
Concealment6 (aterial Concealment6
2ncontesta.ilit% Clause ()**))
Atty Roberto took o$t a li)e ins$rance (olicy
)rom t'e Dana 6ns Co D6C" on + /e( +,9,&
;n !+ A$g +,,0C Roberto died& D6C re)$sed
to (ay 'is bene)iciaries beca$se it disco%ered
t'at Robert 'ad misre(resented certain
material )acts in 'is a((lication& T'e
bene)iciaries s$ed on t'e basis t'at D6C can
contest t'e %alidity o) t'e ins$rance (olicy
only :it'in 2 years )rom t'e date o) iss$e
and d$ring t'e li)etime o) t'e ins$red& Decide
t'e case&
SUGGESTED ANSWER:
6 :o$ld r$le in )a%or o) t'e ins$rance
com(any& T'e incontestability cla$seC
a((lies only i) t'e (olicy 'ad been in e))ect
)or at least 2 years& T'e 2 year (eriod is
co$nted )rom t'e time t'e ins$rance
becomes e))ecti%e $ntil t'e deat' o) t'e
ins$red and not t'erea)ter (:an v &0 1+ 46744
$9Aun"969!
A<TERNAT2@E ANSWER:
6 :o$ld r$le in )a%or o) t'e ins$rance
com(any& Alt'o$g' an ins$rer may not
rescind t'e contract on gro$nd o)
misre(resentation a)ter an action is
commenced )or reco%ery $nder t'e (olicyC t'e
ins$rer is not (recl$ded )rom in%oking t'e
gro$nd o) misre(resentation as a de)ense in
t'e action )or reco%ery& T'is is alrig't since
t'e bar (roblem is not co%ered yet by t'e
incontestability cla$se&
Concealment6 (aterial Concealment6
2ncontesta.ilit% Clause ()**4)
Renato :as iss$ed a li)e ins$rance (olicy on
#an$ary 2C +,,0& Fe concealed t'e )act t'at
! years (rior to t'e iss$ance o) 'is li)e
ins$rance (olicyC 'e 'ad been seeing a
doctor abo$t 'is 'eart ailment&
;n *arc' +C +,,2C Renato died o) 'eart
)ail$re& *ay t'e 'eirs )ile a claim on t'e
(roceeds o) t'e li)e ins$rance (olicy o)
RenatoI 0J"
SUGGESTED ANSWER:
Kes& T'e li)e ins$rance (olicy in 5$estion :as
iss$ed on #an$ary ,C +,,0& *ore t'an 2 years
'ad ela(sed :'en RenatoC t'e ins$redC died
on *arc' +C +,,2& T'e incontestability cla$se
a((lies&
2NC8NTESTA,2<2TG C<AUSE
T'e ins$rer 'as t:o years )rom t'e date o)
iss$ance o) t'e ins$rance contract or o) its
last reinstatement :it'in :'ic' to contest
t'e (olicyC :'et'er or notC t'e ins$red still
li%es :it'in s$c' (eriod& A)ter t:o yearsC t'e
de)enses o) concealment or
misre(resentationC no matter 'o: (atent or
:ell )o$ndedC no longer lie&
2nsura.le 2nterest: ,an-
De$osit (2000) BD 'as a bank de(osit o) 'al) a million (esos&
/ince t'e limit o) t'e ins$rance co%erage o)
t'e P'ili((ine De(osit 6ns$rance Cor( PD6C"
RA !0,+" is only one tent' o) BDs de(ositC
'e :o$ld like some (rotection )or t'e e8cess
by taking o$t an ins$rance against all risks
or contingencies o) loss arising )rom any
$nso$nd or $nsa)e banking (ractices
incl$ding $n)oreseen ad%erse e))ects o)
Mercantile Law Bar Examination Q & A (1990-2006)
t'e contin$ing crisis in%ol%ing t'e banking
and )inancial sector in t'e Asian region&
Does BD 'a%e an ins$rable interest :it'in
t'e meaning o) t'e 6ns$rance Code o) t'e
P'ili((ines PD+340"I 2J"
SUGGESTED ANSWER:
Kes& BD 'as ins$rable interest in 'is bank
de(osit& 6n case o) loss o) said de(ositC more
(artic$larly to t'e e8tent o) t'e amo$nt in
e8cess o) t'e limit co%ered by t'e PD6C ActC
PBD :ill be damni)ied& Fe :ill s$))er
(ec$niary loss o) P!00C000&00C t'at isC 'is
bank de(osit o) 'al) a million (esos min$s
P200C000&00 :'ic' is t'e ma8im$m amo$nt
reco%erable )rom t'e PD6C&
2nsura.le 2nterest: "u.lic
Enem% (2000) *ay a member o) t'e *67- or its breaka:ay
gro$(C t'e Ab$ /ayya)C be ins$red :it' a
com(any licensed to do b$siness $nder t'e
6ns$rance Code o) t'e P'ils PD +340"I
E8(lain& !J"
SUGGESTED ANSWER:
A member o) t'e *67- or t'e Ab$ /ayya) may
be ins$red :it' a com(any licensed to do
b$siness $nder t'e 6ns$rance Code o) t'e
P'ils& @'at is (ro'ibited to be ins$red is a
($blic enemy& A ($blic enemy is a citiEen or
national o) a co$ntry :it' :'ic' t'e
P'ili((ines is at :ar& /$c' member o) t'e
*67- or t'e Ab$ /ayya) is not a citiEen or
national o) anot'er co$ntryC b$t o) t'e
P'ili((ines&
2nsura.le 2nterest: Se$arate
2nsura.le 2nterest ()***) A b$sinessman in t'e grocery b$siness
obtained )rom -irst 6ns$rance an ins$rance
(olicy )or P0* to )$lly co%er 'is stocks-in-
trade )rom t'e risk o) )ire&
T'ree mont's t'erea)terC a )ire o) accidental
origin broke o$t and com(letely destroyed
t'e grocery incl$ding 'is stocks-in-trade& T'is
(rom(ted t'e b$sinessman to )ile :it' -irst
6ns$rance a claim )or )i%e million (esos
re(resenting t'e )$ll %al$e o) 'is goods&
-irst 6ns$rance denied t'e claim beca$se it
disco%ered t'at at t'e time o) t'e lossC t'e
stocks-in-trade :ere mortgaged to a creditor
:'o like:ise obtained )rom /econd 6ns$rance
Com(any )ire ins$rance co%erage )or t'e
stocks at t'eir )$ll %al$e o) P0*& a" *ay t'e
b$sinessman and t'e creditor obtain
se(arate ins$rance co%erages o%er t'e same
stocks- in-tradeI E8(lain !J" b" -irst 6ns$rance
re)$sed to (ay claiming t'at do$ble
ins$rance is contrary to la:& 6s t'is contention
tenableI !J" c" /$((ose yo$ are t'e #$dgeC
'o: m$c' :o$ld yo$
allo: t'e b$sinessman and t'e creditor to
reco%er )rom t'eir res(ecti%e ins$rers& E8(lain
!J"
SUGGESTED ANSWER:
a" Kes& T'e b$sinessmanC as o:nerC and t'e
creditorC as mortgageeC 'a%e se(arate
ins$rable interests in t'e same stocks-in-
trade& Eac' may ins$re s$c' interest to
(rotect 'is o:n se(arate interest& b" T'e
contention o) -irst 6ns$rance t'at do$ble
ins$rance is contrary to la: is $ntenable&
T'ere is no la: (ro%iding t'at do$ble
ins$rance is illegal (er se&
Page $# of 103 *oreo%erC in t'e (roblem at
'andC t'ere is no do$ble ins$rance beca$se
t'e ins$red :it' t'e -irst 6ns$rance is
di))erent )rom t'e ins$red :it' t'e /econd
6ns$rance Com(any& T'e same is tr$e :it'
res(ect to t'e interests ins$red in t'e t:o
(olicies&
c" As #$dgeC 6 :o$ld allo: t'e b$sinessman to
reco%er 'is total loss o) P0* re(resenting t'e
)$ll %al$e o) 'is goods :'ic' :ere lost t'ro$g'
)ire& As to t'e creditorC 6 :o$ld allo: 'im to
reco%er t'e amo$nt to t'e e8tent o) or
e5$i%alent to t'e %al$e o) t'e credit 'e
e8tended to t'e b$sinessman )or t'e stocks-
in-trade :'ic' :ere mortgaged by t'e
b$sinessman&
2nsura.le 2nterest6 E9uita.le
2nterest ()**)) A (iece o) mac'inery :as s'i((ed to *r
Pablo on t'e basis o) C.- *anila& Pablo
ins$red said mac'inery :it' t'e Talaga
*erc'ants 6ns Co Tamic" )or loss or damage
d$ring t'e %oyage& T'e %essel sank en ro$te
to *anila& Pablo t'en )iled a claim :it'
Tamic :'ic' :as denied )or t'e reason t'at
(rior to deli%erC Pablo 'ad no ins$rable
interest& Decide t'e case&
SUGGESTED ANSWER:
Pablo 'ad an e8isting ins$rable interest on
t'e (iece o) mac'inery 'e bo$g't& T'e
($rc'ase o) goods $nder a (er)ected
contract o) sale already %ests e5$itable
interest on t'e (ro(erty in )a%or o) t'e b$yer
e%en :'ile it is (ending deli%ery (-ilipino
*erchants .ns &o v &0 1+ 65"44 $62ov"969!
2nsura.le 2nterest6 <i&e s! "ro$ert%
2nsurance ()**+) a" A obtains a )ire ins$rance on 'is 'o$se and as a
genero$s gest$re names 'is neig'bor as t'e
bene)iciary& 6) As 'o$se is destroyed by )ireC can
B s$ccess)$lly claim against t'e (olicyI b" A
obtains ins$rance o%er 'is li)e and names 'is
neig'bor B t'e bene)iciary beca$se o) As secret
lo%e )or B& 6) A diesC can B s$ccess)$lly claim against
t'e (olicyI
SUGGESTED ANSWER:
a" >o& 6n (ro(erty ins$ranceC t'e bene)iciary
m$st 'a%e ins$rable interest in t'e (ro(erty
ins$red& /ec +9 6ns Code"& B does not 'a%e
ins$rable interest in t'e 'o$se ins$red&
b" Kes& 6n li)e ins$ranceC it is not re5$ired
t'at t'e bene)iciary m$st 'a%e ins$rable
interest in t'e li)e o) t'e ins$red& 6t :as t'e
ins$red 'imsel) :'o took t'e (olicy on 'is
o:n li)e&
2nsura.le 2nterest6 <i&e s! "ro$ert%
2nsurance (2000) 6/C an elderly bac'elor :it' no kno:n
relati%esC obtained li)e ins$rance co%erage )or
P200C000&00 )rom /tarbrite 6ns$rance
Cor(orationC an entity licensed to engage in
t'e ins$rable b$siness $nder t'e 6ns$rance
Code o) t'e P'ili((ines PD+340"& Fe also
ins$red 'is residential 'o$se )or t:ice t'at
amo$nt :it'in t'e same cor(oration& Fe
immediately assigned all 'is rig'ts to t'e
ins$rance (roceeds to BNC a )riend-com(anion
li%ing :it' 'im& T'ree years laterC 6/ died in a
)ire t'at g$tted 'is ins$red 'o$se t:o days
a)ter 'e 'ad sold it& T'ere is
Mercantile Law Bar Examination Q & A (1990-2006)
no e%idence o) s$icide or arson or
in%ol%ement o) BN in t'ese e%ents& BN
demanded (ayment o) t'e ins$rance
(roceeds )rom t'e t:o (oliciesC t'e
(remi$ms )or :'ic' 6/ 'ad been )ait')$lly
(aying d$ring all t'e time 'e :as ali%e&
/tarbrite re)$sed (aymentC contending t'at
BN 'ad no ins$rable interest and t'ere)ore
:as not entitled to recei%e t'e (roceeds
)rom 6/s ins$rance co%erage on 'is li)e and
also on 'is (ro(erty& 6s /tarbrites contention
%alidI E8(lainI 0J"
SUGGESTED ANSWER:
/tarbrite is correct :it' res(ect to t'e
ins$rance co%erage on t'e (ro(erty o) 6/&
T'e bene)iciary in t'e (ro(erty ins$rance
(olicy or t'e assignee t'ereo) m$st 'a%e
ins$rable interest in t'e (ro(erty ins$red& BNC
a mere )riend-com(anion o) 6/C 'as no
ins$rable interest in t'e residential 'o$se o)
6/& BN is not entitled to recei%e t'e (roceeds
)rom 6/s ins$rance on 'is (ro(erty&
As to t'e ins$rance co%erage on t'e li)e o)
6/C BN is entitled to recei%e t'e (roceeds&
T'ere is no re5$irement t'at BN s'o$ld 'a%e
ins$rable interest in t'e li)e o) 6/& 6t :as 6/
'imsel) :'o took t'e ins$rance on 'is o:n
li)e&
2nsura.le 2nterest6 <i&e s! "ro$ert%
2nsurance (2002) Disting$is' ins$rable interest in (ro(erty
ins$rance )rom ins$rable interest in li)e
ins$rance& 0J"
SUGGESTED ANSWER:
a" 6n (ro(erty ins$ranceC t'e e8(ectation
o) bene)it m$st 'a%e a legal basis& 6n li)e
ins$ranceC t'e e8(ectation o) bene)it to be
deri%ed )rom t'e contin$ed e8istence o) a li)e
need not 'a%e any legal basis&
b" 6n (ro(erty ins$ranceC t'e act$al
%al$e o) t'e interest t'erein is t'e limit o)
t'e ins$rance t'at can %alidly be (laced
t'ereon& 6n li)e ins$ranceC t'ere is no limit to
t'e amo$nt o) ins$rance t'at may be taken
$(on li)e&
c" 6n (ro(erty ins$ranceC an interest
ins$red m$st e8ist :'en t'e ins$rance takes
e))ect and :'en t'e loss occ$rs b$t need not
e8ist in t'e meantime& 6n li)e ins$ranceC it is
eno$g' t'at ins$rable interest e8ists at t'e
time :'en t'e contract is made b$t it need
not e8ist at t'e time o) loss&
2nsura.le 2nterest6 "ro$ert%
2nsurance ()**7) 6n a ci%il s$itC t'e Co$rt ordered Ben<ie to (ay
>at P000C000&00& To e8ec$te t'e <$dgmentC
t'e s'eri)) le%ied $(on Ben<ies registered
(ro(erty a (arcel o) land and t'e b$ilding
t'ereon"Cand sold t'e same at ($blic a$ction
to >atC t'e 'ig'est bidder& T'e latterC on
*arc' +9C +,,2C registered :it' t'e Register
o) Deeds t'e certi)icate o) sale iss$ed to 'im
by t'e s'eri))& *ean:'ileC on #an$ary 27C
+,,!C Ben<ie ins$red :it' 2ara(al 6ns$rance
)or P+C000C000&00 t'e same b$ilding t'at
:as sold at ($blic a$ction to >at& Ben<ie
)ailed to redeem t'e (ro(erty by *arc' +9C
+,,!&
Page $3 of 103 ;n *arc' +,C +,,!C a )ire raEed
t'e b$ilding to t'e gro$nd& 2ara(al 6ns$rance
re)$sed to make good its obligation to Ben<ie
$nder t'e ins$rance contract& +" 6s 2ara(al
6ns$rance legally <$sti)ied in re)$sing
(ayment to Ben<ieI 2" 6s >at entitled to
collect on t'e ins$rance (olicyI
SUGGESTED ANSWER:
+"Kes& At t'e time o) t'e lossC Ben<ie :as no
longer t'e o:ner o) t'e (ro(erty ins$red as
'e )ailed to redeem t'e (ro(erty& T'e la:
re5$ires in (ro(erty ins$rance t'at a (erson
can reco%er t'e (roceeds o) t'e (olicy i) 'e
'as ins$rable interest at t'e time o) t'e
iss$ance o) t'e (olicy and also at t'e time
:'en t'e loss occ$rs& At t'e time o) )ireC
Ben<ie no longer 'ad ins$rable interest in t'e
(ro(erty ins$red&
2" >o& @'ile at t'e time o) t'e loss 'e 'ad
ins$rable interest in t'e b$ildingC as 'e :as
t'e o:ner t'ereo)C >at did not 'a%e any
interest in t'e (olicy& T'ere :as no
a$tomatic trans)er cla$se in t'e (olicy t'at
:o$ld gi%e 'im s$c' interest in t'e (olicy&
2nsura.le 2nterest6 "ro$ert%
2nsurance (200)) #DC o:ner o) a condomini$m $nitC ins$red t'e
same against )ire :it' t'e NKQ 6ns$rance
Co&C and made t'e loss (ayable to 'is
brot'erC *7D& 6n case o) loss by )ire o) t'e
said condomini$m $nitC :'o may reco%er on
t'e )ire ins$rance (olicyI /tate t'e reasons"
)or yo$r ans:er& 0J"
SUGGESTED ANSWER:
#D can reco%er on t'e )ire ins$rance (olicy )or
t'e loss o) said condomini$m $nit& Fe 'as t'e
ins$rable interest as o:ner-ins$red& As
bene)iciary in t'e )ire ins$rance (olicyC *7D
cannot reco%er on t'e )ire ins$rance (olicy&
-or t'e bene)iciary to reco%er on t'e )ire or
(ro(erty ins$rance (olicyC it is re5$ired t'at
'e m$st 'a%e ins$rable interest in t'e
(ro(erty ins$red& 6n t'is caseC *7D does not
'a%e ins$rable interest in t'e condomini$m
$nit&
2nsurance6 Cas# 0 Carr%
,asis (2003) @'at is meant by Acas' and carryB in t'e
b$siness o) ins$ranceI
SUGGESTED ANSWER:
2nsurance6 CoA2nsurance s! ReA
2nsurance ()**7) Disting$is' co-ins$rance )rom re-
ins$rance&
SUGGESTED ANSWER:
C;-6>/?RA>CE is t'e (ercentage in t'e
%al$e o) t'e ins$red (ro(erty :'ic' t'e
ins$red 'imsel) ass$mes or $ndertakes to act
as ins$rer to t'e e8tent o) t'e de)iciency in
t'e ins$rance o) t'e ins$red (ro(erty& 6n case
o) loss or damageC t'e ins$rer :ill be liable
only )or s$c' (ro(ortion o) t'e loss or
damage as t'e amo$nt o) ins$rance bears to
t'e designated (ercentage o) t'e )$ll %al$e o)
t'e (ro(erty ins$red&
RE6>/?RA>CE is :'ere t'e ins$rer (roc$res
a t'ird (artyC called t'e reins$rerC to ins$re
'im against liability by reason o) s$c' original
ins$rance& BasicallyC a
Mercantile Law Bar Examination Q & A (1990-2006)
reins$rance is an ins$rance against liability
:'ic' t'e original ins$rer may inc$r in )a%or
o) t'e original ins$red&
2nsurance6 Dou.le
2nsurance (2001) @'en does do$ble ins$rance e8istI
2J"
SUGGESTED ANSWER:
?nder /ection ,! o) t'e 6ns$rance CodeC
t'ere is do$ble ins$rance :'en t'ere is o%er-
ins$rance :it' t:o or more com(aniesC
co%ering t'e same (ro(ertyC t'e same
ins$rable interest and t'e same risk& Do$ble
ins$rance e8ists :'ere t'e same (erson is
ins$red by se%eral ins$rers se(arately in
res(ect o) t'e same s$b<ect matter and
interests& (1eagonia v/ &ourt of 0ppeals, 1/+/ 2o/
""44$3, -ebruary %, "995!
2nsurance6 Dou.le 2nsurance6
e&&ect ()**3) #$lie and Alma )ormed a b$siness
(artners'i(& ?nder t'e b$siness name Pino
/'o(C t'e (artners'i( engaged in a sale o)
constr$ction materials& #$lie ins$red t'e
stocks in trade o) Pino /'o( :it' @2C
6ns$rance Co )or P!00t'& /$bse5$entlyC s'e
again got an ins$rance contract :it' R/6 )or
P+m and t'en )rom E6C )or P200t'& A )ire o)
$nkno:n origin g$tted t'e store o) t'e
(artners'i(& #$lie )iled 'er claims :it' t'e
t'ree ins$rance com(anies& Fo:e%erC 'er
claims :ere denied se(arately )or breac' o)
(olicy condition :'ic' re5$ired t'e ins$red to
gi%e notice o) any ins$rance e))ected
co%ering t'e stocks in trade& #$lie :ent to
co$rt and contended t'at s'e s'o$ld not be
blamed )or t'e omissionC alleging t'at t'e
ins$rance agents )or @2CC R/6 and E6C kne:
o) t'e e8istence o) t'e additional ins$rance
co%erages and t'at s'e :as not in)ormed
abo$t t'e re5$irement t'at s$c' ot'er or
additional ins$rance s'o$ld be stated in t'e
(olicy& 6s t'e contention o) #$lie tenableI
E8(lain& *ay s'e reco%er on 'er )ire
ins$rance (oliciesI E8(lain&
SUGGESTED ANSWER:
+" >o& An ins$red is re5$ired to disclose t'e
ot'er ins$rances co%ering t'e s$b<ect matter
o) t'e ins$rance being a((lied )or& (2ew =ife
Ent v &0 $73 s %%9!
2" >oC beca$se s'e is g$ilty o) %iolation o) a
:arrantyG condition&
2nsurance6 E&&ects6 "a%ment o&
"remiums .% 2nstallment (2005)
T'e Penins$la 6ns$rance Com(any o))ered to
ins$re -rancisL brand ne: car against all risks
in t'e s$m o) P6 *illion )or + year& T'e (olicy
:as iss$ed :it' t'e (remi$m )i8ed at
+40C000&00 (ayable in 4 mont's& -rancis only
(aid t'e )irst t:o mont's installments&
Des(ite demandsC 'e )ailed to (ay t'e
s$bse5$ent installments& -i%e mont's a)ter
t'e iss$ance o) t'e (olicyC t'e %e'icle :as
carna((ed& -rancis )iled :it' t'e ins$rance
com(any a claim )or its %al$e& Fo:e%erC t'e
com(any denied 'is claim on t'e gro$nd t'at
'e )ailed to (ay t'e (remi$m res$lting in t'e
cancellation o) t'e (olicy& Can -rancis
reco%er )rom t'e Penins$la 6ns$rance
Com(anyI 0J"
SU++ESTE6 ANSWER(
Page $/ of 103 KesC :'en ins$red and ins$rer
'a%e agreed to t'e (ayment o) (remi$m by
installments and (artial (ayment 'as been
made at t'e time o) lossC t'en t'e ins$rer
becomes liable& @'en t'e car loss 'a((ened
on t'e 0t' mont'C t'e si8 mont's agreed
(eriod o) (ayment 'ad not yet ela(sed (M&;B
1eneral .nsurance v/ *asagana :elamart, 1/+/ 2o/
"#3"3$, 0pril 4, $77"!& -rancis can reco%er
)rom Penins$la 6ns$rance Com(anyC b$t t'e
latter 'as t'e rig't to ded$ct t'e amo$nt o)
$n(aid (remi$m )rom t'e ins$rance
(roceeds&
2nsurance6 <i&e 2nsurance6
Assi'nment o& "olic% ()**)) T'e (olicy o) ins$rance $(on 'is li)eC :it' a
)ace %al$e o) P+00t' :as assigned by #oseC a
married man :it' 2 legitimate c'ildrenC to
'is ne('e: K as sec$rity )or a loan o) P00t'&
Fe did not gi%e t'e ins$rer any :ritten notice
o) s$c' assignment des(ite t'e e8(licit
(ro%ision to t'at e))ect in t'e (olicy& #ose
died& ?(on t'e claim on t'e (olicy by t'e
assigneeC t'e ins$rer re)$sed to (ay on t'e
gro$nd t'at it :as not noti)ied o) t'e
assignment& ?(on t'e ot'er 'andC t'e 'eirs
o) #ose contended t'at K is not entitled to
any amo$nt $nder t'e (olicy beca$se t'e
assignment :it'o$t d$e notice to t'e ins$rer
:as %oid& Resol%e t'e iss$es&
SUGGESTED ANSWER:
A li)e ins$rance is assignable& A (ro%isionC
'o:e%erC in t'e (olicy stating t'at :ritten
notice o) s$c' an assignment s'o$ld be gi%en
to t'e ins$rer is %alid /ecs +9+-+92 6ns
Code"& T'e )ail$re o) t'e notice o) assignment
:o$ld t'$s (recl$de t'e assignee )rom
claiming rig'ts $nder t'e (olicy& T'e )ail$re
o) notice did notC 'o:e%erC a%oid t'e (olicy1
'enceC $(on t'e deat' o) #oseC t'e (roceeds
:o$ldC in t'e absence o) a designated
bene)iciaryC go to t'e estate o) t'e ins$red&
T'e estateC in t$rnC :o$ld be liable )or t'e
loan o) P00C000 o:ing in )a%or o) K&
2nsurance6 "er&ection o& 2nsurance
Contracts (2003) #osie 2atbonton obtained )rom @arranty
6ns$rance Cor(oration a com(re'ensi%e
motor %e'icle ins$rance to co%er 'er brand
ne: a$tomobile& /'e (aidC and t'e ins$rer
acce(ted (ayment in c'eck& Be)ore t'e c'eck
co$ld be encas'edC #osie :as in%ol%ed in a
motor %e'icle accident :'ere 'er car
became a total :reck& /'e so$g't (ayment
)rom t'e ins$rer& Co$ld t'e ins$rer be made
liable $nder t'e ins$rance co%erageI 4J"
SUGGESTED ANSWER:
(er Dondee" KesC beca$se t'ere :as a
(er)ected contract o) ins$rance t'e moment
t'ere is a meeting o) t'e minds :it' res(ect
to t'e ob<ect and t'e ca$se o) (ayment& T'e
(ayment o) c'eck is a %alid (ayment $nless
$(on encas'ment t'e c'eck bo$nced&
2nsurance6 "ro$ert% 2nsurance6
"rescri$tion o& Claims ()**5)
Robin ins$red 'is b$ilding against )ire :it'
E-2 Ass$rance& T'e ins$rance (olicy
contained t'e $s$al sti($lation t'at any
action or s$it m$st be )iled :it'in one year
a)ter t'e re<ection o) t'e claim&
Mercantile Law Bar Examination Q & A (1990-2006)
A)ter 'is b$ilding b$rned do:nC Robin )iled 'is
claim )or )ire loss :it' E-2& ;n -eb 29C +,,3C
E-2 denied Robins claim& ;n A(ril !C +,,3C
Robin so$g't reconsideration o) t'e denialC
b$t E-2 reiterated its (osition& ;n *arc' 20C
+,,0C Robin commenced <$dicial action
against E-2& /'o$ld Robins action be gi%en
d$e co$rseI E8(lain&
SUGGESTED ANSWER:
>oC Robins action s'o$ld not be gi%en d$e
co$rse& 6s )iling o) t'e re5$est )or
reconsideration did not s$s(end t'e r$nning
o) t'e (rescri(ti%e (eriod o) one year
sti($lated in t'e ins$rance (olicy& T'$sC :'en
robin commenced <$dicial action against E-2
Ass$rance on *arc' 20C +,,0C 'is ability to
do so 'ad already (rescribed& T'e one-year
(eriod is co$nted )rom -eb 29C +,,3 :'en
E-2 denied Robins claimC not )rom t'e date
(res$mably a)ter A(ril !C +,,3" :'en E-2
reiterated its (osition denying Robins claim&
T'e reason )or t'is r$le is to ins$re t'at
claims against ins$rance com(anies are
(rom(tly settled and t'at ins$rance s$its are
bro$g't by t'e ins$red :'ile t'e e%idence as
to t'e origin and ca$se o) t'e destr$ction 'as
not yet disa((eared& (See Sun .ns ,ffice =td v
&0 gr 6934", *ar "# 9" "95s"9#!
2nsurance6 Return o&
"remiums (2000) >ame at least t'ree instances :'en an
ins$red is entitled to a ret$rn o) t'e
(remi$m (aid&
SUGGESTED ANSWER:
T'ree instances :'en an ins$red is entitled
to a ret$rn o) (remi$m (aid are:
+To t'e @F;7E PRE*6?*C i) no (art o) 'is interest
in t'e t'ing ins$red be e8(osed to any o) t'e
(erils ins$red against&
2@'ere t'e ins$rance is made )or a de)inite
(eriod o) time and t'e ins$red s$rrenders 'is
(olicyC to s$c' (ortion o) t'e (remi$m as
corres(onds :it' t'e $ne8(ired time at a (ro rata
rateC $nless a s'ort (eriod rate 'as been agreed
$(on and a((ears on t'e )ace o) t'e (olicyC a)ter
ded$cting )rom t'e :'ole (remi$m any claim )or
loss or damage $nder t'e (olicy :'ic' 'as
(re%io$sly accr$ed&
!@'en t'e contract is %oidable on acco$nt o) t'e
)ra$d or misre(resentation o) t'e ins$rer or o) 'is
agent or on acco$nt o) )acts t'e e8istence o)
:'ic' t'e ins$red :as ignorant :it'o$t 'is )a$lt1
or :'enC by any de)a$lt o) t'e ins$red ot'er t'an
act$al )ra$dC t'e ins$rer ne%er inc$rred any
liability $nder t'e (olicy&
A<TERNAT2@E 2NSTANCE:
6n case o) an o%er ins$rance by se%eral
ins$rersC t'e ins$red is entitled to a ratable
ret$rn o) t'e (remi$mC (ro(ortioned to t'e
amo$nt by :'ic' t'e aggregate s$m ins$red
in all t'e (olicies e8ceeds t'e ins$rable %al$e
o) t'e t'ing at risk&
2nsure:6 Acci:ent
"olic% (2007) C>6 ins$re /A* $nder a 'omeo:nerLs (olicy
against claims )or accidental in<$ries by
neig'bors& /A*Ls minor
Page $$ of 103 sonC B;KC in<$red ! c'ildren o)
P;/C a neig'borC :'o s$ed /A* )or damages&
/A*Ls la:yer :as ATTC :'o :as (aid )or 'is
ser%ices by t'e ins$rer )or re(orting
(eriodically on t'e case to C>6& 6n one re(ortC
ATT disclosed to C>6 t'at a)ter 'is
in%estigationsC 'e )o$nd t'e in<$ries to t'e !
c'ildren not accidental b$t intentional&
/A* lost t'e case in co$rtC and P;/ :as
a:arded one million (esos in damages :'ic'
'e so$g't to collect )rom t'e ins$rer& B$t C>6
$sed ATTs re(ort to deny t'e claim on t'e
gro$nd t'at t'e in<$ries to P;/Ls ! c'ildren
:ere intentionalC 'ence e8cl$ded )rom t'e
(olicyLs co%erage& P;/ co$ntered t'at C>6
:as esto((ed )rom $sing ATTs re(ort
beca$se it :as $net'ical )or ATT to (ro%ide
(re<$dicial in)ormation against 'is client to
t'e ins$rerC C>6& @'o s'o$ld (re%ail: t'e
claimantC P;/1 or t'e ins$rerC C>6I Decide
:it' reasons brie)ly& 0J"
SUGGESTED ANSWER:
C>6 is not esto((ed )rom $sing ATTLs re(ortC
beca$se C>6C in t'e )irst (laceC
commissioned it and (aid ATT )or it& ;n t'e
ot'er 'andC ATT 'as no con)lict o) interest
beca$se /A* and C>6 are on t'e same side
S t'eir interests being congr$ent :it' eac'
ot'erC namelyC to o((ose P;/Ls claim& 6t
cannot be said t'at ATT 'as $sed t'e
in)ormation to t'e disad%antage or (re<$dice
o) /A*&
Fo:e%erC in -inman 1eneral 0ssurance &orp/ v/
&ourt of 0ppeals, $"# S&+0 49# ("99$!, it :as
e8(lained t'at t'ere is no OaccidentO in t'e
conte8t o) an accident (olicyC i) it is t'e
nat$ral res$lt o) t'e ins$redLs %ol$ntary actC
$naccom(anied by anyt'ing $n)oreseen
e8ce(t t'e in<$ry& T'ere is no accident :'en a
deliberate act is (er)ormedC $nless some
additional and $n)oreseen 'a((ening occ$rs
t'at brings abo$t t'e in<$ry& T'is element o)
deliberateness is not clearly s'o:n )rom t'e
)acts o) t'e caseC es(ecially considering t'e
)act t'at B;K is a minorC and t'e in<$red
(arties are also c'ildren& AccordinglyC it is
(ossible t'at C>6 may not (ros(er& ATTLs
re(ort is not concl$si%e on P;/ or t'e co$rt&
2nsure:6 Acci:ent s!
Suici:e ()**0) 7$is :as t'e 'older o) an accident ins$rance
(olicy e))ecti%e >o% +C +,99 to ;ct !+C +,9,&
At a bo8ing contest 'eld on #an +C +,9, and
s(onsored by 'is em(loyerC 'e sli((ed and
:as 'it on t'e )act by 'is o((onent so 'e )ell
and 'is 'ead 'it one o) t'e (osts o) t'e
bo8ing ring& Fe :as rendered $nconscio$s
and :as dead on arri%al at t'e 'os(ital d$e
to Aintra-cranial 'emorr'age&B
Can 'is )at'er :'o is a bene)iciary $nder
said ins$rance (olicy s$ccess)$lly claim
indemnity )rom t'e ins$rance com(anyI
E8(lain&
SUGGESTED ANSWER:
KesC t'e )at'er :'o is a bene)iciary $nder
t'e accidental ins$rance can s$ccess)$lly
claim indemnity )or t'e deat' o) t'e ins$red&
ClearlyC t'e (ro8imate ca$se o) deat' :as
t'e bo8ing contest& Deat' s$stained in a
bo8ing contest is an accident/ (5e la &ru> v
&apital .ns D Surety &o "3s559!
Mercantile Law Bar Examination Q & A (1990-2006) Page $0 of 103
2nsure:6 Acci:ent s!
Suici:e ()**3) / 6ns$rance Co iss$ed a (ersonal accident
(olicy to Bob Tan :it' a )ace %al$e o)
P000t'& 6n t'e e%ening o) /e( 0C +,,2C a)ter
'is birt'day (artyC Tan :as in a 'a((y mood
b$t not dr$nk& Fe :as (laying :it' 'is 'and
g$nC )rom :'ic' 'e (re%io$sly remo%ed t'e
magaEine& As 'is secretary :as :atc'ing
tele%isionC 'e stood in )ront o) 'er and
(ointed t'e g$n at 'er& /'e ($s'ed it aside
and said t'at it may be loaded& Fe ass$red
'er t'at it :as not and t'en (ointed it at 'is
tem(le& T'e ne8t momentC t'ere :as an
e8(losion and Tan sl$m(ed to t'e )loor
li)eless&
T'e :i)e o) t'e deceased so$g't (ayment on
t'e (olicy b$t 'er claim :as re<ected& T'e
ins$rance com(any agreed t'at t'ere :as no
s$icide& Fo:e%erC it :as t'e s$bmission o)
t'e ins$rance com(any t'at t'ere :as no
accident& 6n s$((ort t'ereo)C it contended a"
t'at t'ere :as no accident :'en a deliberate
act :as (er)ormed $nless some additionalC
$ne8(ectedC inde(endent and $n)oreseen
'a((ening occ$r :'ic' (rod$ces or brings
abo$t t'e in<$ry or deat'1 and b" t'at t'e
ins$red :ill)$lly e8(osed 'imsel) to needless
(eril and t'$s remo%ed 'imsel) )rom t'e
co%erage o) t'e ins$rance (olicy& Are t'e t:o
contentions o) t'e ins$rance com(any
tenableI E8(lain&
SUGGESTED ANSWER:
>o& T'ese t:o contentions are not tenable&
T'e ins$rer is liable )or in<$ry or deat' e%en
d$e to t'e ins$reds gross negligence& T'e
)act t'at t'e ins$red remo%ed t'e magaEine
)rom t'e 'and g$n means t'at t'e ins$red
did not :ill)$lly e8(ose 'imsel) to needless
(eril& At mostC t'e ins$red is only g$ilty o)
negligence (Sun .ns v &0 $"" s 554!
2nsure:6 Acci:ent s!
Suici:e ()**1) /$n-*oon 6ns$rance iss$ed a Personal
Accident Policy to Fenry Dy :it' a )ace %al$e
o) P000t'& A (ro%ision in t'e (olicy states
t'at At'e com(any s'all not be liable in
res(ect o) Abodily in<$ry conse5$ent $(on
t'e ins$red (erson attem(ting to commit
s$icide or :ill)$lly e8(osing 'imsel) to
needless (eril e8ce(t in an attem(t to sa%e
'$man li)e&B /i8 mont's later Fenry Dy died
o) a b$llet :o$nd in 'is 'ead& 6n%estigation
s'o:ed t'at one e%ening Fenry :as in a
'a((y mood alt'o$g' 'e :as not dr$nk& Fe
:as (laying :it' 'is 'andg$n )rom :'ic' 'e
'ad (re%io$sly remo%ed its magaEine& Fe
(ointed t'e g$n at 'is sister :'o got scared&
Fe ass$red 'er it :as not loaded& Fe t'en
(ointed t'e g$n at 'is tem(le and ($lled t'e
trigger& T'e g$n )ired and Fenry sl$m(ed on
t'e )loor&
Fenrys :i)e Be%erlyC as t'e designated
bene)iciaryC so$g't to collect $nder t'e
(olicy& /$n-*oon 6ns$rance re<ected 'er
claim on t'e gro$nd t'at t'e deat' o) Fenry
:as not accidental& Be%erly s$ed t'e
ins$rer& Decide and Disc$ss )$lly&
SUGGESTED ANSWER:
Be%erly can reco%er t'e (roceeds o) t'e (olicy )rom t'e
ins$rer& T'e deat' o) t'e ins$red :as not d$e to s$icide
or :ill)$l e8(os$re to needless (eril :'ic' are e8ce(ted
risks& T'e ins$reds act :as ($rely an act o) negligence
:'ic' is co%ered by t'e (olicy and )or :'ic' t'e ins$red
got t'e ins$rance )or 'is (rotection& 6n )actC 'e remo%ed
t'e magaEine )rom t'e g$n and :'en 'e (ointed t'e
g$n to 'is tem(le 'e did so beca$se 'e t'o$g't t'at it
:as sa)e )or 'im to do so& Fe did so to ass$re 'is sister
t'at t'e g$n :as 'armless& T'ere is none in t'e (olicy
t'at :o$ld relie%e t'e ins$rer o) liability )or t'e deat' o)
t'e ins$red since t'e deat' :as an accident&
2nsurer: E&&ects: Seeral
2nsurers (2001) @'at is t'e nat$re o) t'e liability o) t'e
se%eral ins$rers in do$ble ins$ranceI
E8(lain& 2J"
SUGGESTED ANSWER:
T'e nat$re o) t'e liability o) t'e se%eral
ins$rers in do$ble ins$rance is t'at eac'
ins$rer is bo$nd to t'e contrib$te ratably to
t'e loss in (ro(ortion to t'e amo$nt )or :'ic'
'e is liable $nder 'is contract as (ro%ided )or
by /ec ,3 o) 6CP (ar& T'e ratable contrib$tion
o) eac' o) eac' ins$rer :ill be determined
based on t'e )ollo:ing )orm$la: A*;?>T ;-
P;76CK di%ided by T;TA7 6>/?RA>CE TAHE>
m$lti(lied by 7;// U 76AB676TK ;- TFE
6>/?RER&
A<TERNAT2@E ANSWER:
Eac' ins$rer is bo$ndC as bet:een 'imsel)
and ot'er ins$rersC to contrib$te ratably to
t'e loss in (ro(ortion to t'e amo$nt )or
:'ic' 'e is liable $nder 'is contract& /ec&
,3C 6ns$rance Code"
2nsurer6 3r: "art%
<ia.ilit% ()**5) @'ile dri%ing 'is car along ED/AC Cesar
sides:i(ed RobertoC ca$sing in<$ries to t'e
latterC Roberto s$ed Cesar and t'e t'ird (arty
liability ins$rer )or damages andGor ins$rance
(roceeds& T'e ins$rance com(any mo%ed to
dismiss t'e com(laintC contending t'at t'e
liability o) Cesar 'as not yet been determined
:it' )inality& a" 6s t'e contention o) t'e
ins$rer correctI E8(lain& b" *ay t'e ins$rer
be 'eld liable :it' CesarI
SUGGESTED ANSWER:
>oC t'e contention o) t'e ins$rer is not
correct& T'ere is no need to :ait )or t'e
decision o) t'e co$rt determining Cesars
liability :it' )inality be)ore t'e t'ird (arty
liability ins$rer co$ld be s$ed& T'e occ$rrence
o) t'e in<$ry to Roberto immediately ga%e rise
to t'e liability o) t'e ins$rer $nder its (olicy&
6n ot'er :ordsC :'ere an ins$rance (olicy
ins$res directly against liabilityC t'e ins$rers
liability accr$es immediately $(on t'e
occ$rrence o) t'e in<$ry or e%ent $(on :'ic'
t'e liability de(ends (Sherman Shafer v Audge
+:& ,longapo &ity Branch 35 1+ l836646, 2ov "4
66 "%3s#6%!
T'e ins$rer cannot be 'eld solidarily liable
:it' Cesar& T'e liability o) t'e ins$rer is
based on contract :'ile t'at o) Cesar is
based on tort& 6) t'e ins$rer :ere solidarily
liable :it' CesarC it co$ld be made to (ay
more t'an t'e amo$nt stated in t'e (olicy&
T'is :o$ldC 'o:e%erC be contrary to t'e
(rinci(les $nderlying ins$rance contracts& ;n
t'e ot'er 'andC i) t'e ins$rer :ere solidarily
liable :it' Cesar and it is made to (ay only
$( to t'e amo$nt
Mercantile Law Bar Examination Q & A (1990-2006)
stated in t'e ins$rance (olicyC t'e (rinci(les
$nderlying solidary obligations :o$ld be
%iolated/ (*alayan .ns &o v &0 1+ =8#%4"# Sep
$%, 66 "%5s5#%< -iguracion vda de *aglana v
&onsolacion 1+ %757% 0ug %, 9$ $"$s$%6!
2nsurer6 3r: "art%
<ia.ilit% (2000) N :as riding a s$b$rban $tility %e'icle /?="
co%ered by a com(re'ensi%e motor %e'icle
liability ins$rance C*=76" $nder:ritten by
-astPay 6ns$rance Com(any :'en it collided
:it' a s(eeding b$s o:ned by R* Tra%el 6nc&
T'e collision res$lted in serio$s in<$ries to N1
KC a (assenger o) t'e b$s1 and QC a (edestrian
:aiting )or a ride at t'e scene o) t'e collision&
T'e (olice re(ort establis'ed t'at t'e b$s
:as t'e o))ending %e'icle& T'e b$s 'ad C*=76
(olicy iss$ed by Dragon 6ns Co& NC KC and Q
<ointly s$ed R* Tra%el and Dragon 6ns )or
indemnity $nder t'e 6ns$rance Code o) t'e
P'ils PD+340"& T'e lo:er co$rt a((lied t'e
Ano )a$ltB indemnity (olicy o) t'e stat$teC
dismissed t'e s$it against R* Tra%elC and
ordered Dragon 6ns to (ay indemnity to all
t'ree (lainti))s& Do yo$ agree :it' t'e co$rts
<$dgmentI E8(lain 2J"
SUGGESTED ANSWER:
>o& T'e ca$se o) action o) K is based on t'e
contract o) carriageC :'ile t'at o) N and Q is
based on torts& T'e co$rt s'o$ld not 'a%e
dismissed t'e s$it against R* Tra%el& T'e
co$rt s'o$ld 'a%e ordered Dragon 6ns to (ay
eac' o) NC K C and Q to t'e e8tent o) t'e
ins$rance co%erageC b$t :'ate%er amo$nt is
agreed $(on in t'e (olicy s'o$ld be
ans:ered )irst by R* Tra%el and t'e
s$cceeding amo$nt s'o$ld be (aid by
Dragon 6ns$rance $( to t'e amo$nt o) t'e
ins$rance co%erage& T'e e8cess o) t'e claims
o) NC KC and QC o%er and abo%e s$c'
ins$rance co%erageC i) anyC s'o$ld be
ans:ered or (aid by R* Tra%el&
2nsurer6 3r: "art% <ia.ilit%6 No /ault
2n:emnit% ()**7) @'at is yo$r $nderstanding o) a Ano )a$lt
indemnityB cla$se )o$nd in an ins$rance
(olicyI
SUGGESTED ANSWER:
?nder t'e A>; -A?7T 6>DE*>6TKB cla$seC
any claim )or deat' or in<$ry o) any
(assenger or t'ird (arty s'all be (aid
:it'o$t t'e necessity o) (ro%ing )a$lt or
negligence o) any kind& T'e indemnity in
res(ect o) any one (erson s'all not e8ceed
P0C000&00C (ro%ided t'ey are $nder oat'C t'e
)ollo:ing (roo)s s'all be s$))icient:
+& (olice re(ort o) t'e
accident1 and 2& deat' certi)icate and e%idence
s$))icient to establis' t'e (ro(er (ayee1 or
!& medical re(ort and e%idence o)
medical or 'os(ital disb$rsement in res(ect
o) :'ic' re)$nd is claimed& 3& Claim may be made against one
motor %e'icle only&
2nsurer6 3r: "art% <ia.ilit%6
;uitclaim ()**7) Ra$ls tr$ck b$m(ed t'e car o:ned by 7$E&
T'e car :as ins$red by Cala 6ns$rance& -or
t'e damage ca$sedC Cala (aid 7$E P0C000&00
in amicable settlement& 7$E e8ec$ted a
release o) claimC s$brogating Cala to all 'er
rig'ts against Ra$l& @'en Cala demanded
reimb$rsement )rom Ra$lC t'e latter re)$sed
saying t'at 'e 'ad already (aid
Page $1 of 103 7$E P3C000 )or t'e damage to
t'e car as e%idenced by a release o) claim
e8ec$ted by 7$E disc'arging Ra$l&
/o Cala demanded reimb$rsement )rom 7$EC
:'o re)$sed to (ayC saying t'at t'e total
damage to t'e car :as P,C000&00 /ince Cala
(aid P0C000 onlyC 7$E contends t'at s'e :as
entitled to go a)ter Ra$l to claim t'e
additional P3C000&00 +" 6s CalaC as s$brogee
o) 7$EC entitled to reimb$rsement )rom Ra$lI
2" *ay Cala reco%er :'at it 'as (aid 7$EI
SUGGESTED ANSWER:
+" >o& 7$E e8ec$ted a release in )a%or o)
Ra$l (*anila *ahogany *fg &orp v &0 1+
5$35%, "$ ,ct "963!
2" Kes& Cala lost its rig't against Ra$l
beca$se o) t'e release e8ec$ted by 7$E&
/ince t'e release :as made :it'o$t t'e
consent o) CalaC Cala may reco%er t'e
amo$nt o) P0C000 )orm 7$E (*anila *ahogany
*fg &orp v &0 1+ 5$35%, "$ ,ct "963!/
2nsurer6 Aut#oriHe: Drier
Clause ()**)) /'eryl ins$red 'er ne:ly ac5$ired carC a
>issan *a8ima against any loss or damage
)or P00t' and against !rd (arty liability )or
P20t' :it' t'e NKQ 6ns Co& ?nder t'e (olicyC
t'e car m$st be dri%en only by an a$t'oriEed
dri%er :'o is eit'er: +" t'e ins$redC or 2" any
(erson dri%ing on t'e ins$reds order or :it'
'is (ermission: (ro%ided t'at t'e (erson
dri%ing is (ermitted in accordance :it' t'e
licensing or ot'er la:s or reg$lations to dri%e
t'e motor %e'icle and is not dis5$ali)ied )rom
dri%ing s$c' motor %e'icle by order o) a
co$rt&
D$ring t'e e))ecti%ity o) t'e (olicyC t'e carC
t'en dri%en by /'eryl 'ersel)C :'o 'ad no
dri%ers licenseC met an accident and :as
e8tensi%ely damaged& T'e estimated cost o)
re(air :as P30t'& /'eryl immediately
noti)ied NKQC b$t t'e latter re)$sed to (ay on
t'e (olicy alleging t'at /'eryl %iolated t'e
terms t'ereo) :'en s'e dro%e it :it'o$t a
dri%ers license& 6s t'e ins$rer correctI
SUGGESTED ANSWER:
T'e ins$rer :as not correct in denying t'e
claim since t'e (ro%iso At'at t'e (erson
dri%ing is (ermitted in accordance :it' t'e
licensingC etc&B 5$ali)ied only a (erson
dri%ing t'e %e'icle ot'er t'an t'e ins$red at
t'e time o) t'e accident (;alermo v ;yramid .ns
&o 1+ #%467 #" *ay 66!
A<TERNAT2@E ANSWER:
T'e ins$rer is correct& T'e cla$se Aa$t'oriEed
dri%erB in t'e (olicy e%idently a((lies to bot'
t'e ins$red and any ot'er (erson dri%ing t'e
%e'icle at t'e time o) t'e accident& T'e term
Aa$t'oriEed dri%erB s'o$ld be constr$ed as a
(erson :'o is a$t'oriEed by la: to dri%er t'e
%e'icle (;e>a v 0li'pala "%7s#"!
2nsurer6 Aut#oriHe: Drier
Clause (2003) Rick de la Cr$E ins$red 'is (assenger
<ee(ney :it' Asiatic 6ns$rersC 6nc& T'e (olicy
(ro%ided t'at t'e a$t'oriEed dri%er o) t'e
%e'icle s'o$ld 'a%e a %alid and e8isting
dri%ers license& T'e (assenger <ee(ney o)
Rick de la Cr$E :'ic' :as at t'e time dri%en
by #ay Cr$EC
Mercantile Law Bar Examination Q & A (1990-2006)
)ig$red in an accident res$lting in t'e deat'
o) a (assenger& At t'e time o) t'e accidentC
#ay Cr$E :as licensed to dri%e b$t it :as
con)iscated by an 7T; agent :'o iss$ed 'im
a Tra))ic =iolation Re(ort T=R" <$st min$tes
be)ore t'e accident& Co$ld Asiatic 6ns$rersC
6nc&C be made liable $nder its (olicyI @'yI
4J"
SUGGESTED ANSWER:
Asiatic 6ns$rersC 6nc&C s'o$ld be made liable
$nder t'e (olicy& T'e )act t'at t'e dri%er :as
merely 'olding a T=R does not %iolate t'e
condition t'at t'e dri%er s'o$ld 'a%e a %alid
and e8isting dri%ers license&
BesidesC s$c' a condition s'o$ld be
disregarded beca$se :'at is in%ol%ed is a
(assenger <ee(neyC and :'at is in%ol%ed
'ere is not o:n damage ins$rance b$t t'ird
(arty liability :'ere t'e in<$red (arty is a
t'ird (arty not (ri%y to t'e contract o)
ins$rance&
2nsurer6 Aut#oriHe: Drier Clause6
e#icle is stolen ()**3)
F7 ins$red 'is brand ne: car :it' P 6ns Co
)or com(re'ensi%e co%erage :'erein t'e
ins$rance com(any $ndertook to indemni)y
'im against loss or damage to t'e car a" by
accidental collision &&& b" by )ireC e8ternal
e8(losionC b$rglaryC or t'e)tC and c" malicio$s
act&
A)ter a mont'C t'e car :as carna((ed :'ile
(arked in t'e (arking s(ace in )ront o) t'e
6ntercontinental Fotel in *akati& F7s :i)e
:'o :as dri%ing said car be)ore it :as
carna((ed re(orted immediately t'e
incident to %ario$s go%ernment agencies in
com(liance :it' t'e ins$rance re5$irements&
Beca$se t'e car co$ld not be reco%eredC F7
)iled a claim )or t'e loss o) t'e car :it' t'e
ins$rance com(any b$t it :as denied on t'e
gro$nd t'at 'is :i)e :'o :as dri%ing t'e car
:'en it :as carna((ed :as in t'e (ossession
o) an e8(ired dri%ers licenseC a %iolation o)
t'e Aa$t'oriEed dri%erB cla$se o) t'e
ins$rance com(any& +" *ay t'e ins$rance
com(any be 'eld liable to
indemni)y F7 )or t'e loss o) t'e ins$red %e'icleI
E8(lain& 2" /$((osing t'at t'e car :as
bro$g't by F7 on
installment basis and t'ere :ere installments
d$e and (ayable be)ore t'e loss o) t'e car as :ell as
installments not yet (ayable& Beca$se o) t'e loss
o) t'e carC t'e %endor demanded )rom F7 t'e
$n(aid balance o) t'e (romissory note& F7 resisted t'e
demand and claimed t'at 'e :as only liable )or
t'e installments d$e and (ayable be)ore t'e loss o)
t'e car b$t no longer liable )or ot'er installments
not yet d$e at t'e time o) t'e loss o) t'e car&
Decide&
SUGGESTED ANSWER:
+" Kes& T'e car :as lost d$e to t'e)t& @'at
a((lies in t'is case is t'e At'e)tB cla$seC and
not t'e Aa$t'oriEed dri%erB cla$se& 6t is
immaterial t'at F7s :i)e :as dri%ing t'e car
:it' an e8(ired dri%ers license at t'e time it
:as carna((ed/ (;erla &ompania de Seguros v
&0 $76 s 463!
2" T'e (romissory note is not a))ected by
:'ate%er be)alls t'e s$b<ect matter o) t'e
accessory contract& T'e
Page $3 of 103 $n(aid balance on t'e
(romissory note s'o$ld be (aid and not only
t'e installments d$e and (ayable be)ore t'e
loss o) t'e car&
2nsurer6 Grou$ 2nsurance6 Em$lo%erA
"olic% Iol:er (2000) N com(any (roc$red a gro$( accident
ins$rance (olicy )or its constr$ction
em(loyees %ario$sly assigned to its
(ro%incial in)rastr$ct$re (ro<ects& K 6ns$rance
Com(any $nder:rote t'e co%erageC t'e
(remi$ms o) :'ic' :ere (aid )or entirely by
N Com(any :it'o$t any em(loyee
contrib$tions& @'ile t'e (olicy :as in e))ectC
)i%e o) t'e co%ered em(loyees (eris'ed at
sea on t'eir :ay to t'eir (ro%incial
assignments& T'eir :i%es s$ed K 6ns$rance
Com(any )or (ayment o) deat' bene)its
$nder t'e (olicy& @'ile t'e s$it :as (endingC
t'e :i%es signed a (o:er o) attorney
designating N Com(any e8ec$ti%eC P#C as
t'eir a$t'oriEed re(resentati%e to enter into
a settlement :it' t'e ins$rance com(any&
@'en a settlement :as reac'edC P#
instr$cted t'e ins$rance com(any to iss$e
t'e settlement c'eck to t'e order o) N
Com(anyC :'ic' :ill $ndertake t'e (ayment
to t'e indi%id$al claimants o) t'eir res(ecti%e
s'ares& P# misa((ro(riated t'e settlement
amo$nt and t'e :i%es ($rs$ed t'eir case
against K 6ns$rance Co& @ill t'e s$it (ros(erI
E8(lain !J"
SUGGESTED ANSWER:
Kes& T'e s$it :ill (ros(er& K 6ns Co is liable& N
CoC t'ro$g' its e8ec$ti%eC P#C acted as agent
o) K 6ns Co& T'e latter is t'$s bo$nd by t'e
miscond$ct o) its agent& 6t is t'e $s$al
(ractice in t'e gro$( ins$rance b$siness t'at
t'e em(loyer-(olicy 'older is t'e agent o)
t'e ins$rer&
2nsurer6 <ia.ilit% o& t#e
2nsurers ()**0) a" /$((ose t'at -ort$ne o:ns a 'o$se
%al$ed at P400t' and ins$red t'e same
against )ire :it' ! ins$rance com(anies as
)ollo:s: N M P300t' K M P200t' Q M P400t'
6n t'e absence o) any sti($lation in t'e
(olicies )rom :'ic' ins$rance com(any or
com(anies may -ort$ne reco%er in case )ire
s'o$ld destroy 'is 'o$se com(letelyI
SUGGESTED ANSWER:
-ort$ne may reco%er )rom t'e ins$rers in
s$c' order as 'e may select $( to t'eir
conc$rrent liability /ec ,3 6ns Code"
@alue: "olic%
b" 6) eac' o) t'e )ire ins$rance (olicies
obtained by -ort$ne in t'e (roblem a" is a
%al$ed (olicy and t'e %al$e o) 'is 'o$se :as
)i8ed in eac' o) t'e (olicies at P+mC 'o:
m$c' :o$ld -ort$ne reco%er )rom N i) 'e 'as
already obtained )$ll (ayment on t'e
ins$rance (olicies iss$ed by K and QI
SUGGESTED ANSWER:
-ort$ne may still reco%er only t'e balance o)
P200C000 )rom N ins$rance com(any since
t'e ins$red may only reco%er $( to t'e
e8tent o) 'is loss&
A<TERNAT2@E:
Mercantile Law Bar Examination Q & A (1990-2006)
Fa%ing already obtained )$ll (ayment on t'e
ins$rance (olicies iss$ed by K and QC -ort$ne
may no longer reco%er )rom N ins$rance
(olicy&
8$en "olic%
c" 6) eac' o) t'e (olicies obtained by -ort$ne
in t'e (roblem a" abo%e is an o(en (olicy
and it :as immediately determined a)ter t'e
)ire t'at t'e %al$e o) -ort$nes 'o$se :as
P2&3mC 'o: m$c' may 'e collect )rom NCK
and QI
SUGGESTED ANSWER:
6n an o(en (olicyC t'e ins$red may reco%er
'is total loss $( to t'e amo$nt o) t'e
ins$rance co%er& T'$sC t'e e8tent o) reco%ery
:o$ld be P300t' )rom NC P200t' )rom KC and
P400t' )rom Q&
d" 6n (roblem a"C :'at is t'e e8tent o) t'e
liability o) t'e ins$rance com(anies among
t'emsel%esI
SUGGESTED ANSWER:
6n (roblem a"C t'e ins$rance com(anies
among t'emsel%es :o$ld be liableC %iE: N M
3G+2 o) P400t' U P200t' K M 2G+2 o) P400t' U
P+00t' Q M 4G+2 o) P400t' U P!00t'
e" /$((osing in (roblem a" abo%eC -ort$ne
:as able to collect )rom bot' K and QC may
'e kee( t'e entire amo$nt 'e :as able to
collect )rom t'e said 2 ins$rance com(aniesI
SUGGESTED ANSWER:
>oC 'e can only be indemni)ied )or 'is lossC
not (ro)it t'ereby1 'ence 'e m$st ret$rn
P200t' o) t'e P900t' 'e :as able to collect&
<oss: Actual Total
<oss ()**5) RC Cor(oration ($rc'ased rice )rom
T'ailandC :'ic' it intended to sell locally&
D$e to stormy :eat'erC t'e s'i( carrying t'e
rice became s$bmerged in sea :aterC and
:it' it t'e rice cargo& @'en t'e cargo arri%ed
in *anilaC RC )iled a claim )or total loss :it'
t'e ins$rerC beca$se t'e rice :as no longer
)it )or '$man cons$m(tion& AdmittedlyC t'e
rice co$ld still be $sed as animal )eed& 6s
RCs claim )or total loss <$sti)iedI E8(lain&
SUGGESTED ANSWER:
KesC RCs claim )or total loss is <$sti)ied& T'e
riceC :'ic' :as im(orted )rom T'ailand )or
sale locallyC is ob%io$sly intended )or
cons$m(tion by t'e ($blic& T'e com(lete
('ysical destr$ction o) t'e rice is not
essential to constit$te an act$al total loss&
/$c' a loss e8ists in t'is case since t'e riceC
'a%ing been soaked in sea :ater and t'ereby
rendered $n)it )or '$man cons$m(tionC 'as
become totally $seless )or t'e ($r(ose )or
:'ic' it :as im(orted (;an *alayan .ns &o v &0
gr 95737 Sep 5, "99"!
<oss: Constructie Total
<oss (2001) *G= Pearly /'ellsC a (assenger and cargo
%esselC :as ins$red )or P30C000C000&00
against Aconstr$cti%e total loss&B D$e to a
ty('oonC it sank near Pala:an& 7$ckilyC t'ere
:ere no cas$altiesC only in<$red (assengers&
T'e s'i( o:ner sent a notice o)
abandonment o) 'is interest o%er t'e %essel
to t'e ins$rance com(any :'ic' t'en
Page $5 of 103 'ired (ro)essionals to a)loat
t'e %essel )or P,00C000&00& @'en re-)loatedC
t'e %essel needed re(airs estimated at
P2C000C000&00& T'e ins$rance com(any
re)$sed to (ay t'e claim o) t'e s'i( o:nerC
stating t'at t'ere :as Ano constr$cti%e total
loss&B a" @as t'ere Aconstr$cti%e total lossB
to entitle t'e s'i(
o:ner to reco%er )rom t'e ins$rance com(anyI
E8(lain& b" @as it (ro(er )or t'e s'i( o:ner
to send a notice o)
abandonment to t'e ins$rance com(anyI
E8(lain& 0J"
SUGGESTED ANSWER:
>oC t'ere :as no Oconstr$cti%e total lossO
beca$se t'e %essel :as re)loated and t'e
costs o) re)loating (l$s t'e needed re(airs P
2&, *illion" :ill not be more t'an t'ree-
)o$rt's o) t'e %al$e o) t'e %essel& A
constr$cti%e total loss is one :'ic' gi%es to a
(erson ins$red a rig't to abandon& /ecC +!+C
6ns$rance Code" T'ere :o$ld 'a%e been a
constr$cti%e total loss 'ad t'e %essel *>
Pearly /'ells s$))er loss or needed re)loating
and re(airs o) more t'an t'e re5$ired t'ree-
)o$rt's o) its %al$eC i&e&C more t'an P!0&0
*illion (Sec/ "#9, .nsurance &ode, cited in
,riental 0ssurance v/ &ourt of 0ppeals and
;anama Saw *ill, 1/+/ 2o/ 9475$, 0ugust 9,
"99"!
Fo:e%erC t'e ins$rance com(any s'all (ay
)or t'e total costs o) re)loating and needed
re(airs P2&, *illion"&
c" @as it (ro(er )or t'e s'i( o:ner to
send a notice o) abandonment to t'e
ins$rance com(anyI E8(lain&
SUGGESTED ANSWER:
>oC it :as not (ro(er )or t'e s'i( o:ner to
send a notice o) abandonment to t'e
ins$rance com(any beca$se abandonment
can only be a%ailed o) :'enC in a marine
ins$rance contractC t'e amo$nt to be
e8(ended to reco%er t'e %essel :o$ld 'a%e
been more t'an t'ree-)o$rt's o) its %al$e&
=essel *> Pearly /'ells needed only P2&,
*illionC :'ic' does not meet t'e re5$ired
t'ree-)o$rt's o) its %al$e to merit
abandonment& /ection +!,C 6ns$rance CodeC
cited in ,riental 0ssurance v/ &ourt of 0ppeals
and ;anama Saiv *ill, 1/+/ 2o/ 9475$, 0ugust 9,
"99"!
<oss: Total <oss
8nl% ()**2) An ins$rance com(any iss$ed a marine
ins$rance (olicy co%ering a s'i(ment by sea
)rom *indoro to Batangas o) +C000 (ieces o)
*indoro garden stones against Atotal loss
only&B T'e stones :ere loaded in t:o lig'tersC
t'e )irst :it' 400 (ieces and t'e second :it'
300 (ieces& Beca$se o) ro$g' seasC damage
:as ca$sed t'e second lig'ter res$lting in
t'e loss o) !20 o$t o) t'e 300 (ieces& T'e
o:ner o) t'e s'i(ment )iled claims against
t'e ins$rance com(any on t'e gro$nd o)
constr$cti%e total loss inasm$c' as more
t'an V o) t'e %al$e o) t'e stones 'ad been
lost in one o) t'e lig'ters& 6s t'e ins$rance
com(any liable $nder its (olicyI @'yI
SUGGESTED ANSWER:
T'e ins$rance com(any is not liable $nder its
(olicy co%ering against Atotal loss onlyB t'e
s'i(ment o) +C000 (ieces o) *indoro garden
stones& T'ere is no constr$cti%e total loss t'at
can claimed since t'e V r$le is to be
com($ted on t'e total +C000 (ieces o)
*indoro
a&
Page 50 of )03 to (rintC re(rintC ($blis'C co(yC distrib$teC m$lti(lyC sell and make ('otogra('sC ('oto engra%ingsC and (ictorial ill$strations o) t'e :orks1
b&
to make any translation or ot'er %ersion or e8tracts or arrangements or ada(tation t'ereo)1 to dramatiEe i) it be a non-dramatic :ork1 to con%ert it into a non-dramatic :ork i) it be a drama1 to com(lete or e8ec$te it i) it be a model or design1
c&
to e8'ibitC (er)ormC re(resentC (rod$ce or re(rod$ce t'e :ork in any manner or by any met'od :'ate%er )or (ro)it or ot'er:ise1 i) not re(rod$ced in co(ies )or saleC to sell any man$scri(ts or any record :'atsoe%er t'ereo)1
d&
to make any ot'er $se or dis(osition o) t'e :ork consistent :it' t'e la:s o) t'e land
Mercantile Law Bar Examination Q & A (1990-2006)
garden stones co%ered by t'e single (olicy
co%erage (see ,riental 0ssurance &o v &0 $77 s
459!
(arine 2nsurance6 2m$lie:
Warranties (2000) @'at :arranties are im(lied in marine
ins$ranceI
SUGGESTED ANSWER:
T'e )ollo:ing :arranties are im(lied in
marine ins$rance: +" T'at t'e s'i( is
sea:ort'y to make t'e %oyage andGor to take in certain cargoes 2" T'at t'e
s'i( s'all not de%iate )rom t'e %oyage
ins$red1 !" T'at t'e s'i( s'all carry t'e
necessary doc$ments to
s'o: nationality or ne$trality and t'at it :ill not
carry any doc$ment :'ic' :ill cast reasonable
s$s(icion t'ereon1 3" T'at t'e s'i( s'all not
carry contrabandC es(ecially i)
it is making a %oyage t'ro$g' belligerent
:aters&
(arine 2nsurance6 "eril o& t#e S#i$
s! "eril o& t#e Sea ()**4)
A marine ins$rance (olicy on a cargo states
t'at At'e ins$rer s'all be liable )or losses
incident to (erils o) t'e sea&B D$ring t'e
%oyageC sea:ater entered t'e com(artment
:'ere t'e cargo :as stored d$e to t'e
de)ecti%e drain(i(e o) t'e s'i(& T'e ins$red
)iled an action on t'e (olicy )or reco%ery o)
t'e damages ca$sed to t'e cargo& *ay t'e
ins$red reco%er damagesI 0J"
SUGGESTED ANSWER:
>o& T'e (ro8imate ca$se o) t'e damage to
t'e cargo ins$red :as t'e de)ecti%e
drain(i(e o) t'e s'i(& T'is is (eril o) t'e s'i(C
and not (eril o) t'e sea& T'e de)ect in t'e
drain(i(e :as t'e res$lt o) t'e ordinary $se
o) t'e s'i(& To reco%er $nder a marine
ins$rance (olicyC t'e (ro8imate ca$se o) t'e
loss or damage m$st be (eril o) t'e sea&
(utual 2nsurance Com$an%6 Nature 0
De&inition (2005) @'at is a m$t$al ins$rance com(any or
associationI
SU++ESTE6 ANSWER(
A m$t$al li)e ins$rance cor(oration is a
coo(erati%e t'at (romotes t'e :el)are o) its
o:n membersC :it' t'e money collected
)rom among t'emsel%es and solely )or t'eir
o:n (rotection and not )or (ro)it& *embers
are bot' t'e ins$rer and ins$red& A m$t$al
li)e ins$rance com(any 'as no ca(ital stock
and relies solely $(on its contrib$tions or
(remi$ms to meet $ne8(ected lossesC
contingencies and e8(enses (+epublic v/
Sunlife, 1/+/ 2o "56765, ,ctober "4, $775!/
Intelle!t.al ,ro%erty
Co$%ri'#t
()**1) @'at intellect$al (ro(erty rig'ts are
(rotected by co(yrig'tI
SUGGESTED ANSWER:
/ec 0 o) PD 3, (ro%ides t'at Co(yrig't s'all
consist in t'e e8cl$si%e rig't:
Co$%ri'#t6 Commissione:
Artist ()**1) /olid 6n%estment Fo$se commissioned *on
Blanco and 'is son /te%eC bot' noted artistsC
to (aint a m$ral )or t'e *ain 7obby o) t'e
ne: b$ilding o) /olid )or a contract (rice o)
P2m& a" :'o o:ns t'e m$ralI E8(lain b"
@'o o:ns t'e co(yrig't o) t'e m$ralI
E8(lain&
SUGGESTED ANSWER:
a" /olid o:ns t'e m$ral& /olid :as t'e one
:'o commissioned t'e artists to do t'e :ork
and (aid )or t'e :ork in t'e s$m o) P2m
b"?nless t'ere is a sti($lation to t'e contrary
in t'e contractC t'e co(yrig't s'all belong in
<oint o:ners'i( to /olid and *on and /te%e&
Co$%ri'#t6 Commissione:
Artist (2007) BR and CT are noted artists :'ose (aintings
are 'ig'ly (riEed by collectors& Dr& D7
commissioned t'em to (aint a m$ral at t'e
main lobby o) 'is ne: 'os(ital )or c'ildren&
Bot' agreed to collaborate on t'e (ro<ect )or
a total )ee o) t:o million (esos to be e5$ally
di%ided bet:een t'em& 6t :as also agreed
t'at Dr& D7 'ad to (ro%ide all t'e materials
)or t'e (ainting and (ay )or t'e :ages o)
tec'nicians and laborers needed )or t'e :ork
on t'e (ro<ect&
Ass$me t'at t'e (ro<ect is com(leted and
bot' BR and CT are )$lly (aid t'e amo$nt o)
P2* as artistsL )ee by D7& ?nder t'e la: on
intellect$al (ro(ertyC :'o :ill o:n t'e
m$ralI @'o :ill o:n t'e co(yrig't in t'e
m$ralI @'yI E8(lain& 0J"
SUGGESTED ANSWER:
?nder /ection +79&3 o) t'e 6ntellect$al
Pro(erty CodeC in case o) commissioned
:orkC t'e creator in t'e absence o) a :ritten
sti($lation to t'e contrary" o:ns t'e
co(yrig'tC b$t t'e :ork itsel) belongs to t'e
(erson :'o commissioned its creation&
AccordinglyC t'e m$ral belongs to D7&
Fo:e%erC BR and CT o:n t'e co(yrig'tC since
t'ere is no sti($lation to t'e contrary&
Co$%ri'#t6
2n&rin'ement ()**7)
Mercantile Law Bar Examination Q & A (1990-2006)
T'e =ictoria Fotel c'ain re(rod$ces
%ideota(esC distrib$tes t'e co(ies t'ereo) to
its 'otels and makes t'em a%ailable to 'otel
g$ests )or %ie:ing in t'e 'otel g$est rooms& 6t
c'arges a se(arate nominal )ee )or t'e $se o)
t'e %ideota(e (layer& +" Can t'e =ictoria
Fotel be en<oined )or in)ringing co(yrig'ts
and 'eld liable )or damagesI 2" @o$ld it
make any di))erence i) =ictoria Fotel does not
c'arge any )ee )or t'e $se o) t'e %ideota(eI
SUGGESTED ANSWER:
+" Kes& =ictoria Fotel 'as no rig't to $se
s$c' %ideo ta(es in its 'otel b$siness
:it'o$t t'e consent o) t'e creatorG o:ner o)
t'e co(yrig't&
2" >o& T'e $se o) t'e %ideota(es is )or
b$siness and not merely )or 'ome
cons$m(tion& (-ilipino Society of &omposers,
0uthors ;ublishers v :an "46 s 4%"< pd "966!
Co$%ri'#t6
2n&rin'ement ()**+) 6n an action )or damages on acco$nt o) an
in)ringement o) a co(yrig'tC t'e de)endant
t'e alleged (irate" raised t'e de)ense t'at
'e :as $na:are t'at :'at 'e 'ad co(ied
:as a co(yrig't material& @o$ld t'is de)ense
be %alidI
SUGGESTED ANSWER:
>o& An intention to (irate is not an element
o) in)ringement& FenceC an 'onest intention
is no de)ense to an action )or in)ringement&
A<TERNAT2@E ANSWER:
Kes& T'e o:ner o) t'e co(yrig't m$st make
ot'ers a:are t'at t'e material in 5$estion is
$nder or co%ered by a co(yrig't& T'is is done
by t'e gi%ing o) s$c' notice at a (rominent
(ortion o) t'e co(yrig't material& @'en t'e
alleged (irate is t'$s made a:are t'ereo)C
'is act o) (irating t'e co(y material :ill
constit$te in)ringement&
Co$%ri'#t6
2n&rin'ement ()**4) #$an Na%ier :rote and ($blis'ed a story
similar to an $n($blis'ed co(yrig'ted story
o) *anoling /antiago& 6t :asC 'o:e%erC
concl$si%ely (ro%en t'at #$an Na%ier :as not
a:are t'at t'e story o) *anoling /antiago
:as (rotected by co(yrig't& *anoling
/antiago s$ed #$an Na%ier )or in)ringement o)
co(yrig't& 6s #$an Na%ier liableI 2J"
SUGGESTED ANSWER:
Kes& #$an Na%ier is liable )or in)ringement o)
co(yrig't& 6t is not necessary t'at #$an
Na%ier is a:are t'at t'e story o) *anoling
/antiago :as (rotected by co(yrig't& T'e
:ork o) *anoling /antiago is (rotected at
t'e time o) its creation&
Co$%ri'#t6
2n&rin'ement (2005) 6n a :ritten legal o(inion )or a client on t'e
di))erence bet:een a((rentices'i( and
learners'i(C 7iEa 5$oted :it'o$t (ermission a
labor la: e8(ertLs comment a((earing in 'is
book entitled OAnnotations on t'e 7abor
Code&O Can t'e labor la: e8(ert 'old 7iEa
liable )or in)ringement o) co(yrig't )or
5$oting a (ortion o) 'is book :it'o$t 'is
(ermissionI 0J"
SU++ESTE6 ANSWER(
Page 01 of 103 7iEa cannot be 'eld liable )or
in)ringement o) co(yrig't since $nder t'e
6ntellect$al Pro(erty CodeC one o) t'e
limitations to t'e co(yrig't is t'e making o)
5$otations )rom a ($blis'ed :ork )or ($r(ose
o) any <$dicial (roceedings or )or gi%ing o)
(ro)essorial ad%ice by legal (ractitionerC
(ro%ided t'at t'e so$rce and name o) t'e
a$t'or are identi)ied /ee /ection +93&+WkX o)
t'e 6ntellect$al Pro(erty Code o) t'e
P'ili((ines"&
Co$%ri'#t6 "#otoco$%6 >#en
allo>e: ()**4) *ay a (erson 'a%e ('otoco(ies o) some
(ages o) t'e book o) Pro)essor Rosario made
:it'o$t %iolating t'e co(yrig't la:I !J"
SUGGESTED ANSWER:
Kes& T'e (ri%ate re(rod$ction o) a ($blis'ed
:ork in a single co(yC :'ere t'e
re(rod$ction is made by a nat$ral (erson
e8cl$si%ely )or researc' and (ri%ate st$dyC is
(ermittedC :it'o$t t'e a$t'oriEation o) t'e
o:ner o) t'e co(yrig't in t'e :ork&
2n&rin'ement s! Un&air
Com$etition ()**5) @'at is t'e distinction bet:een in)ringement
and $n)air com(etitionI
SUGGESTED ANSWER:
T'e distinction bet:een in)ringement
(res$mably trademark" and $n)air
com(etition are as )ollo:s: +" 6n)ringement o)
trademark is t'e $na$t'oriEed $se
o) a trademarkC :'ereas $n)air com(etition is
t'e (assing o)) o) ones goods as t'ose o)
anot'er1
2" -ra$d$lent intent is $nnecessary in
in)ringement o) trademarkC :'ereas )ra$d$lent intent is
essential in $n)air com(etition1
#! T'e (rior registration o) t'e trademark
is a (rere5$isite to an action )or in)ringement
o) trademarkC :'ereas registration o) t'e
trademark is not necessary in $n)air
com(etition& (5el *onte &orp v &0 36#$5 Aan
$5,97 "6"s4"7!
2n&rin'ement s! Un&air
Com$etition (2003) 6n :'at :ay is an in)ringement o) a
trademark similar to t'at :'ic' (ertains to
$n)air com(etitionI
SUGGESTED ANSWER:
2n&rin'ement6
Juris:iction (2003) H-, Cor(orationC a )oreign cor(oration
alleging itsel) to be t'e registered o:ner o)
trademark AH-,B and logo AHBC )iled an 6nter
Partes case :it' t'e 6ntellect$al Pro(erty
;))ice against Hanin Cor(oration )or t'e
cancellation o) t'e latters mark AH-,B and
logo AH&B D$ring t'e (endency o) t'e case
be)ore t'e 6P;C Hanin Cor(oration bro$g't
s$it against H-, Cor(oration be)ore t'e RTC
)or in)ringement and damages& Co$ld t'e
action be)ore t'e RTC (ros(erI @'yI
SUGGESTED ANSWER:
"atent6 NonA"atenta.le
2nentions (2005) /$((osing Albert Einstein :ere ali%e today
and 'e )iled :it' t'e 6ntellect$al Pro(erty
;))ice 6P;" an a((lication )or (atent )or 'is
t'eory o) relati%ity e8(ressed in t'e
#o'ann&
a&
seiEe and destroy
b&
in<$nction
c&
damages in s$c' amo$nt may 'a%e
been
obtained )rom t'e $se o) t'e in%ention
i)
(ro(erly transacted :'ic' can be more
t'an
:'at t'e in)ringer #o'ann " recei%ed&
d&
Attorneys )ees and cost
Mercantile Law Bar Examination Q & A (1990-2006)
)orm$la EUmc2& T'e 6P; disa((ro%ed
EinsteinLs a((lication on t'e gro$nd t'at 'is
t'eory o) relati%ity is not (atentable& 6s t'e
6P;Ls action correctI 0J"
SU++ESTE6 ANSWER(
KesC t'e 6P; is correct beca$se $nder t'e
6ntellect$al Pro(erty CodeC disco%eriesC
scienti)ic t'eories and mat'ematical
met'odsC are classi)ied to be as Onon-
(atentable in%entions&O EinteinLs t'eory o)
relati%ity )alls :it'in t'e category o) being a
non-(atentable Oscienti)ic t'eory&O
"atents: GasASain' Deice: &irst
to &ile rule (2001) CeEar :orks in a car man$)act$ring com(any
o:ned by #oab& CeEar is 5$ite inno%ati%e and
lo%es to tinker :it' t'ings& @it' t'e
materials and (arts o) t'e carC 'e :as able to
in%ent a gas-sa%ing de%ice t'at :ill enable
cars to cons$me less gas& -rancisC a co-
:orkerC sa: 'o: CeEar created t'e de%ice
and like:iseC came $( :it' a similar gadgetC
also $sing scra( materials and s(are (arts o)
t'e com(any& T'erea)terC -rancis )iled an
a((lication )or registration o) 'is de%ice :it'
t'e B$rea$ o) Patents& Eig'teen mont's
laterC CeEar )iled 'is a((lication )or t'e
registration o) 'is de%ice :it' t'e B$rea$ o)
Patents&
+" 6s t'e gas-sa%ing de%ice (atentableI
E8(lain&
SUGGESTED ANSWER:
KesC t'e gas-sa%ing de%ice is (atentable
beca$se it (ro%ides a tec'nical sol$tion to a
(roblem in a )ield o) '$man acti%ity& 6t is ne:
and in%ol%es an in%enti%e ste(C and certainly
ind$strially a((licable& 6t t'ere)ore )$l)ills t'e
re5$isites mandated by t'e intellect$al
Pro(erty Code )or :'at is (atentable&
2" Ass$ming t'at it is (atentableC :'o is
entitled to t'e (atentI @'atC i) anyC is t'e remedy o) t'e losing
(artyI
SUGGESTED ANSWER:
CeEar is entitled to t'e (atent beca$se 'e :as
t'e real in%entor& -rancisC co(ying )rom t'e
:ork o) CeEarC cannot claim t'e essential
criteria o) an in%entorC :'o m$st (ossess
essential elements o) no%eltyC originality and
(recedence to be entitled to (rotection&
>e%ert'elessC $nder t'e O)irst to )ile r$leCO
-rancis a((lication :o$ld 'a%e to be gi%en
(riority& CeEarC 'o:e%erC 'as :it'in t'ree
mont's )rom t'e decisionC to 'a%e it cancelled
as t'e rig't)$l in%entor1 or :it'in one year
)rom ($blicationC to )ile an action to (ro%e 'is
(riority to t'e in%entionC :'ic' 'as been taken
)rom 'im and )ra$d$lently registered by
-rancis&
!" /$((osing #oab got :ind o) t'e
in%entions o) 'is em(loyees and also laid
claim to t'e (atentsC asserting t'at CeEar
and -rancis :ere $sing 'is materials and
com(any time in making t'e de%icesC :ill 'is
claim (re%ail o%er t'ose o) 'is em(loyeesI
E8(lain&
SUGGESTED ANSWER:
>oC #oabLs claim cannot (re%ail o%er t'ose o)
'is em(loyees& 6n t'e )irst (laceC #oab did not
commission any o) t'e t:o em(loyees to
in%ent t'e de%iceC and its
Page 0# of 103 in%ention did not )all :it'in
t'eir reg$lar d$ties& @'at (re%ails is t'e
(ro%ision o) t'e 6ntellect$al Pro(erty Code
t'at 'olds t'at t'e in%ention belongs to t'e
em(loyeeC i) t'e in%enti%e acti%ity is not a
(art o) 'is reg$lar d$tiesC e%en i) 'e $ses t'e
timeC )acilities and materials o) t'e
em(loyer&
"atents: 2n&rin'ement6 Reme:ies 0
De&enses ()**3) -erdie is a (atent o:ner o) a certain
in%ention& Fe disco%ered t'at 'is in%ention is
being in)ringed by #o'ann& +" @'at are t'e
remedies a%ailable to -erdie against #o'annI
2" 6) yo$ :ere t'e la:yer o) #o'ann in t'e
in)ringement s$itC :'at are t'e de)enses t'at
yo$r client can assertI
SUGGESTED ANSWER:
+" T'e )ollo:ing remedies are a%ailable to -erdie
against
2* +hese are the defenses that can be asserted in
an infrin"e#ent suit3
4atent is invalid )5ec 45 67 165, as a#ended*
4atent is not ne' or patentable
5pecification of the invention does not co#ply
'ith 5ec 14
4atent 'as issued not to the true and actual
inventor, desi"ner or author of the utility #odel
or the plaintiff did not derive his ri"hts fro# the
true and actual inventor, desi"ner or author of
the utility #odel )5ec 21 67 165 as a#ended*
"atents6
2n&rin'ement
()**2)
6n an action )or in)ringement o) (atentC t'e
alleged in)ringer de)ended 'imsel) by stating
+" t'at t'e (atent iss$ed by t'e Patent ;))ice
:as not really an in%ention :'ic' :as
(atentable1 2" t'at 'e 'ad no intent to
in)ringe so t'at t'ere :as no actionable case
)or in)ringement1 and !" t'at t'ere :as no
e8act d$(lication o) t'e (atentees e8isting
(atent b$t only a minor im(ro%ement& @it'
t'ose de)ensesC :o$ld yo$ e8em(t t'e
alleged %iolator )rom liabilityI @'yI
SUGGESTED ANSWER:
6 :o$ld not e8em(t t'e alleged %iolator )rom
liability )or t'e )ollo:ing reasons: +" A (atent
once iss$ed by t'e Patent ;))ice raises a
(res$m(tion t'at t'e article is
(atentable1 it canC 'o:e%er be s'o:n
ot'er:ise /ec 30 RA +40"& A mere
statement or allegation is not eno$g' to
destroy t'at (res$m(tion& 0quas v de
=eon #7 Aan 6$ =#$"%7"
2" An intention to in)ringe is not
necessary nor an element in a case )or
in)ringement o) a (atent&
Mercantile Law Bar Examination Q & A (1990-2006)
!" T'ere is no need o) e8act d$(lication
o) t'e (atentees e8isting (atent s$c' as
:'en t'e im(ro%ement made by anot'er is
merely minor (-ran' v Benito, 5"p3"#!& To be
inde(endently (atentableC an im(ro%ement o)
an e8isting (atented in%ention m$st be a
ma<or im(ro%ement (0quas v de =eon =8#$"%7
#7Aan6$!
"atents6 Ri'#ts oer t#e
2nention ()**0) C'ec'e in%ented a de%ice t'at can con%ert
rain:ater into a$tomobile )$el& /'e asked
*aconC a la:yerC to assist in getting 'er
in%ention (atented& *acon s$ggested t'at
t'ey )orm a cor(oration :it' ot'er )riends
and 'a%e t'e cor(oration a((ly )or t'e
(atentC 90J o) t'e s'ares o) stock t'ereo) to
be s$bscribed by C'ec'e and 0J by *acon&
T'e cor(oration :as )ormed and t'e (atent
a((lication :as )iled& Fo:e%erC C'ec'e died
! mont's later o) a 'eart attack&
-rancoC t'e estranged '$sband o) C'ec'eC
contested t'e a((lication o) t'e cor(oration
and )iled 'is o:n (atent a((lication as t'e
sole s$r%i%ing 'eir o) C'ec'e& Decide t'e
iss$e :it' reasons&
SUGGESTED ANSWER:
T'e estranged '$sband o) C'ecke cannot
s$ccess)$lly contest t'e a((lication& T'e
rig't o%er in%entions accr$e )rom t'e
moment o) creation and as a rig't it can
la:)$lly be assigned& ;nce t'e title t'ereto is
%ested in t'e trans)ereeC t'e latter 'as t'e
rig't to a((ly )or its registration& T'e
estranged '$sband o) C'ec'eC i) not
dis5$ali)ied to in'eritC merely :o$ld s$cceed
to t'e interest o) C'ec'e&
2ote 0n examinee who answers on the
basis of the issue of validity of the
transfer of patent as a valid consideration
for subscription of the shares of stoc's
should be given due credit/ Tra:emar-
()**0) 6n +,99C t'e -ood and Dr$g Administration
a((ro%ed t'e labels s$bmitted by T$rbo
Cor(oration )or its ne: dr$g brand nameC
AA8ilon&B T$rbo is no: a((lying :it' t'e
B$rea$ o) PatentsC Trademarks and
Tec'nology Trans)er )or t'e registration o)
said brand name& 6t :as s$bse5$ently
con)irmed t'at AAccilonneB is a generic term
)or a class o) anti-)$ngal dr$gs and is $sed as
s$c' by t'e medical (ro)ession and t'e
('armace$tical ind$stryC and t'at it is $sed
as a generic c'emical name in %ario$s
scienti)ic and (ro)essional ($blications& A
com(eting dr$g man$)act$rer asks yo$ to
contest t'e registration o) t'e brand name
AA8ilonB by T$rbo& @'at :ill yo$ ad%ice beI
SUGGESTED ANSWER:
T'e a((lication )or registration by T$rbo
Cor(oration may be contested& T'e
Trademark 7a: :o$ld not allo: t'e
registration o) a trademark :'ic'C :'en
a((lied to or $sed in connection :it' 'is
(rod$ctsC is merely descri(ti%e or dece(ti%ely
misdescri(ti%e o) t'em& Con)$sion can res$lt
)rom t'e $se o) AA8ilonB as t'e generic
(rod$ct itsel)&
A<TERNAT2@E ANSWER:
*edical dr$gs may be (roc$red only $(on
(rescri(tion made by a d$ly licensed
('ysician& T'e (ossibility o)
Page 03 of 103 dece(tion co$ld be rat'er
remote& /ince it cannot really be said t'at
('ysicians can be so easily decei%ed by s$c'
trademark as AA8ilonCB it may be 'ard to
e8(ect an o((osition t'ereto to s$cceed&
AN8TIER ANSWER:
T'e a((lication )or registration o) T$rbo
Cor(oration may be contested& T'e )act$al
settings do not indicate t'at t'ere 'ad been
(rior $se )or at least 2 mont's o) t'e
trademark AA8ilon&B
Tra:emar-
()**7) 7abergeC 6nc&C man$)act$res and markets
a)ter-s'a%e lotionC s'a%ing creamC deodorantC
talc$m (o:der and toilet soa(C $sing t'e
trademark APR?TBC :'ic' is registered :it'
t'e P'il Patent ;))ice& 7aberge does not
man$)act$re brie)s and $nder:ear and t'ese
items are not s(eci)ied in t'e certi)icate o)
registration&
#2 :'o man$)act$res brie)s and $nder:earC
:ants to kno: :'et'erC $nder o$r la:sC 'e
can $se and register t'e trademark APR?TEB
)or 'is merc'andise& @'at is yo$r ad%iceI
SUGGESTED ANSWER:
Kes& T'e trademark registered in t'e name o)
7aberge 6nc co%ers only a)ter-s'a%e lotionC
s'a%ing creamC deodorantC talc$m (o:der
and toilet soa(& 6t does not co%er brie)s and
$nder:ear&
T'e limit o) t'e trademark is stated in t'e
certi)icate iss$ed to 7aberge 6nc& 6t does not
incl$de brie)s and $nder:ear :'ic' are
di))erent (rod$cts (rotected by 7arberges
trademark&
#2 can register t'e trademark APR?TEB to
co%er its brie)s and $nder:ear (-aberge .nc v
.0& $"5 s #"%!
Tra:emar-3 Test o&
Dominanc% ()**5) @'at is t'e Atest o) dominancyIB
SUGGESTED ANSWER:
T'e test o) dominancy re5$ires t'at i) t'e
com(eting trademark contains t'e main or
essential )eat$res o) anot'er and con)$sion
and dece(tion is likely to res$ltC in)ringement
takes (lace& D$(lication or imitation is not
necessary1 not is it necessary t'at t'e
in)ringing label s'o$ld s$ggest an e))ort to
imitate& /imilarity in siEeC )orm and colorC
:'ile rele%antC is not concl$si%e& (0sia
Brewery v &0 1+ "7#54# Aul5,9# $$4s4#3!
Tra:emar-6
2n&rin'ement ()**)) /ony is a registered trademark )or T=C
stereoC radioC camerasC betama8 and ot'er
electronic (rod$cts& A local com(anyC Best
*an$)act$ring 6nc (rod$ced electric )ans
:'ic' it sold $nder t'e trademark /ony
:it'o$t t'e consent o) /ony& /ony s$ed Best
*an$)act$ring )or in)ringement& Decide t'e
case&
SUGGESTED ANSWER:
T'ere is no in)ringement& 6n order t'at a case
)or in)ringement o) trademark can (ros(erC
t'e (rod$cts on :'ic' t'e trademark is $sed
m$st be o) t'e same kind& T'e electric )ans
(rod$ced by Best *an$)act$ring cannot
Mercantile Law Bar Examination Q & A (1990-2006)
be said to be similar to s$c' (rod$cts as T=C
stereo and radio sets or cameras or betama8
(rod$cts o) /ony&
A<TERNAT2@E ANSWER:
T'ere is in)ringement& 6) t'e o:ner o) a
trademark :'ic' man$)act$res certain ty(es
o) goods co$ld reasonably be e8(ected to
engage in t'e man$)act$re o) anot'er
(rod$ct $sing t'e same trademarkC anot'er
(arty :'o $ses t'e trademark )or t'at
(rod$ct can be 'eld liable )or $sing t'at
trademark& ?sing t'is standardC in)ringement
e8ists beca$se /ony can be reasonably
e8(ected to $se s$c' trademark on electric
)ans&
Tra:emar-6 Test o&
Dominanc% ()**5) > Cor(oration man$)act$res r$bber s'oes
$nder t'e trademark A#ordannB :'ic' 'it t'e
P'il market in +,90C and registered its
trademark :it' t'e B$rea$ o) PatentsC
Trademarks and Tec'nology BPTTT" in +,,0&
PH Com(any also man$)act$res r$bber s'oes
:it' t'e trademark A#a%orskiB :'ic' it
registered :it' BPTTT in +,79&
6n +,,2C PH Co ado(ted and co(ied t'e
design o) > Cor(orations A#ordannB r$bber
s'oesC bot' as to s'a(e and colorC b$t
retained t'e trademark A#a%orskiB on its
(rod$cts&
*ay PH Com(any be 'eld liable to > CoI
E8(lain&
SUGGESTED ANSWER:
PH Co may be liable )or $n)airly com(eting
against > Co& By co(ying t'e designC s'a(e
and color o) > Cor(orations A#ordannB r$bber
s'oes and $sing t'e same in its r$bber s'oes
trademarked A#a%orskiCB PH is ob%io$sly trying
to (ass o)) its s'oes )or t'ose o) >& 6t is o) no
moment t'at 'e trademark A#a%orskiB :as
registered a'ead o) t'e trademark A#ordann&B
Priority in registration is not material in an
action )or $n)air com(etition as disting$is'ed
)rom an action )or in)ringement o) trademark&
T'e basis o) an action )or $n)air com(etition
is con)$sing and misleading similarity in
general a((earanceC not similarity o)
trademarks
(&onverse +ubber &o v Aacinto +ubber D ;lastics
&o 1+ $34$5 and #7575, 0pr$6,67 93s"56!
Tra:ename: 2nternational
A&&iliation (2001) / De%elo(ment Cor(oration s$ed /'angrila
Cor(oration )or $sing t'e A/B logo and t'e
tradename A/'angrilaB& T'e )ormer claims
t'at it :as t'e )irst to register t'e logo and t'e
tradename in t'e P'ili((ines and t'at it 'ad
been $sing t'e same in its resta$rant
b$siness& /'angrila Cor(oration co$nters t'at
it is an a))iliate o) an international organiEation
:'ic' 'as been $sing s$c' logo and
tradename A/'angrilaB )or o%er 20 years&
Fo:e%erC /'angrila Cor(oration registered t'e
tradename and logo in t'e P'ili((ines only
a)ter t'e s$it :as )iled&
@'ic' o) t'e t:o cor(orations 'as a better
rig't to $se t'e logo and t'e tradenameI
E8(lain&
SUGGESTED ANSWER:
/ De%elo(ment Cor(oration 'as a better
rig't to $se t'e logo and t'e tradenameC
since t'e (rotecti%e bene)its o)
Page 0/ of 103
t'e la: are con)erred by t'e )act o)
registration and not by $se& Alt'o$g'
/'angrila Cor(orationLs (arent 'ad $sed t'e
tradename and logo long be)oreC t'e
(rotection o) t'e la:s :ill be )or /
De%elo(ment Cor(oration beca$se it :as t'e
)irst entity to register t'e intellect$al
(ro(erties&
Io> :oes t#e international a&&iliation o&
S#an'rila Cor$oration a&&ect t#e
outcome o& t#e :is$uteB E=$lain! (1C)
SUGGESTED ANSWER:
T'e international a))iliation o) /'angrila
Cor(oration may be critical in t'e e%ent t'at
its a))iliates or (arent com(any abroad 'ad
registered in a )oreign <$risdiction t'e
tradename and t'e logo& A :ell-kno:n mark
and tradename is s$b<ect to (rotection $nder
Treaty o) Paris )or t'e Protection o)
6ntellect$al Pro(erty to :'ic' t'e P'ili((ines
is a member&
Insolven!y 2 Cor%orate
Re!overy
2nsolenc% s! Sus$ension o&
"a%ment ()**4) Disting$is' insol%ency )rom s$s(ension o)
(ayments& !J"
SUGGESTED ANSWER:
a" 6n insol%encyC t'e liabilities o) t'e
debtor are more t'an 'is assetsC :'ile in
s$s(ension o) (aymentsC assets o) t'e
debtor are more t'an 'is liabilities&
b" 6n insol%encyC t'e assets o) t'e debtor
are to be con%erted into cas' )or distrib$tion
among 'is creditorsC :'ile in s$s(ension o)
(aymentsC t'e debtor is only asking )or time
:it'in :'ic' to con%ert 'is )roEen assets into
li5$id cas' :it' :'ic' to (ay 'is obligations
:'en t'e latter )all d$e&
2nsolenc%: @oluntar%
2nsolenc% (2001) AaronC a :ell-kno:n arc'itectC is s$))ering
)rom )inancial re%erses& Fe 'as )o$r creditors
:it' a total claim o) P24 *illion& Des(ite 'is
intention to (ay t'ese obligationsC 'is
c$rrent assets are ins$))icient to co%er all o)
t'em& Fis creditors are abo$t to s$e 'im&
Conse5$entlyC 'e :as constrained to )ile a
(etition )or insol%ency& 0J" a" /ince Aaron
:as merely )orced by circ$mstances to
(etition t'e co$rt to declare 'im
insol%entC can t'e <$dge (ro(erly treat t'e
(etition as one )or in%ol$ntary insol%encyI
E8(lain&
SUGGESTED ANSWER:
>o& T'is is a case )or %ol$ntary insol%ency
beca$se t'is :as )iled by an insol%ent debtor
o:ing debts e8ceeding t'e amo$nt o)
P+C000&00 $nder /ection +3 o) t'e 6nsol%ency
7a:& ?nder /ection 20 o) t'e 6nsol%ency 7a:C
t'e (etition m$st be )iled by t'ree or more
creditors& 6n t'e case at barC it is AaronC t'e
debtorC :'o )iled t'e insol%ency (roceedings&
Mercantile Law Bar Examination Q & A (1990-2006)
b" 6) Aaron is declared an insol%ent by
t'e co$rtC :'at :o$ld be t'e e))ectC i) anyC o)
s$c' declaration on 'is creditorsI E8(lain&
SUGGESTED ANSWER:
A declaration by t'e co$rt t'at t'e (etitioner
is insol%ent :ill 'a%e t'e )ollo:ing e))ects:
+" T'e s'eri)) s'all take (ossession
o) all assets o) t'e debtor $ntil t'e
a((ointment o) a recei%er or assignee1
2" Payment to t'e debtor o) any
debts d$e to 'im and t'e deli%ery to t'e
debtor o) any (ro(erty belonging to 'imC
and t'e trans)er o) any (ro(erty by 'im
are )orbidden1
!" All ci%il (roceedings (ending
against t'e insol%ent s'all be stayed1 and
3" *ortgages and (ledges are not
a))ected by t'e order declaring a (erson
insol%ent& /ec& 0,C 6nsol%ency 7a:"
c" Ass$ming t'atC Aaron 'as g$arantors
)or 'is debtsC are t'e g$arantors released
)rom t'eir obligations once Aaron is
disc'arged )rom 'is debtsI E8(lain&
SUGGESTED ANSWER:
>oC (recisely $nder t'e (rinci(le o)
e8c$ssionC t'e liability o) t'e g$arantors
arises only a)ter t'e e8'a$stion o) t'e assets
o) t'e (rinci(al obligor& T'e e))ect o)
disc'arge merely con)irms e8'a$stion o) t'e
assets o) t'e obligor a%ailable to 'is
creditors&
A<TERNAT2@E ANSWER:
Kes& Article 2074 o) t'e Ci%il Code (ro%ides:
T'e obligation o) t'e g$arantor is
e8ting$is'ed at t'e same time as t'at o) t'e
debtorC and )or t'e same ca$ses as all ot'er
obligations&
d" @'at remedies are a%ailable to t'e
g$arantors in case t'ey are made to (ay t'e
creditorsI E8(lain&
SUGGESTED ANSWER:
?nder Article 209+C t'e g$arantor may set $(
against t'e creditor all t'e de)enses t'at
(ertain to t'e (rinci(al debtor& T'e disc'arge
obtained by Aaron on t'e (rinci(al obligation
can no: be $sed as a de)ense by t'e
g$arantors against t'e creditors& T'e
g$arantors are also entitled to indemnity
$nder Article 2044 o) t'e Ci%il Code&
2nsolenc%6 Assets s!
<ia.ilities ()**4) Foracio o(ened a co))ee s'o( $sing money
borro:ed )rom )inancial instit$tions& A)ter !
mont'sC Foracio le)t )or t'e ?/ :it' t'e
intent o) de)ra$ding 'is creditors& @'ile 'is
liabilities are :ort' P+&2mC 'is assetsC
'o:e%er are :ort' P+&0m& *ay Foracio be
declared insol%entI 2J"
SUGGESTED ANSWER:
>o& Foracio may not be declared insol%ent&
Fis assets :ort' P+&0m are more t'an 'is
liabilities :ort' P+&2m&
2nsolenc%6
Assi'nees ()**5) ;n #$ne +4C +,,0C =icente obtained a :rit o)
(reliminary attac'ment against Carlito& T'e
le%y on Carlitos (ro(erty occ$rred on #$ne
20C +,,0& ;n #$ly 2,C +,,0C anot'er creditor
)iled a (etition )or in%ol$ntary insol%ency
against Carlito& T'e insol%ency co$rt ga%e
d$e co$rse to t'e
Page 0$ of 103
(etition& 6n t'e meantimeC t'e case )iled by
=icente (roceeded and res$lted in a
<$dgment a:ard in )a%or o) =icente& *ay t'e
<$dgment obtained by =icente be en)orced
inde(endently o) t'e insol%ency
(roceedingsI E8(lain&
SUGGESTED ANSWER:
T'e <$dgment obtained by =icente can be
en)orced inde(endently o) t'e insol%ency
(roceedings& ?nder /ec !2 o) t'e 6nsol%ency
7a:C t'e assignment to t'e assignee o) all
t'e real and (ersonal (ro(ertyC estate and
e))ects o) t'e debtor made by t'e clerk o) t'e
co$rt s'all %acate and set aside any
<$dgment entered in any action commenced
:it' !0 days immediately (rior to t'e
commencement o) insol%ency (roceedings&
6n t'is caseC 'o:e%erC t'e action )iled by
=icente against Carlito :as commenced by
=icente not later t'an #$ne +4C +,,0 t'e
)acts on t'is (oint are not clear" :'en
=icente obtained a :rit o) (reliminary
attac'ment against Carlito or more t'an !0
days be)ore t'e (etition )or in%ol$ntary
insol%ency :as )iled against Carlito by 'is
ot'er creditors& i&e& on #$ly 2,C +,,0"
(+adiola8:oshiba ;hil v .0& 1+ 35$$$ Auly"6,9"
"99s#3#!
2nsolenc%6 E&&ect6 Declaration o&
2nsolenc% ()**)) @'at are t'e e))ects o) a <$dgment in
insol%ency in =ol$ntary 6nsol%ency casesI
SUGGESTED ANSWER:
T'e ad<$dication or declaration o) insol%ency
by t'e co$rtC a)ter 'earing or de)a$ltC s'all
'a%e t'e )ollo:ing e))ects: a" -orbid t'e
(ayment to t'e debtor o) any debt d$e to
'im and t'e deli%ery to 'im o) any (ro(erty
belonging to 'im1 b" -orbid t'e trans)er o)
any (ro(erty by 'im1 and c" /tay o) all ci%il
(roceedings against t'e insol%ent b$t
)oreclos$re may be allo:ed /ecs +9 . 23
6nsol%ency 7a:"
2nsolenc%6 /rau:ulent
"a%ment (2002) As o) #$ne +C 2002C EdEo /ystems
Cor(oration EdEo" :as indebted to t'e
)ollo:ing creditors: a" Ace E5$i(ment
/$((lies M )or %ario$s (ersonal
com($ters and accessories sold to EdEo
on credit amo$nting to P!00C000&
b" Fandyman 2arage M )or mec'anical
re(airs (arts and ser%ice" (er)ormed on
EdEos com(any car amo$nting to P+0C000&
c" #oselyn Reyes M )ormer em(loyee o)
EdEo :'o s$ed EdEo )or $nla:)$l termination
o) em(loyment and :as able to obtain a
)inal <$dgment against EdEo )or P+00C000&
d" B$rea$ o) 6nternal Re%en$e M )or
$n(aid %al$e-added ta8es amo$nting to
P!0C000& e" 6ntegrity Bank M :'ic' granted EdEo a
loan in 200+ in t'e amo$nt o) P000C000& T'e
loan :as not sec$red by any asset o) EdEoC
b$t it :as g$aranteed $nconditionally and
solidarily by EdEos President and controlling
stock'olderC Ed$ardo Q& ;ngC as
accommodation s$rety&
T'e loan d$e to 6ntegrity Bank )ell d$e on
#$ne +0C 2002& Des(ite (leas )or e8tension o)
(ayment by EdEoC t'e
Mercantile Law Bar Examination Q & A (1990-2006)
bank demanded immediate (ayment&
Beca$se t'e bank t'reatened to (roceed
against t'e s$retyC Ed$ardo Q& ;ngC EdEo
decided to (ay $( all its obligations to
6ntegrity Bank& ;n #$ne 20C 2002C EdEo (aid
to 6ntegrity Bank t'e )$ll (rinci(al amo$nt o)
P000C000C (l$s accr$ed interests amo$nting
to P00C000& As a res$ltC EdEo 'ad 'ardly any
cas' le)t )or o(erations and decided to close
its b$siness& A)ter (aying t'e $n(aid salaries
o) its em(loyeesC EdEo )iled a (etition )or
insol%ency on #$ly +C 2002&
6n t'e insol%ency (roceedings in co$rtC t'e
assignee in insol%ency so$g't to in%alidate
t'e (ayment made by EdEo to 6ntegrity Bank
)or being a )ra$d$lent trans)er beca$se it :as
made :it'in !0 days be)ore t'e )iling o) t'e
insol%ency (etition& 6n de)enseC 6ntegrity Bank
asserted t'at t'e (ayment to it :as )or a
legitimate debt t'at :as not co%ered by t'e
(ro'ibition beca$se it :as Aa %al$able
(ec$niary consideration made in good )ait'CB
t'$s )alling :it'in t'e e8ce(tion s(eci)ied in
t'e 6nsol%ency 7a:& As <$dge in t'e (ending
insol%ency caseC 'o: :o$ld yo$ decide t'e
res(ecti%e contentions o) t'e assignee in
insol%ency and o) 6ntegrity BankI E8(lain
0J"
SUGGESTED ANSWER:
T'e contention o) t'e assignee in insol%ency
is correct& T'e (ayment made by EdEo to
6ntegrity Bank :as a )ra$d$lent (re)erence or
(aymentC being made :it'in t'irty !0" days
be)ore t'e )iling o) t'e insol%ency (etition&
2nsolenc%6 Juris:iction6 Sole
"ro$rietors#i$ ()**0) ;ne day #erry Fa:C doing b$siness $nder t'e
name /tarlig't Enter(riseC a sole
(ro(rietors'i(C )inds 'imsel) s'ort on cas'
and $nable to (ay 'is debts as t'ey )all d$e
alt'o$g' 'e 'as s$))icient (ro(erty to co%er
s$c' debts& Fe asks yo$C as 'is retained
co$nselC )or ad%ice on t'e )ollo:ing 5$eries:
a" /'o$ld 'e )ile a (etition :it' t'e /EC to be
declared in a state o) s$s(ension o)
(ayments in %ie: o) t'e said )inancial
condition 'e )acesI E8(lain yo$r ans:er& b"
/'o$ld 'e sell (ro)it (artici(ation certi)icates
to 'is +0 brot'ers and sisters in order to raise
cas' )or 'is b$sinessI E8(lain&
SUGGESTED ANSWER:
a" 6 :o$ld co$nsel #erry to )ile t'e Petition )or
/$s(ension o) Payment :it' t'e ordinary
co$rtsC rat'er t'an t'e /EC& /ECs <$risdiction
o%er s$c' cases is con)ined only to (etitions
)iled by cor(orations and (artners'i(s $nder
its reg$latory (o:ers&
b" 6nstead o) selling (ro)it (artici(ation
certi)icatesC 6 :o$ld $rge #erry to enter into a
(artners'i( or to incor(orate in order to raise
cas' )or 'is b$siness&
A<TERNAT2@E ANSWER:
b" #erry may sell (ro)it (artici(ation
certi)icates to 'is brot'ers and sisters
:it'o$t registering t'e same :it' t'e /EC
beca$se 'is sale is an e8em(ted transaction
being isolated and not a sale to t'e ($blic&
2nsolenc%6 o.li'ations t#at
surie ()**+)
Page 00 of 103 An insol%ent debtorC a)ter
la:)$l disc'arge )ollo:ing an ad<$dication o)
insol%encyC is released )romC generallyC all
debtsC claimsC liabilities and demands :'ic'
are or 'a%e been (ro%ed against 'is estate&
2i%e 0 obligations o) t'e insol%ent debtor to
s$r%i%e&
SUGGESTED ANSWER:
T'e 0 obligations o) t'e insol%ent debtor
t'at s$r%i%e are as )ollo:s:
+Ta8es and assessments d$e t'e
go%ernmentC national or local1
2;bligations arising )rom embeEElement or
)ra$d1
!;bligation o) any (erson liable :it' t'e
insol%ent debtor )or t'e same debtC eit'er as
a solidary codebtorC s$retyC g$arantorC
(artnerC indorser or ot'er:ise&
3Alimony or claim )or s$((ort1 and
0Debts not (ro%able against t'e estate s$c'
as a)ter-inc$rred obligations" o)C or not
incl$ded in t'e sc'ed$le s$bmitted byC t'e
insol%ent debtor&
2nsolenc%6 @oluntar% 2nsolenc%
"rocee:in' ()**)) 6s t'e iss$ance o) an orderC declaring a
(etition in a =ol$ntary 6nsol%ency (roceeding
insol%entC mandatory $(on t'e co$rtI
SUGGESTED ANSWER:
Ass$ming t'at t'e (etition :as in d$e )orm
and s$bstance and t'at t'e assets o) t'e
(etitioner are less t'an 'is liabilitiesC t'e
co$rt m$st ad<$dicate t'e insol%ency /ec +9
6nsol%ency 7a:"
2nsolenc%6 @oluntar% s! 2noluntar%
Solenc% ()**1) Disting$is' bet:een %ol$ntary insol%ency and
in%ol$ntary insol%ency&
SUGGESTED ANSWER:
6n %ol$ntary insol%encyC it is t'e debtor
'imsel) :'o )iles t'e (etition )or insol%encyC
:'ile in in%ol$ntary insol%encyC at least !
creditors are t'e ones :'o )ile t'e (etition )or
insol%ency against t'e insol%ent debtor&
A<TERNAT2@E ANSWER:
T'e )ollo:ing are t'e distinctions:
+6n in%ol$ntary insol%encyC ! or more creditors
are re5$iredC :'ereas in %ol$ntary insol%encyC
one creditor may be s$))icient1
26n in%ol$ntary insol%encyC t'e creditors m$st
be residents o) t'e P'ili((inesC :'ose credits
or demand accr$ed in t'e P'ili((inesC and
none o) t'e creditors 'as become a creditor
by assignment :it'in !0 days (rior to t'e
)iling o) t'e (etitionC :'ereas in %ol$ntary
insol%encyC t'ese are not re5$ired&
!6n in%ol$ntary insol%encyC t'e debtor m$st
'a%e done any o) t'e acts o) insol%ency as
en$merated by /ec 20C :'ereas in %ol$ntary
insol%encyC t'e debtor m$st not 'a%e done
any o) said acts&
36n in%ol$ntary insol%encyC t'e amo$nt o)
indebtedness m$st not be less t'an P+C000
:'ereas in %ol$ntary insol%encyC it m$st
e8ceed P+C000&
06n in%ol$ntary insol%encyC t'e (etition m$st
be accom(anied by a bondC :'ereas s$c' is
not re5$ired in %ol$ntary insol%ency&
Mercantile Law Bar Examination Q & A (1990-2006)
<a> on Cor$orate
Recoer% (2003) N Cor(oration a((lied )or its re'abilitation
and s$bmitted a re'abilitation (lan :'ic'
called )or t'e entry by it into a <oint %ent$re
agreement :it' K Cor(oration& ?nder t'e
agreementC K Cor(oration :as to lend to N
Cor(oration its credit )acilities :it' certain
banks to obtain )$nds not only to o(erate N
Cor(oration b$t also )or a (art t'ereo) in t'e
amo$nt o) P+ million as initial de(osit in a
sinking )$nd to be a$gmented ann$ally in
amo$nts e5$i%alent to +0J o) t'e yearly
income )rom its o(eration o) t'e b$siness o) N
Cor(oration& -rom t'is )$nd t'e creditors o) N
Cor(oration :ere to be (aid ann$allyC starting
)rom t'e second year o) o(erationsC :it' t'e
entire indebtedness to be li5$idated in +0
years& T'e creditors o) N Cor(oration ob<ected
to t'e (lan beca$se K Cor(oration :o$ld be
taking o%er t'e b$siness and assets o) N
Cor(oration& Co$ld t'e co$rt a((ro%e t'e (lan
des(ite t'e ob<ections o) t'e creditors o) N
Cor(oration and co$ld t'e creditors be
com(elled to )ollo: t'e (lanI Co$ld K
Cor(orationC in managing t'e b$siness o) N
Cor(oration in t'e meantimeC be deemed to
'a%e taken-o%er N Cor(oration itsel)I 4J"
SUGGESTED ANSWER:
Re#a.ilitation6 Sta%
8r:er (2005) T'e Bl$e /tar Cor(oration )iled :it' t'e
Regional Trial Co$rt a (etition )or re'abilitation
on t'e gro$nd t'at it )oresa: t'e im(ossibility
o) (aying its obligations as t'ey )all d$e&
-inding t'e (etition s$))icient in )orm and
s$bstanceC t'e co$rt iss$ed an ;rder
a((ointing a re'abilitation recei%er and staying
t'e en)orcement o) all claims against t'e
cor(oration&
W#at is t#e rationale &or t#e Sta% 8r:erB
(1C)
SU++ESTE6 ANSWER(
T'e ($r(ose o) t'e stay order is intended to
gi%e t'e management committee or
re'abilitation recei%er t'e lee:ay to make
t'e b$siness %iable againC :it'o$t 'a%ing to
di%ert attention and reso$rces to litigation in
%ario$s )ora (;hilippine 0irlines v/ Spouses
@urang'ing, et al, 1/+/ 2o/ "4%%96, September
$4, $77$< B- Eomes, .nc/ v/ &ourt of 0ppeals,
1/+/ 2os/ 3%639 D 33"4#, ,ctober #, "997<
+ubberworld N;hils/O .nc/ v/ 2=+&, 1/+/ 2o/
"$%33#, 0pril "4, "999< SobreJuanite v/ 0SB 5ev/
&orp/, 1/+/ 2o/ "%5%35, September #7, $775!/ 6t
also (re%ents a creditor )rom obtaining an
ad%antage or (re)erence o%er anot'er :it'
res(ect to actions against t'e cor(oration
(-inasia .nvestments and -inance &orp v/ &ourt of
0ppeals, 1/ +/ 2o/ "7377$, ,ctober 3,"994!&
Sus$ension o& "a%ment s!
2nsolenc% ()**1) Disting$is' bet:een s$s(ension o) (ayments
and insol%ency&
SUGGESTED ANSWER:
6n s$s(ension o) (aymentsC t'e debtor is not
insol%ent& Fe only needs time :it'in :'ic'
to con%ert 'is assetGs into cas' :it' :'ic' to
(ay 'is obligations :'en t'ey )all d$e& 6n t'e
case o) insol%encyC t'e debtor is insol%entC
t'at isC 'is assets are less t'an 'is liabilities&
A<TERNAT2@E ANSWER:
T'e )ollo:ing are t'e distinctions:
Page 01 of 103
+6n s$s(ension o) (aymentsC t'e debtor 'as
s$))icient (ro(erty to co%er all 'is debts b$t
)oresees t'e im(ossibility o) meeting t'em
:'en t'ey res(ecti%ely )all d$eC :'ereasC in
insol%encyC t'e debtor does not 'a%e
s$))icient (ro(erty to (ay all 'is debts in )$ll1
26n s$s(ension o) (aymentsC t'e ($r(ose is to
s$s(end or delay (ayment o) debts :'ic'
remain $na))ected alt'o$g' a (ost(onement
o) (ayment is declaredC :'ereasC in
insol%encyC t'e ob<ect is to obtain disc'arge
)rom all debts and liability1
!6n s$s(ension o) (aymentsC no limit )or t'e
amo$nt o) indebtedness is re5$iredC :'ereasC
in insol%encyC t'e debts m$st e8ceed P+C000
in case o) %ol$ntary insol%encyC or m$st not
be less t'an P+C000 in case o) in%ol$ntary
insol%ency&
Sus$ension o& "a%ments s!
Sta% 8r:er (2003) Disting$is' t'e stay order in cor(orate
re'abilitation )rom a declaration in a state o)
s$s(ension o) (aymentsI 3J"
SUGGESTED ANSWER:
Sus$ension o& "a%ments6
Re#a.ilitation Receier ()***) Debtor Cor(oration and its (rinci(al
stock'olders )iled :it' t'e /ec$rities and
E8c'ange Commission /EC" a (etition )or
re'abilitation and declaration o) a state o)
s$s(ension o) (ayments $nder PD ,02-A& T'e
ob<ecti%e :as )or /EC to take control o) t'e
cor(oration and all its assets and liabilitiesC
earnings and o(erationsC and to determine
t'e )easibility o) contin$ing o(erations and
re'abilitating t'e com(any )or t'e bene)it o)
in%estors and creditors&
2enerallyC t'e $nsec$red creditors 'ad
mani)ested :illingness to coo(erate :it'
Debtor Cor(oration& T'e sec$red creditorsC
'o:e%erC e8(ressed serio$s ob<ections and
reser%ations&
-irst Bank 'ad already initiated <$dicial
)oreclos$re (roceedings on t'e mortgage
constit$ted on t'e )actory o) Debtor
Cor(oration&
/econd Bank 'ad already initiated )oreclos$re
(roceedings on a t'ird-(arty mortgage
constit$ted on certain assets o) t'e (rinci(al
stock'olders&
T'ird Bank 'ad already )iled a s$it against
t'e (rinci(al stock'olders :'o 'ad 'eld
t'emsel%es liable <ointly and se%erally )or
t'e loans o) Debtor Cor(oration :it' said
Bank&
A)ter 'earingC t'e /EC directed t'e
a((ointment o) a re'abilitation recei%er and
ordered t'e s$s(ension o) all actions and
claims against t'e Debtor cor(oration as :ell
as against t'e (rinci(al stock'olders& a"
Disc$ss t'e %alidity o) t'e /EC order or
s$s(ensionI
2J"
Mercantile Law Bar Examination Q & A (1990-2006)
b" Disc$ss t'e e))ects o) t'e /EC order
o) s$s(ension on t'e <$dicial )oreclos$re
(roceedings initiated by -irst Bank& 2J"
c" @o$ld t'e order o) s$s(ension 'a%e
any e))ect on t'e )oreclos$re (roceedings
initiated by /econd BankI E8(lain 2J"
d" @o$ld t'e order o) s$s(ension 'a%e
any e))ect on t'e s$it )iled by T'ird BankI
E8(lain& 2J" e" @'at are t'e legal conse5$ences o) a
re'abilitation recei%ers'i(I 2J"
)" @'at meas$res may t'e recei%er
take to (reser%e t'e assets o) Debtor
Cor(orationI 2J"
SUGGESTED ANSWER:
a& T'e /EC order o) s$s(ension o) (ayment is
%alid :it' res(ect to t'e debtor cor(orationC
b$t not :it' res(ect to t'e (rinci(al
stock'olders& T'e /EC 'as <$risdiction to
declare s$s(ension o) (ayments :it' res(ect
to cor(orationsC (artners'i( or associationsC
b$t not :it' res(ect to indi%id$als&
SUGGESTED ANSWER:
b& T'e /EC order o) s$s(ension o) (ayment
s$s(ended t'e <$dicial (roceedings initiated
by t'e -irst Bank& According to t'e /$(reme
Co$rt in a line o) casesC t'e s$s(ension order
a((lies to sec$red creditors and to t'e action
to en)orce t'e sec$rity against t'e
cor(oration regardless o) t'e stage t'ereo)&
SUGGESTED ANSWER:
c& T'e order o) s$s(ension o) (ayments
s$s(ended t'e )oreclos$re (roceedings
initiated by t'e /econd Bank& @'ile t'e
)oreclos$re is against t'e (ro(erty o) a t'ird
(artyC it is in reality an action to collect t'e
(rinci(al obligation o:ned by t'e
cor(oration& D$ring t'e time t'at t'e
(ayment o) t'e (rinci(al obligation is
s$s(endedC t'e debtor cor(oration is
considered to be not in de)a$lt andC
t'ere)oreC e%en t'e rig't to en)orce t'e
sec$rityC :'et'er o:ned by t'e debtor-
cor(oration or o) a t'ird (artyC 'as not yet
arisen&
A<TERNAT2@E ANSWER:
c& T'e s$s(ension order does not a((ly to a
t'ird (arty mortgage beca$se in s$c' a caseC
t'e credit is not yet being en)orced against
t'e cor(oration b$t against t'e t'ird (arty
mortgagors (ro(erty&
SUGGESTED ANSWER:
d& -or t'e same reason as in c"C t'e order o)
s$s(ension o) (ayments s$s(ended t'e s$it
)iled by T'ird Bank against t'e (rinci(al
stock'olders&
A<TERNAT2@E ANSWER:
d& T'e action against t'e (rinci(al
stock'olders s$rety in )a%or o) t'e
cor(oration is not s$s(ended as it is not an
action against t'e cor(oration b$t against t'e
stock'olders :'ose (ersonality is se(arate
)rom t'at o) t'e cor(oration&
SUGGESTED ANSWER:
e& ?nder PD ,02AC t'e a((ointment o) a
re'abilitation recei%er :ill s$s(end all
actions )or claims against t'e cor(oration
and t'e cor(oration :ill be (laced $nder
Page 03 of 103
re'abilitation in accordance :it' a
re'abilitation (lan a((ro%ed by t'e /EC&
SUGGESTED ANSWER:
)& To (reser%e t'e assets o) t'e Debtor
Cor(orationC t'e recei%er may take c$stody
o)C and control o%erC all t'e e8isting assets
and (ro(erty o) t'e cor(oration1 e%al$ate
e8isting assets and liabilitiesC earnings and
o(erations o) t'e cor(oration1 and determine
t'e best :ay to sal%age and (rotect t'e
interest o) t'e in%estors and creditors&
Sus$ension o& "a%ments6
Reme:ies (2003) @'en is t'e remedy o) declaration in a state
o) s$s(ension o) (ayments a%ailable to a
cor(orationI
SUGGESTED ANSWER:
(er dondee" T'is remedy is a%ailable to a
cor(oration :'en it e8(eriences inability to
(ay oneLs debts and liabilitiesC and :'ere t'e
(etitioning cor(oration eit'er:
+'as s$))icient (ro(erty to co%er all its debts
b$t )oresees t'e im(ossibility o) meeting
t'em :'en t'ey )all d$e sol%ent b$t illi5$id"
or
2'as no s$))icient (ro(erty insol%ent" b$t is
$nder t'e management o) a re'abilitation
recei%er or a management committeeC t'e
a((licable la: is P&D& >o& ,02-A ($rs$ant to
/ec& 0 (ar&
Letters of Cre&it
<etter o& Cre:it:
(ort'a'e (2001) Ricardo mortgaged 'is )is'(ond to AC Bank
to sec$re a P+ *illion loan& 6n a se(arate
transactionC 'e o(ened a letter o) credit :it'
t'e same bank )or P000C000&00 in )a%or o)
F/ BankC a )oreign bankC to ($rc'ase
o$tboard motors& 7ike:iseC Ricardo e8ec$ted
a /$rety Agreement in )a%or o) AC Bank&
T'e o$tboard motors arri%ed and :ere
deli%ered to RicardoC b$t 'e :as not able to
(ay t'e ($rc'ase (rice t'ereo)& a" Can AC
Bank take (ossession o) t'e o$tboard
motorsI @'yI b" Can AC Bank also )oreclose
t'e mortgage o%er t'e )is'(ondI E8(lain&
0J"
SUGGESTED ANSWER:
a" >oC )or AC Bank 'as no legal standingC
m$c' less a lienC on t'e o$tboard motors&
6nso)ar as AC Bank is concernedC it 'as (ri%ity
:it' t'e (erson o) Ricardo $nder t'e /$rety
AgreementC and a lien on t'e )is'(ond based
on t'e real estate mortgage constit$ted
t'erein&
b" KesC b$t only to en)orce (ayment o)
t'e (rinci(al loan o) P+million sec$red by t'e
real estate mortgage on t'e )is'(ond
<etter o& Cre:it6 Certi&ication &rom
Consi'nee ()**3)
Mercantile Law Bar Examination Q & A (1990-2006)
B= agreed to sell to ACC a /'i( and
*erc'andise BrokerC 2C000 c$bic meters o)
logs at P27 (er c$bic meter -;B& A)ter
ins(ecting t'e logsC CD iss$ed a ($rc'ase
order&
;n t'e arrangements made $(on instr$ction
o) t'e consigneeC F.T Cor(oration o) 7AC
Cali)orniaC t'e /P Bank o) 7A iss$ed an
irre%ocable letter o) credit a%ailable at sig't
in )a%or o) B= )or t'e total ($rc'ase (rice o)
t'e logs& T'e letter o) credit :as mailed to -E
Bank :it' t'e instr$ction Ato )or:ard it to t'e
bene)iciary&B T'e letter o) credit (ro%ided
t'at t'e dra)t to be dra:n is on /P Bank and
t'at it be accom(anied byC among ot'er
t'ingsC a certi)ication )rom ACC stating t'at
t'e logs 'a%e been a((ro%ed (rior s'i(ment
in accordance :it' t'e terms and conditions
o) t'e ($rc'ase order&
Be)ore loading on t'e %essel c'artered by ACC
t'e logs :ere ins(ected by c$stom ins(ectors
and re(resentati%es o) t'e B$rea$ o) -orestryC
:'o certi)ied to t'e good condition and
e8(ortability o) t'e logs& A)ter t'e loading :as
com(letedC t'e C'ie) *ate o) t'e %essel
iss$ed a mate recei(t o) t'e cargo :'ic'
stated t'at t'e logs are in good condition&
Fo:e%erC AC re)$sed to iss$e t'e re5$ired
certi)ication in t'e letter o) credit& Beca$se o)
t'e absence o) certi)icationC -E Bank re)$sed
to ad%ance (ayment on t'e letter o) credit& +"
*ay -e Bank be 'eld liable $nder t'e letter o)
creditI E8(lain& 2" ?nder t'e )acts abo%eC t'e
sellerC B=C arg$ed t'at -E BankC by acce(ting
t'e obligation to noti)y 'im t'at t'e
irre%ocable letter o) credit 'as been
transmitted to it on 'is be'al)C 'as con)irmed
t'e letter o) credit& Conse5$entlyC -E Bank is
liable $nder t'e letter o) credit& 6s t'e
arg$ment tenableI E8(lain&
SUGGESTED ANSWER:
+" >o& T'e letter o) credit (ro%ides as a
condition a certi)ication o) AC& @it'o$t s$c'
certi)icationC t'ere is no obligation on t'e
(art o) -E Bank to ad%ance (ayment o) t'e
letter o) credit& (-eati Ban' v &0 "9% S 53%!
2" >o& -E Bank may 'a%e con)irmed t'e letter
o) credit :'en it noti)ied B=C t'at an
irre%ocable letter o) credit 'as been
transmitted to it on its be'al)& B$t t'e
conditions in t'e letter o) credit m$st )irst be
com(lied :it'C namely t'at t'e dra)t be
accom(anied by a certi)ication )rom AC&
-$rt'erC con)irmation o) a letter o) credit
m$st be e8(ressed& (-eati Ban' v &0 "9% s 53%!
<etters o& Cre:it6 <ia.ilit% o& a
con&irmin' an: noti&%in' .an- ()**7)
6n letters o) credit in banking transactionsC
disting$is' t'e liability o) a con)irming bank
)rom a noti)ying bank&
SUGGESTED ANSWER:
6n case anyt'ing :rong 'a((ens to t'e letter
o) creditC a con)irming bank inc$rs liability
)or t'e amo$nt o) t'e letter o) creditC :'ile a
noti)ying bank does not inc$r any liability&
<etters o& Cre:it6 <ia.ilit% o& a
Noti&%in' ,an- (2003) a" @'at liabilityC i) any is inc$rred by an
ad%ising or noti)ying bank in a letter o) credit
transactionI
Page 05 of 103
SUGGESTED ANSWER:
6t inc$rs no liability $nless it is also t'e negotiating
bank
b" Bra%o Bank recei%ed )rom Cisco Bank
by registered mail an irre%ocable letter o)
credit iss$ed by Delta Bank )or t'e acco$nt o)
K Com(any in t'e amo$nt o) ?/P+0C000C000
to co%er t'e sale o) canned )r$it <$ices& T'e
bene)iciary o) t'e letter o) credit :as N
Cor(oration :'ic' later on (artially a%ailed
itsel) o) t'e letter o) credit by s$bmitting to
Bra%o Bank all doc$ments relati%e to t'e
s'i(ment o) t'e cans o) )r$it <$ices& Bra%o
Bank (aid N Cor(oration )or its (artial
a%ailment& 7aterC 'o:e%erC it re)$sed )$rt'er
a%ailment beca$se o) s$s(icions o) )ra$d
being (racticed $(on it andC instead C s$ed N
Cor(oration to reco%er :'at it 'ad (aid t'e
latter& Fo: :o$ld yo$ r$le i) yo$ :ere t'e
<$dge to decide t'e contro%ersyI 4J"
SUGGESTED ANSWER:
<etters o& Cre:it6 T#ree Distinct
Contract Relations#i$s (2002)
E8(lain t'e t'ree !" distinct b$t intert:ined
contract relations'i(s t'at are indis(ensable
in a letter o) credit transaction&
SUGGESTED ANSWER:
T'e t'ree !" distinct b$t intert:ined contract
relations'i(s t'at are indis(ensable in a letter o)
credit transaction are:
+" Bet:een t'e a((licantGb$yerGim(orter and
t'e bene)iciaryGsellerGe8(orter M T'e
a((licantGb$yerGim(orter is t'e one :'o (roc$res
t'e letter o) credit and obliges 'imsel) to reimb$rse
t'e iss$ing bank $(on recei(t o) t'e doc$ments o)
titleC :'ile t'e bene)iciaryGsellerGe8(orter is t'e one
:'o in com(liance :it' t'e contract o) sale s'i(s
t'e goods to t'e b$yer and deli%ers t'e doc$ments
o) title and dra)t to t'e iss$ing bank to reco%er
(ayment )or t'e goods& T'eir relations'i( is
go%erned by t'e contract o) sale&
2" Bet:een t'e iss$ing bank and t'e
bene)iciaryGsellerGe8(orter M T'e iss$ing bank is
t'e one t'at iss$es t'e letter o) credit and
$ndertakes to (ay t'e seller $(on recei(t o) t'e
dra)t and (ro(er doc$ments o) title and to
s$rrender t'e doc$ments to t'e b$yer $(on
reimb$rsement& T'eir relations'i( is go%erned
by t'e terms o) t'e letter o) credit iss$ed by
t'e bank&
!" Bet:een t'e iss$ing bank and t'e
a((licantGb$yerGim(orter M T'eir relations'i( is
go%erned by t'e terms o) t'e a((lication and
agreement )or t'e iss$ance o) t'e letter o)
credit by t'e bank&
Maritime Commer!e
Aera'e6 "articular Aera'e s!
General Aera'e (2003)
Mercantile Law Bar Examination Q & A (1990-2006)
*G= 6log de *anila :it' a cargo o) 000 tons
o) iron ore le)t t'e Port o) Qamboanga City
bo$nd )or *anila& -or one reason or anot'erC
*G= 6log de *anila 'it a s$bmerged obstacle
ca$sing it to sink along :it' its cargo& A
sal%orC /al%adorC 6nc&C :as contracted to
re)loat t'e %essel )or P+ *illion& @'at kind o)
a%erage :as t'e re)loating )ee o) P+ millionC
and )or :'ose acco$nt s'o$ld it beI @'yI
3J"
SUGGESTED ANSWER:
Partic$lar A%erage& T'e o:ner o) t'e %essel
s'all s'o$lder t'e a%erage& 2enerally
s(eakingC sim(le or (artic$lar a%erages
incl$de all e8(enses and damages ca$sed to
t'e %essel or cargo :'ic' 'a%e not in$red to
t'e common bene)it Art& 90,C and areC
t'ere)oreC to be borne only by t'e o:ner o)
t'e (ro(erty :'ic' ga%e rise to t'e same
Art& 9+0" :'ile general or gross a%erages
incl$de Oall t'e damages and e8(enses :'ic'
are deliberately ca$sed in order to sa%e t'e
%esselC its cargoC or bot' at t'e same timeC
)rom a real and kno:n riskO Art& 9++"& Being
)or t'e common bene)itC gross a%erages are
to be borne by t'e o:ners o) t'e articles
sa%ed Art& 9+2"& 6n t'e (resent case t'ere is
no (roo) t'at t'e %essel 'ad to be ($t a)loat
to sa%e it )rom an imminent danger&
,ottomr%
()**7) 2igi obtained a loan )rom #o<o Cor(orationC
(ayable in installments& 2igi e8ec$ted a
c'attel mortgage in )a%or o) #o<o :'ereby s'e
trans)erred Ain )a%or o) #o<oC its s$ccessors
and assignsC all 'er titleC rig'ts &&& to a %essel
o) :'ic' 2igi is t'e absol$te o:ner&B T'e
c'attel mortgage :as registered :it' t'e
P'ili((ine Coast 2$ard ($rs$ant to PD +02+&
2igi de)a$lted and 'ad a total acco$ntability
o) P!*& B$t #o<o co$ld not )oreclose t'e
mortgage on t'e %essel beca$se it sank
d$ring a ty('oon& *ean:'ileC 7$tang
Cor(oration :'ic' rendered sal%age ser%ices
)or re)loating t'e %essel s$ed 2igi& @'ose
lien s'o$ld be gi%en (re)erenceC t'at o) #o<o
or 7$tangI
SUGGESTED ANSWER:
7$tang Cor(orations lien s'o$ld be gi%en
(re)erence& T'e lien o) #o<o by %irt$e o) a
loan o) bottomry :as e8ting$is'ed :'en t'e
%essel sank& ?nder s$c' loan on bottomry
#o<o acted not only as creditor b$t also as
ins$rer& #o<os rig't to reco%er t'e amo$nt o)
t'e loan is (redicated on t'e sa)e arri%al o)
t'e %essel at t'e (ort o) destination& T'e
rig't :as lost :'en t'e %essel sank /ec +7
PD +02+"
Carria'e o& Goo:s: Deiation:
<ia.ilit% (2001) ;n a clear :eat'erC *G= /$ndoC carrying
ins$red cargoC le)t t'e (ort o) *anila bo$nd
)or Ceb$& @'ile at seaC t'e %essel
enco$ntered a strong ty('oon )orcing t'e
ca(tain to steer t'e %essel to t'e nearest
island :'ere it stayed )or se%en days& T'e
%essel ran o$t o) (ro%isions )or its
(assengers& Conse5$entlyC t'e %essel
(roceeded to 7eyte to re(lenis' its s$((lies&
Ass$ming t'at t'e cargo :as damaged
beca$se o) s$c' de%iationC :'o bet:een t'e
ins$rance com(any and t'e o:ner o) t'e
cargo bears t'e lossI E8(lain&
SUGGESTED ANSWER:
Page 10 of 103 T'e ins$rance com(any s'o$ld
bear t'e loss to t'e cargo beca$se t'e
de%iation o) t'e %essel :as (ro(er in order
to a%oid a (erilC :'ic' :as t'e strong
ty('oon& T'e r$nning o$t o) (ro%isions :as
a direct conse5$ence o) t'e (ro(er de%iation
in order to a%oid t'e (eril o) t'e ty('oon&
A<TERNAT2@E ANSWER:
T'e o:ner o) t'e cargo bears t'e loss
beca$se in t'e case at barC t'ey stayed too
long at t'e islandC making it an im(ro(er
de%iation& E%ery de%iation not s(eci)ied in
/ec& +23 is im(ro(er& /ec& +20C 6ns$rance
Code"
Carria'e o& Goo:s6 Deiation6
W#en "ro$er (2001) ?nder :'at circ$mstances can a %essel
(ro(erly (roceed to a (ort ot'er t'an its
(ort o) destinationI E8(lain& 3J"
SUGGESTED ANSWER:
De%iation is (ro(er:
a" :'en ca$sed by circ$mstances o%er :'ic'
neit'er t'e master nor t'e o:ner o) t'e s'i( 'as any
control1 b" :'en necessary to com(ly :it' a
:arranty or a%oid a
(erilC :'et'er or not t'e (eril is ins$red
against1 c" :'en made in good )ait'C and
$(on reasonable gro$nds o) belie) in its necessity to a%oid a
(eril1 or d" :'en in good )ait'C )or t'e
($r(ose o) sa%ing '$man li)eC or relie%ing anot'er %essel in distress& /ec&
+23C 6ns$rance Code"
Carria'e o& Goo:s6 E=ercise
E=traor:inar% Dili'ence (2001)
/tar /'i((ing 7ines acce(ted +00 cartons o)
sardines )rom *aster to be deli%ered to 000
Com(any in *anila& ;nly 99 cartons :ere
deli%eredC 'o:e%erC t'ese :ere in bad
condition& 000 Com(any claimed )rom /tar
/'i((ing 7ines t'e %al$e o) t'e missing
goodsC as :ell as t'e damaged goods& /tar
/'i((ing 7ines re)$sed beca$se t'e )ormer
)ailed to (resent a bill o) lading& Resol%e
:it' reasons t'e claim o) 000 Com(any&
3J"
SUGGESTED ANSWER:
T'e claim o) 000 Com(any is meritorio$sC
e%en i) it )ails to (resent a bill o) lading&
Alt'o$g' a bill o) lading is t'e best e%idence
o) t'e contract o) carriage )or cargoC
ne%ert'eless s$c' contract can e8ist e%en
:it'o$t a bill o) lading& 7ike any ot'er
contractC a contract o) carriage is a meeting
o) minds t'at gi%es rise to an obligation on
t'e (art o) t'e carrier to trans(ort t'e goods&
#$ris(r$dence 'as 'eld t'at t'e moment t'e
carrier recei%es t'e cargo )or trans(ortC t'en
its d$ty to e8ercise e8traordinary diligence
arises/ (&ia/ *aritima v/ .nsurance &o/ of 2orth
0merica,
1/+/ 2o/ =8"69%5, ,ctober #7, "9%4< 2egre v/
&abahug Shipping D &o/, 1/+/ 2o/ =8"9%79, 0pril
$9, "9%%!
A<TERNAT2@E ANSWER:
/tar /'i((ing 7ines can re)$se to 'onor 000
Com(anyLs claim )or t'e missing and
damaged goods& T'e Bill o) 7ading is t'e
doc$ment o) title t'at legally establis'es t'e
o:ners'i( o) 000 Com(any o%er said goods&
000 needs to (resent t'e Bill o) 7ading to
legally claim said goods&
(2ational Mnion -ire .nsurance of ;ittsburg v/
Stolt82ielaen, 1/+/ 2o/ 63956, 0pril $%, "997!
C#arter "art%
()**))
Mercantile Law Bar Examination Q & A (1990-2006)
T'e /aad De% Co enters into a %oyage
c'arter :it' NKQ o%er t'e latters %esselC t'e
*= 7ady7o%e& Be)ore t'e /aad co$ld load itC
NKQ sold 7ady 7o%e to ;slob *aritime Co
:'ic' decided to load it )or its o:n acco$nt&
a" *ay NKQ /'i((ing Co %alidly ask )or t'e
rescission o) t'e c'arter (artyI 6) soC can
/aad reco%er damagesI To :'at e8tentI b" 6)
;slob did not load it )or its o:n acco$ntC is it
bo$nd by t'e c'arter (artyI c" E8(lain t'e
meaning o) Ao:ner (ro 'ac %ice o) t'e
%essel&B 6n :'at kind o) c'arter (arty does
t'is obtainI
SUGGESTED ANSWER:
a" NKQ may ask )or t'e rescission o) t'e
c'arter (arty i)C as in t'is caseC it sold t'e
%essel be)ore t'e c'arterer 'as beg$n to
load t'e %essel and t'e ($rc'aser loads it
)or 'is o:n acco$nt& /aad may reco%er
damages to t'e e8tent o) its losses Art 49,
Code o) Commerce"
b" 6) ;slob did not load 7ady 7o%e )or its o:n
acco$ntC it :o$ld be bo$nd by t'e c'arter
(artyC b$t NKQ :o$ld 'a%e to indemni)y
;slob i) it :as not in)ormed o) t'e C'arter
Party at t'e time o) sale& Art 49, Code o)
Commerce"
c" T'e term A;:ner Pro Fac =ice o) t'e
=esselCB is generally $nderstood to be t'e
c'arterer o) t'e %essel in t'e case o)
bareboat or demise c'arter (=itonJua Shipping
&o v 2ational SeamenIs Board 1+ 5"9"7
"70ug"969!
C#arter "art%
(2007) ?nder a c'arter (artyC NN; Trading Com(any
s'i((ed s$gar to Coca-Cola Com(any t'ro$g'
// >egros /'i((ing Cor(&C ins$red by Ca(itol
6ns$rance Com(any& T'e cargo arri%ed b$t
:it' s'ortages& Coca-Cola demanded )rom
Ca(itol 6ns$rance Co& P000&000 in settlement
)or NN; Trading& T'e ** Regional Trial Co$rtC
:'ere t'e ci%il s$it :as )iledC Oabsol%ed t'e
ins$rance com(anyC declaring t'at $nder t'e
Code o) CommerceC t'e s'i((ing agent is
ci%illy liable )or damages in )a%or o) t'ird
(ersons d$e to t'e cond$ct o) t'e carrierLs
ca(tainC and t'e sti($lation in t'e c'arter
(arty e8em(ting t'e o:ner )rom liability is
not against ($blic (olicy& Coca-Cola
a((ealed& @ill its a((eal (ros(erI Reason
brie)ly& 0J"
SUGGESTED ANSWER:
>o& T'e a((eal o) Coca-Cola :ill not (ros(er&
?nder Article 097 o) t'e Code o) CommerceC
t'e s'i((ing agent is ci%illy liable )or
damages in )a%or o) t'ird (ersons d$e to t'e
cond$ct o) t'e carrierLs ca(tainC and t'e
s'i((ing agent can e8em(t 'imsel)
t'ere)rom only by abandoning t'e %essel
:it' all 'is e5$i(ment and t'e )reig't 'e
may 'a%e earned d$ring t'e %oyage& ;n t'e
ot'er 'andC ass$ming t'ere is bareboat
c'arterC t'e sti($lation in t'e c'arter (arty
e8em(ting t'e o:ner )rom liability is not
against ($blic (olicy beca$se t'e ($blic at
large is not in%ol%ed (Eome .nsurance &o/ v/
0merican Steamship 0gencies, .nc/, $# S&+0$5
("9%6!/
C8GSA: "rescri$tion o&
ClaimsJActions (2007)
Page 11 of 103 AA entered into a contract :it'
BB t'r$ CC to trans(ort ladiesL :ear )rom
*anila to -rance :it' trans'i(ment at
Tai:an& /ome'o: t'e goods :ere not loaded
at Tai:an on time& FenceC :'en t'e goods
arri%ed in -ranceC t'ey arri%ed Oo))-seasonO
and AA :as (aid only )or one-'al) t'e %al$e
by t'e b$yer& AA claimed damages )rom t'e
s'i((ing com(any and its agent& T'e
de)ense o) t'e res(ondents :as (rescri(tion&
Considering t'at t'e ladiesL :ear s$))ered
Oloss o) %al$eCO as claimed by AAC s'o$ld t'e
(rescri(ti%e (eriod be one year $nder t'e
Carriage o) 2oods by /ea ActC or ten years
$nder t'e Ci%il CodeI E8(lain brie)ly& 0J"
SUGGESTED ANSWER:
T'e a((licable (rescri(ti%e (eriod is ten
years $nder t'e Ci%il Code& T'e one-year
(rescri(ti%e (eriod $nder t'e Carriage o)
2oods by /ea Act a((lies in cases o) loss or
damages to t'e cargo& T'e term OlossO as
inter(reted by t'e /$(reme Co$rt in *itsui
,/S/@/ =ines =td/ v/ &ourt of 0ppeals, $63 S&+0
#%% ("996!C contem(lates a sit$ation :'ere
no deli%ery at all :as made by t'e carrier o)
t'e goods beca$se t'e same 'ad (eris'ed or
gone o$t o) commerce deteriorated or
decayed :'ile in transit& 6n t'e (resent caseC
t'e s'i(ment o) ladiesL :ear :as act$ally
deli%ered& T'e Oloss o) %al$eO is not t'e total
loss contem(lated by t'e Carriage o) 2oods
by /ea Act&
C8GSA6 "rescri$tion o&
Claims ()**2) A local consignee so$g't to en)orce <$dicially
a claim against t'e carrier )or loss o) a
s'i(ment o) dr$ms o) l$bricating oil )rom
#a(an $nder t'e Carriage o) 2oods by /ea Act
C;2/A" a)ter t'e carrier 'ad re<ected its
demand& T'e carrier (leaded in its Ans:er
t'e a))irmati%e de)ense o) (rescri(tion $nder
t'e (ro%isions o) said Act inasm$c' as t'e
s$it :as bro$g't by t'e consignee a)ter one
+" year )rom t'e deli%ery o) t'e goods& 6n
t$rnC t'e consignee contended t'at t'e
(eriod o) (rescri(tion :as s$s(ended by t'e
:ritten e8tra<$dicial demand it 'ad made
against t'e carrier :it'in t'e one-year (eriodC
($rs$ant to Article ++00 o) t'e Ci%il Code
(ro%iding t'at t'e (rescri(tion o) actions is
interr$(ted :'en t'ere is a :ritten
e8tra<$dicial demand by t'e creditors& a" Fas
t'e action in )act (rescribedI @'yI b" 6) t'e
consignees action :ere (redicated on
misdeli%ery or con%ersion o) t'e goodsC :o$ld
yo$r ans:er be t'e sameI E8(lain brie)ly&
SUGGESTED ANSWER:
a" T'e action taken by t'e local consignee
'asC in )actC (rescribed& T'e (eriod o) one
year $nder t'e Carriage o) 2oods by /ea Act
C;2/A" is not interr$(ted by a :ritten
e8tra<$dicial demand& T'e (ro%isions o) Art
++00 o) t'e >CC merely a((ly to (rescri(ti%e
(eriods (ro%ided )or in said Code and not to
s(ecial la:s s$c' as C;2/A e8ce(t :'en
ot'er:ise (ro%ided& (5ole v *aritime &o "46 s
""6!/
b" 6) t'e consignees action :ere (redicated
on misdeli%ery or con%ersion o) goodsC t'e
(ro%isions o) t'e C;2/A :o$ld be
ina((licable& 6n t'ese casesC t'e >CC
(rescri(ti%e (eriodsC incl$ding Art ++00 o)
t'e >CC :ill a((ly (0ng v &ompania *aritama
"## s %77!
Mercantile Law Bar Examination Q & A (1990-2006) Page 1# of 103
C8GSA6 "rescri$tion o&
Claims (2000) RC im(orted com($ter mot'erboards )rom
t'e ?nited /tates and 'ad t'em s'i((ed to
*anila aboard an oceangoing cargo s'i(
o:ned by BC /'i((ing Com(any& @'en t'e
cargo arri%ed at *anila sea(ort and deli%ered
to RCC t'e crate a((eared intact1 b$t $(on
ins(ection o) t'e contentsC RC disco%ered
t'at t'e items inside 'ad all been badly
damaged& Fe did not )ile any notice o)
damage or anyt'ing :it' anyoneC least o) all
:it' BC /'i((ing Com(any& @'at 'e did :as
to (roceed directly to yo$r o))ice to cons$lt
yo$ abo$t :'et'er 'e s'o$ld 'a%e gi%en a
notice o) damage and 'o: long a time 'e
'ad to initiate a s$it $nder t'e (ro%isions o)
t'e Carriage o) 2oods by /ea Act CA 40"&
@'at :o$ld yo$r ad%ice beI 2J"
SUGGESTED ANSWER:
*y ad%ice :o$ld be t'at RC s'o$ld gi%e
notice o) t'e damage s$stained by t'e cargo
:it'in ! days and t'at 'e 'as to )ile t'e s$it
to reco%er t'e damage s$stained by t'e
cargo :it'in one year )rom t'e date o) t'e
deli%ery o) t'e cargo to 'im&
C8GSA6 "rescri$tie
"erio: ()**1) @'at is t'e (rescri(ti%e (eriod )or actions
in%ol%ing lost or damaged cargo $nder t'e
Carriage o) 2oods by /ea ActI
SUGGESTED ANSWER:
;>E KEAR a)ter t'e deli%ery o) t'e goods or
t'e date :'en t'e goods s'o$ld 'a%e been
deli%ered /ec !4"C C;2/A"
Doctrine o& 2nscruta.le
/ault ()**1) +& 2 %essels coming )rom t'e o((osite directions
collided :it' eac' ot'er d$e to )a$lt im($table
to bot'& @'at are t'e liabilities o) t'e t:o
%essels :it' res(ect to t'e damage ca$sed to
t'em and t'eir cargoesI E8(lain&
2& 6) it cannot be determined :'ic' o) t'e t:o
%essels :as at )a$lt res$lting in t'e collisionC
:'ic' (arty s'o$ld bear t'e damage ca$sed
to t'e %essels and t'e cargoesI E8(lain&
!& @'ic' (arty s'o$ld bear t'e damage to t'e
%essels and t'e cargoes i) t'e ca$se o) t'e
collision :as a )ort$ito$s e%entI E8(lain&
SUGGESTED ANSWER:
+& Eac' %essel m$st bear its o:n damage& Bot' o)
t'em :ere at )a$lt& Art 927C Code o)
Commerce"
2& Eac' o) t'em s'o$ld bear t'eir res(ecti%e
damages& /ince it cannot be determined as to
:'ic' %essel is at )a$lt& T'is is t'e doctrine o)
Ainscr$table )a$lt&B
!& >o (arty s'all be 'eld liable since t'e ca$se o)
t'e collision is )ort$ito$s e%ent& T'e carrier is
not an ins$rer&
Doctrine o& 2nscruta.le
/ault ()**+) E8(lain t'e doctrine in *aritime accidents M
Doctrine o) 6nscr$table -a$lt
SUGGESTED ANSWER:
?nder t'e Adoctrine o) inscr$table )a$ltCB
:'ere )a$lt is establis'ed b$t it cannot be
determined :'ic' o) t'e t:o %essels :ere at
)a$ltC bot' s'all be deemed to 'a%e been at
)a$lt&
Doctrine o& 2nscruta.le
/ault ()**4) A se%ere ty('oon :as raging :'en t'e
%essel // *asdaam collided :it' *= Princes&
6t is conceded t'at t'e ty('oon :as t'e
ma<or ca$se o) t'e collisionC alt'o$g' t'ere
:as a %ery strong (ossibility t'at it co$ld
'a%e been a%oided i) t'e ca(tain o) //
*asdaam :as not dr$nk and t'e ca(tain o)
t'e *= Princes :as not aslee( at t'e time o)
collisions& @'o s'o$ld bear t'e damages to
t'e %essels and t'eir cargoesI 0J"
SUGGESTED ANSWER:
T'e s'i(o:ners o) // *asdaam and *=
Princess s'all eac' bear t'eir res(ecti%e loss
o) %essels& -or t'e losses and damages
s$))ered by t'eir cargoes bot' s'i(o:ners
are solidarily liable&
<imite: <ia.ilit%
Rule ()**7) ToniC a co(ra dealerC loaded +000 sacks o)
co(ra on board t'e %essel *= Tonic'i a
common carrier engaged in coast:ise trade
o:ned by 6c'i" )or s'i(ment )rom P$erto
2alera to *anila& T'e cargo did not reac'
*anila beca$se t'e %essel ca(siEed and
sank :it' all its cargo&
@'en Toni s$ed 6c'i )or damages based on
breac' o) contractC t'e latter in%oked t'e
Alimited liability r$le&B +" @'at do yo$
$nderstand o) t'e Ar$leB in%oked by 6c'iI 2"
Are t'ere e8ce(tions to t'e Alimited liability
r$leBI
SUGGESTED ANSWER:
+" By Alimited liability r$leB is meant t'at t'e
liability o) a s'i(o:ner )or damages in case
o) loss is limited to t'e %al$e o) t'e %essel
in%ol%ed& Fis ot'er (ro(erties cannot be
reac'ed by t'e (arties entitled to damages&
2" Kes& @'en t'e s'i( o:ner o) t'e %essel
in%ol%ed is g$ilty o) negligenceC t'e Alimited
liability r$leB does not a((ly& 6n s$c' caseC
t'e s'i( o:ner is liable to t'e )$ll e8tent o)
t'e damages s$stained by t'e aggrie%ed
(arties
(*ecenas v &0 "67 s 6#!
<imite: <ia.ilit%
Rule ()**+) E8(lain t'e doctrine in *aritime accidents M
T'e Doctrine o) 7imited 7iability
SUGGESTED ANSWER:
?nder t'e Adoctrine o) limited liabilityB t'e
e8cl$si%ely real and 'y(ot'ecary nat$re o)
maritime la: o(erates to limit t'e liability o)
t'e s'i(o:ner to t'e %al$e o) t'e %esselC
earned )reig'tage and (roceeds o) t'e
ins$rance& Fo:e%erC s$c' doctrine does not
a((ly i) t'e s'i(o:ner and t'e ca(tain are
g$ilty o) negligence&
<imite: <ia.ilit%
Rule ()***) T'inking t'at t'e im(ending ty('oon :as
still 23 'o$rs a:ayC *= Pioneer le)t (ort to
sail )or 7eyte& T'at :as a miscalc$lation o)
t'e ty('oon signals by bot' t'e s'i(-
Mercantile Law Bar Examination Q & A (1990-2006)
o:ner and t'e ca(tain as t'e ty('oon came
earlier and o%ertook t'e %essel& T'e %essel
sank and a n$mber o) (assengers
disa((eared :it' it&
Relati%es o) t'e missing (assengers claimed
damages against t'e s'i(o:ner& T'e
s'i(o:ner set $( t'e de)ense t'at $nder t'e
doctrine o) limited liabilityC 'is liability :as
co-e8tensi%e :it' 'is interest in t'e %essel&
As t'e %essel :as totally lostC 'is liability 'ad
also been e8ting$is'ed&
Fo: :ill yo$ ad%ice t'e claimantsI Disc$ss t'e
doctrine o) limited liability in maritime la:& !J"
Ass$ming t'at t'e %essel :as ins$redC may t'e
claimants go a)ter t'e ins$rance (roceedsI !J"
SUGGESTED ANSWER:
?nder t'e doctrine o) limited liability in maritime
la:C t'e liability o) t'e s'i(o:ner arising )rom t'e
o(eration o) a s'i( is con)ined to t'e %esselC
e5$i(mentC and )reig'tC or ins$ranceC i) anyC so
t'at i) t'e s'i(o:ner abandoned t'e s'i(C
e5$i(mentC and )reig'tC 'is liability is
e8ting$is'ed& Fo:e%erC t'e doctrine o) limited
liability does not a((ly :'en t'e s'i(o:ner or
ca(tain is g$ilty o) negligence&
Kes& 6n case o) a lost %esselC t'e claimants may
go a)ter t'e (roceeds o) t'e ins$rance co%ering
t'e %essel&
<imite: <ia.ilit%
Rule (2000) *= *ari(osaC one o) )i%e (assenger s'i(s
o:ned by *arina >a%igation CoC sank o)) t'e
coast o) *indoro :'ile en ro$te to 6loilo City&
*ore t'an 200 (assengers (eris'ed in t'e
disaster& E%idence s'o:ed t'at t'e s'i(
ca(tain ignored ty('oon b$lletins iss$ed by
Pag-asa d$ring t'e 23-'o$r (eriod
immediately (rior to t'e %essels de(art$re
)rom *anila& T'e b$lletins :arned all ty(es o)
sea cra)ts to a%oid t'e ty('oons e8(ected
(at' near *indoro& To make matters :orseC
'e took more load t'an :as allo:ed )or t'e
s'i(s rated ca(acity& /$ed )or damages by
t'e %ictims s$r%i%ing relati%esC *arina >a%
Co contended +" t'at its liabilityC i) anyC 'ad
been e8ting$is'ed :it' t'e sinking o) *=
*ari(osa1 and 2" t'at ass$ming it 'ad not
been so e8ting$is'edC s$c' liability s'o$ld be
limited to t'e loss o) t'e cargo& Are t'ese
contentions meritorio$s in t'e conte8t o)
a((licable (ro%isions o) t'e Code o)
CommerceI !J"
SUGGESTED ANSWER:
Kes& T'e contentions o) *arina >a% Co are
meritorio$s& T'e ca(tain o) *= *ari(osa is
g$ilty o) negligence in ignoring t'e ty('oon
b$lletins iss$ed by PA2A/A and in
o%erloading t'e %essel& B$t only t'e ca(tain
o) t'e %essel *= *ari(osa is g$ilty o)
negligence& T'e s'i( o:ner is not& T'ere)oreC
t'e s'i( o:ner can in%oke t'e doctrine o)
limited liability&
<imite: <ia.ilit% Rule6 Doctrine o&
2nscruta.le /ault ()**))
6n a collision bet:een *GT *anilaC a tankerC
and *G= Don ClaroC an inter-island %esselC
Don Claro sank and many o) its (assengers
dro:ned and died& All its cargoes :ere lost&
T'e collision occ$rred at nig'ttime b$t t'e
sea :as calmC t'e :eat'er )air and %isibility
:as good& Prior to t'e collision and :'ile still
3 na$tical miles a(artC Don
Page 13 of 103 Claro already sig'ted *anila
on its radar screen& *anila 'ad no radar
e5$i(ment& As )or s(eedC Don Claro :as
t:ice as )ast as *anila&
At t'e time o) t'e collisionC *anila )ailed to
)ollo: R$le +, o) t'e 6nternational R$les o)
t'e Road :'ic' re5$ires 2 %essels meeting
'ead on to c'ange t'eir co$rse by eac'
%essel steering to starboard rig't" so t'at
eac' %essel may (ass on t'e (ort side le)t"
o) t'e ot'er& *anila signaled t'at it :o$ld
t$rn to t'e (ort side and steered
accordinglyC t'$s res$lting in t'e collision&
Don Claros ca(tain :as o))-d$ty and :as
'a%ing a drink at t'e s'i(s bar at t'e time o)
t'e collision& a" @'o :o$ld yo$ 'old liable )or
t'e collisionI b" 6) Don Claro :as at )a$ltC
may t'e 'eirs o) t'e
(assengers :'o died and t'e o:ners o) t'e
cargoes reco%er damages )rom t'e o:ner o) said
%esselI
SUGGESTED ANSWER:
6 can 'old t'e 2 %essels liable& 6n t'e (roblem
gi%enC :'et'er on t'e basis o) t'e )act$al
settings or $nder t'e doctrine o) inscr$table
)a$ltC bot' %essels can be said to 'a%e been
g$ilty o) negligence& T'e liability o) t'e 2
carriers )or t'e deat' or in<$ry o) (assengers
and )or t'e loss o) or damage to t'e goods
arising )rom t'e collision is solidary& >eit'er
carrier may in%oke t'e doctrine o) last clear
c'ance :'ic' can only be rele%antC i) at allC
bet:een t'e t:o %essels b$t not on t'e
claims made by (assengers or s'i((ers
(=itonJua Shipping v 2ational Seamen Board 1+
5"9"7 "70ug"969!
SUGGESTED ANSWER:
KesC b$t s$b<ect to t'e doctrine o) limited
liability& T'e doctrine is to t'e e))ect t'at t'e
liability o) t'e s'i(o:ners :o$ld only be to
t'e e8tent o) any remaining %al$e o) t'e
%esselC (roceeds o) ins$ranceC i) anyC and
earned )reig'tage& 2i%en t'e )act$al settingsC
t'e s'i(o:ner 'imsel) :as not g$ilty o)
negligence andC t'ere)oreC t'e doctrine can
:ell a((ly (0mparo de los Santos v &0 "6% s %9!
<imite: <ia.ilit% Rule6 General
Aera'e <oss (2000) N /'i((ing Com(any s(ent almost a )ort$ne
in re)itting and re(airing its l$8$ry (assenger
%esselC t'e *= *arinaC :'ic' (lied t'e inter-
island ro$tes o) t'e com(any )rom 7a ?nion
in t'e nort' to Da%ao City in t'e so$t'& T'e
*= *arina met an $ntimely )ate d$ring its
(ost-re(air %oyage& 6t sank o)) t'e coast o)
Qambales :'ile en ro$te to 7a ?nion )rom
*anila& T'e in%estigation s'o:ed t'at t'e
ca(tain alone :as negligent& T'ere :ere no
cas$alties in t'at disaster& -aced :it' a
claim )or t'e (ayment o) t'e re)itting and
re(airC N /'i((ing com(any asserted
e8em(tion )rom liability on t'e basis o) t'e
'y(ot'ecary or limited liability r$le $nder
Article 097 o) t'e Code o) Commerce& 6s N
/'i((ing Com(anys assertion %alidI E8(lain
!J"&
SUGGESTED ANSWER:
>o& T'e assertion o) N /'i((ing Com(any is
not %alid& T'e total destr$ction o) t'e %essel
does not a))ect t'e liability o) t'e s'i( o:ner
)or re(airs on t'e %essel com(leted be)ore its
loss&
<imite: <ia.ilit% Rule6 General
Aera'e <oss (2000)
Mercantile Law Bar Examination Q & A (1990-2006)
*= /$(er-astC a (assenger-cargo %essel
o:ned by /- /'i((ing Com(any (lying t'e
inter-island ro$tesC :as on its :ay to
Qamboanga City )rom t'e *anila (ort :'en it
accidentallyC and :it'o$t )a$lt or negligence
o) anyone on t'e s'i(C 'it a '$ge )loating
ob<ect& T'e accident ca$sed damage to t'e
%essel and loss o) an accom(anying crated
cargo o) (assenger PR& 6n order to lig'ten t'e
%essel and sa%e it )rom sinking and in order
to a%oid risk o) damage to or loss o) t'e rest
o) t'e s'i((ed items none o) :'ic' :as
located on t'e deck"C some 'ad to be
<ettisoned& /- /'i((ing 'ad t'e %essel
re(aired at its (ort o) destination& /-
/'i((ing t'erea)ter )iled a com(laint
demanding all t'e ot'er cargo o:ners to
s'are in t'e total re(air costs inc$rred by t'e
com(any and in t'e %al$e o) t'e lost and
<ettisoned cargoes& 6n ans:er to t'e
com(laintC t'e s'i((ers sole contention :as
t'atC $nder t'e Code o) CommerceC eac'
damaged (arty s'o$ld bear its or 'is o:n
damage and t'ose t'at did not s$))er any
loss or damage :ere not obligated to make
any contrib$tion in )a%or o) t'ose :'o did& 6s
t'e s'i((ers contention %alidI E8(lain 2J"
SUGGESTED ANSWER:
>o& T'e s'i((ers contention is not %alid& T'e
o:ners o) t'e cargo <ettisonedC to sa%e t'e
%essel )rom sinking and to sa%e t'e rest o)
t'e cargoesC are entitled to contrib$tion& T'e
<ettisoning o) said cargoes constit$te general
a%erage loss :'ic' entitles t'e o:ners
t'ereo) to contrib$tion )rom t'e o:ner o) t'e
%essel and also )rom t'e o:ners o) t'e
cargoes sa%ed&
/- /'i((ing is not entitled to contrib$tionG
reimb$rsement )or t'e costs o) re(airs on t'e
%essel )rom t'e s'i((ers&
Nationali4e& A!tivities or
Un&erta-ings
NationaliHe: Actiities or
Un:erta-in's ()**3) +" A in%ested P000t' in a sec$rity agency on
;ctober !0C +,,0& Fe :as c'arged :it'
being a d$mmy o) 'is )riendC a )oreigner& 6)
yo$ :ere t'e (rosec$torC :'at e%idence can
yo$ (resent to (ro%e %iolation o) t'e Anti-
D$mmy 7a:I 2" #$ana de la Cr$EC a common
la: :i)e o) a )oreigner :rested t'e control o)
a tele%ision )irm& At t'e instance o) t'e
minority gro$( o) t'e )irmC s'e :as c'arged
:it' %iolation o) t'e Anti-D$mmy 7a:& *ay
s'e be con%icted by t'e mere )act t'at s'e is
a common la: :i)e o) a )oreignerI E8(lain&
SUGGESTED ANSWER:
+" A allo:s or (ermits t'e $se or e8(loitation
or en<oyment o) a rig'tC (ri%ilege or b$sinessC
t'e e8ercise or en<oyment o) :'ic' is
e8(ressly reser%ed by t'e Constit$tion or t'e
la:s to citiEens o) t'e P'ili((inesC by t'e
)oreigner not (ossessing t'e re5$isites
(rescribed by t'e Constit$tion or t'e la:s o)
t'e P'ili((ines& T'e (rosec$tor s'o$ld (ro%e
t'e abo%e elements o) t'e crime
Page 1/ of 103 and also t'e )act t'at A does
not 'a%e t'e means and reso$rces to in%est
P000t' in t'e sec$rity agency&
A<TERNAT2@E ANSWER:
+" T'e (rosec$tor may establis' t'e )act t'at
t'e P000t' :o$ld constit$te a ma<or
in%estment and yet A is not e%en elected
member o) t'e B;D or one o) t'e o))icers&
-$rt'ermoreC it may also be s'o:n t'at A
does not e%en 'a%e t'e means to raise t'e
amo$nt o) P000t' and t'at t'e o))icers or
ma<ority o) t'e directors are )oreigners&
SUGGESTED ANSWER:
2" >o& T'e mere )act o) being a common la:
:i)e o) a )oreigner does not bring 'er :it'in
t'e ambit o) t'e Anti-D$mmy 7a:&
A<TERNAT2@E ANSWER:
2" Kes& Being a common la: :i)eC it can be
(res$med t'at s'e is t'e one r$nning t'e
b$sinessC :'ic' raises a (rima )acie
(res$m(tion o) %iolation o) t'e Anti-d$mmy
7a:C RA 4093"&
NationaliHe: Actiities or
Un:erta-in's ()**7) CelesteC a domestic cor(oration :'olly
o:ned by -ili(ino citiEensC is engaged in
trading and o(erates as general contractor&
6t b$ys and resells t'e (rod$cts o) *atildeC a
domestic cor(orationC ,0J o) :'ose ca(ital
stock is o:ned by aliens& All o) *atildes
goods are made in t'e P'ili((ines )rom
materials )o$nd or (rod$ced in t'e
P'ili((ines& ;n t'e ot'er 'andC ECD
6ntegrated is a +00J -ili(ino o:ned
cor(oration and man$)act$rer o) asbestos
(rod$cts& Celeste and ECD took (art in a
($blic bidding cond$cted by *@// )or its
asbestos (i(e re5$irements& Celeste :on t'e
bidC 'a%ing o))ered +!J lo:er t'an t'at
o))ered by ECD1 and *@// a:arded t'e
contract to s$((ly its asbestos (i(es to
Celeste& ECD so$g't to n$lli)y t'e a:ard in
)a%or o) Celeste&
+" 6s Celeste barred $nder t'e -lag 7a: )rom
taking (art in biddings to s$((ly t'e
go%ernmentI 2" Did Celeste and *atilde
%iolate t'e Anti-D$mmy 7a:I !" Did Celeste
and *atilde %iolate t'e Retail Trade
>ationaliEation 7a:I E8(lain&
SUGGESTED ANSWER:
+" >o& T'e materials o))ered in t'e bids
s$bmitted are made in t'e P'ili((ines )rom
articles (rod$ced or gro:n in t'e P'ili((inesC
and t'e bidderC CelesteC is a domestic entity&
T'e -lag 7a: does not a((ly& 6t can be
in%oked only against a bidder :'o is not a
domestic entityC or against a domestic entity
:'o o))ers im(orted materials&
2" >oC since Celeste is merely a dealer o)
*atilde and not an alter ego o) t'e latter&
Celeste b$ys and sells on its o:n acco$nt
t'e (rod$cts o) *atilde&
!" *atilde did not %iolate t'e Retail Trade
7a: since it does not sell its (rod$cts to
cons$mersC b$t to dealers :'o resell t'em&
>eit'er did Celeste %iolate t'e Retail Trade
7a: sinceC in t'e )irst (laceC it is not
(ro'ibited to
Mercantile Law Bar Examination Q & A (1990-2006)
engage in retail trade& BesidesC *atildes sale
o) t'e asbestos (rod$cts to CelesteC being
:'olesaleC t'e transaction is not co%ered by
t'e Retail Trade 7a:
(0sbestos .ntegrated v ;eralta "55 S
$"#!
NationaliHe: Actiities or
Un:erta-in's ()**1) 2lobal H7 *alaysiaC a +00J *alaysian o:ned
cor(orationC desires to b$ild a 'otel beac'
resort in /amal 6slandC Da%ao CityC to take
ad%antage o) t'e increased tra))ic o) to$rists
and boost t'e to$rism ind$stry o) t'e
P'ili((ines&
+& Ass$ming t'at 2lobal 'as ?/P+00* to in%est in
a 'otel beac' resort in t'e P'ili((inesC may it
be allo:ed to ac5$ire t'e land on :'ic' to
b$ild t'e resortI 6) soC $nder :'at terms and
conditions may 2lobal ac5$ire t'e landI
Disc$ss )$lly&
2& *ay 2lobal be allo:ed to manage t'e 'otel
beac' resortI E8(lain&
!& *ay 2lobal be allo:ed to o(erate resta$rants
:it'in t'e 'otel beac' resortI E8(lain&
SUGGESTED ANSWER:
+& 2lobal can sec$re a lease on t'e land& As a
cor(oration :it' a *alaysian nationalityC
2lobal cannot o:n t'e land&
2& KesC 2lobal can manage t'e 'otel beac' resort&
T'ere is no la: (ro'ibiting it )rom managing
t'e resort&
!& 2lobal may be allo:ed to o(erate resta$rants
:it'in t'e beac' resort& T'is is (art o) t'e
o(eration o) t'e resort&
Retail Tra:e
<a> ()**0) Acme Trading Co 6ncC a trading com(any
:'olly o:ned by )oreign stock'oldersC :as
(ers$aded by Pa$lo Al%aC a -ili(inoC to in%est
in 20J o) t'e o$tstanding s'ares o) stock o) a
cor(oration 'e is )orming :'ic' :ill engage in
t'e de(artment store b$siness t'e
Ade(artment store cor(orationB"& Pa$lo also
$rged Acme to in%est in 30J o) t'e
o$tstanding s'ares o) stock o) t'e realty
cor(oration 'e is ($tting $( to o:n t'e land
on :'ic' t'e de(artment store :ill be b$ilt
t'e Arealty cor(orationB"& a" *ay Acme in%est
in t'e said de(artment store
cor(orationI E8(lain yo$r ans:er& b" *ay
Acme in%est in t'e realty cor(orationI
Disc$ss& c" *ay t'e President o) AcmeC a
)oreignerC sit in t'e
B;D o) t'e said de(artment store cor(orationI
*ay 'e be a director o) t'e realty cor(orationI
Disc$ss& d" *ay t'e Treas$rer o) AcmeC
anot'er )oreignerC occ$(y t'e same (osition in t'e said de(artment
store cor(orationI *ay 'e be t'e treas$rer o)
t'e said realty cor(orationI E8(lain&
SUGGESTED ANSWER:
a" Acme may not in%est in t'e de(artment
store cor(oration since t'e Retail Trade Act
allo:sC in t'e case o) cor(orationsC only +00J
-ili(ino o:ned com(anies to engage in retail
trade&
b" Acme may in%est in t'e realty
cor(orationC on t'e ass$m(tion t'at t'e
balance o) 40J o) o:ners'i( o) t'e latter
cor(orationC is -ili(ino o:ned since t'e la:
merely
Page 1$ of 103 re5$ires 40J -ili(ino 'olding in
land cor(orate o:ners'i(&
c" T'e Anti-d$mmy 7a: allo:s board
re(resentation to t'e e8tent o) act$al and
(ermissible )oreign in%estments in
cor(orations& AccordinglyC t'e President o)
Acme may no sit in t'e B;D o) t'e
de(artment store cor(oration b$t can do so
in t'e realty cor(oration&
d" T'e Treas$rer o) Acme may not 'old t'at
(osition eit'er in t'e de(artment store
cor(oration or in t'e realty cor(oration since
t'e Anti-D$mmy 7a: (ro'ibits t'e
em(loyment o) aliens in s$c' nationaliEed
areas o) b$siness e8ce(t t'ose t'at call )or
'ig'ly tec'nical 5$ali)ications&
Retail Tra:e
<a> ()**)) 6s t'e -ili(ino common-la: :i)e o) a
)oreigner barred )rom engaging in t'e retail
b$sinessI
SUGGESTED ANSWER:
A -ili(ino common-la: :i)e o) a )oreigner is
not barred )rom engaging in retail b$siness&
;n t'e ass$m(tion t'at s'e acts )or and in
'er o:n be'al)C and absent a %iolation o) t'e
Anti-D$mmy 7a: :'ic' (ro'ibits a )oreigner
)rom being eit'er t'e real (ro(rietor or an
em(loyee o) a (erson engaged in t'e retail
tradeC s'e :o$ld be %iolating t'e Retail
Trade Act&
A<TERNAT2@E ANSWER:
An engagement by a :i)e incl$ding
common-la: relations'i(s" o) a )oreigner in
t'e retail trade b$sinessC raises t'e
(res$m(tion t'at s'e 'as %iolated t'e Anti-
D$mmy 7a:& FenceC t'e :i)e is barred )rom
engaging in t'e retail trade b$siness&
Retail Tra:e
<a> ()**2) A Coo(erati%e ($rc'ased )rom K Co on
installments a rice mill and made a do:n
(ayment t'ere)ore& As sec$rity )or t'e
(ayment o) t'e balanceC t'e Coo(erati%e
e8ec$ted a c'attel mortgage in )a%or o) K
Cor(oration& K Co in t$rn assigned its rig'ts
to t'e c'attel mortgage to Q Co a 0J )oreign
o:ned com(any doing b$siness in t'e
P'ili((ines& T'e coo(erati%e t'erea)ter made
installment (ayments to Q Co&
Beca$se t'e Coo(erati%e :as $nable to meet
its obligations in )$llC Q Co )iled against it a
co$rt s$it )or collection& T'e Coo( resisted
contending t'at Q Co :as illegally engaged in
t'e retail trade b$siness )or 'a%ing sold a
cons$mer good as o((osed to a (rod$cer
item& T'e Coo( also alleged t'at Q 'ad
%iolated t'e Anti-D$mmy 7a:& 6s Q g$ilty o)
%iolating t'e Retail Trade 7a: and t'e Anti-
D$mmy 7a:I @'yI
SUGGESTED ANSWER:
Q Co is not g$ilty o) %iolating t'e Retail Trade
7a: and t'e Anti-D$mmy 7a:& T'e term
RETA67 $nder t'e Retail Trade Act re5$ires
t'at t'e seller m$st be 'abit$ally engaged in
selling to t'e general ($blic cons$m(tion
goods& By cons$m(tion goods are meant
A(ersonalC )amily and 'o$se'oldB ($r(oses& A
Rice *ill
Mercantile Law Bar Examination Q & A (1990-2006)
does not )all $nder t'e category& >eit'er
does it a((ear t'at Q is 'abit$ally engaged
in selling to t'e general ($blic t'at
commodity& /ince t'ere is no %iolation o) t'e
Retail Trade 7a:C t'ere :o$ld like:ise by no
%iolation o) t'e Anti-D$mmy 7a:&
Retail Tra:e
<a> ()**3) A )oreign )irm is engaged in t'e b$siness o)
man$)act$ring and selling r$bber (rod$cts to
dealers :'o in t$rn sell t'em to ot'ers& 6t also
sells directly to agric$lt$ral enter(risesC
a$tomoti%e assembly (lantsC ($blic $tilities
:'ic' b$y t'em in large b$lkC and to its
o))icers and em(loyees& +" 6s t'ere %iolation
o) t'e Retail Trade 7a:I E8(lain& 2" *ay said
)irm o(erate a canteen inside t'e (remises o)
its (lant e8cl$si%ely )or its o))icials and
em(loyees :it'o$t %iolating t'e Retail Trade
ActI E8(lain&
SUGGESTED ANSWER:
+" ;n t'e ass$m(tion t'at t'e )oreign )irm is
doing b$siness in t'e P'ili((inesC t'e sale to
t'e dealers o) agric$lt$ral enter(risesC
a$tomoti%e assembly (lantsC and ($blic
$tilities is :'olesale andC t'ere)oreC not in
%iolation o) t'e Retail Trade Act (B- 1oodrich v
+eyes "$" s #%#!
2" Kes& T'e o(eration o) t'e canteen inside
t'e (remises e8cl$si%ely )or its o))icers and
em(loyeesC :o$ld amo$nt to an in($t in t'e
man$)act$ring (rocess andC t'ere)oreC does
not %iolate t'e Retail Trade Act&
Retail Tra:e
<a> ()**5) @it' a ca(ital o) P2t' *aria o(erates a stall
at a ($blic market& /'e man$)act$res soa(
t'at s'e sells to t'e general ($blic& Fer
common la: '$sbandC *a7eeC :'o 'as a
(ending (etition )or nat$raliEationC
occasionally )inances t'e ($rc'ase o) goods
)or resaleC and assists in t'e management o)
t'e b$siness& 6s t'ere a %iolation o) t'e Retail
Trade 7a:I E8(lain&
SUGGESTED ANSWER:
>oC t'ere is no %iolation o) t'e Retail Trade
7a:& *aria is a man$)act$rer :'o sells to t'e
general ($blicC t'ro$g' 'er stall in t'e ($blic
marketC t'e soa( :'ic' s'e man$)act$res&
6nasm$c' as 'er ca(ital does not e8ceed
P0t' it is only P2t'" t'en s'e is considered
$nder /ec 3a o) t'e Retail Trade 7a: as not
engaged in t'e Aretail b$siness&B 6nasm$c'
as *arias b$siness is not a Aretail b$sinessCB
t'en t'e re5$irement in /ec + o) t'e Retail
Trade 7a: t'at only P'ili((ine nationals s'all
engageC directlyC or indirectlyC in t'e retail
b$siness is ina((licable& -or t'is reasonC t'e
(artici(ation o) *a 7eeC *arias common 7a:
'$sbandC in t'e management o) t'e b$siness
:o$ld not be a %iolation o) t'e Retail Trade
7a: in relation to t'e Anti-D$mmy 7a:&
Retail Tra:e
<a> ()**5) E7 6ncC a domestic cor(oration :it' )oreign
e5$ityC man$)act$res electric generatorsC
and sells t'em to t'e )ollo:ing c$stomers: a"
go%ernment o))ices :'ic' $se t'e generators
d$ring bro:no$ts to render ($blic ser%iceC b"
agric$lt$ral enter(rises :'ic' $tiliEe t'e
generators as
Page 10 of 103 back$( in t'e (rocessing o)
goodsC c" )actoriesC and d" its o:n
em(loyees& 6s E7 engaged in retail tradeI
E8(lain&
SUGGESTED ANSWER:
T'e sale by E7 o) generators to go%ernment
o))icesC agric$lt$ral enter(rises and )actories
are o$tside t'e sco(e o) t'e term Aretail
b$sinessB and mayC t'ere)oreC be made by
t'e said cor(oration& Fo:e%erC sales o)
generators by E7 to its o:n em(loyees
constit$te retail sales and are (roscribed&
?nder t'e amendment to t'e Retail Trade
7a: introd$ced by PD 7+3C t'e term Aretail
b$sinessB s'all not incl$de a man$)act$rer
s$c' as E7" selling to ind$strial and
commercial $sers or cons$mers :'o $se t'e
(rod$cts bo$g't by t'em to render ser%ice to
t'e general ($blic eg go%ernment o))ices"
andGor to (rod$ce or man$)act$re goods
:'ic' are in t$rn sold by t'em eg
agric$lt$ral enter(rises and )actories"&
(1oodyear :ires v +eyes Sr 1r #77%#, Aly $, 6#
"$#s$3#!/
Retail Tra:e <a>6
Consi'nment ()**)) ABC *an$)act$ring 6ncC a com(any :'olly
o:ned by )oreign nationalsC man$)act$res
ty(e:riters :'ic' ABC distrib$tes to t'e
general ($blic in 2 :ays:
+ABC consigns its ty(e:riters to inde(endent
dealers :'o in t$rn sell t'em to t'e ($blic1
andC
2T'ro$g' indi%id$alsC :'o are not em(loyees
o) ABCC and :'o are (aid strictly on a
commission basis )or eac' sale&
Do t'ese arrangements %iolate t'e Retail Trade
7a:I
SUGGESTED ANSWER:
a" T'e )irst arrangement :o$ld not be in
%iolation o) t'e Retail Trade 7a:& T'e la:
a((lies only :'en t'e sale is direct to t'e
general ($blic& A dealer b$ys and sells )or
and in 'is o:n be'al) andC t'ere)oreC t'e sale
to t'e general ($blic is made by t'e dealer
and not by t'e man$)act$rer (*arsman D &o v
-irst &oconut &ontrol &o 1+#964" $7Aune"966!
A<TERNAT2@E ANSWER:
a" T'e )irst arrangement %iolates t'e Retail
Trade 7a: beca$se :'en ABC AconsignedB
t'e ty(e:ritersC t'e transaction :as one o)
consignment sale& 6n consignment saleC an
agency relations'i( is created so it is as i)
ABC sells directly to t'e ($blic t'ro$g' its
agents&
SUGGESTED ANSWER:
b" T'e second arrangement :o$ld be
%iolati%e o) t'e Retail Trade 7a:C since t'e
sale is done t'ro$g' indi%id$als being (aid
strictly on a commission basis& T'e said
indi%id$als :o$ld t'en be acting merely as
agents o) t'e man$)act$rer& /alesC t'ere)oreC
made by s$c' agents are deemed direct
sales by t'e man$)act$rer&
A<TERNAT2@E ANSWER:
b" T'e 2nd arrangement is not %iolati%e o)
t'e Retail Trade 7a: beca$se ty(e:riters are
not cons$m(tion goods or goods )or
(ersonalC 'o$se'old and )amily $se&
Negotia'le Instr.ments Law
,on:: Cas# ,on: s! Suret%
,on: (2007) Disting$is' clearly cas' bond )rom s$rety
bond&
Mercantile Law Bar Examination Q & A (1990-2006)
SUGGESTED ANSWER:
A /?RETK B;>D is iss$ed by a s$rety or
ins$rance com(any in )a%or o) a designated
bene)iciaryC ($rs$ant to :'ic' s$c'
com(any acts as a s$rety to t'e debtor or
obligor o) s$c' bene)iciary& A CA/F B;>D is
a sec$rity in t'e )orm o) cas' establis'ed by
a g$arantor or s$rety to sec$re t'e
obligation o) anot'er&
C#ec-s: Crosse:
C#ec-s (2001) @'at is a crossed c'eckI @'at are t'e
e))ects o) crossing a c'eckI E8(lain&
SUGGESTED ANSWER:
A Crossed C'eck $nder acce(ted banking
(racticeC crossing a c'eck is done by :riting
t:o (arallel lines diagonally on t'e le)t to(
(ortion o) t'e c'ecks& T'e crossing is s(ecial
:'ere t'e name o) t'e bank or a b$siness
instit$tion is :ritten bet:een t'e t:o (arallel
linesC :'ic' means t'at t'e dra:ee s'o$ld
(ay only :it' t'e inter%ention o) t'at
com(any&
E&&ects o& Crosse: C#ec-s
+" T'e c'eck may not be encas'ed b$t only
de(osited in t'e bank& 2" T'e c'eck may be negotiated
only onceSto one
:'o 'as an acco$nt :it' a bank& !" T'e act
o) crossing t'e c'eck ser%es as a :arning to
t'e 'older t'at t'e c'eck 'as been iss$ed )or a
de)inite ($r(oseC so t'at 'e m$st in5$ire i) 'e
'as recei%ed t'e c'eck ($rs$ant to t'at ($r(ose1
ot'er:iseC 'e is not a 'older in d$e
co$rse&
C#ec-s: Crosse: C#ec-s s!
Cancelle: C#ec-s (2007) Disting$is' clearly +" crossed c'ecks )rom
cancelled c'ecks1
SUGGESTED ANSWER:
A crossed c'eck is one :it' t:o (arallel lines
dra:n diagonally across its )ace or across a
corner t'ereo)& ;n t'e ot'er 'andC a
cancelled c'eck is one marked or stam(ed
O(aidO andGor OcancelledO by or on be'al) o) a
dra:ee bank to indicate (ayment t'ereo)&
C#ec-s6 Crosse:
C#ec- ()**)) *r Pablo so$g't to borro: P200t' )rom *r
Carlos& Carlos agreed to loan t'e amo$nt in
t'e )orm o) a (ostdated c'eck :'ic' :as
crossed i&e& 2 (arallel lines diagonally dra:n
on t'e to( le)t (ortion o) t'e c'eck"& Be)ore
t'e d$e date o) t'e c'eckC Pablo disco$nted
it :it' >oble ;n d$e dateC >oble de(osited
t'e c'eck :it' 'is bank& T'e c'eck :as
dis'onored& >oble s$ed Pablo& T'e co$rt
dismissed >obles com(laint& @as t'e co$rts
decision correctI
SUGGESTED ANSWER:
T'e co$rts decision :as incorrect& Pablo and
CarlosC being immediate (arties to t'e
instr$mentC are go%erned by t'e r$les o)
(ri%ity& 2i%en t'e )act$al circ$mstances o)
t'e (roblemC Pablo 'as no %alid e8c$se )rom
denying liabilityC (State investment Eouse v .0&
1+ 3$3%4 "#Auly"969!/ Pablo $ndo$btedly 'ad
bene)ited in t'e transaction& To 'old
ot'er:ise :o$ld also contra%ene t'e basic
r$les o) $n<$st enric'ment& E%en in
negotiable instr$mentsC t'e
Page 11 of 103 Ci%il Code and ot'er la:s o)
general a((lication can still a((ly
s$((letorily&
A<TERNAT2@E ANSWER:
T'e dismissal by t'e co$rt :as correct& A
c'eck :'et'er or not (ost-dated or crossedC
is still a negotiable instr$ment and $nless
Pablo is a general indorserC :'ic' is not
e8(ressed in t'e )act$al settingsC 'e cannot
be 'eld liable )or t'e dis'onor o) t'e
instr$ment& 6n State .nvestment Eouse v .0& (1+
3$3%4 "#Aul"969!C t'e co$rt did not go so )ar
as to 'old t'at t'e )act o) crossing :o$ld
render t'e instr$ment non-negotiable&
A<TERNAT2@E ANSWER:
6n State .nvestment Eouse v .0& (1+ 3$3%4
"#Aul"969!, t'e /C considered a crossed c'eck
as s$b<ecting a s$bse5$ent 'older t'ereo) to
t'e contract$al co%enants o) t'e (ayor and
t'e (ayee& 6) s$c' :ere t'e caseC t'en t'e
instr$ment is not one :'ic' can still be said
to contain an $nconditional (romise to (ay or
order a s$m certain in money& 6n t'e trans)er
o) non-negotiable credits by assignmentC t'e
trans)eror does not ass$me liability )or t'e
)a$lt o) t'e debtor or obligor& Accordingly t'e
co$rts decision :as correct&
A<TERNAT2@E ANSWER:
Kes& T'e c'eck is crossed& 6t s'o$ld 'a%e
)ore:arned *r& >oble t'at it :as iss$ed )or a
s(eci)ic ($r(ose& FenceC *r >oble co$ld not
be a 'older in d$e co$rse& Fe is s$b<ect to
t'e (ersonal de)ense o) breac' o) tr$stG
agreement by *r& Pablo& /$c' de)ense is
a%ailable in )a%or o) *r Carlos against *r
>oble&
C#ec-s6 Crosse:
C#ec- ()**7) Po Press iss$ed in )a%or o) #ose a (ostdated
crossed c'eckC in (ayment o) ne:s(rint
:'ic' #ose (romised to deli%er& #ose sold and
negotiated t'e c'eck to E8cel 6nc& at a
disco$nt& E8cel did not ask #ose t'e ($r(ose
o) crossing t'e c'eck& /ince #ose )ailed to
deli%er t'e ne:s(rintC Po ordered t'e dra:ee
bank to sto( (ayment on t'e c'eck& E))orts
o) E8cel to collect )rom Po )ailed& E8cel :ants
to kno: )rom yo$ as co$nsel: +" @'at are t'e
e))ects o) crossing a c'eckI 2" @'et'er as
second indorser and 'older o) t'e
crossed c'eckC is it a 'older in d$e co$rseI
!" @'et'er Pos de)ense o) lack o)
consideration as against #ose is also a%ailable as against
E8celI
SUGGESTED ANSWER:
+" T'e e))ects o) crossing a c'eck
are: T'e c'eck is )or de(osit only in t'e
acco$nt o) t'e (ayee
T'e c'eck may be indorsed only once in
)a%or o) a (erson :'o 'as an acco$nt :it'
a bank
T'e c'eck is iss$ed )or a s(eci)ic ($r(ose
and t'e (erson :'o takes it not in
accordance :it' said ($r(ose does not
become a 'older in d$e co$rse and is not
entitled to (ayment t'ere$nder&
2" >o& 6t is a crossed c'eck and E8cel did not
take it in accordance :it' t'e ($r(ose )or
:'ic' t'e c'eck :as iss$ed& -ail$re on its
(art to in5$ire as to said ($r(oseC
Mercantile Law Bar Examination Q & A (1990-2006)
(re%ented E8cel )rom becoming a 'older in
d$e co$rseC as s$c' )ail$re or re)$sal
constit$ted bad )ait'&
!" Kes& >ot being a 'older in d$e co$rseC
E8cel is s$b<ect to t'e (ersonal de)ense
:'ic' Po Press can set $( against #ose (State
.nvestment Eouse v .0& "35 S #"7!
C#ec-s6 Crosse:
C#ec- ()**1) ;n ;ct +2C +,,!C C'elsea /traig'tsC a cor(
engaged in t'e man$)act$re o) cigarettesC
ordered )rom *oises 2C000 bales o) tobacco&
C'elsea iss$ed to *oises t:o crossed c'ecks
(ostdated +0 *ar ,3 and +0 A(r ,3 in )$ll
(ayment t'ere)or& ;n +, #an ,3 *oises sold
to Dragon 6n%estment Fo$se at a disco$nt
t'e t:o c'ecks dra:n by C'elsea in 'is
)a%or& *oises )ailed to deli%er t'e bales o)
tobacco as agreed des(ite C'elseas
demand& Conse5$entlyC on + *ar ,3 C'elsea
iss$ed a Asto( (aymentB order on t'e 2
c'ecks iss$ed to *oises& DragonC claiming to
be a 'older in d$e co$rseC )iled a com(laint
)or collection against C'elsea )or t'e %al$e o)
t'e c'ecks& R$le on t'e com(laint o) Dragon&
2i%e yo$r legal basis&
SUGGESTED ANSWER:
Dragon cannot collect )rom C'elsea& T'e
instr$ments are crossed c'ecks :'ic' :ere
intended to (ay )or t'e 2C000 bales o)
tobacco to be deli%ered to *oises& 6t :as
t'ere)ore t'e obligation o) Dragon to in5$ire
as to t'e ($r(ose o) t'e iss$ance o) t'e 2
crossed c'ecks be)ore ca$sing t'em to be
disco$nted& -ail$re on its (art to make s$c'
in5$iryC :'ic' res$lted in its bad )ait'C
Dragon cannot claim to be a 'older in d$e
co$rse& *oreo%erC t'e c'ecks :ere soldC not
endorsedC by 'im to Dragon :'ic' did not
become a 'older in d$e co$rse& >ot being a
'older in d$e co$rseC Dragon is s$b<ect to t'e
(ersonal de)ense on t'e (art o) C'elsea
concerning t'e breac' o) tr$st on t'e (art o)
*oises 7im in not com(lying :it' 'is
obligation to deli%er t'e 2000 bales o)
tobacco&
C#ec-s6 Crosse:
C#ec- ()**5) @'at are t'e e))ects o) crossing a
c'eckI
SUGGESTED ANSWER:
T'e e))ects o) crossing a c'eck are as
)ollo:s: T'e c'eck may not be encas'ed b$t only
de(osited in a bank1
T'e c'eck may be negotiated only once to one
:'o 'as an acco$nt :it' a bank1
T'e act o) crossing a c'eck ser%es as a :arning
to t'e 'older t'ereo) t'at t'e c'eck 'as been
iss$ed )or a de)inite ($r(ose so t'at t'e 'older
m$st in5$ire i) 'e 'as recei%ed t'e c'eck
($rs$ant to t'at ($r(oseC ot'er:ise 'e is not a
'older in d$e co$rse (See Bataan &igar and
&igarette -actory, .nc/ v &0 1+ 9#746, *ar #, "994<
$#7 s %4#!
C#ec-s6 Crosse:
C#ec- ()**5) ;n *arc' +C +,,4C Penti$m Com(any ordered
a com($ter )rom CD BytesC and iss$ed a
crossed c'eck in t'e amo$nt o) P!0C000 (ost-
dated *ar !+C +,,4& ?(on recei(t o) t'e
c'eckC CD Bytes disco$nted t'e c'eck :it'
-$nd Fo$se&
Page 13 of 103
;n A(ril +C +,,4C Penti$m sto((ed (ayment
o) t'e c'eck )or )ail$re o) CD Bytes to deli%er
t'e com($ter& T'$sC :'en -$nd Fo$se
de(osited t'e c'eckC t'e dra:ee bank
dis'onored it&
6) -$nd Fo$se )iles a com(laint against
Penti$m and CD Bytes )or t'e (ayment o) t'e
dis'onored c'eckC :ill t'e com(laint (ros(erI
E8(lain& SUGGESTED ANSWER:: T'e com(laint
)iled by -$nd Fo$se against Penti$m :ill not
(ros(er b$t t'e one against CD Bytes :ill&
-$nd Fo$se is not a 'older in d$e co$rse andC
t'ere)oreC Penti$m can raise t'e de)ense o)
)ail$re o) consideration against it& T'e c'eck
in 5$estion :as iss$ed by Penti$m to (ay )or
a com($ter t'at it ordered )rom CD Bytes&
T'e com($ter not 'a%ing been deli%eredC
t'ere :as a )ail$re o) consideration& T'e
c'eck disco$nted :it' -$nd Fo$se by CD
Bytes is a crossed c'eck and t'is s'o$ld 'a%e
($t -$nd Fo$se on in5$iry& 6t s'o$ld 'a%e
ascertained t'e title o) CD Bytes to t'e c'eck
or t'e nat$re o) t'e latters (ossession&
-ailing in t'is res(ectC -$nd Fo$se is deemed
g$ilty o) gross negligence amo$nting to legal
absence o) good )ait' andC t'$sC not a 'older
in d$e co$rse& -$nd Fo$se can collect )rom
CD Bytes as t'e latter :as t'e immediate
indorser o) t'e c'eck& (See Bataan &igar and
&igarette -actory v &0 et al $#7 s %4# 1+ 9#746
*ar #, 94!
C#ec-s6 E&&ect6 Acce$tance .% t#e
:ra>ee .an- ()**4) N dra:s a c'eck against 'is c$rrent acco$nt
:it' t'e ;rtigas branc' o) Boni)acio Bank in
)a%or o) B& Alt'o$g' N does not 'a%e
s$))icient )$ndsC t'e bank 'onors t'e c'eck
:'en it is (resented )or (ayment&
A((arentlyC N 'as cons(ired :it' t'e banks
bookkee(er so t'at 'is ledger card :o$ld
s'o: t'at 'e still 'as s$))icient )$nds&
T'e bank )iles an action )or reco%ery o) t'e
amo$nt (aid to B beca$se t'e c'eck
(resented 'as no s$))icient )$nds& Decide
t'e case 0J"
SUGGESTED ANSWER:
T'e bank cannot reco%er t'e amo$nt (aid to
B )or t'e c'eck& @'en t'e bank 'onored t'e
c'eckC it became an acce(tor& As acce(torC
t'e bank became (rimarily and directly
liable to t'e (ayeeG'older B&
T'e reco$rse o) t'e bank s'o$ld be against
N and its bookkee(er :'o cons(ired to make
Ns ledger s'o: t'at 'e 'as s$))icient )$nds&
A<TERNAT2@E ANSWER:
T'e bank can reco%er )rom B& T'is is solutio
indebiti beca$se t'ere is (ayment by t'e
bank to B :'en s$c' (ayment is not d$e&
T'e c'eck iss$ed by N to B as (ayee 'ad no
s$))icient )$nds&
C#ec-s6 E&&ects6 Alterations6
"rescri$tie "erio: ()**5) @illiam iss$ed to Albert a c'eck )or P+0C000
dra:n on N* Bank& Albert altered t'e
amo$nt o) t'e c'eck to P2+0C000 and
de(osited t'e c'eck to 'is acco$nt :it' >D
Bank& @'en >D Bank (resented t'e c'eck
)or
Mercantile Law Bar Examination Q & A (1990-2006)
(ayment t'ro$g' t'e Clearing Fo$seC N*
Bank 'onored it& T'erea)terC Albert :it'dre:
t'e P2+0C000 and closed 'is acco$nt&
@'en t'e c'eck :as ret$rned to 'im a)ter a
mont'C @illiam disco%ered t'e alteration& N*
Bank recredited P2+0C000 to @illiams
c$rrent acco$ntC and so$g't reimb$rsement
)rom >D Bank& >D Bank re)$sedC claiming
t'at N* Bank )ailed to ret$rn t'e altered
c'eck to it :it'in 23 'o$r clearing (eriod&
@'oC as bet:eenC N* Bank and >D BankC
s'o$ld bear t'e lossI E8(lain&
SUGGESTED ANSWER:
>D Bank s'o$ld bear t'e loss i) N* Bank
ret$rned t'e altered c'eck to >D Bank :it'in
t:enty )o$r 'o$rs a)ter its disco%ery o) t'e
alteration& ?nder t'e gi%en )actsC @illiam
disco%ered t'e alteration :'en t'e altered
c'eck :as ret$rned to 'im a)ter a mont'& 6t
may sa)ely be ass$med t'at @illiam
immediately ad%ised N* Bank o) s$c' )act
and t'at t'e latter (rom(tly noti)ied >D Bank
t'erea)ter& Central Bank Circ$lar >o& ,C as
amendedC on :'ic' t'e decisions o) t'e
/$(reme Co$rt in Eong'ong D Shanghai
Ban'ing &orp v ;eopleIs Ban' D :rust &o and
+epublic Ban' vs &0 :ere based :as
e8(ressly cancelled and s$(erseded by CB
>o !+7 dated Dec 2! +,70& T'e latter :as in
t$rn amended by CB Circ$lar >o 090C dated
/e(t +,C +,77& As to altered c'ecksC t'e ne:
r$les (ro%ide t'at t'e dra:ee bank can still
ret$rn t'em e%en a)ter 3:00 (m o) t'e ne8t
day (ro%ided it does so :it'in 23 'o$rs )rom
disco%ery o) t'e alteration b$t in no e%ent
beyond t'e (eriod )i8ed or (ro%ided by la:
)or )iling o) a legal action by t'e ret$rning
bank against t'e bank sending t'e same&
Ass$ming t'at t'e relations'i( bet:een t'e
dra:ee bank and t'e collecting bank is
e%idenced by some :ritten doc$mentC t'e
(rescri(ti%e (eriod :o$ld be +0 years&
(&ampos, 2.= 5th ed 4548455!
A<TERNAT2@E ANSWER:
N* Bank s'o$ld bear t'e loss& @'en t'e
dra:ee bank N* Bank" )ailed to ret$rn t'e
altered c'eck to t'e collecting bank >D
Bank" :it'in t'e 23 'o$r clearing (eriod
(ro%ided in /ec 3c o) CB Circ$lar ,C dated
-eb +7C +,3,C t'e latter is absol%ed )rom
liability& (See ESB& v ;BD: &o 1+ =8$6$$% Sep
#7 "937< #5 s "47< also +ep Ban' v &0 1+ 4$3$5
0pr $$, "99" "9% s "77!
C#ec-s6 /or'e: C#ec-6
E&&ects (2005) Disc$ss t'e legal conse5$ences :'en a bank
'onors a )orged c'eck& 0J"
SU++ESTE6 ANSWER(
T'e legal conse5$ences :'en a bank 'onors
a )orged c'eck are as )ollo:s:
a" W#en Dra>erKs Si'nature is /or'e::
Dra:ee-bank by acce(ting t'e c'eck cannot
set $( t'e de)ense o) )orgeryC beca$se by
acce(ting t'e instr$mentC t'e dra:ee bank
admits t'e gen$ineness o) signat$re o)
dra:er (B;. -amily Ban' vs/ Buenaventura 1/+/
2o/ "46"9%, September #7, $775< Section $#,
2egotiable .nstruments =aw!/
?nless a )orgery is attrib$table to t'e )a$lt
or negligence o) t'e dra:er 'imsel)C t'e
remedy o) t'e dra:ee-bank is against t'e
(arty res(onsible )or t'e )orgery& ;t'er:iseC
Page 15 of 103
dra:ee-bank bears t'e loss (B;. -amily Ban' v/
Buenaventura, 1/+/ 2o/ "46"9%, September #7, $775!/ A
dra:ee-bank (aying on a )orged c'eck m$st
be considered as (aying o$t o) its )$nds and
cannot c'arge t'e amo$nt to t'e dra:er
(Samsung &onstruction &o/ ;hils, v/ -ar East
Ban', 1/+/ 2o/ "$97"5, 0ugust "#, $774!/ 6) t'e
dra:ee-bank 'as c'arged dra:erLs acco$ntC
t'e latter can reco%er s$c' amo$nt )rom t'e
dra:ee-bank (0ssociated Ban' v/ &ourt of
0ppeals,
1/+/ 2o/ "73#6$, Aanuary #", "99%< Ban' of ;/ ./
v/ &ase *ontessori .nternationale, 1/+/ 2o/
"49454, *ay $6, $774!/
Fo:e%erC t'e dra:er may be (recl$ded or
esto((ed )rom setting $( t'e de)ense o)
)orgery as against t'e dra:ee-bankC :'en it
is s'o:n t'at t'e dra:er 'imsel) 'ad been
g$ilty o) gross negligence as to 'a%e
)acilitated t'e )orgery *etropolitan
Paterwor's v/ &ourt of 0ppeals, 1/+/ 2o/ =%$94#,
"4# S&+0 $7, Auly "4, "96%"&
(2,:0 BE2E :he question does not
qualify the term )forged chec')/ 0n
answer addressing the liabilities of a
drawer should be deemed sufficient/
0nswers addressing liabilities of parties
should li'ewise be given full credit!
Dra>ee ,an- ersus Collectin' ,an- S
@'en t'e signat$re o) t'e dra:er is )orgedC
as bet:een t'e dra:ee-bank and collecting
bankC t'e dra:ee-bank s$stains t'e lossC
since t'e collecting bank does not g$arantee
t'e signat$re o) t'e dra:er& T'e (ayment o)
t'e c'eck by t'e dra:ee bank constit$tes
t'e (ro8imate negligence since it 'as t'e
d$ty to kno: t'e signat$re o) its client-
dra:er&
(;hilippine 2ational Ban' v/ &ourt of 0ppeals,
1/+/ 2o/ =8$%77", ,ctober $9, "9%6!/
b" /or'e: "a%eeKs Si'nature: @'en
dra:ee-bank (ays t'e )orged c'eckC it m$st
be considered as (aying o$t o) its )$nds and
cannot c'arge t'e amo$nt so (aid to t'e
acco$nt o) t'e de(ositor& 6n s$c' caseC t'e
bank becomes liable since its (rimary d$ty is
to %eri)y t'e a$t'enticity o) t'e (ayeeLs
signat$re (:raders +oyal Ban' v/ +adio
;hilippines 2etwor', 1/+/ 2o/ "#65"7, ,ctober
"7, $77$< Pestmont Ban' v/ ,ng, 1/+/ 2o/
"#$5%7, Aanuary #7, $77$!/
c" /or'e:
2n:orsement:
Y Dra:erLs acco$nt cannot be
c'argedC and i) c'argedC 'e can reco%er
)rom t'e dra:ee-bank
(0ssociated Ban' v/ &ourt of 0ppeals,
1/+/ 2o/ "73#6$ Aanuary #","99%!/
Y Dra:er 'as no ca$se o) action
against collecting bankC since t'e d$ty o)
collecting bank is only to t'e (ayee& A
collecting bank is not g$ilty o) negligence
o%er a )orged indorsement on c'ecks )or
it 'as no :ay o) ascertaining t'e
a$t'ority o) t'e endorsement and :'en it
ca$sed t'e c'ecks to (ass t'ro$g' t'e
clearing 'o$se be)ore allo:ing :it'dra:al
o) t'e (roceeds t'ereo)
(*anila =ighter :ransportation, .nc/ v/ &ourt of
0ppeals, 1/+/ 2o/ 57#3#, -ebruary "5, "997!/ ;n t'e
ot'er 'andC a collecting bank :'ic'
endorses a c'eck bearing a )orged
endorsement and (resents it to t'e
dra:ee bank g$arantees all (rior
endorsements incl$ding t'e )orged
endorsement itsel) and s'o$ld be 'eld
liable
Mercantile Law Bar Examination Q & A (1990-2006)
t'ere)or (:raders +oyal Ban' v/ +;2, 1/+/
2o/ "#65"7, ,ctober "7, $77$!/
Y Dra:ee-bank can reco%er )rom t'e
collecting bank (1reat Eastern =ife .ns/ &o/
v/ Eong'ong D Shanghai Ban', 1/+/ 2o/
"6%53, 0ugust $#,"9$$!
beca$se e%en i) t'e indorsement on
t'e c'eck de(osited by t'e bankLs
client is )orgedC collecting bank is
bo$nd by its :arranties as an indorser
and cannot set $( de)ense o) )orgery
as against dra:ee bank (0ssociated
Ban' v/ &ourt of 0ppeals, 1/+/ 2o/ "73#6$,
Aanuary #", "99%!/ C#ec-s6 <ia.ilit%6 Dra>ee
,an- ()**1) *ario 2$Eman iss$ed to Fonesto /antos a
c'eck )or P00t' as (ayment )or a 2nd 'and
car& @it'o$t t'e kno:ledge o) *arioC
Fonesto c'anged t'e amo$nt to P+00t'
:'ic' alteration co$ld not be detected by t'e
naked eye& Fonesto de(osited t'e altered
c'eck :it' /'$re Bank :'ic' )or:arded t'e
same to Progressi%e Bank )or (ayment&
Progressi%e Bank :it'o$t noticing t'e
alteration (aid t'e c'eckC debiting P+00t'
)rom t'e acco$nt o) *ario& Fonesto :it'dre:
t'e amo$nt o) P+0t' )rom /'$re Bank and
disa((eared& A)ter recei%ing 'is bank
statementC *ario disco%ered t'e alteration
and demanded restit$tion )rom Progressi%e
Bank& Disc$ss )$lly t'e rig'ts and t'e
liabilities o) t'e (arties concerned&
SUGGESTED ANSWER:
T'e demand o) *ario )or restit$tion o) t'e
amo$nt o) P+00C000 to 'is acco$nt is tenable&
Progressi%e Bank 'as no rig't to ded$ct said
amo$nt )rom *arios acco$nt since t'e order
o) *ario is di))erent& *oreo%erC Progressi%e
Bank is liable )or t'e negligence o) its
em(loyees in not noticing t'e alteration
:'ic'C t'o$g' it cannot be detected by t'e
naked eyeC co$ld be detected by a
magni)ying instr$ment $sed by tellers&
As bet:een Progressi%e Bank and /'$re
BankC it is t'e )ormer t'at s'o$ld bear t'e
loss& Progressi%e Bank )ailed to noti)y /'$re
Bank t'at t'ere :as somet'ing :rong :it'
t'e c'eck :it'in t'e clearing 'o$r r$le o) 23
'o$rs&
C#ec-s6 (aterial Alterations6
<ia.ilit% ()***) A c'eck )or P00C000&00 :as dra:n against
dra:ee bank and made (ayable to NKQ
*arketing or order& T'e c'eck :as de(osited
:it' (ayees acco$nt at ABC Bank :'ic'
t'en sent t'e c'eck )or clearing to dra:ee
bank& Dra:ee bank re)$sed to 'onor t'e
c'eck on gro$nd t'at t'e serial n$mber
t'ereo) 'ad been altered& NKQ marketing
s$ed dra:ee bank&
6s it (ro(er )or t'e dra:ee bank to dis'onor t'e
c'eck )or t'e reason t'at it 'ad been alteredI
E8(lain 2J"
6n instant s$itC dra:ee bank contended t'at NKQ
*arketing as (ayee co$ld not s$e t'e dra:ee
bank as t'ere :as no (ri%ity bet:een t'en&
Dra:ee t'eoriEed t'at t'ere :as no basis to make
it liable )or t'e c'eck& 6s t'is contention correctI
E8(lain& !J"
SUGGESTED ANSWER:
a& >o& T'e serial n$mber is not a material
(artic$lar o) t'e c'eck& 6ts alteration does
not constit$te material
Page 30 of 103 alteration o) t'e instr$ment&
T'e serial n$mber is not material to t'e
negotiability o) t'e instr$ment&
b& Kes& As a general r$leC t'e dra:ee is not
liable $nder t'e c'eck beca$se t'ere is no
(ri%ity o) contract bet:een NKQ *arketingC
as (ayeeC and ABC Bank as t'e dra:ee bank&
Fo:e%erC i) t'e action taken by t'e bank is
an ab$se o) rig't :'ic' ca$sed damage not
only to t'e iss$er o) t'e c'eck b$t also to t'e
(ayeeC t'e (ayee 'as a ca$se o) action
$nder 5$asi-delict&
C#ec-s6
"resentment
()**7)
2emma dre: a c'eck on /e(tember +!C
+,,0& T'e 'older (resented t'e c'eck to t'e
dra:ee bank only on *arc' 0C +,,3& T'e
bank dis'onored t'e c'eck on t'e same
date& A)ter dis'onor by t'e dra:ee bankC t'e
'older ga%e a )ormal notice o) dis'onor to
2emma t'ro$g' a letter dated A(ril 27C
+,,3& +" @'at is meant by A$nreasonable
timeB as a((lied to (resentmentI 2" 6s
2emma liable to t'e 'olderI
SUGGESTED ANSWER:
+" As a((lied to (resentment )or (aymentC
Areasonable time: is meant not more t'an 4
mont's )rom t'e date o) iss$e& Beyond said
(eriodC it is A$nreasonable timeB and t'e
c'eck becomes stale&
2" >o& Aside )orm t'e c'eck being already
staleC 2emma is also disc'arged )orm
liability $nder t'e c'eckC being a dra:er and
a (erson :'ose liability is secondaryC t'is is
d$e to t'e gi%ing o) t'e notice o) dis'onor
beyond t'e (eriod allo:ed by la:& T'e gi%ing
o) notice o) dis'onor on A(ril 27C +,,3 is
more t'an one +" mont' )rom *arc' 0C
+,,3 :'en t'e c'eck :as dis'onored& /ince
it is not s'o:n t'at 2emma and t'e 'older
resided in t'e same (laceC t'e (eriod :it'in
:'ic' to gi%e notice o) dis'onor m$st be t'e
same time t'at t'e notice :o$ld reac'
2emma i) sent by mail& >67 /ec +0! . +031
-ar East Realty 6n%estment 6nc % CA +44 /
204"
A<TERNAT2@E ANSWER:
2" 2emma can still be liable $nder t'e
original contract )or t'e consideration o)
:'ic' t'e c'eck :as iss$ed&
C#ec-s6
"resentment
(2003)
A bank iss$es its o:n c'eck& *ay t'e 'older
'old t'e bank liable t'ere$nder i) 'e )ails to
M
M
(ro%e (resentment )or (aymentC or
(
(resent t'e bill to t'e dra:ee )or
acce(tanceI E8(lain yo$r ans:ers& 3J"
SUGGESTED ANSWER:
C#ec-s6 @ali:it%6 Waier o&
,an-Ls lia.ilit% &or ne'li'ence
()**)) *r& 7im iss$ed a c'eck dra:n against BP6
Bank in )a%or o) *r K$ as (ayment o) certain
s'ares o) stock :'ic' 'e ($rc'ased& ;n t'e
same day t'at 'e iss$ed t'e c'eck to K$C
7im ordered BP6 to sto( (ayment& Per
standard banking (racticeC 7im :as made to
sign a :ai%er o) BP6s
Mercantile Law Bar Examination Q & A (1990-2006)
liability in t'e e%ent t'at it s'o$ld (ay K$
t'ro$g' o%ersig't or inad%ertence& Des(ite
t'e sto( order by 7imC BP6 ne%ert'eless (aid
K$ $(on (resentation o) t'e c'eck& 7im s$ed
BP6 )or (aying against 'is order& Decide t'e
case&
SUGGESTED ANSWER:
6n t'e e%ent t'at *r& 7imC in )actC 'ad
s$))icient legal reasons to iss$e t'e sto(
(ayment orderC 'e may s$e BP6 )or (aying
against 'is order& T'e :ai%er e8ec$ted by *r
7im did not mean t'at it need not e8ercise
d$e diligence to (rotect t'e interest o) its
acco$nt 'older& 6t is not amiss to state t'at
t'e dra:eeC $nless t'e instr$ment 'as earlier
been acce(ted by itC is not bo$nd to 'onor
(ayment to t'e 'older o) t'e c'eck t'at
t'ereby e8cl$des it )rom any liability i) it
:ere to com(ly :it' its sto( (ayment order
/ec 4+ >67"
A<TERNAT2@E ANSWER:
+,,+ 4b" BP6 :o$ld not be liable to *r 7im&
*r 7im and BP6 are go%erned by t'eir o:n
agreement& T'e :ai%er e8ec$ted by *r 7imC
neit'er being one o) )$t$re )ra$d or gross
negligenceC :o$ld be %alid& T'e (roblem
does not indicate t'e e8istence o) )ra$d or
gross negligence on t'e (art o) BP6 so as to
:arrant liability on its (art&
De&enses6
/or'er% (2007) CN maintained a c'ecking acco$nt :it'
?BA>HC *akati Branc'& ;ne o) 'is c'ecks in
a st$b o) )i)ty :as missing& 7aterC 'e
disco%ered t'at *s& DK )orged 'is signat$re
and s$cceeded to encas' P+0C000 )rom
anot'er branc' o) t'e bank& DK :as able to
encas' t'e c'eck :'en ETC a )riendC
g$aranteed d$e e8ec$tionC saying t'at s'e
:as a 'older in d$e co$rse& Can CN reco%er
t'e money )rom t'e bankI Reason brie)ly&
0J"
SUGGESTED ANSWER:
KesC CN can reco%er )rom t'e bank& ?nder
/ection 2! o) t'e >egotiable 6nstr$ments
7a:C )orgery is a real de)ense& T'e )orged
c'eck is :'olly ino(erati%e in relation to CN&
CN cannot be 'eld liable t'ereon by anyoneC
not e%en by a 'older in d$e co$rse& ?nder a
)orged signat$re o) t'e dra:erC t'ere is no
%alid instr$ment t'at :o$ld gi%e rise to a
contract :'ic' can be t'e basis or so$rce o)
liability on t'e (art o) t'e dra:er& T'e
dra:ee bank 'as no rig't or a$t'ority to
to$c' t'e dra:erLs )$nds de(osited :it' t'e
dra:ee bank&
/or'er%6 <ia.ilities6 "rior 0
Su.se9uent "arties ()**0) #ose loaned *ario some money andC to
e%idence 'is indebtednessC *ario e8ec$ted
and deli%ered to #ose a (romissory note
(ayable to 'is order&
#ose endorsed t'e note to Pablo& Bert
)ra$d$lently obtained t'e note )rom Pablo
and endorsed it to #$lian by )orging Pablos
signat$re& #$lian endorsed t'e note to
Camilo& a" *ay Camilo en)orce t'e said
(romissory note against *ario and #oseI b"
*ay Camilo go against PabloI c" *ay
Camilo en)orce said note against #$lianI d"
Against :'om can #$lian 'a%e t'e rig't o)
reco$rseI
Page 31 of 103
e" *ay Pablo reco%er )rom eit'er *ario or
#oseI
SUGGESTED ANSWER:
a" Camilo may not en)orce said (romissory
note against *ario and #ose& T'e (romissory
note at t'e time o) )orgery being (ayable to
orderC t'e signat$re o) Pablo :as essential )or
t'e instr$ment to (ass title to s$bse5$ent
(arties& A )orged signat$re :as ino(erati%e
/ec 2! >67"& AccordinglyC t'e (arties be)ore
t'e )orgery are not <$ridically related to
(arties a)ter t'e )orgery to allo: s$c'
en)orcement&
b" Camilo may not go against PabloC t'e
latter not 'a%ing indorsed t'e instr$ment&
c" Camilo may en)orce t'e instr$ment
against #$lian beca$se o) 'is s(ecial
indorsement to CamiloC t'ereby making 'im
secondarily liableC bot' being (arties a)ter
t'e )orgery&
d" #$lianC in t$rnC may en)orce t'e
instr$ment against Bert :'oC by 'is )orgeryC
'as rendered 'imsel) (rimarily liable&
e" Pablo (reser%es 'is rig't to reco%er )rom
eit'er *ario or #ose :'o remain (arties
<$ridically related to 'im& *ario is still
considered (rimarily liable to Pablo& Pablo
mayC in case o) dis'onorC go a)ter #ose :'oC
by 'is s(ecial indorsementC is secondarily
liable&
2ote .t is possible that an answer
might distinguish between blan' and
special indorsements of prior parties
which can thereby materially alter
the above suggested answers/ :he
problem did not clearly indicate the
'ind of indorsements made/
/or'er%6 <ia.ilities6 "rior 0
Su.se9uent "arties ()**1) Ale8 iss$ed a negotiable P> (romissory
note" (ayable to Benito or order in (ayment
o) certain goods& Benito indorsed t'e P> to
Celso in (ayment o) an e8isting obligation&
7ater Ale8 )o$nd t'e goods to be de)ecti%e&
@'ile in Celsos (ossession t'e P> :as
stolen by Dennis :'o )orged Celsos
signat$re and disco$nted it :it' EdgarC a
money lender :'o did not make in5$iries
abo$t t'e P>& Edgar indorsed t'e P> to -eli8C
a 'older in d$e co$rse& @'en -eli8
demanded (ayment o) t'e P> )rom Ale8 t'e
latter re)$sed to (ay& Dennis co$ld no longer
be located&
+& @'at are t'e rig'ts o) -eli8C i) anyC against
Ale8C BenitoC Celso and EdgarI E8(lain
2& Does Celso 'a%e any rig't against Ale8C
Benito and -eli8I E8(lain&
SUGGESTED ANSWER:
+& -eli8 'as no rig't to claim against Ale8C
Benito and Celso :'o are (arties (rior to t'e
)orgery o) Celsos signat$re by Dennis&
Parties to an instr$ment :'o are s$c' (rior
to t'e )orgery cannot be 'eld liable by any
(arty :'o became s$c' at or s$bse5$ent to
t'e )orgery& Fo:e%erC EdgarC :'o became a
(arty to t'e instr$ment s$bse5$ent to t'e
)orgery and :'o indorsed t'e same to -eli8C
can be 'eld liable by t'e latter&
Mercantile Law Bar Examination Q & A (1990-2006)
2& Celso 'as t'e rig't to collect )rom Ale8
and Benito& Celso is a (arty s$bse5$ent to
t'e t:o& Fo:e%erC Celso 'as no rig't to claim
against -eli8 :'o is a (arty s$bse5$ent to
Celso /ec 40 and 44 >67"
2ncom$lete 0
Deliere: (2007) ANC a b$sinessmanC :as (re(aring )or a
b$siness tri( abroad& As 'e $s$ally did in t'e
(astC 'e signed se%eral c'ecks in blank and
entr$sted t'em to 'is secretary :it'
instr$ction to sa)eg$ard t'em and )ill t'em
o$t only :'en re5$ired to (ay acco$nts
d$ring 'is absence& ;BC 'is secretaryC )illed
o$t one o) t'e c'ecks by (lacing 'er name
as t'e (ayee& /'e )illed o$t t'e amo$ntC
endorsed and deli%ered t'e c'eck to HCC :'o
acce(ted it in good )ait' )or (ayment o)
gems t'at HC sold to ;B& 7aterC ;B told AN o)
:'at s'e did :it' regrets& AN timely directed
t'e bank to dis'onor t'e c'eck& Co$ld AN be
'eld liable to HCI Ans:er and reason brie)ly&
0J"
SUGGESTED ANSWER:
Kes& AN co$ld be 'eld liable to HC& T'is is a
case o) an incom(lete c'eckC :'ic' 'as been
deli%ered& ?nder /ection +3 o) t'e >egotiable
6nstr$ments 7a:C HCC as a 'older in d$e
co$rseC can en)orce (ayment o) t'e c'eck as
i) it 'ad been )illed $( strictly in accordance
:it' t'e a$t'ority gi%en by AN to ;B and
:it'in a reasonable time&
2ncom$lete an:
Deliere: (2001) Brad :as in des(erate need o) money to (ay
'is debt to PeteC a loan s'ark& Pete
t'reatened to take Brads li)e i) 'e )ailed to
(ay& Brad and Pete :ent to see /eZorita
6sobelC Brads ric' co$sinC and asked 'er i)
s'e co$ld sign a (romissory note in 'is )a%or
in t'e amo$nt o) P+0C000&00 to (ay Pete&
-earing t'at Pete :o$ld kill BradC /eZorita
6sobel acceded to t'e re5$est& /'e a))i8ed
'er signat$re on a (iece o) (a(er :it' t'e
ass$rance o) Brad t'at 'e :ill <$st )ill it $(
later& Brad t'en )illed $( t'e blank (a(erC
making a (romissory note )or t'e amo$nt o)
P+00C000&00& Fe t'en indorsed and deli%ered
t'e same to PeteC :'o acce(ted t'e note as
(ayment o) t'e debt&
@'at de)ense or de)enses can /eZorita
6sobel set $( against PeteI E8(lain& !J"
SUGGESTED ANSWER:
T'e de)ense (ersonal de)ense" :'ic'
/eZorita 6sobel can set $( against Pete is
t'at t'e amo$nt o) P+00C000&00 is not in
accordance :it' t'e a$t'ority gi%en to 'er to
Brad in t'e (resence o) Pete" and t'at Pete
:as not a 'older in d$e co$rse )or acting in
bad )ait' :'en acce(ted t'e note as
(ayment des(ite 'is kno:ledge t'at it :as
only +0C000&00 t'at :as allo:ed by /eZorita
6sobel d$ring t'eir meeting :it' Brad&
2ncom$lete 2nstruments6
2ncom$lete Deliere: 2nstruments
s! 2ncom$lete Un:eliere:
2nstrument (2005) #$n :as abo$t to lea%e )or a b$siness tri(& As
'is $s$al (racticeC 'e signed se%eral blank
c'ecks& Fe instr$cted R$t'C 'is secretaryC to
)ill t'em as (ayment )or 'is obligations& R$t'
)illed one c'eck :it' 'er name as (ayeeC
(laced P!0C000&00 t'ereonC endorsed and
Page 3# of 103 deli%ered it to *arie& /'e
acce(ted t'e c'eck in good )ait' as (ayment
)or goods s'e deli%ered to R$t'& E%ent$allyC
R$t' regretted :'at s'e did and a(ologiEed
to #$n& 6mmediately 'e directed t'e dra:ee
bank to dis'onor t'e c'eck& @'en *arie
encas'ed t'e c'eckC it :as dis'onored&
+& 6s #$n liable to *arieI 0J"
SU++ESTE6 ANSWER(
Kes& T'is co%ers t'e deli%ery o) an
incom(lete instr$mentC $nder /ection +3 o)
t'e >egotiable 6nstr$ments 7a:C :'ic'
(ro%ides t'at t'ere :as (rima )acie a$t'ority
on t'e (art o) R$t' to )ill-$( any o) t'e
material (artic$lars t'ereo)& Fa%ing done soC
and :'en it is )irst com(leted be)ore it is
negotiated to a 'older in d$e co$rse like
*arieC it is %alid )or all ($r(osesC and *arie
may en)orce it :it'in a reasonable timeC as i)
it 'ad been )illed $( strictly in accordance
:it' t'e a$t'ority gi%en&
2& /$((osing t'e c'eck :as stolen :'ile in
R$t'Ls (ossession and a t'ie) )illed t'e blank
c'eckC endorsed and deli%ered it to *arie in
(ayment )or t'e goods 'e ($rc'ased )rom
'erC is #$n liable to *arie i) t'e c'eck is
dis'onoredI 0J"
SU++ESTE6 ANSWER(
>o& E%en t'o$g' *arie is a 'older in d$e
co$rseC t'is is an incom(lete and $ndeli%ered
instr$mentC co%ered by /ection +0 o) t'e
>egotiable 6nstr$ments 7a:& @'ere an
incom(lete instr$ment 'as not been
deli%eredC it :ill notC i) com(leted and
negotiated :it'o$t a$t'orityC be a %alid
contract in t'e 'ands o) any 'olderC as
against any (ersonC incl$ding #$nC :'ose
signat$re :as (laced t'ereon be)ore
deli%ery& /$c' de)ense is a real de)ense e%en
against a 'older in d$e co$rseC a%ailable to a
(arty like #$n :'ose signat$re a((eared (rior
to deli%ery&
2n:orser: 2rre'ular 2n:orser s!
General 2n:orser (2001) Disting$is' an irreg$lar indorser )rom a
general indorser& !J"
SUGGESTED ANSWER:
6rreg$lar 6ndorser is not a (arty to t'e
instr$ment b$t 'e (laces 'is signat$re in
blank be)ore deli%ery& Fe is not a (arty b$t
'e becomes one beca$se o) 'is signat$re in
t'e instr$ment& Beca$se 'is signat$re 'e is
considered an indorser and 'e is liable to t'e
(arties in t'e instr$ment&
@'ileC a 2eneral 6ndorser :arrants t'at t'e
instr$ment is gen$ineC t'at 'e 'as a good
title to itC t'at all (rior (arties 'ad ca(acity to
contract1 t'at t'e instr$ment at t'e time o)
t'e indorsement is %alid and s$bsisting1 and
t'at on d$e (resentmentC t'e instr$ment :ill
be acce(ted or (aid or bot' acce(ted and
(aid according to its tenorC and t'at i) it is
dis'onoredC 'e :ill (ay i) t'e necessary
(roceedings )or dis'onor are made&
Ne'otia.ilit%
()**3) Disc$ss t'e negotiability or non-negotiability
o) t'e )ollo:ing notes
+" *anilaC /e(tember +C +,,!
Mercantile Law Bar Examination Q & A (1990-2006)
P2C000&00 6 (romise to (ay Pedro /an #$an or
order t'e s$m o) P2C000&
/gd&" >oel Castro
2" *anilaC #$ne !C +,,!
P+0C000&00 -or %al$e recei%edC 6 (romise to
(ay /ergio Dee or order t'e s$m o)
P+0C000&00 in )i%e 0" installmentsC :it' t'e
)irst installment (ayable on ;ctober 0C +,,!
and t'e ot'er installments on or be)ore t'e
)i)t' day o) t'e s$cceeding mont' or
t'erea)ter&
/gd&" 7ito =illa
SUGGESTED ANSWER:
T'e (romissory note is negotiable as it
com(lies :it' /ec +C >67&
c
-irstlyC it is in :riting and signed by t'e makerC
>oel Castro&
>
/econdlyC t'e (romise is $nconditional to (ay a
s$m certain in moneyC t'at isC P2C000&00
s
T'irdlyC it is (ayable on demand as no date o)
mat$rity is s(eci)ied&
m
-o$rt'C it is (ayable to
order&
+"
>egotiability - T'at 5$ality or attrib$te :'ereby a billC note or c'eck (asses or may (ass )rom 'and to 'andC similar to moneyC so as to gi%e t'e 'older in d$e co$rse t'e rig't to 'old t'e instr$ment and collect t'e s$m (ayable )or 'imsel) )ree )rom de)enses&
2"
Acc$m$lation o) /econdary Contracts as t'ey are trans)erred )rom one (erson to anot'er&
T'e (romissory note is negotiable& All t'e
re5$irements o) /ec + >67 are com(lied :it'&
T'e s$m to be (aid is still certain des(ite
t'at t'e s$m is to be (aid by installments
/ec 2b >67"
Ne'otia.ilit%
(2002) @'ic' o) t'e )ollo:ing sti($lations or )eat$res
o) a (romissory note P>" a))ect or do not
a))ect its negotiabilityC ass$ming t'at t'e P>
is ot'er:ise negotiableI 6ndicate yo$r ans:er
by :riting t'e (aragra(' n$mber o) t'e
sti($lation or )eat$re o) t'e P> as s'o:n
belo: and yo$r corres(onding ans:erC eit'er
AA))ectedB or A>ot a))ected&B E8(lain 0J"&
a" T'e date o) t'e P> is A-ebr$ary !0C
2002&B b" T'e P> bears interest (ayable on t'e
last day o) eac' calendar 5$arter at a rate
e5$al to )i%e (ercent 0J" abo%e t'e t'en
(re%ailing ,+-day Treas$ry Bill rate as
($blis'ed at t'e beginning o) s$c' calendar
5$arter&
c" T'e P> gi%es t'e maker t'e o(tion to
make (ayment eit'er in money or in 5$antity
o) (alay or e5$i%alent %al$e&
d" T'e P> gi%es t'e 'older t'e o(tion
eit'er to re5$ire (ayment in money or to
re5$ire t'e maker to ser%e as t'e bodyg$ard
or escort o) t'e 'older )or !0 days&
SUGGESTED ANSWER:
a" Paragra(' + M negotiability is A>;T
A--ECTED&B T'e date is not one o) t'e
re5$irements )or negotiability&
Page 33 of 103 b" Paragra(' 2 M negotiability
is A>;T A--ECTEDB
T'e interest is to be com($ted at a (artic$lar
time and is determinable& 6t does not make t'e s$m
$ncertain or t'e (romise conditional& c"
Paragra(' ! M negotiability is AA--ECTED&B
2i%ing t'e maker t'e o(tion renders t'e (romise
conditional d" Paragra(' 3 M negotiability is
A>;T A--ECTED&B
2i%ing t'e o(tion to t'e 'older does not make
t'e (romise conditional&
Ne'otia.ilit%6 Iol:er in Due
Course ()**2) Perla bro$g't a motor car (ayable on
installments )rom A$tomoti%e Com(any )or
P200t'& /'e made a do:n (ayment o) P00t'
and e8ec$ted a (romissory note )or t'e
balance& T'e com(any s$bse5$ently
indorsed t'e note to Reliable -inance
Cor(oration :'ic' )inanced t'e ($rc'ase&
T'e (romissory note read: A-or %al$e
recei%edC 6 (romised to (ay A$tomoti%e
Com(any or order at its o))ice in 7egas(i
CityC t'e s$m o) P200C000&00 :it' interest at
t:el%e +2J" (ercent (er ann$mC (ayable in
e5$al installments o) P20C000&00 mont'ly )or
ten +0" mont's starting ;ctober 2+C +,,+&
*anila /e(tember 2+C +,,+&
sgd" Perla
Pay to t'e order o) Reliable -inance
Cor(oration& A$tomoti%e Com(any
By: /gd" *anager
Beca$se Perla de)a$lted in t'e (ayment o)
'er installmentsC Reliable -inance Cor(oration
initiated a case against 'er )or a s$m o)
money& Perla arg$ed t'at t'e (romissory note
is merely an assignment o) creditC a non-
negotiable instr$ment o(en to all de)enses
a%ailable to t'e assignor andC t'ere)oreC
Reliable -inance Cor(oration is not a 'older in
d$e co$rse& a" 6s t'e (romissory note a mere
assignment o) credit or a negotiable
instr$mentI @'yI b" 6s Reliable -inance Cor(
a 'older in d$e co$rseI E8(lain brie)ly&
SUGGESTED ANSWER:
a" T'e (romissory note in t'e (roblem is a
negotiable instr$mentC being in com(liance
:it' t'e (ro%isions o) /ec + >67& >eit'er t'e
)act t'at t'e (ayable s$m is to be (aid :it'
interest nor t'at t'e mat$rities are in stated
installments renders $ncertain t'e amo$nt
(ayable /ec 2 >67"
b" KesC Reliable -inance Cor(oration is a
'older in d$e co$rse gi%en t'e )act$al
settings& /aid cor(oration a((arently took t'e
(romissory note )or %al$eC and t'ere are no
indications t'at it ac5$ired it in bad )ait' (Sec
5$ 2.= see Salas v &0 "6" s $9%!
Ne'otia.ilit%6
Re9uisites (2000)
Mercantile Law Bar Examination Q & A (1990-2006)
a" *P bo$g't a $sed cell ('one )rom #R& #R
(re)erred cas' b$t *P is a )riend so #R
acce(ted *Rs (romissory note )or P+0C000&
#R t'o$g't o) con%erting t'e note into cas'
by endorsing it to 'is brot'er HR& T'e
(romissory note is a (iece o) (a(er :it' t'e
)ollo:ing 'and-(rinted notation: A*P @677
PAK #R TE> TF;?/A>D PE/;/ 6> PAK*E>T
-;R F6/ CE77PF;>E + @EEH -R;* T;DAK&B
Belo: t'is notation *Ps signat$re :it'
A9G+G00B ne8t to itC indicating t'e date o) t'e
(romissory note& @'en #R (resented *Ps
note to HRC t'e latter said it :as not a
negotiable instr$ment $nder t'e la: and so
co$ld not be a %alid s$bstit$te )or cas'& #R
took t'e o((osite %ie:C insisting on t'e
notes negotiability& Ko$ are asked to re)eree&
@'ic' o) t'e o((osing %ie:s is correctI
b" TF is an indorsee o) a (romissory note t'at
sim(ly states: APAK T; #?A> TA> ;R ;RDER
300 PE/;/&B T'e note 'as no dateC no (lace
o) (ayment and no consideration mentioned&
6t :as signed by *H and :ritten $nder 'is
letter'ead s(eci)ying t'e addressC :'ic'
'a((ens to be 'is residence& TF acce(ted t'e
(romissory note as (ayment )or ser%ices
rendered to /FC :'o in t$rn recei%ed t'e note
)rom #$an Tan as (ayment )or a (re(aid cell
('one card :ort' 300 (esos& T'e (ayee
ackno:ledged 'a%ing recei%ed t'e note on
A$g$st +C 2000& A Bar re%ie:ee 'ad told TFC
:'o 'a((ens to be yo$r )riendC t'at TF is not
a 'older in d$e co$rse $nder Article 02 o) t'e
>egotiable 6nstr$ments 7a: Act 20!+" and
t'ere)ore does not en<oy t'e rig'ts and
(rotection $nder t'e stat$te& TF asks )or o$r
ad%ice s(eci)ically in connection :it' t'e
note being $ndated and not mentioning a
(lace o) (ayment and any consideration&
@'at :o$ld yo$r ad%ice beI 2J"&
SUGGESTED ANSWER:
a" HR is rig't& T'e (romissory note is not
negotiable& 6t is not iss$ed to order or bearer&
T'ere is no :ord o) negotiability containing
t'erein& 6t is not iss$ed in accordance :it'
/ection + o) t'e >egotiable 6nstr$ments 7a:
b" T'e )act t'at t'e instr$ment is $ndated
and does not mention t'e (lace o) (ayment
does not militate against its being
negotiable& T'e date and (lace o) (ayment
are not material (artic$lars re5$ired to make
an instr$ment negotiable&
T'e )act t'at no mention is made o) any
consideration is not material& Consideration
is (res$med&
Ne'otia.le 2nstrument: Am.i'uous
2nstruments ()**4) Fo: do yo$ treat a negotiable instr$ment
t'at is so ambig$o$s t'at t'ere is do$bt
:'et'er it is a bill or a noteI 0J"
SUGGESTED ANSWER:
+& @'ere a negotiable instr$ment is so
ambig$o$s t'at t'ere is do$bt :'et'er it is a
bill or a noteC t'e 'older may treat it eit'er
as a bill o) e8c'ange or a (romissory note at
'is election&
Page 3/ of 103 Ne'otia.le 2nstrument:
De&inition 0 C#aracteristics (2001) @'at
is a negotiable instr$mentI 2i%e t'e
c'aracteristics o) a negotiable instr$ment&
2J"
SUGGESTED ANSWER:
>egotiable 6nstr$ment is a :ritten contract
)or t'e (ayment o) money :'ic' is intended
as a s$bstit$te )or money and (asses )rom
one (erson to anot'er as moneyC in s$c' a
manner as to gi%e a 'older in d$e co$rse t'e
rig't to 'old t'e instr$ment )ree )rom
de)enses a%ailable to (rior (arties& /$c'
instr$ment m$st com(ly :it' /ec& + o) t'e
>egotiable 6nstr$ment 7a: to be considered
negotiable&
T'e c'aracteristics o) a negotiable instr$ment
are1
Ne'otia.le 2nstrument:
2:enti&ication (2001) /tate and e8(lain :'et'er t'e )ollo:ing are
negotiable instr$ments $nder t'e >egotiable 6nstr$ments 7a::
0J" +" Postal *oney ;rder1
2" A certi)icate o) time de(osit :'ic'
states AT'is is to certi)y t'at bearer 'as
de(osited in t'is bank t'e s$m o) -;?R
TF;?/A>D PE/;/ P3C000&00" onlyC
re(ayable to t'e de(ositor 200 days a)ter
date&B
!" 7etters o) credit1
3" @are'o$se
recei(ts1 0" Treas$ry :arrants (ayable )rom a
s(eci)ic )$nd&
SUGGESTED ANSWER:
+" Postal *oney ;rder M >on->egotiable
as it is go%erned by (ostal r$les and
reg$lation :'ic' may be inconsistent :it'
t'e >67 and it can only be negotiated once&
2" A certi)icate o) time de(osit :'ic'
states AT'is is to certi)y t'at bearer 'as
de(osited in t'is bank t'e s$m o) -;?R
TF;?/A>D PE/;/ P3C000&00" onlyC
re(ayable to t'e de(ositor 200 days a)ter
date&B M >on->egotiable as it does not
com(ly :it' t'e re5$isites o) /ec& + o) >67
!" 7etters o) credit - >on-
>egotiable
3" @are'o$se recei(ts - >on->egotiable
)or t'e same as Bill o) 7ading it merely
re(resents goodC not money&
0" Treas$ry :arrants (ayable )rom a
s(eci)ic )$nd - >on->egotiable being (ayable
o$t o) a (artic$lar )$nd&
Mercantile Law Bar Examination Q & A (1990-2006)
Ne'otia.le 2nstrument:
Ne'otia.le Document s!
Ne'otia.le 2nstrument (2001) Disting$is' a negotiable doc$ment )rom a
negotiable instr$ment& 2J"
SUGGESTED ANSWER:
>egotiable 6nstr$ment 'a%e re5$isites o) /ec&
+ o) t'e >67C a 'older o) t'is instr$ment 'a%e
rig't o) reco$rse against intermediate (arties
:'o are secondarily liableC Folder in d$e
co$rse may 'a%e rig'ts better t'an
trans)erorC its s$b<ect is money and t'e
6nstr$ment itsel) is (ro(erty o) %al$e&
;n t'e ot'er 'andC negotiable doc$ment
does not contain re5$isites o) /ec& + o) >67C it
'as no secondary liability o) intermediate
(artiesC trans)eree merely ste(s into t'e
s'oes o) t'e trans)erorC its s$b<ect are goods
and t'e instr$ment is merely e%idence o)
title1 t'ing o) %al$e are t'e goods mentioned
in t'e doc$ment&
Ne'otia.le 2nstrument6
Ne'otia.ilit% ()**+) Can a bill o) e8c'ange or a (romissory note
5$ali)y as a negotiable instr$ment i) M
a& it is not
dated1 or b& t'e day and t'e mont'C b$t not t'e
year o) its mat$rityC is gi%en1 or
c& it is (ayable to
Acas'B or d& it names t:o
alternati%e dra:ees
SUGGESTED ANSWER:
a" Kes& Date is not a material (artic$lar
re5$ired by /ec + >67 )or t'e negotiability o)
an instr$ment&
b" >o& T'e time )or (ayment is not
determinable in t'is case& T'e year is not
stated&
c" Kes& /ec ,d >67 makes t'e instr$ment
(ayable to bearer beca$se t'e name o) t'e
(ayee does not ($r(ort to be t'e name o)
any (erson&
d" A bill may not be addressed to t:o or
more dra:ees in t'e alternati%e or in
s$ccessionC to be negotiable /ec +29 >67"&
To do so makes t'e order conditional&
Ne'otia.le 2nstruments6 ,earer
2nstrument ()**4) Ric'ard Clinton makes a (romissory note
(ayable to bearer and deli%ers t'e same to
A$rora Page& A$rora PageC 'o:e%erC
endorses it to N in t'is manner:
APayable to N& /igned: A$rora
Page&B
7aterC NC :it'o$t endorsing t'e (romissory
noteC trans)ers and deli%ers t'e same to
>a(oleon& T'e note is s$bse5$ently
dis'onored by Ric'ard Clinton& *ay >a(oleon
(roceed against Ric'ard Clinton )or t'e noteI
0J"
SUGGESTED ANSWER:
Kes& Ric'ard Clinton is liable to >a(oleon
$nder t'e (romissory note& T'e note made
by Ric'ard Clinton is a bearer instr$ment&
Des(ite s(ecial indorsement made by A$rora
Page t'ereonC t'e note remained a bearer
instr$ment and can be negotiated by mere
deli%ery& @'en N deli%ered and trans)erred
t'e note to >a(oleonC t'e
Page 3$ of 103 latter became a 'older
t'ereo)& As s$c' 'olderC >a(oleon can
(roceed against Ric'ard Clinton&
Ne'otia.le 2nstruments6 ,earer
2nstruments ()**+) A deli%ers a bearer instr$ment to B& B t'en
s(ecially indorses it to C and C later indorses
it in blank to D& E steals t'e instr$ment )rom
D andC )orging t'e signat$re o) DC s$cceeds
in AnegotiatingB it to - :'o ac5$ires t'e
instr$ment in good )ait' and )or %al$e& a" 6)C
)or any reasonC t'e dra:ee bank re)$ses to
'onor t'e c'eckC can - en)orce t'e
instr$ment against t'e dra:erI b" 6n case o)
t'e dis'onor o) t'e c'eck by bot' t'e dra:ee
and t'e dra:erC can - 'old any o) BC C and D
liable secondarily on t'e instr$mentI
SUGGESTED ANSWER:
a" Kes& T'e instr$ment :as (ayable to bearer
as it :as a bearer instr$ment& 6t co$ld be
negotiated by mere deli%ery des(ite t'e
(resence o) s(ecial indorsements& T'e )orged
signat$re is $nnecessary to (res$me t'e
<$ridical relation bet:een or among t'e
(arties (rior to t'e )orgery and t'e (arties
a)ter t'e )orgery& T'e only (arty :'o can
raise t'e de)ense o) )orgery against a 'older
in d$e co$rse is t'e (erson :'ose signat$re
is )orged&
b" ;nly B and C can be 'eld liable by -& T'e
instr$ment at t'e time o) t'e )orgery :as
(ayable to bearerC being a bearer instr$ment&
*oreo%erC t'e instr$ment :as indorsed in
blank by C to D& DC :'ose signat$re :as
)orged by E cannot be 'eld liable by -&
Ne'otia.le 2nstruments6 .earer
instruments6 lia.ilities o& ma-er an:
in:orsers (200)) A iss$ed a (romissory note (ayable to B or
bearer& A deli%ered t'e note to B& B indorsed
t'e note to C& C (laced t'e note in 'is
dra:erC :'ic' :as stolen by t'e <anitor N& N
indorsed t'e note to D by )orging Cs
signat$re& D indorsed t'e note to E :'o in
t$rn deli%ered t'e note to -C a 'older in d$e
co$rseC :it'o$t indorsement& Disc$ss t'e
indi%id$al liabilities to - o) AC B and C& 0J"
SUGGESTED ANSWER:
A is liable to -& As t'e maker o) t'e
(romissory noteC A is directly or (rimarily
liable to -C :'o is a 'older in d$e co$rse&
Des(ite t'e (resence o) t'e s(ecial
indorsements on t'e noteC t'ese do not
detract )rom t'e )act t'at a bearer
instr$mentC like t'e (romissory note in
5$estionC is al:ays negotiable by mere
deli%eryC $ntil it is indorsed restricti%ely A-or
De(osit ;nly&B
BC as a general indorserC is liable to -
secondarilyC and :arrants t'at t'e
instr$ment is gen$ine and in all res(ects
:'at it ($r(orts to be1 t'at 'e 'as good title
to it1 t'at all (rior (arties 'ad ca(acity to
contract1 t'at 'e 'as no kno:ledge o) any
)act :'ic' :o$ld im(air t'e %alidity o) t'e
instr$ment or render it %al$eless1 t'at at t'e
time o) 'is indorsementC t'e instr$ment is
%alid and s$bsisting1 and t'at on d$e
(resentmentC it s'all be acce(ted or (aidC or
bot'C according to its tenorC and t'at i) it be
dis'onored and t'e necessary (roceedings
on dis'onor
Mercantile Law Bar Examination Q & A (1990-2006)
be d$ly takenC 'e :ill (ay t'e amo$nt
t'ereo) to t'e 'olderC or to any s$bse5$ent
indorser :'o may be com(elled to (ay&
C is not liable to - since t'e latter cannot
trace 'is title to t'e )ormer& T'e signat$re o)
C in t'e s$((osed indorsement by 'im to D
:as )orged by N& C can raise t'e de)ense o)
)orgery since it :as 'is signat$re t'at :as
)orged&
A<TERNAT2@E ANSWER:
As a general endorserC B is secondarily liable
to -& C is liable to - since it is d$e to t'e
negligence o) C in (lacing t'e note in 'is
dra:er t'at enabled N to steal t'e same and
)orge t'e signat$re o) C relati%e to t'e
indorsement in )a%or o) D& As bet:een C and
- :'o are bot' innocent (artiesC it is C :'ose
negligence is t'e (ro8imate ca$se o) t'e
loss& Fence C s'o$ld s$))er t'e loss&
Ne'otia.le 2nstruments6 incom$lete
an: un:eliere: instruments6
#ol:er in :ue course (2000) P> makes a (romissory note )or P0C000&00C
b$t lea%es t'e name o) t'e (ayee in blank
beca$se 'e :anted to %eri)y its correct
s(elling )irst& Fe mindlessly le)t t'e note on
to( o) 'is desk at t'e end o) t'e :orkday&
@'en 'e ret$rned t'e )ollo:ing morningC t'e
note :as missing& 6t t$rned $( later :'en N
(resented it to P> )or (ayment& Be)ore NC TC
:'o t$rned o$t to 'a%e )ilc'ed t'e note )rom
P>s o))iceC 'ad endorsed t'e note a)ter
inserting 'is o:n name in t'e blank s(ace as
t'e (ayee& P> dis'onored t'e noteC
contending t'at 'e did not a$t'oriEe its
com(letion and deli%ery& B$t N said 'e 'ad
no (artici(ation inC or kno:ledge abo$tC t'e
(il)erage and alteration o) t'e note and
t'ere)ore 'e en<oys t'e rig'ts o) a 'older in
d$e co$rse $nder t'e >egotiable 6nstr$ments
7a:& @'o is correct and :'yI !J"
b" Can t'e (ayee in a (romissory note be a
A'older in d$e co$rseB :it'in t'e meaning o)
t'e >egotiable 6nstr$ments 7a: Act 20!+"I
E8(lain yo$r ans:er& 2J"
SUGGESTED ANSWER:
a" P> is rig't& T'e instr$ment is incom(lete
and $ndeli%ered& 6t did not create any
contract t'at :o$ld bind P> to an obligation
to (ay t'e amo$nt t'ereo)&
b" A (ayee in a (romissory note cannot be a
A'older in d$e co$rseB :it'in t'e meaning o)
t'e >egotiable 6nstr$ments 7a:C beca$se a
(ayee is an immediate (arty in relation to
t'e maker& T'e (ayee is s$b<ect to :'ate%er
de)ensesC real o) (ersonalC a%ailable to t'e
maker o) t'e (romissory note&
A<TERNAT2@E ANSWER:
b" A (ayee can be a A'older in d$e co$rse&B
A 'older is de)ined as t'e (ayee or indorsee
o) t'e instr$ment :'o is in (ossession o) it&
E%ery 'older is deemed (rima )acie to be a
'older in d$e co$rse&
Ne'otia.le 2nstruments6
2ncom$lete
Deliere:2nstruments6
Com$aratie Ne'li'ence ()**+)
Page 30 of 103 AC single (ro(rietor o) a
b$siness concernC is abo$t to lea%e )or a
b$siness tri( andC as 'e so o)ten does on
t'ese occasionsC signs se%eral c'ecks in
blank& Fe instr$cts BC 'is secretaryC to
sa)ekee( t'e c'ecks and )ill t'em o$t :'en
and as re5$ired to (ay acco$nts d$ring 'is
absence& B )ills o$t one o) t'e c'ecks by
(lacing 'er name as (ayeeC )ills in t'e
amo$ntC endorses and deli%ers t'e c'eck to
C :'o acce(ts it in good )ait' as (ayment )or
goods sold to B& B regrets 'er action and
tells A :'at s'e did& A directs t'e Bank in
time to dis'onor t'e c'eck& @'en C
encas'es t'e c'eckC it is dis'onored& Can A
be 'eld liable to CI
SUGGESTED ANSWER:
KesC A can be 'eld liable to CC ass$ming t'at
t'e latter ga%e notice o) dis'onor to A& T'is is
a case o) an incom(lete instr$ment b$t
deli%ered as it :as entr$sted to BC t'e
secretary o) A& *oreo%erC $nder t'e doctrine
o) com(arati%e negligenceC as bet:een A
and CC bot' innocent (artiesC it :as t'e
negligence o) A in entr$sting t'e c'eck to B
:'ic' is t'e (ro8imate ca$se o) t'e loss&
Ne'otia.le 2nstruments6 -in:s o&
ne'otia.le instrument6 >or:s o&
ne'otia.ilit% (2002) A& De)ine t'e )ollo:ing: +" a negotiable
(romissory noteC 2" a bill o) e8c'ange and
!" a c'eck& !J"
B& Ko$ are Pedro Cr$E& Dra)t t'e a((ro(riate
contract lang$age )or +" yo$r negotiable
(romissory note and 2" yo$r c'eckC eac'
containing t'e essential elements o) a
negotiable instr$ment 2J"
SUGGESTED ANSWER:
A& +" A negotiable (romissory note is an
$nconditional (romise in :riting made by
one (erson to anot'erC signed by t'e makerC
engaging to (ay on demand or at a )i8ed or
determinable )$t$re timeC a s$m certain in
money to order or bearer&
2" A bill o) e8c'ange is an $nconditional
order in :riting addressed by one (erson to
anot'erC signed by t'e (erson gi%ing itC
re5$iring t'e (erson to :'om it is addressed
to (ay on demand or at a )i8ed or
determinable )$t$re time a s$m certain in
money to order or to bearer&
!" A c'eck is a bill o) e8c'ange dra:n on a
bank (ayable on demand&
B& +" >egotiable
(romissory note -
A/e(tember +0C 2002
A-or %al$e recei%edC 6 'ereby (romise to (ay
#$an /antos or order t'e s$m o) TE>
TF;?/A>D PE/;/ P+0C000" t'irty !0" days
)rom date 'ereo)&
/igned" Pedro Cr$E
to: P'ili((ine >ational
Bank EscoltaC *anila
Branc'B
Mercantile Law Bar Examination Q & A (1990-2006) Page 31 of 103
Ne'otia.le 2nstruments6
Re9uisites ()**5) @'at are t'e re5$isites o) a negotiable
instr$mentI
SUGGESTED ANSWER:
T'e re5$isites o) a negotiable instr$ment are
as )ollo:s: a" 6t m$st be in :riting and
signed by t'e maker or dra:er1 b" 6t m$st contain an $nconditional
(romise or order
to (ay a s$m certain in money1 c" 6t m$st be
(ayable to order or to bearer1 and d" @'ere
t'e instr$ment is addressed to a dra:eeC 'e
m$st be named or ot'er:ise indicated t'erein
:it' reasonable certainty& /ec + >67"
Notice Dis#onor
()**5) @'en is notice o) dis'onor not re5$ired to
be gi%en to t'e dra:erI
SUGGESTED ANSWER:
>otice o) dis'onor is not re5$ired to be
gi%en to t'e dra:er in any o) t'e )ollo:ing
cases: a" @'ere t'e dra:er and dra:ee are
t'e same (erson1 b" @'en t'e dra:ee is a
)ictitio$s (erson or a (erson
not 'a%ing ca(acity to contract1 c" @'en t'e
dra:er is t'e (erson to :'om t'e
instr$ment is (resented )or (ayment1 d"
@'ere t'e dra:er 'as no rig't to e8(ect or
re5$ire t'at t'e dra:ee or acce(tor :ill 'onor t'e
instr$ment1 e" @'ere t'e dra:er 'as
co$ntermanded (ayment /ec
++3 >67"
"arties6 Accommo:ation
"art% ()**0) To accommodate CarmenC maker o) a
(romissory noteC #orge signed as indorser
t'ereonC and t'e instr$ment :as negotiated
to Ra))yC a 'older )or %al$e& At t'e time Ra))y
took t'e instr$mentC 'e kne: #orge to be an
accomodation (arty only& @'en t'e
(romissory note :as not (aidC and Ra))y
disco%ered t'at Carmen 'ad no )$ndsC 'e
s$ed #orge& #orge (leads in de)ense t'e )act
t'at 'e 'ad endorsed t'e instr$ment :it'o$t
recei%ing %al$e t'ere)orC and t'e )$rt'er )act
t'at Ra))y kne: t'at at t'e time 'e took t'e
instr$ment #orge 'ad not recei%ed any %al$e
or consideration o) any kind )or 'is
indorsement& 6s #orge liableI Disc$ss&
SUGGESTED ANSWER:
Kes& #orge is liable& /ec 2, o) t'e >67 (ro%ides
t'at an accommodation (arty is liable on t'e
instr$ment to a 'older )or %al$eC
not:it'standing t'e 'older at t'e time o)
taking said instr$ment kne: 'im to be only
an accommodation (arty& T'is is t'e nat$re
or t'e essence o) accommodation&
"arties6 Accommo:ation
"art% ()**)) ;n #$ne +C +,,0C A obtained a loan o) P+00t'
)rom BC (ayable not later t'an 20Dec+,,0& B
re5$ired A to iss$e 'im a c'eck )or t'at
amo$nt to be dated 20Dec+,,0& /ince 'e
does not 'a%e any c'ecking acco$ntC AC :it'
t'e kno:ledge o) BC re5$ested 'is )riendC CC
President o) /aad Banking Cor( /aad" to
accommodate 'im& C agreedC 'e signed a
c'eck )or t'e a)oresaid amo$nt dated 20Dec
+,,0C dra:n against /aads acco$nt :it' t'e
ABC
Commercial Banking Co& T'e By-la:s o) /aad
re5$ires t'at c'ecks iss$ed by it m$st be
signed by t'e President and t'e Treas$rer or
t'e =ice-President& /ince t'e Treas$rer :as
absentC C re5$ested t'e =ice-President to co-
sign t'e c'eckC :'ic' t'e latter rel$ctantly
did& T'e c'eck :as deli%ered to B& T'e c'eck
:as dis'onored $(on (resentment on d$e
date )or ins$))iciency o) )$nds& a" 6s /aad
liable on t'e c'eck as an accommodation
(artyI b" 6) it is notC :'o t'enC $nder t'e
abo%e )actsC isGare t'e accommodation
(artyI
SUGGESTED ANSWER:
a&" /aad is not liable on t'e c'eck as an
accommodation (arty& T'e act o) t'e
cor(oration in accommodating a )riend o) t'e
PresidentC is $ltra %ires (&risologo8Aose v &0 1+
67599, "5Sep"969!/ @'ile it may be legally
(ossible )or t'e cor(orationC :'ose b$siness
is to (ro%ide )inancial accommodations in t'e
ordinary co$rse o) b$sinessC s$c' as one
gi%en by a )inancing com(any to be an
accommodation (artyC t'is sit$ationC
'o:e%erC is not t'e case in t'e bar (roblem&
b" Considering t'at bot' t'e President and
=ice-President :ere signatories to t'e
accommodationC t'ey t'emsel%es can be
s$b<ect to t'e liabilities o) accommodation
(arties to t'e instr$ment in t'eir (ersonal
ca(acity (&risologo8Aose v &0 "5Sep"969!
"arties6 Accommo:ation
"art% ()**5) >ora a((lied )or a loan o) P+00t' :it' B?R
Bank& By :ay o) accommodationC >oras
sisterC =ilmaC e8ec$ted a (romissory note in
)a%or o) B?R Bank& @'en >ora de)a$ltedC
B?R Bank s$ed =ilmaC des(ite its kno:ledge
t'at =ilma recei%ed no (art o) t'e loan& *ay
=ilma be 'eld liableI E8(lain&
SUGGESTED ANSWER:
KesC =ilma may be 'eld liable& =ilma is an
accommodation (arty& As s$c'C s'e is liable
on t'e instr$ment to a 'older )or %al$e s$c'
as B?R Bank& T'is is tr$e e%en i) B?R Bank
:as a:are at t'e time it took t'e instr$ment
t'at =ilma is merely an accommodation (arty
and recei%ed no (art o) t'e loan (See Sec $9,
2.=< Eulalio ;rudencio v &0 1+ =8#45#9, Aul "4, 6%
"4# s 3!
"arties6 Accommo:ation
"art% ()**4) -or t'e ($r(ose o) lending 'is name :it'o$t
recei%ing %al$e t'ere)oreC Pedro makes a
note )or P20C000 (ayable to t'e order o) N
:'o in t$rn negotiates it to KC t'e latter
kno:ing t'at Pedro is not a (arty )or %al$e&
+& *ay K reco%er )rom Pedro i) t'e latter
inter(oses t'e absence o) considerationI
!J"
2& /$((osing $nder t'e same )actsC Pedro
(ays t'e said P20C000 may 'e reco%er
t'e same amo$nt )rom NI 2J"
SUGGESTED ANSWER:
+& Kes& K can reco%er )rom Pedro& Pedro is an
accommodation (arty& Absence o)
consideration is in t'e nat$re o) an
accommodation& De)ense o) absence o)
consideration cannot be %alidly inter(osed by
accommodation (arty against a 'older in d$e
co$rse&
Mercantile Law Bar Examination Q & A (1990-2006)
2& 6) Pedro (ays t'e said P20C000 to KC Pedro
can reco%er t'e amo$nt )rom N& N is t'e
accommodated (arty or t'e (arty $ltimately
liable )or t'e instr$ment& Pedro is only an
accommodation (arty& ;t'er:iseC it :o$ld be
$n<$st enric'ment on t'e (art o) N i) 'e is
not to (ay Pedro&
"arties6 Accommo:ation
"art% (2003) /$san Ha:ada borro:ed P000C000 )rom NKQ
Bank :'ic' re5$ired 'erC toget'er :it' Rose
Reyes :'o did not recei%e any amo$nt )rom
t'e bankC to e8ec$te a (romissory note
(ayable to t'e bankC or its order on stated
mat$rities& T'e note :as e8ec$ted as so
agreed& @'at kind o) liability :as inc$rred by
RoseC t'at o) an accommodation (arty or t'at
o) a solidary debtorI E8(lain& 3J"
SUGGESTED ANSWER:
(er Dondee" Rose may be 'eld liable& Rose is
an accommodation (arty& Absence o)
consideration is in t'e nat$re o) an
accommodation& De)ense o) absence o)
consideration cannot be %alidly inter(osed by
accommodation (arty against a 'older in d$e
co$rse&
"arties6 Accommo:ation
"art% (2003) #$an /y ($rc'ased )rom AAB A((liance Center
one generator set on installment :it' c'attel
mortgage in )a%or o) t'e %endor& A)ter
getting 'old o) t'e generator setC #$an /y
immediately sold it :it'o$t consent o) t'e
%endor& #$an /y :as criminally c'arged :it'
esta)a&
To settle t'e case e8tra <$diciallyC #$an /y
(aid t'e s$m o) P20C000 and )or t'e balance
o) P0C000&00 'e e8ec$ted a (romissory note
)or said amo$nt :it' Ben 7o(eE as an
accommodation (arty& #$an /y )ailed to (ay
t'e balance& +" @'at is t'e liability o) Ben
7o(eE as an accommodation (artyI E8(lain&
2" @'at is t'e liability o) #$an /yI
SUGGESTED ANSWER:
+" Ben 7o(eEC as an accommodation (artyC is
liable as maker to t'e 'older $( to t'e s$m
o) P0C000 e%en i) 'e did not recei%e any
consideration )or t'e (romissory note& T'is is
t'e nat$re o) accommodation& B$t Ben 7o(eE
can ask )or reimb$rsement )rom #$an /yC t'e
accommodation (arty&
2" #$an /y is liable to t'e e8tent o) P0C000 in
t'e 'ands o) a 'older in d$e co$rse /ec +3
>67"& 6) Ben 7o(eE (aid t'e (romissory noteC
#$an /y 'as t'e obligation to reimb$rse Ben
7o(eE )or t'e amo$nt (aid& 6) #$an /y (ays
directly to t'e 'older o) t'e (romissory noteC
or 'e (ays Ben 7o(eE )or t'e reimb$rsement
o) t'e (ayment by t'e latter to t'e 'olderC
t'e instr$ment is disc'arged&
"arties6 Accommo:ation
"art% (2001) Dag$l 'as a b$siness arrangement :it'
-ac$ndo& T'e latter :o$ld lend money to
anot'erC t'ro$g' Dag$lC :'ose name :o$ld
a((ear in t'e (romissory note as t'e lender&
Dag$l :o$ld t'en immediately indorse t'e
note to -ac$ndo& 6s Dag$l an
accommodation (artyI E8(lain& 2J"
SUGGESTED ANSWER:
Page 33 of 103 KE/[ Dag$l is an
accommodation (arty beca$se in t'e case at
barC 'e is essentiallyC a (erson :'o signs as
maker :it'o$t recei%ing any considerationC
signs as an accommodation (arty merely )or
t'e ($r(ose o) lending t'e credit o) 'is name&
And as an accommodation (arty 'e cannot
set $( lack o) consideration against any
'olderC e%en as to one :'o is not a 'older in
d$e co$rse&
"arties6 Iol:er in Due
Course ()**3) 7arry iss$ed a negotiable (romissory note to
E%elyn and a$t'oriEed t'e latter to )ill $( t'e
amo$nt in blank :it' 'is loan acco$nt in t'e
s$m o) P+C000& Fo:e%erC E%elyn inserted
P0C000 in %iolation o) t'e instr$ction& /'e
negotiated t'e note to #$lie :'o 'ad
kno:ledge o) t'e in)irmity& #$lie in t$rn
negotiated said note to De%i )or %al$e and
:'o 'ad no kno:ledge o) t'e in)irmity& +"
Can De%i en)orce t'e note against 7arry and
i) s'e canC )or 'o: m$c'I E8(lain& 2"
/$((osing De%i endorses t'e note to Baby
)or %al$e b$t :'o 'as kno:ledge o) t'e
in)irmityC can t'e latter en)orce t'e note
against 7arryI
SUGGESTED ANSWER:
+" KesC De%i can en)orce t'e negotiable
(romissory note against 7arry in t'e amo$nt
o) P0C000& De%i is a 'older in d$e co$rse and
t'e breac' o) tr$st committed by E%elyn
cannot be set $( by 7arry against De%i
beca$se it is a (ersonal de)ense& As a 'older
in d$e co$rseC De%i is not s$b<ect to s$c'
(ersonal de)ense&
2" Kes& Baby is not a 'older in d$e co$rse
beca$se s'e 'as kno:ledge o) t'e breac' o)
tr$st committed by E%elyn against 7arry
:'ic' is <$st a (ersonal de)ense& B$t 'a%ing
taken t'e instr$ment )rom De%iC a 'older in
d$e co$rseC Baby 'as all t'e rig'ts o) a
'older in d$e co$rse& Baby did not (artici(ate
in t'e breac' o) tr$st committed by E%elyn
:'o )illed t'e blank b$t )illed $( t'e
instr$ment :it' P0C000 instead o) P+C000 as
instr$cted by 7arry /ec 09 >67"
"arties6 Iol:er in Due
Course ()**5) @'at constit$tes a 'older in d$e
co$rseI
SUGGESTED ANSWER:
A 'older in d$e co$rse is one :'o 'as taken
t'e instr$ment $nder t'e )ollo:ing
conditions: +T'at it is com(lete and reg$lar $(on its
)ace1
2T'at 'e became 'older o) it be)ore it :as
o%erd$e and :it'o$t notice t'at it 'ad been
(re%io$sly dis'onoredC i) s$c' :as t'e )act1
!T'at 'e took it in good )ait' and )or %al$e1
3T'at at t'e time it :as negotiated to 'imC
'e 'ad no notice o) any in)irmity in t'e
instr$ment or de)ect in t'e title o) t'e (erson
negotiating it& /ec 02C >67"
"arties6 Iol:er in Due
Course ()**5) +,,4 2&2" E%a iss$ed to 6melda a c'eck in
t'e amo$nt o) P00t' (ost-dated /e( !0C
+,,0C as sec$rity )or a diamond ring to be
sold on commission& ;n /e( +0C +,,0C
6melda negotiated t'e c'eck to *T
in%estment :'ic' (aid t'e amo$nt o) P30t'
to 'er& E%a )ailed to sell t'e ringC so s'e
ret$rned it to 6melda on /e( +,C +,,0&
?nable to retrie%e 'er c'eckC E%a :it'dre:
Mercantile Law Bar Examination Q & A (1990-2006)
'er )$nds )rom t'e dra:ee bank& T'$sC :'en
*T 6n%estment (resented t'e c'eck )or
(aymentC t'e dra:ee bank dis'onored it&
7ater onC :'en *T 6n%estment s$ed 'erC E%a
raised t'e de)ense o) absence o)
considerationC t'e c'eck 'a%ing been iss$ed
merely as sec$rity )or t'e ring t'at s'e co$ld
not sell& Does E%a 'a%e a %alid de)enseI
E8(lain&
SUGGESTED ANSWER:
>o& E%a does not 'a%e a %alid de)ense& -irstC
*T 6n%estment is a 'older in d$e co$rse andC
as s$c'C 'olds t'e (ostdated c'eck )ree )rom
any de)ect o) title o) (rior (arties and )rom
de)enses a%ailable to (rior (arties among
t'emsel%es& E%a can in%oke t'e de)ense o)
absence o) consideration against *T
6n%estment only i) t'e latter :as (ri%y to t'e
($r(ose )or :'ic' t'e c'ecks :ere iss$ed
andC t'ere)oreC not a 'older in d$e co$rse&
/econdC it is not a gro$nd )or t'e disc'arge
o) t'e (ostdated c'eck as against a 'older in
d$e co$rse t'at it :as iss$ed merely as
sec$rity& T'e only gro$nds )or t'e disc'arge
o) negotiable instr$ments are t'ose set )ort'
in /ec ++, o) t'e >67 and none o) t'ose
gro$nds are a%ailable to E%a& T'e latter may
not $nilaterally disc'arge 'ersel) )rom 'er
liability by t'e mere e8(ediency o)
:it'dra:ing 'er )$nds )rom t'e dra:ee bank&
(State .nvestments v &0 1+ "7""%#, Aan "",
9# $"3s#$!/
"arties6 Iol:er in Due
Course ()**4) N makes a (romissory note )or P+0C000
(ayable to AC a minorC to 'el( 'im b$y
sc'ool books& A endorses t'e note to B )or
%al$eC :'o in t$rn endorses t'e note to C& C
kno:s A is a minor& 6) C s$es N on t'e noteC
can N set $( t'e de)enses o) minority and
lack o) considerationI !J"
SUGGESTED ANSWER:
Kes& C is not a 'older in d$e co$rse& T'e
(romissory note is not a negotiable
instr$ment as it does not contain any :ord
o) negotiabilityC t'at isC order or bearC or
:ords o) similar meaning or im(ort& >ot
being a 'older in d$e co$rseC C is to s$b<ect
s$c' (ersonal de)enses o) minority and lack
o) consideration& C is a mere assignee :'o is
s$b<ect to all de)enses&
A<TERNAT2@E ANSWER:
N cannot set $( t'e de)ense o) t'e minority
o) A& De)ense o) minority is a%ailable to t'e
minor only& /$c' de)ense is not a%ailable to
N&
N cannot set $( t'e de)ense against C& 7ack
o) consideration is a (ersonal de)ense :'ic'
is only a%ailable bet:een immediate (arties
or against (arties :'o are not 'olders in d$e
co$rse& Cs kno:ledge t'at A is a minor does
not (re%ent C )rom being a 'older in d$e
co$rse& C took t'e (romissory note )rom a
'older )or %al$eC B&
"arties6 Iol:er in Due Course6
2n:orsement in .lan- (2002)
A& AB iss$ed a (romissory note )or P+C000
(ayable to CD or 'is order on /e(tember +0C
2002& CD indorsed t'e note in blank and
deli%ered t'e same to E-& 2F stole t'e note
)rom E- and on /e(tember +3C 2002
(resented it to AB )or (ayment& @'en asked
by ABC 2F said CD
Page 35 of 103 ga%e 'im t'e note in (ayment
)or t:o ca%ans o) rice& AB t'ere)ore (aid 2F
P+C00 on t'e same date& ;n /e(tember +0C
2002C E- disco%ered t'at t'e note o) AB :as
not in 'is (ossession and 'e :ent to AB& 6t
:as t'en t'at E- )o$nd o$t t'at AB 'ad
already made (ayment on t'e note& Can E-
still claim (ayment )rom ABI @'yI !J"
B& As a se5$el to t'e same )acts narrated
abo%eC E-C o$t o) (ity )or AB :'o 'ad already
(aid P+C000&00 to 2FC decided to )orgi%e AB
and instead go a)ter CD :'o indorsed t'e
note in blank to 'im& 6s CD still liable to E- by
%irt$e o) t'e indorsement in blankI @'yI
2J"
SUGGESTED ANSWER:
A& >o& E- cannot claim (ayment )rom AB& E-
is not a 'older o) t'e (romissory note& To
make t'e (resentment )or (aymentC it is
necessary to e8'ibit t'e instr$mentC :'ic'
E- cannot do beca$se 'e is not in (ossession
t'ereo)&
B& >oC beca$se CD negotiated t'e instr$ment
by deli%ery&
"lace o&
"a%ment (2000) P> is t'e 'older o) a negotiable (romissory
note :it'in t'e meaning o) t'e >egotiable
6nstr$ments 7a: Act 20!+"& T'e note :as
originally iss$ed by RP to N7 as (ayee& N7
indorsed t'e note to P> )or goods bo$g't by
N7& T'e note mentions t'e (lace o) (ayment
on t'e s(eci)ied mat$rity date as t'e o))ice
o) t'e cor(orate secretary o) PN Bank d$ring
banking 'o$rs& ;> mat$rity dateC RP :as at
t'e a)oresaid o))ice ready to (ay t'e note
b$t P> did not s'o: $(& @'at P> later did
:as to s$e N7 )or t'e )ace %al$e o) t'e noteC
(l$s interest and costs& @ill t'e s$it (ros(erI
E8(lain& 0J"
SUGGESTED ANSWER:
Kes& T'e s$it :ill (ros(er as )ar as t'e )ace
%al$e o) t'e note is concernedC b$t not :it'
res(ect to t'e interest d$e s$bse5$ent to t'e
mat$rity o) t'e note and t'e costs o)
collection& RP :as ready and :illing to (ay
t'e note at t'e s(eci)ied (lace o) (ayment
on t'e s(eci)ied mat$rity dateC b$t P> did
not s'o: $(& P> lost 'is rig't to reco%er t'e
interest d$e s$bse5$ent to t'e mat$rity o)
t'e note and t'e costs o) collection&
,.'li! Servi!e Law
Certi&icate o& $u.lic
Conenience ()**4) T'e Batong Bakal Cor(oration )iled :it' t'e
Board o) Energy an a((lication )or a
Certi)icate o) P$blic Con%enience )or t'e
($r(ose o) s$((lying electric (o:er and
lig'ts to t'e )actory and its em(loyees li%ing
:it'in t'e com(o$nd& T'e a((lication :as
o((osed by t'e B$lacan Electric Cor(oration
contending t'at t'e Batong Bakal
Cor(oration 'as not sec$red a )ranc'ise to
o(erate and maintain an electric (lant& 6s t'e
o((ositions contention correctI 0J"
SUGGESTED ANSWER:
>o& A certi)icate o) ($blic con%enience may
be granted to Batong Bakal Cor(orationC
t'o$g' not (ossessing a
Mercantile Law Bar Examination Q & A (1990-2006)
legislati%e )ranc'iseC i) it meets all t'e ot'er
re5$irements& T'ere is not'ing in t'e la: nor
t'e Constit$tionC :'ic' indicates t'at a
legislati%e )ranc'ise is necessary or re5$ired
)or an entity to o(erate as s$((lier o) electric
(o:er and lig't to its )actory and its
em(loyees li%ing :it'in t'e com(o$nd&
Certi&icate o& "u.lic Conenience6
inse$ara.ilit% o& certi&icate an:
essel ()**2) Antonio :as granted a Certi)icate o) P$blic
Con%enience CPC" in +,94 to o(erate a )erry
bet:een *indoro and Batangas $sing t'e
motor %essel A*= 7ot$s&B Fe sto((ed
o(erations in +,99 d$e to $nser%iceability o)
t'e %essel& 6n +,9,C Basilio :as granted a
CPC )or t'e same ro$te& A)ter a )e: mont'sC
'e disco%ered t'at Carlos :as o(erating on
'is ro$te $nder Antonios CPC& Beca$se
Basilio )iled a com(laint )or illegal o(erations
:it' t'e *aritime 6nd$stry A$t'orityC Antonio
and Carlos <ointly )iled an a((lication )or sale
and trans)er o) Antonios CPC and
s$bstit$tion o) t'e %essel A*= 7ot$sB :it'
anot'er o:ned by Carlos& /'o$ld Antonios
and Carlos <oint a((lication be a((ro%edI
2i%er yo$r reasons&
SUGGESTED ANSWER:
T'e <oint a((lication o) Antonio and Carlos
)or t'e sale and trans)er o) Antonios CPC
and s$bstit$tion o) t'e %essel *= 7ot$s :it'
anot'er %essel o:ned by t'e trans)eree
s'o$ld not be a((ro%ed& T'e certi)icate o)
($blic con%enience and *= 7ot$s are
inse(arable& T'e $nser%iceability o) t'e
%essel co%ered by t'e certi)icate 'ad
like:ise rendered ine))ecti%e t'e certi)icate
itsel)C and t'e 'older t'ereo) may not legally
trans)er t'e same to anot'er& (&ohon v &0
"66 s 3"9!/
Certi&icate o& "u.lic Conenience6
Re9uirements ()**1) @'at re5$irements m$st be met be)ore a
certi)icate o) ($blic con%enience may be
granted $nder t'e P$blic /er%ice ActI
SUGGESTED ANSWER:
T'e )ollo:ing are t'e re5$irements )or t'e
granting o) a certi)icate o) ($blic
con%enienceC to :it: a" T'e a((licant m$st
be a citiEen o) t'e P'ili((inesC or
a cor(orationC co-(artners'i( or
association organiEed $nder t'e la:s o)
t'e P'ili((ines and at least 40J o) t'e
stock o) (aid-$( ca(ital o) :'ic' m$st
belong to citiEens o) t'e P'ili((ines& /ec
+4aC CA +34C as amended"
b" T'e a((licant m$st (ro%e ($blic
necessity& c" T'e a((licant m$st (ro%e t'at t'e
o(eration o) t'e ($blic ser%ice (ro(osed and
t'e a$t'oriEation to do b$siness :ill (romote
t'e ($blic interest in a (ro(er and s$itable
manner& /ec +4a CA +34 as amended"
d" T'e a((licant m$st be )inancially
ca(able o) $ndertaking t'e (ro(osed ser%ice
and meeting t'e res(onsibilities incident to
its o(eration&
"o>ers o& t#e "u.lic Serice
Commission ()**3) T'e City o) *anila (assed an ordinance
banning (ro%incial b$ses )rom t'e city& T'e
ordinance :as c'allenged as in%alid $nder
t'e P$blic /er%ice Act by N
Page 50 of 103 :'o 'ad a certi)icate o) ($blic
con%enience to o(erate a$to-tr$cks :it'
)i8ed ro$tes )rom certain to:ns in B$lacan
and RiEal to *anila and :it'in *anila& -irstlyC
'e claimed t'at t'e ordinance :as n$ll and
%oid beca$seC among ot'er t'ingsC it in e))ect
amends 'is certi)icate o) ($blic con%enienceC
a t'ing :'ic' only t'e P$blic /er%ice
Commission can do $nder /ec +4 m" o) t'e
P$blic /er%ice Act& ?nder said sectionC t'e
Commission is em(o:ered to amendC modi)yC
or re%oke a certi)icate o) ($blic con%enience
a)ter notice and 'earing& /econdlyC 'e
contended t'at e%en i) t'e ordinance :as
%alidC it is only t'e Commission :'ic' can
re5$ire com(liance :it' its (ro%isions $nder
/ec +7 <" o) said Act and since t'e
im(lementation o) t'e ordinance :as :it'o$t
sanction or a((ro%al o) t'e CommissionC its
en)orcement :as $na$t'oriEed and illegal& +"
*ay t'e reliance o) N on /ection +4 m" o)
t'e P$blic /er%ice Act be s$stainedI E8(lain&
2" @as N correct in 'is contention t'at $nder
/ection +7
<" o) t'e P$blic /er%ice Act it is only t'e
Commissioner :'ic' can re5$ire com(liance
:it' t'e (ro%isions o) t'e ordinanceI
E8(lain&
SUGGESTED ANSWER:
+" >o& T'e (o:er %ested in t'e P$blic /er%ice
Commission $nder /ec +4m is s$bordinate to
t'e a$t'ority o) t'e City o) *anila $nder /ec
+9 ''" o) its re%ised c'arter to s$(erintendC
reg$late or control t'e streets o) t'e city o)
*anila& 7agman % City o) *anila +7 s 07," 2"
>o& T'e (o:ers con)erred by la: $(on t'e
P$blic /er%ice Commission :ere not designed
to deny or s$(ersede t'e reg$latory (o:er o)
local go%ernments o%er motor tra))ic in t'e
streets s$b<ect to t'eir control&
(=agman v &ity of *anila "3 s
539!
"u.lic utilities
(2000) @@@ Comm$nications 6nc& is an e-commerce
com(any :'ose (resent b$siness acti%ity is
limited to (ro%iding its clients :it' all ty(es o)
in)ormation tec'nology 'ard:are& 6t (lans to
re-)oc$s its cor(orate direction o) grad$ally
con%erting itsel) into a )$ll con%ergence
organiEation& To:ards t'is ob<ecti%eC t'e
com(any 'as been aggressi%ely ac5$iring
telecomm$nications b$sinesses and broadcast
media enter(risesC and consolidating t'eir
cor(orate str$ct$res& T'e $ltimate (lan is to
'a%e only t:o organiEations: one to o:n t'e
)acilities o) t'e combined b$sinesses and to
de%elo( and (rod$ce content materialsC and
anot'er to o(erate t'e )acilities and (ro%ide
mass media and commercial
telecomm$nications ser%ices& @@@
Comm$nications :ill be t'e )lags'i( entity
:'ic' :ill o:n t'e )acilities o) t'e
conglomerate and (ro%ide content to t'e ot'er
ne: cor(oration :'ic'C in t$rnC :ill o(erate
t'ose )acilities and (ro%ide t'e ser%ices& @@@
Comm$nications seeks yo$r (ro)essional
ad%ice on :'et'er or not its reorganiEed
b$siness acti%ity :o$ld be considered a ($blic
$tility re5$iring a )ranc'ise or certi)icate or any
ot'er )orm o) a$t'oriEation )rom t'e
go%ernment& @'at :ill be yo$r ad%iceI E8(lain
0J"
SUGGESTED ANSWER:
Mercantile Law Bar Examination Q & A (1990-2006)
T'e reorganiEed b$siness acti%ity o) @@@
Comm$nications 6nc& :o$ld not be considered
a ($blic $tility re5$iring a )ranc'ise or
certi)icate or any ot'er )orm o) a$t'oriEation
)rom t'e go%ernment& 6t o:ns t'e )acilitiesC
b$t does not o(erate t'em&
Reocation o&
Certi&icate ()**3) +" Robert is a 'older o) a certi)icate o) ($blic
con%enience to o(erate a ta8icab ser%ice in
*anila and s$b$rbs& ;ne e%eningC one o) 'is
ta8icab $nits :as boarded by t'ree robbers
as t'ey esca(ed a)ter staging a 'old-$(&
Beca$se o) said incidentC t'e 7T-RB re%oked
t'e certi)icate o) ($blic con%enience o)
Robert on t'e gro$nd t'at said o(erator
)ailed to render sa)eC (ro(er and ade5$ate
ser%ice as re5$ired $nder /ec +,a o) t'e
P$blic /er%ice Act& a" @as t'e re%ocation o)
t'e certi)icate o) ($blic con%enience o)
Robert <$sti)iedI E8(lain& b" @'en can t'e
Commission Board" e8ercise its (o:er to
s$s(end or re%oke certi)icate o) ($blic
con%enienceI
SUGGESTED ANSWER:
+a" >o& A single 'old-$( incident :'ic' does
not link Roberts ta8icab cannot be
constr$ed t'at 'e rendered a ser%ice t'at is
$nsa)eC inade5$ate and im(ro(er (*an>anal
v 0useJo "%4 s #%!
+b" ?nder /ec +,a o) t'e P$blic /er%ice ActC
t'e Commission Board" can s$s(end or
re%oke a certi)icate o) ($blic con%enience
:'en t'e o(erator )ails to (ro%ide a ser%ice
t'at is sa)eC (ro(er or ade5$ateC and re)$ses
to render any ser%ice :'ic' can be
reasonably demanded and )$rnis'ed&
Reocation o&
Certi&icate ()**3) Pe(ayC a 'older o) a certi)icate o) ($blic
con%enienceC )ailed to register to t'e
com(lete n$mber o) $nits re5$ired by 'er
certi)icate& Fo:e%erC s'e tried to <$sti)y s$c'
)ail$re by t'e accidents t'at allegedly be)ell
'erC claiming t'at s'e :as so s'ocked and
b$rdened by t'e s$ccessi%e accidents and
mis)ort$nes t'at s'e did not kno: :'at s'e
:as doingC s'e :as con)$sed and t'ro:n o))
tangent momentarilyC alt'o$g' s'e al:ays
'ad t'e money and )inancial ability to b$y
ne: tr$cks and re(air t'e destroyed one& Are
t'e reasons gi%en by Pe(ay s$))icient
gro$nds to e8c$se 'er )rom com(leting
$nitsI E8(lain&
SUGGESTED ANSWER:
>o& T'e reasons gi%en by Pe(ay are not
s$))icient gro$nds to e8c$se 'er )rom
com(leting 'er $nits& T'e same co$ld be
$ndertaken by 'er c'ildren or by ot'er
a$t'oriEed re(resentati%es /ec +4n P$b
/er% Act1 Falili % Ferras +0 s 74,"
Se!.rities Reg.lation
2nsi:er
(2007) *s& ;B :as em(loyed in *A/ 6n%estment
Bank& @6CC a medical dr$g com(anyC
retained t'e Bank to assess :'et'er it is
desirable to make a tender o))er )or D;P
com(anyC a dr$g man$)act$rer& ;B
o%er'eard in t'e
Page 51 of 103 co$rse o) 'er :ork t'e (lans o)
@6C& By 'ersel) and t'r$ associatesC s'e
($rc'ased D;P stocks a%ailable at t'e stock
e8c'ange (riced at P20 (er s'are& @'en
@6CLs tender o))er :as anno$ncedC D;P
stocks <$m(ed to P!0 (er s'are& T'$s ;B
earned a siEable (ro)it& 6s ;B liable )or breac'
and mis$se o) con)idential or insider
in)ormation gained )rom 'er em(loymentI 6s
s'e also liable )or damages to sellers or
b$yers :it' :'om s'e tradedI 6) soC :'at is
t'e meas$re o) s$c' damagesI E8(lain
brie)ly& 0J"
SUGGESTED ANSWER:
;B is an insider as de)ined in /$bsection
!&9!" o) t'e /ec$rities Reg$lation Code"
since s'e is an em(loyee o) t'e BankC t'e
)inancial ad%iser o) D;PC and t'is relations'i(
gi%es 'er access to material in)ormation
abo$t t'e iss$er D;P" and t'e latterLs
sec$rities s'ares"C :'ic' in)ormation is not
generally a%ailable to t'e ($blic& AccordinglyC
;B is g$ilty o) insider trading $nder /ection
27 o) t'e /ec$rities Reg$lation CodeC :'ic'
re5$ires disclos$re :'en trading in
sec$rities&
;B is also liable )or damages to sellers or
b$yers :it' :'om s'e traded& ?nder
/$bsection 4!&+ o) t'e /ec$rities Reg$lation
CodeC t'e damages a:arded co$ld be an
amo$nt not e8ceeding tri(le t'e amo$nt o)
t'e transaction (l$s act$al damages&
E8em(lary damages may also be a:arded in
case o) bad )ait'C )ra$dC male%olence or
:antonness in t'e %iolation o) t'e /ec$rities
Reg$lation Code or its im(lementing r$les&
T'e co$rt is also a$t'oriEed to a:ard
attorneyLs )ees not e8ceeding !0J o) t'e
a:ard&
2nsi:er Tra:in'
()**1) ?nder t'e Re%ised /ec$rities ActC it is
$nla:)$l )or an insider to sell or b$y a
sec$rity o) t'e iss$er i) 'e kno:s a )act o)
s(ecial signi)icance :it' res(ect to t'e iss$er
or t'e sec$rity t'at is not generally a%ailableC
:it'o$t disclosing s$c' )act to t'e ot'er
(arty& !&a" @'at does t'e term AinsiderB
mean as $sed in t'e Re%ised /ec$rities actI
!&b" @'en is a )act considered to be Ao)
s(ecial signi)icanceB $nder t'e same ActI
!&c" @'at are t'e liabilities o) a (erson :'o
%iolates t'e (ertinent (ro%isions o) t'e
Re%ised /ec$rities Act regarding t'e $n)air
$se o) inside in)ormationI
SUGGESTED ANSWER:
!a& A6nsiderB means +" t'e iss$erC 2" a
director or o))icer o)C or a (erson controllingC
controlled byC or $nder common control :it'C
t'e iss$erC !" a (erson :'ose relations'i( or
)ormer relations'i( to t'e iss$er gi%es or
ga%e 'im access to a )act o) s(ecial
signi)icance abo$t t'e iss$er or t'e sec$rity
t'at is not generally a%ailableC or 3" a (erson
:'o learns s$c' a )act )rom any o) t'e
)oregoing insiders :it' kno:ledge t'at t'e
(erson )rom :'om 'e learns t'e )act is s$c'
an insider /ec !0bC R/A"
!b& 6t is one :'ic'C in addition to being
materialC :o$ld be likely to a))ect t'e market
(rice o) a sec$rity to a signi)icant e8tent on
being made generally a%ailableC or one
:'ic' a reasonable (erson :o$ld consider
es(ecially
Mercantile Law Bar Examination Q & A (1990-2006)
im(ortant $nder t'e circ$mstances in
determining 'is co$rse o) action in t'e lig't
o) s$c' )actors as t'e degree o) its
s(eci)icityC t'e e8tent o) its di))erence )rom
in)ormation generally a%ailable (re%io$slyC
and its nat$re and reliability& /ec& !0cC R/A"
!c& T'e (erson may be liable to +" a )ine o)
not less t'an P0t' nor more t'an P000t' or
2" im(risonment o) not less t'an 7 years nor
more t'an 2+ yearsC !" or bot' s$c' )ine and
im(risonment in t'e discretion o) t'e co$rt&
6) t'e (erson is a cor(orationC (artners'i(C
association or ot'er <$ridical entityC t'e
(enalty s'all be im(osed $(on t'e o))icers o)
t'e cor(orationC etc& res(onsible )or t'e
%iolation& And i) s$c' an o))icer is an alienC 'e
s'allC in addition to t'e (enalties (rescribedC
be de(orted :it'o$t )$rt'er (roceedings
a)ter ser%ice o) sentence& /ec 04 R/A"
2nsi:er Tra:in'6 (ani$ulatie
"ractices ()**7) +" 2i%e a case :'ere a (erson :'o is not an
iss$ing cor(orationC director or o))icer
t'ereo)C or a (erson controllingC controlled by
or $nder common control :it' t'e iss$ing
cor(orationC is also considered an Ainsider&B
2" 6n /ec$rities 7a:C :'at is a As'orts:ingB
transaction& !" 6n Ainsider tradingCB :'at is a
A)act o) s(ecial signi)icanceBI
SUGGESTED ANSWER:
+" 6t may be a case :'ere a (ersonC :'ose
relations'i( or )ormer relations'i( to t'e
iss$er gi%es or ga%e 'im access to a )act o)
s(ecial signi)icance abo$t t'e iss$er or t'e
sec$rity t'at is not generally a%ailableC or a
(ersonC :'o learns s$c' a )act )rom any o)
t'e insidersC :it' kno:ledge t'at t'e (erson
)rom :'om 'e learns t'e )actC is s$c' an
insider /ec !0C (ar b" Re% /ec$rities Act"
2" A As'orts:ingB is a transaction :'ere a
(erson b$ys sec$rities and sells or dis(oses
o) t'e same :it'in a (eriod o) si8 4"
mont's&
A<TERNAT2@E ANSWER:
2" 6t is a ($rc'ase by any (erson )or t'e
iss$er or any (erson controllingC controlled
byC or $nder common control :it' t'e iss$erC
or a ($rc'ase s$b<ect to t'e control o) t'e
iss$er or any s$c' (ersonC res$lting in
bene)icial o:ners'i( o) more t'an +0J o)
any class o) s'ares /ec !2 R /ec Act"
!" 6n Ainsider tradingCB a A)act o) s(ecial
signi)icanceB isC in addition to being materialC
s$c' )act as :o$ld likelyC on being made
generally a%ailableC to a))ect t'e market (rice
o) a sec$rity to a signi)icant e8tentC or :'ic'
a reasonable (erson :o$ld consider as
es(ecially im(ortant $nder t'e circ$mstances
in determining 'is co$rse o) action in t'e
lig't o) s$c' )actors as t'e degree o) its
s(eci)icityC t'e e8tent o) its di))erence )rom
in)ormation generally a%ailable (re%io$slyC
and its nat$re and reliability /ec !0 (ar c
R/ecAct"
(ani$ulatie
"ractices (200)) /$((ose A is t'e o:ner o) se%eral inacti%e
sec$rities& To create an a((earance o) acti%e
trading )or s$c' sec$ritiesC
Page 5# of 103 A conni%es :it' B by :'ic' A
:ill o))er )or sale some o) 'is sec$rities and B
:ill b$y t'em at a certain )i8ed (riceC :it'
t'e $nderstanding t'at alt'o$g' t'ere :o$ld
be an a((arent saleC A :ill retain t'e
bene)icial o:ners'i( t'ereo)& a" 6s t'e
arrangement la:)$lI !J" b" 6) t'e sale
materialiEesC :'at is it calledI 2J"
SUGGESTED ANSWER:
a" >o& T'e arrangement is not la:)$l& 6t is an
arti)icial mani($lation o) t'e (rice o)
sec$rities& T'is is (ro'ibited by t'e /ec$rities
Reg$lation Code& b" 6) t'e sale materialiEesC
it is called a :as' sale or sim$lated sale&
Securities Re'ulation Co:e6
"ur$ose ()**4) @'at is t'e (rinci(al ($r(ose o) la:s and
reg$lations go%erning sec$rities in t'e
P'ili((inesI 2J"
SUGGESTED ANSWER:
T'e (rinci(al ($r(ose o) la:s and reg$lations
go%erning sec$rities in t'e P'ili((ines is to
(rotect t'e ($blic against t'e ne)ario$s
(ractices o) $nscr$($lo$s brokers and
salesmen in selling sec$rities&
Securities6
De&inition ()**5) De)ine sec$rities
SUGGESTED ANSWER:
/tocksC bonds notesC con%ertible debent$resC
:arrants or ot'er doc$ments t'at re(resent
a s'are in a com(any or a debt o:ned by a
com(any or go%ernment entity& E%idences o)
obligations to (ay money or o) rig'ts to
(artici(ate in earnings and distrib$tion o)
cor(orate assets& 6nstr$ments gi%ing to t'eir
legal 'olders rig'ts to money or ot'er
(ro(erty1 t'ey are t'ere)ore instr$ments
:'ic' 'a%e intrinsic %al$e and are
recogniEed and $sed as s$c' in t'e reg$lar
c'annels o) commerce&
(2ote Sec $a of the +evised Securities
0ct does not really define the term
Qsecurities/I!
Securities6 Sellin' o& Securities6
(eanin' (2002) 2002 +9" E5$ity ;nline Cor(oration E;7"C a
>e: Kork cor(orationC 'as a sec$rities
brokerage ser%ice on t'e 6nternet a)ter
obtaining all re5$isite ?&/& licenses and
(ermits to do so& E;7s :ebsite
:::&eonline&&com"C :'ic' is 'osted by a
ser%er in -loridaC enables 6nternet $sers to
trade on-line in sec$rities listed in t'e %ario$s
stock e8c'anges in t'e ?&/& E;7 b$ys and
sells ?&/& listed sec$rities )or t'e acco$nts o)
its clients all o%er t'e :orldC :'o con%ey t'eir
b$y and sell instr$ctions to E;7 t'ro$g' t'e
6nternet& E;7 'as no o))icesC em(loyees or
re(resentati%es o$tside t'e ?&/& T'e :ebsite
'as icons )or many co$ntriesC incl$ding an
icon A-or -ili(ino TradersB containing t'e
days (rices o) ?&/& listed sec$rities e8(ressed
in ?&/& dollars and t'eir P'ili((ine (eso
e5$i%alent& 2race 2onEalesC a resident o)
*akatiC is a reg$lar c$stomer o) t'e :ebsite
and 'as been ($rc'asing and selling
sec$rities t'ro$g' E;7 :it' t'e $se o) 'er
American E8(ress credit card& 2race 'as
ne%er tra%eled o$tside t'e P'ili((ines& A)ter a
series o) erroneo$s stock (icksC s'e 'ad
inc$rred a net indebtedness o) ?/P!0C000&
:it' E;7C at :'ic' time s'e cancelled 'er
American E8(ress credit card& A)ter a
Mercantile Law Bar Examination Q & A (1990-2006)
n$mber o) demand letters sent to 2raceC all
o) t'em $nans:eredC E;7C t'ro$g' a *akati
la: )irmC )iled a com(laint )or collection
against 2race :it' t'e Regional Trial Co$rt o)
*akati& 2raceC t'ro$g' 'er la:yerC )iled a
motion to dismiss on t'e gro$nd t'at E;7 a"
:as doing b$siness in t'e P'ili((ines :it'o$t
a license and :as t'ere)ore barred )rom
bringing s$it and b" %iolated t'e /ec$rities
Reg$lation Code by selling or o))ering to sell
sec$rities :it'in t'e P'ili((ines :it'o$t
registering t'e sec$rities :it' t'e P'ili((ine
/EC and t'$s came to co$rt A:it' $nclean
'ands&B E;7 o((osed t'e motion to dismissC
contending t'at it 'ad ne%er establis'ed a
('ysical (resence in t'e P'ili((inesC and t'at
all o) t'e acti%ities related to (lainti))s trading
in ?&/& sec$rities all trans(ired o$tside t'e
P'ili((ines& 6) yo$ are t'e <$dgeC decide t'e
motion to dismiss by r$ling on t'e res(ecti%e
contentions o) t'e (arties on t'e basis o) t'e
)acts (resented abo%e& +0J"
SUGGESTED ANSWER:
T'e gro$nds o) t'e motion to dismiss are
bot' $ntenable& E;7 is not doing b$siness in
t'e P'ili((inesC and it did not %iolate t'e
/ec$rites ActC beca$se it :as not selling
sec$rities in t'e co$ntry&
T'e contention o) E;7 is correctC beca$se it
ne%er did any b$siness in t'e P'ili((ines& All
its transactions in 5$estion :ere
cons$mmated o$tside t'e P'ili((ines&
Ten:er 8&&er
(2002) 2002 4"
A& @'at is a tender o))erI
B& 6n :'at instances is a tender o))er re5$ired
to be madeI
SUGGESTED ANSWER:
A& Tender o))er is a ($blicly anno$nced
intention o) a (erson acting alone or in
concert :it' ot'er (ersons to ac5$ire e5$ity
sec$rities o) a ($blic com(any& 6t may also
be de)ined as a met'od o) taking o%er a
com(any by asking stock'olders to sell t'eir
s'ares at a (rice 'ig'er t'an t'e c$rrent
market (rice and on a (artic$lar date&
B& 6nstances :'ere tender o))er is re5$ired to be
made: a" T'e (erson intends to ac5$ire +0J or
more o) t'e e5$ity s'are o) a ($blic com(any
($rs$ant to an agreement made bet:een or among
t'e (erson and one or more sellers&
b" T'e (erson intends to ac5$ire !0J or
more o) t'e e5$ity s'ares o) a ($blic com(any :it'in
a (eriod o) +2 mont's&
c" T'e (erson intends to ac5$ire
e5$ity s'ares o) a ($blic com(any t'at
:o$ld res$lt in o:ners'i( o) more t'an
00J o) t'e said s'ares&
Trans%ortation Law
,oun:ar%
S%stem (2001) Baldo is a dri%er o) Kello: Cab Com(any
$nder t'e bo$ndary system& @'ile cr$ising
along t'e /o$t' E8(ress:ayC Baldos cab
)ig$red in a collisionC killing 'is
Page 53 of 103 (assengerC Pietro& T'e 'eirs o)
Pietro s$ed Kello: Cab Com(any )or
damagesC b$t t'e latter re)$sed to (ay t'e
'eirsC insisting t'at it is not liable beca$se
Baldo is not its em(loyee& Resol%e :it'
reasons& 2J"
SUGGESTED ANSWER:
Kello: Cab Com(any s'all be liable :it'
BaldoC on a solidary basisC )or t'e deat' o)
(assenger Pietro& Baldo is an em(loyee o)
Kello: Cab $nder t'e bo$ndary system& As
s$c'C t'e deat' o) (assenger Pietro is breac'
o) contract o) carriageC making bot' t'e
common carrier Kello: Cab and its
em(loyeeC BaldoC solidarily liable&
(Eernande> v/ 5olor, 1/+, 2o/ "%7$6%, Auly #7,
$774!
Carria'e6 ,reac# o& Contract6
"resum$tion o& Ne'li'ence
()**0) Peter so 'ailed a ta8icab o:ned and
o(erated by #immy C'eng and dri%en by
Fermie CorteE& Peter asked CorteE to take
'im to 'is o))ice in *alate& ;n t'e :ay to
*alateC t'e ta8icab collided :it' a (assenger
<ee(neyC as a res$lt o) :'ic' Peter :as
in<$redC i&e&C 'e )ract$red 'is le)t leg& Peter
s$ed #immy )or damagesC based $(on a
contract o) carriageC and Peter :on& #immy
:anted to c'allenge t'e decision be)ore t'e
/C on t'e gro$nd t'at t'e trial co$rt erred in
not making an e8(ress )inding as to :'et'er
or not #immy :as res(onsible )or t'e collision
andC 'enceC ci%illy liable to Peter& Fe :ent to
see yo$ )or ad%ice& @'at :ill yo$ tell 'imI
E8(lain&
SUGGESTED ANSWER:
6 :ill co$nsel #immy to desist )rom
c'allenging t'e decision& T'e action o) Peter
being based on c$l(a contract$alC t'e
carriers negligence is (res$med $(on t'e
breac' o) contract& T'e b$rden o) (roo)
instead :o$ld lie on #immy to establis' t'at
des(ite an e8ercise o) $tmost diligence t'e
collision co$ld not 'a%e been a%oided&
Carria'e6 ,reac# o& Contract6
"resum$tion o& Ne'li'ence
()**+) 6n a co$rt case in%ol%ing claims )or damages
arising )rom deat' and in<$ry o) b$s
(assengersC co$nsel )or t'e b$s o(erator )iles
a dem$rrer to e%idence arg$ing t'at t'e
com(laint s'o$ld be dismissed beca$se t'e
(lainti))s did not s$bmit any e%idence t'at
t'e o(erator or its em(loyees :ere negligent&
6) yo$ :ere t'e <$dgeC :o$ld yo$ dismiss t'e
com(laintI
SUGGESTED ANSWER:
>o& 6n t'e carriage o) (assengersC t'e )ail$re
o) t'e common carrier to bring t'e
(assengers sa)ely to t'eir destination
immediately raises t'e (res$m(tion t'at
s$c' )ail$re is attrib$table to t'e carriers
)a$lt or negligence& 6n t'e case at barC t'e
)act o) deat' and in<$ry o) t'e b$s
(assengers raises t'e (res$m(tion o) )a$lt or
negligence on t'e (art o) t'e carrier& T'e
carrier m$st reb$t s$c' (res$m(tion&
;t'er:iseC t'e concl$sion can be (ro(erly
made t'at t'e carrier )ailed to e8ercise
e8traordinary diligence as re5$ired by la:&
Carria'e6 /ortuitous
Eent ()**1) *& DiEon Tr$cking entered into a 'a$ling
contract :it' -airgoods Co :'ereby t'e
)ormer bo$nd itsel) to 'a$l t'e latters 2000
sacks o) /oya bean meal )rom *anila
Mercantile Law Bar Examination Q & A (1990-2006)
Port Area to CalambaC 7ag$na& To carry o$t
)ait')$lly its obligation DiEon s$bcontracted
:it' Enrico Reyes t'e deli%ery o) 300 sacks
o) t'e /oya bean meal& Aside )rom t'e dri%erC
t'ree male em(loyees o) Reyes rode on t'e
tr$ck :it' t'e cargo& @'ile t'e tr$ck :as on
its :ay to 7ag$na t:o strangers s$ddenly
sto((ed t'e tr$ck and 'i<acked t'e cargo&
6n%estigation by t'e (olice disclosed t'at one
o) t'e 'i<ackers :as armed :it' a bladed
:ea(on :'ile t'e ot'er :as $narmed& -or
)ail$re to deli%er t'e 300 sacksC -airgoods
s$ed DiEon )or damages& DiEon in t$rn set $(
a !rd (arty com(laint against Reyes :'ic'
t'e latter registered on t'e gro$nd t'at t'e
loss :as d$e to )orce ma<e$re& Did t'e
'i<acking constit$te )orce ma<e$re to
e8c$l(ate Reyes )rom any liability to DiEonI
Disc$ss )$lly&
SUGGESTED ANSWER:
>o& T'e 'i<acking in t'is case cannot be
considered )orce ma<e$re& ;nly one o) t'e
t:o 'i<ackers :as armed :it' a bladed
:ea(on& As against t'e 3 male em(loyees o)
ReyesC 2 'i<ackersC :it' only one o) t'em
being armed :it' a bladed :ea(onC cannot
be considered )orce ma<e$re& T'e 'i<ackers
did not act :it' gra%e or irresistible t'reatC
%iolence or )orce&
Carria'e6 <ia.ilit%6 <ost ,a''a'e or
Acts o& "assen'ers ()**+)
+,,7 +0" AntonioC a (aying (assengerC
boarded a b$s bo$nd )or Batangas City& Fe
c'ose a seat at t'e )ront ro:C near t'e b$s
dri%erC and told t'e b$s dri%er t'at 'e 'ad
%al$able items in 'is 'and carried bag :'ic'
'e t'en (laced beside t'e dri%ers seat& >ot
'a%ing sle(t )or 23 'o$rsC 'e re5$ested t'e
dri%er to kee( an eye on t'e bag s'o$ld 'e
doEe o)) d$ring t'e tri(& @'ile Antonio :as
aslee(C anot'er (assenger took t'e bag
a:ay and alig'ted at CalambaC 7ag$na&
Co$ld t'e common carrier be 'eld liable by
Antonio )or t'e lossI
SUGGESTED ANSWER:
Kes& ;rdinarilyC t'e common carrier is not
liable )or acts o) ot'er (assengers& B$t t'e
common carrier cannot relie%e itsel) )rom
liability i) t'e common carriers em(loyees
co$ld 'a%e (re%ented t'e act or omission by
e8ercising d$e diligence& 6n t'is caseC t'e
(assenger asked t'e dri%er to kee( an eye
on t'e bag :'ic' :as (laced beside t'e
dri%ers seat& 6) t'e dri%er e8ercised d$e
diligenceC 'e co$ld 'a%e (re%ented t'e loss
o) t'e bag&
Carria'e6 "ro#i.ite: 0 @ali:
Sti$ulations (2002) Disc$ss :'et'er or not t'e )ollo:ing
sti($lations in a contract o) carriage o) a
common carrier are %alid: +a sti($lation limiting t'e s$m t'at may be
reco%ered by t'e s'i((er or o:ner to ,0J o) t'e
%al$e o) t'e goods in case o) loss d$e to t'e)t&
2a sti($lation t'at in t'e e%ent o) lossC
destr$ction or deterioration o) goods on acco$nt
o) t'e de)ecti%e condition o) t'e %e'icle $sed in
t'e contract o) carriageC t'e carriers liability is
limited to t'e %al$e o) t'e goods a((earing in t'e
bill o) lading $nless t'e s'i((er or o:ner declares
a 'ig'er %al$e 0J"
SUGGESTED ANSWER:
Page 5/ of 103
+T'e sti($lation is considered $nreasonableC
$n<$st and contrary to ($blic (olicy $nder
Article +730 o) t'e Ci%il Code&
2T'e sti($lation limiting t'e carriers liability
to t'e %al$e o) t'e goods a((earing in t'e
bill o) lading $nless t'e s'i((er or o:ner
declares a 'ig'er %al$eC is e8(ressly
recogniEed in Article +73, o) t'e Ci%il Code&
Carria'e6 @aluation o&
Dama'e: Car'o ()**3) A s'i((ed t'irteen (ieces o) l$ggage t'ro$g'
72 Airlines )rom Te'eran to *anila as
e%idenced by 72 Air @aybill :'ic' disclosed
t'at t'e act$al gross :eig't o) t'e l$ggage
:as +90 kg& Q did not declare an in%entory o)
t'e contents or t'e %al$e o) t'e +! (ieces o)
l$ggage& A)ter t'e said (ieces o) l$ggage
arri%ed in *anilaC t'e consignee :as able to
claim )rom t'e cargo broker only +2 (iecesC
:it' a total :eig't o) +73 kg& N ad%ised t'e
airline o) t'e loss o) one o) t'e +! (ieces o)
l$ggage and o) t'e contents t'ereo)& E))orts
o) t'e airline to trace t'e missing l$ggage
:ere )r$itless& /ince t'e airline )ailed to
com(ly :it' t'e demand o) N to (rod$ce t'e
missing l$ggageC N )iled an action )or breac'
o) contract :it' damages against 72 Airlines&
6n its ans:erC 72 Airlines alleged t'at t'e
@arsa: Con%ention :'ic' limits t'e liability
o) t'e carrierC i) anyC :it' res(ect to cargo to
a s$m o) P20 (er kilo or P,&07 (er (o$ndC
$nless a 'ig'er %al$e is declared in ad%ance
and additional c'arges are (aid by t'e
(assenger and t'e conditions o) t'e contract
as set )ort' in t'e air :aybillC e8(ressly
s$b<ect t'e contract o) t'e carriage o) cargo
to t'e @arsa: Con%ention& *ay t'e
allegation o) 72 Airlines be s$stainedI
E8(lain&
SUGGESTED ANSWER:
Kes& ?nless t'e contents o) a cargo are
declared or t'e contents o) a lost l$ggage
are (ro%ed by t'e satis)actory e%idence
ot'er t'an t'e sel)-ser%ing declaration o) one
(artyC t'e contract s'o$ld be en)orced as it
is t'e only reasonable basis to arri%e at a
<$st a:ard& T'e (assenger or s'i((er is
bo$nd by t'e terms o) t'e (assenger ticket
or t'e :aybill& (;anama v +apadas $79 s %3!
Common Carrier
()**5) De)ine a common carrierI
SUGGESTED ANSWER:
A common carrier is a (ersonC cor(orationC
)irm or association engaged in t'e b$siness
o) carrying or trans(orting (assengers or
goods or bot'C by landC :ater or air )or
com(ensationC o))ering its ser%ices to t'e
($blic Art +7!2C Ci%il Code"
Common Carrier6 ,reac# o& Contract6
Dama'es (2003) =i%ian *artin :as booked by PA7C :'ic'
acted as a ticketing agent o) -ar East
AirlinesC )or a ro$nd tri( )lig't on t'e latters
aircra)tC )rom *anila-Fongkong-*anila& T'e
ticket :as c$t by an em(loyee o) PA7& T'e
ticket s'o:ed t'at =i%ian :as sc'ed$led to
lea%e *anila at 0:!0
(&m& on 00 #an$ary 2002 aboard -ar Easts
-lig't -007& =i%ian arri%ed at t'e >inoy
A5$ino 6nternational Air(ort an 'o$r be)ore
t'e time sc'ed$led in 'er ticketC b$t :as
told t'at -ar Easts -lig't -007 'ad le)t at
+2:+0 (&m& 6t
Mercantile Law Bar Examination Q & A (1990-2006)
t$rned o$t t'at t'e ticket :as inad%ertently
c$t and :rongly :orded& PA7 em(loyees
manning t'e air(orts gro$nd ser%ices
ne%ert'eless sc'ed$led 'er to )ly t:o 'o$rs
later aboard t'eir (lane& /'e agreed and
arri%ed in Fongkong sa)ely& T'e aircra)t $sed
by -ar East Airlines de%elo(ed engine
tro$bleC and did not make it to Fongkong b$t
ret$rned to *anila& =i%ian s$ed bot' airlinesC
PA7 and -ar EastC )or damages beca$se o)
'er 'a%ing $nable to take t'e -ar East )lig't&
Co$ld eit'er or bot' airlines be 'eld liable to
=i%ianI @'yI 4J"
SUGGESTED ANSWER:
(er dondee" >oC t'ere :as breac' o)
contract and t'at s'e :as accommodated
:ell :it' t'e assistance o) PA7 em(loyees to
take t'e )lig't :it'o$t $nd$e delay&
Common Carrier6
De&enses (2002) @'y is t'e de)ense o) d$e diligence in t'e
selection and s$(er%ision o) an em(loyee
not a%ailable to a common carrierI 2J"
SUGGESTED ANSWER:
T'e de)ense o) d$e diligence in t'e selection
and s$(er%ision o) an em(loyee is not
a%ailable to a common carrier beca$se t'e
degree o) diligence re5$ired o) a common
carrier is not t'e diligence o) a good )at'er o)
a )amily b$t e8traordinary diligenceC i&e&C
diligence o) t'e greatest skill and $tmost
)oresig't&
Common Carrier6 De&enses6
/ortuitous Eents ()**7) *aritesC a (aying b$s (assengerC :as 'it
abo%e 'er le)t eye by a stone '$rled at t'e
b$s by an $nidenti)ied bystander as t'e b$s
:as s(eeding t'ro$g' t'e >ational Fig':ay&
T'e b$s o:ners (ersonnel lost no time in
bringing *arites to t'e (ro%incial 'os(ital
:'ere s'e :as con)ined and treated& *arites
:ants to s$e t'e b$s com(any )or damages
and seeks yo$r ad%ice :'et'er s'e can
legally 'old t'e b$s com(any liable& @'at
:ill yo$ ad%ise 'erI
SUGGESTED ANSWER:
*arites can not legally 'old t'e b$s com(any
liable& T'ere is no s'o:ing t'at any s$c'
incident (re%io$sly 'a((ened so as to
im(ose an obligation on (art o) t'e
(ersonnel o) t'e b$s com(any to :arn t'e
(assengers and to take t'e necessary
(reca$tion& /$c' '$rling o) a stone
constit$tes )ort$ito$s e%ent in t'is case& T'e
b$s com(any is not an ins$rer& (;ilapil v &0
"67 s #4%!
Common Carrier6 De&enses6 <imitation
o& <ia.ilit% ()**4) N took a (lane )rom *anila bo$nd )or Da%ao
%ia Ceb$ :'ere t'ere :as a c'ange o)
(lanes& N arri%ed in Da%ao sa)ely b$t to 'is
dismayC 'is t:o s$itcases :ere le)t be'ind in
Ceb$& T'e airline com(any ass$red N t'at t'e
s$itcases :o$ld come in t'e ne8t )lig't b$t
t'ey ne%er did& N claimed P2C000 )or t'e loss
o) bot' s$itcasesC b$t t'e airline :as :illing
to (ay only P000 beca$se t'e airline ticket
sti($lated t'at $nless a 'ig'er %al$e :as
declaredC any claim )or loss cannot e8ceed
P200 )or eac' (iece o) l$ggage& N reasoned
o$t t'at 'e did not sign t'e sti($lation and in
)act 'ad not e%en read it&
Page 5$ of 103 N did not declare a greater
%al$e des(ite t'e )act t'at t'e clerk 'ad
called 'is attention to t'e sti($lation in t'e
ticket& Decide t'e case 0J"
SUGGESTED ANSWER:
E%en i) 'e did not sign t'e ticketC N is bo$nd
by t'e sti($lation t'at any claim )or loss
cannot e8ceed P200 )or eac' l$ggage& Fe
did not declare a 'ig'er %al$e& N is entitled
to P000 )or t'e t:o l$ggages lost&
Common Carrier6 De&enses6 <imitation
o& <ia.ilit% (200)) /$((ose A :as riding on an air(lane o) a
common carrier :'en t'e accident 'a((ened
and A s$))ered serio$s in<$ries& 6n an action
by A against t'e common carrierC t'e latter
claimed t'at +" t'ere :as a sti($lation in t'e
ticket iss$ed to A absol$tely e8em(ting t'e
carrier )rom liability )rom t'e (assengers
deat' or in<$ries ad notices :ere (osted by
t'e common carrier dis(ensing :it' t'e
e8traordinary diligence o) t'e carrierC and 2"
A :as gi%en a disco$nt on 'is (lane )are
t'ereby red$cing t'e liability o) t'e common
carrier :it' res(ect to A in (artic$lar& a" Are
t'ose %alid de)ensesI +J" b" @'at are t'e
de)enses a%ailable to any common carrier to
limit or e8em(t it )rom liabilityI 3J"
SUGGESTED ANSWER:
a" >o& T'ese are not %alid de)enses beca$se
t'ey are contrary to la: as t'ey are in
%iolation o) t'e e8traordinary diligence
re5$ired o) common carriers& Article +707C
+709 >e: Ci%il Code"
b" T'e de)enses a%ailable to any common
carrier to limit or e8em(t it )rom liability are:
+obser%ance o) e8traordinary diligenceC
2or t'e (ro8imate ca$se o) t'e incident is
a )ort$ito$s e%ent or )orce ma<e$reC
!act or omission o) t'e s'i((er or o:ner
o) t'e goodsC
3t'e c'aracter o) t'e goods or de)ects in
t'e (acking or in t'e containersC and
0order or act o) com(etent ($blic
a$t'orityC :it'o$t t'e common carrier
being g$ilty o) e%en sim(le negligence
Article +7!3C >CC"&
Common Carrier6 Duration o&
<ia.ilit% ()**5) A b$s o) 27 Transit on its :ay to Da%ao
sto((ed to enable a (assenger to alig't& At
t'at momentC /antiagoC :'o 'ad been
:aiting )or a rideC boarded t'e b$s& Fo:e%erC
t'e b$s dri%er )ailed to notice /antiago :'o
:as still standing on t'e b$s (lat)ormC and
ste((ed on t'e accelerator& Beca$se o) t'e
s$dden motionC /antiago sli((ed and )ell
do:n s$))ering serio$s in<$ries& *ay /antiago
'old 27 Transit liable )or breac' o) contract
o) carriageI E8(lain&
SUGGESTED ANSWER:
/antiago may 'old 27 Transit liable )or
breac' o) contract o) carriage& 6t :as t'e
d$ty o) t'e dri%erC :'en 'e sto((ed t'e b$sC
to do no act t'at :o$ld 'a%e t'e e))ect o)
increasing t'e (eril to a (assenger s$c' as
/antiago :'ile 'e :as attem(ting to board
t'e same& @'en a b$s is not in motion t'ere
is no necessity )or a
Mercantile Law Bar Examination Q & A (1990-2006)
(erson :'o :ants to ride t'e same to signal
'is intention to board& A ($blic $tility b$sC
once it sto(sC is in e))ect making a
contin$o$s o))er to b$s riders& 6t is t'e d$ty
o) common carriers o) (assengers to sto(
t'eir con%eyances )or a reasonable lengt' o)
time in order to a))ord (assengers an
o((ort$nity to board and enterC and t'ey are
liable )or in<$ries s$))ered by boarding
(assengers res$lting )rom t'e s$dden
starting $( or <erking o) t'eir con%eyances
:'ile t'ey are doing so& /antiagoC by
ste((ing and standing on t'e (lat)orm o) t'e
b$sC is already considered a (assenger and is
entitled to all t'e rig'ts and (rotection
(ertaining to a contract o) carriage&
(5angwa :rans &o v &0 9556$ ,ct 3,9"
$7$s534!
Common Carrier6 Dut% to E=amine
,a''a'es6 Rail>a% an: Airline ()**2)
*arino :as a (assenger on a train& Anot'er
(assengerC #$anc'oC 'ad taken a gallon o)
gasoline (laced in a (lastic bag into t'e same
coac' :'ere *arino :as riding& T'e gasoline
ignited and e8(loded ca$sing in<$ry to *arino
:'o )iled a ci%il s$it )or damages against t'e
rail:ay com(any claiming t'at #$anc'o
s'o$ld 'a%e been s$b<ected to ins(ection by
its cond$ctor& T'e rail:ay com(any
disclaimed liability res$lting )rom t'e
e8(losion contending t'at it :as $na:are o)
t'e contents o) t'e (lastic bag and in%oking
t'e rig't o) #$anc'o to (ri%acy& a" /'o$ld t'e
rail:ay com(any be 'eld liable )or damagesI
b" 6) it :ere an airline com(any in%ol%edC
:o$ld yo$r ans:er be t'e sameI E8(lain
brie)ly&
SUGGESTED ANSWER:
a" >o& T'e rail:ay com(any is not liable )or
damages& 6n o%erland trans(ortationC t'e
common carrier is not bo$nd nor em(o:ered
to make an e8amination on t'e contents o)
(ackages or bagsC (artic$larly t'ose
'andcarried by (assengers&
b" 6) it :ere an airline com(anyC t'e common
carrier s'o$ld be made liable& 6n case o) air
carriersC it is not la:)$l to carry )lammable
materials in (assenger aircra)tsC and airline
com(anies may o(en and in%estigate
s$s(icio$s (ackages and cargoes RA 42!0"
Common Carrier6
Test ()**5) @'at is t'e test )or determining :'et'er or
not one is a common carrierI
SUGGESTED ANSWER:
T'e test )or determining :'et'er or not one
is a common carrier is :'et'er t'e (erson or
entityC )or some b$siness ($r(ose and :it'
general or limited clienteleC o))ers t'e ser%ice
o) carrying or trans(orting (assengers or
goods or bot' )or com(ensation&
Common Carriers6
De&enses ()**5) +" A* Tr$ckingC a small com(anyC o(erates
t:o tr$cks )or 'ire on selecti%e basis& 6t
caters only to a )e: c$stomersC and its tr$cks
do not make reg$lar or sc'ed$led tri(s& 6t
does not e%en 'a%e a certi)icate o) ($blic
con%enience&
Page 50 of 103 ;n one occasionC Reynaldo
contracted A* to trans(ort )or a )eeC +00
sacks o) rice )rom *anila to Tarlac& Fo:e%erC
A* )ailed to deli%er t'e cargoC beca$se its
tr$ck :as 'i<acked :'en t'e dri%er sto((ed
in B$lacan to %isit 'is girl)riend&
a" *ay Reynaldo 'old A* liable as a
common carrierI
b" *ay A* set $( t'e 'i<acking as a de)ense
to de)eat Reynaldos claimI
SUGGESTED ANSWER:
a" Reynaldo may 'old A* Tr$cking liable as
a common carrier& T'e )acts t'at A*
Tr$cking o(erates only t:o tr$cks )or 'ire on
a selecti%e basisC caters only to a )e:
c$stomersC does not make reg$lar or
sc'ed$led tri(sC and does not 'a%e a
certi)icate o) ($blic con%enience are o) no
moment as
m
t'e la: does not disting$is' bet:een one
:'ose (rinci(al b$siness acti%ity is t'e
carrying o) (ersons or goods or bot' and
anyone :'o does s$c' carrying only as an
ancillary acti%ityC
a
t'e la: a%oids making any distinction
bet:een a (erson or enter(rise o))ering
trans(ortation ser%ice on a reg$lar or
sc'ed$led basis and one o))ering s$c' ser%ice
on an occasionalC e(isodic or $nsc'ed$led
basisC and
b
t'e la: re)rains )rom making a distinction
bet:een a carrier o))ering its ser%ices to t'e
general ($blic and one :'o o))ers ser%ices or
solicits b$siness only )rom a narro: segment
o) t'e general (o($lation
(;edro de 1u>man v &0 =8436$$ 5ec $$,66
"%6s%"$!
SUGGESTED ANSWER:
b" A* Tr$cking may not set $( t'e 'i<acking
as a de)ense to de)eat Reynaldos claim as
t'e )acts gi%en do not indicate t'at t'e same
:as attended by t'e $se o) gra%e or
irresistible t'reatC %iolenceC or )orce& 6t :o$ld
a((ear t'at t'e tr$ck :as le)t $nattended by
its dri%er and :as taken :'ile 'e :as %isiting
'is girl)riend& ;edro de 1u>man v &0 =8436$$
5ec $$,66 "%6 scra %"$"&
Common Carriers6 <ia.ilit%
&or <oss ()**)) Ale<andor Camaling o) AlegriaC Ceb$C is
engaged in b$ying co(raC c'arcoalC )ire:oodC
and $sed bottles and in reselling t'em in
Ceb$ City& Fe $ses 2 big 6s$E$ tr$cks )or t'e
($r(ose1 'o:e%erC 'e 'as no certi)icate o)
($blic con%enience or )ranc'ise to do
b$siness as a common carrier& ;n t'e ret$rn
tri(s to AlegriaC 'e loads 'is tr$cks :it'
%ario$s merc'andise o) ot'er merc'ants in
Alegria and t'e neig'boring m$nici(alities o)
Badian and 2inatilan& Fe c'arges t'em
)reig't rates m$c' lo:er t'an t'e reg$lar
rates& 6n one o) t'e ret$rn tri(sC :'ic' le)t
Ceb$ City at 9:!0 (&m& + cargo tr$ck :as
loaded :it' se%eral bo8es o) sardinesC %al$ed
at P+00t'C belonging to one o) 'is c$stomersC
Pedro Rabor& @'ile (assing t'e EigEag road
bet:een Carcar and BariliC Ceb$C :'ic' is
mid:ay bet:een Ceb$ City and AlegriaC t'e
tr$ck :as 'i<acked by ! armed men :'o took
all t'e bo8es o)
Mercantile Law Bar Examination Q & A (1990-2006)
sardines and kidna((ed t'e dri%er and 'is
'el(erC releasing t'em in Ceb$ City only 2
days later&
Pedro Rabor so$g't to reco%er )rom
Ale<andro t'e %al$e o) t'e sardines& T'e
latter contends t'at 'e is not liable t'ere)ore
beca$se 'e is not a common carrier $nder
t'e Ci%il Code andC e%en granting )or t'e
sake o) arg$ment t'at 'e isC 'e is not liable
)or t'e occ$rrence o) t'e loss as it :as d$e
to a ca$se beyond 'is control& 6) yo$ :ere
t'e <$dgeC :o$ld yo$ s$stain t'e contention
o) Ale<androI
SUGGESTED ANSWER:
6) 6 :ere t'e #$dgeC 6 :o$ld 'old Ale<andro as
'a%ing engaged as a common carrier& A
(erson :'o o))ers 'is ser%ices to carry
(assengers or goods )or a )ee is a common
carrier regardless o) :'et'er 'e 'as a
certi)icate o) ($blic con%enience or notC
:'et'er it is 'is main b$siness or incidental
to s$c' b$sinessC :'et'er it is sc'ed$led or
$nsc'ed$led ser%iceC and :'et'er 'e o))ers
'is ser%ices to t'e general ($blic or to a
limited )e: (5e 1u>man v &0 1+ 436$$
$35ec"966!
6 :ill 'o:e%erC s$stain t'e contention o)
Ale<andro t'at 'e is not liable )or t'e loss o)
t'e goods& A common carrier is not an ins$rer
o) t'e cargo& 6) it can be establis'ed t'at t'e
lossC des(ite t'e e8ercise o) e8traordinary
diligenceC co$ld not 'a%e been a%oidedC
liability does not ens$e against t'e carrier&
T'e 'i<acking by ! armed men o) t'e tr$ck
$sed by Ale<andro is one o) s$c' cases (5e
1u>man v &0 1+ 436$$ $35ec"966!/
Common s! "riate Carrier6
De&enses (2002) >ame t:o 2" c'aracteristics :'ic'
di))erentiate a common carrier )rom a (ri%ate
carrier& !J"&
SUGGESTED ANSWER:
T:o 2" c'aracteristics t'at di))erentiate a
common carrier )rom a (ri%ate carrier are:
+A common carrier o))ers its ser%ice to t'e ($blic1
a (ri%ate carrier does not&
2A common carrier is re5$ired to obser%e
e8traordinary diligence1 a (ri%ate carrier is not so
re5$ired&
Da.it S%stem
(2001) Disc$ss t'e Akabit systemB in land
trans(ortation and its legal conse5$ences&
2J"
SUGGESTED ANSWER:
T'e kabit system is an arrangement :'ere a
(erson granted a certi)icate o) ($blic
con%enience allo:s ot'er (ersons to o(erate
t'eir motor %e'icles $nder 'is licenseC )or a
)ee or (ercentage o) t'eir earnings (=im v/
&ourt of 0ppeals and 1on>ale>, 1/+, 2o/ "$56"3,
Aanuary "%, $77$, citing Baliwag :rannit v/ &ourt
of 0ppeals, 1/+/ 2o/ 5349#, Aanuary 3, "963! T'e
la: en<oining t'e kabit system aims to
identi)y t'e (erson res(onsible )or an
accident in order to (rotect t'e riding ($blic&
T'e (olicy 'as no )orce :'en t'e ($blic at
large is neit'er decei%ed nor in%ol%ed&
T'e la: does not (enaliEe t'e (arties to a
kabit agreement& B$t t'e kabit system is
contrary to ($blic
Page 51 of 103 (olicy and t'ere)ore %oid and
ine8istent& Art& +30,W+XC Ci%il Code"
Da.it S%stem6 A'ent o& t#e
Re'istere: 8>ner (2001) Proco(io ($rc'ased an 6s$E$ (assenger
<ee(ney )rom EntengC a 'older o) a certi)icate
o) ($blic con%enience )or t'e o(eration o)
($blic $tility %e'icle (lying t'e Calamba-7os
BaZos ro$te& @'ile Proco(io contin$ed
o))ering t'e <ee(ney )or ($blic trans(ort
ser%icesC 'e did not 'a%e t'e registration o)
t'e %e'icle trans)erred in 'is name& >eit'er
did 'e sec$re )or 'imsel) a certi)icate o)
($blic con%enience )or its o(eration& T'$sC
(er t'e records o) t'e 7and Trans(ortation
-ranc'ising and Reg$latory BoardC Enteng
remained its registered o:ner and o(erator&
;ne dayC :'ile t'e <ee(ney :as tra%eling
so$t'bo$ndC it collided :it' a ten-:'eeler
tr$ck o:ned by Emman$el& T'e dri%er o) t'e
tr$ck admitted res(onsibility )or t'e accidentC
e8(laining t'at t'e tr$ck lost its brakes&
Proco(io s$ed Emman$el )or damagesC b$t
t'e latter mo%ed to dismiss t'e case on t'e
gro$nd t'at Proco(io is not t'e real (arty in
interest since 'e is not t'e registered o:ner
o) t'e <ee(ney& Resol%e t'e motion :it'
reasons& !J"
SUGGESTED ANSWER:
T'e motion to dismiss s'o$ld be denied
beca$se Proco(ioC as t'e real o:ner o) t'e
<ee(neyC is t'e real (arty in interest& Proco(io
)alls $nder t'e Habit system& Fo:e%erC t'e
legal restriction as regards t'e Habit system
does not a((ly in t'is case beca$se t'e
($blic at large is not decei%ed nor in%ol%ed&
(=im v/ &ourt of 0ppeals, 1/+/ 2o/ "$56"3,
Aanuary "%, $77$, citing Baliwag :ransit v/
&ourt of 0ppeals, 1/+/ 2o/ 5349#, Aanuary 3,
"963!
6n any e%entC Proco(rio is deemed to be Ot'e
agentO o) t'e registered o:ner& (-irst
*alayan =easing v/ &ourt of 0ppeals, 1/+/
2o/ 9"#36, Aune 9,"99$< and )-) :ransit &o/,
.nc/ v/ 2=+&, 1/+/ 2os, 66"9589%, Aanuary
$3, "994!
(aritime Commerce6
,are.oat (2003) -or t'e trans(ortation o) its cargo )rom t'e
Port o) *anila to t'e Port o) HobeC #a(anC
;sa:a . Co&C c'artered AbareboatB *G= 6log o)
Haragatan Cor(oration& *G= 6log met a sea
accident res$lting in t'e loss o) t'e cargo and
t'e deat' o) some o) t'e seamen manning t'e
%essel& @'o s'o$ld bear t'e loss o) t'e cargo
and t'e deat' o) t'e seamenI @'yI 3J"
SUGGESTED ANSWER:
(er Dondee" ;sa:a and Co& s'all bear t'e
loss beca$se $nder a demise or bareboat
c'arterC t'e c'arterer ;sa:a . Co&" mans
t'e %essel :it' 'is o:n (eo(le and becomesC
in e))ectC t'e o:ner )or t'e %oyage or ser%ice
sti($latedC s$b<ect to liability )or damages
ca$sed by negligence&
"rior 8$erator
Rule (2003) Bayan B$s 7ines 'ad been o(erating
satis)actorily a b$s ser%ice o%er t'e ro$te
*anila to Tarlac and %ice %ersa %ia t'e
*cArt'$r Fig':ay& @it' t'e $(grading o) t'e
ne: >ort' E8(ress:ayC Bayan B$s 7ines
ser%ice became
Mercantile Law Bar Examination Q & A (1990-2006)
seemingly inade5$ate des(ite its e))orts o)
im(ro%ing t'e same& Pasok Trans(ortationC
6nc&C no: a((lies )or t'e iss$ance to it by t'e
7and Trans(ortation -ranc'ising and
Reg$latory Board o) a certi)icate o) ($blic
con%enience )or t'e same *anila-Tarlac-
*anila ro$te& Co$ld Bayan B$s 7inesC 6nc&C
in%oke t'e A(rior o(eratorB r$les against
Pasok Trans(ortationC 6nc&I @'yI 4J"
SUGGESTED ANSWER:
(er Dondee" >oC Bayan B$s 7inesC 6nc&C
cannot in%oke t'e A(rior o(eratorB r$les
against Pasok Trans(ortationC 6nc& beca$se
s$c' APrior or ;ld ;(erator R$leB $nder t'e
P$blic /er%ice Act only a((lies as a (olicy o)
t'e la: o) t'e P$blic /er%ice Commission to
iss$e a certi)icate o) ($blic con%enience to a
second o(erator :'en (rior o(erator is
rendering s$))icientC ade5$ate and
satis)actory ser%iceC and :'o in all t'ings
and res(ects is com(lying :it' t'e r$le and
reg$lation o) t'e Commission& 6n t'e )acts o)
t'e case at barC Bayan B$s 7ines ser%ice
became seemingly inade5$ate des(ite its
e))orts o) im(ro%ing t'e same& FenceC in t'e
interest o) (ro%iding e))icient ($blic trans(ort
ser%icesC t'e $se o) t'e L(rior o(eratorL and
t'e L(riority o) )ilingL r$les s'all is $ntenable
n t'is case&
Re'istere: 8>ner6 Conclusie
"resum$tion ()**0) #o'nny o:ns a /arao <ee(ney& Fe asked 'is
neig'bor =an i) 'e co$ld o(erate t'e said
<ee(ney $nder =ans certi)icate o) ($blic
con%enience& =an agreed andC accordinglyC
#o'nny registered 'is <ee(ney $nder =an
name& ;n #$ne +0C +,,0C one o) t'e
(assenger <ee(neys o(erated by =an
b$m(ed Tomas& Tomas :as in<$red and in
d$e timeC 'e )iled a com(laint )or damages
against =an and 'is dri%er )or t'e in<$ries 'e
s$))ered& T'e co$rt rendered <$dgment in
)a%or o) Tomas and ordered =an and 'is
dri%erC <ointly and se%erallyC to (ay Tomas
act$al and moral damagesC attorneys )eesC
and costs&
T'e /'eri)) le%ied on t'e <ee(ney belonging
to #o'nny b$t registered in t'e name o) =an&
#o'nny )iled a !rd (arty claim :it' t'e /'eri))
alleging o:ners'i( o) t'e <ee(ney le%ied
$(on and stating t'at t'e <ee(ney :as
registered in t'e name o) =an merely to
enable #o'nny to make $se o) =ans
certi)icate o) ($blic con%enience& *ay t'e
/'eri)) (roceed :it' t'e ($blic a$ction o)
#o'nnys <ee(ney& Disc$ss :it' reasons&
SUGGESTED ANSWER:
KesC t'e /'eri)) may (roceed :it' t'e
a$ction sale o) #o'nnys <ee(ney& 6n
contem(lation o) la: as regards t'e ($blic
and t'ird (ersonsC t'e %e'icle is considered
t'e (ro(erty o) t'e registered o(erator
(Santos v Sibug "74 S 5$7!
TransAS#i$ment6 ,ill o& <a:in'6
.in:in' contract ()**3) #RT 6nc entered into a contract :it' C Co o)
#a(an to e8(ort ana'a: )ans %al$ed at
P2!C000& As (ayment t'ereo)C a letter o)
credit :as iss$ed to #RT by t'e b$yer& T'e
letter o) credit re5$ired t'e iss$ance o) an
on-board bill o) lading and (ro'ibited t'e
transs'i(ment& T'e President o) #RT t'en
contracted a s'i((ing agent to s'i( t'e
ana'a: )ans t'ro$g' ; Containers 7inesC
s(eci)ying t'e re5$irements o) t'e letter o)
credit& Fo:e%erC t'e bill o) lading iss$ed by
t'e s'i((ing lines bore t'e notation
Page 53 of 103 Arecei%ed )or s'i(mentB and
contained an entry indicating transs'i(ment
in Fongkong& T'e President o) #RT (ersonally
recei%ed and signed t'e bill o) lading and
des(ite t'e entriesC 'e deli%ered t'e
corres(onding c'eck in (ayment o) t'e
)reig't& T'e s'i(ment :as deli%ered at t'e
(ort o) disc'arge b$t t'e b$yer re)$sed to
acce(t t'e ana'a: )ans beca$se t'ere :as
no on-board bill o) ladingC and t'ere :as
transs'i(ment since t'e goods :ere
trans)erred in Fongkong )rom *= Paci)icC t'e
)eeder %esselC to *= ;rientalC a mot'er
%essel& #RT arg$ed t'at t'e same cannot be
considered transs'i(ment beca$se bot'
%essels belong to t'e same s'i((ing
com(any& +" @as t'ere transs'i(mentI
E8(lain 2" #RT )$rt'er arg$ed t'at ass$ming
t'at t'ere :as transs'i(mentC it cannot be
deemed to 'a%e agreed t'ereto e%en i) it
signed t'e bill o) lading containing s$c' entry
beca$se it :as made kno:n to t'e s'i((ing
lines )rom t'e start t'at transs'i(ment :as
(ro'ibited $nder t'e letter o) credit and t'atC
t'ere)oreC it 'ad no intention to allo:
transs'i(ment o) t'e s$b<ect cargo& 6s t'e
arg$ment tenableI Reason&
SUGGESTED ANSWER:
+" Kes& Transs'i(ment is t'e act o) taking
cargo o$t o) one s'i( and loading it in
anot'er& 6t is immaterial :'et'er or not t'e
same (ersonC )irmC or entity o:ns t'e t:o
%essels& *agellan % CA 20+ s +02"
2" >o& #RT is bo$nd by t'e terms o) t'e bill o)
lading :'en it acce(ted t'e bill o) lading
:it' )$ll kno:ledge o) its contents :'ic'
incl$ded transs'i(ment in Fongkong&
Acce(tance $nder s$c' circ$mstances
makes t'e bill o) lading a binding contract&
*agellan % Ca 20+ s +02"
Tr.st Re!ei%ts Law
Trust Recei$ts <a>6 Acts 0
8missions6 Coere: (2005)
W#at acts or omissions are $enaliHe:
un:er t#e Trust Recei$ts <a>B (2!1C)
SU++ESTE6 ANSWER(
T'e Tr$st Recei(ts 7a: P&D& >o& ++0"
declares t'e )ail$re to t$rn o%er goods or
(roceeds realiEed )rom sale t'ereo)C as a
criminal o))ense $nder Art& !+0l"b" o)
Re%ised Penal Code& T'e la: is %iolated
:'ene%er t'e entr$stee or (erson to :'om
tr$st recei(ts :ere iss$ed )ails to: a" ret$rn
t'e goods co%ered by t'e tr$st recei(ts1 or
b" ret$rn t'e (roceeds o) t'e sale o) said
goods
(*etropolitan Ban' v/ :onda, 1/+/ 2o/ "#44#%, 0ugust
"%, $777!/
2s lac- o& intent to :e&rau: a .ar to t#e
$rosecution o& t#ese acts or omissionsB
(2!1C)
SU++ESTE6 ANSWER(
>o& T'e Tr$st Recei(ts 7a: is %iolated
:'ene%er t'e entr$stee )ails to: +" t$rn o%er
t'e (roceeds o) t'e sale o) t'e goodsC or 2"
ret$rn t'e goods co%ered by t'e tr$st
recei(ts i) t'e goods are not sold& T'e mere
)ail$re to acco$nt or ret$rn gi%es rise to t'e
crime :'ic' is mal$m (ro'ibit$m& T'ere is
no re5$irement to (ro%e intent to de)ra$d
&hing v/ Secretary of Austice, 1/+/ 2o/ "%4#"3,
-ebruary %, $77%< &olinares v/ &ourt of 0ppeals,
1/+/ 2o/ 976$6, September 5, $777< ,ng v/ &ourt
of 0ppeals, 1/+/ 2o/ ""9656, 0pril $9, $77#!/
Mercantile Law Bar Examination Q & A (1990-2006)
Trust Recei$ts <a>6 <ia.ilit%
&or esta&a ()**)) *r& >obleC as t'e President o) ABC Trading
6nc e8ec$ted a tr$st recei(t in )a%or o) BP6
Bank to sec$re t'e im(ortation by 'is
com(any o) certain goods& A)ter release and
sale o) t'e im(orted goodsC t'e (roceeds
)rom t'e sale :ere not t$rned o%er to BP6&
@o$ld BP6 be <$sti)ied in )iling a case )or
esta)a against >obleI
SUGGESTED ANSWER:
BP6 :o$ld be <$sti)ied in )iling a case )or
esta)a $nder PD ++0 against >oble& T'e )act
t'at t'e tr$st recei(t :as iss$ed in )a%or o) a
bankC instead o) a sellerC to sec$re t'e
im(ortation o) t'e goods did not (recl$de
t'e a((lication o) t'e Tr$st Recei(t 7a:& PD
++0" ?nder t'e la:C any o))icer or em(loyee
o) a cor(oration res(onsible )or t'e %iolation
o) a tr$st recei(t is s$b<ect to t'e (enal
liability t'ere$nder (Sia v ;eople "%%s%55!
A<TERNAT2@E ANSWER:
T'e )iling o) a case )or esta)a $nder t'e (enal
(ro%isions o) t'e RPC :o$ld not be <$sti)ied&
6t 'as been 'eld in Sia v ;eople ("%" s %55!
t'at cor(orate o))icers and directors are not
criminally liable )or a %iolation o) said Code& 2
conditions are re5$ired be)ore a cor(orate
o))icer may be criminally liable )or an o))ense
committed by t'e cor(oration1 %iE:
+T'ere m$st be a s(eci)ic (ro%ision o) la:
mandating a cor(oration to act or not to act1
and
2T'ere m$st be an e8(licit statement in t'e
la: itsel) t'atC in case o) s$c' %iolation by a
cor(orationC t'e o))icers and directors t'ereo)
are to be (ersonally and criminally liable
t'ere)ore&
T'ese conditions are not met in t'e (enal
(ro%isions o) t'e RPC on tr$st recei(ts&
Trust Recei$ts <a>6 <ia.ilit%
&or Esta&a ()**+) A b$ys goods )rom a )oreign s$((lier $sing 'is
credit line :it' a bank to (ay )or t'e goods&
?(on arri%al o) t'e goods at t'e (ierC t'e bank
re5$ires A to sign a tr$st recei(t be)ore A is
allo:ed to take deli%ery o) t'e goods& T'e tr$st
recei(t contains t'e $s$al lang$age& A
dis(oses o) t'e goods and recei%es (ayment
b$t does not (ay t'e bank& T'e bank )iles a
criminal action against A )or %iolation o) t'e
Tr$st Recei(ts 7a:& A asserts t'at t'e tr$st
recei(t is only to sec$re 'is debt and t'at a
criminal action cannot lie against 'im beca$se
t'at :o$ld be %iolati%e o) 'is constit$tional
rig't against Aim(risonment )or non(ayment o)
a debt&B 6s 'e correctI
SUGGESTED ANSWER:
>o& =iolation o) a tr$st recei(t is criminal as
it is ($nis'ed as esta)a $nder Art !+0 o) t'e
RPC& T'ere is a ($blic (olicy in%ol%ed :'ic'
is to ass$re t'e entr$ster t'e reimb$rsement
o) t'e amo$nt ad%anced or t'e balance
t'ereo) )or t'e goods s$b<ect o) t'e tr$st
recei(t& T'e e8ec$tion o) t'e tr$st recei(t or
t'e $se t'ereo) (romotes t'e smoot' )lo: o)
commerce as it 'el(s t'e im(orter or b$yer
o) t'e goods co%ered t'ereby&
Page 55 of 103
Trusts Recei$t
<a> (2003) PB . Co&C 6nc&C a man$)act$rer o) steel and
steel (rod$ctsC im(orted certain ra:
materials )or $se by it in t'e man$)act$re o)
its (rod$cts& T'e im(ortation :as e))ected
t'ro$g' a tr$st recei(t arrangement :it' AB
Banking cor(oration& @'en it a((lied )or t'e
iss$ance by AB Banking Cor(oration o) a
letter o) creditC PB . Co&C 6nc&C did not make
any re(resentation to t'e bank t'at it :o$ld
be selling :'at it 'ad im(orted& 6t )ailed to
(ay t'e bank& @'en demand :as made $(on
it to acco$nt )or t'e im(ortationC to ret$rn
t'e articlesC or to t$rn-o%er t'e (roceeds o)
t'e sale t'ereo) to t'e bankC PB . Co&C 6nc&C
also )ailed& T'e bank s$ed PB . Co&s
President :'o :as t'e signatory o) t'e tr$st
recei(t )or esta)a& T'e President ($t $( t'e
de)ense t'at 'e co$ld not be made liable
beca$se t'ere :as no deceit res$lting in t'e
%iolation o) t'e tr$st recei(t& Fe also
s$bmitted t'at t'ere :as no %iolation o) t'e
tr$st recei(t beca$se t'e ra: materials :ere
not sold b$t $sed by t'e cor(oration in t'e
man$)act$re o) its (rod$cts& @o$ld t'ose
de)enses be s$stainableI @'yI 4J"
SUGGESTED ANSWER:
>oC t'e de)enses are not s$stainable& T'e
lack o) deceit s'o$ld not be s$stained
beca$se t'e mere )ail$re to acco$nt )or t'e
im(ortationC or ret$rn t'e articles constit$tes
t'e ab$se o) con)idence in t'e crime o)
esta)a& T'e )act t'at t'e goods arent sold
b$t are $sed in t'e man$)act$re o) its
(rod$cts is immaterial beca$se a %iolation o)
t'e tr$st recei(ts la: 'a((ened :'en it
)ailed to acco$nt )or t'e goods or ret$rn
t'em to t'e Bank $(on demand&
Us.ry Law
Usur% <a>
()**) Borro:er obtained a loan )rom a money
lending enter(rise )or :'ic' 'e iss$ed a
(romissory note $ndertaking to (ay at t'e
end o) a (eriod o) !0 days t'e (rinci(al (l$s
interest at t'e rate 0&0J (er mont' (l$s 2J
(er ann$m as ser%ice c'arge&
;n mat$rity o) t'e loanC borro:er )ailed to
(ay t'e (rinci(al debt as :ell as t'e
sti($lated interest and ser%ice c'arge&
FenceC 'e :as s$ed&
+Fo: :o$ld yo$ dis(ose o) t'e iss$es
raised by t'e borro:erI
2T'at t'e sti($lated interest rate is
e8cessi%e and $nconscionableI !J"
!6s t'e interest rate $s$rio$sI !J"
+ecommendation Since the subJect matter
of these two ($! questions is not included
within the scope of the Bar Kuestions in
*ercantile =aw, it is suggested that whatever
answer is given by the examinee, or the lac'
of answer should be given full credit/ .f the
examinee gives a good answer, he should be
given additional credit/
SUGGESTED ANSWER:
a& T'e rate o) interest o) 0&0J (er mont' is
e8cessi%e and $nconscionable&
Mercantile Law Bar Examination Q & A (1990-2006)
b& T'e interest cannot be considered
$s$rio$s& T'e ?s$ry 7a: 'as been
s$s(ended in its a((licationC and t'e interest
rates are made A)loating&B
Ware"o.se Re!ei%ts Law
,ill o& <a:in'
()**4) +& @'at do yo$ $nderstand by a Abill o)
ladingIB 2J" 2& E8(lain t'e t:o-)old c'aracter o) a Abill o)
lading&B !J"
SUGGESTED ANSWER:
+& A bill o) lading may be de)ined as a :ritten
ackno:ledgement o) t'e recei(t o) goods and
an agreement to trans(ort and to deli%er t'em
at a s(eci)ied (lace to a (erson named t'erein
or on 'is order&
2& A bill o) lading 'as a t:o-)old c'aracterC
namelyC a" it is a recei(t o) t'e goods to be
trans(orted1 and b" it constit$tes a contract o)
carriage o) t'e goods&
Delier% o& Goo:s6
Re9uisites ()**4) 7$Eon @are'o$sing Co recei%ed )rom Pedro
200 ca%ans o) rice )or de(osit in its
:are'o$se )or :'ic' a negotiable recei(t :as
iss$ed& @'ile t'e goods :ere stored in said
:are'o$seC Cicero obtained a <$dgment
against Pedro )or t'e reco%er o) a s$m o)
money& T'e s'eri)) (roceeded to le%y $(on
t'e goods on a :rit o) e8ec$tion and directed
t'e :are'o$seman to deli%er t'e goods& 6s
t'e :are'o$seman $nder obligation to
com(ly :it' t'e s'eri))s orderI 0J"
SUGGESTED ANSWER:
>o& T'ere :as a %alid negotiable recei(t as
t'ere :as a %alid deli%ery o) 200 ca%ans o)
rice )or de(osit& 6n s$c' caseC t'e
:are'o$seman 7@C" is not obliged to
deli%er t'e 200 ca%ans o) rice de(osited to
any (ersonC e8ce(t to t'e one :'o can
com(ly :it' sec 9 o) t'e @are'o$se
Recei(ts 7a:C namely:
+s$rrender t'e recei(t o) :'ic' 'e is a 'older1
2:illing to sign a recei(t )or t'e deli%ery o)
t'e goods1 and
!(ays t'e :are'o$semans liens t'at isC 'is
)ees and ad%ancesC i) any&
T'e s'eri)) cannot com(ly :it' t'ese
re5$isites es(ecially t'e )irstC as 'e is not
t'e 'older o) t'e recei(t&
Delier% o& t#e
Goo:s ()**)) @'en is a :are'o$seman bo$nd to deli%er
t'e goodsC $(on a demand made eit'er by
t'e 'older o) a recei(t )or t'e goods or by
t'e de(ositorI
SUGGESTED ANSWER:
T'e :are'o$seman is bo$nd to deli%er t'e
goods $(on demand made eit'er by t'e
'older o) t'e recei(t )or t'e goods or by t'e
de(ositor i) t'e demand is accom(anied by
+an o))er to satis)y t'e :are'o$semans lienC
2an o))er to s$rrender t'e recei(tC i) negotiableC
:it' s$c' indorsements as :o$ld be necessary
)or t'e negotiation t'ereo)C
Page 100 of 103
!& and readiness and :illingness to sign
:'en t'e goods are deli%ered i) so re5$ested
by t'e :are'o$seman /ec 9 @are'o$se
Recei(ts 7a:"&
Garnis#ment or Attac#ment o&
Goo:s ()***) A @are'o$se Com(any recei%ed )or
sa)ekee(ing +000 bags o) rice )rom a
merc'ant& To e%idence t'e transactionC t'e
@are'o$se Com(any iss$ed a recei(t
e8(ressly (ro%iding t'at t'e goods be
deli%ered to t'e order o) said merc'ant& A
mont' a)terC a creditor obtained <$dgment
against t'e said merc'ant )or a s$m o)
money& T'e s'eri)) (roceeded to le%y on t'e
rice and directed t'e @are'o$se Com(any to
deli%er to 'im t'e de(osited rice&
@'at ad%ice :ill yo$ gi%e t'e @are'o$se
Com(anyI E8(lain 2J"
Ass$ming t'at a :eek (rior to t'e le%yC t'e
recei(t :as sold to a rice mill on t'e basis o)
:'ic' it )iled a claim :it' t'e s'eri))& @o$ld
t'e rice mill 'a%e better rig'ts to t'e rice
t'an t'e creditorI E8(lain yo$r ans:er& 2J"
SUGGESTED ANSWER:
T'e +000 bags o) rice :ere deli%ered to t'e
@are'o$se Com(any by a merc'antC and a
negotiable recei(t :as iss$ed t'ere)or& T'e
rice cannot t'erea)terC :'ile in t'e (ossession
o) t'e @are'o$se Com(anyC be attac'ed by
garnis'ment or ot'er:iseC or be le%ied $(on
$nder an e8ec$tion $nless t'e recei(t be )irst
s$rrendered to t'e :are'o$semanC or its
negotiation en<oined& T'e @are'o$se
Com(any cannot be com(elled to deli%er t'e
act$al (ossession o) t'e rice $ntil t'e recei(t
is s$rrendered to it or im(o$nded by t'e
co$rt&
Kes& T'e rice millC as a 'older )or %al$e o) t'e
recei(tC 'as a better rig't to t'e rice t'an t'e
creditor& 6t is t'e rice mill t'at can s$rrender
t'e recei(t :'ic' is in its (ossession and can
com(ly :it' t'e ot'er re5$irements :'ic' :ill
oblige t'e :are'o$seman to deli%er t'e riceC
namelyC to sign a recei(t )or t'e deli%ery o)
t'e riceC and to (ay t'e :are'o$semans liens
and )ees and ot'er c'arges&
Ne'otia.le Documents o&
Title ()**2) -or a cargo o) mac'inery s'i((ed )rom
abroad to a s$gar central in D$mag$eteC
>egros ;rientalC t'e Bill o) 7ading BG7"
sti($lated Ato s'i((ers orderCB :it' notice o)
arri%al to be addressed to t'e Central& T'e
cargo arri%ed at its destination and :as
released to t'e Central :it'o$t s$rrender o)
t'e BG7 on t'e basis o) t'e latters
$ndertaking to 'old t'e carrier )ree and
'armless )rom any liability&
/$bse5$entlyC a Bank to :'om t'e central
:as indebtedC claimed t'e cargo and
(resented t'e original o) t'e BG7 stating t'at
t'e Central 'ad )ailed to settle its obligations
:it' t'e Bank&
@as t'ere misdeli%ery by t'e carrier to t'e
s$gar central considering t'e non-s$rrender
o) t'e BG7I @'yI
SUGGESTED ANSWER:
Mercantile Law Bar Examination Q & A (1990-2006)
T'ere :as no misdeli%ery by t'e carrier
since t'e cargo :as considered consigned to
t'e /$gar central (er t'e A/'i((ers ;rderB
Eastern /'i((ing 7ines % CA +,0 s 0+2"
A<TERNAT2@E ANSWER:
T'ere :as misdeli%ery& T'e BG7 :as a
negotiable doc$ment o) title beca$se it :as
to t'e A/'i((ers ;rder&B FenceC t'e common
carrier s'o$ld 'a%e deli%ered t'e cargo to t'e
Central only $(on s$rrender o) t'e BG7& T'e
non-s$rrender o) t'e BG7 :ill make it liable to
'olders in d$e co$rse&
8>ners#i$ o& Goo:s
Store: ()**2) To g$arantee t'e (ayment o) a loan obtained
)rom a bankC Ra$l (ledged 000 bales o)
tobacco de(osited in a :are'o$se to said
bank and endorsed in blank t'e :are'o$se
recei(t& Be)ore Ra$l co$ld (ay )or t'e loanC
t'e tobacco disa((eared )rom t'e
:are'o$se& @'o s'o$ld bear t'e loss M t'e
(ledgor or t'e bankI @'yI
SUGGESTED ANSWER:
T'e (ledgor s'o$ld bear t'e loss& 6n t'e
(ledge o) a :are'o$se recei(t t'e o:ners'i(
o) t'e goods remain :it' de(ositor or 'is
trans)eree& Any contract or real sec$rityC
among t'em a (ledgeC does not amo$nt to
or res$lt in an ass$m(tion o) risk o) loss by
t'e creditor& T'e @are'o$se Recei(ts 7a:
did not de%iate )rom t'is r$le&
Ri'#t to t#e
Goo:s (2001) #o<o de(osited se%eral cartons o) goods :it' />
@are'o$se Cor(oration& T'e corres(onding
:are'o$se recei(t :as iss$ed to t'e order o)
#o<o& Fe endorsed t'e :are'o$se recei(t to E#
:'o (aid t'e %al$e o) t'e goods de(osited&
Be)ore E# co$ld :it'dra: t'e goodsC *elc'or
in)ormed /> @are'o$se Cor(oration t'at t'e
goods belonged to 'im and :ere taken by #o<o
:it'o$t 'is consent& *elc'or :ants to get t'e
goodsC b$t E# also :ants to :it'dra: t'e same&
0J"
Y @'o 'as a better rig't to t'e goodsI
@'yI
SUGGESTED ANSWER:
E# 'as a better rig't to t'e goodsC being
co%ered by a negotiable doc$ment o) titleC
namely t'e :are'o$se recei(ts iss$ed to t'e
Oorder o) #o<o&O ?nder t'e /ales (ro%isions o)
t'e Ci%il Code on negotiable doc$ments o)
titleC and $nder t'e (ro%isions o) t'e
@are'o$se Recei(ts 7a:C :'en goods
de(osited :it' t'e bailee are co%ered by a
negotiable doc$ment o) titleC t'e
endorsement and deli%ery o) t'e doc$ment
trans)ers o:ners'i( o) t'e goods to t'e
trans)eree& By o(eration o) la:C t'e
trans)eree obtains t'e direct obligation o) t'e
bailee to 'old t'e goods in 'is name&O Art&
+0+!C Ci%il Code1 /ection 3+C @are'o$se
Recei(ts 7a:" /ince E# is t'e 'older o) t'e
:are'o$se recei(tC 'e 'as t'e better rig't to
t'e goods& /> @are'o$se is obliged to 'old
t'e goods in 'is name&
Y 6) /> @are'o$se Cor(oration is
$ncertain as to :'o is entitled to t'e
(ro(ertyC :'at is t'e (ro(er reco$rse o) t'e
cor(orationI E8(lain&
SUGGESTED ANSWER:
Page 101 of 103 /> @are'o$se can )ile an
6>TERP7EADER to com(el E# and *elc'or to
litigate against eac' ot'er )or t'e o:ners'i(
o) t'e goods& /ec& +7 o) t'e @are'o$se
Recei(ts 7a: statesC O6) more t'an one
(erson claims t'e title or (ossession o) t'e
goodsC t'e :are'o$se mayC eit'er as a
de)ense to an action bro$g't against 'im )or
non-deli%ery o) t'e goods or as an original
s$itC :'ic'e%er is a((ro(riateC re5$ire all
kno:n claimants to inter(lead&O
Un$ai: Seller6 Ne'otiation o& t#e
Recei$t ()**3) A ($rc'ased )rom / +00 ca%ans o) (alay on
credit& A de(osited t'e (alay in @s
:are'o$se& @ iss$ed to A a negotiable
:are'o$se recei(t in t'e name o) A&
T'erea)terC A negotiated t'e recei(t to B :'o
($rc'ased t'e said recei(t )or %al$e and in
good )ait'& +" @'o 'as a better rig't to t'e
de(ositC /C t'e $n(aid %endor or bC t'e
($rc'aser o) t'e recei(t )or %al$e and in good
)ait'I @'yI 2" @'en can t'e :are'o$seman
be obliged to deli%er t'e (alay to AI
SUGGESTED ANSWER:
+" B 'as a better rig't t'an /& T'e rig't o)
t'e $n(aid sellerC /C to t'e goods :as
de)eated by t'e act o) A in endorsing t'e
recei(t to B&
2" T'e :are'o$seman can be obliged to
deli%er t'e (alay to A i) B negotiates back
t'e recei(t to A& 6n t'at caseC A becomes a
'older again o) t'e recei(tC and A can
com(ly :it' /ec 9 o) t'e @are'o$se
Recei(ts 7a:&
@ali:it% o& sti$ulations e=cusin'
>are#ouseman &rom ne'li'ence
(2000) / stored 'ard:are materials in t'e bonded
:are'o$se o) @C a licensed :are'o$seman
$nder t'e 2eneral Bonded @are'o$se 7a:
Act !9,! as amended"& @ iss$ed t'e
corres(onding :are'o$se recei(t in t'e )orm
'e ordinarily $ses )or s$c' ($r(ose in t'e
co$rse o) 'is b$siness& All t'e essential terms
re5$ired $nder /ection 2 o) t'e @are'o$se
Recei(ts 7a: Act 2+!7 as amended" are
embodied in t'e )orm& 6n additionC t'e recei(t
iss$ed to / contains a sti($lation t'at @
:o$ld not be res(onsible )or t'e loss o) all or
any (ortion o) t'e 'ard:are materials
co%ered by t'e recei(t e%en i) s$c' loss is
ca$sed by t'e negligence o) @ or 'is
re(resentati%es or em(loyees& / endorsed
and negotiated t'e :are'o$se recei(t to BC
:'o demanded deli%ery o) t'e goods& @
co$ld not deli%er beca$se t'e goods :ere
no:'ere to be )o$nd in 'is :are'o$se& Fe
claims 'e is not liable beca$se o) t'e )ree-
)rom-liability cla$se sti($lated in t'e recei(t&
Do yo$ agree :it' @s contentionI E8(lain&
0J"
SUGGESTED ANSWER:
>o& 6 do not agree :it' t'e contention o) @&
T'e sti($lation t'at @ :o$ld not be
res(onsible )or t'e loss o) all or any (ortion
o) t'e 'ard:are materials co%ered by t'e
recei(t e%en i) s$c' loss is ca$sed by t'e
negligence o) @ or 'is re(resentati%e or
em(loyees is %oid& T'e la: re5$ires t'at a
:are'o$seman s'o$ld e8ercise d$e diligence
in t'e care and c$stody o) t'e t'ings
de(osited in 'is :are'o$se&
Mercantile Law Bar Examination Q & A (1990-2006) Page 10# of 103
Mis!ellaneo.s
Ener'% Re'ulator% Commission:
Juris:iction 0 "o>er (2007)
C2C ac$stomerC s$ed *ERA7C; in t'e **
Regional Trial Co$rt to disclose t'e basis o)
t'e com($tation o) t'e ($rc'ased (o:er
ad<$stment PPA"& T'e trial co$rt r$led it 'ad
no <$risdiction o%er t'e case beca$seC as
contended by t'e de)endantC t'e c$stomer
not only demanded a breakdo:n o)
*ERA7C;Ls bill :it' res(ect to PPA b$t
5$estioned as :ell t'e im(osition o) t'e PPAC
a matter to be decided by t'e Board o)
EnergyC t'e reg$latory agency :'ic' s'o$ld
also 'a%e <$risdiction o%er t'e instant s$it& 6s
t'e trial co$rtLs r$ling correct or notI Reason
brie)ly& 0J"
SUGGESTED ANSWER:
T'e trial co$rtLs r$ling is correct& As 'eld in
*anila Electric Com(any %& Co$rt o) A((ealsC
27+/CRA 3+7 +,,7"C t'e Board o) Energy
'ad t'e (o:er to reg$late and )i8 (o:er rates
to be c'arged by )ranc'ised electric $tilities
like *ERA7C;& 6n )act ($rs$ant to E8ec$ti%e
;rder >o& 379 A(ril +7C +,,9"C t'is (o:er 'as
been trans)erred to t'e Energy Reg$latory
Board no: t'e Energy Reg$latory
Commission"& ?nder /ection 3!$" o) t'e
Electric Po:er 6nd$stry Re)orm Act o) 200+C
t'e Energy Reg$latory Commission 'as
original and e8cl$si%e <$risdiction o%er all
cases contesting (o:er rates&
/our AC2D "ro.lems o& "#ili$$ine
Ju:iciar% (2005) 6n se%eral (olicy addresses e8tensi%ely
co%ered by media since 'is a((ointment on
December 2+C 2000C C'ie) #$stice Artemio =&
Panganiban %o:ed to lea%e a <$diciary
c'aracteriEed by O)o$r 6nsO and to )oc$s in
sol%ing t'e O)o$r AC6DO (roblems t'at
corrode t'e administration o) <$stice in o$r
co$ntry& E8(lain t'is O)o$r 6nsO and O)o$r
AC6DO (roblems&
SU++ESTE6 ANSWER(
?(on ass$ming 'is o))iceC C'ie) #$stice
Panganiban %o:ed to lead a <$diciary
c'aracteriEed by t'e O)o$r 6ns:O 6ntegrityC
6nde(endenceC 6nd$stry and 6ntelligence1 one
t'at is morally co$rageo$s to resist in)l$enceC
inter)erenceC indi))erence and insolence& Fe
en%isions a <$diciary t'at is im(er%io$s to t'e
(lag$e o) $nd$e in)l$ence bro$g't abo$t by
kins'i(C relations'i(C )riends'i( and
)ello:s'i(& Fe calls on t'e <$diciary to battle
t'e O-o$r AC6DO (roblems corroding o$r
<$stice system: +" limited access to <$stice by
t'e (oor1 2" corr$(tion1 !" incom(etence1
and 3" delay in t'e deli%ery o) 5$ality
<$dgments& T'e <$dicial de(artment s'o$ld
disc'arge its )$nctions :it' trans(arencyC
acco$ntability and dignity&
(2,:0 BE2E .t is
respectfully suggested
that all Bar &andidates
receive a $/5% bonus for
the above question
regardless of the answer!
2& T'e C'ie) #$stice also said t'at t'e
<$diciary m$st Osa)eg$ard t'e libertyO and
On$rt$re t'e (ros(erityO o) o$r (eo(le&
E8(lain t'is ('iloso('y& Cite Decisions o) t'e
/$(reme Co$rt im(lementing eac' o) t'ese
t:in beacons o) t'e C'ie) #$stice& 2&0J"
SU++ESTE6 ANSWER(
T'e C'ie) #$sticeLs ('iloso('y O/a)eg$arding
7ibertyC >$rt$ring Pros(erityO embodies t'e
/$(reme Co$rtLs a((roac' in decision-making
in t'e e8ercise o) its constit$tional (o:er o)
<$dicial re%ie: :'ic' (ro%ides: 6n cases
in%ol%ing libertyC t'e scales o) <$stice s'o$ld
:eig't 'ea%ily against go%ernment and in
)a%or o) t'e (oorC t'e o((ressedC t'e
marginaliEedC t'e dis(ossessed and t'e :eak1
and t'at la:s and action t'at restrict
)$ndamental rig'ts come to t'e co$rt O:it' a
'ea%y (res$m(tion against t'eir constit$tional
%alidity& ;n t'e ot'er 'andC as a general r$leC
t'e /$(reme Co$rt m$st ado(t a de)erential
or res(ect)$l attit$de to:ards actions taken by
t'e go%ernmental agencies t'at 'a%e (rimary
res(onsibility )or t'e economic de%elo(ment
o) t'e co$ntry1 and only :'en an act 'as been
clearly made or e8ec$ted :it' gra%e ab$se o)
discretion does t'e Co$rt get in%ol%ed in
(olicy iss$es&
Decisions im(lementing t'e Osa)eg$arding o)
libertyO incl$de t'ose in%ol%ing t'e
constit$tionality o) Presidential Proclamation
>o& +0+7 (5avid v/ 0rroyo, 1/+/ 2o/ "3"#97,
*ay #, $77%!< the validity of &alibrated ;re8
emptive +esponse (&;+! and B/;/ Big/ 667 or
the ;ublic 0ssembly 0ct (Bayan v/ Ermita,
1/+/ 2o/ "%9646, 0pril $5, $77%!< and the
legality of Executive ,rder 2o/ 4%4 and the
;resident(s exercise of Executive ;rivilege
(Senate of the ;hilippines v/ Ermita, 1/+/ 2o/
"%9333, 0pril $7, $77%!/
;n t'e ot'er 'andC cases t'at relate to
On$rt$ring t'e (ros(erityO o) t'e (eo(le
incl$de t'e 5$estion t'e constit$tionality o)
t'e *ining 7a: (=a Bugal8B(=aan v/ +amos,
1/+/ 2o/ "$366$, 5ec/ ", $774" and t'e @T;
Agreement :anada v/ 0ngara, 1/+/ ""6$95,
*ay $,"993"&
Goernment Dere'ulation s!
"riatiHation o& an 2n:ustr% (2007)
@'at is t'e di))erence bet:een go%ernment
dereg$lation and t'e (ri%atiEation o) an
ind$stryI E8(lain brie)ly& 2J"
SUGGESTED ANSWER:
2o%ernment dereg$lation is t'e rela8ation or
remo%al o) reg$latory constraints on )irms or
indi%id$alsC :it' a %ie: to (romoting
com(etition and market-oriented a((roac'es
to:ard (ricingC o$t($tC entryC and ot'er
related economic decisions&
Pri%atiEation o) an ind$stry re)ers to t'e
trans)er o) o:ners'i( and control by t'e
go%ernment o) assetsC )irms and o(erations
in an ind$stry to (ri%ate in%estors&
"olitical <a>6
WT8 ()***) 2o%ernment (lans to im(ose an additional
d$ty on im(orted s$gar on to( o) t'e c$rrent
tari)) rate& T'e intent is to ens$re t'at t'e
landed cost o) s$gar s'all not be lo:er t'an
P900 (er bag& T'is is t'e (rice at :'ic'
locally (rod$ced s$gar :o$ld be sold in order
to enable s$gar (rod$cers to realiEe
reasonable (ro)its& @it'o$t