Mercantile Law Bar Examination Q & A (1990-2006)

Page

1 of 103

ANSWERS TO BAR EXAMINATION

QUESTIONS IN

Page
Page
2
6
8
10of9
3
5
7
11
of
103
of
103
of
103
103
Page 13 of 103
Corporation
Page
12
of
103
I,Common
Andrew
Lee,
hereby
assign,
transfer
and
Chattel
Insolvency;
Parties;
Derivative
Insured;
Retail
Accommodation
Mortgage
Trade
Accident
Fraudulent
vs.
Suit:
Private
Law
vs.
Requisites
vs.
After-Incurred
(1993)
Payment
Carrier;
Suicide
Party
76
(1998)
Defenses
(1993)
(2004)
(2002)
Retail
Obligations
87
56
34
65
Parties;
Trade
(2002)
Insured;
Insolvency;
Derivative
Law
Accommodation
97
(1999)
Accident
Kabit
(1996)
Suit:
Jurisdiction;
44
System
vs.
Chattel
76
Watered
Suicide
Retail
Party
(2005)
Mortgage;
Sole
(2003)
(1995)
Trade
Stock
97
Proprietorship
Kabit
88
56
Law
(1993)
Foreclosure
Parties;
Insurer:
System;
(1996)
34
(1990)
Accommodation
Effects:
Agent
Derivative
76
(1997)
Retail
66
ofSeveral
the
Insolvency;
44Suit;
Trade
Registered
Chattel
Party
Insurers
Close
Law;
Law....................................................................................................................22
General
Principles
TABLE
of
OF
CONTENTS
Banking
Law
convey,
absolutely
and
unconditionally,
to
Banks;
Classifications
of
Banks
(2002)
Mortgage;
obligations
(2003)
Corporation;
(2005)
Consignment
Owner
88 56
Parties;
(2005)
Ownership
thatInsurer;
survive
Corporate
(1991)
97
Accommodation
Maritime
3rd
of
(1997)
76Party
Thing
Opportunity
66
Commerce;
Liability
Mortgaged
Insolvency;
Party(2005)
(1996)
(2005)
Bareboat
(1990)
Voluntary
34
56
88Derivative
Insurer;
Parties;
45
(2003)
Insolvency
Credit
3rd
Holder
97
Suit;
Party
Prior
Transactions
Minority
Proceeding
inLiability
Operator
Due Course
Stockholder
(2000)
(1999)
(1991)
Rule(1993)
57
(2003)
45
66Insurer;
(2003)
Mortgage
Insolvency;
8897Parties;
Registered
35
3rd Distinction:
Party
(1999)
Voluntary
Holder
Liability;
Owner;
45
in De
BOD:
Election
of Bank
Aliens (hereinafter
as of
members
(2005)
22
of Directors
(1996)
22 BOD;
Compensation
Ready
Credit
calledLaw..............................................................................12
theBOD; Capacity
Banks:
There
Applicability:
are six Foreign
(6) classes
Currency
ofDeposit
banks
Act
identified
&
Mercantile
Law
General
Principles
Mercantile
Mortgage
vs.
Due
facto
No
Conclusive
Involuntary
Course
Fault
Corporation
vs.
(1996)
Indemnity
Levy
Presumption
Solvency
88
(2003)
vs.
Parties;
(1994)
(1995)
Corporation
46
(1990)
57
Holder
Mortgage;
66
Insurer;
98
Law
in
Trans-Shipment;
by
on
Due
Estoppel
3rd
Extrajudicial
Corporate
Course
Party
(2004)
Liability;
(1996)
Recovery
Bill
Foreclose
of
35
88
Quitclaim
Lading;
Distinction:
Parties;
(2003)
(2006)
binding
(1994)
Holder
67
46
Dividends
Rehabilitation;
contract
Mortgage;
57
in
Due
Insurer;
vs.
(1993)
Course
Foreclosure
Profit:
Authorized
Stay
98
(1998)
Order
Cash
89
Driver
(2003)
(2006)
Dividend
Parties;
Clause
46
67
vs.
Bank)22all
of my
right,
and
interest
in Interlocking
(1991)
BOD;
Conflict
of title
Interest
(1994)
22 BOD;
(1995)
22
BOD; Interlocking
Directors
Secrecy
inDirectors
the
of Bank
General
Deposits
Banking
(2005)
Law of 2000.
Name
Mortgage;
Suspension
Holder
Stock
(1991)
in Due
Dividend
57
Foreclosure
ofaccounts
Insurer;
Course;
Payment
(2005)
Authorized
Indorsement
(2003)
vs.
35
Insolvency
Distinction;
46Driver
Mortgage;
in
(1995)
Clause
Private
(2002)
67
Foreclosure
(2003)
vs.
Suspension
89Public
Place
57 Insurer;
of
Corporation
of
of
Improvements
Payment
Payments
Authorized
(2004)
(2000)
vs.
(1999)
Driver
Stay
89
35
Distinction;
Order
Clause;
46
Mortgage;
(2003)
vehicle
Stock
67aForeclosure;
isSuspension
vs.
stolen
Non-Stock
(1993)
Commercial
Transaction
(2003)
12blank
Joint
Account
(2000)
12
Joint
Account
vs.
Partnership
(2000)
12
Theory
of
and
to
receivable
from
Home
Hi
at
Yielding
least
four
Corporation
(4)
of
them
filed
and
complaint
explain
the
(1996)
23myBy-Laws;
Validity;
limiting
qualifications
of BOD
members
(1998)
23
By-Laws;
Validity;
limiting
Commercial
Transaction
(2003)
Effect
of
Payments;
Corporation
58
of
Insurer;
mere
Rehabilitation
Group
taking
(2004)
Insurance;
by
36
creditor-mortgagor
Dividends:
Receiver
Employer-Policy
(1999)
Declaration
67
of
Suspension
property
Holder
of
Dividends
(2000)
(1992)
of
Payments;
58
(2005)
47
Insurer;
Mortgage;
36
Remedies
Dividends:
Liability
Redemption
(2003)
of
the
Sources
Insurers
68
Period;
of
Dividends;
(1990)
Foreclosed
58
Loss:
Trust
Builders
Corporation
against
distinguishing
five
of
characteristic
officers
or
violation
function
This
work Development
isvs.
intended
forLaw
sale
or
commerce.
This
work
is its
freeware.
Itfor
may
be
Cognition
Theory
of Manifestation
(1997)
12 Validity;
qualifications
ofnot
BOD
members
(2000)
23
By-Laws;
limiting
qualifications
of
BOD members
(2001)
23of of
Negotiable
Instruments
..............................................................................................76
What
do(2002)
you
by Constructive
the
term
SUGGESTED
ANSWER:
(hereinafter
called
the
arising
from
Section
each
one.
31
of
(5%)
the
Code.
The
Property
Fund
Actual
Doctrine
Total
Loss
47understand
(2005)
Mortgage;
(1996)
36Obligor)
59
Dividends;
Remedies
Loss:
Declaration
(2003)
48 Total
Preference
of Dividends
Loss
(2005)
of Credits
(1990)
59 Loss:
36
(2002)
Dividends;
Total
48Corporation
Promissory
LossDeclaration
Only (1992)
Note:
ofLiability
59
Dividends
Marine
By-Laws;
Validity;
limiting
qualifications
ofessential
BOD
(2003)
Close(4)
Corporations;
Deadlocks
24 vs.
Any24
four
of the
following
six(1995)
(6)
classes
commercial
transaction?
Is a
it(2004)
delivery
of Implied
housing
units
with
corporation
claimed
the
said
officers
Bond:
Cash
Bond
vs.
Surety
Bond
76members
Checks:
Crossed
Checks
(2005)
77 that
Checks:
Crossed
(2001)
(1991)
Insurance;
48
36
Remedies;
Dividends;
Warranties
Available
Declaration
to
(2000)
Mortgagee-Creditor
oftotal
60
Dividends
Marine
Insurance;
(2001)
(1996)
36 Peril
Dividends;
48banks
of
Remedies;
the Ship
Right;
vs.
Available
Managing
Peril
of to
the
Corporation
Mortgagee-Creditor
Sea
(1998)Checks
(1991)
60
Mutual
37
of
identified
in
the
General
Banking
that
at
least
one
party
to
a
contract
be
a
Closed
Corporation;
Restriction;
Transfer
of shares
(1994)
24
Controversy;
Intra-Corporate
(1994)
25a
freely
copied
and
It is
primarily
intended
for
allofthose
who
desire
to
have
contract
price
of distributed.
P4,000,000.00,
the
were
guilty
advancing
their
personal
Cancelled
Checks
(2004)
77
Checks;
Crossed
Check
(1991)
77
Checks;
Crossed
Check
(1994)
77
Checks;
(2001)
Doctrine
Insurance
49 Remedies;
ofCompany;
Corporate
Secured
Nature
Opportunity
Debt
& Definition
(1991)
(2005)
49
(2006)
37 Effect:
Expiration
TermBanks
(2004) 37These
Effects;
Merger
1
Universal
are
thoseof
LawofofCorporate
2002,
to
merchant
in
order
to
consider
such
a60 Intra-Corporate
Trust
Receipts
Law...............................................................................................................98
Controversy;
Intra-Corporate
(1996)
(1996)
25wit:
Controversy;
description
and
contract
value25
of Controversy;
which
are
interests
to
the
prejudice
of theIntra-Corporate
Banking
Law...........................................................................................................................12
SUGGESTED
ANSWER:
Crossed
Check
(1995)
78
Checks;
Crossed
Check
(1996)
78
Checks;
Crossed
Check
(1996)
78corporation,
Checks;
Effect;
which
used
to
be
called
expanded
In
the
event
that
I
shall
be
unable
to
pay
my
Corporations
(1999)
37
Effects;
Winding
Up
Period
of
a
Corporation
(1997)
38
Effects;
Winding
Up
Period
of a
commercial
transaction?
(4%)
attached
hereto
as Annex
A (hereinafter
and 25
thatCorporation
they were
grossly
negligent
in
(2006)
25
Controversy;
Intra-corporate;
Jurisdiction
(1997)
Sole;
Definition
(2004)
26
A
Commercial
transaction
is to
defined
deeper
understanding
of
the
issues
touched
by
the
Philippine
Bar
Examinations
and
its
commercial
banks
and
the
operations
of
outstanding
Trust
Receipts
indebtedness
Law;
Acts
&
Omissions;
owned
Covered
the
(2006)
98
Trust
Receipts
Law;
Liability
for
estafa
(1991)
99
Trust
Acceptance
by
the
drawee
bank
(1998)
78
Checks;
Effects;
Alterations;
Prescriptive
Period
(1996)
78
Checks;
Corporation
(2000) 38Foreign
ForeignCurrency
Corporation;
Doing
Business
in oftheBank
Philippines
(1998)
38from
Foreign
Corporation;
Banks:the
Applicability:
& Secrecy
Deposits
(2005)
12
Banks:
Collateral
called
Receivables).
handling
its
affairs.
Aside
documents
of shares
of
toDeposit
pay
for Act
the
services
(2005)
26
Corporation:
Rightgoverned
ofAlterations;
Repurchase
of
asCorporation:
...... Itthe
is Issuance
not essential
that
at
least
one
which
are
primarily
by Liability
the
Bank,
Bank
shall
have
the
right,
without
Receipts
Law;
Liability
for
Estafa
(1997)
99
Trusts
Receipt
Law
(2003)
99now
Forged
Check;
Effects
(2006)
79stock
Checks;
Liability;
Drawee
Bank
(1995)
80
Checks;
Material
Doing
Business
in
the
Philippines;
Acts
or
Activities
(2002)
38
Foreign
Corporation;
Doing
Business
in
the
and
contracts,
the
corporation
also
Security
(2002)
12
Banks:
Secrecy
of
Bank
Deposits;
Garnishment
(2004)
13
Banks;
Classifications
of
Banks
party
to
the
commercial
transaction
be
a
Public
Service
Law
...............................................................................................................89
Shares;
Trust
Fund
Doctrine
(2005)
26
Corporation:
Sole
Proprietorship
(2004)
26records
Corporation;
Articles
of
General
Banking
Law
of
2002.
They
can
any
further
formality
or act
on(1994)
its part,
to
(1999)
80
Checks;
Presentment
80
Checks;
Presentment
submitted
(2003)
in
evidence
80
Checks;
Validity;
of
Waiver
the
officers
of
Banks
Philippines;
Test is
(2002)
39
Joint
Corporation
(1996)
39 provinces
Liabilities;
BOD;
Corporate
Acts Insolvency;
(1996)
39
(2002)
13What
Banks;
Conservator
vs.
Receiver
(2006)
Banks;
Diligence
(1992)
14
Banks;
merchant.
essential
isVenture;
that
the
trend.
It isthe
specially
intended
for
law
students
from
the
who,
often,
are
exercise
theRequired
powers
of(2001)
anvery
investment
house
collect
Receivables
from
the
Obligor
and 13
Letters
of
Credit
....................................................................................................................68
Incorporation
(1990)
26
Corporation;
Bulk
Sales
Law
(2005)
27
Corporation;
By-laws
28
Corporation;
U.S.
Dollar
deposits
in
several
banks
Certificate
of
public
Convenience
(1998)
89
Certificate
of
Public
Convenience;
inseparability
of
certificate
and
liability
for
negligence
(1991)
80
Defenses;
Forgery
(2004)
81
Forgery;
Liabilities;
Prior
&
Subsequent
Parties
transaction
evince
an
intent
to
engage
in
Liabilities;
Stockholders,
Directors,
Officers
(1997)
39
Piercing
the
Corporate
Veil
(1994)
39
Piercing
the
Prohibited
Transactions
(2000)
14
Banks;
Insolvency;
Requirements
(1997)
14
Banks;
Restrictions
on
Loan
and
invest
inthe
non-allied
enterprises.
They
to apply the proceeds
thereof
toward
For
their
officers
filed
criminal
Commencement;
Corporate
Existence
(2003)
28 Corporation;
Conversion
of
Stock
Corporation
(2001)
28 82
overseas
-part,
Boston
Bank,
Bank
ofa
Switzerland,
commerce
or
trade.
Letter
vessel
of(1992)
Credit:
90
Mortgage
Certificate
(2005)
ofBanks;
Public
68Prior
Letter
Convenience;
Credit;
Certification
Requirements
from
(1995)
Consignee
90
Powers
(1993)
of&68
the
Letters
Public
of
Service
Credit;
(1990)
81
Forgery;
Liabilities;
& ofSubsequent
Parties
(1995)
81the
Incomplete
Delivered
(2004)
Corporate
Veil
(1996)
40
Piercing
the
Corporate
Veil
(2001)
40
Piercing
Corporate
Veil
(2004)
40
Piercing
have
the
highest
capitalization
requirement.
payment
of
my
said
indebtedness.
Accommodations
(2002)
14
Restrictions
on
Loan
Accommodations
(2006)
15
Banks;
Safety
Deposit
Box;
complaint
against
the
directors
of
Hi
Usury
Law
...............................................................................................................................99
and
Bank
of
New
York.
Joint
Account
(2000)
Corporation;
De
Facto
Corporation
(1994)
28
Corporation;
Dissolution;
Methods
of
Liquidation
(2001)
28
recipients
of
deliberately
distorted
notes
from
other
unscrupulous
law
schools
and
Andrew
to
pay
loan
on
its
due
Liability
Commission
of afailed
(1993)
confirming
90
Public
andthe
notifying
utilities
bank
(2000)
(1994)
90 date
Revocation
69Instruments;
Letters
of
of Certificate
Credit;
Liability
(1993)
of 91
afor
Notifying
Revocation
Bank
of
(2003)
Certificate
69
Incomplete
and
Delivered
(2005)
82
Incomplete
Incomplete
Delivered
Instruments
vs.
Incomplete
2
Commercial
Banks
These
are
Yielding
Corporation
violation
of
the
Corporate
Veil
(2006)
40
Pre-emptive
Right
(2001)
40
Pre-Emptive
Right
vs.
Appraisal
Right
(1999)
41
SEC;
Liability
15
Banks;
Secrecy
of
Bank
Deposit;
AMLC
(2006)
15
Banks;
Secrecy
of
Bank
Deposit;
Exceptions
What
is
a joint
account?
(2%)
Corporation;
Incorporation;
Requirements
(2006)
28
Corporation;
Incorporation;
Requisites
(2002)
29
onUsury
September
1,99
2002.
When
the
Bank
Law
(199)
ordinary
orNo.
regular
commercial
banks,
as 41
Republic
Act
6426,
otherwise
known
as
Letters
(1993)
91
ofANSWER:
Credit;
Three
Distinct
Contract
Relationships
(2002)
69
Undelivered
Instrument
(2006)
82
Indorser:
Irregular
Indorser
vs. General
Indorser
(2005)
82 Negotiability
(1993)
SUGGESTED
Jurisdiction;
Transferred
Jurisdiction
(1996)
41
Stockholder;
Delinquent;
Unpaid
Subscription
(1997)
(2006)
16
Banks;
Secrecy
of
Bank
Deposits
(1990)
16
Banks;
Secrecy
of
Bank
Deposits
(1991)
16
Banks;
attemptedMeetings;
to collectBOD
from& the
Obligor, the
Corporation;
Stockholders
(1993)
29
Corporation;
Nationality
of
Corporation
(1998)
29
distinguished
from
a
universal
bank.
They
the
Foreign
Currency
Deposit
Act
of
the
A
joint
account
isPreemptive
a(2002)
transaction
of
merchants
students.
Share
to
others
this
work
and
you
willofCourse
be
richly
rewarded
byStockholders;
God
in
heaven.
82
Negotiability
83Right
Negotiability;
Holder
in Due
(1992)
83(2003)
Negotiability;
Requisites
(2000)
83
Stockholders:
(2004)
42
Stockholders;
Appraisal
Right
42
Removal
of
Secrecy
of
Bank
Deposits
(1992)
17
Secrecy
Bank
Deposits
(1994)
17
Banks;
Secrecy
of Bank
Warehouse
Receipts
Law
.................................................................................................100
Bank
discovered
that
the
latter
hadBanks;
already
have
a
lower
capitalization
requirement
Philippines.
The
officersFunds
alleged
that Purpose
their than
Corporation;
Non-Stock
Corporation
(1993)
29
Corporation;
Power
to
Invest
Corporate
for
other
where
other
merchants
agree
to
contribute
Negotiable
Instrument:
Ambiguous
Instruments
(1998)
84
Negotiable
Instrument:
Definition
&
Characteristics
Officers
&
BOD
(2001)
42
Stockholders;
Removal;
Minority
Director
(1991)
42
Stockholders;
Rights
(1996)
42
closed
operations
and
liquidated
all
its
Deposits
(1995)
17 Banks;
Secrecy
of Bank
Deposits
(1998)
17 Banks;
Secrecy
of
Bank
Deposits
(2000)
universal
banks
and
cannot
exercise
the 18
bank
deposits
were
illegally
disclosed
for
the
amount
of capital
agreed
upon,
and Requisites
(1995)
30 84
Corporation;
Power
to Invest
Corporate
Funds
in Negotiable
another
Corporation
(1996)
30
Corporation;
Bill
of
Lading
(1998)
100
Delivery
ofcollection,
Goods;
(1998) 100
Delivery
of
the
Goods
(1991)
100
(2005)
Negotiable
Instrument:
Identification
(2005)
84
Instrument:
Negotiable
Document
vs.
assets.
The
Bank
sued
Andrew
for
Stockholders;
Voting
Power
of
Stockholders
(1990)
42
Stocks;
Increase
of
Capital
Stock
(2001)
42
Stocks;
Sale,
Banks;
Secrecy
of
Bank
Deposits;
Exceptions
(2004)
18
Banks;
Secrecy
of
Bank
Deposits;
Garnishment
(2001)
powers
of
an
investment
house
and
invest
in
want
of
a
court
order,
and
that
such
deposits
It
is
also
very
good
karma.
Maritime
Commerce
.............................................................................................................69
participating
in
the
favorable
or
unfavorable
Insurance
Intellectual
Law........................................................................................................................49
Property
.............................................................................................................60
Recovery
of
Moral
Damages
(1998)
30
Corporation;
Separate
Juridical
Personality
(1995)
31
Corporation;
Garnishment
or Attachment
of 85
Goods
(1999)
100 Negotiable
Documents
of
Title
(1992)
100
Ownership
ofBearer
Goods
but
Andrew
moved
to(2005)
dismiss
the
complaint
Negotiable
Instrument
Negotiable
Instrument;
Negotiability
(1997)
85
Negotiable
Instruments;
non-allied
enterprises.
were
not
even
the
subject
of
the
case
Transfer
of
Certificates
of
Stock
(1996)
43
Stocks;
Sale,
Transfer
of
Certificates
of
Stock
(2001)
43
Stocks;
Sale,
18
BSP;
Receivership;
Jurisdiction
(1992)
18
Legal
Tender
(2000)
19
PDIC
Law
vs.
Secrecy
of
Bank
Deposits
results
thereof
inPersonality
the proportion
they
may
Securities
Regulation
..........................................................................................................91
Separate
Juridical
(1996)
31
Corporation;
Separate
Juridical
Personality
(1996)
31banks
Corporation;
Corporation
prosper?
onStored
the ground
that
debt
had
already
(1992)
101
Right
to
the
Goods
(2005)
101
Unpaid
Seller;
Negotiation
ofCarriage
the
Receipt
(1993)
101
Validity
Average;
Particular
Average
vs.
General
Average
(2003)
69
Bottomry
(1994)
70
of Goods:
Deviation:
319Yielding
Thrift
Banks
Beneficiary
These
(such
asof
against
them.
a)
Will
the
complaint
filed
Beneficiary:
Copyright
Effects:
(1995)
Irrevocable
60
Copyright;
Beneficiary
Commissioned
(2005)
49
Artist
Beneficiary:
(1995)
60
Rights;
Copyright;
Irrevocable
Commissioned
Artist
(2005)
(2004)
50 60
Instrument
(1998)
85the
Negotiable
Instruments;
Bearer
Instruments
(1997)
85
Negotiable
Instruments;
bearer
determine.
Transfer
of
Certificates
of
Stock
(2004)
43
Trust
Fund
Doctrine
(1992)
Trust
Fund
Doctrine;
Intra-Corporate
Act
(1997)
19
Responsibilities
&
Objectives
ofthe
BSP
(1998)
Truth
in 43
Lending
Act
(1991)
19
Truth
in
Lending
SUGGESTED
ANSWER:
Explain.
been
paid
by
reason
of
his
execution
of
Separate
Juridical
Personality
(1999)
31
Corporation;
Separate
Juridical
Personality
(2000)
32
Corporation;
stipulations
excusing
warehouseman
from
(2000)
101
savings
and
mortgage
banks,
savings
Joint
Account
vs.
Partnership
(2000)
against
the
directors
of incomplete
Hi
Liability
Insider
(2004)
(2005)
91
70
Insider
Carriage
of Goods;
(1995)
Deviation;
91negligence
Insider
When
Trading;
Proper
Manipulative
(2005)
70
Practices
Carriage
(1994)
ofCurrency
Goods;
92stock
Manipulative
Exercise
Beneficiary;
Copyright;
Life
Infringement
Insurance;
Prohibited
(1994)
60Beneficiaries
Copyright;
Infringement
(1998)
50
Concealment;
(1997)
61
Material
Copyright;
Concealment
Infringement
(2001)
(1998)
50 61
instruments;
liabilities
ofTrading
maker
and
indorsers
(2001)
85
Negotiable
Instruments;
and
undelivered
No,
because
the
Foreign
Deposit
Controversy
(1991)
Act (2000)
19
aforesaid
Deed
of 43
Assignment
which,
being
and
loan
associations,
and
private
Distinguish
Separate
Juridical
joint
Personality
account
(2000)
from
partnership.
32
Corporation;
Set-Off;
Unpaid
Subscription
(1994)
32
Corporation;
Stock
Extraordinary
Practices
(2001)
Diligence
92
Securities
(2005)
Regulation
70
Charter
Code;
Party
Purpose
(1991)
70
(1998)
Charter
92
Securities;
Party
(2004)
Definition
71
COGSA:
(1996)
Prescription
92
Securities;
of
Concealment;
Copyright;
Infringement
Material
Concealment:
(2006)
61
Incontestability
Copyright;
Photocopy;
Clause
(1994)
when
50
allowed
Concealment;
(1998)
61
Material
Infringement
Concealment:
vs.
Unfair
Act
(R.A.
No.
6426),
including
its
punitive
instruments;
holder
in
due
course
(2000)
86
Negotiable
Instruments;
Incomplete
Delivered
Instruments;
absolute
and unconditional, was in essence a
SUGGESTED
ANSWER:
development
banks)Validity
may exercise
most
of the
(3%)
Corporation
(2001)
32
Corporation;
Validity
of
Corporate
Acts
(1998)
33
Corporation;
of
Corporate
Acts
provisions,
refers
to
foreign
currency
Claims/Actions
Selling
of
Securities;
(2004)
Meaning
71
COGSA;
(2002)
Prescription
92
Tender
Offer
of
Claims
(2002)
(1992)
93
71
COGSA;
Prescription
of
Claims
(2000)
72
We
would
like
to
seek
the
indulgence
of
the
reader
for
some
Bar
Questions
which
are
Incontestability
Competition
(1996)
Clause
61(1996)
Infringement
50
Concealment;
vs.between
Unfair
Material Concealment:
(2003)
Infringement;
Incontestability
Jurisdiction
Clause
(2003)
(1997)
61 Patent;
51
Comparative
Negligence
(1997)
86
Negotiable
Instruments;
kinds 61
of negotiable
instrument;
words
of
negotiability
dacion
en pago.
The
Bank
opposed
the Competition
The
following
are
the
distinctions
powers
and
functions
of
a
commercial
bank
(2002)
33Prescriptive
Corporation;
Voluntary
Dissolution
(2002)of
33Inscrutable
Corporation;
Voting
Trust
Agreement
(1992)
33
deposits
accounts
constituted
within
the
COGSA;
Period
(1995)
72Incontestability
Doctrine
Fault
(1995)
72
Doctrine
of
Inscrutable
motion,
contending
that
the
Deed
ofPatents:
joint
account
and
partnership:
Concealment;
Non-Patentable
Material
Inventions
Concealment;
(2006)
61
Gas-Saving
Clause
(1991)
Device:
51
Concealment;
first
tocannot,
file87Material
rule
(2005)
Concealment;
62 Fault
Patents:
(2002)
86
Negotiable
Instruments;
Requisites
(1996)
87
Notice
Dishonor
(1996)
Parties;
Accommodation
Edited
and
Arranged
except
that
by:
they
among
others,
open
SUGGESTED
ANSWER:
Philippines.
It
has
no
application
at
all
to
(1)
AInfringement;
partnership
has
a
firm
name
while
a
Assignment
was
only
a
security
for
a
loan.
If
(1997)
72
Doctrine
of
Inscrutable
Fault
(1998)
72
Limited
Liability
Rule
(1994)
72
Limited
Liability
Rule
(1997)
72
current
or
check
accounts
without
prior
Incontestability
(Since
Clause
the
Remedies
question
(1998)
&
51
is
Defenses
outside
Insurable
the
(1993)
Interest:
scope
62
of
Bank
Patents;
Deposit
Infringement
(2000)
51
(1992)
Insurable
62
Interest:
Patents;
Public
Rights
Enemy
over
the
Party (1990)
87 Parties;under
Accommodation
Party
(1991)
87accounts,
Parties;
Accommodation
Party
(1996)
87are
improperly
classified
a
topic
Silliman
and
for
University
some
topics
College
which
are
improperly
or
even
though
they
banks,
joint
account
has
none
and
is
conducted
in
you were
the
Judge,
how
would
you
resolve
the
Bar
Examination,
it
is
recommended
Monetary
Board
approval,
and
they
cannot
Limited
Liability
Rule
(1999)
72
Limited
Liability
Rule
(2000)
73
Limited
Liability
Rule;
Doctrine
of
Inscrutable
(2000)
Invention
52ofInsurable
(1990)
Interest:
63 Trademark
Separate
(1990)
Insurable
63 Law
Trademark
Interest
(1999)
(1994)
52
63
Insurable
Interest;
TestEquitable
Dominancy
Interest (1996)
(1991)
63
b)
Was
there
a violation
ofofthe
Secrecy
of Bank
opened
andTrademark,
constituted
abroad.
2005
thethe
name
the
partner.
motion
to ostensible
dismiss
filed
by Andrew?
that
the
candidate
be
given
full of
credit
of Batch
issue
letters
of
credit.
Their
operations
are1405)?
Fault
(1991)
73
Limited
Liability
Rule;
General
Average
Loss
(2000)
73
Limited
Liability
Rule;
General
Average
Deposits
Law
(Republic
Act
No.
52
Trademark;
Insurable
Interest;
Infringement
Life
vs.
(1991)
Property
63
Insurance
Trademark;
(1997)
Test
of
52
Dominancy
Insurable
Interest;
(1996)
64
Life
Tradename:
vs.
Property
International
Insurance
(2000)
Affiliation
Miscellaneous
......................................................................................................................102
(2) Explain
While
a5%,
partnership
hasbe
juridical
(5%)
whatever
may
his
answer,
and
he Bar Reviewees
governed
primarily
by prepared
the Thrift this
Banks Act of
ignorantly
phrased,
for
the
authors
are
just
who Property
have
(5%) Interest;
Explain.
Loss
(2000)
73
The
motion
tomay
dismiss
should
be Insurance
granted.
personality
52
(2005)
Insurable
64and
Interest;
Life
sue vs.
or
be
Property
sued
under
53 1995
Insurable
Insurance (1994) 53
be
given
a bonus
if he
made
an
answer(2002)
in
(RA
7906).
SUGGESTED
Energy
Regulatory
Commission:
& Power
(2004) by:
102 ANSWER:
Four ACID Problems of Philippine Judiciary
The
simple
absolute
and
unconditional
the
following
manner:)
Updated
itsInsurable
firm
name,
a joint
account
hasJurisdiction
no
Interest;
Property
Insurance
(2001) 53 Insurance;
&Rural
Carry
(2003)
53 Insurance;
4Cash
Banks
these
are those
which
No,
because
theBasis
punitive
provisions
of Cothe102
Transportation
Law
..............................................................................................................93
(2006)
102
Government
Deregulation
vs.
Privatization
of
an
Industry
(2004)
102
Political
Law;
WTO (1999)
conveyance
embodied
in
the
deed
of
juridical
personality
and
can
sue
or
be
sued
work
while
reviewing
for
the
Bar
Exams
under
time
constraints
and
within
their
Insurance
vs.
Re-Insurance
(1994)
53
Insurance;
Double
Insurance
(2005)
54
Insurance;
Insurance;
are organized
primarily
toDouble
extend
loansNo.
and
Secrecy
of
Bank
Deposits
Law
(R.A.
(3)
While
partnership
has
a common
fund,
assignment
beostensible
operative,
and
the
only
in theaof
name
of
the
partner.
Power
thewould
State:
Regulating
of Domestic
Trade
(2004)1405),
103
Tariffincluding
and Customs
Code:
of
Customs
Boundary
System
(2005)
93
Carriage;
Breach
of Contract;
Presumption
offacilities
Negligence
(1990)
93
Carriage;Laws
other
credit
toViolation
farmers,
fishermen
the
statutory
exemptions
effect
(1993)
54
Insurance;
Effects;
Payment
of
Premiums
by
Installment
(2006)
54
Insurance;
Life
Insurance;
a joint
account
has none.
assignment
would
constitute essentially a
(2004)
103
Breach
ofin
Contract;
of Negligence
(1997)
93
or
Carriage;
farm
families,
Fortuitous
as
Event
well
(1995)
as cooperatives,
93 Carriage;
provided
therein,
are
not
to
FCDU
D
BAR-Retake
2007
Assignment
of partnership,
Policy Presumption
(1991)
54
Insurance;
Perfection
ofto
Insurance
Contracts
(2003)
54applicable
Insurance;
Property
(4)
Whileknowledge
a
all
general
mode
of payment
or
dacion
en We
pago.
limited
of
the
law.
would
like
seek
the
readers
indulgence
for
alocally.
lot94
merchants,
and
private
and
public
employees
accounts,
even
when
constituted
Liability;
Lost
Baggage
or
Acts
of
Passengers
(1997)
94
Carriage;
Prohibited
&
Valid
Stipulations
(2002)
partners
have
the
right
of management,
in a
Banks: Secrecy
of Bank
Deposits;
Garnishment
(2004)
Insurance;
Prescription
of
Claims
(1996) 54 Insurance;
Return
of
Premiums
(2000)
55
Insured;
Accident
Policy
and
whose
operations
areCarrier;
primarily
governed
(Intengan
v. Court
Appeals,
G.R. No. 128996,
Carriage;
Valuation
ofa Damaged
Cargo(1990)
(1993)
Carrier
(1996)
94of Common
Breach
of
joint
account,
the Accident
ostensible
partner
CDC
maintained
savings
account
with
(2004)
55
Insured;
vs. Suicide
5594 Common
February
by
the
15,
Rural
2002Banks
)
Act
of
1992
(RA
7353).
(5)
While
liquidations
of
a
partnership
ofContract;
typographical
errors
inMM
thisRegional
work.
manages
its
operations.
CBank.
Onbusiness
orders
of
the
Trial
Collateral
SecurityCarrier;
(2002) Defenses; Fortuitous
Damages
(2003)
94
Common
Carrier;
DefensesBanks:
(2002)
95
Common
5
Cooperative Banks these are those
may,
by agreement,
be
entrusted
to a partner
Court,
the Sheriff
garnished
of
his BAR
Andrew
is(1998)
engaged
in
the
business
From
the
ANSWERS
TO
EXAMINATION
QUESTIONS
Events
(1994)
95 Common
Carrier;P50,000
Defenses;
Limitation
of which
Liabilityare
95 Common
Carrier;
organized
primarily
toDefenses;
provideof
or partners,
in satisfy
a joint the
account
liquidation
account, to
judgment
in favor of
building
low-cost
housing
units
under
Limitation
Liability
(2001)
95the
Common
Carrier; Duration of
Liability and
(1996)
95
Common
Duty
to
financial
credit
servicesCarrier;
to cooperatives
The
bythe
UPdone
LAW
COMPLEX
ASSOCIATION
OF
thereof
canofonly
be
by
ostensible
hisAuthors
creditor,
MO.
CDC
complained
that the & PHILIPPINE
contracts
with
real
estate
developers.
He
and
whose
operations
are
primarily
governed
Bulk
Sales
Law
......................................................................................................................20
Examine
Baggages;
Railwaythe
andLaw
Airline
Commonapplied
Carrier; Test
(1996)
Carriers; Defenses
partner.
garnishment
violated
on(1992)
the 96SCHOOLS
July
26, 2005
for
a loan96ofCommon
P3
Million
Ready
LAW
2005
by the
Cooperative
Code
of thefrom
Philippines
Theory
of 96
Cognition
vs. Theory
of Liability
Manifestation
(1997)
(1996)
Common
Carriers;
for
Loss
(1991)
96
Secrecy
of
Bank
Deposits
because
the
Bank
(the
Bank), (2000)
which 20required
Bulk Sales Law; Covered Transactions (1994) 20 Bulk Credit
Sales Law;
Covered
Transactions
Bulk Sales
Mercantile
Mercantile
Law
Law
Bar
Examination
Examination
Q &Q
A Page
&
(1990-2006)
A (1990-2006)
4 of 103
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
ABar
(1990-2006)

FO R E WAR D

MERCANTILE LAW

ARRANGED BY TOPIC
(1990 2006)

Dondee

(RA 6938).
Theexistence
Civil Code
adopts account
the theory
of
of his savings
to(1993)
provide
collateral
security
forofit.
Law; Covered
Transactions
(2006)
20was
Bulk Sales Law; Andrew
Exclusions
20 Banks
Bulk
Sales
Law;
Obligation
the
6
Islamic
these
are those
SUGGESTED
ANSWER:
cognition,
while
the
Code
of
Commerce
disclosed to the public. (5%) Is CDC's
Andrew
offered
to
assign
to
the
Bank
his
No.
CDC's
complaint
is
not
meritorious.
It
was
held
which
are
organized
primarily
to
provide
Vendor
(1995)
21
Bulk
Sales
Law;
Obligation
of
the
Vendor
(1997)
21
Bulk
Sales
Law;
Obligation
of
the
Vendor
generally
recognizes
the
theory
of
Nationalized
Activitiesorornot?
Undertakings........................................................................74
complaint meritorious
Reason
receivables
amounting
to P4 in
million
from
in(2001)Banking
China
Corporation
v. of
Ortega,
49 SCRA 355
financial and
credit services
a manner
or
manifestation,
in the
perfection
contracts.
21
briefly.
Home
Builders
Development
Corporation
Insolvency
Corporate
Recovery
SUGGESTED
ANSWER:
that
peso
deposits
be
garnished
the
(1973)
transaction
consistent(1994)
with the
Islamic
Nationalized
Activities
ormay
Undertakings
(1993) and
74...................................................................................64
Nationalized
Activities or Undertakings
74 Nationalized
How
do
these
two&theories
differ?
(the
Obligor).
The
Bankonly
accepted
the offer.
Under
the bank
theory
of cognition,
the
depositary
can comply
order
Shariah.
At
present,
the
Al Trade
Amanah
Activities
or Undertakings
(1995)
75with
Retailthe
Trade
LawInsolvency:
(1990)
75
Retail Trade
Law (1991)
7564
Retail
Insolvency
vs.
Suspension
of
Payment
(1998)
64
Voluntary
Insolvency
(2005)
Insolvency;
Assets
Accordingly,
Andrew
obtained
the
loan Law
and
acceptance
is considered
effectively
bindon
of garnishment
without to
violating
the Law
Islamic
Investment
Bank
of
the
Philippines
(1992)
75
he
executed
a
promissory
note
undertaking
vs.
Liabilities
(1998)
65
Insolvency;
Assignees
(1996)
65
Insolvency;
Effect;
Declaration
of
Insolvency
(1991)
thethe
offeror
onlyoffrom
time it Execution
came to his
Secrecy
Bankthe
Deposits.
is
has been organized as an Islamic Bank. 65
to
pay the loan in full in one lump sum on
knowledge.
Under asthe
of
the goal of litigation
it is itstheory
fruit.
Consumer
Protection
Law..................................................................................................21
September
1, 2002, together with interest
Credit
Transactions..............................................................................................................44
manifestation,
the
contract
is
perfected
at
Garnishment is part of the execution
thereon at the rate of 20% per annum. At the
theprocess.
moment
when
the
acceptance
is
declared
Upon
service
of
the
notice
of
Metric System
Lawvs.(1994)
21
Chattel
Mortgage
After-Incurred
Obligations (1991) 44same time, Andrew executed a Deed of
or made
by the offeree.
garnishment
on the bank where the
Assignment in favor of the Bank assigning to
defendant deposited funds, such funds
the Bank his receivables from the Obligor.
become part of the subject matter of
The deed of assignment read:
litigation.

Updated: June
27, 2007

June 27, 2007

Mercantile Law Bar Examination Q & A (1990-2006)

the ordinary course of business, or has

insufficient realizable assets to meet its
liabilities, or cannot continue in business
without probable losses to its depositors or
creditors; or has willfully violated a final
cease and desist order, involving acts or
transactions amounting to fraud or a
dissipation of the assets of the institution.
The main purpose of the Receiver is to
Banks;
Diligencethe
Required
(1992)
recommend
rehabilitation
or liquidation
Placido,
a
bank
depositor,
left his checkbook
of the bank.
on his desk at his house. Unknown to him, a
visitor at the time, noticing the same, took a
check therefrom, filled it up in the amount
of P3,000.00 and succeeded in encashing
the check on the same day. Placidos
account was thereby debited in the same
Discovering
the erroneous debit, Placido
amount.
demanded that the bank credit him with a
like amount. The bank refused on the
ground that Placido was negligent in
leaving his checkbook on his desk so that he
could not put up the defense of forgery or
The
disclose
thatthe
even
to the naked
wantFacts
of authority
under
NIL.
eye, there were marked differences between
Placidos signature and the one in the check
forged by the visitor. As between Placido
SUGGESTED
ANSWER:
and the bank,
who should bear the loss?
The
bank should bear the loss. A drawee
Explain.
bank must exercise the highest diligence in
safeguarding the accounts of its clientdepositors. The bank is also charged with
genuineness of the signatures of its current
account holders. But what can be more
striking is that there were marked
differences between Placidos signature and
the one in the check forged by the visitor.
Certainly, Placido was not negligent in
leaving his checkbook in his own desk ( PNB v
Banks; Insolvency; Prohibited Transactions (2000)
Quimpo 158 SCRA 582)
The Monetary Board of the BSP closed
Urban Bank after it encountered crippling
financial difficulties that resulted in a bank
run. X, one of the members of the BOD of
the bank, attended and stayed throughout
the entire meeting of the Board that was
held well in advance of the bank run and
before news had begun to trickle to the
business community about the dire financial
pit the bank had fallen into. Immediately
after the meeting, X caused the preparation
and issuance of a managers check payable
to himself in the sum of 5 million pesos
equivalent to the amount placed or invested
in the bank by a business acquaintance. He
now claims that he is keeping the funds in
trust
for ANSWER:
the owner and that he had
SUGGESTED
committed
violation
of isthe
General
No.
I do not no
agree
that there
no violation
Banking
Act (RA (RA
337, 337,
as amended)
for which
of
the statute
as amended).
X
he shouldSec
be punished.
agree that
violated
85 whenDoheyoucaused
the
there has been
violationofof athe
statute?
preparation
andnoissuance
managers
(3%)
check

14 of 103 payable to himself in the sum

of P5 million. This is paying out or
permitting to be paid out funds of the bank
after the latter became insolvent. This act is
penalized by fine of not less than P1,000.00
nor more than P10,000.00 and by
imprisonment for not less than two nor more
than ten years.
Banks; Insolvency; Requirements (1997)
Give the basic requirements to be complied
with by the BSP before the Monetary Board
can declare a bank insolvent, order it closed
and forbid it from doing further business in
SUGGESTED
ANSWER:
the
Philippines.
Before the Monetary Board can declare a
bank insolvent, order it closed and forbid it
from doing further business in the
Philippines,
the
following
basic
1
There must
examination
requirements
mustbe
bean
complied
with by the
head
of wit:
the Department of Supervision or
BSP, to
his examiners or agents into the condition of
the bank.
2
The examination discloses that the
condition of the bank is one of insolvency, or
that its continuance in business would
involve probable loss to creditors or
depositors.
3
The head of said Department shall
inform in writing the Monetary Board of
such facts.
4
Upon finding said information or
statement to be true, the Monetary Board
shall appoint a receiver to take charge of the
assets and liabilities of the bank.
5
Within 60 days, the Monetary Board
shall determine and confirm if the bank is
insolvent, and public interest requires, to
order the liquidation of the bank.
Page

Banks; Conservator vs. Receiver (2006)

Distinguish between the role of a
conservator and that of a receiver of a
SUGGESTED
ANSWER:
bank. (2.5%)
The Conservator is appointed for a period
not exceeding one (1) year, to take charge of
the assets, liabilities, and the management
of a bank or a quasi-bank in a state of
continuing inability, or unwillingness to
maintain a condition of liquidity deemed
adequate to protect the interest of
depositors and creditors. On the other hand,
the Receiver is appointed to manage a bank
or quasi-bank that is unable to pay its
liabilities in

Banks; Restrictions on Loan Accommodations (2002)

As part of the safeguards against imprudent
banking, the General Banking Law imposes
limits or restrictions on loans and credit
accommodations which may be extended by
banks. Identify at least two (2) of these limits
or restrictions and explain the rationale of
SUGGESTED
ANSWER:
each of them.
(5%)
Any two (2) of the following limits or
restrictions on loan and credit transactions
which may be extended by banks, as part of
the safeguards against imprudent banking,
1
to wit: SBL Rules (i.e., Single Borrowers
Limit) rules are those promulgated by the
Bangko Sentral ng Pilipinas, upon the
authority of Section 35 of the General
Banking Law of 2000, which regulate the
total amount of loans, credit
accommodations and guarantees that may be
extended by a bank to any person,
partnership, association, corporation or
other entity. The rules seek to protect a bank
from making excessive loans to a single
borrower by prohibiting it from lending
beyond a specified ceiling.
2
DOSRI Rules These rules
promulgated by the BSP, upon authority of
Section 5 of the General Banking Law of
2000, which regulate the amount of credit
accommodations that a bank may extend to
its

Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

4. Supposing
directors,
theofficers,
titles of stockholders
the houses and
andlots
their
are inrelated
possession
interests
of the
(thus,
Luansing
DOSRI). Realty,
Inc., is
Generally,
it undera banks
obligation
credit
to deliver the
SUGGESTED
ANSWER:
titles to
accommodations
Rudy?
(2.5%) to its DOSRI must be in
Yes, it the
hasregular
an obligation
tobusiness
deliver titles
to
course of
and on
Rudy. terms
As Luansing
Realty,
Inc.
is
not
a
not less favorable to the bank than
covered
institution
under
Section
3make
of the
3. those
Nooffered
commercial
bank
shall
any
to
non-DOSRI
borrowers.
Anti-Money
Laundering
Act, it of
may
not of
loan or discount
on the security
shares
invoke
this
law
to
refuse
delivery
of
the
its own capital stock.
Banks;
Secrecy
of Bank Deposit; Exceptions (2006)
titles to
Rudy.
Under
Republic
Act
(The Bank(2006)
Banks;
Restrictions
onNo.1405
Loan Accommodations
Secrecy
bank deposits
are considered
Pio is Law),
the president
of Western
Bank. His
absolutely
confidential
and
maythe
notsaid
be bank to
wife applied
for a loan
with
examined,
inquired
or
looked
into
by
any
finance an internet cafe. The loan officer
person,
government
official,
bureau
or
told her that her application will not be
SUGGESTED
ANSWER:
office.
What
are
the exceptions?
approved
because
the grant of(5%)
loans to
The exceptions to the Bank Secrecy Law are
related interests of bank directors, officers,
the following:
stockholders
is prohibited
by the
1. and
Special
or general
examination
of a
SUGGESTED
ANSWER:
General
Banking
Law.
Explain
whether
bank,
authorized
by General
the Bangko
Sentral
ngthe
Section
36 of the
Banking
Law
of
loan
officer
is
correct.
(5%)
Pilipinas'
Monetary
Board,prohibit
in connection
2000 does
not entirely
directors or
with
a bankoffraud
or serious
irregularity.
officers
the bank,
directly
or indirectly,
2. fromExamination
by
an
independent
borrowing from the bank. In this case,
Auditor,
by the Bank
and forBank,
the which
Pio is hired
the president
of Western
3.
Disclosure
with
the
Depositor's
Bank's
exclusive
use.
makes him an officer, director and written
permission.
stockholder of the said bank. The General
1 In case
ofprovides
Impeachment.
Banking
Law
for additional
2
In
cases
of
Bribery
dereliction
of to
restrictions to the
bank or
before
it can lend
duty
by
a
Public
Officer,
upon
order
of
a
its directors or officers. A written approval
competent
court.
of the majority vote of all the directors of the
3 Inexcluding
cases of money
deposited/invested
bank,
the director
concerned, is
which,
in
turn,
is
the
subject
of Litigation,
required. Furthermore, such dealings
must
upon
order
of
a
competent
Court.
be
upon
terms
not
less
favorable
to
the
bank
4. 4 DOSRI Loans: Loans with their Banks
than
those
offered
to
others
(Section
1326,
of Bank Directors, Officers, Stockholders and
Central
Bank's "Manual of Regulations for
related
interests.
Banks
and
Other
Financial
Intermediaries,
5 Loans in
excess
of 5% of
the Bank's
cited
in
Ranioso
CA,Liability
G.R. No. 117416,
Banks;
Capital
Safety
& Surplus
Depositv.Box;
December
2000).
violation
of this
6 The
waived
his
right
as
MN
and Borrower
OP8,rented
aAsafety
deposit
box at
provision
will
cause
his
or
her
position
regards the
of BankaDeposits
SIBANK.
TheSecrecy
parties signed
contract to
of be
declared
vacant
and
the
erring
director
5. lease
the Anti-Graft
7 Violation
with theof
conditions
that: and
the bank or
is
officer
subjected
to
the
penal
provisions
of
Corrupt
Practices
Act.
not a depository of the contents of the safe
New
Central
Bank
Act.
6. the
Coup
d'
etat
Law
(RA
6968,
and has neither the possession nor control
7.
BIR
Commissioner's
authority
to verify
Octof24,1990).
the
same;
the bank assumed
no interest
a decedent's
Gross
Estate
and
a
taxpayer's
in said contents and assumes no liability in
request
for a compromise
agreement
due to
connection
therewith. The
safety deposit
incapacity
to
pay
his
tax
liability.
box had two keyholes: one for the guard key
8.
Foreign Currency Deposits by foreign
which remained with the bank; and the
lenders & investors under PDs 1034.
for the renters'
key. The box can be
9. other
Violations
of the Anti-Money
opened
only
with
the
use
of both keys. its
The
10.
WhenLaw.
the State exercises/invokes
Laundering
renters
deposited
certificates
of
title
in
the
Police Power.
box.
But
later,
they
discovered
that
the
SUGGESTED ANSWER:
certificates
MN
now of
The
bank is were
liable,gone.
based
onand
the OP
decisions
claim
for
damages
from
SIBANK.
Is
the
the Supreme Court in CA Agro-Industrial
bank
liable?
Explain
briefly.
(5%)
Development Corp. v. Court of Appeals, 219
SCRA 426 (1993) and Sia v. Court of Appeals,
222 SCRA 24 (1993). In those cases, the

Supreme Court ruled that the renting out of

safety deposit boxes is a "special kind of
deposit" wherein the bank is the depositary.
In the absence of any stipulation prescribing
the degree of diligence required, that of a
good father of a family is to be

15 of 103 observed by the depositary.

Any stipulation exempting the depositary
from any liability arising from the loss of the
thing deposited would be void for being
contrary to law and public policy. The
deposit box is located in the bank premises
and is under the absolute control of the
bank.
Banks; Secrecy of Bank Deposit; AMLC (2006)
Rudy is jobless but is reputed to be a jueteng
operator. He has never been charged or
convicted of any crime. He maintains several
bank accounts and has purchased 5 houses
and lots for his children from the Luansing
Realty, Inc. Since he does not have any
visible job, the company reported his
purchases to the Anti-Money Laundering
Council (AMLC). Thereafter, AMLC charged
him with violation of the Anti-Money
Laundering Law. Upon request of the AMLC,
the bank disclosed to it Rudy's bank deposits
1.
Can Rudy
to dismiss
the case on
amounting
to move
P100 Million.
Subsequently,
he
the
ground
that
he
has
no
criminal
record?
was
charged
in
court
for
violation
of
the
SUGGESTED ANSWER:
(2.5%)
Anti-Money
Laundering
Law.Laundering Law,
No. Under the
Anti-Money
Page

Rudy would be guilty of a "money laundering

crime" committed when the proceeds of an
"unlawful activity," like jueteng operations,
are made to appear as having originated from
legitimate sources. The money laundering
crime is separate from the unlawful activity
of being a jueteng operator, and requires no
previous conviction for the unlawful activity
(See also Sec. 3, Anti-Money Laundering Act
2.
To raise funds for his defense, Rudy sold
of 2001).
the houses and lots to a friend. Can
Luansing Realty, Inc. be compelled to
transfer to the buyer ownership of the
SUGGESTED
houses andANSWER:
lots? (2.5%)
Luansing Realty, Inc. is a real estate
company, hence it is not a covered institution
under Section 3 of the Anti-Money
Laundering Act. Only banking institutions,
insurance companies, securities dealers and
brokers, pre-need companies and other
entities administering or otherwise dealing
in currency, commodities or financial
derivatives are covered institutions. Hence,
Luansing Realty, Inc. may not use the AntiMoney Laundering Act to refuse to transfer
3.
disclosing
Rudy's bank
to the
to In
the
buyer ownership
of accounts
the houses
and
AMLC,
did
the
bank
violate
any
law?
(2.5%)
lots.
SUGGESTED ANSWER:

No, the bank did not violate any law. The

bank being specified as a "covered
institution"
under
the
Anti-Money
Laundering Law, is obliged to report to the
AMLC covered and suspicious transactions,
without thereby violating any law. This is
one of the exceptions to the Secrecy of Bank
Deposit Act.

Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

deposits
impairment
under RA
clause.
1405,RA
as amended.
6832, creating
Can
a
thecommission
Bank justifiably
to conduct
invoke RA
an 1405
investigation
and a)
of
notthe
respond
failed
to the
1989
writ and
coupb) quash
detat the
and to
SUGGESTED
ANSWER:
subpoena
recommend
for
examination?
measures (5%)
to prevent similar
Yes.
Whethertothe
transaction
a
attempts
seize
power isis aconsidered
valid exercise
sale
or
money
placement
does
not
make
the
Banks;
Secrecy
of
Bank
Deposits
(1992)
of police power.
money
subject
matter$10,000
of litigation
Socorro
received
fromwithin
a foreign
thebank
meaning
of Sec 2she
of RA
1405
which only to
although
was
entitled
prohibits
the disclosure
or inquiry
into
$1,000.00.
In an apparent
plan
tobank
conceal
deposit
except
in
cases
where
the
money
the erroneously sent amount, she opened a
deposited
or invested
thelocal
subject
matter
dollar account
withisher
bank,
deposited
of litigation
nor will
matter 4
whether
the $10,000
and itissued
checksthe
in the
Banks;
Secrecy
of Bank Deposits (2000)
money
was of
swindled.
amount
$2,000 and 1 check for $1,000
GPeach
is a suspected
lord who
is
payable jueteng
to different
individuals
who
rumored
to
be
enjoying
police
and
military
deposited the same in their respective dollar
protection.
The
envy
of
many
drug
lords
whosuit
The
sender
then
brought
a civil
accounts
withbank
different
local
banks.
hadbefore
not escaped
the dragnet
the law, GP
the RTC
for theofrecovery
of the
was
summoned sent
to a hearing
thethe course of
erroneously
amount.of In
Committee
and Other
the trial, on
theRacketeering
sender presented
testimonies of
Syndicated
Crimes
the that
House
bank officials
to of
show
theoffunds were, in
Representatives,
was by
conducting
a paid
fact, depositedwhich
in a bank
Socorro and
congressional
investigation
in
aid
of
out to several persons, who participated in
legislation
on the involvement
of police and
the concealment
and dissipation
of the
military
personnel,
and
possibly
evenerroneously
of local
amount that Socorro had
Socorro officials,
moved into
strike activities
out
said
government
the illegal
received.
testimonies
from the
invoking the
of suspected
gambling
andrecord
drug lords.
law on secrecy
of bank
deposits. If you
were
Subpoenaed
to attend
the investigation
were
the
Judge,
would
you
issue
an
order
to
officers of certain identified banks with a
SUGGESTED
ANSWER:
strike
them
out?
Why?
directive to them to bring the records and
I will not strike out the testimonies from the
documents of bank deposits of individuals
record. The testimonies of bank officials
mentioned in the subpoenas, among them GP.
indicating where the questioned dollar
GP
and theANSWER:
banks opposed the production of
SUGGESTED
accounts
were
opened
in
depositing
the
banks
records of
ground
Yes.
The
opposition
is deposits
valid.
GPon
is the
not
a public as
misappropriated sums
must
be
considered
that
no such
inquiry is allowed
under
the
official.
The
investigation
does
not
involve
likewise involved in litigation one which is
Law
onthe
Secrecy
of Bank
Deposits
(RA 1405
oneamong
of
exceptions
tocases
the
prohibition
the
excepted
under the Secrecy
as
amended).
Is
the
opposition
of
GP
and the
against
disclosure
any(Melon
information
of Bank
DepositsofAct
Bank v Magsino
banks
valid?
Explain.
Banks;
Secrecy
of
Bank
Deposits
(1994)
concerning
bank
deposits
under
the
Law
on
190 SCRA 633)
Miguel,
a special
customs
is charged
Secrecy
of Bank
Deposits.
The agent
Committee
before the
Ombudsman
with
having
conducting
the
investigation
is not
a acquired
propertycourt
out of
proportion
to his salary, in
competent
or the
Ombudsman
violationunder
of the
Anti-Graft
Corrupt
authorized
the law
to issue aand
subpoena
Act. of
The
forPractices
the production
the Ombudsman
bank record issued a
Banks;
Secrecy
of duces
Bank
Deposits;
Exceptions
subpoena
tecum
to the(2004)
Banco de
involving
such
disclosure.
TheCinco
Law on
Secrecy
of
Bank
Deposits
commanding its representative to
provides
all deposits
of whatever
nature of
furnishthatthe
Ombudsman
records
with
banks or banking
are
transactions
by or ininstitutions
the name of
Miguel, his
absolutely
confidential
in second
nature and
may not
wife and
children. A
subpoena
was
be issued
examined,
inquiredthe
or looked
by any the
expanding
first byinto
including
person,
government
official,
bureau of
orMiguel
office. in
production
of records
of friends
Miguel
moved
to
quash
the
subpoenas
However,
the
law
provides
exceptions
in
said (NOTA
bank BENE:
and It
inis all
its branches
and
suggested
that any
6
arguing
that
they
violate
the following
Secrecy
of
Bank
certain
instances.
Which
of the
extension
offices,
specifically
naming
them.
ofbe
the
aboveInbe
given
fullhe
credit)
1.
In
cases
of
Deposits
Law.
addition,
contends that
may
not
among
the
exceptions:
2. In
cases
involving
impeachment.
the subpoenas are in the nature of fishing
Banks;
Secrecyinvolving
of Bank Deposits
3. In
cases
BIR (1990)
bribery
expedition
or general
warrants and are
Manosa,
a
newspaper
while
4. In
cases of anti-graft
andcolumnist,
corrupt
inquiry.
constitutionally
impermissible
with respect to
making
a
deposit
in
a
bank,
overheard
5. In
casesindividuals
where the money
is the a
practices.
private
who areinvolved
not under
pretty
bank
teller informing a coemployee
SUGGESTED
ANSWER:
subject
of
investigation. Is Miguels contention tenable?
that
No.
Gigi,
Miguels
a wellcontention
known public
is not
official,
tenable.
hasThe
illegally
acquired
justinquiry
a few into
hundred
pesos
in her property
bank
account
extends
andtothat
cases
her where
next check
such will
property
in all is
concealed bounce.
by being Manosa
held by or
recorded
probability
wrote
this in
information
the
in his newspaper column. Thus,
Gigi

Page
Page
16 17
of 103
of 103
filed
name
a complaint
of other

with
persons.
the City
To
Fiscal
sustain
of Manila
Miguels
for theory
unlawfully
and disclosing
restrict the
information
inquiry only
about
to property
her bankheld
account.
by ora)
in Will
the
thename
said suit
of the
prosper?
government
Explain
official
your would
answer.
make
available to persons in government who
illegally acquire property an easy means of
b) evading
Supposing
that Gigi
charged
with
prosecution.
All is
they
have to do
unlawfully
under
RA 1379
would beacquiring
to simply wealth
place the
property
in the
andname
that of
the
fiscal issued
a subpoena
duces
persons
other than
their spouses
tecum
the records
the bank
account
of
and for
children
(Banco of
Filipino
Savings
vs.
Gigi.
May 161
Gigi
theLaw
said
Purisima
scravalidly
576; Secoppose
8 Anti-Graft
as
Banks; Secrecy
of Bank
Deposits (1995)
issuance
the
ground
that the same
amendedon
by BP
195)
Michael
withdrew
without
funds of
SUGGESTED
ANSWER:
violates
the
law on secrecy
of authority
bank deposits?
a)
The
Secrecy
of
Bank
Deposits
Act
the
partnership
in
the
amounts
of
P500th
Explain your answer.
prohibits,
subject to
its services
exclusionary
and US$50th
for
he clauses,
claims he
anyrendered
person for
from
inquiring
or
theexamining,
benefit of the
partnership.
looking
into all deposits
of whatever
nature
He deposited
the P500th
in his personal
peso
with
banksaccount
or banking
in theand
current
with institutions
Prosperity Bank
Philippines
which
law are
declared
the US$50th
in hisby
personal
foreign
currency
absolutely
confidential
in nature.
Manosa
savings account
with Eastern
Bank.
The
partnership
instituted
an action to
in court
who
merely
overheard
what appeared
be
against
Michael,
Prosperity,
and
Eastern
a vague remark of a Bank employee to a co- to
ALTERNATIVE
ANSWER: to return the subject funds
compel Michael
employee
and writing the same in his
a) to
The
complaint
against
Manosalitigation
will not
the partnership
and pending
newspaper
column is neither
the inquiry nor to
prosper
because
merely
writing
a
vague
order both
banks to disallow
disclosure
contemplated
by law. any withdrawal
remark
Bank employee to a co-employee
from of
hisaaccounts.
is not
the initial
disclosure
contemplated
bythe
law.court
If
At the
hearing
of the case
anyone
should
be liable,
it will be
bank of
ordered
Prosperity
to produce
thethe
records
SUGGESTED
ANSWER:
employee
who
disclosed
the
information.
Michaels
peso
current
account,
and Eastern
b) Among the instances excepted from the
to produce the records of his foreign
coverage of the Secrecy of Bank Deposits
currency savings account.
ActCan
are Anti-graft
cases.
HenceProsperity
Gigi may not
the court
compel
and
validly
oppose
the
issuance
of
a subpoena
Eastern to disclose the bank
deposits of
duces
tecumDiscuss
for the bank
SUGGESTED
ANSWER:
Michael?
fully. records on her.
Banks;
Bank
Deposits
Yes,Secrecy
as farofas
the
peso (1991)
account is concerned.
TheSec
law2(RA
6832)
creating
Commission
to of
of RA 1405 allowsa the
disclosure
conduct
a
Thorough
Fact-Finding
bank deposits in case where the money
Investigation
of the
the subject
Failed Coup
detat
of Dec
deposited is
matter
of litigation.
1989,
Recommend
Measures
Prevent
the
Since
the case filed
against to
Michael
is aimed
Occurrence
of Similar
Attempts
At a Violent
at recovering
the amount
he withdrew
from
Seizure
of Power
for Other
Purposes,
the funds
of the and
partnership,
which
amount
provides
that thedeposited
Commission
mayaccount,
ask the a
he allegedly
in his
Monetary
Board
to disclose
information
disclosure
of his
bank deposits
wouldonbe
No,
with
respect
to thetoforeign
currency
and/or
to grant
authority
examine
any
proper.
account.
Under
Currency
bank
deposits,
trustthe
or Foreign
investment
funds, Law,
or
the exemption
to in
the
against
banking
transactions
theprohibition
name of and/or
disclosure
information
concerning
bank
utilized
by a ofperson,
natural
or juridical,
deposits
is the by
written
consent of inthe
under
investigation
the Commission,
Secrecy
Bank Deposits
(1998)
depositor.
anyBanks;
bank
or ofbanking
institution
in the
1998
(20)
An
insurance
company
is deluded
Philippines, when the Commission
has
into releasing
a check
A for P35th
to pay
reasonable
ground
to to
believe
that said
for Treasury
whichfunds,
A claims
deposits,
trust Bills
or (T-bills)
investment
or to
SUGGESTED ANSWER:
be
en
route
on
board
an
armored
truck
from
banking
have
been
used isin
The
Law transactions
on Secrecy of
Bank
Deposits
a government
bank. The
check
is delivered
support
or in a
furtherance
of the
objectives
itself
merely
statutory enactment,
and itof
to A whocoup
deposits
it to his
account
with
XYZ
the
detat.
Does
above
may, said
therefore, be
modified,
or the
amended
Bank before
the insurance
company
realizes
provision
not
violate
the
Law
on
Secrecy
of
(such as by providing further exceptions
it Deposits
is a scam.
Upon
such realization, the
Bank
1405)?
therefrom),
or (RA
even
repealed, expressly or
insurance company files an action against A
impliedly, by a subsequent law. The Secrecy
for recovery of the amount defrauded and
of Bank Deposits Act did not amount to a
obtains a writ of preliminary attachment. In
contract between the depositors and
addition to the writ, the Bank is also served
depository banks within the meaning of the
a subpoena to examine the account records
non-impairment clause of the Constitution.
of A. The Bank declines to provide any
Even if it did, the police power of the State
information in response to the writ and
is superior to the nonmoves to quash the subpoena invoking
secrecy of bank

Mercantile Law Bar Examination Q & A (1990-2006)

Page
Page
18 19
of 103
of 103
Under
of the
Section
economy.
6(F)Itofshall
the

National
promote
Internal
and maintain
Revenuemonetary
Code, thestability
Commissioner
and convertibility
of Internal
of theRevenue
Peso. can
inquire into the deposits of a decedent for
in Lending
Act (1991)
theTruth
purpose
of determining
the gross estate
Dana
Gianina
purchased
on case,
a 36a month
of such decedent. Apart
from this
the latest
model
BIRinstallment
inquiry intobasis
bank deposits
cannot
be of the
Nissan
Sentra
Sedan3 car
the Jobel
made.
Thus,
exception
mayfrom
not always
beCars
Turning
to exception
4, an
inquiry
into bank
Inc. In
addition to
the
advertised
selling
applicable.
deposits
possible
in prosecutions
for
price, isthe
latteronly
imposed
finance charges
unexplained
under thefees
Anti-Graft
and
consistingwealth
of interests,
and service
Corrupt
Practices
Act,
according
to
the
charges. It did not, however, submit to Dana
Supreme
Court
in the cases
of Philippine
a written
statement
setting
forth therein the
National
Bank
v.
Gancayco,
15
SCRA
91 (1965)
information required by the Truth
in Lending
However,
all other
cases and
of anti-graft
and
and
Banco
Filipino
Savings
Mortgage
Bank v.
Act (RA 3765). Nevertheless, the conditional
corrupt
practices
will
not
warrant
an
inquiry
1
Has
there
been
substantial
Purisima,
SCRA which
576 (1988).
deed 161
of sale
the parties executed
into
bank deposits.
Thus,
exception
compliance
of the
aforesaid
Act? 4 may
mentioned that
the
total amount
indicated
not2alwaysIfbe
applicable.
Like
any
other
your
answer
to
the
therein included such financeforegoing
charges.
exception,
benegative,
interpreted
strictly.
questionitismust
in the
what
is the effect
Exceptions
1, 2 and
on contract?
the other hand,
of the violation
on5,the
are3provided
expressly
inathe
Law onof the Act,
In the
event of
violation
Secrecy
of
Bank
Depositors.
They
are
what remedies may be availed of
by Dana?
available to depositors at all times.
Banks; Secrecy of Bank Deposits; Garnishment (2001)
The Law on Secrecy of Bank Deposits,
otherwise known as RA 1405, is intended to
encourage people to deposit their money in
pesos for denominations from twenty five
banking institutions and also to discourage
centavos and above, and in amounts not
private hoarding so that the same may be
exceeding twenty pesos for denominations
PDIC
Law vs. Secrecy
Bank Deposits Act (1997)
properly utilized by banks to assist in the
ten centavos
and of
less.
An employee of a large manufacturing firm
economic development of the country. Is a
earns a salary which is just a bit more than
notice of garnishment served on a bank at
what he needs for a comfortable living. He is
the instance of a creditor of a depositor
SUGGESTED ANSWER:
thus able to still maintain a P10,000 savings
covered by the said law? State the reason(s)
No. The notice of garnishment served on a
account, a P20,000 checking account, a
for your answer. (5%)
bank at the instance of a creditor is not
P30,000 money market placement and a
covered by the Law on Secrecy of Bank
P40,000 trust fund in a medium-size
Deposits. Garnishment is just a part of the
by
the
PDIC.
b)
State
which
of
the
above
commercial bank. a) State which of the four
process of execution. The moment a notice of
accounts are
are deemed
covered insured
by
accounts
garnishment is served on a bank and there
the Law on Secrecy of Bank
SUGGESTED
ANSWER:
exists a deposit by the judgment debtor, the
Deposits.
a)
The P10th savings account and the P20thbank is directly accountable to the sheriff,
account are deemed insured by the PDIC. b)
checking
for the benefit of the judgment creditor, for
The P10th savings account and the P20th
the whole amount of the deposit. In such
account are covered by the Law on Secrecy of
checking
event, the amount of the deposit becomes, in
BSP;
Receivership;
(1992)
Deposits.
Bank
effect,
a subjectJurisdiction
of the litigation.
Family Bank was placed under statutory
receivership and subsequently ordered
Responsibilities & Objectives of BSP (1998)
liquidated by the Central Bank (CB) due to
What are the responsibilities and primary
fraud and irregularities in its lending
objectives of the BSP? (5%)
SUGGESTED ANSWER:
operations which rendered it insolvent.
The BSP shall provide policy directions in
Judicial proceedings for liquidation were
the areas of money, banking and credit. It
thereafter commenced by the CB before the
shall have supervision over the operations of
RTC. Family Bank opposed the petition.
banks and exercise such regulatory powers
Shortly thereafter, Family Bank filed in the
as provided in the Central Bank Act and
same court a special civil action against the
other pertinent laws over the operations of
CB seeking to enjoin and dismiss the
finance companies and non-bank financial
liquidation proceeding on the ground of
litigation.
Explain
your answer
or
institutions
performing
quasi-banking
grave abuse of discretion by the CB. The
choice
briefly.such
(5%)
functions,
as quasi-banks and
court poised to: 1) restrain the CB from
SUGGESTED
ANSWER:
The
primary
objective ofsimilar
the BSP
is to
institutions
performing
functions.
closing
Family Bank; and 2) authorize Family
SUGGESTED ANSWER:
maintain price stability conducive to a
Bank to withdraw money from its deposits
balanced and sustainable growth
during the pendency of the case. If you were
the Judge, would you issue such orders?
Why?
No. The RTC has no authority to restrain the
monetary board of the BSP from statutory
authority to undertake receivership and
ultimate liquidation of a bank. Any
opposition to such an action could be made
to the court itself where assistance is
sought. The action of the RTC where the
proceeding is pending appeal have to be
Legal
(2000)
madeTender
in the
Court of Appeals.
After many years of shopping in the Metro
Manila area, housewife HW has developed
the sound habit of making cash purchases
only, none on credit. In one shopping trip to
Mega Mall, she got the shock of her
shopping life for the first time, a stores
smart salesgirl refused to accept her coins in
payment for a purchase worth not more than
one hundred pesos. HW was paying seventy
pesos in 25centavo coins and twenty five
pesos in 10 centavo coins. Strange as it may
seem, the salesgirl told HW that her coins
SUGGESTED ANSWER:
wereThe
notsalesgirls
legal tender.
Do you agree
No.
understanding
that with
coins
the
salesgirl
in
respect
of
her
understanding
are not legal tender is not correct. Coins are
of legal
tender?
Explain
(2%)
legal
tender
in amounts
not
exceeding fifty

Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

when
without
2) If
there
the
more,
is
sale
aproceeds
bona
and transfer
fidetoand
arrange
is
just
made
dispute
the a) by
as the
delivery
to
the
vendor,
amount
andmortgagor,
installation
due as hertransferor
ofelectric
your newor
home
assignor
theater
consumption
who produces
system.
rate.
You
and
Isknow
Angelenes
delivers
you will
a contention
written
receivewaiver
a
SUGGESTED
ANSWER:
statement
valid?
of the provisions
on your credit
of the
card
Bulk
purchases
Sales Law from
No.
Angelenes
only
legal an
recourse
in
this
from
his
the
creditors
bank containing
as shown
by option
verified
tostatement;
pay
case
was
to
pay
the
electric
bill
under
only
and
a minimum
b) by a vendor,
amount,
mortgagor,
which is usually
transferor or
protest.
Hertotal
failure
do
so
justified
MECO
1/36
assignor
of the
who
price
is to
anyou
executor,
were
charged
administrator,
for
to
cut
the electric
v CA 218
S
your
receiver,
purchase.
assignee
Didservice
Embassy
in (Ceniza
insolvency,
Appliances
or public
SUGGESTED ANSWER:
290)
comply
officer
with
acting
the provisions
under judicial
of the
process,
Truth in
the sale
There is no need for Embassy Appliances to
Lending
or transfer
Act (RA
is 3765)?
not covered by the Bulk Sales
comply
with the Truth in Lending Act. The
Bulk
Law.Sales Law; Obligation of the Vendor (1995)
transaction
not a sale
on installment
House ofis Pizza
(Pizza)
is the owner and
basis.
Embassy
Appliances
is a seller
on
operator
of
a
nationwide
BOD: Election of Aliens as members (2005)chain of pizza
cash
basis. House
It is the
credit
card
company
outlets.
of
Liquor
(Liquor)
is
A Korean national joined a corporationa retailer
which
allows
the
buyer to enjoy the privilege
of all
of liquor.
which
is kinds
engaged
in the furniture
House the
of price
Foods
hasbasis.
offered to
of paying
on (Foods)
installment
manufacturing business. He was elected to
purchase all of the outlets, equipment,
the Board of Directors. To complement its
fixtures and furniture of Pizza. Foods also
furniture manufacturing business, the
toCovered
purchase
from (1994)
Liquor all of its
Bulkoffered
Sales Law;
Transactions
corporation
also engaged
in the logging
moderately
priced
stock
constituting
50% of
Stanrus Inc
a department
store
with outlets
business.
With
the additional
logging
its
total
inventory.
SUGGESTED
ANSWER:
in Makati,
Mandaluyong,
and Quezon
City,
is
activity,
can
the
Korean
national
still be
a What
Both
and
Liquor
have creditors.
Yes,
just Pizza
as long
as
sixty percent
(60%) ofits
the
contemplating
to
refurbish
and
renovate
member
of
the
Board
of
Directors?
Explain.
legal requirements
must Pizza and Liquor
Board
Directors
aretoFilipinos.
Makatiofstore
in order
introduce the most
(3%)
comply
with
in
order
for (60%)
Foods to
Corporations
that of
arethe
sixty
modern
and
state
artpercent
equipment
in fully.
consummate
the
transactions?
Discuss
owned
by Filipinos
can
in the
merchandise
display.
Toengage
carry out
its plan, it
SUGGESTED ANSWER:
business
ofsell
exploration,
intends
ALL ofmust
thedevelopment
existing
Pizzatoand
Liquor
preparefixtures
anand
affidavit
utilization
of
natural
resources.
(Art.
XII, their
andstating
equipment
(display
cases,
wall
the names
of all
their
creditors,
Sec.
2, 1987 furniture,
Constitution)
The
election
decorations,
counters,
etc.)
toof and
addresses,
the amounts
of their
credits
aliens
as
members
of
the
Board
Of
Directors
Crossroads
Department
Store. Pizza
Thereafter,
it
their respective
maturities.
and Liquor
engaging
in partially-nationalized
activities
willmust
buy submit
and
install
fixtures
and
saidnew
affidavit
to Foods
which, in
is
allowed
in
proportion
to
their
allowable
equipment
and
continue
operations.
turn, should
notify the
creditors
about the
participation
or
share
in
the
capital
such
ALTERNATIVE
ANSWER:
Crossroads
wants
to know
fromtoyou
as
transaction
which
is about
beof
concluded
creditors
of2-A,
Stanrus.
entities.
As
far
(Sec.
as
Liquor
Anti-Dummy
is
concerned,
Law)
counsel:
1)ANSWER:
Whether
the intended sale isit must
with Pizza
and Liquor.
SUGGESTED
Nothing
in
the
facts
shows
thatthe
more
than
prepare
an
affidavit
stating
names
of all
bulk
sale.
2)Directors
How
can
itall
protect
itself
from
BOD;
Capacity
of
(1996)
1) Yes.
The sale
involves
fixtures
and
forty
its
percent
creditors,
(40%)
their
of
addresses,
the
Board
the
of
Directors
amounts
of
future
claims
of in the ordinary
Rodman,
thenot
President
of TF Co,
wroteofa
equipment,
course
are
foreigners.
their
credits
and their respective
maturities.
letter
to Gregorio,
offering
to sell to the latter
trade
and
the
regular
prosecution
It must
submit
said
affidavit of
to its buyer,
5,000
bags
of
fertilizer
at(Sec
P1002 per
bag.
business
of
Stanrus,
Inc.
3952,
as
who in turn, should notifyAct
the
creditors
Gregorio
signed his conformity to the letteramended)
about the transaction which is about to be
2) Crossroads
should
require
from
Stanrus
offer,
and
a down-payment
of P50th.
But
as paid
farwith
as
Pizza
is concerned,
it Ais not
concluded
his seller.
Inc.covered
submission
of Bulk
aCorporate
written
of Foods
the
few
days
later,
the
Secretary
of TFcan
by the
Saleswaiver
Law. So
Bulk
SalesGregorio
Law by
the
creditors
aswithout
shown
informed
of transaction
the
decision
of
their by
consummate
the
doing
verified
orletter
to comply
the
BOD
notstatements
to ratify the
offer. with
However,
anything.
requirements
ofhad
thealready
Bulk
Law,
that is,
since
the
downBulkGregorio
Sales Law;
Obligation
of Sales
thepaid
Vendor
(1997)
theThe
sellersole
must
notify
his
creditors
of
the
payment,
TF
delivered
500
bags
of
fertilizer
proprietor of a medium-size
terms
and
conditions
of
the
sale,
and
also,
which
Gregorio
accepted.
TF
made
it
grocery shop, engaged in both clear
wholesale
before
from
the
anythe
part
of
that
thereceiving
deliverytransactions,
should
bevendee
considered
an entire
and
retail
sells
thebusiness
purchase
price,stock
deliver
tobarrel
such vendee
a of
entirely
newlock,
transaction.
Thereafter,
and
because
written
sworn
statement
of theofnames
and
Gregorio
sought
enforcement
the
letterhis
plan
to
emigrate
abroad
with
his
family.
SUGGESTED ANSWER:
addresses
ofno
all
his
together
with
offer.
Is there
a binding
binding
contract
for the
the
Isthere
he
covered
bycreditors
thecontract
provisions
of
the
Bulk
No,
is
for
5,000
Bulk
Sales Law;
Covered
Transactions
(2000)
the
amount
of
indebtedness
due
to
each
(Sec
5,000
bags
of
fertilizer?
Explain.
Sales
Law?
In
the
affirmative,
what
must
be
bags
of fertilizer.
First, the facts do not
Company
X, amended)
engaged
SUGGESTED
ANSWER: in the business of
2
Act
3952,
done
by
the
parties
so
as
to
comply
with
the
indicate
that Rodman,
the
President
manufacturing
parts
accessories,
Yes. This
is car
a sale
ofand
the
stockofofTFgoods,
law?
Co,
was
authorized
by
the
BOD
to enter
operates
a
factory
with
equipment,
fixtures and entire business,
not into
in the
the
said contract
or of
that
he was
empowered
machinery
and
tools
forbusiness
this
purpose.
Theof the
ordinary
course
or
trade
to
do
so under
somereceiving
provision
of thethe
by-laws
manufactured
goods
are sold wholesale
to
vendor.
Before
from
vendee
of
TF
Co.
The
facts
do
not
also
indicate
distributors
dealers
throughout
any part and
of the
purchase
price, the
thethat
vendor
Rodman
been to
clothed
with
the apparent
Philippines.
Company
X was
among
the
must has
deliver
such
vendee
a written
power
to entities
execute
thesworn,
contract
agreements
business
adversely
hit
by
thenames
1997 and
statement,
duly
of or
the
similar
to
it.
Second,
TF
Co
has
specifically
Asian
businessof
crisis.
sales dropped
withsaid
addresses
all Its
creditors
to whom
informed
Gregorio
that
it has
not
ratified
thethe
thevendor
decline
in car
and
itstogether
operating
may
besales
indebted,
with
contract
for
the
sale
of
5,000
bags
of
costs
escalated,
while its creditor banks and
amount
of
fertilizer
and that
the delivery
to
other financial
institutions
tightened

Corporation Law

Bulk Sales Law

20 21
of 103
their
loan of
portfolios.
Page
Page
22
103
of 103
Gregorio
indebtedness
500 bags,
due Company
orwhich
owing,

on
X was
faced
choice
of
either
Gregorio
account
accepted,
ofwith
the the
goods,
isdismal
an fixtures
entirely
or
new
business
suspending
its
operations
or selling
its
transaction.
subject matter
(Yao
Ka
ofSin
theTrading
bulk
sale.
v CA GR
business.
chose
latter. Having struck a
53820
JuneIt15,
1992the
209s763)
Bulk
Sales
Law; Obligation
the Vendor
(2001)
deal
with
Company
Z, a of
more
viable
entity
BOD;
(1991)
A Compensation
is a merchant
engaged
in the
sale ofXa
engaged
in the same
business,
Company
After
many
years,
called
for
variety
of difficult
goods
and
merchandise.
Because
sold
its
entire
business
to
thewhich
former
without
sacrifices
on orthe
part
of
the companys
of the
economic
incurred
much
fanfare
anycrisis,
form he
of publicity.
In
directors,
ABCexists
Manufacturing
Inc was finally
indebtedness
to X,that
Y and
Thereafter,
A
fact,
evidence
theZ.transaction
was
earning
substantial
sold toentered
B
all the
stock
of goods
and
furtively
into
to profits.
avoid
the Thus,
prying the
bulk
of his
goods
to B.BOD
(2%).
President
proposed
to steps
the
that
merchandise.
a)
What
should
A the
eyes
ofinCompany
Xs
creditors.
The
creditor
SUGGESTED
ANSWER:
directors
be
paid
a
bonus
equivalent
to
15%
undertake
to effect
a valid
sale
banks
and other
financial
institutions
sued
Athemust
prepare net
an income
affidavitbefore
statingtaxthe
SUGGESTED
ANSWER:
of
companys
Company X for violation of the Bulk Sales
Company
theyear.
Bulk The
Sales
Law
names
ofviolated
all his creditors,
in this
case, X, Y,
during
theX
preceding
Presidents
Law.
Decide.
(5%)
when
it
sold
its
entire
business
to
Company
and
Z,
their
addresses,
the
amount
their
proposal was unanimously approved byofthe
SUGGESTED
ANSWER:
Z
furtively
to
avoid
the
prying
eyes
of
its
credits
and
their
maturity.
A
should
give
BOD. A stockholder of ABC questioned thethe
Yes,
the stockholder
as turn,
a goods
valid
andsold
legal a
creditors.
Its
manufactured
are
affidavit
to
Bhave
who,grounds
in
furnish
bonus.
Does
he
toshould
object?
ground
to
object
to
the
payment
to
wholesale
to distributors
and dealers.
Thethethe
copy to
each creditor
and notify
directors
of
a
bonus
equivalent
to
15%
sale
of all or that
substantially
of its stocks,
creditors
there is all
a proposed
bulkof
sale
the
companys
net
income.
The
law
provides
notininorder
the ordinary
course
of business,
to enable
the latter
to protect their
b)
Suppose
Aannual
submitted
a false statement
that
the
total
compensation
of the on the
constitutes
bulk
sale.
The
transaction
being
interests.
schedule
of
his
creditors.
What
is the effect of
directors,
in
the
preceding
year,
cannot
a bulk sale, entering into such transaction
false
statement
as to
Vendee
B.of
such
SUGGESTED
ANSWER:
exceed
10%
of thewith
companys
net income
without
complying
the
requirements
BOD;
Conflict
of Covered
Interest
(1994)
ANSWER:
Bulk
Sales
Law;
Transactions
(2006)
a)Bulk
There
was
no30substantial
compliance
(2%)
before
income
tax
(Sec
Corp
Code).
theSUGGESTED
Sales
Law,
Company
X violated
said
If
the
vendee
does
not
have
knowledge
of
ABC
Pigger
inissued
raising
and
Pursuant
to
aInc
writis
ofengaged
execution
the law
with
the
Truth
in
Lending
Act. by
The
law.
the
falsity
the
schedule,
the
sale
valid.
selling
hogs
inofCourt
the
local
market.
Mr.
De
Dios,
Regional
Trial
in
"Express
Bank
v.is
Don
provides
that
the
creditor
must
make
a full
However,
ifofthe
vendee
has
of
one
of its
while
traveling
abroad,
Rubio,"
thedirectors
sheriff
levied
and
soldknowledge
at public
disclosure
the
credit
lost.
The
statement
such
falsity,
the sale
is
voiddue
because
is the
in
met
a leather
goods
manufacturer
who
was
auction
8
photocopying
machines
ofincludes
Donhe
that
the
total
amount
bad
faith.
interested
buying
pigcovered
skins
from
the
Rubio.
Is theinand
sheriff's
sale
by
thewithout
principal
the financial
charges,
c)
WhatANSWER:
isMr
the
right
creditors
X, Y,
and Z if A
SUGGESTED
Philippines.
De
Diosofset
upona each
separate
Bulk
Sales
Law?
(5%)
specifying
the
amounts
due
portion
No.failed
The
to
sale
comply
by
sheriff
with
the
at
public
procedure/steps
sale
is
not
required
a
by
company
and
started
exporting
pig
skins
to
thereof
would
be
insufficient
and
under
question
letter
(a)
hereof?
sale
by
law
a
merchant.
Section
8
of
the
Bulk
b)
A
violation
of
the
Truth
in
Lending
his
foreign
contact
but
the
pig
skins
unacceptable.
SUGGESTED
ANSWER:
(1%)
Sales
itself
provides
that
it has
no
ActLaw
willwere
not
adversely
affect
theABC.
validity
exported
not
sourced
from
His of
The
recourse
of
X,
Y,
and
Z
is
to
question
application
to
executors,
administrators,
the contract
itself.
fellow
directors
in
ABC
complained
that
he to
the
of theinsale
from
A to
B
as
SUGGESTED
ANSWER:
receivers,
assignees
insolvency,
or
public
c) validity
It
would
allow
Dana
toso
refuse
should
have
given
this
business
to
ABC.
How
recover
the
and
to
Iofficers,
would
decide
ingoods
favor
of
Mr merchandise
De or,
Dios.
acting
process.
The
Bulk
payment
of under
financial
charges
if ABC
already
would
you
decide
on this
matter?
satisfy
their
credits.
is
engaged
in
raising
and
selling
hogs
in
the
Sales
Law
applies
the sale
or may also
paid,
toonly
recover
theto same.
Dana
local
market.
The
company
that
Mrthe
Decreditor.
Dios
encumbrance
of a merchant
of goods,
initiate
criminal
charges against
had
set
up
was
to
engage,
as
it
did,
in
merchandise or commodity done "in bulk"the
as
Bulk
Sales
Law;
Exclusions
(1993) is thus no conflict
export
ofby
pigs
skins.
There
ALTERNATIVE
ANSWER:
defined
the
Law itself.
c)
(Per
Atty
Jomby
Paras
if and
u read
In the
annual
meeting
of XYZ
of
interest
between
Mr.
De Corporation,
Dios
ABCthe
Metric System Law (1994)
closely)
the
in
theprovisions
stockholders
unanimously
adopted
a
Pigger
Inc so as
to
makeUnder
the case
fall Truth
within
Angelene
is asaid
customer
of charges
Meralco
Electric
Observation:
The
term
conflict
of
Lending
Act,
financial
valid,
resolution
proposed
by
the
BOD
to
sellare
the
conflict
of interest
situation
under
the
Company
(MECO).
Because
of theviews
abrupt
interest
is
susceptible
to
varied
and
Dana
may
not
refuse
payment
thereof.
substantially
all
the
fixtures
and
equipment
law
(Sec
34 Corp
Code)
rise
in
electricity
rates,
Angelene
and
interpretations.
Only
criminal
charges
may
initiated
used
in and
about its
business.
The be
President
BOD;
Interlocking Directors
(1995)
complained
with
MECO
insisting
against
the creditor.
of the
Corporation
approached
you andthat she
Chito
a (2000)
director the
of both
Platinum
should
beisassistance
charged
former
rates.
TruthSantos
in Lending
Act
asked
for
legal
to effect
the sale.
Corporation
and
Kwik
Silver
Corporation.
He
However,
Angelene
did
not
tender
any
valid?
2)
What
are
the
two
instances
when
Embassy
Appliances
sellsso home
1) What
steps
should
you take
thatthe
thetheater
When
MECOs
employees
served
first
48owns
1%
of
the
outstanding
capital
stock
of
payment.
the
sale,
transfer,
components
that
are
designed
and
sale
may be
hour
notice
of
disconnection,
Angelene
Platinum
and or
40T
Kwik. Platinum
plans
tofor
mortgage
assignment
of stockcenters
of
goods,
customized
as
entertainment
protested.
MECO,
however,
did not
implement
enter
into
a
contract
with
Kwik
that
will
merchandise,
provision,
or
materials
otherwise
wares,
consumers within the medium-to-high price
the
48-hour
notice
of disconnection.
Instead,
make
both
companies
very
substantial
in the
ordinary
course
of trade
and packages
the
regular
than
bracket.
Most, if
notearn
all,
of these
its
employees
examined
Angelenes
electric
profits.
The
contract
is
presented
at
the are
prosecution
ofinstallment
the business
of theusually
vendor
are
sold
on
basis,
by
1. meter,
In order
that
contract
not
beinstalled
changed
theor transfer
same,
and
respective
board
ofwill
Platinum
and
deemed
to
be the
ameetings
sale
in
not
means
of
credit
cards
allowing
a
maximum
voidable,
whatAngelene,
conditions made
will have
be
another.
Still,
no to
tender
of
SUGGESTED
ANSWER:
Kwik.
bulk?
of
36 equal
monthly
payments. Preferred
complied
with?
Explain.
1) The
requirements
of
the
Bulk
Sales
Law
payment.
credit
cards
of with.
this
type
are
those
issued
MECO
served
a second
48-hour
notice by
of
2.
Ifbe
these
conditions
are
met,
how
must
complied
Thenot
seller
delivers
banks,
which
regularly
hold
mall
wide
disconnection
June
1984.
It sales
gave
may
this contract
Explain.
to the
purchaser
aon
listbe
of ratified?
his 22,
creditors
and
participated
in
appliance
retailers
Angelene
until
5 pm
ofby
June
25, creditors
1984
within
theblitzes
purchaser
in turn
notifies
such
like Embassy
Appliances.
Youhad
arebeen
a buyer
of
which
to
pay.
As
no
payment
made,
of the proposed sale at a stipulated time in
a
home
theater
center
at
Embassy
MECO
cut
Angelenes
electric
service
on
advance.
Appliances.
The Angelene
salesclerkcontends
who is attending
June
28, 1984.
that the
to you simply
swipes
your
credit card onrule
the
48-hour
written
notice
of disconnection
electronic
approval
machine
(which
cannot be invoked
by MECO
momentarily prints out your charge slip
since you have unlimited credit), tears the
slip from the machine, hands the same over
to you for your signature, and

Consumer Protection Law

Page
Page
24 23
of 103
of 103
which
Theto
BOD
invest
of Xthe
Co,funds
acting
of on a
thestanding
corporation.
authority
Robert
of wants
the stockholders
the deadlock
to
Is a a)
by-law his
provision
presenceof
as director
X Corporation
at the
broken.
amend the by-laws, amended its by-laws so
rendering
meeting
ineligible
is not necessary
or if elected,
to constitute
subject toa
1. asWhat
are the remedies
to who
to disqualify
any of itsavailable
stockholders
removal,
quorum
a director
for such
if he
meeting;
is also a director in
b) his vote iswhose
not necessary
for the
the Corp
to break
isRobert
also a under
stockholder
andcode
director
of a the
a corporation
business
is in
approval
of the
contract;
and c)to
thesaid
deadlock? Explain.
competitor
from being elected to its BOD.
competition
with
or is
antagonistic
SUGGESTED
ANSWER:
contract
is
fair
and
reasonable
under
the
2.
Are there any remedies to prevent the
corporation valid and legal? State your
Yes,
the
by-law provision is valid. It is the
Y,paralyzation
a stockholder
holding
sufficient
assets
circumstances.
of the
business
available
to to
reasons.
(5%).
right of a corporation to protect itself
assure
ofPD
a 902-A
seat in
the the
BOD, filed a
Robert him
under
while
against
harm
and of
prejudice
that
At thepossible
meeting of
the BOD
Kwik to approve
the petition
the the
SEC
for a declaration
petition with
to break
deadlock
is pending of
may
be caused
by itshave
competitors.
The
contract,
Chito would
to make sure
nullity
of the
amended by-laws. He alleged
litigation?
Explain.
position
of there
director
highly
sensitive
that - a)
is noisfraud
involved;
andand
b)
among other things that as a stockholder, he
confidential.
Tois say
the reasonable
least, to allow
the contract
fair and
underathe
had acquired rights inherent in stock
circumstances.
person, who
is a director in a corporation
ownership such as the right to vote and be
SUGGESTED
whose business is in competition with or is
voted uponANSWER:
in the election of directors. Is the
SUGGESTED ANSWER:
No. There is no vested right of a stockholder
antagonistic to X Corporation, to become
stockholders
petition tenable? (5%)
2. If the conditions relating to the quorum
to be elected as director. When a person
also a director in X Corporation would be
and required number of votes are not met,
buys stock in a corporation he does so with
harboring a conflict of interest which is
By-Laws;
Validity; limiting
the contract
must qualifications
be ratified of
byBOD
the vote of
the knowledge that its affairs are dominated
harmful to the latter (Gokongwei Jr v SEC 89 S
members
(2003)
stockholders
representing at least 2/3 of the
by a majority of the stockholders. To this
336 (1979); 97 S 78 (1980)).
To outstanding
prevent thecapital
entrystock
of Marlo
Enriquez,
in a meeting
called
extent, the stockholder parted with his
whom
it considered
as one antagonistic
to
for the
purpose. Furthermore,
the adverse
personal right to regulate the disposition of
its interest
interests,
into in
itsthe
Board
of must
Directors,
of Chito
contract
be
his property which he invested in the capital
Bayan
Corporation
of
disclosed
and the amended
contract isits
fairarticles
and
stock of the corporation and surrendered it
BOD;
Interlocking
Directors
incorporation
and
by-laws
to BP
add68)
certain
reasonable.
(Secs.
32 (1996)
and 33,
to the will of the majority of his fellow
Leonardo isof
thestockholders
Chairman and
Corporations
have
the power to make byqualifications
to President,
be elected
incorporators or
stockholders.
Raphael
a Director
of NT
laws declaring a person employed in the
as while
members
of itsisBoard
of Directors.
When
Corporation.
On one occasion,
NT Co,
service of a rival company to be ineligible
presented
for approval
at a meeting
of its
represented
by
Leonardo
and
A
Ent, a single
for the Corporations BOD. An amendment
stockholders duly called for the purpose,
the
proprietorship
owned
by Raphael, ratified.
entered
which renders a director ineligible, or if
amendments
were
overwhelmingly
into Enriquez
a dealership
agreement
whereby
NT Co
elected, subjects him to removal, if he is
Marlo
brought
suits against
Bayan
SUGGESTED
ANSWER:
appointed
A
Ent
as exclusive
distributor of
also a director in a corporation whose
Corporation
to
question
the
amendments.
SUGGESTED
ANSWER:
(perits
Dondee)
The
SC
reiterated
in the
case of
products
in
Northern
Luzon.
Is
the
business is in competition with or is
Would
the
action
prosper?
Why?
(4%)
Thevs.
dealership
agreement
is voidable
the
SMC
SEC
decided
in April
1979, at
that
By-Laws;
Validity; to
limiting
of BOD
dealership
agreement
valid?11,
Explain.
antagonistic
thequalifications
other corporation
is
option
of NT Co
as the
facts
do
it is
recognized
by inasmuch
all authorities
that
'every
members
(2000)
valid.
not indicate
same was
approved
by
corporation
hasthat
the the
inherent
power
to adopt
At the annual stockholders meeting of MS
the
BOD
of
NT
Co
before
it
was
signed
or,
by-laws 'for its internal government, and to
Corporation, the stockholders unanimously
assuming
approval,
it was
regulate
thesuch
conduct
andthat
prescribe
the
passed a resolution authorizing the Board of
approved
under the
following
conditions:
rights
and duties
of its
members
towards1)
Directors to amend the corporate by-laws so
inthe
the
meeting
of
BOD
at
the
That
presence
of the
Raphael,
thewhich
owner
of
itself
and
among
themselves
in reference
to
as to disqualify any stockholder who is also a
agreement was
approved
Ent,
theAmanagement
of its
affairs.'"was
At not
common
director or stockholder of a competing
necessary
to "that
constitute
a quorum
for
law, the
rule was
the power
to make
business from being elected to the Board of
2) That
vote of Raphael was not
suchthe
meeting;
and adopt
bylaws was inherent in every
Directors of MS Corporation. The by-laws
necessary as
for the
of the
corporation
oneapproval
of its necessary
and
were
accordingly
amended.
GK,
a
agreement; 3) That the agreement is fair
inseparable legal incidents. And it is settled
stockholder
of
MS
Corporation
and
a
and reasonable
under the
circumstances
throughout
the
United
States
that in the
majority stockholder of a competitor, sought
ALTERNATIVE
ANSWER:
(Sec
32 Corp
Code)
absence
of positive
legislative
provisions
The dealership
agreement
is valid
upon the
election to the Board of Directors of MS
limiting
it, every
private
corporation
has this
assumption
that
the same
was approved
by
Corporation. His nomination was denied on
inherent
power
one
of its
the BOD
of NTasCo
before
it necessary
was signedand
and
the ground that he was ineligible to run for
inseparable
legal incidents,
independent
that such approval
was made
under the of
the
position. Seeking a nullification of the
SUGGESTED ANSWER:
any
specific
enabling
provision
charter of
following
conditions:
1)
That in
theits
presence
offending
disqualification
provision,
GK
Close
Corporations;
Deadlocks
(1995)
The provision
in the amended
by-laws
or
in ingeneral
law,Ben
power
of
selfthe
meeting
ofsuch
BOD
at which
the
Raphael,
owner
ofthe
Aexecuted
Ent,
consults
you
about
its
validity
under
the
Robert,
Reythe
and
a joint
disqualifying any stockholder who is also a
government
being
essential
towas
enable
the
agreement
was
approved
Corporation
of the Phils.
would
venture
agreement
to form
anot close
director or Code
stockholder
of a What
competing
corporation
tounder
accomplish
the
purposes
of
necessary
to constitute
a quorum
your
legal
advice
be?
(3%)
corporation
the Corp
Code for
the
business from being elected to the Board of
2)
That
vote ofstock
Raphael
was not
its
creation."
suchthe
meeting;
outstanding
capital
of which
the three
Directors of MS Corp is valid. The
for the
approval
of the
of necessary
them would
equally
own.
They also
corporation is empowered to adopt a code of
agreement;
3) That
agreement
is fair
provided
therein
thattheany
corporate
act
by-lawsANSWER:
for its government not inconsistent
SUGGESTED
and reasonable
would
need the under
vote the
ofcircumstances
70% of the
with
the
Corpof the
Code.
disqualifying
1. At the meeting
BODSuch
of Platinum
to
(Sec 32 Corp
Code)
outstanding
capital
stock.
The
terms
of
the
provision
is
not
inconsistent
with
the to
Corp
approve the contract, Chito would have
By-Laws; Validity; limiting qualifications of BOD
By-Laws;
Validity; limiting qualifications of BOD
agreement
were
accordingly
implemented
Code.
make sure that
members (1998)
members (2001)
and the corresponding close corporation was
incorporated. After 3 years, Robert, Rey and
Ben could not agree on the business in
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

SUGGESTED ANSWER:

1.

Robert can petition the SEC to arbitrate

the dispute, with such powers as
provided in Sec 104 of the Corp Code.
2. The SEC can appoint a rehabilitation
receiver or a management committee.

Page
Page
26 25
of 103
of 103
stock
Jennifer
may include
and Gabriel
laborowned the
controlling
for stocks
or services
in MFF
actually
Co and
rendered
CLO Inc,
notHere,
be located.
limiting
The
theformalities
price to be
prescribed
paid, when
bythe performed
to the
bothcorporation.
family corporations. Due to serious
lawright
for the
of first
replacement
refusal isofexercised,
the lostto not more
disagreements, Jennifer assigned all her
certificate
than
25%
were complied
par
value,
with. Eventually
without X any
Corporation:
Right
of Repurchase
of Shares;
Trust Fund
shares in
MFF
to Gabriel,
while Gabriel
Co qualification
issued in substitution
whatsoever,
of the is
lost
not in the
Doctrine
(2005)
assigned all his shares in CLO to Jennifer.
certificate,
articles. Cert
It is of
merely
Stock No
stated
2002.
in Juan
the By-laws.
what conditions
a stock
Subsequently,
Jennifer andmay
CLO filed
a
forthwith
Therefore
transferred
such limitation
for valuableshall not be Under
corporation
own shares?
(2%)
complaintacquire
againstits
Gabriel
and MFF
in the
consideration
binding on the
the new
purchaser.
certificate
(GoSock
to Jose
& who
Sons &
Controversy;
SUGGESTED
ANSWER:
SEC seeking
to recover the corporate
Sy
Gui
HuatIntra-Corporate
Incthe
v IAC
19 (1994)
Feb sale
87 Min
knew
nothing
of
previous
to Res)
Pedro.
In
line
with
trust
fundwhich
doctrine
that
Because
of
disagreement
with
the
BOD
and
a
records andthe
funds
of CLO
Gabriel
In time, the corporation was confronted with
generally
renders
it
unlawful
for
the
threat
by
the
BOD
to
expel
her
for
allegedly refused to turn over, and which
the conflicting claims of Jose and Pedro. The
SUGGESTED ANSWER:
corporation
to
return
assets
to
the
misconduct
and
inefficiency,
Carissa
offered
controversy
between
Pedro
and
Jose,
should
the
remained in the offices of MFF. Is there an
BOD of X Co invited you to enlighten them
Yes, there is an
intra-corporate controversy
stockholders
representing
matter
beto
submitted
toPresident
SECwere
or tomember
the
writing
resign
and
intra-corporate
controversy incapital,
this case? a
on in
these
questions;
viz:asa)
Ifthe
a suit
to
in
this
case.
The
fact that,
when
the only
corporation
may
acquire
its
own
shares
courts?
b)
Between
Jose
and
Pedro,
whom
regular
of
the
BOD,
and
to
sell
to
the
company
all
be initiated in order to resolve the
complaint
against
Gabriel
and
MFF
was filed
should
the
her shares
therein for P300,000.00 Her offer when there exists in the books unrestricted
with
the
SEC
(per
2006,
RTCs
Jurisdiction),
corporation
so
recognize
as
the
rightful
to resign was effective as soon as my shares retained earnings to cover the repurchase of
Closed
Corporation;
Restriction;
of shares
ELIMINATE
fractional
shares
arisingof
Jennifer
CLO
were
no longer
stockholder?
shares.
Theand
purpose
of Transfer
the
repurchase
are
fully paid. At its meeting, the BOD 1
(1994)
out
of
stock
dividends;
stockholders
of
MFF
did
not
divest
the SEC
How
would
you
respond
to
the
above
shares
must
be
a
legitimate
business
accepted Carissas resignation, approved her
inherited
hissuch
uncle
SUGGESTED
2
orfrom
COMPROMISE
an10,000
(per COLLECT
2006,
Jurisdiction)
of
queries?
purpose
of theRTCs
corporation,
as its
to:
offer toANSWER:
sell back her shares of stock to the Rafael
a) The matter should be submitted to the
of Sta.
Ana
Corporation,
a as
close
indebtedness
to
the
corporation
arising
out
jurisdiction
over
the
case inasmuch
company, and promised to buy the stocks on shares
regular courts specifically in the Regional
corporation.
The
shares
have
a
par
value
of
of
unpaid
subscription
in
a
delinquency
sale;
Jennifer was a former stockholder of MFF
a staggered basis. Carissa was informed of
Trial Court where the principal office of the
P10.00
per
share.
Rafael
notified
Sta.
Ana
3
to
PURCHASE
delinquent
shares
sold
and the controversy arose out of this
the BOD Resolution in a letter-agreement to
Controversy;
Intra-Corporate
(2006)
corporation is located. The controversy
that
hethe
wassale;
selling
his
P70.00
and
relation.
(SEC
v CA
GRshares
93832 at
Aug
23 91; per
which she affixed her consent. The during
What
is
an
intra-corporate
controversy?
between Pedro and Jose is not an intrashare.
There
being
no
takers
among
the
4
to
PAY
dissenting
or
withdrawing
201s124)
Companys new President singed the
SUGGESTED ANSWER:
Carissa controversy.
wants to sue the Company to collect
(8%)
corporate
stockholders,
Rafael
sold
the
same
to
his
stockholders
entitled
to
such
payment
under
promissory
After payment
P100,000 the
An intra-corporate controversy is a conflict
b) If
there
is nonote.
over-issuance
of shares
the
balance.
If
you were retained
by Carissa
cousin
Vicente
(who
is
not
a
stockholder)
for
the
Corporation
Code.
(Sees.
41
and
82,
company
defaulted
in paying theofbalance
of Thebetween
stockholders,
partners
resulting
the where
two-transactions
Juan,
Corporate
Secretary members
refused toortransfer
as her from
lawyer,
will you file the
suit?
P700,000.
Corporation
Code)
the corporation,
association
SUGGESTED
ANSWER:
theP200,000.
corporation
should
recognize
theand
shares
in Vicentes
name orin the
A)
Labor Arbiter;
b) RTC;
or c) both
SEC?Pedro
partnership
regarding
the
regulation
the
The
RTC
has
jurisdiction
over
this
case
and Jose as rightful stockholders. This is
corporate books because Alberto, one ofofthe
corporation.
The
controversy
must
arise
out
which
involves
intra-corporate
controversy.
without prejudice to the right of the
stockholders, opposed the transfer on the
of
intra-corporate
or
partnership
relations
As
of
2006,
the
applicable
rule
is
that
there
corporation to claim against Juan for the
ground that the same violated the by-laws. of
the parties;
corporation,
is aof TRANSFERRED
under
value
the shares whichJURISDICTION
Juan sold to Jose.
Alberto
offeredortobetween
buy thesuch
shares
at P12.50
Corporation
Sole;of
Definition
or association
and the
Sec. 5.2
the (2004)
SRC, the Commissions
perpartnership
share, as fixed
by the by-laws
or State
a total
What
is a corporation
insofar
as
it concerns
While
the
by-laws
of Sta.their
Anaindividual
provides that
jurisdiction
over allsole?
cases enumerated under
price
of
P125,000
only.
SUGGESTED
ANSWER:
It is
further
required
that the
thefranchises.
right of first
refusal
can
be exercised
at
PD 902-A
sec. 5 has been transferred to the
Section
110
of
the
Corporation
Code
defines
dispute
be
intrinsically
connected
with
the
a
price
not
exceeding
25%
more
than
the
Courts of general jurisdiction or the
a "corporation
sole"
as one
formed
Controversy;
Intra-Corporate
(1996)
the corporation
parregulation
value ofofsuch
shares, the(Speed
Articles of
appropriate
Regional
Trial
Court.for the
purpose
of administering
managing,
In 1970,
Magno joinedand
AMD
Co as a as
Junior Incorporation
Distributing
Corp.,
etand
al.provides
v.Exchange
Court of Appeals,
et
simply
that the
Is
the Securities
trustee,
the affairs,
propertyrose
and from the ranks stockholders
Accountant.
He steadily
al,
G.R.
No.
149351,
March
17,
2004;
Intestate
of
record
shall
have
Commission the venue for actions
temporalities
any religious
denomination,
until he of
became
AMDs
Executive VP. preferential
Estate of Alexander
Courtcontroversies?
of Appeals,
G.R.
right
to T.Tyv.
purchase
said
shares.
involving
intra-corporate
sect
or church. It ishowever
formed bybecause
the chief of his Is
Subsequently,
Rafael
bound
by 2001).
the pricing proviso
No.
112872,
April
19,
SUGGESTED
ANSWER:
It is
silent
as
to
pricing.
(2%)
archbishop,
bishop,
priest, anomalies,
minister, rabbi
by-laws
Sta. Ana Corporation?
involvement
in certain
the or
AMD under
No, the
pursuant
toof
Subsection
5.2 of the
ANSWER:
other
presiding
elder of
such
religious from the SUGGESTED
BOD
considered
him
resigned
Securities
Regulation Code, the quasiCorporation:
Issuance
of loss
shares
stock to pay for the
Yes.
In a close
corporation,
restriction
denomination,
sect
or church.
company
due
to
ofofconfidence.
judicial
jurisdiction
of thethe
Securities
andas
services
(2005) Magno filed a complaint in the
to Exchange
the transfer
of
shares
has
to
be
stated/
Aggrieved,
Commission to hear corporate
Janice
some
work for
annotated
in the Articles
of Incorporation,
SECrendered
questioning
theconsultancy
validity of his
cases, including
intra-corporate
XYZ
Corporation.
Her
compensation
thecontroversies,
By-Laws andunder
the Section
certificate
stock.
termination,
and
seeking
reinstatement to
5 ofof
Pres.
included
shares
of stock
therein.
Can XYZ
This
serves
as
notice
to
the
person
dealing
his former
position,
with
backwages,
Decree No. 902-A, has been expressly
Corporation
issue
shares
stock to13th
pay for
with
such shares
like
Rafael inRegional
this case.
vacation and
sick
leaveofbenefits,
month
transferred
to the
designated
Trial
ALTERNATIVE
ANSWER:
thepay
services
of Janice as
its consultant?
With
such
notice,
he
is
bound
by
the
pricing
and Christmas
bonus,
plus moral and
Court.
Pursuant
to
a
memorandum
circular
No,
Rafael
is
not
bound
by
the
pricing
SUGGESTED
ANSWER:
Discuss
your
answer.
(2%)
stated
in the
By-laws.
exemplary
damages,
attorneys fees and
issued
by the
Supreme
Court, of
onlySta Ana
Yes, provided the approval of stockholders
proviso
under
the By-laws
costs. AMD filed a motion to dismiss, arguing
particularlyUnder
designated
RTC speciallaw, the
representing two-thirds (2/3) of the
Corporation.
the corporation
that the SEC has no jurisdiction over cases
commercial
in each
outstanding
restrictions
oncourts
the right
to judicial
transferregion
shares
SUGGESTEDcapital
ANSWER:stock is obtained.
of
illegal dismissal,
and has no power to
have
original
and
exclusive
over
As of 2006,
the indicate
applicable
rule
Although
the facts
that
theis that there
must
appear Intra-corporate;
in the articles
ofjurisdiction
incorporation
Controversy;
Jurisdiction
(1997)
award damages. Should the motion to
such
cases
(See
Intestate
Estate
of
Alexander
is a TRANSFERRED
JURISDICTION
under
consultancy
work has already
been
andJuan
in the
by-laws
as well as
inCo.
theHe
certificate
was
a stockholder
of X
owned T.
a
dismiss be granted? Explain.
Ty
v.
Court
of
Appeals,
G.R.
No.
112872,
April
19,
Sec. 5.2constituting
of the SRC,
the Commissions
"rendered"
"previously
of total
stock,
same by
shall
not
of otherwise,
500 shares the
evidenced
Cert
of be
2001).
jurisdiction
over
all cases
enumerated
contracted
debt,"
under
Section
39 of the under
binding
any purchaser
thereof
good
Stock on
No 1001.
He sold the
shares in
to Pedro.
PD
902-A
sec.
5
has
been
transferred
to
the
Corporation Code, the pre-emptive rights of
faith.
Moreover
the restriction
shall
After
getting paid,
Juan indorsed
andnot be
Courts
of general
or the
existing
stockholders
needjurisdiction
not be respected
more
onerous
granting
the No
existing
delivered
saidthan
Certificate
of Stock
1001
REGIONAL
COURT.
"inappropriate
payment of a
previouslyTRIAL
contracted
debt,"
stockholders
or the
corporation
the went
option
to Pedro. The
following
day, Juan
to to
the
(1996)
butControversy;
only with Intra-Corporate
the indicated
stockholders'
purchase
the
shares
of
the
transferring
offices of the corporation and claimed that
approval. Under Section 62 of the
stockholder
withofsuch
term
his Certificate
Stockreasonable
No 1001 was
lost or
and
Corporation Code, consideration for the
period
stated
therein.
that, despite diligent efforts, the certificate
issuance of
could
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Mercantile
Examination Q & A (1990-2006)
Page
Page
30 29
of 103
of 103
incidental
Center,
Page 27
Page
to,
Pasig,
of 103
28
or necessary
of
MM
103whilefor
its
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
ALaw
&
(1990-2006)
A Bar
(1990-2006)

1) Can
Top
IsGrade
this
the can
Foundation
also
compel
the Divine
use
same
theCorporation
funds
minimum
donated
and
c)by
Seventh
Article.
capital
stock
the
to it
return
maximum
itsthe
members
number
purchase
for
ofThe
price
purchase
directors
and pay
of
required
foodof
and
in a
SUGGESTED
corporation
is One Million
Pesos
damages.
medicine
stock
corporation?
for ANSWER:
distribution
(2.5%)
to the
victims of
Under
Section
10 of2)the
Corporation
Code,
Corporation;
By-laws
(2001)
Philippine
Currency.
the(P1,000,000)
Pinatubo
eruption?
Can
the
any
number
of
natural
persons
not
less
What
are
your
comments
and
suggested
Suppose
that
the
by-laws
of
X
Corp,
a
Foundation operate a specialty restaurant than
five
(5)
notgeneral
more
fifteen
(15),toall of
changes
to
the
proposed
articles?
mining
firmbut
provides
thatthan
The
directors
that
caters
to
the
public
in order
SUGGESTED
ANSWER:
legal
agefunds?
and
a One
majority
are
shall
be relieved
from
all
liability
for whom
any
augment
its
3)
of the of
original
a)
On the
First
Article,
I would
residents
of
maysuggest
form a
contract
entered
into
by
thetwo
corporation
trustees
died
andthe
the Philippines,
other
resigned
that
the
corporate
indicate
fact
SUGGESTED
ANSWER:
private
corporation
for
any
lawful
purpose.
with
any
firm
in whichname
theto
directors
may
be
because
they
immigrated
the
US. the
How
willof
1)
Yes,
This
(Sec
is
the
36(9)
same
of
the
minimum
Corp
Code)
and
as
maximum
long
incorporation
by
using
either
Toho
interested.
Thus,
director
acquired
the
vacancies
in the
BOT beAfilled?
as
the
number
amount
of
directors
donationwith
required
isorreasonable.
in a and
stock
Marketing
Corporation
Toh
Marketing
claims
whichofoverlapped
Xs claims
corporation
under
Section
14(6)
of
the
Company,
Incorporated.
were necessary for the development and
2) If
b)
the purposes
The Third
of Article
the corporation
should indicate
are
the
Corporation
Code.
operation of Xs mining properties. a) Is the
Corporation;
Incorporation;
Residency
Requirements
limited
City
or
to the establishment
Municipality
and
and
the Province
his mining
claims
over
and
above
that of in
by-law
provision
valid?
Why?
(3%)
b) What
(2006)
maintenance
the
Philippines,
of
the
and
library
not
and
merely
museum
the
region
as or
the corporations
(2%)
happens
if director A claims?
is able to
consummate
Must
all
incorporators
and directors
SUGGESTED
ANSWER:
stated
as its
inBOD
the
problem,
may laterthe
designate,
foundation
to be
cannot
its be
a) No.
Itaof
isspecialty
in
of Section
32caters
of theto
Corp
residents
ofviolation
the Philippines?
(2.5%)
operate
place
principal
restaurant
office.
that
ANSWER:
c)general
The
Seventh
Article
must
Code.
theSUGGESTED
public.
In such
case,
theadditionally
action
Not
all
and
incorporators
need to
ALTERNATIVE
ANSWER:
b)
A
should
account
the
corporation
for
point
outdirectors
the number
of
shares
into which
of
the
foundation
willto
be
ultra
vires.
2) If
the
actwhich
ofstock
thehe
corporation
is justified
by
be
residents
ofis
the Philippines.
Under
the
profits
realized
from
the as the
the
capital
divided,
as
well
the
secondary
purpose
of
the
corporation
Section
ofgrabbed
theorCorporation
Code,
only a
transaction.
He
business
par value10
thereof
a the
statement
that said
which
includes
the
act
of operating
a
majority
of
the
incorporators
need par
to be
opportunity
the
corporation.
(Section
stock
or afrom
portion
thereof
are without
restaurant,
the
foundation
will
be
within
its
residents
of
the
Philippines.
As
provided
in
34,value.
Corp Code)
(Sec 14 & 15 Corp Code)
power
to do
so.
Corporation;
Bulk
Salessame
Law
(2005)
Corporation;
Commencement;
Corporate
Section
23
of the
Code,Existence
only a majority
3) Since
are only
of the
members
of
(2003)
Divine
Corporation
engaged
inof
theDirectors
of
thethere
members
ofis2the
Board
the
BOT
remaining
and
there
is
no
quorum,
manufacture
of a
garments
export.
1. need
When
corporation
acquireIn the
to be does
residents
of thefor
Philippines.
Incorporation;
Requisites
(2002)
theCorporation;
vacancies
will
have to
filled
uptoinobtain
a
corporate
course
of
existence?
its
business,
itbe
was
able
You
have
been
asked
to
incorporate
special
meeting
of
the
members
(sec
29
SUGGESTED
ANSWER:
loans from individuals and financing a new
company
be called
FSB
Savings
&
Corp)
institutions.toHowever,
due to
the drop
in the
Corporation;
Power
to
Invest
Corporate
Funds
for
other
2.
CBY
&
Co.,
Inc.,
registered
with
the
Mortgage
Bank,
Inc.
List
the
documents
demand for garments in the international
Purpose
(1995)
Securities
Exchange
Commission
its meet
that
youand
must
submit
to the
Securities
and
market,
Divine
Corporation
could
not
Stikki
Cement
Co was
organized
primarily
for a
articles
of incorporation.
It failed,
however,
Exchange
Commission
(SEC)
to
obtain
its obligations.
It decided
to sell
all its
cement
manufacturing.
Anticipating
for
one reason
orincorporation
another,
to have
by-laws
certificate
of
for its
FSB
Savings
equipment
such
as sewing
machines,
permaSUGGESTED
ANSWER:
substantial
profits,
its
President
proposed
filed
with,
and
registered
by,
the
&
Mortgage
Bank,
Inc.
(5%) sewers, cutting
press
machines,
high
speed
The
documents
toa)be
to theand
that
Stikki
invest
in
a submitted
power
Commission.
It nevertheless
transacted
tables,
ironing
tables,
etc.,
asplant
well project,
as its
Securities
and
Exchange
Commission
(SEC)
SUGGESTED
ANSWER:
b) a
concrete
road
project,toand
c)Grade
quarry
did
business
as
amaterials
corporation
for
sometime.
supplies
and
Top
Fashion
to
incorporate
a
new
company
to
be
called
The
transactions
would
constitute
a
sale
of
operations
for limestone
the
manufacture
A
suit
was commenced
byinits
minority
Corporation,
its
competitor.
(5%)
1) How
FSB
Savings
&
Mortgage
Bank,
Inc.,
to
the
proposed
investments?
Explain.
2)
"substantially
all
of
the
assets
of
Divine
of cement.
1) assailing
What corporate
approvals or
stockholders
thetransaction?
continued
would
you
classify
the
obtain
the
certificate
of with
incorporation
for
Describe
procedure
securing
these
Corporation
complying
the test
votes
are the
needed
forCo., in
existence
of CBY
&
Inc.,
because
ofunder
the
SUGGESTED
ANSWER:
said
company,
are:
1)
Articles
of
approvals.
Sec.
40
of
the
Corporation
Code,
the
non-adoption
and registration
of
itsconcrete
by-laws.
1. Unless
the power
plant "in
andthe
the
Incorporation
2)
Treasurers
Affidavit;
transactions
not
being
ordinary3)
course
Would
the
action
prosper?
Why?
(6%)
road
are
reasonable
necessary
to the
Certificate
of and
Authority
from
the
Monetary
of project
business,"
one "thereby
the
Corporation;
Conversion
of Stock
Corporation
(2001)
theof
BSP;
manufacture
ofwould
cement
Stikki (and
they of
Board
corporation
beby
rendered
incapable
4)
Verification
slip
from
the
records
of
X company
is
a
stock
corporation
composed
do
not
appear
to
be
so),
then
the
approval
of the
continuing the business or accomplishing
the
ALTERNATIVE
SEC
whether
ANSWER:
or
not
the
proposed
name
of the
Reyes
family
engaged
in
the
real
said
projects
by
a
majority
of
the
BOD
and
purpose for which it was incorporated."
Itratification
isbusiness.
a already
sale and
transfer
bulk
been approval
adopted
by another
estate
ofinthe
regional
thehas
ofBecause
such
byinthe
contemplation
of
the
Bulk
Sales
Law.
corporation,
partnership
or
association;
crisis,
the
stockholders
decided
to
convert
stockholders representing at least 2/3 ofUnder
the
5)
Letter
undertaking
to
change
Sec.
2 of
the
Bulk
Sales
Law,
abebulk
sale
their
stock
corporation
into
a charitable
non-the
outstanding
capital
stock
would
As
forand
the non-profit
quarry
operations
for
limestone,
proposed
name
if already
includes
any
sale,
transfer,
mortgage,
or by
stock
association
byadopted
amending
necessary.
the
same
is of
ancorporation,
indispensable
ingredient
in
partnership
or
assignment
of
all, or substantially
ofbe
the
theanother
articles
incorporation.
a)
Couldall,
this
6)
Bank
of
the
manufacture
of certificate
cement
may,
association;
business
orWhy?
trade
theretofore
conducted
by
legally
done?
(3%)
b) and
Would
your deposit
X Company
is apaid-up
non-stock
corporation?
Why?
concerning
the
capital;
therefore,
reasonably
the
vendor,
mortgagor,
transferor,
or
answer
be be
theconsidered
same
if at the
inception,
SUGGESTED
ANSWER:
7)
the SEC in or
(2%) Letter
necessary
toThis
accomplish
the
primary
assignor.
isauthorizing
exactly
what
happened
a) Yes,
it of
can
legally
converting
2)
Can
Divine
Corporation
sellthe
the
Monetary
Board
ordone.
its In
duly
authorized
purpose
Stikki.
In such
case,
only
the case
atbe
bar.
the
ALTERNATIVE
stock
corporation
ANSWER:
to
a
non-stock
aforesaid
items
to
its
competitor,
Toprecords
Grade
representative
to examine
bank
approval
of the BOD
would be the
necessary
1.
The
majority
vote
of
the
BOD
is
necessary.
corporation
by
a
mere
amendment
of
the
8)
Registration
Fashion
Corporation?
What
are
the
regarding
the deposit of the paid-up capital;
(Sec
42 BP 68)
The
investment
in
a power
plant
project,
articles
of incorporation,
the
Sheet;
requirements
toa)validly
sellstock
the items?
SUGGESTED
ANSWER:
b)
a
concreteisMeetings;
road
project,
andany
c) quarry
Corporation;
BOD & Stockholders
corporation
not distributing
of (1993)
its
Explain.
For such a transaction
to be valid,
it requires
only the
operations
of stockholders.
limestone
used
in
thenot
assets
Under
to
the
the
Articles
of
On
Incorporation
the
contrary,
of
favorable resolution of the Board of Directors of Divine
manufacture
cement,
is within
the express
theCorporation,
stockholders
are
deemed
to
waived
Manila
Industrial
Corp,
its
principal
place of
butofalso
the ratificatory
vote
ofhave
or
implied
the
corporation,
or
at The
their
business
right power
to share
shallof in
bethe
inprofits
Pasig,
of the
MM.
least
the
same
is
corporation
is a offices
gain not
a loss
to Ortigas
the
principal which
corporate
are
at the
corporation.

thestockholders
factory
existence
processing
of representing
the corporation.
leather at
products,
is in
least twob) No,
my(2/3)
answer
will
not be
thecapital
same.
In a
Manila.
Theof
corporation
holds
its
annual
thirds
the
outstanding
stock,
non-stock
corporation,
the
not in
stockholders
meeting
atmembers
theofManila
Hotel
as
mandated
under
Sec.
40
the are
SUGGESTED
ANSWER:
entitled
inThe
the
of void
the
Manilato
andshare
its
BOD
meeting
at a hotel
in in
Corporation
Code.
saleprofits
would
be
2.a)
Theofprocedure
securing
the
approval
corporation
because
all
present
and
future
Makati
MM.
The
by-laws
silent
as
to the
case
failure
to in
meet
theare
twin
approvals.
ALTERNATIVE
ANSWER:
of
the
BOD
is as
follows:
(Islamic
Directorate
ofthe
the Philippines
v. Court
profits
belong
to of
corporation.
In of
place
of
meetings
the
stockholders
and
Divine
Corporation
can May
sell
the1997)
items
to its
1
a
notice
of
the
BOD
should
be
sent
Appeals,
G.R.
117897,
14,
converting
the
non-stock
corporation
to to
a
directors.
1) No.
Who
shall
preside
at
the
competitor,
Top Grade
Fashion
Corporation.
all
thecorporation
directors.
should
stock
by notice
a mere
meeting
of theThe
directors?
2)amendment
Can state
Ting, the
a of
However,
Divine Corporation
must comply
purpose
of the
stockholders
annual
meeting
in Manila,
thestockholder,
Articles
of meeting.
Incorporation,
the
non-stock
who
did
not attend
the
withvalidity
Sections
3, 4 corporate
and
5ofofthe
the
Bulk Sales
2
At
the
meeting,
each
project
of
the
resolutions
question
the
corporation is deemed to have distributed passed at
Law,
namely:
(1) the
deliver
sworn
statement
should
be
by
asame
majority
BOD of
3) Can
such
an meeting?
asset
ofapproved
the
corporation
stockholder
i.e. of
itsthe
profits,
the
names
and
addresses
ofresolutions
all the creditors
(not
merely
a
majority
of
those
present
at
question
the
validity
of
the
among its members, without a prior
(Observation:
The question
is rather held
vague
to
whom
the vendor
mayinbe
the
meeting)
adopted
by
ator
themortgagor
meeting
dissolution
of the
theBOD
corporation.
Under
Sec
more particularly
question
1b.
The
question
indebted
together
with
the
amount
of
Makati?
122, the
corporation
does non-stock
not specify that
the conversionmust
is frombe
a
SUGGESTED
ANSWER:
indebtedness
due
or
owing
to
each
of
the
non-stock
corporation to a stock corporation.
dissolved
first.
1) The
President
presides
over
the
meeting
said
creditors;
apply
the purchase
The
candidate is(2)
likely
to be confused
because or
of
the
directors,
if
there
is no Xpayment
position
of the
words
if to
at the
the
inception,
Co is a of
mortgage
money
pro-rata
of
corporation.
Hence,
any answer
Chairman
the
By-Laws.
If
there
bonanonstock
fide provided
claims
ofinthe
creditors;
and
(3)
along
the
same
should
treated with
Corporation;
De
Facto
Corporation
(1994)beprovided
is
the
of line
Chairman
in the
make
aposition
full
detailed
inventory
of the stock
of
liberality)was created by a special law.
A corporation
By-Laws,
the
Chairman
presides
over
goods, wares, merchandise, provisions the
or
3)
would
you protect
the
interests
Later,
theHow
law
creating
it
was
declared
meeting
of
the
Directors
(Sec
54
Corp
Code)
materials,
in
bulk,
and notify
every
creditor
of
the
creditors
of
Divine
Corporation?
2)
No.
The
law
provides
that
the
annual
invalid.
May
such
corporation
claim
to
be
a
at
least ten
(10) days before transferring
SUGGESTED
ANSWER:
SUGGESTED
ANSWER:
meeting
shall
be
held
in
the
de stockholders
facto
corporation?
possession.
that Divine
Corporation
has
No.Considering
A private
corporation
may
be
city
or municipality
where
the created
principal
entered
a
de
facto
stage
of
dissolution
with
only
under
the
Corporation
Code. For
Onlythis
office
of the
Corporation
is located.
the
ceasing
its operations,
I would
invoke
public
corporations
may
created
under
purpose,
theoflaw
also be
provides
that
Metro
on
behalf
of
the
creditors
the
protection
special
law.
Corporation:
Proprietorship a(2004)
Manila Sole
is considered
city or municipality.
Where
athe
private
is created
under
Sec.
122
the
Corporation
Code,
that
YKS
Trading
filedofacorporation
complaint
for
specific
Since
principal
place
of business
of MIC
under
a
special
law,
there
is
no
attempt
at
a
the
proceeds
of
the
sale
should
first
be
performance
with
damages
against
PWC
is Pasig, MM, the holding of the annual
valid
incorporation.
Such
corporation
applied
towards
the
settlement
of
the
Corporation
for
failure
to
deliver
cement
stockholders
meeting in Manila is proper.
ALTERNATIVE
cannot
claim
aANSWER:
de
status.
obligations
of facto
the
corporation,
3)
No.
The
law
allows
the answer,
BOD before
to hold
its
ordered
plaintiff.
In
its
PWCany
(Sec
51by
Corp)
Under
the
Bulk
Sales
Law,
if the (2001)
proceeds
Corporation;
Dissolution;
Methods
of Liquidation
amount
can
beon
paid
to
the
stockholders.
meeting
anywhere
in ground,
the
Philippines.
The
denied
liability
the
inter
alia,
are not; applied
proportionately
towards
the
X
Corporation
shortened
its corporate
life
holding
of the
BOD
meeting
in Makati
was
that
YKS has
no
personality
to
sue,
not
settlement
of
the
accounts
of
the
corporate
by
amending
Articles
of Incorporation.
It
proper
anditsthe
validity
of the
thePresident
resolutions
being
incorporated,
and
debts,
to have
theowns
sale that
of
the
subject
matters
has
no
debts
but
a
prime
property
adopted
by
the
Board
in
that
meeting
cannot
of to
PWC
wasGrade
not authorized
to
enter as
intobeing
a
Top
Fashion
Corp.,
located
inwith
Quezon
City.
How
would
the said
be questioned.
(Sec
53
Corp
code)
contract
plaintiff
by
the
PWC
Board
of
"fraudulent
and
void"Corporation
and
obtain
satisfaction
Corporation;
Nationality
property
be
liquidated
among
the
five
Directors,
hence
the of
contract
is (1998)
ultra
vires.
from
the
properties
which
are
deemed
to still
stockholders
What
is
the
of
said
nationality
corporation?
of
a
corporation
Discuss
YKS
Trading
replied
that it is in
a spite
sole of
SUGGESTED
ANSWER:
be
owned
by
Divine
Corporation
two
methods
of
liquidation.
(5%)
organized and
incorporated
under
thethe
laws
proprietorship
byCorporation
YKS,
and
that
The
prime
property
of
X
can
be can
delivery
to owned
the
buyer.
The
creditors
of
a
foreign
country,
but
owned
100%
President
ofon
PWC
had
made
it appear
in by
liquidated
among
the
five
stockholders
after
collect
the
credit
against
Divine
SUGGESTED
ANSWER:
SUGGESTED
ANSWER:
Filipinos?
(2%)
several
presented
evidence
that
he the
the
property
has
been
conveyed
by
Under
the
control
ofthe
corporate
Yes
theletters
suit
will
prosper.
As
a
sole
Corporation,
and
if inittest
cannot
pay,
had
authority
to
sign
contracts
on
behalf
corporation
to
the
five
stockholders,
by YKS
nationality,
this
foreign
corporation
is the
of
proprietorship,
the
proprietor
of
creditors
can
apply
for attachment
onof
4)
In
case
Divine
Corporation
violated
the law,
the
Board
of
Directors
of
PWC.
Will
the
suit
dividing
or
partitioning
it among
themselves
Filipino
Nationality.
Where
are
grounds
Trading
has
the capacity
tothere
act
and
the v.
property
fraudulently
sold.
(See
People
remedies
are
available
to
Top
Grade
Fashion
what
prosper
or
not?
Reason
briefly.
(5%)
in
any
twoG.R.
oftothe
following
ways:
byentity,
for piercing
the
veil ofItSeptember
corporate
that
personality
Mapoy,
sue
No.
48836,
PWC.
is not1)necessary
21, 1942)
Corporation
against
Divine
PHYSICAL
DIVISION
or
PARTITION
based
disregarding
the
fiction,
the
corporation
foris,
YKS
Trading
to
be
incorporated
before
it
SUGGESTED
ANSWER:
Corporation?
on
thesue.
proportion
of
the
values
their
follow
nationality
ofofthe
controlling
canwill
Onthe
the
other
hand,
PWC
If
the
sale
by
Divine
Corporation
did isnot
2)
SELLING
THE
PROPERTY
a third
stockholdings;
orasserting
members
stockholders,
since
the
estopped
fromrequired
that itsto(2/3)
President
obtain
the
two-thirds
vote
of
person
dividing
the
proceeds
theone
will
be
considered
as
hadcorporation
no and
authority
to then
enter
into
theamong
contract,
the
outstanding
capital
stock,
then
the
five
stockholders
proportion
their
Corporation;
Non-Stock
Corporation
(1993) toletters,
and
the same.
considering
that,
in in
several
of PWC's
transaction
is
void
. (Islamic
Directorate
of the
stockholdings;
or
The
AB
Memorial
Foundation
was
Top Grade
Fashion
Corporation
can
have
the
it had
clothed
its President
with
apparent
Philippines
v.
Court
of
Appeals,
G.R.
No,
117897,
3)
after
the
determination
of (1990)
the valuenon-stock
of the
Corporation;
Articles
of
Incorporation
incorporated
as
a
non-profit,
purchase
declared
void
and
recover
the
authority
to
deal with YKS Trading.
May
14,
1997)
property,
by
ASSIGNING
orand
Thecorporation
articles ofprice
incorporation
to
be
in paid,
order
establish
purchase
as to
well
as damages
TRANSFERRING
THE
PROPERTY
one of
registered
SEC
contained
maintain
athe
library
and
museum
intohonor
against inthe
directors
and the
officers
who
stockholder
with
the-- obligation
on
the The
part
following
provisions
a)
First
Article.
the
deceased
parents
of
the
incorporators.
ALTERNATIVE
ANSWER:
undertook the transaction in violation of the
of
saidArticles
stockholder
to shall
pay
other
four
For
violation
the
Bulkthe
Sales
Law,
thea
name
the corporation
be
Toho
Its
of of
Incorporation
provided
for
law.of
stockholders
thetrustees
amount/s
in proportion
principalCompany.
officers
of the Divine
Corporation
Marketing
board
of
composed
ofto 5
the
value
the stockholding
of office
each.
b) Third
Article.
The
principal
can
beof
held
criminally
liable.
In of
addition,
incorporators,
which
authorized
to such
admit
Corporation;
Incorporation;
Requirements
(2006) III, in
corporation
shall
be
located
in
Region
Top Grade
can The
sue Articles
Divine Corporation
for
new
members.
of Incorporation
What
is
the minimum
and
number
such
municipality
as Bulk
its to
Board
of
damages.
Violation
of maximum
the
Sales
Law
also
allow
thetherein
foundation
receive
of
incorporators
required
to incorporate
aand
Directors
may
designate.
would
render
such
a sale
donations
from
members.
As fraudulent
of Jan 30, 1993,
stock
corporation?
void.
Since Top
would bebycompelled
60
members
had Grade
been admitted
the BOT.
to return the goods to Divine Corporation,

2.b) The procedure in securing the approval

of the stockholders is as follows:
1
Written notice of the proposed
investment and the time and place of the
stockholders meeting should be sent to
each stockholder at his place of residence as
shown on the books of the corporation and
deposited to the addressee in the post office
with postage prepaid, or served personally.
2
At the meeting, each of the projects
should be approved by the stockholders
representing at least 2/3 of the outstanding
capital stock. (Sec 42 BP 68)

Page
Page
32 31
of 103
of 103
Philippines
stopping (BP
payment
68). thereof,
Incorporator
Seldon wasS acting
was elected
in his capacity
director and
as an
b) are
Yes.silent,
Assuming
Whenthe
a corporation
juridical
that
person
the
is deemed
corporation
has ato good
president
officer of
general
Turtle. He
manager.
was not
Part
acting
of his
in his
continues
reputation
have
theto
power
that
operate
tois
declare
debased,
even dividends
withresulting
depleted
underin
emolument
personal is
capacity.
a Ford Expedition,
Furthermore,
which
no facts
the
capital,
social
Sec
43.would
humiliation,
Since itthe
has moral
the
stockholders
power
damages
to declare
ormay
thebe
corporation
have beenowns.
provided
Afterwhich
a fewwould
years,indicate
S lost
managers
awarded. be
dividends,
XY
Moreover,
is
solidarily
a stock corporation.
goodwill
liable for
canthebe
The
provision
the of
Articles
ofcorporation?
Incorporation
histhat
corporate
the action
positions
of Seldon
but he
was
refused
dictated
to by an
obligations
considered
incurred
an of
asset
bythe
the
corporation.
SUGGESTED
ANSWER:
TAKE
NOTE:
In
the
case
of
FBN
Inc. vs
that
at
dissolution
the
assets
of
the
return
intent
thetomotor
defraud
vehicle
Shamron
claiming
by himself
that asor
a in
Explain. (3%)
a) AMEC,
In
the face
of
the17,
refusal
the
creditorJanuary
2005,of
SC
ruled
corporation
shall
be
given
tothe
a
charitable
stockholder
collusion with a
Turtle.
substantial
Having
equity
actedshare,
in what
banks
toFBNI
grantcontends
morenot
loans,
the
following
that;
that
AMEC
not are
corporation
does
prohibit
theiscorporation
he he
owns
considered
that portion
as his
of duty
the corporate
as an officer
assets
of the
tools
available
to
the
stockholders
SUGGESTED ANSWER:
entitled
to moral
damagesbefore
because
it is ato
from declaring
dividends
dissolution.
now
corporation,
in his possession.
Seldon Is
should
the contention
not be held
of S
1)
additional
subscription
to shares of stockNo.Corporation;
The contention
of S is not valid. The
replenish
capital,
Corporation;
Validitytoofwit:
Corporate
Acts (1998)
corporation.
valid?
personally
ExplainSeparate
liable.
(5%) Juridical Personality (1996)
corporation
byPeople
stockholders
or to
by Ford
ofjuridical
the
owned
by the
corporation.
A
personof
is
generally
not Inc
entitled
The
stockholders
Power
(PPI)
PRExpedition
Co owns a is
beach
resort
with
several
2) investors;
advances
by
the stockholders
the
Thecottages.
corporation
hasthe
a legal
personality
two
resolutions
inbecause,
a special
stockholders
moral
damages
unlike
a to
natural
approved
Jaime,
President
of PR,
corporation;
andone
distinct
that of
meeting:
a)
person,
it Resolution
cannot increasing
experiencethephysical separate
occupied
of thefrom
cottages
forits
residential
3)
payment
ofstock
unpaid
corporation
owns is
authorized
capital
of subscription
PPI; and
b) by the stockholder.
suffering
or
such
sentiments
as wounded
purposes. What
After the
Jaimes
term expired,
PRits
stockholders.
own
property
and
not
the
property
of
any
Resolution
authorizing
themental
BOD toanguish
issue, for
feelings,
serious
anxiety,
or
wanted to recover possession of the cottage.
SUGGESTED ANSWER:
stockholder
even to
how
substantial
equity
cash payment,
shares
the cites
moral
shock. the
Thenew
Court
of from
Appeals
Jaime refused
surrender
the the
cottage,
b) No. As a general rule, the stockholders or
Corporation;
Set-Off;
Unpaid
Subscription
(1994)
share
that
stockholder
owns.
proposed capital
stock
increase
in favor
Mambulao
Lumber
Co.
v. PNB,
et al.of to
contending that as a stockholder and former
the managers cannot be held solidarily liable
Victor
was employed
MAIA
outside investors
who are
justify
the award
of non-stockholders.
moral damages.
President,
he has ainright
to Corporation.
possess and
for the obligations incurred by the
He
subscribed
to
1,500
shares
of the
SUGGESTED
ANSWER:
However,
the
Court's
statement
in
enjoy
the
properties
of
the
corporation.
Is
corporation.
The resolutions
corporationwere
has a
separateby
Jaimes contention
is not
correct.
Jaime
corporation
at
P100
per
share
or
a total
of may
The
foregoing
approved
Mambulao that "a corporation may have a
Jaimes
contention
correct?
Explain.
andstockholders
distinct personality
from that
of total
the
own shares
of stock
PR Corp
such
P150,000.
He made
an in
initial
downbut
payment
representing
of the
good reputation
which, if 99%
besmirched,
may
stockholders
or
managers.
Thesole
latter
are
ownership does
not entitle
himPresident
to the
of
P37,500.00.
He
was
appointed
Nevertheless,
AMEC's
claim
for
moral
outstanding
capital
stock.
The
dissenter
also be a ground for the award of moral
presumed
tofalls
be under
acting
in 7good
faith
in
of any specific
property
andpossession
General Manager.
Because
of his of the
damages
item
of1%
Article
was Jimmy
who
owned
of the2219
damages"
isMorato
an obiter
dictum.
continuing
the
operation
of
the
corporation.
corporationwith
or a the
definite
thereof.
1. Are
resolutions
binding
on theexpressly disagreement
BOD,portion
he resigned
and
of
the the
Civil
Code. This
provision
stock.
Theauthorizes
obligations
by
corporation
Neither payment
is he a co-owner
of corporate
corporation
and its stockholders
of his unpaid
salaries,
theincurred
recovery
of the
moral
damages in demanded
Corporation;
toallowance,
Invest Corporate
another
arecases
those
theJimmy
corporation
which
alone
is of his
property.
Properties
registered
ininthe
name
including
Morato,
theother
dissenting
cost of Power
living
hisFunds
bonus,
and
ofoflibel,
slander
or any
form
Corporation
(1996)
liable
therefor.
However,
when
the
2.
What
remedies,
if
any,
are
available
to
of
the
corporation
are
owned
by
it
as
an
stockholder?
(3%)
defamation. Article 2219(7) does not qualify reimbursement of his gasoline and
MAIA
Stockholders
Corporation
like
admits
Jaime
that
onlyit
own
owed
shares
Victor
of
When
may
a corporation
invest
its its
funds
in
SUGGESTED
ANSWER:
corporation
is(2%)
already
insolvent,
the
Morato?
entity
separate
and
distinct
from
representation
expenses.
whether
the
plaintiff
is a natural
or juridical
1.
No.
The
resolutions
are
not
binding
on
the
stock
in
the
corporation.
Such
shares
of
P40,000.
but
told
him
that
this
will
be
another
corporation
or
business
or
for
any
directors
officers a
become
trustees
the as
stockholders.
person.and
Therefore,
juridical
personofsuch
SUGGESTED
corporation
andof
itsthe
stockholders
including
applied
stock
to
doANSWER:
the
notunpaid
represent
balance
specific
of his
corporate
other
purposes?
business
and assets
corporation
for
a
corporation
can
validly
complain
for
libel
Corporation;
Separate
Juridical
Personality
(2000)
A
corporation
may
invest
its
funds
inGR
another
Jimmy
Morato.
While
these
resolutions
were
property.
(Rebecca
Boyer-Roxas
v
CA
subscription
in
the
amount
of
P100,000.00
theor
benefit
of theform
creditors
and are liable
for
any Creative
other
of defamation
and
claim
Marulas
Technology
Inc.,
an
ecorporation
or
business
or
for
any
other
approved
by thethe
stockholders,
directors There
100866
92or
211s470)
wasJul
no14,
call
notice for the payment
Moreover,
where
broadcast the
is libelous
negligence
ordamages.
mismanagement.
for moral
business
enterprise
engaged
in
the
Corporation;
Separate
Juridical
Personality
(1996)
purpose
other
than
the
primary
purpose
for
which
is required
by law
in such
per approval,
se, the law
implies
damages.
In such
a of the unpaid subscription. Victor questioned
manufacture
of
computer
media
accessories;
Richard
owns
90%
of
the
shares
of
the
which
it
was
organized
when
the
said
case,
does not
case,
evidence
of exist.
an honest mistake or the the set-off. 1) May MAIA set-off the unpaid
rents
an
office
and
store
space
at party
a
capital stock
ofvictors
GOM Co.
On
one
occasion,
investment
iswith
approved
by
a majority
of the
2.
Morato
can
petition
the
(Now
subscription
claim
for salaries?
wantJimmy
of character
or reputation
of SEC
the
commercial
building
owned
by
X.
Being
a
GOM
represented
by
Richard
as
President
BOD
and
such
approval
is
ratified
by
RTC)goes
to declare
2 resolutions,
as well as 2) Would your answer be the same if indeedthe
libeled
only inthe
mitigation
of damages.
SUGGESTED
ANSWER:
start-up
company,
Marulas
enjoyed
some
andhad
General
Manager
executed
contract
to
representing
atunpaid
leasta 2/3
of the
any and
actions
taken is
by the
there
been
a call for the
Neither
in all
such
a case
the BOD
plaintiff stockholders
1)
No.
MAIA
cannot
setoff
the
unpaid
leniency
in
its
rent
payments;
but
after
three
sell
a
subdivision
lot
in
favor
of
Tomas.
For
outstanding
capital
stock.
Written
notice
of
thereunder,
null
and
void.
required to introduce evidence of actual subscription?
subscription
with
Victors
claim
for
salaries.
years,
X put as
a stop
to it and precedent
asked Marulas
of GOM
to develop
thethe
subdivision,
proposed
investment
and
date, time
damages
a condition
to the thefailure
The
unpaid
subscription
is
not
yet
due
as
president
and
general
manager,
who
is athe andTomas
for rescission
and
placefiled
of an
theaction
stockholders
meeting
at
recovery
of some
damages.
In Y,
this
case,
SUGGESTED
ANSWER:GOM and Richard. Will the
there
is
no
call.
stockholder,
to
pay
the
back
rentals
damages
against
such proposal will be taken up must be
broadcasts are libelous per se. Thus, AMEC which
The The
action
mayofprosper
against
GOM but
Corporation;
Recovery
Moral
2)
Yes.
reason
is
thatDamages
Victor
isCorp
entitled
to
Corporation;
Juridical
Personality
(1995)or to
amounting
toSeparate
a hundred
thousand
pesos
action
prosper?
Explain.
sent
to each
stockholder.
(Sec
42(1998)
Code)
is entitled
to
moral
damages.
definitely
not
against
Richard.
Richard
has
a
the
payment
of
his
salaries
which
MAIA
has
In
a
complaint
filed
against
XYZ
Ronald
doing
under
the name
vacate
theSham
premises
at business
the end of
the month.
legal
personality
separate
and
distinct
from
no
right
to
withhold
in
payment
of
unpaid
Corporation,
Luzon
Trading
Corporation
of SHAMRON
Machineries
(Shamron)
Marulas
neither paid
its debt nor
vacatedsold
the to
that of that
GOM.
If
singed
contract
to
To its
dohe
soPresident
would the
violate
alleged
& Labor
General
Turtle Mercantile
(Turtle) aand
diesel
farm subscription.
premises.
X
sued
Marulas
Y
for
SUGGESTED ANSWER:
sell,
he
did
so
as
the
President
and
General
Laws
(Apodaco
v
NLRC
172
S
442)
Manager,
who
is
also
a
stockholder,
suffered
tractor.
Inwill
payment,
Turtles
President
collection
of
the
unpaid
interest
Yes,
the suit
prosperrentals,
against plus
Marulas.
Itand Corporation;
Stock
Corporation
Manager
of GOM
and (2001)
not
in hishumiliation
personal
mental
anguish,
fright,
social
Manager
Dick
Seldon
issued
a
check
and
costs
of
litigation.
Will
the
suit
prosper
is the one renting the office and store space, for XY
is
a
recreational
club
which
was of ofthe
capacity.
Mere
ownership
by
Richard
90%
and
serious
anxiety
as
a
result
favor
of
Shamron.
A week X,
later,
against
X?in
Against
(5%)
as P50th
lessee,
from
the Y?
owner
of the building,
In
its
counterclaim,
XYZ
Co
claimed
to
have
organized
to operate
aof
golf
course
for
its
of
the
capital
stock
GOM
is
not
of
itself
tortuous
acts
of
XYZ
Corporation.
Turtle sold the tractor to Briccio Industries
as lessor.
suffered
moral
damages
due
to besmirched
members
with
an
original
authorized
capital
sufficient
ground
to disregard
his separate
P60th.
Briccio
discovered
But(Briccio)
the suit for
against
Y will
not prosper.
Y, asthat stock
reputation
or goodwill
as a a
result
of personality
P100M.
Theabsent
articles
of of Luzon
legal
showing,
for
the engine
the tractor
was reconditioned
president
andofgeneral
manager,
and also
Trading
Costhat
complaint.
1)maliciously
May
Luzon
incorporation
nor
the
by-laws
did
not or in bad
example
he
acted
so he refused
to pay Turtle.
AsTechnology,
a result, Dick theCorporation;
Separate
Juridical
Personalityon
(1999)
stockholder
of Marulas
Creative
allegations
of the
complaint?
Trading
Co distribution
recover
damages
provide
for
of dividends
faith
(EPG
Const
Co
v CA
GR based
103372 Jn 22,92
Seldon
ordered
Stop
Payment
of theand
check (2%)
As
a
result
of
perennial
business
losses,
Inc.,
has
a
legal
personality
separate
2)
May
XYZ
Co
recover
moral
although
there is a provision that after its a
210s230)
Shamron
sued Turtle and Dick Seldon.
issuedfrom
to Shamron.
corporations
net worth
been wiped
SUGGESTED
ANSWER:
distinct
that of the corporation. The
damages?
(3%)
dissolution,
the assets
shallhas
be given
to a out.
Shamron obtained a favorable judgment
No.
Afact,
corporation,
being
an artificial
person
In
it
is
now
in
negative
territory.
SUGGESTED
ANSWER:
liability
of
the
corporation
is
that
of
the
charitable corporation. Is XY a stock
holding co-defendants Turtle and Dick
XY
is
a
stock
corporation
because
it
is
which
has
no
feelings,
emotions
or
senses,
Nonetheless,
the
stockholders
did
not
like to
corporation and not that of its officers and
corporation? Give reasons for your answer?
Seldon jointly and severally liable. Comment
organized
as
a
stock
corporation
and
there
and
which
cannot
experience
physical
give
up.
Creditor-banks,
however,
do
not
stockholders
whoof the
aretrialnot
liable
for
SUGGESTED
ANSWER:
(5%)
on
the decision
court.
Discuss
Corporation;
Separate
Juridical
Personality
(2000)
is
no
prohibition
in itsanguish,
Articles
of not entitled
suffering
or confidence
mental
share
the
of the is
stockholders
and
corporate
liabilities.
The
trial
court
erred
in
holding
Dick
Seldon,
fully. individuals
ALTERNATIVE
ANSWER:
Nine
formed
a
private
Incorporation
or
its
by-laws
for
it
to
declare
to
moral
damages.
refuse
to
grant
more
loans.
a)
What
tools
are
President and GM of Turtle, jointly and
replenish
capital?
(3%) istoorganized
corporation
to the
provisions
of thethe
dividends.
When
a stockholders
corporation
available
to the
severally pursuant
liable with
Turtle.
In issuing
Corporation
Code
the
as a stock corporation and its articles of
check issued
to of
Shamron
and, thereafter,
Incorporation or By-Laws
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Mercantile
Mercantile
LawExamination
Bar Examination
Q & AQ(1990-2006)
& A (1990-2006) Page 34 of 103
Page 35
Page
of
Page
103
36 33
of 103
of 103
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
ALaw
&
(1990-2006)
A Bar
(1990-2006)
SUGGESTED
ANSWER:
A PRIVATE
from retaining
CORPORATION
surplus profits
is one formed
in excess
forof
committed
nullify
the
the
questioned
breach of investments.
trust against Would
the
Valid
NOTE:
(per
Dondee)
law benefit
simply
provides
thatwhile
a learned
Dividends;
Declaration
of Dividends
Sometime
inThe
April
2004,
some
100%
private
of their
purpose,
paid-in
capital.
or Malyn
end,
a
interests
her action
of the
prosper?
corporation
Why?(1990)
would be to
voting
trust CORPORATION
agreement
an agreementin
writing
SUGGESTED
ANSWER:
least 2/3
ofright
the ofstockholders
of Solar
about
Fort
Patiois Cafe
located
in Taguig
City At
PUBLIC
is formed
for the
emasculate
the
minority
whereby one or more stockholders of a corporation
3)
Yes,
she
XL
is
already
Foods
Corporation
a stockholder
guaranteed
at thethe
time
b)
Are
there
instances
when
a
corporation
Corporation,
meeting
upon
and
that
its
development
was
undertaken
by
government
of
a
portion
of
the
State
for
the
stockholders
to
seek
redress
for
the
consentto transfer his or theirshares to a trustee in
the
alleged
loan
of
misappropriation
its
sister
company
of
corporate
XL
Meat
shall
not
be
held
liable
for
not
declaring
recommendation
of
the
BOD,
declared
a
50%
a new
corporation
known
as
Fort
Patio,
Inc., corporation. Filing such action as a
general
good
welfare.
true
test
is the
orderto
vestin
theor
lattervoting
orThe
other
rights
pertaining
SUGGESTED
ANSWER:
Products,
funds.
And
Inc.
thatbyfiling
such
action
SUGGESTED
mentofst
to
said
dividends?
sharesboth
forANSWER:
(3%)
athe
period
not exceeding
years
upon
stock
dividend
during
their
meeting.
where
Schiera
and
Jazfive
are
purpose
of
corporation.
Ifdirectors.
the
derivative
suit
even
a loneannual
stockholder
isas a
Void

This
is aneven
ultrabyvires
act stockholder
on part of XL
The
instances
when
a
corporation
shall
not
atutory
the
fulfi
suit
a lone
is
of the
annual
stockholders
Malyn
also
found that
Schiera or
andpublic
Jaz, on The
corporation
is created
for political
onederivative
ofnotice
the protections
extended
by law to
conditions
Foods
Corporation,
andextended
is not one
of
be
held
not
declaring
dividendsa meeting
one of
the
protections
by the
lawathe
to
Derivative
Suit:
Watered
Stockagainst
(1993)
did
not
mention
anything
about
behalf
ofliable
Patio for
Investments,
had
obtained
purpose
connected
with
the
administration
minority
stockholders
abuses
of
and such
powers aprovided
forof
in
Sec.abuses
36 Estate
ofof the
minority
stockholders
against
A
became
stockholder
Prime
Real
dividend
declaration.
The matter
wasthe
loan
of P500,000.00
from
of are:
government,
thenother
it PBCom
is a Bank,
public for stock
majority.
Corporation
Code.
majority.
Nevertheless,
Gina
must
first
1)
when
justified
by
definite
corporate
expansion
Corporation
(PREC)
on
July
10,
1991,
when
and Patio
up only
under
the(2002)
item other
the purpose
of opening
Fort
Cafe. This taken
corporation.
If not,
it is terms
a private
corporation
Corporation;
Voluntary
Dissolution
conditions
exhaust
any
administrative
remedies
before
projects
or
programs
approved
by
the
BOD;
or
2)
he
was
given
one
share
by
another
in the(3)
agenda
of the
loan was
assets aof the
Patio business
although
the secured
whole by
or the
substantially
Name
three
methods
bymeeting.
which aC.K.
stock
Undersection 59 ofthe C orporation
C ode,
Distinction:
De
facto
Corporation
vs.
Corporation
by
specified
in supra,under
her suit
be
consider
in
court.
when
the corporation
is prohibited
any
loan
stockholder
to
qualify
him
as
a
director.
Senwa,
a
stockholder,
who
received
his
copyA
Investments
and
personally
guaranteed
by
whole
interest
in
the
corporation
belongs
to
voting trust agreem ent may confer
upon a trustee not
the
agreem
corporation
may
be
voluntarily
dissolved.
Estoppel
(2004)
Malyn
then
filed
a
corporate
derivative
with
any
financial
institution
or creditor,
was
not
re-elected
director
themeeting,
July 1,
of
the
notice
butmethod.
did not
attendinthe
Schiera
and
Jaz.
only
the
stockholder's
voting
rights
butalso
otherrights
theagreement
State.
A
public
corporation
is
created by
ent. The
SUGGESTED
Explain
(5%)
Is
thereeach
aANSWER:
difference
between
a detofacto
action
before
the
Regional
Trial
Court
of
whether
local
or
foreign,
from
declaring
dividends
1992
annual
meeting
but
he
continued
be
pertaining
to
his
shares
as
long
as
the
voting
five
yearsubsequently
learned
about
the 50%
stock
special legislation or act of Congress. A
The
three (3)
methods
by which
a stock
corporation
and
a corporation
by
estoppel?
Distinction;
Stock
vs.
Non-Stock
Corporation
(2004)
trustagreem
Makati
entis
City
notentered
against
Schiera
"for
theand
purpose
and
Jaz,
of consent
circum
alleging
period
m
without
its
or
his
consent,
such
has
not
a
registered
shareholder
of
PREC.
dividend
declaration.
desires to
have theare:
privatethe
corporation
must beand
organized under
corporation
may beHe
voluntarily
dissolved
SUGGESTED
ANSWER:
venting
law
againstmonopolies
SUGGESTED
ANSWER:
Explain
briefly.
ay
be
Distinguish
clearly
a or
stock
corporation
from
When
he was
still(2%)
a director, A discovered
that
the
two
directors
had
breached
their
been
secured;
3)
when
it can be
clearly stock
dividend
declaration
cancelled
and
set
theyet
Corporation
Code.
1)
Voluntary
Dissolution
where
no
creditors
A
DE
FACTO
CORPORATION
is
one
which
illegalcombinations
in
restraintoftrade
orused
extended
Ithat
will on
notJan
accept
the case.
Secissued
43 of the
Corp
a non-stock
corporation.
5, This
1991,
PREC
free
ofvote
fiduciary
duties
by
misappropriating
money
shown
that
such
retention
is
necessary
under special
affected.
is
done
by
a
majority
aside,
and
wishes
to
retain
your
services
as
forpurposes
offraud."
(section
59,
5th
paragraph
ofthe
are
in
cases
actually
exists
for
all
practical
purposes
as a
Code
states
that
no
stock
dividend
shall
be
SUGGESTED
ANSWER:
charge
10,000
shares
to
X
a
lawyer
who
and
assets
of
Patio
Investments
in
the
circumstances
obtaining
inthe
the
corporation,
sucha as
Corporation
Code). Thus,
the traditional
concept
of a
where
of
the
directors,
and
resolution
of
at
least
lawyer
for
the
purpose.
Will
you
accept
the
corporation
but
which
has
no
legal
right
to
A
stock
corporation
is
one
that
has
capital
issued
without
the
approval
of
the
assisted
a court
case involving
PREC. to the
operation
ofisFort
Patio
Cafe.
(5%)
1) Did
voting
trustthere
agreem
ent
primarily
intended
to single
out
voting
trust
when
need
for
special
reserve
for probable
2/3invote
of stockholders,
submitted
case?
Discuss
with
reasons.
corporate
existence
as
against
the
State.
It
stock
divided
into
shares
and
is
authorized
stockholders
representing
not
less
than
2/3
corporate
opportunity?
Explain.
a stockholder's
rightJaz
to vote
from
his other
rights as
is executed
Schiera and
violate
the
principle
of
1) CanSecurities
A now bring
an
action in Commission.
the name of the
contingencies.
Exchange
is essential
toand
the
existence
ofaaregular
de facto
SUGGESTED
ANSWER:
to
distribute
to the holders
oftosuch
shares
such
and m ade irrevocable
forpursuant
a lim ited
duration
m ay
of
the
outstanding
capital
stock
at
corporation
to question
the issuance
of the
shares to
2)
Voluntary
where
creditors
in
practice
becom
e a legal
device
whereby
athe
transfer
of
aofloan
Yes. Although
Malyn
refused
business
corporation
that dissolution
there
be
(1)
afor
valid
law
dividends
or allotments
the
surplus
profits
or
specialreceiving
meeting
duly
called
that
X
without
any
payment?
2)
Can
X
question
are
affected.
This
is
done
by
a
petition
for
the before,
stockholders
shares is effected
subjectto
the resources
specific
agreement
nevertheless,
using
the
under Conformably
which a corporation
might
be
on
the
basis
of
the
shares
held.
All
other
purpose.
with
Sec
50
of
the
The
execution
of
a
voting
trust
agreem
ent,
therefore,
m
the(3)
right
of
A
to
sue
him
in
behalf
of
the
corporation
provision ofthe voting trustagreem
ent.
whereby
dissolution
which
must
be
filed
with
the
actuala written
use (2)
or notice
exercise
in
faith
of
and credit
standing
of
the
company,
incorporated,
a bona
fidegood
attempt
to
corporations
ay create
a dichotom
are
non-stock
y between
corporations.
equitable
or Schiera
Corp
ofone
the
holding
of
thethe
period
on
theCode,
ground
thatExchange
A conferred
has only
share
inlaw.
his
Securities
and
Commission,
signed
corporate
powers
upon
it
by
ALTERNATIVE
ANSWER:
Dividends:
Declaration
of Dividends
(2005)
beneficial
ofthe
corporate
shares
ofa
and ownership
Jaz clearly
demonstrated
that
the
organize
as
a
corporation
under
such
law,
is made
the
regular
meeting
sent
to the
shareholders
name?
Cannot
the
shares
issued
X be
by Ia3)
majority
of
the
members
of to
the
board of
Yes,
will
accept
the
case.
The
problem
stockholder,
on the
onecircumstances
hand,
and the
legaltitle
thereto a
Under
what
may
business
could
have
contingent
been
successfully
and
will
suffice.
The
notice
itself
specified
the
considered
as watered
stock?
on the other hand. (Lee vs. CA, upon
Feb. 4,
1992)
directors,
verified
by
the
president
or
A
CORPORATION
ESTOPPEL
exists
when
does
not indicate
thatBY
there
is
action
by the
full

corporation
dividends?
pursued declare
in the
name (2%)'
of the close said subject matter.
paym
secretary,
and
upon
vote
persons
to necessary
actaffirmative
as a for
corporation
whichassume
is also
the of
SUGGESTED
ANSWER:
corporation.
More
importantly,
Schiera and BOD
Derivative
Suit:
Requisites
(2004)
entofthe
No
form
of
dividends
can
be
declared
and
stockholders
representing
at
least
2/3
of so.
the
knowing
it
to
be
without
authority
to
do
declaration
of
50%
stock
dividend.
SUGGESTED
ANSWER:
are guilty
of diverting
the
resources of
loan.filed
AA,Jaz
a minority
stockholder,
a suit
3)
Dissolution
byA shortening
of a the
Dividends;
Declaration
ofrule,
Dividends
(1991)
paid
by
the
corporation
except
from
outstanding
capital
stock.
In
this
case,
those
persons
will
be
liable
as
1)
As
a
general
cannot
bring
the BB,
closeCC,corporation
to
another
entity,
against
DD,
and
EE,
the
holders
of
corporate
term.
This
is done
byliabilities
amendment
During
thepartners
annual
stockholders
meeting,
unrestricted
retained
earnings
appearing
on
2)
Was
it
proper
for
Malyn
to
file
a
general
for
all
debts,
and
derivative
suit
in
the
name
of
the
equivalent
to of
fraud
and
bad faith. for
majority
MOP
of the
articles
of proposed
incorporation.
Riza,
a stockholder
body
that of
its
books.shares
Dividends
must
be paidfor
in amounts
derivative
suit
with
aCorporation,
prayer
injunctive
damages
incurred
or arising
as
a result
corporation
concerning
an to
actthe
that
took
alleged
misappropriation
of
corporate
funds.
SUGGESTED
ANSWER:
a
part
of
the
corporations
unreserved
proportional
to
all
stockholders
on
the
basis
relief? Explain.
theirbefore
actions.he became a stockholder.
place
Corporation;
Votingbe
Trust
Agreement
TheAlthough
complaint averred,
inter
alia,
that
MOPor
itstock
is held
a by
close
corporation,
Distinction:
vs.capitalized
Profit:
Cash(1992)
Dividend
vs.
earned
surplus
and
stock
of
outstanding
them.
Cash
However,
ifDividends
the act
complained
of is
a
A
distressed
company
executed
a voting
Corporation
is
the
corporation
in
whose
nevertheless
the can
principles
of separate
Stock
Dividend
(2005)
dividends
be
distributed
to
the
stockholders,
2)
No.
In
a
derivative
suit,
the
action
is
property
dividends,
be declared
from
continuing one, A may do so.
trust agreement
forinaofperiod
ofprofit;
three
years
behalf
and for
whoseretained
benefit
the
derivative
juridical
personality
still apply.
The business
Distinguish
from
cash
arguing
thatbrought
as dividend
owners
the company,
instituted/
the
name
of the
a
such
unrestricted
earnings
by a
over 60%from
ofand
itsstock
outstanding
upcan
shares
suitofis brought.
In their
asseparate
membersand corporation
the
corporation
is
still of
dividend
dividend.
(2%)
stockholders,
by
areliefs
majority
vote,
do in
arepaid
prayed
for
proper
resolution
of thecapacity
Board
Directors.
SUGGESTED
favor for
ofAsathe
ANSWER:
bank
to whom
itmeeting,
was
indebted,
of the
Board
of Directors,
the
majority
distinct
from
the
proprietary
interests
of its therein
anything.
chairman
of the by
how
corporation,
a minority
Stock
dividends,
however,
must
be
declared
PROFITS
are
residual
amounts
representing
SUGGESTED
ANSWER:
with
the
Bank
named
as
trustee.
stockholders
adopted
a
resolution
stockholders
and
directors.
Consequently,
of Corporate
would you rule
motion
to declare
stockholder.
The on
lawthe
does
not qualify
the
by Corporation;
a properValidity
resolution
ofActs
the(2002)
Board of
As return
the chairman
of the
meeting,
Ideducting
would rule
of the
capital
after mortgaged
all
Additionally,
authorizing
MOP
Corporation
to withdraw
since
the
opportunity
and
Which of
thebusiness
following
corporate
acts
are the term
stock
dividends?
minority
in Company
terms of the
numberall
of its
Directors
from
existing
unrestricted
retained
against
the
motion
considering
that
a
corporate
costs
and
expenses
from
properties
to athe
Bank. Because
theresource's
suit. Pursuant
to said
resolution,
the
pertain
to your
the close shares
valid,
void,
voidable?
Indicate
owned by
stockholder
bringingofthethe
earnings
andorused
ratified
by stockholders
SUGGESTED
ANSWER:
declaration
of
stock
dividends
should
revenues.
The
accumulated
profits,
from
insolvency
of
the
Company,
corporate
counsel
filed
a
Motion
to
Dismiss
corporation,
the
standing
to
sue
and
to
answer
by
writing
the
paragraph
number
of
action in behalf of the corporation. the
(SMCBank
v
representing
at least for
two-thirds
(2/8) of the
No. All the requisites
a valid derivative
initially
be
taken
by
the
BOD
and
thereafter
year
to
year,
represent
the
corporate
foreclosed
the
mortgaged
properties,
and
in the
name
of
the
MOP
Should
3) No.
WATERED
recover
remains
with
the
close
corporation
the
query,
followed
byCorporation.
your
corresponding
Khan
176
SCRA 448)SHARES are those sold by as
outstanding
capital
stock
ofAA
the
corporation,
suit
exist
in
this
case.
First,
was
exempt
be
concurred
in less
by
athan
2/3 the
vote
of the
Dividends:
Sources
of Dividends;
Trust
FundReason
Doctrine
earnings
from
which
the
dividends
the
highest
bidder,
acquired
said
properties
theand
motion
be
granted
or duly
denied?
theretained
corporation
for
par/book
not
with
Malyn.
Therefore,
it is
still to
answer
as
Void,
or
Voidable,
as
obtained
in
aValid,
meeting
called
for
the
from
exhausting
his
remedies
within
the
The
three-year
period
prescribed
in
CASH
DIVIDENDS
represent
an
actual
stockholders
(Sec
43
Corp
Code).
There
is the
(2005)
can
be
declared.
and
assets
of
the
Company.
briefly.
(5%)
value.
In
the
instant
case,
it
will
depend
necessary
to43,
file
aIfnot
derivative
suit
behalf of
the case
may
be.
your
answer
ison
Void,
purpose.
(Sec.
Corporation
Code)
corporation,
and
did
have
to
make
a
Voting
Trust
Agreement
having
expired,
the
distribution
of
accumulated
profits
to
From
what
funds
are cash although
and stock the no
upon prohibition,
the value ofhowever,
services against
rendered the
inthe
the
close
corporation,
explain
your
answer.
In
case of afor
Voidable
demand
on
the
Board
of
Directors
the
company
demanded
the
turn-over
and
stockholders
as
a
return
on
their
3)
Assuming
that
a
derivative
suit
is
proper;
recommend
to the
dividends
sourced?
Explain governed
why. (2%) under the stockholders
relation to theresolving
total par to
value
of the shares.
proceedings
would
answer,
specify
what
conditions
must
latter
sue.
Here,
suchifbe
athe
demand
wouldbe
be
SUGGESTED
ANSWER:
transfer
of
all
itsa assets
properties,
action
continue
corporation
is dissolved
investments.
Declaration
of and
cashof
dividends
mayto
the
BOD
that
it
consider
declaration
stock
Derivative
Suit;
Close
Corporation;
Corporate
Rules
of with
Procedure
forthe
Intra- Dividends; Declaration of Dividends (2001)
present
orthe
complied
to
make
the
futile,
since
directors
comprise
All Interim
cash
and
stock
dividends
are
always
paid
the
pendency
ofwho
the
suit?
including
the
management
of
during
requires
only
the
approval
ofand
theoperation
majority
dividends
for
concurrence
thereafter
by the of
Opportunity
(2005)
food
business,
entered
into
a
contract
Corporate
Disputes.
corporate
act valid.
(5%)
1)and
XL Foods
majority
(namely,
BB, CC,
DD
EE)
are
For
theCompany,
past
three
years
of
itsthe
commercial
ANSWER:
outSUGGESTED
ofExplain.
the
unrestricted
retained
earnings
claiming
that
under
the
Voting
the
Board
of
Directors
in
a
proper
stockholders.
Malyn,
Schiera
and
Jaz
are
directors
of
with
its
Jose
Cruz,inwhereby
the
Corporation,
which
is the
engaged
the
for
in President
spite
dissolution
ofthe
any
theYes,
onescalled
guilty
of
the of
wrong
complained
of.
STOCK
DIVIDENDS
simply
transfers
of
operation,
X,
an oil company,
haswas
been
(also
surplus
profit)
of fastTrustInvestments,
Agreement,
the
Bank
constituted
resolution.
Patio
a are
close
corporation
latter
would
supply
the
corporation
with
Second,
AA
appears
to
be
stockholder
at
the
corporation,Ifit remains
a juridical has
person
for
retained
earnings
to
capital
stock,
thereby
earning
tremendously
in
excess
of
100%
of
corporation.
the
corporation
no
as trustee
of the
andaloperations
formed
to run
the management
Patio Cafe, an
fresco
its alleged
meat
and
poultry requirements.
time
the
misappropriation
of years from
Does
the
demand
of the
with
purpose
ofANSWER:
dissolution
three
increasing
theMakati
number
ofCompany
shares
of
stocks
the
paid-in
capital.
All
oftally
the
unrestricted
retained forearnings,
the
ofcorporations
the
Company.
SUGGESTED
coffee
shop
in
City.
In
2000,
Patioof
corporate
funds.
the concept
of been
a Voting
Trust
Agreement?
the date
ofAdissolution,
precisely
one of
the
each
stockholder
with
no
required
cash
stockholders
have
claiming
that
they
dividends
would
have to of
bethe
sourced
from
the
Voidable

contract
corporation
with
Cafe
began experiencing
financial reverses,
Third,
the suit
istobrought
on behalf
and forof its
SUGGESTED
ANSWER:
Explain
briefly.
purposes
is This
allow
the
winding-up
contribution.
A
two-thirds
vote
of
the
share
in
the
profits
of
the
corporation
by
capital
stock.
isdirectors
illegal.
It
violates
the
one
or
more
of
its
or
trustees
or
consequently,
some
of the
checks does
it issued
to
theaffairs,
benefitincluding
of MOP Corporation.
In this
The
demand
of
the
company
not vote
tally
theattermination
ofsuch
pending
stockholders,
coupled
with
a
majority
way
of
dividends
but
the
Board
of
Directors
"TRUST
FUND
DOCTRINE"
that
provides
officers
is
voidable,
the
option
of
its with
beverage
distributors
and
employees
Conmart
(Phils.)
Inc.held
v. Securities
and
Exchange
connection,
it was
in
the
concept
a is
Voting
Derivative
Suit;
Minority
Stockholder
(2003)
suits.
of
thelift
Board
ofSchiera
Directors,
needed
to
failed
to
its
finger.
a) IsofCorporation
X Trust
that
the capital
stock
ofCorporation
the corporation
is a
In
October
2003,
informed
Malyn
corporation
(Sec
32,
Code).
Commission,
198
SCRA
73
(1991)
that
to
grant
bounced.
Agreement.
The
Voting
Trust
Agreement
SUGGESTED
ANSWER:
Gina
Sevilla,
a
minority
stockholder
of
Bayan
Distinction;
Private
vs.
Public
Corporation
(2004)
declare
stock
dividends.
guilty
of
violating
a
law?
If
in
the
trust
fund
to
be
kept
intact
during
the
life
of
that
she
found
a
location
for
a
second
cafe
in
to the
corporation
theinvestments
right of
Corporation
X is
guiltythe
violatingthe
Section
merely
conveys
trustee
right to
Corporation,
feltconcerned
that
various
Distinguish
clearly
aof private
corporation
2) corporation
Theor
Board
of Directors
of XL
Foods
affirmative,
state
theto
basis
(2%)
the
for
the
benefit
of
the of
Taguig
City.
Malyn
objected
because
of the
withdrawing
dismissing
the
suit,
at
the
G.R.
No.
77860,
November
22,
1988;
and
43
of
the
Corp
Code.
This
provision
vote
the
shares
of
grantor/s.
The
the companys
capital and
were
ultra
vires if of
not,
from
a public
corporation
Corporation
declared
paid
cash
creditors
of
the
corporation.
(Commissioner
dire
financial
condition
of the corporation.
instance
of
the
majority
stockholders
and
Steinberg
v.
Velasco,
G.R.
No.
30460,
March
prohibits
stock
corporations
SUGGESTED
ANSWER:
consequence
of
foreclosure
of
the
indeed,
made in
violation
of of
law. She
filed
dividends
approval
InternalRevenue
v. Court
of
Appeal,
G.R.
No.a
directors
whowithout
themselves
are
thethe
persons
12,1929)
mortgaged
properties
would
be
alien
to
the
derivative
suit
seeking
to
stockholders.
108576,
January
alleged
to
have 20, 1999; Boman Environmental
Voting Trust Agreement and its effects.
Development Corp. v. Court of Appeals,

Page
Page
38 39
37
of 103
of 103
Code.
acquires,
5)
When
As Page
shortened,
he
Page
in40
is
violation
41
of
made,
103
ofthe
103
by
of ahis
SUGGESTED
ANSWER:
corporation
duty,
specific
an provision
interest
continued
adverse
ofits
law,
business
to
to thethe
corporation
c) the
No.
substantial
2.
No.
There
number
The
Opening
period
amount
is of
noshares
offices
of
need
of30damages.
he
by
days
forholds
the
within
on
It
absorbed
would
record
which in What
is the
doctrine
"piercing
veil of
d.
the
stockholder
may
not
exercise
3.
Participating
in the
management,
personally
answer
for
thehas
corporate
action.
operations
in No,
respect
until
of any
May
matter
30, 1997,
which
the
last
been
day
corporation
thus
the
whatever
the
be
stockholder
corporation.
difficult
name
to undertake
forcan
Pablo
pay
to
dissolution
convincingly
the unpaid
and
corporate
entity?"
Explain.
appraisal
right
because
the
matter
that
he94
SUGGESTED
ANSWER:
Mercantile
Inc
v
CA
GR
111008,
Nov
7,
(Tramat
supervision
orincorporation
control
of
domestic
of its
reposed
corporate
in him
existence.
in confidence,
Prior to
hesaid
shall
date,
be
winding
assert
subscription
that
up the
had
procedure.
not
yet expired.
Asany
a of
result
the family
of entity
the
Thedissented
doctrine
of
"piercing
thecorporation
veil
of where
238s14)
is not
one
of
those
4. Pre-emptive
b)
Entering
right
into must
be as
exercised
there
liable
were
as aa from
number
trustee
for
of pending
the
civil
and
merger,
corporation
the
was absorbed
intended
merely
corporation
a caseis in
corporate
entity,"
is
the
doctrine
that
allows
Liabilities;
Stockholders,
Directors,
Officers
right
of
appraisal
is
available
under
the
Stockholders:
Preemptive
Right
(2004)
5.
Appointing
representatives
or
service
accordance
contracts
with
the
Articles
of
actions,
must of
account
varying
fornature
the profits
but mostly
which(1997)
money
otherwise
automatically
of
estate tax dissolved
planning.
and
(Tan
its Boon
assets
Beeand
v
thecorporation
courts
toby
look
behind
the
A,
B,filed
and
Caccrued
are
shareholders
of XYZ
Co. A
code.
Piercing
the
Corporate
Veil
The
Board
Directors
ofassumed
ABC,
Inc.,
a
distributors,
operating
under
the control
of
Incorporation
or (1996)
theand
By-Laws.
When
the
claims
would
have
creditors,
tonone
the separate
corporation.
of which
was
Jarencio
41337
liabilities
areof30June88)
acquired
by the
SEC;
Jurisdiction;
Transferred
Jurisdiction
(1996)
juridical
personality
of a corporation
and
has
an
unpaid
subscription
of P100th,
Bs
2)
Pending
approval
of domiciled
the
by
E
Co
its
towho
Mpassed
Inc
after
complying
domestic
corporation,
amerger
resolution
thesold
foreign
entity,
is
in
the
Articles
ofassets
Incorporation
and
the
By-Laws
expected
Equity
to
imposes
be completed
liability
or
upon
resolved
him
not
within
to deal
surviving
corporation.
What
the fully
original
and
treat
the
corporation
as
an
association
of only
shares
are
up,exclusive
while
C owns
theare
SEC,
may
surviving
with
thesilent,
requirements
of
theinBulk
Sales
authorizing
additional
issuance
ofcountry
shares
of a
Philippines
or
who
stays
the
for
thethe
BOD
may
fixcorporation
a
reasonable
five
for
years
hisis
own
from
benefit.
Maypaid
30,
(Sec.
1997.
31,
Corporation
jurisdiction
of
the
SEC?
persons
and
thereby
make
the
If
the
Under
creditors
Sec.
34
had
of sought
the
Corporation
your
professional
Code
nominal
but
fully
paid
up individual
shares
and is a
already
institute
suits
to
collect
all
Law.
Subsequently,
one
of
the
creditors
Emay
stocks
without
notice
nor
approval
ofofdays
the
period
or
periods
totaling
at
least
180
time
within
which
the
stockholders
Code)
SUGGESTED
ANSWER:
Pre-Emptive
Right
vs.
Appraisal
Right
(1999)
actors
personally
liable
for
corporate
help
where
at
that
a
director,
time
about
by
virtue
whether
of
or
his
not
office,
their
director
and
officer.
XYZ
becomes
insolvent,
receivables
due
to the
the
absorbed
corporation
Co
tried
collect
amount
due
it, but to
stockholders.
DX,
a
stockholder,
objected
in
anyto
calendar
year.
exercise
the
right.
The
SEC
has
original
and
exclusive
SUGGESTED
ANSWER:
Foreign
Corporation;
Doing
Business
in
the
ABC
Corporation
has
an
authorized
capital
liabilities.
The
fiction
of
corporate
identity
is is
cases
acquires
could
for
be
pursued
himself
a
beyond
business
May
opportunity
30,
and
it
is
established
that
the
insolvency
fromissuance,
its
Explain
your
answer.
found
out customers?
thatcontending
E Co had
nothat
more
left.
the
it assets
violated
his
jurisdiction
over
cases
involving:
a)within
Devices
No.
The
merger
does
not
become
effective
Philippines;
Test
(2002)
stock
of
P1M
divided
into
50,000
common
disregarded
and
the
individuals
comprising
it
1997,
which
what
should
would
belong
have
been
to
the
your
corporation,
advice?
the
result
of
fraudulent
practices
the
(3%)
The
creditor
then
sued
M
Inc
on
the
theory
right of preemption to the unissued shares.
schemes
to
fraud
and
until
approved
by
thebriefly.
SEC.
SUGGESTED
ANSWER:
SUGGESTED
ANSWER:
What
isand
the
legal
test
for
determining
if its
an
shares
preferred
shares.
At
canor
be
treated
identically.
The
stockholders
(2%)
thereby
obtaining
profits
to
thefor
prejudice
of
company.
If amounting
you were
counsel
a creditor
that
Mand
Inc
isunless
a50,000
meretenable?
alter
ego
of
E Co.
Will
Is
his
contention
Explain
misrepresentation;
b)
Controversies
arising
The
G.R.
cases
No.
108734,
can
ANSWER:
be pursued
May
29,
even
beyond
Yes.
DX's
contention
is
Under
Before
approval
by
the
SECtenable.
of the
merger,
SUGGESTED
ANSWER:
unlicensed
foreign
corporation
is doing
the
Corporation
offered
for
canSUGGESTED
be
held
directly
liable
for
corporate
such
corporation,
he
must
account
toMay
the
of
XYZ,
would
you
advise
legal
action
theinception,
suit
prosper?
Explain.
(5%)
out
ofto
intra-corporate
or partnership
a)
As
Aan
action
can
be brought against
Thesubscription
suit
will
not
prosper.
The sale
by
of
1996).
30,
1997,
the
last
day
ofextent
the
corporate
Section
39 in
ofthe
the
Code,
all
the
surviving
corporation
has
noE Co
legal
business
Philippines?
(2%)
all
theCorporation
common
shares.
obligations,
to
the
of their
latter
for
all
such
profits
by
refunding
the
against
A,even
B,
and
C?
relations;
c)
Controversies
in
the
election
A
for
P100th
which
is
the
amount
of unpaid
its SUGGESTED
assets
to
M
Inc
does
not
result
in
the
existence
of
GHQ
Corp.
The
Corporation
is aor
stockholders
of
ABC,
Inc.
enjoy
preemptive
ANSWER:
To
what
circumstances
will
the
doctrine
personality
with
respect
to
receivables
due
However, only 40,000 shares were
personal
Builders
v. NLRC,
same, assets
unless (Concept
his act has
been
ratified
by
appointment
of
directors,
officers,
etc;
d)
subscription.
Since
the
corporation
The
test
is whether
orthe
not
thelatter
unlicensed
transfer
of the
liabilities
of
the
to, nor
not
actually
dissolved
upon owning
the expiration
of is
right
to
subscribe
to all
issues
of
shares
of
to
the
absorbed
corporation.
apply?
(2.5%)
subscribed.
Recently,
directors
thought
Marabe,
al,
vote
ofetthe
stockholders
or
Petitions
to
be
declared
in
a
state
of
3)
A
case
was
filed
against
a
customer
to
The
doctrine
is
applicable
when
the
notion
insolvent,
the
limit
of
the
stockholders
foreign
corporation
has
performed
an
act
or
in the
assumption
thereof
by, the
former.
The
its representing
corporate term.
Theretwo-thirds
is still
period
any
class,
including
the
reissuance
of
of raising
additional
capital
and
decided
to
at least
(2/8)
of the
suspension
of
payments
(Sec
5 PDpublic
902-A)
collect
on
the
promissory
noteofsuch
issued
by
him
of legal
entity
used
to up.
1)
liability
to is
the
creditor
isDefeat
only
up
to the
acts
that
imply
aindicate
commercial
Effect:
Expiration
of
Corporate
Term
(2004)
facts
given
do
not
for
liquidation
or
winding
treasury
incontinuity
totransfer
their
offer
to shares
the
public
allproportion
thethat
authorized
shares
outstanding
capital
stock.
NOTE:
Under
Section
122
of
the
C
orporation
C
ode,
a
after
the
date
of
the
merger
agreement.
The
convenience.
2)
Justify
wrong.
3)
Protect
Stockholders;
Appraisal
Right
(2003)
extent
of
his
unpaid
subscription.
dealings
or
arrangements,
and
contemplate
or
assumption
took
place
or
was
stipulated
have
pre-emptive
rights
to
the
remaining
XYZ
Corporation
entered
into
a
contract
of
respective
shareholdings.
of the Corporation
at their market value. a)
corporation
whose
corporate existence
is terminated
in
b)
As
to ABC,
Bthere
is
nov.a Andrada
cause
ofreal
action
customer
raised
the
defense
that
while
the
fraud.
4)with
Defend
crime
(PNB
In
what
instances
may
the
right
of
appraisal
to
that
extent
the
performance
of
acts
or
upon
10,000
by
shares?
the
parties
(2%)
b)
in
Would
their
Mr.
agreement.
X
have
lease
Inc.,
over
piece
of
Would Mr. X, a stockholder holding 4,000
anyTAKE
manner
continues
to be has
a body
corporate forover
threethe
NOTE:
The
RTC
jurisdiction
against
B No.
already
fully
paid
Electric,
G.R.
receivables
as
of
date
of
the
merger
be
availedor
of the
under
the
Corporation
Code?
works,
exercise
of
some
of
the
Furthermore,
the
sale
by
E Co
of its
assets
is
pre-emptive
rights
to
the
50,000
preferred
estate
for
abecause
term
of he
20 has
years,
renewable
(3) years
afterits
dissolution
forpurposes
ofprosecuting for
shares,
cases
which
involves
intra-corporate
Dividends;
Right;
Managing
Corporation
(1991)
for
his
subscription.
As
stated
earlier,
SUGGESTED
ANSWER:
agreement
was
transferred
and itto sethe
andanother
defending20
suits
by andprovided
againstitand
to le
enable
functions
normally
incident
to,the
andsurviving
in the
a sale
shares?
of its(2%)
property.
It does to
not
involve
years,
that
XYZ's
controversy.
As
of
2006,
the
applicable
SECTION
81.
Instances
of
Appraisal
Right.
142936,
April
17,
2002)
.
ABC
Management
Inc.
presented
to
the
DEF
close
its
limit
of
the
stockholders
liability
torule
the
corporation,
c)of theAssuming
those
thatof
the
whichexisting
were
progressive
prosecution
of,the
commercial
gain
sale
shares
of receivables
stock
corporation
corporate term is extended in accordance
affairs, the latter
is
that
there
is
a
TRANSFERRED

Any
stockholder
of
a
corporation
shall
5)
Shield
a
violation
of
the
proscription
Mining
Co,
the
draft
of
its
proposed
creditor
of
the
corporation,
when
stockholders
are
entitled
to
pre-emptive
created
after
theits
merger
agreement
remained
or
of the
purpose
and
object
of the
business
belonging
to
stockholders.
There
is
with law. Four years after theculminating
term of XYZ
JURISDICTION
underbut
Sec.
5.2within
of thethe
SRC,
Joint
Venture;
Corporation
(1996)
have
right
to
dissent
and
demand
against
foruminsolvent,
shopping
(First
Philippine
Management
As
incentive,
ABC
becomes
is
the
extent
of his
to
rights,
be the
owned
at
what
byContract.
the
price
absorbed
willan
the
corporation.
shares
be
corporation.
therefore
no
merger
or
consolidation
that
Corporation
expired,
still
in the
c)
As
to Can
action
can
be disposition
filed
against
C,
Piercing
the
Corporate
Veil
(2001)
the
Commissions
jurisdiction
over
all
cases
International
Bank
v.
Court
of
Appeals,
G.R.
No.
May
a
corporation
enter
into
a
joint
payment
of
the
fair
value
of
his
shares
in
the
included
in
the
terms
of
compensation
that
subscription.
d)
Assuming
a
stockholder
disagrees
The
termination
ofthe
life
of
a
corporate
entity
does
offered?
(2%)
These
receivables
would
be
distributed
to
the
took place. E Co continues to exist and
period allowed by the lease contract for the
6)
Work
inequities
among
members
of
SUGGESTED
ANSWER:
not
as
stockholder
because
he
has
already
1
In
case
any
amendment
to
the
articles
of
137537,
January
24,
1996).
Plaintiffs
filed
a the
collection
Xthe
enumerated
PD period,
902-A
sec.
5of
has
venture?
following
instances:
notby
itself cause the
extinction
or dim inution
the been
ABC would
be
entitled
toaction
10%
of
any
and
with
the
issuance
of new
shares
andstock
stockholders
conformably
with
the against
dissolution
remains
liable
to
creditor.
extension
of under
the
lease
XYZno
Corp.
A
corporation
enter
into
a the
joint
venture.
the
corporation
internally,
involving
rights as
rights
and up
liabilities
entity.
27of
If the
threepaid
thetoofsuch
shares,
but
in
his
capacity
incorporation
has
the
effect
of
changing
or
distribution
Corporation.
Upon
execution
of
courts
transferred
the
Courts
general
dividend
which
DEF
may
declare
during
the
pricing
for
themay
shares,
may
the
stockholder
and
liquidation
procedures
under
the
New
notified ABC,
Inc.,
that
it is aexercising
the
yearextended
lifeor
has
expired
without
trustee
orHeirs
of Regional
its rem
SUGGESTED
ANSWER:
However,
inasmuch
as
the
term
joint
of
the
public
third
persons
(Secosa
v.
director
and
officer
because
of Trial
the
restricting
the
rights
of
any
stockholders
or
class
decision,
X
Corporation
was
found
to
be
jurisdiction
or
the
appropriate
lifetime his
ofCode?
the
Management
Contract.
invoke
appraisal
rights
and demand
Corporation
Discuss
the
merits
of Would
this
option
to
extend
the
lease.
ABC,
Inc.,
receiver
having
been
expressly
designated
by
the
aining
Stockholder;
Delinquent;
Unpaid
Subscription
(1997)
Whether
the
receivable
was
incurred
by
the
venture
has
no
precise
legal
definition,
it
ofErwin
Suarez
Francisco,
G.R.
No.
156104,
June
corporations
insolvency
being
the
result
of
of
shares,
or
of
authorizing
preferences
in
any
SUGGESTED
ANSWER:
without
assets.
Thereafter
plaintiffs
filed
an
Court.
you approve
of shareholdings?
such provision?(2%)
If not, what
payment
for his
ed
to so arguing
argument.
(3%)
corporation,
within
thatperiod,
the board
of directors
(or
assets.
objected
to
the
proposed
extension,
7)
Evade
the
lawful
obligations
ofasthe
absorbed
corporation
before
orholding
after
the
The
BOD
of
a
corporation,
by
a
vote
of
ten
in
SUGGESTED
ANSWER:
29,
2004).
may
take
various
forms.
It
could
take
the
a.
Yes.
Mr.
X,
a
stockholder
4,000
fraudulent
practices
within
the
company.
respect
superior
to
those
of
outstanding
shares
of
action
against
its
present
and
past
continue
trustees)
itself,
m
ay
be
permi
would you suggest as an alternative?
Itmay,
that
the
life
of
XYZ
Corp. had
Ishares,
would
approve
aor
proposed
stipulation
corporation
like
acorporate
judgment
credit
(Sibagat
merger
agreement,
or before
or
after
the
favorsince
of one
against,
declared
due
and
form
of
anot
simple
pooling
ofshortening
resources
(not
"trustees"
has
pre-emptive
right
to
the
Directors
are
liable
jointly
and
severally
for
any
class,
or
of
the
term
during
the
stockholder
Y extending
Corporation
which
owned
expired,
it
could
no
longer
opt
to
renew
the
G.R.
No.Corp.
112546,
December
11, 1992).
8)im
Timber
v. sustained
Garcia,
bythreelegal
in
the thereof
management
contract
that
approval
the
SEC,
the
said
payable
all
unpaid
subscription
to
the capital
involving
incorporation)
two
remaining
10,000
All
stockholders
of
damages
by the
corporation,
of
corporate
existence;
substantially
all by
ofshares.
thebetween
stocks
ofor
Xthe
plication
to
lease.
XYZ
Corp.
countered
that
withstanding
Escape
arising
from
adirector
debt
(Arcilla
v. to
yearterm
,
managing
corporation,
as
anproject,
additional
receivable
would
still
belong
to
the
surviving
stock.liability
The lone
failed
more
a specific
a
stock
corporation
shall
enjoy
preemptive
stockholders
or dissenting
other
persons
resulting
from
2
Incorporations
case
of
sale,
lease,
exchange,
transfer,
Corporation.
The
twofor
corporations
have
the
com
plete
appointa
Court
of
Appeals,
G.R.
No.
88113,
October
23,
the
lapse
of
its
corporate
term
it
still
has
compensation
to
it,80
should
be
entitled
corporation
under
Sec
of
Corp.
pay onnegligence
due date, i.e.,
19 Sept
1997,
his the
purpose
or
orthe
for
a
right
to pledge
subscribe
to
all
issues
orlimited
disposition
gross
or
bad
faith
in
directing
mortgage,
or
other
disposition
ofCode
all orto Foreign
same
board
ofundertaking,
directors
and
Y Corporation
the
trustee
ora
Corporation;
Doing
Business
in
the
9) Piercing
Avoid
inclusion
of(1994)
corporate
assets
as the
1992).
right
tothe
renew
theVeil
lease
because
no quo
Corporate
SUGGESTED
ANSWER:
10%
ofthe
any
stock
dividend
that
may
which
does
not
make
any
distinction
to be
unpaid
subscription.
Other
than
the
shares
time.
It
may
involve
the
creation
of a as
more
corporate
of
shares
of
any
class,
in
proportion
to
their
affairs
of
the
corporation.
(Sec
31
Corp
substantially
all
of
the
corporate
property
and
receiverwh
financed
operations
of
X Corporation.
Philippines
(1998)
part
of Pablo,
the estate
ofunable
the decedent
(Cease
v.forties,
warranto
proceedings
for
involuntary
Yes,
Y
Corporation
may
be
held
liable
for the
ALTERNATIVE
ANSWER.
Mr.
awas
rich
merchant
in
his
early
declared.
Stockholders
are
the
only
ones
liquidation.
the
assets
and
liabilities
of
the
absorbed
wherein
he
to
complete
payment,
SUGGESTED
ANSWER:
o
m
ay
formal
structure
and,
hence,
the
formation
respective
shareholdings.
Code)
assets
as
provided
in
the
Code;
and
May
Y Corporation
be have
held pre-emptive
liable for the
When
isAppeals,
foreign
corporation
deemed
to18,
becould
Court
of
No.
L-35861,
October
a. a
No,
Mr
X
does
right
dissolution
ofG.R.
XYZ
Corp.
been
instituted
debts
of
Xtothat
Corporation.
Theventure
doctrine
of &
was
aanot
defendant
in
a has
lawsuit
actbeyond
which
XYZ
Corporation's
contention
is corporation.
not
entitled
receive
stock
dividends
(Nielsen
corporation
the
surviving
corporation
he did
own
any
share
in(PEPSIthe
of
corporation.
Ifnot
the
joint
would
3
In
case
of
merger
or
consolidation.
(n)
debts
of
X
Corporation?
Why?
(5%)
10)
To
promote
or
to
shield
unfair
objectives
doing
1979).
business
in
the
Philippines?
(3%)
COLA
Effects;
Up Mining
Period
a 10,000
Corporation
(1997) fiction
thatperiod.
over
the
because
by
the
Office
of the
Solicitor
General.
Is
piercing
the
veil of
of26
subject
him1997,
to
substantial
damages.
Athe
year
meritorious.
Based
theNo.
ruling
of by
the
Co
vWinding
Lepanto
Ishares
would
add
that SUGGESTED
would
inherit.
On (Villanueva
23 Sept
heon
was
informed
the
involve
theremaining
creation
of scorporation
a569)
partnership,
as the
v. Adre,
G.R.
80863,
April
27,
ANSWER:
PHILIPPINE
TheLiabilities;
corporation,
once The
dissolved,
thereafter
BOD;
Corporate
Acts
(1996)
these
shares
have
already
been
offered
at
contention
of
XYZ
Corp.
meritorious?
Explain
applies
to
this
case.
two
corporations
before
the
court
rendered
judgment,
Pablo
Supreme
Court
in
Philippine
National
Bank
vs.
the
unsubscribed
capital
stock
of
a
BOD
that,
unless
due
payment
is
meanwhile
term is understood under the Civil Code,
S, INC.,
vs.
A foreign corporation is1989).
deemed
to be
corporation
forthwith:
continues
to
be
a
body
corporate
for
three
When
a may
corporate
director,
trustee,
or
incorporation
and
he
chose
to
briefly.
(5%)
have
the
same
board
of
directors
and
Y or doing
sought
hishe:
lawyers
advice
on
how
toisplan
THE
COURT
CFI
of
Rizal,
209
SCRA
(1992).
XYZ
Corp.
was
corporation
only
be
issued
forsubscribe
cash
received,
a)
could
no longer
serve
as
a his
then
a may
corporation
cannot
benot
a party
to
it.
business
in
the
Philippines
if
Pre-emptive
Right
(2001)
b)
would
not
be upon
entitled
to
theitcash
and
years
forbeHe,
purposes
of has
prosecuting
and
officer
held
personally
liable
with
the
OF
to them.
therefore,
waived
his
right
Corporation
owned
substantially
all rendered
of
the
estate
to
avoid
taxes.
His
lawyer
suggested
dissolved
ipso
facto
the
expiration
of
property
or
for
services
already
director
of
the
continuing
theXbody
or substance
of the and
Suppose
that
Corporation
has
already
APPEALS,
SUGGESTED
ANSWER:
stock
dividends
were
declared
defending
suits
and against
it offer
and
of 62
corporation?
thereto
the
corporation
stocks
of Xand
Corporation,
whichmay
facts
justify
that
he
should
a to
corporation
its
original
term.which
Itform
ceased
be
a body with
constituting
abydemandable
debt
(Secthem
business
or
enterprise
for
which
it
was
[G.R.
No.
issued
the
1000
originally
authorized
shares
A
corporate
director,
trustee
or
officer
may
SUGGESTED
ANSWER:
payable on
24
Sep
1997;
and
enabling
it to settle
andlatter
closeis its
affairs,
toconclusion
anyone.
theCorp
that
the
merely
an
himself,
his
wife
and
his
children
(all students
corporate
for
the
purpose
of
continuing
Code).
As
an
alternative,
I
would
145855.
organized.
It
is
the
intention
of
an
entity
tothe
b.
Yes.
Mr.
X
would
have
pre-emptive
rights
of
the
corporation
so
that
its
BOD
and
be
held
personally
liable
with
the
c)
could
not vote
in the
stockholders
culminating
in
final
disposition
and
extension
of that
the the
personality
of thecorporation
former,
November
and
still
unemployed)
as
stockholders
and
business
for
which
it
was
organized,
except
suggest
the
managing
continue
thescheduled
body
of its
in
the26 Sept
to the of
50,000
preferred
shares.
stockholders
wish to
increase
Xs
authorized
corporation
under
the
following
meeting
tobusiness
take place
on
24,
2004.])
distribution
its remaining
assets.
If theprofit
3 All
and
that the
former
controls
thea policies
of
then
transfer
all
his
assets
and
liabilities
to
only
for
purposes
connected
with
its
winding
should
instead
be
given
net
country.
The grant
extension
ofthe
90day
stockholders
of1)
aWhen
stock
corporation
capital
stock.
After and
complying
with
Doctrine
ofAdded
Corporate
Opportunity
(2005)
circumstances:
hethe
assents
to
a shall
1997.
year
extended
life
expires
without
adesires,
trustee
the
latter.
to
this
is
fact
that
Y to
this
corporation.
Mr
Pablo
followed
the
up
or
liquidation.
Extending
the
lease
is
not
participation
and,
if
it
later
so
credit
terms
of
a
foreign
corporation
to
a
corporation;
2) When
hethe
acts
in of
bad
faith
enjoy
pre-emptive
right
to subscribe
to or
all
requirements
of the
on increase
Briefly
discuss
unlawful
the
act
of
doctrine
corporate
Was the action
of law
the BOD
on eachofof the
or patently
receiver
being
designated
by
the
Corporation
controls
the
finances
of
X
recommendation
offor
his
lawyer.
year later,
an act to
wind up or
liquidate
XYZ1 Corp.'s
then
convert
the amount
that of
may
be
due domestic
corporation
every
purchase
with
gross
negligence
in
issues
or
disposition
of
shares
any
class,
capital
stock,
X
issued
an
additional
1000
opportunity.
(2%)
foregoing
matters
valid?
Effects;
Merger
of
Corporations
(1999)
corporation
within
that
period
and
by
that
Corporation
which
is
merely
an
adjunct,
Foreign
Corporation;
Doing
Business
in
the
the
court
rendered
judgment
against
Pablo
affairs.
It
is
contrary
to
the
idea
of
winding
thereby
toANSWER:
equity
or
shares
stock
at no
ALTERNATIVE
ANSWER:
directing
the
of their
the of
corporation,
or in shows
an
intention
toagreed
continue
transacting
SUGGESTED
SUGGESTED
ANSWER:
Piercing
theproportion
Corporate
Veilaffairs
(2004)
in
to
respective
shares
of
the
same value.
a) to
Assume
that
the
Two
corporations
merge.
They
time
(expiry
ofX par
the
3
year
extended
term),
business
conduit
or
alter
ego
of
Y
Philippines;
Acts
or
Activities
(2002)
and
the
plaintiff
sought
to
enforce
this
up
the
affairs
of
the
corporation.
less
b.
Yes,
than
Mr.
the
has
value
preemptive
thereof.
right
over
the
In
brief,
theinterest
doctrine
disqualifies
a director,
No.executed
TheA period
of 30
days200
within
which
withANSWER:
the
theveil
corporation
resultingwith
in a)
SUGGESTED
conflict
the
latter.
shareholdings.
How
does
one
pierce of
the
of yet
corporate
stockholder
presently
holds
out of
the
then
an
agreement
specifying
the
the
corporate
liquidation
is
not
over,
Corporation
(CIR
v
Norton
&
Harrison
Co
11
S
Give
judgment.
at
least
three
The
(3)
sheriff,
examples
however,
of
the
acts
could
or
not
50,000
preferred
shares
because
they
were
The
liquidation
canfrom
continue
with
the
trustee
or officer
appropriating
for his 1000
the
stockholder
canWould
pay
the
unpaid
damages
to the
corporation,
its stockholders
or SUGGESTED
SUGGESTED
ANSWER:
ANSWER:
fiction?
original
shares.
Athe
have
a presurviving
corporation
and
absorbed
how,
if
at
all,
can
a
final
settlement
of
the
714
(1964))
activities
that
are
specifically
identified
locate
any
property
in
the
name
of
Pablo
and
not
offered
before
by
the
corporation
for
b)
When
should
stockholder
A
exercise
the
winding
The
veil persons;
of
up.corporate
The 3)
members
fiction
of
may
thebe
pierced
other
he
consents
tocan
the
personal
benefit
aWhen
transaction
orBOD
opportunity
subscription
had
not
yet
expired.
The
plaintiff
himself
of theofdoctrine
emptive
right tocan
200avail
ofthe
the
new
issue
corporation.
Under
agreement
merger
corporate
affairs
bewinding
made?
therefore
our foreign
returned
investment
the
writ
laws
as
of execution
subscription.
pre-emptive
right?
(2%)
continue
with
theto
the corporate
by
proving
in
that
theofnotion
of
legal
issuance
of court
watered
stocks
that
pertains
the
corporation,
and
which under
of
piercing
the
veil
of
corporate
fiction
1000
shares?
Why?
(3%)
dated
November
5,
1998,
the
surviving
SUGGESTED
ANSWER:
SUGGESTED
ANSWER:
doing
business
the
unsatisfied.
What
remedy,
if
any,
is available
b)
No. can
The
delinquency
did in
not
deprive
the is
or
having
knowledge
thereof,
not constituting
affairs
entity
until
iswho,
being
final
liquidation.
used
to he
They
defeat
can public
actdoes
as
under
the
duty
of
loyalty
should
first
bring
which
be
invoked
when
a
corporation
corporation
acquired
all the rights,
c. The
shares
will
be
offered
to secretary
existing his
SUGGESTED
ANSWER:
a)
Yes,
A
would
have
a
pre-emptive
right
to
Philippines
to
the
plaintiff?
(3%)
stockholder
of
his
right
to
receive
dividends
forthwith
file
with
the
corporate
trustees
or
receivers
for
this
purpose.
convenience,
justify
wrong,
protect
fraud,
or
to the corporation for its use or exploitation.
or used
infollowing
avoiding
a just
obligation.
Anyformed
three
of
the
acts
or A
properties
and
liabilities
ofshares.
the
absorbed
stockholders,
who
arehe agrees
entitled
to
200
of
theit(3)
new
issue
ofthe
1000
is a may
Effects;
Winding
Up Period
of
Corporation
objection
thereto;
4) aWhen
hold
declared.
However,
cash
dividend
written
defend
crime
or the
entity
is(2000)
justtoan
While
is
true
that
a
family
corporation
Must
the
absorbed
corporation
undertake
activities
corporation.
constitute
1)
What
doing
would
business
happen
in
to
the
the
preemptive
right,
at
a
price
fixed
by
the
stockholder
of
record
holding
200
shares
in tax;
TheThe
SEC
doctrine
approved
corporate
the
amendment
opportunity
of the
is
himself
personally
and
declared
may be
applied
by the
corporation
instrument
or of
alter
ego
or
adjunct
of an
be
organized
to
pursue
an up
estate
dissolution
and
the
winding
procedures?
Philippines
under
our
foreign
investment
absorbed
corporation?
BOD,
which
shall
not
be
less
than
the
par
X
Corpo.
According
to
the
Corp
Code,
each
Piercing
the
Corporate
Veil
(2006)
Articles
enforcement
of Incorporation
of
the
ofcorporation;
of
GHQ
loyalty
Corp of
solidarily
withduty
the
to
the
unpaid
subscription.
(Secse
71 illegal
Corp or
another
entity
orliable
person.
planning,
which
is not per
your
answer.
(3%)
Explain
1.
Soliciting
orders
laws:
value
shares. and
stockholder
has
the
pre-emptive
right to all
shortening
corporate
or of such
its directors
corporate
life to
officers.
only 25 When
years a
Code)
SUGGESTED(Delpher
ANSWER:
unlawful
Trades Corp v IAC 157 SCRA
issues
of shares made by the corporation in
in accordance
director, trustee
with Sec
or120
officer
of the Corp
attempts to
349) the factual settings, however, indicate
proportion
to
acquire or
the existence
of a lawsuit that could subject
Pablo to a
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Page 43 of 103 children.

They
Page
42 ofthen
44
103 brought the
of assignment
to the
On December
2) to have
6, 1988,
more shares
A, an incorporator
with which to pay forthedeed
majority
stockholders
canproper
alwayscorporate
Chattel
Mortgage
forvote,
vs.
registration
After-Incurred
with
Obligations
the the
request
(1999) for
acquisition
of more
assets
acquisitionmuster
ofofficers
and the
the
General
Manager
of the
Pajelike
Multi
a 2/3
would you
allow
transfer
the corporation's
stock
stocks,
ormajority
Onthe
December
1,in1996,
Borrower
executed
a
Farms Co,company
resignedcar,
as GM
and house,
sold to machinery
the
stockholders
to
remove the
one and
SUGGESTED
ANSWER:
business;
andof stocks in the
transfer
books in
of favor
the
assigned
shares,
chattel
mortgage
of the Bank
to the
corporation
his shares
director
representing
the
minority?
I will
not allow
thestock
majority
3) to have
extra share
with value
which to cover orNo.
cancellation
the
in PX's
secure
a loan
ofof
P3M.
In
duecertificates
time the loan
corporation
for P300th,
the book
stockholders
to
remove
the
director.
While
the
requirement
for
declaration
of
stock
meet
name,
and
the
issuance
of
new
stock
was
paid.
On
December
1,
1997,
Borrower
thereof, payable as follows: a) P100th as
the
stockholders
may,
by
2/3
vote,
remove
dividend.
certificates
in the
names
of his
wife
and his
obtained
another
loan
foraP2M
which
the
down payment;
b) P100th on or before 31
a
director,
the
law new
also
provides,
however,
children
as under
the
The
officers
Bank
granted
theowners.
same security
as of
July1989; and c) the remaining balance of
that
his
right
may not,
just cause,
Stocks;on
Sale,
Certificates
of Stock
the
Corporation
denied
request
on the
that
which
secured
thewithout
firstthe
loan.
P100th
or Transfer
before of
30
Sep 1989.
A (1996)
be
exercised
soanother
as to Borrower
deprive
minoritythe
of
Arnold has
in his
name
1,000 sharesclause,
of the
Forground
the second
loan,
merely
that
heir isthe
contesting
promissory
note,
with
an acceleration
The
corporation
failed
to
pay
the
first
representation
in
the
BOD
(Sec
28
Corp
code;
capital
stock
of
ABC
Co
as
evidenced
by
a
delivered
a
promissory
note;
no
new
chattel
validity of
the (1996)
deed of assignment. May the
was executed by the corporation for the
Stockholders;
Rights
installment
on due date.
A then
sued Paje
on
Govt
vs Agoncillo
50p348)
stockbalance.
certificate.
Arnold
delivered
the stock
mortgage
agreement
was executed
as the to
Corporation
be
compelled
by mandamus
unpaid
What
are
the ANSWER:
rights
of a
SUGGESTED
thecertificate
promissory
in the
Does to
thebe
tonote
Steven
whoRTC.
nowa)
claims
parties
relied
on
a
provision
in
the
1996
registerANSWER:
the shares of stock in the names of
SUGGESTED
stockholder?
Yes. The
corporation
may be
compelled
by
court
jurisdiction
the case?
thehave
real owner
of theover
shares,
havingb)paid for
chattel
mortgage
agreement
which
included
the
assignees?
Explain briefly.
The
rights
of
ato
stockholder
are
as(5%)
follows:
1) in
mandamus
register
the
shares
of
stock
Would
your subscription.
answer be theABC
same
if A instead
Arnolds
refused
to
future
debts
as among
the obligations
The
right
to
vote,
including
the right
the
name
ofMortgagor
the
assignee.
onlytolegal
In
case
the
executes
sold
his shares
to register
his friend
Mabel and
the
recognize
and
Stevens
ownership.
secured
by
the
mortgage.
TheThe
provision
appoint
a
proxy;
2)
The
right
to
share
the
SUGGESTED
ANSWER:
limitation imposed
by Section
ofin
the
subsequent
promissory
note or 63
notes
either
latter
filed
a case
with the Explain.
RTC against the
Is the
refusal
justified?
reads:
profits
of
the
corporation,
including
the
ABCs
refusal
to
recognize
and
register
Corporation
when theor
Corporation
as
a renewal, Code
as an is
extension,
as a new
corporation to compel it to register the sale
right
tothis
declare
stockclaim
dividends;
3)the
The
is justified.
Theinfacts
holds
anymortgage
unpaid
against
shares
loan,
shall
also stand
as
andStevens
to issueownership
new certificates
of stock
her
right
to
a
proportionate
share
of
the
assetsclaim
SUGGESTED
ANSWER:
indicate
that
the
stock
certificate
for
the
intended
to
be
transferred.
The
alleged
security
for
the
payment
of
said
promissory
name?
the corporation upon liquidation; 4) The
of
a) The
RTC
has jurisdiction
case. of
1,000
shares
in question over
is in the name
of another
heir
of PX necessity
is not sufficient
to deny
note
notes
without
of executing
right
oforappraisal;
5) The pre-emptive
right
TheArnold.
SC said
that a corporation
maywas
only buy
Although
the certificate
the
issuance
of
new
certificates
of
stock
new contract
mortgage
shall to
toashares;
6) The and
rightthis
to inspect
corporate
its delivered
own shares
stock to
if it
has enough
byof
Arnold
Steven,
the facts do
his
wife
and
children.
It
would
be
haveand
the records;
same force
and right
effectto
aselect
ifotherwise
the said
books
7) The
surplus
profits therefore.
not indicate
that the certificate was duly
if
the
transferee's
title
to
the
shares
has
promissory
note
or
notes
were
existing
onno
directors;
8)Doctrine
Such
other
rightssecond
as may
Trust
Fund
(1992)
b) My
answerbywould
beat
the
same.
action
Asdate
Borrower
failed
to pay
endorsed
Arnold
the
time An
it was
prima
facie
validity
or isthe
uncertain.loan,
hereof.
contractually
be granted
toa promissory
ABank
Corporation
executed
note
to compel
a corporation
register
a sale
the
proceeded
to foreclose
the Chattel
delivered
to Steven ortothat
the procedure
for
the stockholders
by its
thePresident/Director,
corporation or
binding
itself
to
pay
andthe
to effective
issue newtransfer
certificates
of
stock
is
Mortgage.Borrower
sued
the
Bank
claiming
of shares of stock set
by special
law.
who
tendered
his
a certain
itself
matter
that
thehad
mortgage
was
noresignation,
longer in force.
outan
inintra-corporate
the by-laws of ABC
Co,that
if any, was
sum in claimed
paymentthat
of the
latters
shares and
exclusively
lies
withthe
thecertificate
RTC.
Borrower
a
fresh
chattel
observed.
Since
was not
Stockholders; Voting Power of Stockholders (1990)
TAKE NOTE: The RTC has jurisdiction over the
interests
in thehave
company.
The corporation
mortgage
should
beenshares
executed
whenof
endorsed in favor of Steven (or anybody else
Mercy
subscribed
to 1,000
of stock
cases
which
involves
intra-corporate
defaulted
in
paying
the
full
amount
sothe
that
the
second
loan
was
granted.
a)
Decide
for
that
matter),
the
only
conclusion
could
be
Rosario
Corporation.
Shefiled
paidsuit
25%for
of collection
said
Stocks; Sale,As
Transfer
of Certificates
of Stock (2001)
controversy.
of 2006,
the applicable
rule
said
former
President
case
and ratiocinate.
(4%)
b) Suppose the
no
than that the
shares
in question still
subscription.
During
the
stockholders
A isother
the registered
owner
of Stock
is that
there
is a TRANSFERRED
would
its validity
and
effectiveness
be
of
the
balance
before
the
SEC. a) Under
chattel
mortgage
was
not
registered,
belong
to
Arnold.
(Razon v IAC GR 74306 Mar
meeting,
can Mercy
vote
all her
subscribed
Certificate No.
000011.
He
entrusted
the
JURISDICTION
under
Sec.
5.2
of
the
SRC,
impaired?
Explain.
(4%)
what
conditions
is
a
stock
corporation
16,92 207s234)
SUGGESTED
ANSWER:
shares?
Explain.
of said
certificate
to his
best
SUGGESTED
ANSWER:
thepossession
Commissions
jurisdiction
over
all cases
empowered
acquire
itssubscribed
own shares? b) Is
Yes,
Mercy
can to
vote
all of
her
1 the arrangement
The foreclosure
the the
chattel
friend B who
borrowed
thesec.
said5 endorsed
enumerated
under
PD 902-A
has been
between
corporation
shares.
Section
72 ofthe
thesecond
Corporation
mortgage
regarding
loantrust
isCode
not
certificate
support
for
transferred
toto
the
CourtsBs
of application
general
and
its
President
covered
by
the
fund
states
that
holders
of
subscribed
shares
not
SUGGESTED
ANSWER:
valid.
A
chattel
mortgage
cannot
validly
passport or
(orthe
for appropriate
a purpose other
than Trial
jurisdiction
Regional
doctrine?
Explain
your
answers
briefly.
fully
paid
which
are
not
delinquent
shall
a) A after
stockincurred
corporation
may onlyThe
acquire its
secure
obligations.
transfer). But B sold the certificate to X, a
Court.
have
all
the
rights
of
a
stockholder.
own
shares
of
stock
if
the
trust
fund
affidavit
of good
faithStock
required
under the
bona fide purchaser who relied on the
Stocks;
Increase
Capital
(2001)
doctrine
isofnot
impaired.
Thisprovides
is to say,that
for
Stockholders;
of Officers
& BOD
(2001) him to be
chattel
mortgage
law
expressly
endorsedRemoval
certificates
and
believed
Suppose
X Corporation
has
an authorized
instance,
that
it
may
purchase
its
own
In the
1999,
Corporation
A
passed
a
board
the
foregoing
mortgage
is
made
for
owner thereof.
a) Can
A claim (1991)
the shares
capital
stock
of P1M
into
100,000
Chattel
Mortgage
vs. After-Incurred
Obligations
SUGGESTED
ANSWER:
shares
of stock
by divided
utilizing
merely
its
resolution
removing
X from
his b)
position
as
securing
the
obligation
specified
in the
of
stock
from
X?
Explain
(3%)
Would
your
shares
of
stock
with
par
value
of
P10
each.
To
secure
the
payment
of
an
earlier
loan
of
ALTERNATIVE
ANSWER:
a)
No.
Assuming
that
the
shares
were
surplus
profits
over
and
above
the
manager
ofbesaid
corporation.
The
by-laws
of
conditions
hereof,
and
for
no
other
purpose.
answer
the
same
if
A
lost
the
stock
a)
(antwo
answer
enumerating
the
instances or
a) Give
ways
whereby
authorized
P20,000
astransferred
wellprovides
as subsequent
loans
which
already
tothat
B, Athe
cannot
claim the
subscribed
capital
of thesaid
corporation.
A corporation
officers
The
after-incurred
obligation
not
being
certificate
in question
or
if it was
stolenare
from
cases
under
the
Corporation
Code
where the
capital
stock
may
be
increased
to
about
her
friend
Noreen,
would
extend
to
her,
of stock from X. The certificate
theshares
president,
treasurer of
and
specified
in the
affidavit,
ispractical
notof
secured
by
him?
(2%) vice-president,
Corp
allows
the
acquisition
shares
such as
P1.5M.
(3%)
b)
Give
three
reasons
Karen
executed
in
favor
of
Noreen
a
chattel
stock
covering
said
shares
have
been
duly
secretary. Upon complaint filed with the
mortgage.
in
the
stockholders
exercise
of
appraisal
for
a
corporation
to
increase
its
capital
stock
mortgage
over
her
(Karen)
car.
Is
the
endorsed
by
A
and
entrusted
by
him
to
B.
SEC,
it held
that a manager could be
2
The of
chattel
mortgage
is not
valid
SUGGESTED
ANSWER:
SUGGESTED
ANSWER:
right,Yes.
failure
bids in
the sale of
delinquent
(2%)
mortgage
valid?
By his said
acts,resolution
A is now estopped
from of
removed
by
mere
of the board
a) Two
ways
of
increasing
the
Authorized
as
against
any
person,
except
the
mortgagor,
A chattel
mortgage
cannot
effectively
secure
shares, etc.)
claimingOn
said
sharesfor
from
X, a bona fide X
directors.
motion
reconsideration,
Capital
StockANSWER:
of X administrators.
corporation to P1.5M are:
his
executors
and
SUGGESTED
after-incurred
obligations.
While
a stipulation
purchaser
who
relied
on
the
endorsement
alleged
that
he could onlyobligations
be removed
by
the
1)The arrangement
Increase the between
number of
shares
b)
the
to
include
after-incurred
in
a
b)
Yes.
In
the
case
where
the
certificate
of
by A of the vote
certificate
ofthe
stock.stockholders
affirmative
of
from
100,000
to
150,000
shares
with
the
corporation
and
its
President
to
the
extent
chattel
is itself
not invalid,
thea right
stockmortgage
was
lost or
stole from
A, A has
SUGGESTED
ANSWER:
representing
2/3
of
the
outstanding
capital
same
par
value
of
P10.00
each.
that
it
calls
for
the
payment
of
the
latters
obligation
however,
be
deemed
No.toStockholders
approval
necessary
only
claimcannot,
the certificate
ofis
stock
from the
2)
Increase
value
of 100,000
stock.
Xs contention
legally
tenable.
Why?
shares
is
coveredpar
by the
trust
fund doctrine.
automatically
secured
by
that
mortgage
until
for
theIsremoval
of
members
of the
the same.
BOD.
thief
who
has
nothe
right
or
title
to
(5%)
shares
to
P15.00
each.
The
only
exceptions
from
the
trust
fund
after
a
new
chattel
mortgage
or
an
ForOne
the who
removal
of any
a corporate
officer
or
has lost
movable or
has been
doctrine
are
the
redemption
of
redeemable
addendum
to
the
original
chattel
mortgage
is
employee,
thedeprived
vote of thereof,
the BODmay
is sufficient
unlawfully
recover it
b) Three
reasons
forclose
a corporation
sharespractical
and, in the
case of
corporation,
executed
to person
cover the
obligation after
has
forfrom
the purpose.
the
in possession
of theit same.
to
increase
its
capital
stock
are:
1) to
Stocks;
Sale,
Transfer
of
Certificates
of
Stock
(2004)
when
there
should
be
a
deadlock
and the
Stockholders;
Removal;
Minority
Director
(1991)
been
actually
incurred.
Accordingly,
unless
(Art 559 NCC)
generate
more the
working
capital;
SEC orders
payment
of the appraised
Four
months
before
his death,
PX
Assuming
that the
minority
block
of assigned
the XYZ
such
supplements
are
made,
the chattel
Trust
Intra-Corporate
Controversy (1991)
valueFund
of aDoctrine;
stockholders
share.
100 shares
stock
in1his
Corporation
isofable
toregistered
elect
director
mortgage
in the
problem
givenonly
would
bename
favor
of his wife
andintherefore,
deemed
to secure
onlyand
thehis
loan of P20,000
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Credit Transactions

(Sec 5 Act 1505; Belgian Catholic Missionaries v

Magallanes Press 49p647)

Mercantile Law Bar Examination Q & A (1990-2006)

Would the seller-mortgagee be legally

justified in foreclosing on this second chattel
SUGGESTED
mortgage?ANSWER:
No. The two mortgages were executed to
secure the payment of the unpaid
installments for the purchase of a new car.
When the mortgage on the old car was
foreclosed, the seller-mortgagee is deemed
to have renounced all other rights. A
foreclosure of additional property, that is,
the new car covered by the second mortgage
Chattel
Ownership of Thing Mortgaged (1990)
wouldMortgage;
be a nullity.
Zonee, who lives in Bulacan, bought a 1988
model Toyota Corolla sedan on July 1, 1989
from Anadelaida, who lives in Quezon City,
for P300th, paying P150th as downpayment
and promising to pay the balance in 3 equal
quarterly installments beginning October 1,
1989. Anadelaida executed a deed of sale of
the vehicle in favor of Zonee and, to secure
the unpaid balance of the purchase price,
had Zonee execute a deed of chattel
Ten
days after
thevehicle
execution
of the
mortgage
on the
in Anadelaidas
abovementioned
documents,
Zonee had the
favor.
car transferred and registered in her name.
Contemporaneously, Anadelaida had the
chattel mortgage on the car registered in
the Chattel Mortgage Registry of the Office
of the Register of Deeds of Quezon City.
In Sep 1989, Zonee sold the sedan to Jimbo
without telling the latter that the car was
mortgaged to Anadelaida. When Zonee failed
to pay the first installment on October 1,
1989, Anadelaida went to see Zonee and
discovered that the latter had sold the car to
Jimbo. a) Jimbo refused to give up the car on
the ground that the chattel mortgage
executed by Zonee in favor of Anadelaida is
not valid because it was executed before the
car was registered in Zonees name, i.e.,
before Zonee became the registered owner
of the car. Is the said argument meritorious?
b) Jimbo also argued that even if the chattel
Explain your answer.
mortgage is valid, it cannot affect him
because it was not properly registered with
the government offices where it should be
registered. What government office is Jimbo
SUGGESTEDto?
ANSWER:
referring
a) Jimbos argument is not meritorious.
Zonee became the owner of the property
upon delivery; registration is not essential
to vest that ownership in the buyer. The
execution of the chattel mortgage by the
buyer in favor of the seller, in fact, can
demonstrate the vesting of such ownership
b)
Jimbo
was referring to the Register of
to the
mortgagor.
Deeds of Bulacan where Zonee was a
resident. The Chattel Mortgage Law
requires the registration to be made in the
Office of the Register of Deeds of the
province where the mortgagor resides and
also in which the property is

Page

45 of 103

situated as well as the LTO where the

vehicle is registered. (Sec 4 Chattel
Mortgage Law)
Credit Transactions (1999)
Various buyers of lots in a subdivision
brought actions to compel either or both the
developer and the bank to lease and deliver
free and clear the titles to their respective
lots.
The problem arose because notwithstanding
prior sales mostly on installments made by
the developer to buyers, developer had
mortgaged the whole subdivision to a
commercial bank. The mortgage was duly
executed and registered with the appropriate
governmental agencies. However, as the lot
buyers were completely unaware of the
mortgage lien of the bank, they religiously
As
the
developer
failed
to under
pay itstheir
loan,sale
the
paid
the
installments
due
mortgage
contracts. was foreclosed and the whole
subdivision was acquired by the bank as the
highest bidder. a) May the bank dispossess
individual
lotsof
or, alternatively, require
prior
purchasers
them to pay again for the paid lots?
b) Discuss
What(3%)
are the rights of the bank vis-vis those buyers with remaining unpaid
installments? Discuss. (3%)
Recommendation: Since the subject matter
of these two (2) questions is not included
within the scope of the Bar Questions in
Mercantile Law, as it is within Civil Law, it is
suggested that whatever answer is given by
the examinee, or the lack of answer should
be given full credit. If the examinee gives a
good answer, he should be given additional
SUGGESTED ANSWER:
credit. No. The bank may not dispossess the
1

prior purchasers of the individual lots, much

less require them to pay for the said lots.
The bank has to respect the rights of the
prior purchasers of the individual lots. The
purchasers have the option to pay the
installments of the mortgagee.
2
The bank has to respect the rights of
the buyers with remaining unpaid
installments. The purchaser has the option
to pay the installments to the mortgagee
who should apply the payments to the
mortgage indebtedness.
Chattel Mortgage; Foreclosure (1997)
Ritz bought a new car on installments which
provided for an acceleration clause in the
event of default. To secure payment of the
unpaid installments, as and when due, he
constituted two chattel mortgages, i.e., one
over his very old car and the other covering
the new car that he had just bought as
aforesaid, on installments. After Ritz
defaulted on three installments, the sellermortgagee foreclosed on the old car. The
proceeds of the foreclosure were not enough
to satisfy the due obligation; hence, he
similarly sought to foreclose on the new car.

Mercantile
Law Bar Examination Q & A (1990-2006)
Page 46 of 103
Mercantile Law Bar Examination
Q & A (1990-2006)

ToPage
pay 47
forofher
103loan obtained
from
constituted
Stelas favor
Because
Five
yearsoflater
business
after completing
reverses, neither
paymentthe
of
b. Stela,
The Liza
lease
rentals in belong
to athe
countered
that
it had
built
chattel
mortgage
over anthe
electric
generator.
theLDC
Borrower
purchase
nor Mr.
price,
Timbol
debtor
was
obtained
able on
to the
pay
titlethe
to
mortgagor.
However,
mortgage
extends
property
theextrajudicially
prior
Cecil,
creditornot
of Liza,
on
themortgaged
loan.
lot.
InAnd
Juneeven
2001,
as thewith
chattel
Bank
mortgage on
to arentals
yet levied
received
when the
of two
mortgagee
whichmortgages,
had debtor
received
attachment
generator.
a third
theknowledge
foreclosed
house the
was
still
real subsisting,
estate
obligationthe
becomes
dueStela
and filed
the mortgagee
formal
lease.
Howlot
would
you
party
claim.
the claim.
mortgaged
with
the notice
Bank
to of
asathe
the
bank
onlya)
the
bidder
in and
the
may
ran Cecil
afteropposed
the said
rentalsRule
for the
SUGGESTED
ANSWER:
mortgagee
and
LDC?
b)the
Is
resolve the
dispute
between
on
their conflicting
claims. debt.
improvement
foreclosure
sale.
thereon
On
September
to(3%)
secure
16,
a the
loan.
2001,This
the
payment
of the mortgage
Mortgage; Foreclosure; Effect of mere taking by creditormortgagee
entitled
thetwo
lease
rentals
due
real
certificates
estate of
mortgage
sale of to
the
was
duly
properties
registered
in
Mortgage;
Extrajudicial
Foreclose
mortgagor
of property
(1992) (2006)
Due
to
business
reverses,
failed
to
the
lease
agreement?
andfrom
favor
annotated
of LDC
the under
Bank
at the
were
back
registered
ofdebtor
the title.
with (3%)
the
A
real
estate
mortgage
foreclosed
Recommendation:
Since
the
subject
matter
of
Ten
months
later,
both
the
Borrower
and
Mr.
pay his creditors.
The
chattelCity.
mortgage was
X & Co obtained a loanmay
frombea local
bank in
Register
of Deeds of
Quezon
(2) when
questions
is not
included
withintothe
these
twoto the
judicially
or extrajudicially.
In what
instance as
Timbol
were
able
raise
sufficient
funds
foreclosed
debtor
failed
the amount
of P500th,
mortgaging
scope
of the Bar
Questions
Mercantile
may
a mortgagee
extrajudicially
foreclose
a
redeem
their
properties
from
the
reimburse
therespective
surety
company
for in
payments
security
therefore
its
real
property.
SUGGESTED
Law,
as Bank
it In
is the
within
Civil
it is
real
estateANSWER:
mortgage?
(5%)
Bank,
but
refused
to Law,
permit
made on
thethe
bond.
foreclosure
sale,
Subsequently,
the company
applied with the
When a sale is made under a special power
is given
redemption
on the that
ground
thatanswer
the
the suretysuggested
company
waswhatever
awarded
the period
house
same bank for a Letter of Credit (LC) for
by the examinee, or the lack of answer
inserted or attached to any real-estate
for
redemption
had already expired, so that
as the
highest
bidder.
$200th in favor of a foreign bank to cover
be givensale
fulldid
credit.
If the
mortgage, thereafter given as security for the
Only
aftershould
the
foreclosure
the surety
theSUGGESTED
Bank
now
has
absolute
ownership
of
the importation of machinery. To guarantee
ANSWER:
examinee gives a good answer, he should
payment of money or the fulfillment of any
company
learn
of the
real
estate
mortgage
in
a. The
mortgagee
has
a
better
right
than
both
properties.
The
Borrower
and
Mr.
payment of the obligation under the LC, the
be given additional credit.
other obligation, then the mortgagee may
favor
of came
the
lending
on the lottoand
LDC.
The
Timbol
to mortgage
you investor
today, extends
September
15,the
company and its President and Treasurer
extrajudicially
foreclose
the was
realreleased
estate to
The
machinery
arrived
and
the
improvement
thereon.
Immediately,
it
improvements
introduced
on of
thethe
land,
with
2002,
to find out if
the position
Bank
executed
a surety
agreement
in the local
Mortgage;
Foreclosure
(2003)
mortgage
(Sec.
1,
Act
No.
3135,
as
the
company
under a trust receipt
filed
a complaint
exclusion
of
declarations,
amplifications,
and May
is the
correct.
Whatpraying
would for
be the
your
answer?
banks
favor.
the
sale
at
public
auction
by
a
bank
of
SUGGESTED
ANSWER:
amended).
agreement. As the company defaulted inathe
the
house
from
the(5%).
real estate
mortgage.
limitations
established
by law,
whether Itthe property
State
your
reasons
to it be
1
With
respect
to
the
real
estate
mortgage
paymentmortgaged
of its obligations,
the nullified
bank took
was
submitted
that in
as the
mortgage
estate
remains
the chattel
possession
of the because
the
price
was
extremely
low? Why?
over
the land and
owned by the
possession
of
the
imported
machinery.
At the
was
executed
andbuilding
registered
it was
mortgagor
or
passes
into ahead,
the hands
of a SUGGESTED
ANSWER:
Borrower,
Primetime
Corporation,
a juridical body,
same time, it sought to foreclose the
superior
the real
estate
mortgage.
third to
person
(Art
2127
NCC). The notice
the
period
of redemption
is only three
(3) months,
On the
suggestion
that a chattel
mortgage
on
mortgaged
property
and to hold the
Foreclosure
(2003)
given by LDC to the mortgagee was not Mortgage;
which
period
already
expired.
a house- a real property- was a nullity, the
company
as
well
as
itsand
President
Jeanne toand
enough to remove the building from Because of failure of Janette
2
to the real
estate mortgage
overthe
the
Did
the taking
of under
possession
ofSurety
the
surety As
company
countered
that when
Treasurer,
liable
the
coverage of the mortgage considering that pay their loan to X Bank, the latter
residential
house and
owned bydebtor
Mr. Timbol,
machinery
by
the
bank
result
in
the
1)
full
chattel mortgage
waslot
executed,
was
Agreement.
on the mortgage constituted on
the building was built after the mortgage foreclosed
the
redemption
is lot
one on
(1) which
year from
payment of the obligations of the company
not period
yet theof owner
of the
the the
was constituted and the notice was only as their property which was put up by them as
date
registration
of the certificate
of sale,
and its officers, and 2) foreclosure of the
houseofwas
built. Accordingly,
the house
was
for the payment of the loan. The
regards
thethe
lease
and
notposition
as totaken
the security
SUGGESTED
1 personal
Discuss
validity
of the
which
period
has not
yet aexpired
in
this case.
mortgage?ANSWER:
a
property
and
proper
subject
of a
paidtaking
for theofproperty
at the
foreclosure
construction
of the(3%)
building. Since the price
1)
The
possession
of the
machinery
by
the
surety
company.
chattel mortgage.
sale
was
not
enough
to
liquidate
the of
mortgagee
was
informed
of
the
lease
and
did
by the bank did not result in full payment
2
Who has a better claim to the house, the
obligation.
The
bank
sued
for
deficiency.
not
object
to
it,
the
mortgagee
became
the obligations owing from the companyIn
and
surety company or the lending investor? Explain
their
and ofJeanne
did not
bound
by
the
terms
of
the
lease
when
it
Mortgage;
Remedies
(2003)
its answer,
officers. Janette
The taking
such possession
(3%)
deny
thebe
existence
of the
loan nor
fact of in
the
property
the
bidder.
Carmakers,
Inc.,
sold a as
motor
vehicle
on
must
considered
merely
as athe
measure
3 acquired
Would
the
position
of
the highest
surety
company
their
default.
They,
however,
interposed
thethe
Hence,
the
mortgagee
steps
into
the
shoes
of
installment
basis
to
Chari
Paredes.
The
order to protect or further safeguard
be bolstered by the fact that it acquired title in a
SUGGESTED
ANSWER:
defenses
that
the
price
at
the
auction
was
the
mortgagor
and
acquires
the
rights
of
the
transaction
was
reflected
on
a
promissory
banks
security
interest.
Dacion
en
pago
can
foreclosure sale conducted by the Provincial
a)
The
house
is
always
a real
property
even
extremely
low
and
that
their
loan,
despite
lessor
under
Art
1768
of
the
NCC.
This
note
executed
by
Chari
in
favor
of
only
be
considered
as
having
taken
place
1st
Alternative
Answer:
Sheriff. Explain (3%)
SUGGESTED ANSWER:
197 saccepts
1)
though
was
constructed
on
athe
land
nota
loanv aPineda
documents,
was a and
long-term
loan
provision
gives
the
lessor
right
to the(PNB
a. Theit mortgagee
haswas
a better
right
to
the
Carmakers.
The
note
secured
by
when
creditor
appropriates
belonging
to
the
builder.
However,
the
which
not yetof
If (1999)
you
were the
appropriate
condominium
building
but Mortgage;
building.over
Under
2127
of the
NCC, the
mortgage
theArt
car.
Contemporaneous
the had
ownership
ofmatured.
the goods
in
payment
of a
Foreclosure
Improvements
2)
mere
of onpossession
of
parties
may
treat
as
personal
property
judge,
howobtained
would taking
you
rule
the case?
after
paying
theit lessee
half
of the
of Borrower
mortgage
extends
toa the
all
improvements
with
the
execution
of
note
andvalue
theon
due The
obligation.
a
loan
against
the
mortgaged
assets
does
not
amount
to
and
constitute
a
chattel
mortgage
thereon.
Why? (6%)
the building
that
time.regardless
Should
theoflessor
mortgaged
property
who
mortgage
deed,atCarmakers,
Inc., assigned
security
of a mortgage
on arequires
parcel ofa land.
foreclosure.
Foreclosure
sale at
Such
mortgage
shall
be
valid
and
binding
to reimburse
said
amount,
the lessee
and
when
the recourse
improvements
were
therefuse
instruments
sans
to
Adelantado
While
the
mortgage
was
subsisting,
public
auction.
The
foreclosure,
therefore,
but
only
on
the
parties.
It
will
not
bind
or
may
remove
the
improvement
even
though
introduced.
LDC cannot
otherwise,
Finance
Corporation.
Charicomplain
defaulted
in her
borrower
fifty years the
b)
The
lending
investor
hasthe
a better
claimittowas
SUGGESTED
ANSWER:
has not asleased
yet beenfor
effected.
affect
third
parties.
the
land
will
sufferthat
damage
thereby.
because
it Could
knew
property
obligations.
Adelantado
Finance
mortgaged
property
to
Land
Development
Mortgage; Redemption Period; Foreclosed
Property
Preference
of Credits
(2002)real estate mortgage
the
house.
The
2nd
alternative
leasing
wasAnswer:
mortgaged
it built
the
corporation
take
action when
against
both
Company
(LDC).
The
mortgagee
was duly
(2002)
As
June
1,that2002,
Edzo
Systems
a. ofAssuming
the
office
condominium
covering
the
house
and
lot
was
duly
condominium.
Carmakers
Inc., and Chari? Why? (6%)
advised
the lease. (the
Thereafter,
Mortgageof
Primetime
(1999)
Corporation
Borrower)LDC
Corporation
(Edzo)
was
indebted
the the
was
duly
constituted
under
registered
and
binds
the parties
andto third
constructed
on
the
mortgaged
property
an
(1)
Ace
Equipment
Supplies

for
various
obtained
a P10 Million,
five-year
term
loan
following
creditors:
Debtor purchased
a parcel
of land
from
a
Condominium
before
LDC
could
validly
persons.
On theLaw,
other
hand,
the
chattel
Borrower
defaulted on his loan and
office
condominium.
personal
computers
and
accessories
sold
to
from
Universal
Bank
(the
Bank)
in
1996.
As
realty
company
payable
in
five
yearly
constitute
same securing
as a condominium,
mortgage
on the house
the credit it
mortgagee foreclosed the mortgage. At the
Edzo
on
credit
amounting
to
P300,000.
security
for
the
loan
and
as
required
by
the
installments.
Under
the
contract
of
sale,
title
causecompany
to be recorded
the register
of should
the surety
did notinaffect
the
foreclosure sale, the mortgagee was
(2)
Handyman
such
for mechanical
Bank,
Borrower
gave the following
to the the
lot would
be transferred
upon full
of
deeds
of Garage
the
province
or
where the
rights
of third
parties
as city
the lending
awarded the property as the highest bidder.
c)
repairs
No.
The
(parts
chattel
and
service)
mortgage
performed
over
the
on
house
collateral
security
in
favor
of
the
Bank: 1) a
payment
of
the
purchase
price.
land
is
situated
an
enabling
or
master
deed
investor despite registration of the chattel
TheBut
corresponding
Certificate
of
Sale was in
owned
by
the full
Borrower
and
which
Edzos
company
was among
foreclosed
car others,
amounting
did a not
to P10,000.
affect of
thethe
even
before
payment,
debtor
real
estate
mortgage
over the
landlocated
and
showing,
certificate
mortgage.
executed
after
the the
lapse
oflot.
oneSometime
year,several
title
(3)
Joselyn
Reyes
former
of
Quezonand
City;
2)
joint
and
rights
of third
parties
the
constructed
a house
on the
building
registered
owner
andlike
ofemployee
all lending
registered
was
consolidated
inof
the
name
ofBorrower;
mortgagee.
Timbol,
the
President
of
the
and
Edzo
who
sued
Edzo
for
unlawful
promissory
note
Pr.
Primo
investor.
Since
the
third
parties
are
not
thereafter,
debtor
mortgaged
the
house
to
holders of any lien or encumbrance on the
Mortgagee then applied with the RTC for
3)
a
real
estate
mortgage
over
the
termination
of
employment
and
was
able
to
bound
by
the
chattel
mortgage,
they
are
not
secure
his
obligation
arising
from
the
property
that
they
consent
to
the
the issuance
of aby
writ
ofTimbol,
possession
not onlyin Quezon
lot owned
Mr.
also
located
residential
and
obtain
a final judgment
against
for
also
bound
by
anydeed.
enforcement
of
its If
issuance
of house
a but
bond
needed
incondominium
the conduct
of
registration
of the
(SecEdzo
4. RA
4726).
over
the
land
also
the
(4)
Bureau
offoreclosure
Internal Revenue
for
City.
P100,000.
provisions.
The
of
such
chattel
his
business.
The
mortgage
was
duly
the mortgagee gave its consent thereto, then
building. The mortgagee contended that the
SUGGESTED
unpaid
value-added
taxes amounting
to
mortgage
didANSWER:
not
bolster
or consent
add anything
to
registered with
the proper
mortgage
LDC should
prevail.
If no
was given,
mortgage
included
all chattel
accessions,
Mortgage
vs. Levy
(2003)
P30,000.
thethe
position
of
the
surety
company.
registry.
condominium was included in the
improvements and accessories found on the
mortgage.
mortgaged property.

Page

48 of 103

(5) Integrity Bank which granted Edzo a

loan in 2001 in the amount of P500,000. The
loan was not secured by any asset of Edzo,
but it was guaranteed unconditionally and
solidarily
by
Edzos
President
and
controlling stockholder, Eduardo Z. Ong, as
accommodation surety.
The loan due to Integrity Bank fell due on
June 15, 2002. Despite pleas for extension of
payment by Edzo, the bank demanded
immediate payment. Because the bank
threatened to proceed against the surety,
Eduardo Z. Ong, Edzo decided to pay up all
its obligations to Integrity Bank. On June 20,
2002, Edzo paid to Integrity Bank the full
principal amount of P500,000, plus accrued
interests amounting to P55,000. As a result,
Edzo had hardly any cash left for operations
and decided to close its business. After
paying the unpaid salaries of its employees,
How would you, as judge in the insolvency
Edzo filed a petition for insolvency on July 1,
proceedings, rank the respective credits or
2002.
claims of the five (5) creditors mentioned
above in terms of preference or priority
SUGGESTED
ANSWER:
against
each
other? (5%)
The claim of Handyman Garage for P10,000
has a specific lien on the car repaired.
The remaining four (4) claims have
preference or priority against each other in
(1)
No. 4 order:
claim of the BIR for unpaid
the following
value added taxes
(2)
No. 3 claim of Joselyn Reyes for
Unlawful termination
(3)
No. 1 claim of Ace equipment
Supplies as an unpaid seller; and
(4)
No. 5 claim of
Integrity Bank.

Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

1989,the
citing
Gcrcio
Sun Life,
G.R.When
No. Anjo
over
vehicle
inv.favor
of IOU.
23703, September
28, 1925;the
andchattel
Go v.
defaulted,
IOU foreclosed
Redfern, G.R.
No.
47705,toApril
25, 1841);
mortgage,
and
sought
recover
the
(2) deficiency.
NeitherMay
can IOU
the Insured
take the
still recover
the
cash
surrender
value, assign or even borrow
SUGGESTED
ANSWER:
deficiency?
Explain.
may no
longerthe
recover
the deficiency.
on IOU
said policy
without
beneficiary's
Under(Nario
Art 1484
of the NCC,
in 22796,
a contract of
consent
v. Philamlife,
G.R. No.
June
26, of
1967);
sale
personal property the price of which
(3)is payable
The Insured
cannot add the
another
in installments,
vendor may,
beneficiary
because
that would
reduce
among several
options,
foreclose
thethe
chattel
amount
whichon
the
first
beneficiary
mayhas been
mortgage
the
thing
sold, if one
recover
and therefore
affectfailure
his
constituted,
shouldadversely
the vendees
to
vested
right
(Go
v.
Redfem,
G.R.
No.
47705,
pay cover two or more installments. In such
April
25, 1941);
case,
however, the vendor shall have no
(4) Unless the policy allows, the Insured
further action against the purchaser to
cannot even designate another beneficiary
recover any unpaid balance of the price and
should the original beneficiary predecease
any agreement to the contrary is void. While
him. His estate acquires the beneficiary's
the given facts did not explicitly state that
vested right upon his death; and
pay covered
(5)Anjos
Thefailure
Insuredtocannot
allow his 2 or more
installments,
this
may
safely
be policy.
presumed
creditors to attach or execute
on the
because
the
right
of
IOU
Co
to
foreclose
the
(Philamlife v. Pineda, G.R. No. 54216, July 19,
chattel mortgage under the circumstances is
1989)
premised on Anjos failure to pay 2 or more
installments. The foreclosure would not have
been valid if it were not so. (The given facts
did not also state explicitly whether Anjos
default was a payment default or a default
arising from a breach of a negative pledge
or breach of a warranty. In such case,
however, IOU Company would not have been
able
to Available
foreclose
the chattel(2001)
mortgage
Remedies;
to Mortgagee-Creditor
validly
as
such
foreclosure,
under
Debtor A issued a promissory note in the
circumstances
by the bank
law,
amount
of P10Mcontemplated
in favor of commercial
could
only be
for aofpayment
default
Y
secured
byeffected
mortgage
his properties
covering
two or
moreA installments)
worth
P30M.
When
failed to pay(Luis
his
Ridad v Filipinas
Investment
and Finance
indebtedness,
despite
demands
made Co
by
GR L-39806
Jan27,83
120s246)
bank
Y, the latter
instituted
a collection suit
to enforce payment of the P10M account.
Subsequently, bank Y also filed foreclosure
proceedings against A for security given for
SUGGESTED ANSWER:
the
account. If you were the judge, how
The case for collection will be allowed to
would you resolve the two cases? (5%)
proceed. But the foreclosure proceedings
have to be dismissed. In instituting
foreclosure proceedings, after filing a
collection case involving the same account or
transaction, bank Y is guilty of splitting a
cause of action. The loan of P10M is the
principal obligation while the mortgage
securing the same is merely an accessory to
said loan obligation. The collection of the
loan and the foreclosure of the mortgage
securing said loan constitute one and the
Remedies; Secured Debt (1991)
same cause of action. The filing of the
To
secure the
of subsequent
his loan of P200th,
collection
casepayment
bars the
filing of
A
executed
in
favor
of
the
Angeles Banking
the foreclosure proceedings.
Co in 1 document, a real estate mortgage
over 3 lots registered in his name and a
chattel mortgage over his 3 cars and 1
Isuzu cargo truck.

49 of 103 Upon his failure to pay the loan

on due date, the bank foreclosed the
mortgage on the 3 lots, which were
subsequently sold for only P99th at the
foreclosure sale. Thereafter, the bank filed
an ordinary action for the collection of the
deficiency. A contended that the mortgage
contract he executed was indivisible and
consequently, the bank had no legal right to
foreclose only the real estate mortgage and
leave out the chattel mortgage, and then sue
him for a supposed deficiency judgment. If
you were the Judge, would you sustain the
SUGGESTED ANSWER:
contention of A?
If I were the Judge, I would dismiss the
action as being premature since the proper
remedy would be to complete the foreclosure
of the mortgages and only thereafter can
there by an action for collection of any
deficiency. In Caltex v IAC (GR 74730, 25 Aug
89), the remedies on a secured debt, said the
court, are either an action to collect or to
foreclose a contract of real security. These
remedies are alternative remedies, although
an action for any deficiency is not precluded,
subject to certain exceptions such as those
stated in Art 1484 of the Civil Code, by a
foreclosure on the mortgages. While the
factual settings in the case of Suria v IAC (30
June
87) are not similar to the facts given in
ALTERNATIVE ANSWER:
the problem,
the of
SCaimplied
that
foreclosure
The
indivisibility
contract
of real
as a remedy
secured
obligations
mustor
first
security,
suchinas
a real estate
mortgage
a
be
availed
of by a creditor
in preference
to
chattel
mortgage,
only means
that a division
other
remedies
that might
also beobligation
invoked by
or a partial
payment
of a secured
him.
does not warrant a corresponding division or
proportionate reduction of the security
given. A creditor in such secured debts may
pursue the remedy of foreclosure, in part or
in full, or file an ordinary action for
Promissory
Note:on
Liability
(2001)
collection
any amount
due. A favorable
X, Y
and Z signed
a promissory
note in
judgment
can warrant
an issuance
offavor
a writ
of of
A execution
stating: We
promise
tonot
pay
A on
on any
property,
exempt
December
31, 2001
the sumtoofthe
P5,000.00
from execution,
belonging
judgment
When
the note
due, be
A sued
X and
Y whofor
debtor.
Therefell
should
no legal
obstacle
Z.
the defense
valid?in
Why?
(5%)
putIs
up
the to
defense
that
should
have
a creditor
waive,
full A
or
in part, his
SUGGESTED ANSWER:
impleaded
right to foreclosure on contracts of real
The defense is not valid. The liability of X, Y,
security.
and Z under the promissory note is joint.
Beneficiary:
(2005) an
Such
beingEffects:
theIrrevocable
case, Beneficiary
Z is not
What
are
the
effects
of
an
irrevocable
indispensable party. The fact that A did not
designation
of
beneficiary
under
the
implead
Z will
nota prevent
A from
collecting
SUGGESTED
ANSWER:
Insurance
Code?
Explain.
(2%)
theThe
proportionate
share of X gives
and Ythe
in the
irrevocable designation
(Observation:
Even if the liability of
payment
of
the
loan.
beneficiary a vested right over Life
X, Y, and Z is solidary, the defense
Insurance. The Insured cannot act to divest
would still not be valid)
the irrevocable beneficiary, in whole or in
part, without
the
beneficiary's (1996)
consent. To
Remedies;
Available to
Mortgagee-Creditor
(1)
The beneficiary designated in a life
be specific:
Finding
a 24-month payment plan attractive,
insurance contract cannot be changed
Anjo purchased a Tamaraw FX from Toyota
without the consent of the beneficiary
QC. He paid a down-payment of P100th and
because he has a vested interest in the
obtained financing for the balance from IOU
policy (Philamlife v. Pineda, G.R. No. 54216, July
Co. He executed a chattel mortgage
Page

Insurance Law

19,

Page
Page
50 53
52
54
of 103
of 103
relation,
Moreover,
Yes,
On
when
March
Purita
insured
inPage
the
19,cannot
51
problem
1993,
and
of 103
insurer
be
a fire
at
a
donee
hand,
have
razed
agreed
there
of theisbuilding
to
deceased.
no
the
double
payment
toHence,
the
insurance
ground.
of premium
she cannot
because
Garapal
by
reinsurance
the
Will
no
After
continuing
evidence
his
Petras
building
is an
crisis
insurance
ofsuit
burned
involving
suicide
prosper?
against
down,
the
orbanking
Robin
liability
arson
filedor
ANSWER:
Concealment;
Material
Concealment;
Incontestability
also
the
installments
Insurance
insured
be his beneficiary.
with
and
refused
the
partial
First
to make
payment
Insurance
good
has
its
isbeen
andSUGGESTED
which
Explain.
involvement
his
financial
claim
the original
for
sector
fire
ofinsurer
loss
in
BXthe
with
inmay
Asian
these
EFG.
incur
region.
On
events.
inFeb
favor
28,
BX
No,
Petras
suit
will
not
prosper
(assuming
Clause
different
made
obligation
at (1991)
the
from
time
tothe
Benjie
of
insured
loss,
under
then
with
the
the
the
insurance
insurer
Second
Does
of
the
demanded
1994,
BD
original
EFG
have denied
an
insured.
payment
insurable
Robins
of
interest
claim.
the within
On
insurance
April 3,
that
the
policy
of
life
insurance
has
in Concealment;
Insurance;
Double
Insurance
(2005)
Material
Concealment
(2001)
Atty
Roberto
took
out
aInsurance
life
insurance
Insurance
becomes
contract.
liable.
Company.
1) IsWhen
Garapal
The
thesame
car
loss
is
true
happened
legally
withpolicy
the1994,
proceeds
meaning
Robin
offrom
sought
the Insurance
the
reconsideration
two
Code
policies,
of the
ofbeen
thethe
SUGGESTED
ANSWER:
force
for
afor
period
of
lesshad
than
2 years
from A
When
does
double
insurance
exist?
applied
for
a non-medical
life
insurance.
from
thethe
Ins six
Co
(DIC)
on
1 Sep
respect
on
justified
the 5th
to
month,
inDana
refusing
interests
the
payment
insured
months
in
to
agreed
the
Benjie?
two 1989.
2) Is
Philippines
premiums
denial,
but
(PD1460)?
EFG
which
reiterated
(2%)
IS
its
been
position.
faithfully
On
Yes.
BD
has
insurable
interest
in
his
bank
SUGGESTED
ANSWER:
the
date
of
its
issue).
The
matters
which
Juan
(2%)
The
insured
did
not
inform
the
insurer
that
On
31
Aug
1990,
Roberto
died.
DIC
refused
policies.
period
Nat
of
entitled
payment
to
collect
had
not
on
yet
the
elapsed
insurance
(UCPB
paying 20,
March
during
1995,all
Robin
the commenced
time he was
judicial
alive.
SUGGESTED
Under
Section
93
of
the
Code,
deposit.
In
case
ofEFG.
loss
ofInsurance
said
deposit,
more
failed
to
disclose
was
material
andaction
relevant
c)
As
Judge,
Iprior
would
allow
businessman
one
week
to
histheapplication
to
payANSWER:
his v. Masagana
beneficiaries
because
General
Insurance
Telamart,
G.R. forto it
policy?
Starbrite
action
against
refused
payment,
Should
Robins
contending
that
be
SUGGESTED
ANSWER:
1)Yes.
Athe
the
time
of P5M
loss,
Benjie
was
there
is
double
insurance
when
there
is
overparticularly
to
the
extent
of
the
amount
in
to
approval
andExplain.
issuance
the therefore
insurance No.
recover
his
total
loss
of
representing
the
insurance,
was
examined
and
confined
at no
discovered
that
Robert
had
misrepresented
137172,
April
4,
2001)
.the
Francis
can
recover
BXthe
given
had
due
nocourse?
insurable
interestofand
No,
Robins
action
should
not
be
given
due
longer
the
owner
of
the
property
insured
as
insurance
with
two
or
more
companies,
excess
of
the
limit
covered
by
the
PDIC
Act,
policy.
They
would to
have
affected
Lifes from
full
value
of Insurance
his facts
goodsin
which
were
lost
St. certain
Lukes
Hospital
where
he
was
diagnosed
Peninsula
material
Company,
his
application.
but the
The
was not
entitled
receive
theGood
proceeds
SUGGESTED
ANSWER:
course.
Is
filing
of will
the
request
for latter
he
failed
to
redeem
the
property.
The
law
covering
the
same
property,
the
same
PBD
will
be
damnified.
He
suffer
action
on
his
application,
either
by
approving
through
to the
creditor,
would
allow
forbeneficiaries
lung
cancer.
The
soon
thereafter
sued
on
the basis
that DIC
hasfire.
the As
right
toinsured
deduct
theI amount
of can
from ISs insurance coverage on his life and
Starbrite
correct
respect
to for
thea him
reconsideration
did the
notwith
suspend
the
running
requires
in property
insurance
that liable
a of
person
insurable
interest
and
same
risk.
Double
pecuniary
loss
of
P300,000.00,
that
his
it
withon
theishis
corresponding
adjustment
to
the
amount
to the
extent
or
died
inrecover
a plane
crash.
Is insurance
the
insurer
unpaid
contest
premium
the
validity
from
the
of
insurance
policy
also
property.
Is is,
Starbrites
insurance
coverage
onperiod
the
property
IS.
of
the exists
prescriptive
ofminus
one
year
can
the
proceeds
the
policy
if
Insurance;
Life Insurance;
Assignment
of
Policy
(1991)
insurance
where
same
person
isof
bank
deposit
of
half
aExplain?
million
pesos
higher
premium
orthe
rejecting
the
same.
equivalent
to
the
value
of of
the
credit
hehe
considering
that
the
fact
concealed
had
only recover
within
2
years
from
the
date
of no
issue
proceeds.
contention
valid?
(5%)
SUGGESTED
ANSWER:
SUGGESTED
ANSWER:
The
beneficiary
inthe
the
property
insurance
stipulated
the
insurance
policy.
has
insurable
interest
athis
the
time
of
policy
of
insurance
upon
with
a the
insured
by several
insurers
separately
in Thus,a The
P200,000.00
which
is
maximum
amount
Moreover,
ain
disclosure
may
have
warranted
extended
to
the
businessman
for
the
stocksbearing
with
the
cause
of
death
of
the
and
during
the
lifetime
oflife,
insured.
Insurable
Interest:
Public
Enemy
(2000)
No.
The
concealed
fact
isand
material
to
the
I
would
rule
in
favor
of also
the
insurance
policy
or
the
assignee
thereof
must
have
when
commenced
judicial
action
issuance
of
the
policy
at
the
value
of
P100th
was
assigned
by
Jose,
atime
respect
of robin
the
same
subject
matter
recoverable
from
the
PDIC.
medical
examination
of Juan
by and
Good Life
in face
in-trade
which
were
mortgaged
by
the
insured?
(5%)
DecideWhy?
the case.
May
a member
MILF
orAppeals,
its
breakaway
approval
andwith
issuance
ofAt
the
insurance
company.
The
incontestability
clause,
insurable
interest
in the
property
insured.
Equitable
Interest
(1991)
against
EFG
Assurance
on
March
20,
whenInterest;
the
loss
the
time to
of fire,
married
man
2occurs.
legitimate
children,
interests.
(Geagonia
v.
Court
of
G.R.
order
for
it of
tothe
reasonably
assess
the1995,
risk Insurable
businessman.
Insurance;
Insurance;
effect
(1993)
group,
the
Abu
Sayyaf,
be
insured
with
policy.
Itofno
is
well
settled
that
the
insured
applies
only
ifsecurity
the
policy
had
been
in Mr
effect
BX,
a Double
mere
friend-companion
of
IS,a has
no
A
piece
was
shipped
to
ability
do 6,
so1995)
had
already
prescribed.
Benjie
longer
had
insurable
in
his
nephew
Ymachinery
as
for
a
loan
ofinterest
P50th.
No.his
114427,
February
involved
into
accepting
the
application.
In any
Julie
and
Alma
formed
a
business
2)
No.
While
atyears.
the
time
ofManila.
the
loss
hetohad
company
licensed
to
do
business
under
the
need
not
die
of
the
disease
he
failed
for
at
least
2
The
2
year
period
is
insurable
interest
in
the
residential
house
of
Pablo
on
the
basis
of
C&F
Pablo
The
one-year
period
is
counted
from
Feb
28,
the
property
insured.
He
did
not
give
the
insurer
any
written
case, good faith is no defense in
partnership.
Under
the
business
name
Pino not notice
insurable
interest
in the
building,
he
was
Insurance
of The
the
Phils
(PD
1460)?
disclose
the
insurer.
It
is
sufficient
that
counted
from
the
time
the
insurance
IS.
BXwhen
isCode
not
entitled
to receive
proceeds
said
machinery
with
the
Talaga
1994
EFG
denied
Robins
of to
such
assignment
despite
theas
concealment.
waiver
oftheaclaim,
medical insured
SUGGESTED
ANSWER:
As
to
the
insurance
coverage
on
the
life
of
Shop,
the
partnership
engaged
in
a
sale
of
the
owner
thereof,
Nat
did
not
have
Explain.
(3%)
hisbecomes
nondisclosure
misled
the
insurer
inany
effective
until
the
death
ofor
the
ISs
on hisnon-medical
property.
Merchants
Ins
Co
(Tamic)
forthe
loss
from
the insurance
datein(presumably
after April life
3, explicit
provision
to that
effect
in
policy.
examination
the
ALTERNATIVE
ANSWER:
A
member
of materials.
the MILF
or
theinsured
Abuthe
Sayyaf
IS,
BX
is
entitled
to
receive
proceeds.
construction
Julie
the
interest
in
the
policy.
There
was
no
forming
his
estimate
of
the
risks
of
the
insured
and
not
thereafter
(Tan
v
CA
GR
damage
during
the
voyage.
The
vessel
sank
1994)
when
EFG
reiterated
its
position
Jose
died.
Upon
claim
on
the
policy
by
insurance
from
Good
Life makes
it even
Iautomatic
wouldMaterial
rule
in clause
favor Incontestability
of the
thepolicy
insurance
may
bein
insured
with
a company
licensed
to more Concealment;
Concealment:
There
is
no
requirement
that
BX
should
stocks
trade
of
Pino
Shop
with
WGC
transfer
in
that
proposed
insurance
policy
or
in
making
48044
29Jun1989)
en company.
route
to Manila.
Pablorefused
then
filed
a claim
denying
Robins
claim.
The
reason complete
for this the
assignee,
the
insurer
to pay
on
necessary
thatthe
Juan
supply
Although
an
insurer
may
not
do
business
under
Insurance
Code
the
Clause
(1994)give
have
insurable
interest
in the
life of
ofshe
IS. It
Insurance
for insure
P350th.
Subsequently,
would
him
suchnot
interest
inthe
the
policy.
inquiries.
with
Tamic
which
denied
for
reason
rule
isCoto
that
claims
against
the
ground
that
it
was
notified
of
the
information
about
his
previous
rescind
the
contract
on
ground
Phils.
What
is
prohibited
to
be
insured
is
a
Insurable
Interest;
Property
Insurance
(2001)
SUGGESTED
ANSWER:
On September
23, Pablo
1990,had
Tannotook
a life of
was
IS an
himself
whocontract
took
the
insurance
again
got
insurance
with
RSI settled
for on
that
prior to Upon
deliver,
insurable
insurance
companies
are
promptly
assignment.
the other
hand,
the
heirs
Beneficiary:
Rights;
Irrevocable
Beneficiary
(2005)
hospitalization
for
such
information
misrepresentation
after
an
action
If
the
policy
of
life
insurance
has
been
in
Insurable
Interest;
Life
vs.
Property
Insurance
(2002)
public
enemy.
A
public
enemy
is
a
citizen
or
Pablo
JQ,
had
owner
an
of
existing
a
condominium
insurable
interest
unit,
insured
on
insurance
policy
from
Philam.
The
policy
was is
his
own
life.
P1m
and
then
from EICsuits
for P200th.
A fire by
of the of
Decidefor
the
case.
and
that
insurance
are
brought
Jose
contended
that
Y is not
entitled
to
Jacob
obtained
a
life
insurance
policy
for
P1
constitutes
an
important
factor
which
Good interest.
Insurance;
Return
of
Premiums
(2000)
commenced
recovery
under
the
policy,
the
force
for
a
period
of
2
years
or
more
from
national
of
a
country
with
which
the
Distinguish
insurable
interest
in
property
SUGGESTED
ANSWER:
the
piece
of
machinery
he
bought.
The
the
same
against
fire
with
the
issued
on
November
6,
1990.
He
died
on
April
unknown
origin
gutted
the storeas
of to
thethe origin any amount under the policy because the XYZ
insured
the
evidence
Million
designating
irrevocably
Diwata,
ain life
Life
takes
into
consideration
inwhen
deciding
Name
atwhile
least
three
instances
an
insurer
is
not
precluded
from
invoking
the
the date
of
its
issue
(on
which
point
the
A
life
insurance
ishepatoma.
assignable.
A
Philippines
isJulie
at
war.
Such
member
of
the
insurance
from
insurable
interest
purchase
Insurance
ofof
Co.,
goods
and
made
underthe
aprovision,
loss
perfected
payable to
26,
1992
The
insurance
partnership.
filed
her
claims
with
the
and
cause
of
the destruction
has
not
yet
assignment
due
noticethat
to the
friend,
his
beneficiary.
Jacob,
however,
whether
to
issue
the
policy
or
not.
(See
SUGGESTED
ANSWER:
insured
is
entitled
aa
return
of
ground
ofwithout
misrepresentation
aclaim
defense
given
facts
are
vague)
then
Good
Life
canthe
no
however,
in
the
policy
stating
written
MILF
orasthe
Abu
Sayyaf
isto
not
citizen
or
insurance.
(5%)
contract
of
sale
already
equitable
his
brother,
MLQ.
In
casevests
of as
loss
by
fire
company
denied
the
beneficiaries
andofin
three
insurance
companies.
However,
her
disappeared.
(See
Sun
Ins
Office
Ltd
v
CA
gr
insurer
was
void.
Resolve
the
issues.
SUGGESTED
ANSWER:
changed
his
mind
and
wants
Yob
and
Jojo,
his
Sunlife
a)
Assurance
In
property
Co
of
Canada
insurance,
v
CA
GR
105135,
the
premium
paid.
the
action
for
recovery.
This
is of
alright
since
longer
thatcountry,
the policy
is
initio
notice
ofsaid
such
an
assignment
be
given
national
ofprove
another
butfor
of void
the ab of
interest
on
the
condominium
property
inshould
unit,
favor
who
ofalleged
the
may
rescinded
the
policy
by
reason
claims
were
denied
separately
breach
89741,
Mar
13
91
195s193)
Three
instances
when
an
insured
is
entitled
Insurable
Interest:
Separate
Insurable
Interest
(1999)
June
22,
1995
245
s
268)
other
friends,
to
be
included
as
beneficiaries
expectation
of
benefit
must
have
a
legal
the
bar
problem
is
not
covered
yet
by
the
or
is
rescindible
by
reason
of
the
fraudulent
to
the
insurer
is
valid
(Secs
181-182
Ins State
Philippines.
buyer
evenonwhile
itand
is pending
delivery
recover
the
fire
insurance
policy?
misrepresentation
concealment
policy
which
required
the insured
Concealment;
Material
Concealment;
Incontestability of
to
acondition
return
ofin
premium
paid
are:
SUGGESTED
ANSWER:
A
businessman
themisrepresentation
grocery
business
considering
the
proceeds
of
the
policy
basis.
In that
life
insurance,
the
expectation
of
incontestability
clause.
concealment
or
of
Juan
Code).
The
failure
of
the
notice
of
(Filipino
Merchants
Ins
Co
vin CA
GR
85144
the reason(s)
for your
answer.
material
facts made
by Tan
his(5%)
application.
to give
notice
of any
insurance
effected
1
To
the
WHOLE
ifcontinued
no
part of his
Clause
(1998)
JQ can
recover
on
the
fire insurance
Material
Concealment:
Incontestability
Insurable
Interest;
Life vs.
Property
Insurance
obtained
from
First
Insurance
an
insurance
areConcealment;
for
the
threePREMIUM,
friends.
Can
Jacob
benefit
to
be
derived
from
the
( sufficient
Sec ANSWER:
48
Ins
Code)
assignment
would
thus
preclude
the(1997) policy
28Nov1989)
It
returned
the
premiums
paid.
covering
the
stocks
in
trade.
Julie
went
to
SUGGESTED
interest
inand
the
thing
insured
exposed
to any of
Renato
was
issued
a
lifethat
insurance
policy
for
thefrom
loss
of
said
condominium
unit.
He
has
policy
for(1997)
P5M
toaJojo
fully
cover
hisbe
stocks-ina)
A
obtains
a fire
insurance
onunder
his company
house
andon
as a
stillClause
add
Yob
his beneficiaries?
existence
of
lifeas
need
not
have
any legal
The
beneficiaries
contend
the
assignee
claiming
rights
the
court
and
contended
thatadd
she should
not
No,the
Jacob
can
no
longer
andquestion
Jojobe
as in
perils
insured
January
2,
1990.
He
concealed
the
fact
that
the
insurable
interest
as
owner-insured.
As
The
assured
answers
NoYob
to the
generous
gesture
names
his
neighbor
as
the
trade
from
the
risk
ofagainst.
fire.
Explain.
(2%)
basis.
had no The
right
to rescind
the contract
as
policy.
failure
of notice
did not, however,
blamed
forWhere
omission,
alleging
that
histhe
beneficiaries
in
addition
to Diwata.
As
b)
Intheproperty
insurance,
thethe
actual
2
the
insurance
is
for
a definite
Three
months
thereafter,
a fire
of made
accidental
3
years
prior
to
the
issuance
of
his
life
beneficiary
beneficiary.
in
If
the
As
house
fire
insurance
is
destroyed
policy,
by
fire,
MLQ
can
application
for
a life
policy:
Are
you
rescission
must be
done upon
during
avoid
the policy;
hence,
thethe
death of
insurance
agents
for completely
WGC,
RSI
and
EIC limit his
theperiod
irrevocable
Diwata
has
value
of
the
interest
therein
issurrenders
the
of
of
time
and
insured
origin
broke
outbeneficiary,
and
destroyed
insurance
policy,
he
had
been
seeing
a
successfully
claim
against
the
policy?
b)
A
B
cannot
recover
on
the
fire
insurance
policy.
suffering
from
any the
form
of
heart
illness?
In
lifetime
the insured
within
two
years and
Jose,
the of
proceeds
would,
in the
absence
of a
knew
ofinsurance
the
existence
ofover
the
additional
acquired
a-vested
right
Jacob's
life
the
that
can
validly
be
placed
policy,
toassured
such portion
of
the
premium
as for
the
grocery
including
his
stocks-in-trade.
doctor
about
hisover
heart
ailment.
obtains
insurance
his
life
and
names
Fortothe
beneficiary
to
recover
on
the
fire or
fact,
the
has
been
a heart
patient
prior
the
commencement
of
the
action.
Is
designated
beneficiary,
go
to
the
estate
of
insurance
coverages
and
that she
policy.
Any
additional
beneficiaries
SUGGESTED
ANSWER:
On
March
1992,
Renato
died
of
ANSWER:
thereon.
In life
insurance,
is not
no
neighbor
B 1,
thethe
beneficiary
because
of heart
Asthat
secret
corresponds
with
the
unexpired
time
at limit
aispro SUGGESTED
This
prompted
the
businessman
towas
file
with
his
property
insurance
policy,
it
is
required
many
years.
On
7
Sep
1991,there
the
assured
the
contention
of
beneficiaries
tenable?
insured.May
The the
estate,
in turn,
would
beon the
informed
about
the
requirement
that
such
willNo.
reduce
amount
which
Diwata,
as
the
1)
An
iscrash.
to
disclose
the
failure.
heirs
file
ainterest
claim
No.
The
clause
does
not
for
B.
Ifincontestability
A dies,
can
B successfully
claim
against
to
the
amount
of
insurance
that
may
be
love
rata
rate,
unless
arequired
short
period
rate
has
been
Insurance;
Perfection
of Insurance
Contracts
(2003)
First
Insurance
a
claim
forThe
five
million
pesos
he
must
have
insurable
in
the
killed
ininsured
athe
plane
insurance
liable
for the loan
of P50,000
owing inpolicy
favor of
other
or
additional
insurance
should
be of the
first
beneficiary,
may
recover,
which
will
insurances
covering
the
subject
proceeds
of obtained
the
lifethis
insurance
apply.
The insured
dies
within
lessMLQ
thandoes
two not
policy?
the
taken
upon
life.
agreed
upon
and
appears
the
face
representing
the
full
value
ofon
his
goods.
Josie
Gatbonton
from
Warranty
property
insured.
In
case,
company
denies
the
claim
for
insurance
of Y.
SUGGESTED
ANSWER:
stated
in
policy.
Is
the
contention
Julie
SUGGESTED
ANSWER:
adversely
affect
her
vested
right.
(Go
v.
matter
of the
the
insurance
being
applied
for.
c)
In
property
insurance,
anof
interest
First
Insurance
denied
the
claim
because
it Is
Renato?
(5%)
years
the issuance
of
on
policy,
after
deducting
from
the
whole
premium
Insurance
Corporation
a comprehensive
havefrom
insurable
interest
in the
the policy
condominium
proceeds
and
returns
the
premiums
paid.
Yes.
The
life
insurance
policy
inbeneficiary
question
was
tenable?
Explain.
May
she
recover
on
her
SUGGESTED
ANSWER:
a)
No.
In
property
insurance,
the
Redfern,
G.R.
No.
47705,
April
25,
1941)
Insurance;
Cash
&
Carry
Basis
(2003)
(New
Life
Ent
v
CA
207
s
669)
insured
must
exist
when
the
insurance
takes
discovered
that
at
the
time
of
the
loss,
the
September
23,
1990.
The
insured
died
on
any
claim
for
loss
or
damage
under
the
policy
motor
vehicle
insurance
to
cover
her
brand
unit.
the decision
of the Prohibited
insurance
company
Beneficiary;
Life
Insurance;
Beneficiaries
issued
on
January
9,
1990.
More
than
2)
No,
Assuming
because
that
she
is
the
guilty
incontestability
of
violation
of
clause
a
fire
insurance
policies?
Explain.
must
have
insurable
interest
in
the
property
What
is
meant
by
cash
and
carry
in
effect
and previously
when
the accrued.
loss occurs
but need
stocks-in-trade
were mortgaged
to a creditor
April
26, 1992, She
or less
fromthe2
which
has
new automobile.
paid,than
and 2
theyears
insurer
justified?
(1998)
years
had
elapsed
when
Renato,
the
insured,
warranty/
does
not
condition.
apply
because
the
policy
has
not
insured.
(Sec
18
Ins
Code).
B
does
not
have
business
of
insurance?
not
exist
in
the
meantime.
In
life
insurance,
who
likewise
obtained
from
Second
23, 1990.
3 de laWhen
the contract
is voidable
on accountSeptember
accepted payment
in check. Before the
Juan
Cruz
was
issued
Policy
No.the
8888
SUGGESTED
ANSWER:
died
oninterest
March
1, the
1992.
incontestability
been
in
force
for
2 years,
from
date
of
insurable
in
house
insured.
The
right
of
the
insurer
toThe
rescind
is only
it
is
enough
that
insurable
interest
exists
at
Insurance
Company
fire
insurance
coverage
of
the
fraud
or
misrepresentation
of
the
insurer
check
could
be
encashed,
Josie
was involved
of the
Midland
Life
Insurance
Co
on
a whole
Insurance;
Effects;
Payment
of
Premiums
by
Installment
clause
applies.
issue,
during
the
lifetime
of
the
insured,
the
lost
if
the
beneficiary
has
commenced
the
time
when
the
contract
is
made
but
it
for
the
stocks
at
their
full
value
of
P5M.
a)
or
of his
or on
account
of facts
the
in a
motor vehicle
accident
where her
car an
lifedecision
plan
for agent
P20,000
oncoverages
August
19,
1989.
Insurance;
Co-Insurance
vs.CLAUSE
Re-Insurance
(1994)
(2006)
b) INCONTESTABILITY
Yes.on
Inthe
life
insurance,
itisisnonot
required
separate
insurance
over
the
same
of
the
insurance
company
not
to
action
policy.
There
such
action
need
not
exist
at
the
time
of
loss.
May
the
businessman
and
the
creditor
existence
of which
the insured
was ignorant
became
a total wreck.
She
sought
payment
The
insurer
has
two
years
from
the date
Juan
is married
toProperty
Cynthia
withInsurance
whom
he has
Distinguish
co-insurance
from
re- of
that
the
beneficiary
must
have
insurable
The
Peninsula
Insurance
Company
offered
to
Insurable
Interest;
Insurance
(1994)
in-trade?
Explain
(3%)
b)
First
SUGGESTED
ANSWER:
stockspay
is
justified.
There
was
fraudulent
in
this
case.
(Tan
v
CA
174
s
143)
obtain
without
his
fault;
or
when,
by
any
default
of
the
from
the
insurer.
Could
the
insurer
be
made
SUGGESTED
ANSWER:
issuance
of
the
insurance
contract
or
of its
three
legitimate
children.
He,
however,
insurance.
insure
Francis'
brand
car
against Benjie
all
interest
in the
lifeConcealment:
of the insured.
It was
the
Concealment;
Material
Incontestability
(per
Dondee)
Yes,
because
there
was
a
In a
civil
suit,
Court
ordered
to
refused
to pay
claiming
that
double
concealment.
Ittheisnew
not
material
that
the
insured
other
than
actual
fraud,
the
insurer
never
liable
under
the
insurance
coverage?
(6%)
CO-INSURANCE
is
the
percentage
in
last
reinstatement
within
which
to
contest
designated
Purita,
common-law
wife,
as the
insurance
is
contrary
to law.
Is
this
contention
insured
himself
who
took the policy
on histhe
risks
in the
sum
of
PI
for
1 execute
year.
The
Clause (1996)
pay
Natdied
P500,000.00.
Tocause
perfected
contract
of insurance
the moment
insured
ofhis
a Million
different
than
incurred
any
liability
under
the
policy.
value
of
the
insured
property
which
the
the
policy,
whether
or
not,
the
insured
thefact
revocable
beneficiary.
Juan
referred
to
tenable?
(3%)
c) Suppose
you
are
thefixed
Judge,
policy
was
issued
with
premium
at is
own
Juan life.
procured
a non-medical
life insurance
there
is a meeting
of the minds with
respect still
judgment,
the
sheriff
levied
upon
Benjies
concealed.
Thethe
fact
concealed,
that
insured
himself
assumes
or
undertakes
lives
within
such
period.
After
two
years,
the
Insurable
Interest;
Life
vs.
Property
Insurance
(2000)
Purita
in his
application
policy
as the
how
much
would
youin 6
160,000.00
payable
months.
Francis
from
Life
designated
his to
registered
property
(aand
parcel
of
land
and the
to
theGood
object
andInsurance.
the cause He
of payment.
The
heart
ailment,
is
material
to
act
as
insurer
to
the
extent
of
the
deficiency
defenses
of
concealment
IS,
an
elderly
bachelor
with
no
known
legal
wife.
3
years
later,
Juan
died.
Purita
allow
businessman
thethe
creditor
to at
only
paid the
thethereon),and
first two
installments.
wife, Petra,
as theisbeneficiary.
Earlier,
in his or
payment
of check
a valid payment
unless
building
sold
same
determination
by months
the and
insurance
company
in
the
insurance
of
the
insured
property.
In
misrepresentation,
no
matter
how
patent
However,
if
the
incontestability
clause
which
relatives,
obtained
life
insurance
coverage
from
their
respective
insurers.
Explain
filed
her
claim
for
the
proceeds
of
the
policy
recover
Despite
pay
application
in response
to the
question as to or
publicdemands,
auction
Nat, to
the
highest
bidder.
upon
encashment
the Deposit
check
bounced.
whether
or not he
to failed
accept
the
application
for
Insurable
Interest:
Bank
(2000)
SUGGESTED
ANSWER:
case
of
loss
or
damage,
the
insurer
will
be
well
founded,
no
longer
lie.
applies
to
the
insurance
policy
covering
the
Insurance;
Property
Insurance;
Prescription
of
Claims
for
P250,000.00
from
Starbrite
Insurance
(3%)
as
the
designated
beneficiary
therein.
The
subsequent
installments.
Five
after
whether or not he had ever been
The latter,
on March
18, months
1992,
insurance
and
to require
theregistered
medical
BD
has
a an
bank
deposit
of to
half
a million
a)
Yes.
The
businessman,
as
owner,
and
the
liable
only
for
such
proportion
ofengage
the
loss
life
of
the
had
been
force
for of2 (1996)
Corporation,
entity
licensed
in or
widow,
Cynthia,
also
filed
athe
claim
as
the
legal
the
issuance
ofinsured
the
policy,
vehicle
was
hospitalized,
he
answered
in the
negative.
with
the
Register
of
Deeds
thein
certificate
examination
of
the
insured.
SUGGESTED
ANSWER:
pesos.
Since
the
limit
of
the
insurance
creditor,
as
mortgagee,
have
separate
damage
as
the
amount
of
insurance
bears
years
from
issuance
thereof,
the
insurance
Robin
insured
his
building
against
fire
with
the
insurable
business
under
the
Insurance
wife.
To
whom
should
the
proceeds
of
the
carnapped.
Francis
filed
with
the
insurance
He forgot to mention his confinement at the to
sale
issued of
to the
himinsurance
by the sheriff.
Meanwhile,
The
proceeds
policy
shall
coverage
of
the
Philippine
Deposit
insurable
interests
in
the
same
stocks-inthe
designated
of
the He
full
value
company
would
not
be Benjie
justified
in denying
After
Juan
died
in
apercentage
plane
crash,
Petra
filed
a
EFG
Assurance.
The
insurance
policy
Code
of
the
Philippines
(PD1460).
also
insurance
be
awarded?
(5%)
company
apolicy
claim
for
its value.
However,
Kidney
Hospital.
on
January
27,
1993,
insured
be
awarded
to the
ESTATE
ofinterest
Juan
deto
la thewith
REINSURANCE
is
where
the
insurer
Insurance
Corp
(PDIC)
(RA
3591)
is
only
one
trade.
Each
may
insure
such
of
the
property
insured.
the
claim
for proceeds
ofP1,000,000.00
the ground
insurance
and
claim with
Good
Discovering
contained
the
usualLife.
stipulation
thattwice
anyJuans
insured
his
residential
house
for
that
company
denied
his
claim
on
the
that
Garapal
Insurance
for
the
Cruz.
Purita,
theseparate
commonlaw-wife,
is The
procures
a
third
party,
called
the
reinsurer,
tenth
of
BDs
deposit,
he
would
like
some
protect
his
own
interest.
b)
in
returning
the
premium
paid.
In at
that
case, action
previous
hospitalization,
Life
rejected
or within
suit
must
filedGood
within
one
yearHe
amount
thebe same
corporation.
he
failed
to
pay
thebeneficiary
premium
in the
same
building
that wasresulting
public
disqualified
asFirst
the
ofsold
the
to
insure him
against
liability
by reason
of
protection
for the
the
excess
byrights
taking
contention
of
Insurance
that
double
the
insurer
cannot
prove
the
policy
voidthe
ab Petras
on
ground
concealment
after
theclaim
rejection
of the
claim.
immediately
assigned
all
hisof
toout
thean
cancellation
of
the
policy.
Can
Francis
auction
to
Nat.
Benjie
failed
to
redeem
deceased
because
of
illicit
relation
between
such
original
insurance.
Basically,
a
SUGGESTED
ANSWER:
against all to
risks
or sued
contingencies
insurance
contrary
to
law
is untenable.
initio
orisrescindible
by
reason
of fraudulent insurance
andinsurance
misrepresentation.
Petra
Good
proceeds
BX,
a friendrecover
from
the
Peninsula
Insurance
property
by
March
18,
1993.
the
deceased
and
Purita,
the
designated
of invoking
loss arising
from
any
unsound
or later,
unsafe
There
is
no
law
providing
that
double
concealment
or
misrepresentation
of
the
Life,
good
faith
on
part
of
Juan.
companion
living
with
him.
Three
years
Company?
(5%)
beneficiary.
Due
to
such
illicit
banking
practices
including
unforeseen
insurance
insured.is illegal per se.
IS died in a fire that gutted his insured house
effects
of sold it. There is
twoadverse
days after
he had
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Mercantile Q
Law
Examination Q & A (1990-2006)Page 55 of 103
Pageson,
56 ofBOY,
103 injured 3 children of
Mercantile Law Bar Examination
& ABar
(1990-2006)
or willful
exposure
to needless perilwho
which are
excepted
risks. The
POS,
a neighbor,
sued
SAM
forinsureds
stated in the insurance policy, the principles
act was
purely an act ofSAM's
negligencelawyer
which is covered
the policy
and forwas
Insured;
Accident vs.solidary
Suicide (1993)
damages.
wasbyATT,
who
underlying
obligations would be
which the insured got the insurance for his protection. In fact, he removed the
S Insurance
Co issued
a personal
accident
paid
hisandservices
bythe
the
violated. (Malayan
Ins Co
v CA GR L-36413
Sep
magazine
fromfor
the gun
when he pointed
gun insurer
to his temple for
he did so
policy
to 165s536;
Bob TanFiguracion
with a vda
facedevalue
of v
reporting
periodically
on
the
CNI.
26, 88
Maglana
because
he thought that
it was safe for him to
do so.
He case
did so toto
assure
his In
sisterone
that thereport,
gun was harmless.
There is none in the
thatthat
would relieve
P500th.
In theGR
evening
of Sep
5,212s268)
1992, after
Consolacion
60506 Aug
6, 92
ATT disclosed
topolicy
CNI
after
the insurer of liability for the death of the insured since the death was an
3rd Party
Liability
hisInsurer;
birthday
party,
Tan (2000)
was in a happy mood
his investigations, he found the injuries to
X was riding a suburban utility vehicle (SUV) accident.

but not drunk. He was playing with his hand

covered
by a he
comprehensive
motor vehicle
gun,
from which
previously removed
the
liability
insurance
(CMVLI)
underwritten
magazine. As his secretary was watching by
FastPay Insurance
it collided
television,
he stood Company
in front when
of her
and
with
a
speeding
bus
owned
by
RM
Travel
pointed the gun at her. She pushed it asideInc.
collision
serious
to X;
andThe
said
that it resulted
may be in
loaded.
Heinjuries
assured
Y,
a
passenger
of
the
bus;
and
Z,
a
pedestrian
her that it was not and then pointed it at his
waiting
a ride
at the
scene
temple.
Thefornext
moment,
there
was ofan the
The
wife
of
the
deceased
sought
payment
onthat
collision.
The
police
report
established
explosion and Tan slumped to the floor
the
policy
but
her
claim
was
rejected.
The
the bus was the offending vehicle. The bus
lifeless.
insurance
company
there Ins
was Co.
had CMVLI
policyagreed
issued that
by Dragon
no X,
suicide.
However,
it was
submission
Y, and
Z jointly
suedthe
RM
Travel and
of the
insurance
that thereunder
was no the
Dragon
Ins company
for indemnity
accident.
In support
it contended
Insurance
Code ofthereof,
the Phils
(PD1460).a)The
that
there
no the
accident
when
a
lower
courtwas
applied
no fault
indemnity
deliberate
act
was
performed
unless
some
policy
of
the
statute,
dismissed
the
suit
SUGGESTED ANSWER:
additional,
unexpected,
independent
and
against
RM
Travel,
and
ordered
Dragon
Ins
No. The cause of action of Y is based on the
unforeseen
happening
occur
which
produces
to
pay
indemnity
to
all
three
plaintiffs.
contract of carriage, while that of X and Z Do
is
or based
brings
about
injury
orjudgment?
death; and
b)
you
agree
withthe
the
courts
on
torts.
The
court
should
notExplain
have
that
the insured
exposed
(2%)
dismissed
the willfully
suit against
RM himself
Travel. to
The
needless
peril
and
thus
removed
court ANSWER:
should have ordered Dragon himself
Ins to pay
SUGGESTED
from
theofcoverage
of the
policy.
X, Ycontentions
, and
Z toinsurance
thenot
extent
of the
No.each
These
two
are
tenable.
Are
the
two
contentions
of
the
insurance
whatever
amount
Theinsurance
insurer iscoverage,
liable for but
injury
or death
even is
company
tenable?
upon Explain.
in gross
the policy
should
dueagreed
to the
insureds
negligence.
The be
first by
RM Travel
and the
factanswered
that the insured
removed
the magazine
succeeding
amount
should
be insured
paid by
from
the hand gun
means
that the
Insurance
up himself
to the amount
of the
didDragon
not willfully
expose
to needless
insurance
The
excess
of ofthe
peril.
At most,coverage.
the insured
is only
guilty
claims of(Sun
X, Y,
over
and above such
negligence
Insand
v CAZ,
211
s 554)
Insurer;
3rd Party
Liability;(1995)
No Fault Indemnity (1994)
Insured;
Accident
vs.
Suicide
insurance
coverage,
if any, should be
What is your
understanding
of
no fault
Sun-Moon
issued
a aPersonal
answeredInsurance
or paid by RM
Travel.
indemnity
found
in a
anface
insurance
Accident
Policy clause
to Henry
Dy with
value
policy?
of SUGGESTED
P500th. ANSWER:
A provision in the policy states
Under
NO FAULT
clause,
that
the the
company
shallINDEMNITY
not be liable
in
any
claim
for
death
or
injury
of
any
respect of bodily injury consequent upon
passenger
or
third
party
shall
be
paid
the insured person attempting to commit
without
necessity
of proving
faultto or
suicide
or the
willfully
exposing
himself
negligence
of
any
kind.
The
indemnity
needless peril except in an attempt to save in
respect
of Six
anymonths
one person
shall not
human
later
Henry
Dy exceed
died
1. life.
police
report of
theare
P5,000.00,
provided
they
under
oath, the
of accident;
a
bullet
wound
in
his
head.
Investigation
2.
death
evidence
andcertificate
following
shall beand
sufficient:
showed
thatproofs
evening
in ora
sufficient
toone
establish
the Henry
proper was
payee;
happy
mood
although
he
was
not
drunk.
3.
medical report and evidence of He
was
playing
his handgun
from which
he
medical orwith
hospital
disbursement
in respect
hadof
previously
removed
its
magazine.
He
ALTERNATIVE
INSTANCE:
4. which
Claim
may
made against one
refund
is be
claimed.
pointed
the
gunan
at
his
who gotbyscared.
In
case
of
oversister
insurance
several
motor
vehicle
only.
Heinsurers,
assured the
her insured
it was not
loaded.toHe
then
is
entitled
a
Henrys wife Beverly, as the designated ratable
pointed
the
gun
at
his temple
and pulled to
the
return
of
the
premium,
proportioned
the
beneficiary, sought to collect under the
trigger.
Thebygun
fired
and
Henry slumped
on
amount
which
the
aggregate
sum
insured
policy. Sun-Moon Insurance rejected her
theinfloor.
all the
theground
policies
the
insurable
claim on
thatexceeds
the death
of Henry
value
of
the
thing
at
risk.
was not accidental. Beverly sued the
Insured;ANSWER:
Accident Policy (2004)
SUGGESTED
insurer. Decide
and Discuss fully.
Beverly
can recover
the proceeds
of the policy
from theainsurer.
The death of
CNI
insure
SAM
under
homeowner's
the insured
was not
due to suicide
policy
against
claims for accidental injuries
by neighbors. SAM's minor

the 3 children not accidental but intentional.

SAM lost the case in court, and POS was

awarded one million pesos in damages
which he sought to collect from the insurer.
Insurer:
Several
Insurers
(2005)
But Effects:
CNI used
ATTs
report
to deny the claim
What
is the
nature
liability
of the
on the
ground
that of
thethe
injuries
to POS's
3
several
insurers
in double
insurance?
children
were intentional,
hence
excluded
SUGGESTED ANSWER:
Explain.
(2%)
from the
policy's coverage. POS countered
Thethat
nature
of estopped
the liability
the ATTs
several
CNI was
fromofusing
insurers
in
double
insurance
is
that
each
report because it was unethical for ATT
to
insurer
is
bound
to
the
contribute
ratably
to
provide prejudicial information against his
theclient
loss tointhe
proportion
to
the
amount
for
insurer, CNI. Who should
SUGGESTED
ANSWER:
which
he the
is liable
under
his
contract
prevail:
claimant,
POS;
or the
insurer,as
CNI is for
notby
estopped
from
using
ATT's
provided
Sec
94
of
ICP
par.
The
ratable
CNI?
Decide
with
reasons
(5%)
report,
because
CNI,
thebriefly.
first place,
contribution
of each
of in
each
insurer
will be
commissioned
andthe
paid
ATT for it.
On the
determined
basedit on
following
formula:
other hand,
has nodivided
conflict of
AMOUNT
OF ATT
POLICY
byinterest
TOTAL
ALTERNATIVE
ANSWER:
because
SAM
and CNI
are on the
INSURANCE
TAKEN
multiplied
by same
LOSSside
=
Each
insurer
is bound,
ascongruent
between with
himself

their
interests
being
each
LIABILITY OF THE INSURER.
andother,
othernamely,
insurers,
to contribute
ratably
to oppose
POS's claim.
It to
thecannot
loss in
proportion
to
the
amount
be said that ATT has used the for
which
he
is in
liable
under
his contract.
(Sec.
However,
Finman
General
Assurance
Corp. v.
information
to
the
disadvantage
or prejudice
94,Court
Insurance
Code)
of
Appeals,
213
SCRA
493
(1992),
it
was
of SAM.
Insurer;
3rd Partythat
Liability
(1996)
explained
there
is no "accident" in the
While
driving
hisaccident
car along
EDSA,
Cesar
context
of an
policy,
if it
is the
sideswiped
Roberto,
causing
injuries
to the act,
natural result of the insured's voluntary
latter,
Roberto
sued
Cesar
and
the
third
unaccompanied by anything unforeseen
party
liability
insurerThere
for damages
and/or when a
except
the injury.
is no accident
insurance
proceeds.
The
insurance
company
deliberate act is performed, unless
some
moved
to
dismiss
the
complaint,
contending
additional and unforeseen happening occurs
that
thebrings
liability
of Cesar
has not
yetelement
been of
that
about
the injury.
This
determined
with finality.
a) Is the
contention
deliberateness
is not clearly
shown
from the
of the
insurer
correct?
Explain.considering
b) May the the
facts
of
the
case,
especially
SUGGESTED ANSWER:
insurerthat
be held
with Cesar?
BOYliable
is a minor,
andinsurer
the injured
No,fact
the contention
of the
is not
parties
are
also
children.
Accordingly,
it is
correct.
need
Insured;There
Accidentis
vs. no
Suicide
(1990)to wait for the
possible
that
CNI
may
not
prosper.
ATT's
decision
of the
theholder
courtofdetermining
Cesars
Luis was
an accident insurance
reportwith
is notfinality
conclusive
on POS third
or the court.
liability
policy effective
Novbefore
1, 1988the
to Oct 31,party
1989.
liability
insurer
could
beJan sued.
At a boxing
contest
held on
1, 1989 The
and
occurrence
of histhe
injury he to
Roberto
sponsored by
employer,
slipped
and
immediately
risebytohisthe
liabilitysoofhe
the
was hit on gave
the fact
opponent
fell
insurer
under
its
policy.
In
other
words,
and his head hit one of the posts of the
where
an ring.
insurance
insures
directly
boxing
He waspolicy
rendered
unconscious
against
liability,
the
insurers
liability
accrues
and was dead on arrival at the hospital due
immediately
upon hemorrhage.
the occurrence of the
to intra-cranial
Can his
is awhich
beneficiary
injury
or father
event who
upon
the under
liability
The insurer cannot be held solidarily liable
said insurance
depends
(Shermanpolicy
Shafersuccessfully
v Judge RTC claim
Olongapo
with Cesar. The liability of the insurer is
the insurance
company?
Cityindemnity
Branch 75from
GR l-78848,
Nov 14 88
167s386)
based
on contract while that of Cesar is
SUGGESTED
Explain. ANSWER:
based
If the
were solidarily
Yes,on
thetort.
father
whoinsurer
is a beneficiary
under
liable
Cesar,insurance
it could can
be made
to pay
the with
accidental
successfully
more
than
the amount
stated
claim
indemnity
for the
deathinofthe
thepolicy.
This
would,Clearly,
however,
be contrary
to ofthe
insured.
the proximate
cause
principles
underlying
contracts.
death was
the boxinginsurance
contest. Death
Onsustained
the other
the insurer
were .
in ahand,
boxingifcontest
is an accident
solidarily
liable
with Cesar
and it Co
is made
to
(De la Cruz
v Capital
Ins & Surety
17s559)
pay only up to the amount

Page
Page
58 61
62
59
57
of 103
of 103
unpaid
invention
Luz P4,500
hired
Liza
balance
cannot
professionals
did not
for
be
onfall
held
the
thewithin
damage
to
liable
afloat
for
to
promissory
their
theregular
infringement
vessel
car
note
evidenced
for
duties.
of
should
P900,000.00.
copyright
What
be
by
prevails
paid
a release
since
When
and
under
isnot
of
re-floated,
the
claim
only
the
formula
figured
garden
Having
The
Victoria
in
stones
E=mc2.
an
already
accident
covered
Hotel
The
obtained
IPO
chain
resulting
bydisapproved
the
reproduces
full single
in
payment
the policy
death
on the
a.
Page
60 ofas103
to
print,
reprint,
publish,
copy,
theIntellectual
provision
the
executed
installments
vessel
ofmultiply,
the
by
needed
Property
Luz
Intellectual
duedischarging
and
repairs
Code,
payable
Property
estimated
one
Raul.
before
of the
Code
atthe
of avideotapes,
coverage
Einstein's
insurance
passenger.
(see
application
Oriental
policies
distributes
At the on
time
Assurance
issued
the
the
ofground
the
copies
Co
by
accident,
v that
Y
thereof
CA and
200
his to
Z,
distribute,
sell
and
make
photographs,
loss
that
P2,000,000.00.
limitations
of
holds
the that
car.tothe
the
The
invention
copyright
insurance
belongs
isillustrations
the
company
making
to the of
of the
s
459)
Jay
theory
Fortune
its
Cruz
hotels
of was
relativity
may
and
licensed
makes
no
is not
to
longer
them
drive
patentable.
available
recover
but it was
Is to
the
from
hotelX
photo
engravings,
and
pictorial
Marine
Insurance;
Implied
Warranties
(2000) issued
So Cala
demanded
reimbursement
from
Luz,
employee,
refused
quotations
to
the
pay
from
inventive
the
a published
claim
activity
of the
work
ship
is not
for
owner,
a version
confiscated
IPO's
insurance
guests
action
forby
correct?
policy.
viewing
an LTO
(5%)
inagent
the hotel
who
guest rooms.
him
works;
b. toif
make
any
translation
or
other
or
SUGGESTED
ANSWER:
What
warranties
are nominal
implied
in minutes
marine
Insurer;
Insurance;
Employer-Policy
(2000)
who
refused
to judicial
pay,
saying
that
the
total
part
stating
purpose
ofGroup
his
that
regular
of
any
there
duties,
was
no
proceedings
even
constructive
if Holder
he
uses
or
for
total to
Open
Policy
a Traffic
It
charges
Violation
a separate
Report
(TVR) just
fee
for
the use
extracts
or
arrangements
or
adaptation
thereof;
SUGGESTED
ANSWER:
Yes,
IPO
correct
under
the
insurance?
c)
If the
each
ofisthe
policies
obtained
by
Fortune
X
company
procured
awas
group
accident
damage
car
P9,500.00
Since
Cala
the
loss.
giving
time, facilities
a)
ofifto
Was
professorial
and
constructive
materials
advice
by
of
legal
the
total
before
of the
the
videotape
accident.
player.
Couldbecause
1)
Asiatic
Can the
Insurers,
Victoria
dramatize
itthe
bethere
a
non-dramatic
work;
to loss
convert
it
Thein following
warranties
are
implied
in
SUGGESTED
ANSWER:
Intellectual
Property
Code,
discoveries,
owner
to
recover
from
the
insurance
company?
themade
problem
is an
open
insurance
policy
for
its
construction
paid
P5,000
only,
Luz
contends
that
she
was
to
practitioner,
entitle
the
provided
ship
that
the
source
and
Inc.,
Hotel
be
be
enjoined
liable(a)
under
forabove
infringing
its policy?
copyrights
Why?policy employer.
into
a
non-dramatic
work
if
it
be
a
drama;
to
marine
insurance:
1)
That
the
ship
is
Asiatic
Insurers,
Inc.,
should
be mathematical
made
liable
scientific
theories
and
Infringement;
Remedies
Defenses
Explain.
b)
Was
it assigned
proper
for
ship
and held
it
was
immediately
determined
after
employees
variously
tothe
its(1993)
entitled
go
after
Raul
to
claim
the
name
of
the
author
are
(See
(6%)
and
liable
for damages?
2)
Would
it the Patents:
complete
orto
execute
it
if it&identified
be
a
model
orowner
design; c.
and/or
to
take
in
certain
cargoes
2)
That
the
seaworthy
to
make
the
voyage
under
the
policy.
The
fact
that
the
driver
methods,
are
classified
to
be
as
"nonis
a
patent
owner
of
a
certain
to
send
a
notice
of
fire that
value of
Fortunes
house
provincial
infrastructure
projects.
Y
additional
P4,500.00
1)
Is
Cala,
as
subrogee
Section
184.1[k]
of
the
Intellectual
Property
make
any the
difference
if Victoria
Hotel
doeswas Ferdie
to
exhibit,
perform,
represent,
produce
or
reproduce
ship
shall not
deviate
from
the
voyage
SUGGESTED
ANSWER:
was
merely
holding
a TVR
does
not
violate
patentable
inventions."
Eintein's
Copyright;
Photocopy;
when
allowed
(1998)
abandonment
to
the
insurance
company?
He
discovered
that
his
invention
P2.4m,
how
much
may
heuse
collect
fromofX,Y invention.
Insurance
Company
the
ofwork
Luz,
entitled
tounderwrote
reimbursement
from
Raul?
Code
of
the
Philippines).
not
charge
any
fee
for
the
of theory
the
the
in
any
manner
or
by
any
method
whatever
insured;
3)
That
the
ship
shall
carry
the
SUGGESTED
Yes.
Victoria
ANSWER:
Hotel
has
no
right
to
use
the1)
condition
that
the
driver
should
have
a a
relativity
within
the
category
of
being
(5%)
May
ainfringed
person
have
photocopies
of
some
Explain.
is
by Johann.
1)has
What
are
the
and
Z? falls
coverage,
the
premiums
of
which
were
paid
2)
May
Cala
recover
what
it
paid
Luz?
videotape?
forbeing
profit
or
otherwise;
if
not
reproduced
in
copies
necessary
documents
In and
anvideo
open
policy,
the
insured
may recover
SUGGESTED
ANSWER:
such
tapes
in to
its hotel
business
valid
existing
drivers
license.
non-patentable
"scientific
theory."
pages
of
the
book
of
Professor
Rosario
made
remedies
available
to
Ferdie
against
Johann?
for sale,
entirely
by Xany
Company
without
any
for
to
sell
manuscripts
or
any
record
show
nationality
orfirst
neutrality
and
will
Patents:
Gas-Saving
Device:
to
filecreator/
rule
(2005)that
Besides,
such
a
condition
should
be
1)
No,
No.
there
Luz
was
executed
no
"constructive
a
release
in
total
favor
loss"
of
his
total
up
to
the
amount
ofit the
without
theloss
consent
of
the
owner
of not
without
violating
the copyright
law?
(3%)
2)
If
you were
the lawyer
of
Johann
in
the
employee
contributions.
the
was
whatsoever
thereof;
d.was
toWhile
make
anyvpolicy
other
use or
carry
anybecause
document
which
will
Cezar
works
in awhat
caris involved
manufacturing
SUGGESTED
ANSWER:
disregarded
isreasonable
a
Raul (Manila
because
the
vessel
Mahogany
Mfg
refloated
Corp
CA
andGR
the
insurance
cover.
Thus,
the cast
extent
of
the
copyright.
infringement
suit,
what
are
the
defenses
that
in
effect,
five
of
the
covered
employees
disposition
of
the
work
consistent
with
the
laws of
suspicion
thereon;
4)
That
theCezar
shall
not
2)
No. The
use of
the
videotapes
isisX,
for
Yes.
The
private
reproduction
of a published
company
owned
by
Joab.
quite
52756,
Octassert?
1987)
passenger
jeepney,
and
what
isship
involved
costs
of12refloating
plus the needed
repairs
recovery
would
be
P400th
from
P200th
your
client
can
perished
at
sea
on
their
way
to
their
the
land
2)
Yes.
Cala
lost
its
right
against
Raul
carry
especially
SUGGESTED
business
and
not
merely
for
work
in
a single
copy,
thethan threeinnovative
and
loves
to
tinker
with
here
iscontraband,
not
own
damage
insurance
butthings.
third
(P 2.9ANSWER:
Million)
will
notwhere
be more
from
Y, and
P600th
from
Z.if home
provincial
assignments.
Their
wivesby
sued
Y
it the
is problem
making
a(a),
voyage
through
belligerent
because
theis
release
executed
Luz.
d)
In
what
is
the
extent
the
1) The
following
remedies
are
available
to Ferdie
consumption.
(Filipino
Society
Composers,
reproduction
made
a vessel.
natural
With
materials
and
parts
ofof
the
car,
party
liability
where
the
injured
party
is aofhe
fourths
ofofthe
value
ofby
the
Aperson
Insurance
Company
for
payment
of
death
waters.
Since
the release
was
the tois
liability
of
the
insurance
companies
among
against
Authors
Publishers
s 461;
pd
exclusively
for
research
private
study,
was
able
invent
avtoTan
gas-saving
device
that
third
partyto
not
privy
the148
contract
of 1988)
constructive
total
loss made
is and
onewithout
which gives
benefits
under
the policy.
While
the suit
was
SUGGESTED
ANSWER:
Copyright;
Infringement
(1997)
Marine
Insurance;
Peril
of
the
Ship
vs.
Peril
of
the
Sea
Insurer;
Authorized
Driver
Clause;
vehicle
is
stolen
consent
of
Cala,
Cala
may
recover
the
themselves?
permitted,
without
the authorization
of
the
will
enable cars to consume less gas.
insurance.
a person
insured
adestroy
right
tob.abandon.
(Sec,
Johann.
a.the
seize
andsigned
injunction
c.
damages
pending,
wives
a
power
of
In
problem
(a),
the
insurance
companies
(1998)
an action
for damages
on Cezar
account
of an
(1993)
amount
P5,000
form
Luz
(Manila
Mahogany
Copyright;
Commissioned
Artist
(1995)
owner
ofof
the
copyright
in
the
work.
Francis,
a co-worker,
saw how
created
131,
Insurance
Code)
There
would
have
in
such
amount
may
have
been
obtained
attorney
designating
X Company
executive, from the
among
would
bewith
liable,
viz:
Xa
infringement
oflikewise,
a copyright,
defendant
A
insurance
policy
on
athe
cargo
states
Infringement
Competition
(1996)
HLmarine
insured
his
new
car
P Ins
Co
Mfg
Corp
v vs.
CAUnfair
GR
52756,
12loss
Oct
1987).
Solid
Investment
House
commissioned
Mon
the
devicethemselves
andbrand
came
up
with
been
a constructive
total
had
the
vessel
use
of
the
invention
if
properly
transacted
which can
PJ, Insurer;
as their
authorized
to
Authorized
Driverrepresentative
Clause
(1991)
of
P600th
=coverage
P200th
2/12
ofthe
P600th
(the
alleged
pirate)
raised
the
defense
that
that
the
insurer
shall
be Yscrap
liable
for
losses
What
is
the
distinction
between
for4/12
comprehensive
wherein
Blanco
and
his
son
Steve,
both
noted
artists,
similar
gadget,
also
using
materials
MN
Pearly
Shells
suffer
loss
or
needed
be
more
than
what
the
infringer
(Johann
)
received.
enter
into insured
a settlement
withcompetition?
the
insurance
Sheryl
herunfair
newly
acquired
car, a
=
P100th
Z
6/12
ofthe
P600th
=had
P300th
hespare
wasto
unaware
what
he
copied
incident
perils
of
sea.
During
the
infringement
insurance
company
undertook
to
indemnify
to paint
a mural
for
the Main
Lobby
of the
the
and
parts
of that
the
company.
Thereafter,
refloating
andand
repairs
ofd.more
than
Attorneys
fees
SUGGESTED
ANSWER:
company.
a settlement
PJand cost
Nissan When
SUGGESTED
Maxima
ANSWER:
against anywas
lossreached,
or damage
afiled
copyright
material.
Would
this
voyage,
seawater
entered
the
compartment
himwas
against
loss
or
damage to
the
car
a) by
new
building
of
Solid
for
a
contract
price
of
Francis
an
application
for
registration
required
three-fourths
of
its
value,
i.e.,
more
No.
An
to
pirate
is notdue
an element
instructed
the
insurance
company
issue for
The
distinction
between
infringement
for P50th
and
against
3rd
party to
liability
SUGGESTED
ANSWER:
defense
becargo
valid?
where
theintention
was
stored
to the
accidental
collision
...
b) by
fire, external
P2m.
a) P30.0
who
owns
the(Sec.
mural?
Explain
b) Code,
of e)
hisinfringement.
device
with
the
Bureau
of Patents.
than
Million
139,
Insurance
of
Hence,
an
honest
intention
However,
insurance
company
shall
pay
Supposing
in
problem
(a)
above,
Fortune
the
settlement
check
the
order
ofisX
(presumably
trademark)
and
unfair
P20th
withthe
the
XYZtoIns
Co.
Under
the
policy,
1)
Is
the
gas-saving
device
patentable?
Yes.
The
suit
will
prosper.
Y
Ins
Co
liable.
defective
drainpipe
of
the
ship.
The
insured
explosion,
burglary,
or
theft,
and
c)
Who
owns
the
copyright
of
the
mural?
Eighteen
months
later,
Cezar
filed
his
cited
in
Oriental
Assurance
v.
Court
of
Appeals
is
no
defense
to
an
action
for
infringement.
for
the
total
costs
of
refloating
and
needed
SUGGESTED
ANSWER:
was
able
to
collect
from
both
Y
and
Z,
may
Company,
which
will
undertake
the
payment
competition
are
as
follows:
1)
Infringement
the
car
must
be
driven
only
by
an
authorized
SUGGESTED
ANSWER:its executive, PJ, acted as
After
a month,
the
was
carnapped
while
X
Co,
Explain.
filed
an
action
on car
the
policy
for
of
malicious
act.
Explain.
andthrough
Panama
Saw Mill,whereas
G.R. No. 94052,
August 9,
application
for
the
registration
of recovery
his
device
ALTERNATIVE
ANSWER:
SUGGESTED
ANSWER:
Yes,
the
gas-saving
device
ishe
patentable
of
awho
trademark,
unfair
competition
repairs
(P2.9
Million).
he
keep
the
entire
amount
was
able
to
to
individual
claimants
ofistheir
of
trademark
is
the
unauthorized
use
driver
either:
1) the
insured,
or one
2) any is
a) the
Solid
owns
the
mural.
Solid
wasbound
the
parked
in
the
parking
space
in
front
of
the
agent
of
Y
Ins is
Co.
The
latter
thus
the
damages
caused
to
the
cargo.
May
the
1991)
with
the
Bureau
of
Patents.
Yes.
The
owner
of
the
copyright
must
make
No.
The
proximate
cause
of
the
damage
to
c)
Was
it
proper
for
the
ship
owner
to
passing
off
of
ones
goods
as
those
of
because
it
provides
a
technical
solution
to
a
the
collect
from
the
said
2
insurance
respective
shares.
PJ
misappropriated
the
person
driving
on
the
insureds
order
or
with
who
commissioned
the
artists
to
do
the
work
Intercontinental
Hotel in Makati.
s wife
by the misconduct of its agent. It is the
insured
recover
damages?
(5%) HL
others
aware
that
thewas
material
question
SUGGESTED
ANSWER:
the
cargo
insured
theit in
defective
send
afor
notice
of
abandonment
to
the
another;
problem
in
a field
of human
activity.
It is new is
companies?
settlement
amount
and
pursued
permission:
provided
that
person
andhis
paid
the
inthe
thewives
sumthe
of
P2m
who
was
driving
said
car before
was
usual
practice
inwork
the
group
insurance
covered
byindemnified
aThis
copyright.
This
is
SUGGESTED
ANSWER:
No,
heor
can
only
be
for
his
loss,
drainpipe
of
the
ship.
is and
peril
of
the
2) casethat
Fraudulent
intent
is unnecessary
in
insurance
company?
Explain.
andunder
involves
an
inventive
step,
their
against
Y Insurance
Co.holder
Willwith
the
driving
is permitted
in
accordance
carnapped
reported
immediately
thecertainly
business
the proper
employer-policy
isthe
No,
it
was
not
for
the
ship
owner
tois
done
by
the
giving
of
such
notice
at
a
not
profit
thereby;
hence
he
must
return
trademark,
whereas
fraudulent
intent
ship,
and
not
peril
of
the
sea.
The
defect
in
infringement
of
industrially
applicable.
It therefore
fulfills
Insurer;
Liability
ofExplain
the
Insurers
(1990)
b)Unless
there
is laws
a
stipulation
to to
the
suit
prosper?
(3%)
licensing
or
other
or regulations
incident to various
government
agencies
in
the
agent
of
the
insurer.
send
a
notice
of
abandonment
to
the
prominent
portion
of
the
copyright
material.
P200th
of
the
P800th
he
was
able
to
collect.
unfair
competition;
essential
in
the
drainpipe
was
the
result
of
the
ordinary
requisites
mandated
by the intellectual
a)
Suppose
Fortune
owns
aishouse
contrary
in that
the
contract,
the
shall
drive the
motor
vehicle
andcopyright
not
compliance
with
the insurance
insurance
company
because
abandonment
When
the
alleged
pirate
isunder
thus made
aware
During
the
effectivity
of to
the
policy,
the
car,
use
of the
ship.
Towhat
recover
a marine
Because
the
car
could
not
be
recovered,
HL
Property
Code
for
is patentable.
valued
at
anddriving
insured
the
same
belong
in P600th
joint
ownership
Solid
and
Mon
disqualified
from
such
motor
vehicle
requirements.
Loss:Assuming
Actual
Total
Loss
(1996)
can
only
be
availed
of herself,
when,
in
athe
marine
thereof,
his
act
of
pirating
copy
material
2)
that
it
is the
patentable,
3)
The
prior
registration
of
then
driven
by
Sheryl
who
had
no
insurance
policy,
the
proximate
cause
of
thewho isagainst
filed
a
claim
for
the
loss
of
the
car
with
the
fire
with
3
insurance
companies
as
and
Steve.
by order of a court.
Copyright;
Infringement
(1998)
RC
Corporation
rice
from
insurance
contract,
the
amount
toand
be wasfor
will
infringement.
patent?
What,
if but
any,
iswas
theofdenied
remedy
of the
the
losingfollows:
entitled
to
the
drivers
trademark
license,
is a prerequisite
met
an
accident
to
an
action
Copyright;
Commissioned
Artist
(2004)
loss
or constitute
damage
must
bepurchased
peril
the sea.
insurance
company
it
on
X

P400th
Y

P200th
Z

P600th
Juan
Xavier
wroteitand
published
story
Thailand,
which
intended
to asell
locally.
Mutual
Insurance
Company;
Nature
& Definition
expended
todamaged.
recover
the
would
have
party?
of trademark,
whereas
extensively
Thevessel
estimated
cost
of
BRinfringement
and CT are
noted
artists
whose
paintings
ground
that his
wife who
was
driving(2006)
the
similar
to
an
unpublished
copyrighted
story
SUGGESTED
ANSWER:
Due is
to
stormy
weather,
the
shipcompany
carrying
the
What
a
mutual
insurance
or
been
more
than
three-fourths
of
its
value.
repair
registration
was
P40th.
of
the
Sheryl
trademark
immediately
is
not
are highly prized by collectors. Dr. DL
car when it was carnapped was in the
of
Manoling
Santiago.
was,
however,
Cezar
isbecame
entitled
to the Itpatent
because
SUGGESTED
ANSWER:
rice
submerged
in sea
water, he
and
association?
Vessel
Pearly
Shells
needed
only
P2.9
necessary
in
unfair
(Del
notifiedMN
XYZ,
but the
latter
refused
to
pay
commissioned
them
tocompetition.
paint
a
mural
atMonte
the on
possession
of
aninsurance
expired drivers
license,isa a
A conclusively
mutual
life
corporation
proven
that
Juan
Xavier
not
was
the
real
inventor.
Francis,
copying
from
with it the rice cargo. When thewas
cargo
Million,
which
does
not
meet
the
required
Corp
v
CA
78325
Jan
25,90
181s410)
policy
alleging
that
Sheryl
violated
the
In
the
absence
of
any
stipulation
in
the
main lobby of his new hospital for children.
violation
of the
authorized the
driver
clause
of
SUGGESTED
ANSWER:
cooperative
of its
aware
thepromotes
story
ofloss
Manoling
Santiago
the
work that
ofinthat
Cezar,
cannot
claim
theinsured
essential
Infringement
vs.
Unfair
Competition
(2003)
arrived
Manila,
RC
filed
awelfare
claim
for
total
three-fourths
of
its
value
to
merit
indemnify
HL
for
the
of
the
vehicle?
policies
terms
from
thereof
which
when
insurance
she
drove
company
it
without
or
a
Both
agreed
to
collaborate
on
the
project
for
the
insurance company.
1) May
the collected
The
insurer
was
not
correct
in
denying
the
own
with
the
money
was
protected
by copyright.
Manoling
criteria
of Supposing
an
who
must
In
what
way
is
an
infringement
of
aequally
lossmembers,
with
theinventor,
insurer,
because
the possess
rice was
abandonment.
(Section
139,
Insurance
Code,
Explain.
2)
that
the
car
was
drivers
license.
Is
the
insurer
correct?
companies
may
Fortune
recover
in
case
fire
a
total
fee
of
two
million
pesos
to
be
insurance
company
be held
liable
to for their
Loss:
Total
Loss
Only
(1992)
claim
since
the
proviso
that
thepertains
person
from
themselves
and
solely
Santiago
sued
Xavier
for
infringement
essential
elements
of
originality
and
trademark
similar
to that
which
to
SUGGESTED
ANSWER:
no among
longer
fitJuan
fornovelty,
human
consumption.
citeddestroy
in
Oriental
Assurance
v. Court
ofagreed
Appeals
brought
by
HL
on
should
his
house
completely?
divided
between
them.
It
was
also
SUGGESTED
ANSWER:
An
insurance
company
issued
a marine
SUGGESTED
ANSWER:
driving
is
permitted
in
accordance
with
the
own
protection
and
not
for
profit.
Members
of
copyright.
Is
Juan
Xavier
liable?
(2%)
precedence
to
be
entitled
to
protection.
unfair
competition?
Fortune
may
recover
from
the
insurers
in
Admittedly,
the
rice
could
still
be
used
as
and
Panama
Saiv
Mill,
G.R.
No.
94052,
August
9,
installment
basis
there
installments
that
Dr. DL had
to covering
provide all
the materials
Yes.
Juan
Xavier
isand
liable
for
infringement
of
RCs
claim
for
total
losswere
is
justified.
The
insurance
policy
a shipment
licensing,
etc.
qualified
only
a their
personby sea
areYes,
both
the
insurer
and
insured.
Afile
mutual
Nevertheless,
under
the
"first
to
rule,"
such
order
as
he
may
select
up
to
animal
feed.
Is RCs
claim
for
total
loss
1991)
and
payable
before
the
loss
of
the
car
as
well
as
due
forfrom
the Mindoro
painting
and
pay
forofthe
wages
of of
copyright.
Itcompany
is not
necessary
thatThailand
Juan
which
was
imported
from
for concurrent
Infringement;
Jurisdiction
(2003)
to
Batangas
1,000
pieces
driving
the
vehicle
other
than
the insured
at
liferice,
insurance
has have
no
capital
Francis
application
would
to be stock
given
liability
(Sec
94 Ins
Code)
justified?
Explain.
installments
notthat
yet
payable.
Because
of the
technicians
and
laborers
needed
for
the
Xavier
is
aware
the
story
of
Manoling
sale
locally,
is
obviously
intended
for
K-9
Corporation,
a
foreign
corporation
Mindoro
garden
stones
against
total
loss
the
time
of
the
accident
(Palermo
v
Pyramid
and
relies
solely
upon
its
contributions
or
priority.
however,
has within
three
the
the vendor
demanded
from HL
the
Assume
thatANSWER:
the project is completed and
losscar,
ofCezar,
ALTERNATIVE
work
on
the
project.
Santiago
was
protected
by copyright.
The
consumption
by
the unexpected
public.
Thecancelled
complete
alleging
to31
be
thepaid
registered
ownerofof
only.
The
stones
were
loaded
two
Ins
CoPolicy
GRitself
36480
May
88)
premiums
to
losses,
months
fromof
the
decision,
to have
balance
themeet
promissory
note.itHL
resisted theValued
both
BR
and
CT
are
fully
theinamount
unpaid
The
insurer
is
correct.
TheK,
clause
work of Manoling
Santiago
is(Republic
protected
at
physical
destruction
of
the
rice
is
not
trademark
K-9
and
logo
filed
anthe
Inter
lighters,
the
first
with
600
pieces
and
b)
If
each
of
the
fire
insurance
policies
contingencies
and
expenses
v.
as
the
rightful
inventor;
or
within
one
year
demand and claimed that he was only liable for P2M
as artists'driver
fee by DL.
Under
law
on
authorized
in
the
policythe
evidently
the time
ofto
itsconstitute
creation.October
essential
an
actual
total
loss.
Partes
case
with
the
Intellectual
Property
second
with
400
pieces.
Because
of
rough
obtained
by
Fortune
in
the
problem
(a)
is
a
Sunlife,
G.R.
No
158085,
14,
2005).
from
installments
publication,
due
to
file
and
an
payable
action
before
to
prove
the
his
loss
of
the
intellectual
property,
who will
ownother
the
Copyright;
Infringement
(2006)
applies
to
both
the
insured
and
any
Such
atoloss
exists
in thisfor
case
since
the
rice, valued
Office
against
Kanin
Corporation
forinthe
seas,
damage
caused
the
lighter
policy
andwas
the
value
of
hissecond
house
was
car
but
no
longer
liable
other
installments
priority
the
the
invention,
which
has
been
mural?
Who
will
own
the
copyright
the
In
a Supposing
written
legal
opinion
for
a client
on
the
person
driving
the
vehicle
at
the
time
of
the
3) having
Joab
got
wind
of
the
been
soaked
in
sea
water
and
cancellation
of
the
latters
mark
K-9
resulting
in
the
loss
of
325
out
of
the
400
SUGGESTED
ANSWER:
fixed
in Why?
each of
the policies
how and
due
at the
time
of the
loss of theregistered
car.
notfrom
yet
taken
him
and
fraudulently
mural?
Explain.
(5%) at P1m,driver
difference
between
apprenticeship
and
accident.
The
term
authorized
inventions
of rendered
his employees
also human
laid
thereby
unfitandfor
logowould
K.
During
the
Under
Section
178.4
of shipment
the
Intellectual
SUGGESTED
ANSWER:
pieces.
The
owner
of pendency
the
much
Fortune
recover
fromof
X the
iffiled
hecase
Decide.
by
Francis.
Copyright
(1995)
learnership,
Liza
quoted
permission
should
be
construed
asCorporation
aof
person
who
is
Insurer;
3rd
Party
Liability;
Quitclaim
(1994)
claim
to
the
patents,
asserting
that
Cezarfor Property
consumption,
haslost
become
useless
1)
Yes.
The
car
was
duewithout
tototally
theft.
What
before
the
IPO,
Kanin
brought
claims
against
Code,
the
in
case
insurance
commissioned
company
has already obtained full payment on the on the
Loss:
Constructive
Total
Loss
(2005)
What
intellectual
property
rights
are
a
labor
law
expert's
comment
appearing
in
authorized
by
law
to
driver
the
vehicle
SUGGESTED
ANSWER:
Rauls
truck
bumped
the
car
owned
by
Luz.
andthe
Francis
using
hiswas
materials
and
purpose
for is
which
it
imported
(Pan
applies
in thiswere
case
the theft
clause,
and
suitthe
against
K-9(in
Corporation
before
the (Peza
RTC
work,
creator
the
absence
ofZ?
a written
ground
of
constructive
total
loss
inasmuch
insurance
policies
issued
by
Y
and
Insurer;
Authorized
Driver
Clause
(2003)
SUGGESTED
ANSWER:
protected
by
copyright?
M/V
Pearly
Shells,
a
passenger
and
cargo
his
book
entitled
"Annotations
on
the
Labor
v
Alikpala
160s31)
Fortune
may
still
recover
only
the
balance
The
car
was
insured
by
Cala
Insurance.
For
company
time
in v
making
theclause.
devices,
will his
Malayan
Ins Co
CA
gr 95070
Sep 5,
1991)
not
the
authorized
driver
It
is
for
infringement
and
damages.
Could
the
stipulation
as
more
than
to

the
of
the
contrary)
value
of
the
owns
stones
the
SUGGESTED
ANSWER:
The
is not
liable under its
Rickinsurance
de lafrom
Cruzcompany
insured
his
passenger
vessel,
wasover
insured
for
P40,000,000.00
Code."
Can
the
labor
law
expert
hold
Liza
of
P200,000
insurance
company
the prevail
damage
caused,
Cala
paid
Luz
P5,000.00
claim
of
his
employees?
immaterial
that
HL
sthose
wife
was
driving
the
car
action
before
the
RTC
prosper?
Why?
copyright,
but
the
work
belongs
tothe
the
had
been
lost
inXagainst
one
ofitself
the
lighters.
Is
Sec
5
of
PD
49
provides
that
Copyright
shall
policy
covering
total
loss
only
the
Patent;
Non-Patentable
Inventions
(2006)
jeepney
with
Asiatic
Insurers,
Inc.
The
policy
SUGGESTED
ANSWER:
against
total
loss.
Due
a
liable
forconstructive
infringement
of copyright
for to
since
the who
insured
may only
recover
up
to the
in
amicable
settlement.
Luz
executed
a
Explain.
with
an
expired
drivers
license
at
the
time
it
person
insurance
company
commissioned
liable
under
its
its
creation.
policy?
consist
in
the
exclusive
right:
shipment
of
1,000
pieces
of
Mindoro
garden
provided
that
the
authorized
driver
of
the
Supposing
Albert
Einstein
were
alive
today
No,
Joab's
claim
cannot
prevail
over
those
of
ALTERNATIVE:
typhoon,
it
sank
near
Palawan.
Luckily,
there
quoting
a portion
ofCompania
his bookde
without
extent
of his loss.
release
of
claim,
subrogating
Cala
to his
all
was
carnapped
. (Perla
Seguros
v her
Accordingly,
the
mural
belongs
to loss
DL.
Why?
SUGGESTED
ANSWER:
stones.
There
ishave
no
constructive
total
vehicle
and he filed
should
with
the
aIntellectual
valid
and existing
Property
his
employees.
In
the
first
place,
Joab
did
not
were
no
casualties,
only
injured
passengers.
permission?
(5%)
2)
The
rights
promissory
against
Raul.
note
is
When
not
affected
Cala
demanded
by
CA 208 s 487)
However,
BR
and
CT
own
the
copyright,
that
can
claimed
since
the
is tofor
be
drivers
license.
The
passenger
jeepney
ofhis
Office
(IPO)
an application
forrule
patent
commission
anyowner
of
theRaul,
two
employees
to of
The
ship
sent
a latter
notice
Copyright;
Infringement
(1994)
whatever
reimbursement
befalls
the
from
subject
matter
the
of
the
refused
since
there
isrelativity
nothe
stipulation
toatthe
contrary.
computed
on
total
1,000
pieces
of
Rick
theory
de
of
la
Cruz
which
expressed
was
the
in
the
time
driven
invent
the
device,
and
its
abandonment
of
his
interest
over
the
vessel
accessory
saying that
contract.
he had
The
already paid
Mindoro
by Jay Cruz,
to the insurance company which then
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Intellectual Property

2) These are the defenses that can be asserted in

an infringement suit:
1
Patent is invalid (Sec 45 RA 165, as
amended)
2
Patent is not new or patentable
3
Specification of the invention does not
comply with Sec 14
4
Patent was issued not to the true and
actual inventor, designer or author of the utility
model or the plaintiff did not derive his rights
from the true and actual inventor, designer or
author of the utility model (Sec 28 RA 165 as
amended)

Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

bank
be
3)
b)
said
demanded
to If
There
beAaron
similar
is
immediate
no
is to
need
declared
such
of
payment.
products
exact
an insolvent
duplication
as TV, by
stereo
Because
of the
the
court,
and
the
patentees
bank
what
radio
threatened
would
existing
sets be
or
patent
to
the
cameras
proceed
effect,
such as
ifor
any,
ALTERNATIVE
ANSWER:
betamax
against
when
of
such
the
the
products
surety,
improvement
declaration
of
Eduardo
Sony. made
on
Z. Ong,
his
by another
Edzo
creditors?
is
There
SUGGESTED
istominor
infringement.
ANSWER:
If the 51p713)
owner
a
decided
merely
Explain.
pay
up(Frank
all itsvobligations
Benito,
to . of
To be
A
declaration
by 20,
the 2002,
court
that
theof
trademark
which
manufactures
certain
types
Integrity
independently
Bank.
Onpatentable,
June
an
improvement
Edzo
paid
petitioner
is
insolvent
will
have
the
of
goods
could
reasonably
be
expected
to
to Integrity
an existing
Bank
patented
the fullinvention
principalmust
amount
be aof
1) improvement
The
sheriff
shallv take
possession
following
effects:
engage
inplus
the
manufacture
another
P500,000,
major
accrued
(Aquas
interests
deof
amounting
Leon
L-32160
of using
allAsassets
of Edzo
the
debtor
until
product
the
same
trademark,
another
30Jan82)
to
P55,000.
a result,
had
hardly
anythe
Patents;
Rights
over
the
Invention
(1990)
appointment
of
a
receiver
or
assignee;
party
who
uses
the
trademark
for
that
cash left for operations and decided to close
2) can
Payment
to the
debtor
of
any
Cheche
invented
a
device
that
can
convert
product
be
held
liable
for
using
that
its business. After paying the unpaid salaries
debts due
to
him and
the
delivery
to the
rainwater
into
automobile
fuel.
She
asked
trademark.
Using
this
standard,
of its employees, Edzo filed a petition for
debtor
of
any
property
tobe
him,
Macon,
aonlawyer,
assist inbelonging
getting
her
In
the
insolvency
proceedings
in
court,
the
infringement
exists
because
Sony
can
insolvency
1,to
2002.
Trademark;
ofJuly
Dominancy
(1996)
andTest
transfer
of
any
by
invention
patented.
suggested
thathim
assignee
inthe
insolvency
sought
toproperty
invalidate
reasonably
expected
toMacon
use
such
trademark
3)
civil
proceedings
pending
N
Corporation
manufactures
rubber
shoes
are
forbidden;
form
aAll
corporation
with
other friends
the
payment
made
by Edzo
to Integrity
Bank
on they
electric
fans.
against
the
insolvent
shall
be
stayed;
and
under
the
trademark
Jordann
which
hit
have
the corporation
apply
for the
forand
being
a fraudulent
transfer
because
it the
4)
Mortgages
and
pledges
are
Phil
market
in
1985,
and
registered
its
patent,
of30
thedays
shares
of stock
thereof
to
was
made 80%
within
before
the filing
of not
affected
byby
the
order
declaring
aMacon.
person
trademark
with
the
Bureau
of Integrity
Patents,
be
subscribed
Cheche
and
5%
by
the
insolvency
petition.
In
defense,
insolvent.
(Sec.
59,
Insolvency
Law)
Trademarks
and
Technology
(BPTTT)
in
Theasserted
corporation
was
formed
and
patent
Bank
that
the
payment
to
itthe
was
for
1990.
PK debt
Company
also
manufactures
application
wasthat
filed.
However,
Cheche
died
a
legitimate
was
not covered
by the
c)
Assuming
that,
Aaron has
guarantors
Franco,
the
estranged
husband
of
Cheche,
rubber
shoes
with
trademark
Javorski
3 months
later
ofthe
a heart
prohibition
because
it
was
aattack.
valuable
for it
his
debts,
are
the
guarantors
released
contested
the
application
of
the
corporation
which
registered
with
BPTTT
in
1978.
pecuniary consideration made in good faith,
In and
1992,
PK
Co
adopted
and
copied
from
their
obligations
once
Aaron
is
filed
his
own
patent
application
as the
the
thus
fallingANSWER:
within the exception specified
in
SUGGESTED
design
of
N Corporations
Jordann
rubber
discharged
from
hisofdebts?
Explain.
sole
surviving
heir
Cheche.
Decide
the
theNo,
Insolvency
Law. As judgethe
in theprinciple
pending of
precisely
SUGGESTED
ANSWER:
shoes,
both
as to under
shape and color,
but
issue
with
reasons.
insolvency
case,
how
would
you
decide
the
excussion,
thehusband
liabilityJavorski
the guarantors
The estranged
ofof
Checke
cannot
SUGGESTED
ANSWER:
retained
the trademark
on its
respective
contentions
of
the
assignee
in
arises
only
after
the
exhaustion
of the
assets
successfully
contest
the
application.
The
The
contention
of the
assignee
in insolvency
products.
insolvency
and
of
Integrity
Bank?
Explain
of
the
principal
obligor.
The
effect
right
inventions
from
the
May
PKover
Company
be accrue
held
to
is
correct.
The
payment
made liable
by
Edzo
toN Co?of
(5%)
SUGGESTED
ANSWER:
discharge
merely
confirms
exhaustion
moment
of
creation
and
as
a
right
it
canof the
Explain. Bank was a fraudulent preference
Integrity
ALTERNATIVE
ANSWER:
PK
Co
may
be
liable
for
unfairly
competing
assets
of
the
obligor
available
to his
lawfully
be
assigned.
Once
the
title
thereto
or payment, being made within thirty (30)
Yes. Article
2076
of the the
Civildesign,
Code provides:
against
N Co.
By
copying
creditors.
is vested
in
transferee,
the latter shape
has the
days
before
thethe
filing
of the insolvency
Thecolor
obligation
of the guarantor is
andright
of N
to apply
for Corporations
its registration.Jordann
The
petition.
extinguished
at
the
same
timesame
as that
of the
rubber
shoes
and
using
the
Insolvency;
Jurisdiction;
Soleof
Proprietorship
estranged
husband
Cheche,
if(1990)
not in its
debtor,
and
for
the
same
causes
as
all
other
Note:
An
examinee
who
answers
on
the
rubber
shoes
trademarked
Javorski,
PK
is
One
day Jerry Haw,
doingmerely
business
under
disqualified
to inherit,
would
succeed
obligations.
basis
of the
issue
of off
validity
of
the for
obviously
trying
to
pass
its
shoes
the
name
Starlight
Enterprise,
a
sole
to
interest
of Cheche.
d) the
What
remedies
are
available
to the
of patent
ashort
valid
those
of transfer
N. Itfinds
is
of
noas
moment
proprietorship,
himself
on that
cash he
guarantors
in
case
they
are
made
to
pay
the
consideration
for
subscription
of
the
trademark
Javorski
was registered
and
unable ANSWER:
to
pay his debts
as they fall ahead
due
SUGGESTED
Trademark
(1990)
shares
of stocks should be given due
creditors?
Explain.
of Under
the trademark
Jordann.
Priority
although
he
has sufficient
property
to cover
Article
2081,
guarantor
mayinset
credit.
In 1988,
the Food
andthe
Drug
Administration
registration
is
not
material
in
an
action
for
such
debts.
He
asks
you,
as
his
retained
up
againstthe
thelabels
creditor
all the by
defenses
approved
submitted
Turbo that
unfair
competition
as
distinguished
from
an
counsel,
for
advice
on
the
following
queries:
pertain
to for
the
principal
debtor.
Corporation
its new
drug brand
name,The
action
for
infringement
of
trademark.
The
a)
Should
he
file
a
petition
with
the
SEC
to
discharge
obtained
by
the
Axilon.Rubber
Turbo
is
applying
withprincipal
the&
(Converse
Conow
v Aaron
JacintoonRubber
basis
of an in
action
forof
unfair
competition
be
declared
a state
suspension
of
obligation
can
now
be
as and
aApr28,80
defenseis by
Bureau
Patents,
Trademarks
Plastics
CoofGR
27425
andused
30505,
confusing
misleading
similarity
in
payments
in and
view of
the said the
financial
the
guarantors
against
creditors. of
The
Technology
Transfer
for the registration
97s158)
general
appearance,
not
condition
he
faces?
Explain
yoursimilarity
answer.
b) of
Tradename:
International
Affiliation
(2005)
guarantors
are
also
entitled
to
indemnity
said brand name. It was subsequently
trademarks
Should
Insolvency;
he
sell
Assets
profit
vs. Liabilities
participation
S
Development
Corporation
sued
Shangrila
under
Article
of the (1998)
Civil
SUGGESTED
ANSWER:
confirmed
that2066
Accilonne
is
aCode.
generic
term
certificates
to
his
10
brothers
and
sisters
inthe
Horacio
opened
a
coffee
shop
using
money
Corporation
for
using
the
S
logo
and
a) Ifor
would
counsel
Jerry to file
theand
Petition
a class
of anti-fungal
drugs
is
used
as
order
to raise
cash
for his The
business?
Explain.
borrowed
from
financial
institutions.
After 3
tradename
Shangrila.
former
claims
for
Suspension
of Payment
with
the
ordinary
such
by the
medical
profession
and
the
months,
Horacio
left
for SECs
thethe
USlogo
withand
the
that
it was
the
first
toSEC.
register
courts,
rather
than
the
pharmaceutical
industry,
and that
it is used
intent
of
defrauding
his
creditors.
While
theastradename
insuch
the cases
Philippines
and only
that his
it
jurisdiction
overchemical
is confined
a generic
name
in various
liabilities
are
worth
P1.2m,
his
assets,
had
been using
the
same in
its
restaurant
to
petitions
filed
by
corporations
and
scientific
and
professional
publications.
A
SUGGESTED ANSWER:
however
are
worth
P1.5m.
May
Horacio
be
business.
Shangrila
Corporation
counters
partnerships
under
its registration
regulatory
powers.
competing
drug for
manufacturer
asks
you to
SUGGESTED
ANSWER:
The
application
by Turbo
declared
insolvent?
(2%)
b)
Instead
of
selling
profit
participation
that
is the
anregistration
affiliate
ofofdeclared
an
international
contest
the brand
name
No.itHoracio
may
notcontested.
be
insolvent.
Corporation
may
be
The
certificates,
I which
would
urge
Jerry
to
enter
into
organization
has
been
using
such
logo
Axilon
by
Turbo.
What
will
you
advice
be?
His
assets worth
P1.5m
more
his
Trademark
Law
would
notare
allow
the than
a
partnership
or
to
incorporate
in
order
to
and
tradename
Shangrila
for
over
20
years.
liabilities
worth
P1.2m.
registration
of
a
trademark
which,
when
ALTERNATIVE
ANSWER:
raise
cash for
his business.
However,
Shangrila
Corporation registered
Insolvency;
(1996)
applied
toAssignees
or used
inparticipation
connection with his
b) Jerry
may
sell
profit
the
tradename
and
logo
in the Philippines
On
June
16,
1995,
Vicente
a writ of
products,
is
merely
descriptive
oradeceptively
Which
of
the
two
corporations
has
better
certificates
to
his
brothers
andobtained
sisters
only
after
the
suit
was
filed.
preliminary
attachment
against
Carlito.
The
misdescriptive
them.
Confusion
result
right
to registering
use the of
logo
and
the
tradename?
without
the
same
with
thecan
SEC
ALTERNATIVE
ANSWER: property occurred on June
levy
on
Carlitos
SUGGESTED
ANSWER:
from the
as thetransaction
generic
Explain.
because
his use
saleof
is Axilon
an exempted
Medical
drugs
may29,
be1995,
procured
only
upon
25,
1995.
On
July
another
creditor
S
Development
Corporation
a better
product
itself.
being
isolated
and
not a sale
tohas
the public.
prescription
made
by
a
duly
licensed
filed
petition
for
involuntary
insolvency
right
to ause
the logo
and
the tradename,
Insolvency;
obligations
that
survive
(1997)
physician.
The possibility
of
against
Carlito.
The
insolvency
court gave
since
the protective
benefits
of
due course to the

Page
Page
66 63
of 103
of 103
An deception
insolvent
Page
Page
debtor,
could
64 65
of 103
be
ofafter
103
rather

lawful
remote.
discharge
Since
following
itmeantime,
cannot really
an
adjudication
be
said
that
thepetition.
law
are
In the
conferred
bythe
the
case
fact
filed
of
by
of
insolvency,
physicians
can
is released
benot
so
easily
from,
deceived
generally,
such
registration
Vicente
proceeded
and
and
by
resulted
use.
in
Although
a byall
debts,
trademark
claims,
as
liabilities
Axilon,
and
it may
demands
be hard
which
to
Shangrila
judgment
Corporation's
award
in favor
parent
of
Vicente.
had
used
May
thethe
are
expect
or have
anbeen
opposition
against
his
succeed.
estate.
tradename
judgment
obtained
and proved
logo
bythereto
Vicente
long to
before,
be
enforced
the
ANOTHER
ANSWER:
Give
5 obligations
the
insolvent
debtor
protection
independently
of the
ofofthe
laws
insolvency
will be
for toS
SUGGESTED
The
SUGGESTED
application
ANSWER:
ANSWER:
for registration
of Turbo
survive.
Development
proceedings?
Corporation
Explain.
because it was
the
The
The
5entity
judgment
obligations
obtained
ofbethe
by
insolvent
Vicente
can
debtor
be
Corporation
contested.
The
factual
first
tomay
register
the
intellectual
that
enforced
survive
independently
are
as
follows:
of
the
insolvency
settings
do
not
indicate
that
there
had
How
does the international affiliation been
of
properties.
1
Taxes
assessments
due
the
proceedings.
Under
Sec 32
the
Insolvency
prior
use and
for
at least
2 of
months
ofthe
the
Shangrila
Corporation
affect
government,
national
or
local;
Law,
the
assignment
to
the
assignee
of
all
trademark
Axilon.
outcome of the dispute? Explain. (5%)
Trademark
(1994)personal
SUGGESTED
ANSWER:
2
Obligations
arising
from
the real
and
property,
estate and
The
international
affiliation
Shangrila
Laberge,
Inc.,
manufactures
and
markets
embezzlement
ordebtor
fraud;
effects of the
made byofthe
clerk
of
Corporation
may
be
critical
in
the
event
that
after-shave
lotion,
shaving
cream,
3 the court
Obligation
of any person
shall vacate
and setliable
aside with
any
its
affiliates
parent
company
abroad
talcum
and
toilethad
soap,
thedeodorant,
insolventor
debtor
for
the action
same
debt,
judgment
entered
inpowder
any
commenced
registered
in
a
foreign
jurisdiction
the
using
the
trademark
PRUT,
which
is
either
as
a
solidary
codebtor,
surety,
with 30 days immediately prior to the
tradename
and
the
logo.
A
well-known
mark
registered
with
the
Phil
Patent
Office.
guarantor,
partner,
indorser
or
otherwise.
commencement of insolvency proceedings.
andLaberge
tradename
subject
to protection
does
not
manufacture
briefs
4
Alimony
or is
claim
for
and
In this
case,
however,
thesupport;
action
filed
by and
under
Treaty
of provable
Paris
for
the commenced
Protection
of
underwear
and
these
items
are
not estate
specified
5
Debts
not
against
the
Vicente
against
Carlito
was
by
JG
who
manufactures
briefs
and
underwear,
Intellectual
Property
to 16,
which
the
in
the
certificate
of
registration.
(such
as after-incurred
obligations)
of,
or
not
Vicente
not later
than
June
1995
(the
wants
tothis
know
whether,
laws, he
Philippines
is
a schedule
member.
included
in
the
by, the
facts on
point
are submitted
notunder
clear)our
when
Insolvency;
Voluntary
Insolvency
Proceeding
(1991)
can
use
and
register
the
trademark
insolvent
Vicentedebtor.
obtained a writ of preliminary
Is PRUTE
the issuance
of merchandise.
an order, declaring
a
foragainst
his
What
is your
attachment
Carlito
or more
than
30
SUGGESTED
ANSWER:
Insolvency;
Effect;
of Insolvency
(1991)
petition
in
aDeclaration
Voluntary
Insolvency
advice?
days
before
the
petition
for
involuntary
Yes. The
inupon
the
What
aretrademark
the effectsregistered
of a judgment
in name
proceeding
insolvent,
mandatory
the of
insolvency
was
filed against
Carlito by his
SUGGESTED
ANSWER:
Laberge
Inc
covers
only
after-shave
lotion,
insolvency
in
Voluntary
Insolvency
cases?
court?
Insolvency
vs.
Suspension
of Payment
(1998)
other
creditors.
on July
29,
Assuming
SUGGESTED
that
ANSWER:
the (i.e.
petition
was
in1995)
due form
shaving
cream,
deodorant,
talcum
powder
Distinguish
insolvency
from
of
(Radiola-Toshiba
Phil
vdeclaration
IAC
GR suspension
75222
adjudication
of July18,91
andThe
substance
and
the
assets
of the
and
toilet soap.
Itorthat
does
not
cover
briefs
and
payments.
(3%)
199s373)
insolvency
by
the
court,
after
hearing
or
petitioner
are
less
than
his
liabilities,
the
underwear.
SUGGESTED ANSWER:
Themust
limit
of the
is stated
in18
shall
havetrademark
the
effects:
a)the
court
adjudicate
the
insolvency
(Sec
a) default,
In
insolvency,
thefollowing
liabilities
of the
certificate
issued
to
Laberge
Inc.
It
does
Forbid
the
payment
to
the
debtor
of
any
Insolvency
Law)
debtor are more than his assets, while innot
Insolvency;
Voluntary
vs.delivery
Involuntary
him
and
the
toSolvency
him
of(1995)
any
property
include
briefs
and
underwear
which
are
debt
due
topayments,
suspension
of
assets
of the
debtor
belonging
to
him;
b)
Forbid
the
transfer
of
Distinguish
between
voluntary
insolvency
and
different
products
protected
by
Larberges
are more than his liabilities.
property
by him;
c) Stay
of debtor
all civil
involuntary
insolvency.
trademark.
b) any
In insolvency,
theand
assets
of the
SUGGESTED
ANSWER:
JG
can
register
the
trademark
PRUTE
proceedings
against
the
insolvent
but
are to be converted into cash for distribution to
In cover
voluntary
insolvency,
it is the
debtor
may
be allowed
(Secs
18 Inc
& v
its creditors,
briefs
andwhile
underwear
(Faberge
amongforeclosure
his
in suspension
of
himself
who
files
the
petition
for
insolvency,
24
Insolvency
Law)
IAC
215
s
316)
payments, the debtor is only asking for time
while
in involuntary
insolvency,
at least 3
Trademark,
Test of Dominancy
(1996)
within which to convert his frozen assets
creditors
the
who(2002)
file the petition
Insolvency;
Fraudulent
Payment
What
isare
the
testones
of
dominancy?
into
liquid
cash with which to pay his
ALTERNATIVE
ANSWER:
SUGGESTED
ANSWER:
for
insolvency
the insolvent
As
ofInfringement
June
1,against
2002,
Edzo
Systemsdebtor.
Patents;
(1992)
obligations
when
the latter
fall the
due. that if the
TheThe
following
are indebted
test
of
dominancy
requires
Corporation
(Edzo)
was
to thethe
In
an
action
for
infringement
of
Insolvency:
Voluntary
Insolvency
(2005)
1 competing
In involuntary
insolvency,
3patent,
or
distinctions:
trademark
contains
themore
main or
following
creditors:
a)
Ace
Equipment
alleged
infringer
defended
himself
by
stating
Aaron, a well-known
architect,
isinsuffering
creditors
are
required,
whereas
voluntary
essential
features
of
another
and
confusion
computers
and
accessories
sold
to
Edzo
Supplies
for various
personal
1)
that
the patent
issuedHe
by has
the
Patent Office
from
financial
four
insolvency,
onereverses.
creditor
may
be
sufficient;
and
deception
is
likely
to
result,
on
credit
amounting
to
P300,000.
was
not
really
an claim
invention
which
was
creditors
a total
of P26the
Million.
2 infringement
In with
involuntary
insolvency,
creditors
takes
place.
Duplication
b)
Handyman
Garage

for
mechanical
patentable;
2) that
hepay
had
no intent
to or
Despite
intention
to
these
must
be his
residents
of the
Philippines,
whose
imitation
is
not
necessary;
not
is
repairs
(parts
and
service)
performed
on
infringe
sodemand
that
there
was
no
case it
obligations,
his current
assets
arePhilippines,
credits
or
accrued
in actionable
the
necessary
that
the
infringing
label
should
Edzos
company
car
amounting
to
P10,000.
for
infringement;
and
thatbecome
there
no
insufficient
to
cover
all 3)
of has
them.
His was
andsuggest
none of
the
creditors
a
c)
Joselyn
Reyes

former
employee
of in
an
effort
to
imitate.
Similarity
exact
duplication
of
the
patentees
existing
creditors
are
about
to
sue
him.
creditor
by
assignment
within
30
days
prior
Edzo
who
sued
Edzo
for
unlawful
size,
form
and
color,
while
relevant,With
is not
petition
the
court
to declare
patent
but
only
awas
minor
improvement.
Consequently,
constrained
toin
file ahim
Trademark;
Infringement
(1991)
to
the
filing
of he
the
petition,
whereas
SUGGESTED
ANSWER:
termination
of
employment
conclusive.
(Asia
Brewery
vand
CAwas
GRable
103543
insolvent,
can
the
judge
properly
treat
those
defenses,
would
you
exempt
theto
for
insolvency.
(5%)
a) Since
Aaron
Sony
is
a registered
trademark
for
TV,
voluntary
insolvency,
these
are
not
required.
Ipetition
would
not
exempt
the
alleged
violator
from
obtain
a
final
judgment
against
Edzo
for
Jul5,93
224s437)
the
petition
as
one betamax
for
involuntary
alleged
violator
from
liability?
Why?
was
merely
forced
by
circumstances
to
stereo,
radio,
cameras,
and
other
3 P100,000.
In
involuntary
insolvency,
the
debtor
d)
Bureau
of Internal
Revenue
for
liability
for
the following
reasons:
1) A
SUGGESTED
ANSWER:
insolvency?
Explain.
electronic
A Patent
local
must
have
done
anyby
ofthe
the
acts
ofcompany,
insolvency
unpaid
value-added
taxes
amounting
to Best
patent
once
issued
Office
No.
This
is
a products.
case
for
voluntary
insolvency
Manufacturing
Inc
produced
electric
fans
presumption
that
the
article
is
e)
Integrity
Bank

which
granted
Edzo
as
enumerated
by
Sec
20,
whereas
in
P30,000.
raises
a this was filed by an insolvent debtor
because
which
it
sold
under
the
trademark
Sony
a
patentable;
loan
in
2001
it
in
can,
the
amount
however
of
P500,000.
be
shown
voluntary
insolvency,
the
debtor
must
not
owing debts exceeding the amount of
without
the
consent
ofRA
Sony.
Sony
sued
Best
otherwise
(Sec
45
165).
A
mere
The
loanany
was
not
secured
by
any
asset
of
have
done
of
said
acts.
P1,000.00
under
Section
14
of
the
SUGGESTED ANSWER:
Manufacturing
for
infringement.
Decide
Edzo,
statement
but
it
or
was
allegation
guaranteed
is
not
unconditionally
enough
to
4
In
involuntary
insolvency,
the
amount
Insolvency
Under Section
of that
thethe
There
is Law.
no infringement.
In 20
order
a
case.
destroy
that
presumption.
(
Aquas
v by
and
solidarily
by
Edzos
President
and
of indebtedness
must
not
be
less
than
P1,000
Insolvency
Law,
the
petition
must
be
filed
case for infringement of trademark decan
controlling
Leon
stockholder,
82 L32160
)In Eduardo
Z.
whereas
in Jan
voluntary
insolvency,
it must
three
or 30
more
creditors.
the on
case
at Ong,
bar, itas
prosper,
the
products
which
2)
An
intention
to filed
infringe
is notthe
accommodation
surety.
exceed
P1,000.
is
Aaron,
the
debtor,
who
the
insolvency
trademark
is used
must be
of the
same
kind.
The In
loan
due
to
Bank
due for
on
necessary
nor
an Integrity
element
in
afell
case
5 The
involuntary
insolvency,
the
petition
proceedings.
electric
fans
produced
by
Best
June
2002.
Despite
extension
of
infringement
of a patent.
must
be15,
accompanied
by apleas
bond,for
whereas
Manufacturing
cannot
payment
by
Edzo,
the
such is not required in voluntary insolvency.

Insolvency & Corporate

Recovery

Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Corporatethe
Recovery
(2003)
b) Law on
Discuss
effects
of the SEC order
Corporation
for itsforeclosure
rehabilitation
of Xsuspension
on applied
the judicial
and submitted
a by
rehabilitation
plan which
proceedings
initiated
First Bank. (2%)
c) called
Would
theentry
orderbyofit suspension
for the
into a joint have
venture
anyagreement
effect on with
the foreclosure
proceedings
Y Corporation.
Under the
initiated
by Second
Bank? Explain
agreement,
Y Corporation
was (2%)
to lend to X
d) Corporation
Would the
suspension
its order
creditoffacilities
withhave
certain
anybanks
effecttoonobtain
the suit
filed
Third
funds
notbyonly
to Bank?
operate X
e)
What
thealso
legal
ofin
a the
Explain.
(2%)arebut
Corporation
forconsequences
a part thereof
rehabilitation
receivership?
(2%)
amount of P1 million as initial deposit in a
f) sinking
Whatfund
measures
may the receiver
to be augmented
annually in
take
to
preserve
the
assets
amounts equivalent to
10% of
of Debtor
the yearly
Corporation?
(2%)
income
from
its
operation
of
the
business
of
SUGGESTED ANSWER:
X
Corporation.
From
this
fund
the
creditors
a. The SEC order of suspension of payment is
of with
X Corporation
to be corporation,
paid annually,
valid
respect to were
the debtor
starting
from
the
second
year
operations,
but not with respect to theof principal
with
the
entire
indebtedness
to
be
liquidated
stockholders. The SEC has jurisdiction
to
in 15suspension
years. Theofcreditors
of with
X Corporation
declare
payments
respect
to the
plan because
Y Corporation
to objected
corporations,
partnership
or associations,
would
be
taking
over
the
business
and assets
but
not with respect to individuals.
SUGGESTED
of X ANSWER:
Corporation. Could the court approve
b. The
order
of suspension
of payment
the SEC
plan
despite
the objections
of the
SUGGESTED
ANSWER:
suspended
the
judicial
proceedings
creditors of X Corporation andinitiated
could the
by Rehabilitation;
the First Bank.
According
the Supreme
creditors
be
Stay
compelled
Order
(2006) totofollow
the plan?
Court
in
a
line
of
cases,
the
suspension
CouldBlue
The
Y Star
Corporation,
Corporation
in filed
managing
with the
the
order
appliesofto
creditors
andmeantime,
to the for
Regional
Trial
Court
ain the
petition
business
Xsecured
Corporation
action
to enforce
the taken-over
security
thethe
rehabilitation
the
ground
thatagainst
foresaw
be deemed
toon
have
Xit Corporation
corporation
regardless
of
the
stage
thereof.
impossibility
of
paying
its
obligations
as
they
itself?ANSWER:
(6%)
SUGGESTED
fall
due.
Finding
the
petition
sufficient
in
form
c. The order of suspension of payments
and substance, the court issued an Order
suspended
the foreclosure proceedings
appointing a rehabilitation receiver and
initiated by the Second Bank. While the
stayingisthe
enforcement
of all
against
What
the
rationale
for
theclaims
Stay
Order?
foreclosure
isANSWER:
against
the property
of
a third
SUGGESTED
the
corporation.
(5%)
party,
is in reality
action
to is
collect
the to
Theitpurpose
of theanstay
order
intended
principal
obligation
owned
by
the or
give
the
management
committee
corporation.
During
the
time
that
rehabilitation receiver the leeway to the
make
payment
of the
principal
obligation
is to
the business
viable
again, without
having
suspended,
the and
debtor
corporation
is in
divert attention
resources
to litigation
considered
to be
not inAirlines
default
and,
various
fora
(Philippine
v.
Spouses
ALTERNATIVE ANSWER:
G.R.
Nos.even
76879
77143,
October
3, the
1990;
therefore,
the&
right
enforce
Kurangking,
et al,
G.R.
No. to
146698,
September
c. The
suspension
order
does
not apply
to a
Rubberworld
[Phils.]
Inc.
v.
NLRC,
G.R.
No.
security,
whether
owned
by
the
debtor24, 2002;
Homes, Inc.
v. Court of
third
party BF
mortgage
because
in Appeals,
such a
126773, April
14,a1999;
ASB
corporation
or of
thirdSobrejuanite
party, has v.
not
yetDev.
case,
the credit is not yet being enforced
Corp., G.R. No. 165675, September 30, 2005). It
arisen.
against
the corporation
but against
the third an
also prevents
a creditor
from obtaining
party
mortgagors
property.
advantage or preference over another with
SUGGESTED ANSWER:

respect
to actions
d. For
the same
reason against
as in (c),the
the corporation
order of
(Finasia Investments
andsuspended
Finance Corp
Court
suspension
of payments
the v.suit
of
Appeals,
G.
R.
No.
107002,
October
7,1994)
filed
by Third
Bank vs.
against
the
principal.
Suspension
of Payment
Insolvency
(1995)
ALTERNATIVE
ANSWER:
stockholders.
between
suspension
payments
d. Distinguish
The action
against
the of
principal
and
insolvency.
stockholders surety in favor of the
SUGGESTED ANSWER:
corporation
is not
as itdebtor
is notisan
In suspension
of suspended
payments, the
not
action
against
the
corporation
but
against
the
insolvent. He only needs time within which
stockholders
personality
is with
separate
to convert whose
his asset/s
into cash
which
from
that
of
the
corporation.
to pay his obligations when they fall due. In
SUGGESTED ANSWER:

case
insolvency,
the debtor
e. the
Under
PD of
902A,
the appointment
of a is
ALTERNATIVE
ANSWER:
insolvent,
that
is,
his
assets
are
less
than
rehabilitation receiver will suspend allhis
The
following
are
the
liabilities.
actions
for claims against the corporation
distinctions:
and the corporation will be placed under

Page
Page
68 67
of 103
of 103

1
In suspension
of payments,with
the debtor
rehabilitation
in
accordance
a
rehabilitation
has sufficient
plan
property
approved
to cover
by theall
SEC.
his debts
but foresees the impossibility of meeting
SUGGESTED
them ANSWER:
when they respectively fall due,
f. whereas,
To preserve
the assets
the does
Debtor
in insolvency,
theof
debtor
not
Corporation,
the
receiver
may
take
custody
have sufficient property to pay all his debts in
of, full;
and control over, all the existing assets
and2 property
of the corporation;
In suspension
of payments,evaluate
the
existing
assets
and
liabilities,
earnings
and
purpose is to suspend or delay
payment
of
operations
of
the
corporation;
and
debts which remain unaffected although a
determine
the best
way tois declared,
salvage and
postponement
of Remedies
payment
Suspension
of Payments;
(2003)
protect
the
interest
of
the
investors
and
whereas,
insolvency,
the objectinisatostate
obtain
When
is the in
remedy
of declaration
creditors.
discharge from all debts and liability;
of suspension of payments available to a
3
In suspension of payments, no limit for
SUGGESTED
ANSWER:
corporation?
thedondee)
amount This
of indebtedness
is required,
(per
remedy is available
to a
whereas, in
insolvency,
the debts
must exceed
corporation
when
it experiences
inability
to
in
case
of
voluntary
insolvency,
or
payP1,000
one's
debts
and
liabilities,
and
where
Suspension of Payments vs. Stay Order (2003)
notsufficient
be less
case
of its
1
has
property
to in
cover
all
themust
petitioning
corporation
either:
Distinguish
the than
stayP1,000
order
in
corporate
involuntary
insolvency.
debts
but foresees
the aimpossibility
of a state of
rehabilitation
from
declaration in
meeting
them when
they fall(4%)
due (solvent
suspension
of payments?
butSUGGESTED
illiquid)ANSWER:
or
2
has no sufficient property (insolvent)
Payments;
Rehabilitation
butSuspension
is under of
the
management
of a Receiver (1999)
Debtor Corporation
its principal
rehabilitation
receiver or a and
management
stockholders
filed withlaw
theis Securities
and
committee,
the applicable
P.D. No.
Exchange
Commission
(SEC) a petition for
902-A
pursuant
to Sec. 5 par.
rehabilitation and declaration of a state of
suspension of payments under PD 902-A.
The objective was for SEC to take control of
the corporation and all its assets and
liabilities, earnings and operations, and to
determine the feasibility of continuing
operations and rehabilitating the company
Generally,
theof investors
unsecured
for the benefit
andcreditors
creditors. had
manifested willingness to cooperate with
Debtor Corporation. The secured creditors,
however, expressed serious objections and
reservations.
First Bank had already initiated judicial
foreclosure proceedings on the mortgage
constituted on the factory of Debtor
Corporation.
Second
Bank
had
already
initiated
foreclosure proceedings on a third-party
mortgage constituted on certain assets of the
principal stockholders.
Third Bank had already filed a suit against
the principal stockholders who had held
themselves liable jointly and severally for
the loans of Debtor Corporation with said
Bank.
After hearing, the SEC directed the
appointment of a rehabilitation receiver and
ordered the suspension of all actions and
claims against the Debtor corporation as
well as against the principal stockholders. a)
(2%)the validity of the SEC order or
Discuss
suspension?

Mercantile
Law
Examination Q & A (1990-2006)
Page
Page
70 71
of 103
of 103
Page
TheAA
72
insurance
entered
of 103Page
into
company
69 aofcontract
103
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
ABar
(1990-2006)
SUGGESTED
should
withbear
BB ANSWER:
thru
the CC
lossto
totransport
the cargoladies'
because
wear
M/V
BVIlog
The
agreed
Saad
de Manila
Dev
to sell
Cowith
to
enters
AC,
a cargo
ainto
Ship
aofvoyage
and
500 tons

COGSA;
Prescription
of Claims
(2000)
of iron
Merchandise
charter
ore with
left the
XYZ
Broker,
Port
over
of
2,500
the
Zamboanga
latters
cubic meters
vessel,
City of
the
RC
imported
computer
motherboards
from
bound
logs
MV
for
LadyLove.
at $27
Manila.
perBefore
For
cubic
one
meter
the
reason
Saad
FOB.
or
could
After
another,
load it,
the
United
and
had
them
to
M/V
inspecting
XYZ
Ilog
sold
de States
Lady
Manila
the logs,
Love
hit CD
a
to
submerged
Oslob
issued
Maritime
ashipped
purchase
obstacle
Co
On
the
arrangements
made
upon
instruction
Manila
aboard
oceangoing
cargo
causing
order.
which
it
decided
to sinkan
along
to load
with
it for
itsits
cargo.
own
account.
A ship
of
Corporation
of
owned
byconsignee,
BC Shipping
Company.
When
the
salvor,
a) the
May
Salvador,
XYZ
Shipping
Inc.,H&T
was
Co
contracted
validly ask
to
forLA,
the
California,
the
SPcharter
Bank
ofparty?
LAseaport
issued
an
cargo
arrived
at
Manila
and
refloat
rescission
the
vessel
of
the
for
P1
Million.
What
If so,
kind
can
irrevocable
letter
ofcrate
credit
available
at sight
delivered
to
RC,
the
appeared
of average
Saad
recover
was
the
damages?
refloating
To
fee
what
of extent?
P1 intact;
b) If
SUGGESTED
ANSWER:
in upon
favor
of
BVwhose
for the
total
but
inspection
of
the
contents,
RCisofit
million,
Oslob
and
did
for
not
load
itaccount
for
itspurchase
own
should
account,
itprice
be?
Particular
Average.
The
of
themailed
vesselto
the(4%)
logs.
The
letter
ofowner
credit
was
discovered
items
insidec)
had
all been
Why?
bound
bythat
the the
charter
party?
Explain
the
shall
shoulder
the
average.
Generally
FE damaged.
Bank with
the did
instruction
toof
forward
badly
He
nothac
filevice
any
notice
meaning
of owner
pro
the ofit
speaking,
simple or particular
averages
to theor
beneficiary.
The
letter
ofleast
credit
damage
anything
with
of
all
vessel.
In
what kind
ofanyone,
charter
party
does
include
all
expenses
and
damages
caused
toSP
provided
that the
draft to What
be drawn
is on
with
BC
Shipping
Company.
he
did
was
this
obtain?
ANSWER:
theSUGGESTED
vessel
or
cargo
which
have not inured
to
and
that
it be
accompanied
among
to Bank
proceed
directly
tothe
your
office toby,
XYZ may
ask for
rescission
ofconsult
the
thea)
common
benefit
(Art.
809,
and
are,
other
things,
a certification
from
AC,
stating
youcharter
about
whether
should
have
given
party
if, ashe
in
thisbycase,
it sold
thea
therefore,
to
be have
borne
only
the owner
of
that
the
logs
been
approved
prior
notice
of
damage
and
how
long
a
time
he
SUGGESTED
ANSWER:
vessel
before
the
charterer
begun
to
Before
loading
ongave
the rise
vessel
chartered
by
AC,
the
property
which
tohas
the
same
shipment
in
accordance
with
the
terms
and
had
to
initiate
a
suit
under
the
provisions
of
My
advice
would
be
that
RC
should
give
load
thewhile
vessel
and the
purchaser
loads
it
the
logs
were
inspected
by
custom
inspectors
(Art.
810)
general
or
gross
averages
conditions
of
the
purchase
order.
the
Carriage
of
Goods
by Sea
Act
(CAcargo
65).
notice
of
the
damage
sustained
byrecover
the
for
own
account.
Saad
andhis
representatives
of
the may
Bureau
ofwhich
include
"all
the
damages
and
expenses
What
would
your
advice
be?
(2%)
within
3 days
that
he
has
to
file
the
suit
damages
toand
the
extent
its
losses
(Art
689
Forestry,
who
certified
to
the
good
condition
are
deliberately
caused
inof
order
to
save
the
b)
If
Oslob
did
not
load
Lady
Love
for
its
to
recover
the
damage
sustained
by
the
Code
of
Commerce)
and exportability
of the
After time,
the
vessel,
its cargo, or both
atlogs.
the same
own
account,
it year
would
bethe
bound
byMate
the
cargo
one
from
the
date
of
the
loading
was
completed,
Chief
of the
from
a within
real
and
known
risk"
(Art.
811).
Being
charter
party,
but
XYZ
would
have
to
delivery
of
the
cargo
to
him.
vessel
issued
a
mate
receipt
of
the
cargo
for the common benefit, gross averages are
COGSA;
Prescriptive
Period
(1995)
indemnify
Oslob
ifthe
it
was
which
stated
that
logs
areinformed
in good of the
to be
borne
by
the
owners
ofnot
the
articles
Bottomry
(1994)
What
is
the
prescriptive
period
for
actions
Charter
Party
at
the
time
of
sale.
689
condition.
However,
refused
to(Art
issue
the
saved
(Art. 812).
In the AC
present
case
there
is
Gigi
obtained
aorloan
from Jojo
Corporation,
involving
lost
damaged
cargo
under
the
Code
of
Commerce)
required
certification
in the
letter
of
credit.
no c)
proof
that
the
vessel
had
to
be
put
afloat
The
term
Owner
Pro
Hac
Vice ofa the
payable
inof
installments.
Gigi
executed
Carriage
Goods
by Sea
Act?
Because
of
the
absence
ofdanger.
certification, FE
to
save
itANSWER:
from
an imminent
SUGGESTED
Vessel,
is generally
understood
to be the
chattel
mortgage
in favor
of Jojo whereby
Bank
refused
to
advance
payment
on the
ONE
YEAR
after
the
delivery
of
the
or
charterer
of
the
vessel
in
the
case
of
she transferred in favor of Jojo, its goods
letter
of
credit.
1)
May
Fe
Bank
be
held
liable
thebareboat
date when
the goods
have
been
or demise
charter
successors
and
assigns,
allshould
her (Litonjua
title,
rights
...
under
the
letter
of
credit?
Explain.
2)
Under
delivered
COGSA)
Cowhich
v3(6),
National
Seamens
Board GR
to
aShipping
vessel(Sec
of
Gigi
is the absolute
the facts
above,
seller, BV, argued that FE
Charter
Party
(2004) the
51910
10Aug1989)
owner.
The
chattel
mortgage was
Bank,
by
accepting
the XXO
obligation
to notify
Under
a
charter
party,
Trading
Doctrine
of
Inscrutable
Fault
(1995)
registered with the Philippine Coast
Guard
him
that the
irrevocable
letter
of credit
has
Company
shipped
sugar
to
Coca-Cola
1.
2
vessels
coming
from
the
opposite
pursuant to PD 1521. Gigi defaulted anddirections
had
been
transmitted
to
it Negros
on due
his behalf,
hasCorp.,
Company
through
SS
Shipping
SUGGESTED
ANSWER:
collided
with
each
other
to
fault
a total accountability of P3M. But Jojo could
confirmed
letter
of credit.
Consequently,
1)
No. The
letter
ofInsurance
credit
provides
as a Theof
by the
Capitol
Company.
imputable
to both.
What
are
the
liabilities
notinsured
foreclose
the
mortgage
on
the
vessel
FE
Bank
is
liable
under
the
letter
of
credit.
condition
a
certification
of
AC.
Without
suchIs
cargo
arrived
but
with
shortages.
Coca-Cola
the
two
vessels
with
respect
to
the
damage
because it sank during a typhoon.
the
argument
tenable?
Explain.
certification,
there
istheir
no Insurance
obligation
on
the
demanded
from
Capitol
caused toLutang
them
and
cargoes?
Explain.
Meanwhile,
Corporation
whichCo.
SUGGESTED
ANSWER:
part
of
FE
Bank
to
advance
payment
of
the
P500.000
in
settlement
for
XXO
Trading.
The
2.
If
it
cannot
be
determined
which
of
the
two
rendered
salvage services
for refloating
the
Lutang
Corporations
lien
should
be
given
letter
of
credit.
(Feati
Bank
v
CA
196
S
576)
MM
Regional
Trial
Court,
where
the
civil
suit
vessels
was
at
fault
resulting
in
the
collision,
vessel
sued Gigi.
Whose
lienby
should
be
given
preference.
The
lien
of the
Jojo
virtue
of
acaused
2)
No.
FE
Bank
may
have
confirmed
the
was
filed,
"absolved
insurance
company,
which
party
should
bear
the
damage
preference,
that of
Jojo
or Lutang? when the
loan
bottomry
extinguished
letter
ofvessels
credit
when
it
notified
BV,
that an
declaring
that was
under
the
Code of
Commerce,
toofthe
and
the
cargoes?
Explain.
vessel
sank.
Under
such
loan the
on
bottomry
irrevocable
letter
ofiscredit
has
been
shipping
agent
civilly
liable
for to the
3. the
Which
party
should
bear
damage
Jojodamages
acted not
butBut
also
as
transmitted
to
itas
on
its
behalf.
the
in only
favor
ofcreditor
third
due
the
vessels
and
the
cargoes
ifpersons
the
cause
oftothe
insurer.
Jojos
right
to
recover
the
amount
of be
conditions
in
letter of
credit
first
conduct
thethe
captain,
and
the
collisionofwas
acarrier's
fortuitous
event?must
Explain.
thestipulation
loan is predicated
on the
safe
of
complied
with,
namely
that
the arrival
draft be
in the
charter
party
exempting
ANSWER:
theSUGGESTED
vessel
at
the
port
of
destination.
The
accompanied
by
a
certification
from
AC.
the owner
from of
liability
is notwill
against
public
No.
Thelost
appeal
Coca-Cola
not
right
was
when the
vessel
sank
(Sec
17
Further,
confirmation
of a letter
of
credit
policy.
Coca-Cola
appealed.
Will
its
appeal
Under
Article
of the
Code
of
Carriage
of of
Goods:
Deviation:
Liability
(2005)
Letters
Credit;
Liability
of
a 587
confirming
and
notifying
PDprosper.
1521)
must
be
expressed.
(Feati
Bank
v
CA
196
s 576)
prosper?
Reason
briefly.
(5%)
the shipping
agent
is civilly
OnCommerce,
a clear
M/V
Sundo,
carrying
bank
(1994)weather,
liable
for damages
in
favor
of third
persons
insured
cargo,
thein
port
of Manila
bound
In letters
of left
credit
banking
transactions,
to the
conduct
the
carrier's
captain,
fordue
Cebu.
While
at liability
sea,ofthe
vessel
distinguish
the
of
a confirming
bank
SUGGESTED
ANSWER:
and
shipping
agent
can exempt
himself
encountered
a strong
typhoon
forcing the
fromthe
a notifying
bank.
In case
happens
the
therefrom
only
bywrong
abandoning
thetovessel
captain
to anything
steer
the
vessel
to
the nearest
letter
ofhis
credit,
a confirming
bank
incurs
with
all
the
freight
island
where
itequipment
stayed
for and
seven
days.
Thehe
liability
forearned
the
amount
theits
letter ofOn the
may
have
duringofthe
voyage.
vessel
ran
out
of provisions
for
credit,hand,
while
a notifying
bank
not incur
other
assuming
there
isdoes
bareboat
passengers.
Consequently,
the
vessel
Assuming
that
the
cargo
was
damaged
any liability.
charter,
theLeyte
stipulation
in the
charter
party
proceeded
to
to replenish
its
supplies.
Letters
of
of from
a Notifying
Bank (2003)
because
ofCredit;
such
deviation,
who
between
the
exempting
theLiability
owner
liability
is not
a)
What
liability,
if
any
is
incurred
insurance
company
and
the
owner
of
the
against
public policy
because the
publicbyatan
COGSA:
Prescription
of Claims/Actions
(2004)
SUGGESTED
ANSWER:
advising
or
notifying
bank
in
a
letter
of v.
cargo
bears
the
loss?
Explain.
large is not involved (Home Insurance Co.
credit
transaction?
American Steamship Agencies, Inc., 23 SCRA25
(1968).

Itdeviation
incurs
liability
unless
the
thefrom
Manila
ofno
to
the
France
vesselwith
was
transhipment
properit inis also
at
negotiating
bank
order
Taiwan.
to avoid
Somehow
a peril,the
which
goods
waswere
the strong
not
b)
Bravo
Bank
received
from when
Cisco
Bank
typhoon.
loaded
The
at Taiwan
running
onout
time.
of provisions
Hence,
wasthe
by
registered
mail
an
irrevocable
letter
a direct
goodsconsequence
arrived in France,
of the they
proper
arrived "off- of
ALTERNATIVE
credit ANSWER:
issued
byto
Delta
Bank
for
account
deviation
season"
inand
order
AA
was
avoid
paid
the
only
peril
forthe
of
one-half
the
Thethe
the
cargo
bears
the loss
ofowner
Y of
Company
inAA the
amount
typhoon.
value
by
the
buyer.
claimed
damagesof
because
in the
caseto
atcompany
bar, they
stayed
too
US$10,000,000
cover
the
sale
canned
from
the
shipping
and
its of
agent.
long
at
the
island,
making
it
an
improper
fruit
juices.
The
beneficiary
of
the
The defense of the respondents was letter of
deviation.
EveryXConsidering
deviation
notthat
specified
in
credit was
Corporation
which
later
on
prescription.
the ladies'
Sec.
124
is
improper.
(Sec.
125,
Insurance
partially
availed
itself
of
the
letter
of
credit
wear suffered "loss of value," as claimed by
Code)
by submitting
to
Bravo Bank
all documents
AA,
should
the
prescriptive
period
be one
Carriage
of Goods;
Deviation;
When Proper
(2005)
SUGGESTED
ANSWER:
relative
to
the
shipment
of
the
cans
of fruit
year
under
the
Carriage
of
Goods
by
The
applicable
prescriptive
period
is Sea
ten
Under
what
circumstances
can
a vessel
juices.
Bravo
Bank
paid
X
Corporation
for its
Act,
orunder
ten years
under
the
Civil
Code?
years
thetoCivil
Code.
The
one-year
properly
proceed
a Later,
port
other
than
its
partial
availment.
however,
it
refused
Explain
briefly.
(5%)
SUGGESTED
ANSWER:
prescriptive
period
under (4%)
theofCarriage
of of
port
of destination?
Explain.
further
availment
because
suspicions
Deviation
is
proper:
Goods
by
Sea
Act
applies
in
cases
of
loss
or ,
fraud caused
being practiced
upon it and,
instead
a) when
by cargo.
circumstances
over
which
damages
to
the
The
term
"loss"
as
sued
X Corporation
to recover
it had
SUGGESTED
ANSWER:
the master
northe
theSupreme
owner
ofCourt
the what
ship
has
any
neither
interpreted
by
in Mitsui
paid the
latter.
How would
you rule
ifa you
control;
b)
when
necessary
to
comply
with
O.S.K.
Lines
Ltd.
v.
Court
of
Appeals,
287
SCRA
were
the
judge
decide
the Relationships
controversy?
Letters
of
Credit;
Three
Contract
warranty
or
avoid
a toDistinct
366
(1998)
, contemplates
a situation
where
(6%)
(2002)
peril,
or all
notwas
the made
peril is
no whether
delivery at
byinsured
the carrier of
Explain
the made
three
(3) had
distinct
but
against;
c) when
in same
good
faith,
and
the
goods
because
the
perished
or
grounds
of belief
in its necessity
to avoid
a are
intertwined
contract
relationships
that
upon
reasonable
gone out of commerce deteriorated or
peril;
or d) when iningooda faith,
for the
indispensable
letter
of
credit
decayed
while in transit. In
the present
case,
SUGGESTED
ANSWER:
life, or
another vessel in distress. (Sec.
purpose
of relieving
saving human
transaction.
the
shipment
of
ladies'
wear
was
actually
The
three
(3)
distinct
but(1992)
intertwined contract
Insurance
Code)
124,
COGSA;
Prescription
of Claims
delivered.
Thethat
"lossare
of value"
is not theintotal
relationships
indispensable
a letter of
A
local
consignee
sought
to
enforceofjudicially
loss
contemplated
by
the
Carriage
Goods
transaction
are:
credit
Carriage
of Goods;
Exercise
a
claim
against
the Extraordinary
carrier for Diligence
loss of a
by
Act.
1) Sea Between
theof applicant/buyer/importer
and
(2005)
shipment
of drums
lubricating oil from
Letter
of Credit:beneficiary/seller/exporter
Mortgage
(2005)
the

The
Star
Shipping
Lines
accepted
100
cartons
of
Japan under the Carriage of Goods by Sea
Ricardo
mortgaged
his
to AC
applicant/buyer/importer
is the
who procures
sardines
from Master
tofishpond
be
delivered
toBank
555
Act
(COGSA)
after the
carrier
hadone
rejected
to the
secure
a Manila.
P1 of
Million
loan.
In a
separate
letter
credit
and
obliges
Company
in
Only
88
cartons
were
its demand. The carrier pleaded in its himself to
transaction,
he opened
letter
of credit
reimburse
issuing
bank
receipt of the
delivered,
however,
these a
were
inupon
bad
Answer
the the
affirmative
defense
of
with
the same
bank
for $500,000.00
inStar
favor
documents
of
title,
while
the
condition.
555
Company
claimed
from
prescription under the provisions of said Act
of
HS Bank,
athe
foreign
bank,
to the
purchase
beneficiary/seller/exporter
is
one
who
in
Shipping
Lines
value
of
the
missing
inasmuch as the suit was brought by the
outboard
motors.
Likewise,
Ricardo
compliance
with
the
contract
of
sale
ships
the
goods,
as
well
as
the
damaged
goods.
Star
consignee after one (1) year from the
executed
a Surety
Agreement
inthe
favor
ofdocuments
AC
goods Lines
to
buyer
and
delivers
the
of
Shipping
refused
because
former
delivery
ofthe
the
goods.
In turn,
consignee
The
outboard
motors
arrived
andthe
were
SUGGESTED
ANSWER:
Bank.
title
and
draft
to
the
issuing
bank
to
recover
failed
to present
bill period
of lading.
Resolve
contended
thataCompany
the
of
prescription
The
claim to
of Ricardo,
555
meritorious,
delivered
but
heiswas
not able
to
payment
for claim
the
goods.
Their
relationship
is
with
reasons
the
of
555 Company.
was
suspended
by
the
written
extrajudicial
even
if itpurchase
failsby
tothe
present
a
bill
of
lading.
paygoverned
the
price
thereof.
a)
Can
AC
contract
of
sale.
(4%)
demand
it
had
made
thebank
carrier
2) takeaBetween
the
and the
Although
bill
of lading
isissuing
the
best
evidence
Bank
possession
ofagainst
the
outboard
within
the
one-year
period,
pursuant
to
beneficiary/seller/exporter
also
The issuing
bank
of
the
contract
of Can
carriage
for cargo,
motors?
Why? b)
AC Bank
Article
1155
of the
Civil
Code
providing
thatand
is the one
that
issues
the
letter
of
credit
nevertheless
such
contract
can
exist
even
foreclose
the
mortgage
over
the
fishpond?
the
prescription
of actions
is interrupted
undertakes
pay
the
upon receipt of
without
a(5%)
bill oftolading.
Likeseller
any
other
Explain.
SUGGESTED
ANSWER:
when
there
is
a
written
extrajudicial
demand
the
draft
and
proper
documents
of title
and to
contract, a contract of carriage is a meeting
a) SUGGESTED
No,creditors.
for
AC
Bank
has
noin
legalupon
by
the
a)
Has
the
action
fact
ANSWER:
surrender
the
documents
to
the
buyer
of minds that gives rise to an obligation on
standing,
muchWhy?
lessTheir
aby
lien,
theconsignee
outboard
prescribed?
b)
theon
consignees
action
Theofaction
taken
the
local
reimbursement.
relationship
thea)
part
the carrier
toIftransport
the is governed
motors.
Insofar
as
AC
Bank
is
concerned,
were
predicated
misdelivery
or
has,
in
fact,
prescribed.
Theof
period
oneit by
by the
terms
of on
the
letter
credit
goods.
Jurisprudence
has
held
that
theof issued
has
privity
with
the
person
ofGoods
Ricardo
under
G.R.
No.bank.
L-18965,
30, of
1964;
Negre
v.
conversion
of
the
goods,
would
your
answer
year
under
theOctober
Carriage
byfor
Sea Act
the
moment
the carrier
receives
the cargo
the
Surety
Agreement,
and
a
lien
on
the the
3)
Between
the
issuing
bank
and
Cabahug
Shipping
&
Co.,
G.R.
No.
L-19609,
be the same?
Explain
briefly.
(COGSA)
is
not
interrupted
by
a
written
transport,
then
its
duty
to
exercise
ALTERNATIVE ANSWER:
fishpond
based
on
the
real
estate
mortgage
April
29,
1966)
applicant/buyer/importer

Their
relationship
extrajudicial
demand.
The provisions
of
Art
extraordinary
diligence
arises
. (Cia.
Maritima
Star
Lines
can
refuse
to honor
555
constituted
therein.
is Shipping
governed
byNorth
the
terms
of the
application
and
1155
of
the
NCC
merely
apply
to
v.
Insurance
Co.
of
America,
Company's
for
the
missing and
b)
Yes, claim
butfor
only
to issuance
enforce
payment
of
agreement
the
of
the
letter
of
prescriptive
periods
provided
forisinthe
said
damaged
goods.
TheofBill
of Lading
the
principal
loan
P1million
secured by
credit
by
the
bank.
Code and
to
special
laws
such as COGSA
document
of not
title
that
legally
establishes
the
real estate
mortgage
on the
fishpond the
except when
otherwise
provided.
(Dole
v
ownership
of
555
Company
over
saidpredicated
goods.
b)
If
the
consignees
action
were
Maritime
Co
148
s
118).
(National
Union
Fire Insurance
v.
555onneeds
to present
the BillofofPittsburg
Lading
to
misdelivery
or conversion
of goods,
the
Stolt-Nielaen,
G.R.
No.
87958,
April 26,(1993)
1990)
Letter
of
Credit;
Certification
from
Consignee
legally
claim
said
goods.
provisions of the COGSA would be
Average;
Particular Average vs. General Average (2003)
inapplicable.
Charter
Party (1991) In these cases, the NCC
prescriptive periods, including Art 1155 of
the NCC will apply (Ang v Compania Maritama

Letters of Credit

Maritime Commerce

133 s 600)

Mercantile Law Bar Examination Q & A (1990-2006)

owner and the captain as the typhoon came

earlier and overtook the vessel. The vessel
sank and a number of passengers
disappeared with it.
Relatives of the missing passengers claimed
damages against the shipowner. The
shipowner set up the defense that under the
doctrine of limited liability, his liability was
co-extensive with his interest in the vessel.
.1
will
youtotally
advice lost,
the claimants?
As the How
vessel
was
his liability
Discuss
the
doctrine
of
limited
liability in
had also been extinguished.
maritime law. (3%)
.2
Assuming that the vessel was insured,
may the claimants go after the insurance
proceeds? (3%)

SUGGESTED ANSWER:

1.

Each vessel must bear its own damage. Both

of them were at fault. (Art 827, Code of
Commerce)
2. Each of them should bear their respective
damages. Since it cannot be determined as to
which vessel is at fault. This is the doctrine of
inscrutable fault.
3. No party shall be held liable since the cause
of the collision is fortuitous event. The carrier
is not an insurer.
Doctrine of Inscrutable Fault (1997)
Explain the doctrine in Maritime accidents
Doctrine of Inscrutable Fault

SUGGESTED ANSWER:

Under the doctrine of inscrutable fault,

where fault is established but it cannot be
determined which of the two vessels were at
fault, both shall be deemed to have been at
fault.
Doctrine of Inscrutable Fault (1998)
A severe typhoon was raging when the
vessel SS Masdaam collided with MV
Princes. It is conceded that the typhoon was
the major cause of the collision, although
there was a very strong possibility that it
could have been avoided if the captain of SS
Masdaam was not drunk and the captain of
the MV Princes was not asleep at the time of
collisions. Who should bear the damages to
SUGGESTED ANSWER:
the vessels and their cargoes? (5%)
The shipowners of SS Masdaam and MV
Princess shall each bear their respective
loss of vessels. For the losses and damages
suffered by their cargoes both shipowners
are solidarily liable.
Limited Liability Rule (1994)
Toni, a copra dealer, loaded 1000 sacks of
copra on board the vessel MV Tonichi (a
common carrier engaged in coastwise trade
owned by Ichi) for shipment from Puerto
Galera to Manila. The cargo did not reach
Manila because the vessel capsized and
When
Toniall
sued
Ichi for damages based on
sank with
its cargo.
breach of contract, the latter invoked the
limited liability rule. 1) What do you
understand of the rule invoked by Ichi? 2)
Are there exceptions to the limited liability
SUGGESTED ANSWER:
rule?
1) By limited liability rule is meant that
the liability of a shipowner for damages in
case of loss is limited to the value of the
vessel involved. His other properties cannot
be reached by the parties entitled to
2)
Yes. When the ship owner of the vessel
damages.
involved is guilty of negligence, the limited
liability rule does not apply. In such case,
the ship owner is liable to the full extent of
(Mecenas
v CAsustained
180 s 83) by the aggrieved
the
damages
parties
Limited Liability Rule (1997)
Explain the doctrine in Maritime accidents
The Doctrine of Limited Liability
SUGGESTED ANSWER:

Under the doctrine of limited liability the

exclusively real and hypothecary nature of
maritime law operates to limit the liability of
the shipowner to the value of the vessel,
earned freightage and proceeds of the
insurance. However, such doctrine does not
apply if the shipowner and the captain are
Limited
Rule (1999)
guilty Liability
of negligence.
Thinking that the impending typhoon was
still 24 hours away, MV Pioneer left port to
sail for Leyte. That was a miscalculation of
the typhoon signals by both the ship-

Page
Page
74 73
of 103
of 103
andClaro
also already
the fact sighted
that A does
Manila
noton
have
its radar
the means
screen.
andManila
resources
had no
to invest
radar
MVengage
SuperFast,
in retail
a passenger-cargo
trade. Besides, vessel
Matildes
P500th
equipment.
in the security
As for speed,
agency.
Don Claro was
owned
sale by
of the
SF Shipping
asbestos products
Company to
plying
Celeste,
the
ALTERNATIVE
ANSWER:
twice as
fast as Manila.
inter-island
being wholesale,
routes, was
the transaction
on its way tois not
1) The prosecutor may establish the fact
(Asbestos
Integrated
vthe
Peralta
155
Zamboanga
covered by
City
thefrom
Retail
Trade
Manila
Law
port when
S
213)
that
constitute
a major
Atthe
theP500th
time ofwould
the collision,
Manila
failed to
it accidentally, and without fault or
Nationalized
Activities
or
Undertakings
(1995)
investment
and
yet
A
is
not
even
elected
follow
Rule
19
of
the
International
Rules
of
negligence of anyone on the ship, hit a huge
Global
KL Malaysia,
a 100%
Malaysian
member
of the
BODrequires
or one of
the officers.
the Road
which
2 vessels
meeting
floating
object.
The accident
caused
damage
owned
corporation,
to build a hotel
Furthermore,
it may also
becourse
shownby
that
A
head on to change
their
each
to the
vessel
and loss ofdesires
an accompanying
beach
resort
in Samal Island,
City, to
does
not even
havetothe
means to
raise so
thethat
vessel
steering
starboard
(right)
crated
cargo
of passenger
PR. InDavao
order to
take the
advantage
of the
increased
traffic of
amount
of P500th
that
or(left)
each vessel
mayand
pass
on the
the officers
port side
lighten
vessel and
save
it from sinking
SUGGESTED ANSWER:
tourists
and
boost
the
tourism
industry
of
the
majority
of
the
directors
are
foreigners.
of the
other.
that it would
and in order to avoid risk of damage to or
2) No.
The
mereManila
fact ofsignaled
being a common
law
1. Assuming that Global has US$100M to invest
Philippines.
turn
to
the
port
side
and
steered
loss
of the rest of the shipped items (none of
wife
of
a
foreigner
does
not
bring
her
in a hotel beach resort in the Philippines, may accordingly, thus resulting in the collision.
which
was located on the deck), some had to
the ambit of the Anti-Dummy Law.
SUGGESTED
it be ANSWER:
allowed to acquire the land on which towithin
Don Claros
ANSWER:captain was off-duty and was
be .1
jettisoned.
SF the
Shipping
hadofthe
vesselliability in ALTERNATIVE
doctrine
limited
buildUnder
the resort?
If so, under
what terms and2) Yes.
having
a drink
at the ships
baritatcan
thebe
time
Being
a common
law wife,
repaired
at its
port
of destination.
maritime
law,
the
theSF
shipowner
passengers
who
diedwould
and the
owners
of the
conditions
mayliability
Global of
acquire
the land?
of
the
collision.
a)
Who
you
hold
presumed that she is the one running the liable
Shipping
thereafter
filed a complaint
arising
fromfully.
the operation
of a ship is confined to
recover
damages
from
the
owner
of
said
cargoes
Discuss
for
the which
collision?
b) If
Don Claro
raises
a prima
faciewas at
demanding
allequipment,
the other cargo
owners or
to insurance,business,
SUGGESTED
ANSWER:
the
and freight,
vessel?
2. vessel,
May Global
be allowed
to manage
the hotel presumption
fault,
may
the
heirs
of
the
of
violation
of
the
Anti-dummy
share
in
the
total
repair
costs
incurred
by
I can hold the 2 vessels liable.
In the
if any,
so that
if the
shipowner abandoned the
beach
resort?
Explain.
Law,
(RA
6084).
theship,
company
and
in
the
value
of
the
lost
and
problem
given,
whether
on
the
basis of the
equipment,
and
freight,
his
liability
is
3. May Global be allowed to operate
Nationalized Activities or Undertakings (1994)
jettisoned
cargoes.
In answer
to
the
factual
settings
or
under
the
doctrine
extinguished.
However,
the
doctrine
of
limited
restaurants within the hotel beach resort? Celeste, a domestic corporation wholly of
complaint,
the shippers
contention
was or
SUGGESTED
ANSWER:
inscrutable fault, both vessels can be said to
liability
does
not applysole
when
the shipowner
Explain.
owned by Filipino citizens, is engaged in
that,
under
the
Code
of
Commerce,
each
No.
The
shippers
contention
is
not
valid.
The
have been guilty of negligence. The liability
captain is guilty of negligence.
trading and operates as general contractor.
damaged
should
bear
its or
own
owners
ofparty
the
jettisoned,
to his
save
theclaimants
of the 2 carriers for the death or injury of
.2
Yes.cargo
In
case
of
a lost
vessel,
the
It buys and resells the products of Matilde, a
damage
and
those
did
notofsuffer
anyof
vessel
sinking
and
to save
the
passengers and for the loss of or damage to
mayfrom
go
after
thethat
proceeds
the rest
insurance
domestic corporation, 90% of whose capital
loss
or damage
not to
obligated
to make
the
cargoes,
arewere
entitled
contribution.
The
the goods arising from the collision is
covering
the
vessel.
stock is owned by aliens. All of Matildes
Liability
Rule
(2000)
anyLimited
contribution
incargoes
favor ofconstitute
those whogeneral
did. Is
jettisoning
of said
solidary. Neither carrier may invoke the
are made in the Philippines from
Mariposa,
one
ofvalid?
five
passenger
theMV
shippers
contention
(2%)ships goods
average
loss which
entitles
the Explain
owners
doctrine of last clear chance which can only
materials
found or produced in the
owned
by
Marina
Navigation
Co,
sank
off
the
thereof to contribution from the owner of the
be
relevant, if at all, between the two
SUGGESTED ANSWER:
Philippines.
On the other hand, ECQ
coast
of
Mindoro
while
en
route
to
Iloilo
City.
vessel and also from the owners of the
vessels
not on
made
by
Yes, butbut
subject
to the
the claims
doctrine
of limited
Integrated
is
a 100%
Filipino
owned
SF
Shipping
is
not
entitled
to
contribution/
More
than
200
passengers
perished
in
the
cargoes saved.
passengers
or
shippers
(Litonjua
Shipping
liability. The
is to the
that vthe
anddoctrine
manufacturer
of effect
asbestos
reimbursement
for the costs
of repairs
disaster. Evidence
showed
that on
thethe
ship corporation
National
Seamen
Board
GR
51910
10Aug1989)
liabilityCeleste
of the shipowners
would
and ECQ took
partonly
in abe to
vessel
fromignored
the shippers.
captain
typhoon bulletins issued by products.
the
extent
of
any
remaining
value
of
the
public
bidding
conducted
by
MWSS
for
its
Pag-asa
during
the
24-hour
period
vessel,
proceeds
of
insurance,
if
any,
and
asbestos
pipe
requirements.
Celeste
won
the
immediately prior to the vessels departure
earned
freightage.
Given
the
factual
settings,
bid,
having
offered
13%
lower
than
that
from Manila. The bulletins warned all types
the shipowner
himself
was
not guilty
by ECQ; and
MWSS
awarded
theof
of sea crafts to avoid the typhoons expected offered
negligence
and,
therefore,
the
doctrine
contract
to
supply
its
asbestos
pipes
to
path near Mindoro. To make matters worse, 1) Is Celeste barred under the Flag Law can
well apply
(Amparo
denullify
los Santos
vaward
CA 186
s 69)
ECQ
sought
to
he took more load than was allowed for the Celeste.
Limited
Liability
Rule;
General
Average
Loss
(2000)
from
taking
part
in biddings
tothe
supply
thein
of Celeste.
Nationalized
Activitiescapacity.
or Undertakings
ships rated
Sued(1993)
for damages by favor
X Shipping
Company
spent
almost
a fortune
government?
2)
Did Celeste
and
Matilde
1) A
invested
P500th
in a security
onNav violate
the
victims
surviving
relatives,agency
Marina
in refitting
and repairing
its3)luxury
the Anti-Dummy
Law?
Did Celeste
October
30, 1990.1)
Hethat
wasits
charged
with
Co contended
liability,
if any, had andpassenger
vessel,the
theRetail
MV Marina,
Matilde violate
Trade which
being
a dummy
of his friend,
a foreigner.
been
extinguished
with the
sinking If
of MV Nationalization
plied the inter-island
routes of the company
Law? Explain.
youMariposa;
were the
prosecutor,
evidence
can not
and 2) thatwhat
assuming
it had
from La Union in the north to Davao City in
SUGGESTED
ANSWER:
ANSWER:
youbeen
present
to
prove
violation
of
the
Antiso
extinguished,
such
liability
should
be SUGGESTED
the south.
The MV Marina met an untimely
Yes. The contentions of Marina Nav Co are
1) No.
materials
offered in
the bids
Dummy
Law?
2)The
Juana
de
Cruz,
limited
to the
loss
of la
the
Are these
fate The
during
its post-repair
voyage.
It sank off
meritorious.
captain
of cargo.
MVaMariposa
is
submitted
are
made
in
the
Philippines
from
common
law
wife
of a foreigner
the of
contentions
meritorious
in wrested
thethe
context
the coast of Zambales while en route
to La
guilty
of negligence
in ignoring
typhoon
articles
produced
or
grown
in
the
control
of a television
firm.
instance
applicable
provisions
ofthethe
Code
Union from Manila. The investigation
bulletins
issued
by At
PAGASA
and inof
Philippines,
andthe
thecaptain
bidder, alone
Celeste,
of the
minority (3%)
group
of theBut
firm,
shethe
was
Commerce?
showed that
wasis a
overloading
the
vessel.
only
captain
domestic
entity.
The
Flag
Law
does
not in that
charged
with
violation
of
the
Anti-Dummy
negligent. There were no casualties
of the vessel MV Mariposa is guilty of
apply.
It
can
be
invoked
only
against
Law.
May
she
be
convicted
by
the
mere
fact
disaster. Faced with a claim for thea payment
negligence.
The ship owner is not.
SUGGESTED
ANSWER:
bidder
who
is not and
a domestic
entity,
or
that
she
is
a
common
law
wife
of
a
of the
refitting
X
Shipping
Therefore,
the shipthe
owner
invoke the
1) A
allows or permits
use orcan
exploitation
2)
No,
since
Celesteentity
isrepair,
merely
a
dealer of
against
a
domestic
who
offers
Limited
Liability
Rule;
Doctrine
of
Inscrutable
Fault
foreigner?
Explain.
company
asserted
exemption
from
liability
doctrine of of
limited
liability.
or enjoyment
a right,
privilege or
SUGGESTED
ANSWER:
Matilde
and
not an alter
ego of the
latter.
imported
materials.
(1991)
on
the
basis
of
the
hypothecary
or
limited
business, the exercise or enjoyment of which
No. The
assertion
ofon
X Shipping
Company is
Celeste
buys
and sells
its own account
In a collision between M/T Manila, a tanker,
liability
rule
under
Article
587 of
the
is expressly reserved by the Constitution or
not
valid.
The
total
destruction
of
theCode
vessel
the
products
of
Matilde.
and M/V Don Claro, an inter-island vessel,
of Commerce.
X Shipping
Companys
the laws to citizens of the Philippines, by the
3) Matilde
did
notIs
violate
the Retail
Trade
does
not
affect
the
liability
of
the
ship
owner
Don Claro sank and many of its passengers
assertion
Explain
(3%).
foreigner not possessing the requisites
Law
since
it valid?
does
not
sell its
products to
for
repairs
on
the
vessel
completed
before
drowned and died. All its cargoes were lost.
prescribed by the Constitution or the laws of
consumers,
its loss. but to dealers who resell them.
The collision occurred at nighttime but the
Limiteddid
Liability
Rule; General
Loss (2000)
the Philippines. The prosecutor should prove
Neither
Celeste
violateAverage
the Retail
Trade
sea was calm, the weather fair and visibility
the above elements of the crime
Law since, in the first place, it is not
was good. Prior to the collision and while
prohibited to
still 4 nautical miles apart, Don
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Nationalized Activities or
Undertakings

SUGGESTED ANSWER:

1.

Global can secure a lease on the land. As a

corporation with a Malaysian nationality,
Global cannot own the land.
2. Yes, Global can manage the hotel beach
resort. There is no law prohibiting it from
managing the resort.
3. Global may be allowed to operate
restaurants within the beach resort. This is
part of the operation of the resort.

Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)
SUGGESTED
ANSWER:
does
not fall
under the category. Neither

Page
Page
76 77
75
of 103
of 103
backup
requires
Civil
in
Code
the
60%
and
processing
Filipino
other laws
holding
of of

goods,
in land
general
c) factories,
corporate
application
and
ownership.
can
d) its
stillown
apply
A it
SURETY
BOND
issued byengaged
a surety or
employees.
suppletorily.
Is EL engaged in retail trade?
does
appear that
Z isishabitually
ALTERNATIVE ANSWER:
insurance
company
favor that
of a designated
Explain.
in selling
to the
generalinpublic
SUGGESTED
The
dismissal
ANSWER:
by theLaw
court
was board
correct. A
beneficiary,
pursuant
to
which
such
c) The
Anti-dummy
allows
commodity. Since there is no violation of the
The
sale
by
EL
of
generators
to
government
check
whether
or
not
post-dated
or crossed,
company
acts
as
a
surety
to
the
debtor
or
representation
to
the
extent
of
actual
and
Retail Trade Law, there would likewise by no
offices,
agricultural
enterprises
and
factories
is
still
a
negotiable
instrument
and
unless
obligor
of
such
beneficiary.
A
CASH
BOND
permissible
foreign
investments
in
violation of the Anti-Dummy Law.
arePablo
outside
the Accordingly,
scope
of the
term
is a general
indorser,
which
is retail
not of
Retail
Law (1993)
is Trade
a security
in the form of cash established
corporations.
the
President
business
and
by
expressed
in
the
settings,
he cannot
A foreign
firm is engaged
in the business
of the
by a guarantor
or surety
to secure
Acme may
nomay,
sit factual
intherefore,
the BOD
ofbe
themade
Checks:
Crossed
Checks
(2005)
the
said
corporation.
However,
sales
be
held
liable
for
the
dishonor
of
the
manufacturing
selling rubber products
obligation ofand
another.
department store corporation but can doof
so
What
is
a
crossed
check?
What
are
the
generators
by In
EL
toAcme
its own
employees
d)
Therealty
Treasurer
of
may House
not
hold
that
instrument.
State
Investment
v IAC
to dealers who in turn sell them to others. It
in the
corporation.
effects
of crossing
a check? Explain.
constitute
retail
sales
andcourt
are did
proscribed.
position
either
in
the, the
department
store
(GR
72764
13Jul1989)
not go so
also
sells directly
to agricultural
enterprises,
ALTERNATIVE ANSWER:
SUGGESTED ANSWER:
Under
the
amendment
to
Retail Trade
corporation
orthat
in the
far
as
to hold
therealty
factthe
ofcorporation
crossing
would
automotive assembly plants, public utilities
In State Investment House v IAC (GR 72764
A Crossed Check under accepted banking
Law
introduced
by PD 714,
the
term retail
since
the
Law
prohibits
the
render
theAnti-Dummy
instrument
non-negotiable.
which buy them in large bulk, and to its
13Jul1989), the SC considered a crossed
practice, crossing a check is done by writing
business
shall of
not
include
a manufacturer
employment
aliens
in such
nationalized
officers and employees. 1) Is there violation
check as subjecting a subsequent holder
two parallel lines diagonally on the left top
(such
EL) selling
tothose
industrial
areasasof business
except
that calland
for
of the Retail Trade Law? Explain. 2) May said
thereof to the contractual covenants of the
portion of the checks.
The crossing is
commercial
users or
consumers who use the
highly technical
qualifications.
firm operate a canteen inside the premises of
payor and the payee. If such were the case,
special where the name of the bank or a
products bought by them to render service
its plant exclusively for its officials and
then
the instrument
is not one which can
business
institution is written between the to the
SUGGESTED
ANSWER:
Retailgeneral
Trade
Lawpublic
(1991) (eg
government offices)
employees without violating the Retail Trade
1) On
assumption
the foreign
still
be
said
to
contain
an unconditional
twothe
parallel
lines,that
which
means firm
thatis the
Is theto
Filipino
common-law
wife of a goods
and/or
produce
or
manufacture
Act? Explain.
Retail
Trade
Law;
Consignment
(1991)
doing
business
in the Philippines,
sale to the
promise
to
pay
or
order
a sum certain
drawee
should
pay
onlythewith
foreigner
barred
fromsold
engaging
in the in
retail
which
are
in
turn
by
them
(eg
ABC
Manufacturing
Inc,
a
company
wholly
Checks
SUGGESTED
ANSWER:
theEffects
dealersof
ofCrossed
agricultural
enterprises,
money.
In
the
transfer
of
non-negotiable
intervention
of that company.
business? enterprises and factories).
agricultural
1)
The
check plants,
may not
encashed but only
owned
by by
foreign
nationals,
manufactures
A Filipino
common-law
wifetransferor
of a foreigner
automotive
assembly
andbepublic
credits
assignment,
the
does is
(Goodyear
Tires
v Reyes
Sr distributes
Gr 30063, Jly
83
ALTERNATIVE
ANSWER:
in
the
bank.
2)
The
check
may
be
negotiated
deposited
typewriters
which
ABC
to 2,the
not
barred
from
engaging
in
retail
business.
utilities is wholesale and, therefore, not in
assume
liability
for
the
fault
of
the
123s273).
Yes.
The
check
is
crossed.
It
should
have
only onceto
one Trade Act (BF Goodrich
1
ABC
consigns
its
typewriters
to
general
public
in 2 ways:
On
the
assumption
that
she acts
for
and in
violation
of the Retail
debtor
or
obligor.
Accordingly
the
courts
forewarned
Mr. Noble
that
it was
issued
for
who
has
an
account
with
a
bank.
3)
The
independent
dealers
who
in
turn
sell
them
her
own
behalf,
and
absent
a
violation
oftothe
v Reyes 121 s 363)
decision was correct.
a
specific
purpose.
Hence,
Mr
Noble
could
act
of
crossing
the
check
serves
as
a
2) Yes. The operation of the canteen inside
theAnti-Dummy
public; and, Law which prohibits a
be
a holder
in due course.
He is
subject
the holder
that thefor
check
has been
issued for2a not
toexclusively
thewarning
premises
its officers
and
Through
individuals,
who
are
not
foreigner
from
being either
the
real
to the personal
defense
of
breach
of
trust/
definite
purpose,
sotothat
he must
inquire ifemployees
he
employees,
would
amount
an input
in the
of ABC,
who are
paid
strictly
proprietor
or an and
employee
of a
person
agreement
by basis
Mr. Pablo.
Such
defense
is
received process
the check
pursuant
to that
purpose;Do
ANSWER:
has
these
arrangements
violate
the
Retail
Trade
manufacturing
and,
therefore,
does
on ALTERNATIVE
a
commission
for
each
sale.
engaged in the retail trade, she would be
otherwise,
he Trade
is notAct.
a holder in due
An engagement
wife
(including
available
in favorbyofaMr
Carlos
against Mr
Law?
not violate
the Retail
violating
the Retail
Trade Act.
Checks;ANSWER:
Crossed
Check (1994)
SUGGESTED
course.
common-law
relationships)
of a foreigner in
Noble.
Retail Trade
Law (1996)
Press
in favor of
Jose athe
postdated
a) Po
The
firstissued
arrangement
would
not
be in
Checks:
Crossed
Checks
vs. Cancelled
Checks
Retail
Trade
Law
the
retail
trade
business,
raises
With
a capital
of(1990)
P2th Maria
operates
a (2004)
stall
crossed
in payment
ofLaw.
newsprint
violation
ofcheck,
the that
Retail
The
law
Distinguish
clearly
(1)
checks
Trading
CoShe
Inc,
a crossed
trading company
presumption
sheTrade
has violated
the Antiat aAcme
public
market.
manufactures
soap from
which
Jose
promised
to
deliver.
sold
and
applies
only
when
the the
sale
is direct
to
the
cancelled
checks;
wholly
owned
by foreign
Dummy
Law.
Hence,
wife
is Jose
barred
from
that
she sells
to the
general stockholders,
public. Her was
SUGGESTED ANSWER:
negotiated
Excel
Inc.sells
at a for
general
public.
A check
dealer
buys
and
persuaded
by Paulo MaLee,
Alva, a Filipino,
engaging
inthe
the
retailto
trade
business.
common
law husband,
who hasto
a invest
A
crossed
check
is one shares
with two
parallel
Retail
Law
Excel
(1992)
did notand,
ask Jose
the purpose
in Trade
his own
behalf
therefore,
the
in 20%
of the
outstanding
of stock
of a anddiscount.
pending
petition
for naturalization,
lines
drawn
diagonally
across
its
face
or
of
crossing
the
check.
Since
Jose
failed
to
A
Cooperative
purchased
from
Y
Co
on the
sale
to
the
general
public
is
made
by
corporation
he is forming
which of
will
engage
occasionally
finances
the purchase
goods
across
a
corner
thereof.
On
the
other
hand,
deliver
the
newsprint,
Po
ordered
the
installments
a
rice
mill
and
made
a
down
dealer
and
not
by
the
manufacturer
the department
(the of
forin
resale,
and assistsstore
in thebusiness
management
ALTERNATIVE ANSWER:
SUGGESTED
ANSWER: check is one marked or stamped
cancelled
drawee
bank
payment
the
check.
payment&
therefore.
As
securityon
for
the
(Marsman
Co to
v stop
First
Coconut
Control
Co
department
store corporation).
Paulo also
thea
business.
Is there
a violation of the
a) The first arrangement violates the Retail
No,"paid"
there
is
no
violation
of
the
Retail
Trade
and/or
"cancelled"
by
or
on
behalf
of
Efforts
of
Excel
to
collect
from
Po
failed.
payment
of
the
balance,
the
Cooperative
GR39841
20June1988)
urged
Acme
to invest
in 40% of the
Retail
Trade
Law?
Explain.
Trade Law because when ABC consigned
Law.
Maria isbank
a shares
manufacturer
who
sells
to
a
drawee
to indicate
thereof.
Excel
wants
to know
from youinas
counsel:
executed
a chattel
mortgage
favor
of Y 1)
outstanding
of
stockpayment
of the
realty
the typewriters, the transaction was one of
Crossed
Check
(1991)
theChecks;
general
public,
through
her
stall
in
the
What
are
the
effects
of
crossing
a
check?
2)
Corporation.
Y
Co
in
turn
assigned
its
rights
corporation
he is putting
up P200th
to own the
land
consignment
sale.isIn
sale,
an
crossed
check,
it indorser
aconsignment
holder
course?
Mr Pablo
sought
to borrow
from
Mr
public
market,
the
soap
which
she will be
Whether
as second
and
of
to
the chattel
mortgage
to Z in
Codue
aholder
5%
foreign
on
which
the
department
store
built
agency
relationship
is created
so of
it is as if
3) Whether
Pos defense
of lack
Carlos.
Carlos
agreedyour
to her
loan
the amount
manufactures.
Inasmuch
as
capital
corporation?
Explain
answer.
b)does
May in
the
owned
company
doing business
in the
(the
realty
corporation).
a)
May
Acme
ABC
sells
directly
to
the
public
through
its
against
Jose
is
also
available
as against
consideration
as
form
of in
a(itthe
postdated
check
which
notthe
exceed
isdepartment
only
P2th)
then
she is was
Acme
invest
realty
corporation?
SUGGESTED
ANSWER: The cooperative thereafter made
Philippines.
invest
in P5th
the
said
storediagonally
agents.
Excel?
crossed
(i.e.
2
parallel
lines
thepayments
Cooperative
considered
of the Retail
Trade
Discuss. under
c) MaySec
the4a
President
of Acme,
a
b) Because
The second
arrangement
wouldto meet
be
installment
to Zwas
Co.unable
SUGGESTED
ANSWER:
drawn
the
left
the check).
its obligations
in full,Trade
Z Co filed
against
it a
ofsit
the
said
department
store
corporation?
Law
asBOD
noton
engaged
in
theportion
retail of
business.
foreigner,
intop
the
violative
of
the
Retail
Law,
since
the
1) The effects of crossing a check
Before
theMarias
due ofdate
of the
check,
Pablo
court
suit for
collection.
The Coop
resisted
he be
a as
director
the realty
May
Inasmuch
business
iscorporation?
not
a retail
sale
is1done
through
individuals
being
paid
The
check
is for deposit
only
in the
are:
discounted
it
with
Noble
On
due
date,
Noble
contending
that
Z
Co
was
illegally
engaged
Discuss.
d)
May
the
Treasurer
of
Acme,
business, then the requirement in Sec 1 of
strictlyaccount
on a of
commission
basis.
The
said
the
payee
occupy
theLaw
same
check
position
with Philippine
in
histhebank.
said department
The
in the retail
trade
business
for having
another
foreigner,
thedeposited
Retail
Trade
that
only
individuals
would
then
be acting
merelysold
as a
2
The check
may
be indorsed
only
store
corporation?
May
heorbeindirectly,
the treasurer
check
was
dishonored.
Noble
sued
Pablo. of
consumer
good
as
opposed
to
a
producer
nationals
shall
engage,
directly,
agentsonce
of the
Sales,
SUGGESTED ANSWER:
in manufacturer.
favor of a person
whotherefore,
has an
ALTERNATIVE
ANSWER:
said
realty
corporation?
the
Theretail
court
dismissed
Nobles complaint.
Was
item.byThe
Coopagents
also alleged
that Z had
in the
business
is inapplicable.
For this
made
such
are
deemed
direct
The
courts
decision
was
incorrect.
Pablo
account
with
a
bank
SUGGESTED
ANSWER:
b)
The
2nd
arrangement
is
not
violative
the Explain.
courts
decision correct?
violated
the
Anti-Dummy Law. Is Z guiltyofof
reason,
the participation
of Ma Lee,
Marias
sales
by
the
manufacturer.
and
Carlos,
being
immediate
parties
to
the
3
The check
is issued for
a specific
a) Acme may not invest in the department
theviolating
Retail
Trade
LawTrade
because
the Retail
Law typewriters
and the Anticommon
Law husband,
in the management
instrument,
are governed
by the
rules
SUGGESTED
ANSWER:
purpose
and the person
who
takes itfor
not
Retail
Tradecorporation
Law (1996)
store
since the Retail
Trade
Actof
are
not
consumption
goods
or
goods
Dummy Law? Why?
of the
business
would
not be acircumstances
violation of
privity.
Given
the
factual
of
Z
Co
is
not
guilty
of
violating
the
Retail
in
accordance
with
said
purpose
does
not
EL allows,
Inc, a domestic
corporation
with foreign
in the case
of corporations,
only
personal, household and family use.
thethe
Retail
Trade Pablo
Law inhas
relation
to the
Anti-from
problem,
no
valid
excuse
Trade
Law
and
the
Anti-Dummy
Law.
The
become
a
holder
in
due
course
and
is
not
equity,
manufactures
electric
generators,
100% Filipino owned companies to engage in
Dummy
Law.
denying
liability,
(State
investment
House va)IAC
term
RETAIL
the thereunder.
Retail Trade Act
entitled
tounder
payment
andretail
sellstrade.
them
to the
following
customers:
GRAcme
72764may
13July1989).
undoubtedly had
b)
invest
inPablo
the
requires that the seller must be habitually
government
offices
which
userealty
the
Bond:
Cash Bond
Suretyto
Bond
benefitedduring
inon brownouts
transaction.
corporation,
the assumption
thatTo
the hold
engaged
in vs.
selling
the(2004)
general public
generators
to render
Distinguish
clearly
cash
from surety
otherwise
would
contravene
basic
balance
of 60%
of also
ownership
of the the
latter
consumption goods. By bond
consumption
goods
public
service,
b) agricultural
enterprises
bond.
rules
of the
unjust
enrichment.
corporation,
isgenerators
Filipino
owned
the lawin
are meant personal, family and household
which
utilize
as sinceEven
negotiable instruments, the
merely
purposes. A Rice Mill

Negotiable Instruments Law

Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

prevented
payment
therefor
Excel
through
(Traders
from the
becoming
Royal
Clearing
Bank
a holder
v.House,
RPN, in XM
G.R.honored
No.
138510,
October
10, 2002). Albert
dueBank
course,
as such
failure
it.
Thereafter,
or refusal

Drawee-bank
can recover
from his
constituted
withdrew
bad
the
faith.
P210,000
and closed
the
collecting
bank
(Great
Eastern
Life Ins.
3) Yes.
Not
being
a
holder
in
due
course,
account.
Co.isv.subject
Hongkong
&
Shanghai
Bank,
When
the check
was
returned
to G.R.
him No.
after a
Excel
to the
personal
defense
because
even
if the
indorsement
18657,
August
23,1922)
month,
William
discovered
the alteration.
which
Po
Press
can
set
up against
Jose on
the check
deposited
the
bank's
XMInvestment
Bank
recredited
Williams
(State
House
vP210,000
IACby
175
S to
310)
client
is
forged,
collecting
bank
is
Checks;
Crossed
Check (1995)
current
account,
and sought reimbursement
bound
by
its
warranties
as
an
Onfrom
Oct 12,
Straights,
corp
ND1993,
Bank.Chelsea
ND Bank
refused, aclaiming
and
cannot
set
defense
of
engaged
in Bank
the manufacture
of up
cigarettes,
that indorser
XM
failed
to return
the
altered
forgery
as
against
drawee
bank
ordered
from
Moises
2,000
bales
of
tobacco.
check to it within 24 hour clearing period.
v. Court
of
Appeals,
G.R.
Chelsea
issued
to Bank
Moises
two crossed
Who,(Associated
as between,
XM
Bank
and
ND Bank,
SUGGESTED
ANSWER:
Checks;
Liability;
No.
107382,
Drawee
January
Bank
(1995)
31,
1996).
checks
postdated
15
Mar
94
and
15
Apr
94
should bear the loss? Explain.
ND payment
Bank should
bear
the
if XMa Bank
Mario
Guzman
issued
to On
Honesto
in full
therefor.
19 loss
JanSantos
94
returned
the
altered
check
to
ND
check
for
P50th
as
payment
for
a
2nd
hand
Moises sold to Dragon Investment House
atBank
within
twenty
four
hours
after
its
discovery
car.
Without
the
knowledge
of
Mario,
a discount the two checks drawn by Chelsea
of favor.
thechanged
alteration.
Under
the
given
facts,
Honesto
the
amount
to
P150th
in his
Moises
failed
to deliver
the
William
discovered
the
alteration
when
which
alteration
could
not
be
detected
by
bales of tobacco as agreed despite Chelseasthe
altered
check
was returned
him
after a
the
nakedConsequently,
eye.
Honesto
deposited
the
demand.
on
1 Marto
94
Chelsea
month.
It
may
safely
be
assumed
that
altered
check
with
Shure
Bank
which
issued a stop payment order on the 2
William
immediately
advised
XM
Bank
forwarded
the to
same
to Progressive
Bank for of
checks issued
Moises.
Dragon, claiming
such
fact
and
that
the
latter
promptly
payment.
Progressive
Bank without
to
be a holder
in due course,
filed a noticing
SUGGESTED
ANSWER:
notified
ND
Bank
thereafter.
Central
the
alteration
paid the check,
debiting
complaint
for collection
against
Chelsea
forBank
Dragon
cannot
collect
from
Chelsea.
The
Circular
No.
9,
as
amended,
on
which
the
P150th
from
thechecks.
accountRule
of Mario.
the
value
of the
on which
theHonesto
instruments
are
crossed
checks
were in
decisions
of
the
Supreme
Court
withdrew
theDragon.
amount Give
of P15th
from
Shure
complaint
your
legal
intended
toofpay
the 2,000
bales
ofbasis.
Hongkong
&forShanghai
Banking
Corp v
Bank
and disappeared.
After receiving
his
tobacco
to beBank
delivered
to Moises.
It was
Peoples
& Trust
Co and
Republic
bank
statement,
Mario
discovered
the
SUGGESTED
ANSWER:
therefore
the CA
obligation
Dragon
to inquire
Bank vs
were of
based
was
expressly
alteration
and
restitution
from
The
demand
ofdemanded
Mario
forissuance
restitution
of
the
as to
the
purpose
of
the
of
the
2 317
cancelledBank.
and Discuss
superseded
by
CB
No
Progressive
fully
the
rights
amount
of
P150,000
to
his
account
is
crossed
checks
before
causing
them
to
Dec 23 1970.
The latter
was be
in turn
anddated
the liabilities
of the
parties
concerned.
tenable.
Progressive
Bank
has to
no
right such
to
discounted.
Failure
on
its
part
make
amended by CB Circular No 580, dated Sept
deduct
said
amount
from
account
inquiry,
which
in Marios
its
bad faith,
19, 1977.
Asresulted
to altered
checks,
the new rules
since
thecannot
order claim
of Mario
is a
different.
Dragon
to
be
holder
duereturn
provide that the drawee bank caninstill
Moreover,
Progressive
Bank iswere
liable
for the
course.
Moreover,
the
checks
sold,
not day
them even after 4:00 pm of the next
negligence
of him
its employees
in
not noticing
endorsed,
by
to
Dragon
which
did
not
provided it does so within 24 hours from
the
alteration
which,
though
it cannot
be a
become
a holder
in due
course.
Not in
being
discovery
of the
alteration
but
no event
ALTERNATIVE
ANSWER:
detected
by
the
nakedDragon
eye, could
be detected
holder
in
due
course,
is
subject
toby law
XM
Bank
should
the
loss.
When
the
beyond
the
period bear
fixed
orand
provided
As
between
Progressive
Bank
Shure
by
apersonal
magnifying
instrument
used
byChelsea
tellers.
thedrawee
defense
on
the
part
of
for it
filing
bank
offormer
a(XM
legal
Bank)
action
failed
by bear
the
to return
returning
Bank,
is the
that
should
the the
concerning
the
breach
of trust
on the the
partsame.
of
altered
check
to
the
collecting
bank
against
the
bank
sending
Checks;
Crossed
Check
(1996)
loss.
Progressive
Bank
failed
to notifybank
Shure(ND
Moises
Lim
in
not
complying
with
his
Assuming
Bank)
within
that
the
thesomething
relationship
hour wrong
clearing
period
the
What
are the
effects
of24
crossing
a between
Bank
that
there
was
with
obligation
tobank
deliver
theof
2000
bales of 9,
SUGGESTED
ANSWER:
provided
in
Sec
4c
CBcollecting
Circular
dated
drawee
and
the
bank
check?
the
check
within
the
clearing
hour
rule of
24 is
tobacco.
The
effects
crossing
alatter
check
as
Checks;
Material
Alterations;
(1999)
evidenced
Feb
17, of
1949,
by some
the Liability
written
isare
document,
absolved
from
the
hours.
1 check
The
check
may vnot
bedrawn
encashed
only
follows:
A
for (See
P50,000.00
was
liability.
HSBC
PB&T
Co GR
L-28226
Sep
prescriptive
period
would
beagainst
10but
years.
deposited
in35NIL
aand
drawee
30
1970;
bank
sbank;
140;
made
also
Rep Banktov XYZ
CA GR 42725
(Campos,
5th
ed payable
454-455)
Forged
Check; Effects
(2006)
2 Checks;
The
check
becheck
negotiated
Apr 22,
1991
196may
s The
100)
Marketing
or
order.
was only once to
the
legal consequences
when a
oneDiscuss
who has
anpayees
account
with a bank;
deposited
with
account
at ABC Bank
bank honors a forged check. (5%)
which
then
sent
check a
for
clearing
to as a
3 SUGGESTED
The act
ofthe
crossing
check
serves
ANSWER:
drawee
bank.
Drawee
bank
refused
to
honor
warning
to
the
holder
thereof
that
the
check
has
The legal consequences when a bank honors
the
check
on
ground
that
the
serial
number
been
issued
for
a
definite
purpose
so
that
the
a forged check are as follows:
1
Is
it proper
for
drawee
bankthe
to check
thereof
had
been
altered.
XYZ
marketing
holder
must
inquire
if the
heSignature
has
received
(a) When
Drawer's
is Forged:
dishonor
the
check
for
the
reason
that
it
had
sued
drawee
bank.
pursuant
to that
purpose,
otherwise
he iscannot
not a
Drawee-bank
by
accepting
the check
been
altered?
Explain
(2%)
holder
in due
(See
Cigar
and
set up
thecourse
defense
ofBataan
forgery,
because
by
2
InFactory,
instantInc.
suit,v CA
drawee
bank Mar
contended
Cigarette
GR 93048,
3, 1994;
accepting
the instrument,
the drawee
bank
that
Marketing as payee could not sue the
230
sXYZ
643)
admits
the
genuineness
of signature of
Checks;
Crossed
Check
(1996)
drawee bank as there was no privity between
(BPI
Family
Bank vs.
Buenaventura G.R.
Ondrawer
March 1,
1996,
Pentium
Company
then.
Drawee theorized
that
there
was
no basis to
No. 148196,
September
30, Bytes,
2005; and
Section 23,
ordered
a computer
from
CD
Unless
a forgery
ischeck.
attributable
to the fault
make
it
liable
for
the
Is
this
contention
Negotiable
Instruments
issued
a crossed
check
inLaw).
the
amount
of
or negligence
of the
drawer
himself,
the
correct?
Explain. (3%)
P30,000
post-dated
Mar
31,
1996.
Upon
remedy of the drawee-bank is against the
receipt
the check, for
CD the
Bytes
discounted
partyofresponsible
forgery.
Otherwise,
the check with Fund House.

Page
Page
78 79
of 103
of 103

drawee-bank bears the loss (BPI Family Bank v.

Buenaventura,
OnG.R.
April No.
1, 1996,
148196,
Pentium
September
stopped30,
payment
2005). A
of the
drawee-bank
check for failure
paying of
onCD
a forged
Bytes to
check must
deliver
be considered
the computer.
as paying
Thus, out
when
of Fund
its funds and
(Samsung
Construction
Co.the
Phils,
v. Far East
House
cannot
deposited
charge
the
the check,
amount
to
drawee
the drawer
Bank,
G.R. No. 129015,
August 13, 2004). If the
bank
dishonored
it.
If Fund
House files
complaint
against account,
drawee-bank
hasacharged
drawer's
Pentium
and can
CD Bytes
forsuch
the payment
of thethe
the latter
recover
amount from
G.R.
No. 107382,
January
1996; v.
Bank
of P. I.
dishonored
check,(Associated
will
the 31,
complaint
drawee-bank
Bank
Court
of
v.
Case
Montessori
Internationale,
G.R.
No.
prosper?
Explain. SUGGESTED ANSWER:: The
Appeals,
149454, filed
May 28,
2004).House against
complaint
by Fund
However, the drawer may be precluded or
Pentium will not prosper but the one against
estopped from setting up the defense of
CD Bytes will. Fund House is not a holder in
forgery as against the drawee-bank, when it
due course and, therefore, Pentium can raise
is shown that the drawer himself had been
the defense of failure of consideration
guilty of gross negligence as to have
against it. The check in question was issued
facilitated
the
forgery
(Metropolitan
by Pentium
to payBENE:
for a computer
that it
(NOTA
The question
not
Waterworks
v. Court of Appeals,
G.R. No.does
L62943,
ordered from
CD Bytes.
The computer not
qualify
the14,term
143 SCRA
20, July
1986)."forged check". An
having been
delivered,
there the
was liabilities
a failure of
answer
addressing
of a
consideration.
Theshould
check discounted
drawer
be deemed with
sufficient.
Answers
of parties
Fund House
by CDaddressing
Bytes is a liabilities
crossed check
Bank
versus
Collecting
Bank
should
likewise
given
full credit)
andDrawee
this should
have
putbe
Fund
House
on
WhenItthe
signature
of the drawer
forged,
inquiry.
should
have ascertained
theistitle
as between
the check
drawee-bank
and collecting
of CD
Bytes to the
or the nature
of the
bank,possession.
the drawee-bank
the loss,
latters
Failing insustains
this respect,
since
the collecting
not guarantee
Fund
House
is deemedbank
guiltydoes
of gross
the signature
of theto
drawer.
The payment
of
negligence
amounting
legal absence
of
the
check
by
the
drawee
bank
constitutes
good faith and, thus, not a holder in due
(Philippine
National
Bank v. Court
of
Appeals,
the Effect;
proximate
negligence
since
it
course.
FundAcceptance
House
can
collect
from
CDhas the
Checks;
by the
drawee
bank (1998)
G.R.
No.
L-26001,
October
29, 1968).
duty
to
know
the
signature
of
its
clientBytes
as athe
latter
was the
X draws
check
against
hisimmediate
current account
drawer.
indorser
of the check.
(See
Bataan Cigar
andin
with the Ortigas
branch
of Bonifacio
Bank
Cigarette
Factory
v CA X
etdoes
al 230
s 643
GR
93048
favor
B.
Although
not
have
(b) of
Forged
Payee's
Signature:
When
Mar
3, 94) funds, pays
sufficient
the bank
honorscheck,
the check
drawee-bank
the forged
it must
when
it is presented
for payment.
be considered
as paying
out of its funds and
Apparently,
X has the
conspired
the banks
cannot charge
amountwith
so paid
to the
bookkeeper
that
his ledger
account ofsothe
depositor.
In card
suchwould
case, the
show
that
he still liable
has sufficient
bank
becomes
since itsfunds.
primary duty
Theisbank
filesthe
an action
for recovery
of the
to verify
authenticity
of the payee's
amount
paid (Traders
to B because
check
signature
Royal the
Bank
v. Radio
(c)
Forged
presented
hasNetwork,
no sufficient
funds.
Decide
Philippines
G.R. No.
138510,
October
SUGGESTED
ANSWER:
Indorsement:

Drawer's
account
cannot
be
the10,
case
(5%)
2002; Westmont Bank v. Ong, G.R.
No.
The132560,
bank
cannot
recover
the amount
paid
to
charged,
and
charged,
he can
recover
January
30,if2002).
B for the
check.
WhenBank
the bank
honored
the
(Associated
v. Court
of Appeals,
from
the drawee-bank
check, it became
an
acceptor.
As
acceptor,
G.R. No. 107382 January 31,1996).
the bank
primarily
and cause
directlyof action
became
Drawer
has no
liable to
the payee/holder
B. since the duty of
against
collecting bank,
The recourse
of the
bank
against
collecting
bank
is should
only tobethe
payee. A
X and its
bookkeeper
who
conspired
collecting bank is not to
guilty of
make Xs
ledger show
he has
sufficient on
negligence
over that
a forged
indorsement
ALTERNATIVE
ANSWER:
funds. checks
for it has no way of ascertaining
The bank can recover from B. This is solutio
the authority of the endorsement and
indebiti because there is payment by the
when it caused the checks to pass
bank to B (Manila
when such
payment
is not due.Inc. v. Court of
Lighter
Transportation,
through the
clearing
house before
The checkAppeals,
issued
X to February
B as payee
no On the
G.R.
No. by
50373,
15, had
1990).
allowing withdrawal of the
proceeds
sufficient funds.
other
hand,
a
collecting
bank
which
Checks; thereof
Effects;
Alterations;
Period (1996)
endorses
a Prescriptive
check bearing
a forged
William issued
to Albert aand
check
for P10,000
endorsement
presents
it
2) No.
is a
crossed
check
and Excel
didto the
drawn
on It
XM
Bank.
Albert
altered
the all
drawee
bank
guarantees
prior
not take
it in
accordance
with the
amount
ofendorsements
the
check
to P210,000
andpurpose
including
the
forged
for which
check
issued. Failure
on
deposited
thethe
check
to was
his
account
with NDbe
endorsement
itself
and
should
held
its
part
to
inquire
as
to
said
purpose,
Bank. When
ND Bank presented the check
liable
for

Mercantile Law Bar Examination Q & A (1990-2006)

liability in the event that it should pay Yu

through oversight or inadvertence. Despite
the stop order by Lim, BPI nevertheless paid
Yu upon presentation of the check. Lim sued
BPI for paying against his order. Decide the
SUGGESTED ANSWER:
case.
In the event that Mr. Lim, in fact, had
sufficient legal reasons to issue the stop
payment order, he may sue BPI for paying
against his order. The waiver executed by
Mr Lim did not mean that it need not
exercise due diligence to protect the interest
of its account holder. It is not amiss to state
that the drawee, unless the instrument has
earlier been accepted by it, is not bound to
honor payment to the holder of the check
ALTERNATIVE ANSWER:
that thereby excludes it from any liability if
1991 6b) BPI would not be liable to Mr Lim.
it were to comply with its stop payment
Mr Lim and BPI are governed by their own
order (Sec 61 NIL)
agreement. The waiver executed by Mr Lim,
neither being one of future fraud or gross
negligence, would be valid. The problem
does not indicate the existence of fraud or
gross negligence on the part of BPI so as to
Defenses;
(2004)
warrant Forgery
liability
on its part.
CX maintained a checking account with
UBANK, Makati Branch. One of his checks
in a stub of fifty was missing. Later, he
discovered that Ms. DY forged his signature
and succeeded to encash P15,000 from
another branch of the bank. DY was able to
encash the check when ET, a friend,
guaranteed due execution, saying that she
was a holder in due course. Can CX recover
SUGGESTED ANSWER:
the money from the bank? Reason briefly.
Yes, CX can recover from the bank. Under
(5%)
Section 23 of the Negotiable Instruments
Law, forgery is a real defense. The forged
check is wholly inoperative in relation to CX.
CX cannot be held liable thereon by anyone,
not even by a holder in due course. Under a
forged signature of the drawer, there is no
valid instrument that would give rise to a
contract which can be the basis or source of
liability on the part of the drawer. The
drawee bank has no right or authority to
touch the drawer's funds deposited with the
Forgery; Liabilities; Prior & Subsequent Parties (1990)
drawee bank.
Jose loaned Mario some money and, to
evidence his indebtedness, Mario executed
and delivered to Jose a promissory note
payable to his order.
Jose endorsed the note to Pablo. Bert
fraudulently obtained the note from Pablo
and endorsed it to Julian by forging Pablos
signature. Julian endorsed the note to
Camilo. a) May Camilo enforce the said
promissory note against Mario and Jose? b)
SUGGESTED
ANSWER: go against Pablo? c) May
May Camilo
a. No.
The enforce
serial number
is not
a material
Camilo
said note
against
Julian? d)
particular
the check.
Its alteration
does of
Against of
whom
can Julian
have the right
notrecourse?
constitute material

80 of 103 alteration ofPage

the 81
instrument.
of 103
Thee)serial
is not material
to the
May number
Pablo recover
from either
Mario or
negotiability
of the instrument.
Jose?
Page

SUGGESTED ANSWER:

a) Camilo
may not
enforce
said promissory
b. Yes.
As a general
rule,
the drawee
is not
note
against
Jose.there
The promissory
liable
under
the Mario
check and
because
is no
noteofatcontract
the timebetween
of forgery
payable to
privity
XYZbeing
Marketing,
order, the
Pablo
was essential
as payee,
and signature
ABC Bank of
as the
drawee
for However,
the instrument
passtaken
title to
bank.
if the to
action
bysubsequent
the
parties.
A forged
signature
was inoperative
bank
is an abuse
of right
which caused
(Sec 23
parties
damage
notNIL).
only Accordingly,
to the issuer the
of the
checkbefore
the
forgery
are
not
juridically
but also to the payee, the payee has arelated
cause to
Checks;
Presentment
(1994)
parties
after
the
forgery
to
allow
such
of action under quasi-delict.
b)
Camilo
notongo
against Pablo,
the
Gemma
drew amay
check
September
13,
enforcement.
latter
not
having
indorsed
the
instrument.
1990. The holder presented the check to the
drawee bank only on March 5, 1994. The
c) dishonored
Camilo may
enforce
thesame
instrument
bank
the check
on the
against
Julian by
because
of bank,
his special
date.
After dishonor
the drawee
the
indorsement
to Camilo,
making
holder
gave a formal
noticethereby
of dishonor
to him
secondarily
both
being
after
Gemma
throughliable,
a letter
dated
Aprilparties
27,
the
forgery.
1994. 1) What is meant by unreasonable
d) Julian, in turn, may enforce the
time as applied to presentment? 2) Is
SUGGESTED
ANSWER:against Bert who, by his forgery,
instrument
Gemma liable to the holder?
1) As
to presentment
for payment,
hasapplied
rendered
himself primarily
liable.
e) Pablo preserves
his right
to recover
reasonable
time: is meant
not more
than 6from
eitherfrom
Mario
or Jose
who Beyond
remainsaid
parties
months
the date
of issue.
juridically
related to him.
period,
it is unreasonable
time Mario
and theis still
considered
liable to Pablo. Pablo
check
becomesprimarily
stale.
2) No.
form
check being
already
may,Aside
in case
of the
dishonor,
go after
Jose who,
Note:
It
is
possible
that
an answer
stale,
Gemma
is
also
discharged
form
by his special indorsement, is secondarily
might
distinguish
between
blank and
liability
the
check, being
a drawer
liable.under
special
indorsements
of prior parties
and a person
whose
liability is secondary,
thereby
materially
alter
this is duewhich
to the can
giving
of the notice
of
the above
suggested
answers.
dishonor beyond
the period
allowed
by law. The
not clearly
The givingproblem
of noticedid
of dishonor
on indicate
April 27, the
Forgery;
Liabilities;
Prior
Subsequent
Parties (1995)
kindthan
of indorsements
made.
1994
is more
one &(1)
month
from
Alex5,issued
a negotiable
March
1994 when
the check PN
was (promissory
note)
payable
to
Benito
or
order
in payment
dishonored. Since it is not shown that
of
certain
goods.
Benito
indorsed
PN to
Gemma and the holder resided in the the
same
Celso
inperiod
payment
of which
an existing
obligation.
place,
the
within
to
give
notice
ALTERNATIVE
ANSWER:
Later Alex
found
the same
goodstime
to be
defective.
of
must
bebe
the
that
the
2) dishonor
Gemma
can
still
liable under
the
While
in
Celsos
possession
the
PN was
notice
would
reach
Gemma
if
sent
by
mail.
original
contract
for the consideration
stolen
by & Dennis
who Realty
forged ofCelsos
(NIL
Sec
103
104;
Far
East
which
the
check
was
issued.
signatureInc
and
discounted
it with Edgar, a
Investment
v (2003)
CA
166 S 256)
Checks; Presentment
money lender who did not make inquiries
A bank issues its own check. May the holder
about the PN. Edgar indorsed the PN to
hold the bank liable thereunder if he fails to
Felix, a holder in due course. When Felix
1. What
prove presentment
for
payment,
or
the rights
of Felix,
if any,
demandedare
payment
of the
PN from
Alex the

presentAlex,
the bill
to the
drawee
for
against
Benito,
Celso
and
Edgar?
latter refused to pay. Dennis could no longer
acceptance?
ExplainExplain your answers. (4%)
be located.
SUGGESTED
ANSWER:
2. Does
Celso have any right against Alex,
Benito and Felix? Explain.
Checks; Validity; Waiver of Banks liability for
negligence (1991)
Mr. Lim issued a check drawn against BPI
Bank in favor of Mr Yu as payment of certain
shares of stock which he purchased. On the
same day that he issued the check to Yu,
Lim ordered BPI to stop payment. Per
standard banking practice, Lim was made to
sign a waiver of BPIs

Page
Page
82
84 83
of 103
of 103
delivered
Negotiable
b) Paragraph
Instrument:
it to Marie.
2 Definition
negotiability
She &
accepted
Characteristics
is NOT
the
AFFECTED
(2005)
check
What
in good
is a negotiable
faith as payment
a) MP
2.
P2,500.00
Celso
bought
has Ithe
a
promise
used
rightcell
to
topay
phone
collect
Pedro
from
from
San
JR.
Alex
Juan
JR
Theshe
interest
is to
be
computed
at aa particular
for
goods
delivered
to Ruth.
Eventually,
instrument?
Give
the
characteristics
of
andorBenito.
preferred
ordercash
the
Celso
sum
butisofMP
aP2,500.
party
is asubsequent
friend so JR
to
and is
determinable.
does
not make the sum
time
Ruth
negotiable
regretted
instrument.
what she
(2%)
didItand
apologized
the two. MRs
accepted
However,
promissory
Celso note
has for
no P10,000.
right to
uncertain
or the promise
conditional.
c)
to Jun.
Immediately
he directed
the drawee
claim
JR
thought
against
of converting
Felix who
the note
is into
a party
cash
SUGGESTED
ANSWER:
(Sgd.)
Noel
Castro
Paragraph
3

negotiability
is
AFFECTED.
bank to dishonor the check. When Marie
subsequent
by
endorsing
to Celso
it to(Sec
his 60
brother
and 66 KR.
NIL) The
Negotiable
Instrument
isthe
a written
contractthe
Incomplete
& Delivered
Giving
the
maker
option renders
encashed
the
check,
it was
dishonored.
promissory
note is(2004)
a piece of paper with the
for
the
payment
of
money which
is intended is
June 3, 1993
1. conditional
Is Jun
liable
d)to
Paragraph
Marie?
(5%)
4 negotiability
AX,2) aManila,
businessman,
was
preparing
a
promise
following
hand-printed
notation:
MP for
WILL
SUGGESTED
ANSWER:
as
a
substitute
for money and passes from
NOT
AFFECTED.
business
abroad.
As he usually
did IN
in
PAY
JR trip
TEN
THOUSAND
PESOS
Yes.
This
covers
the
delivery
of a an
one
person
to
another
astomoney,
in such
P10,000.00
For
value
received,
I
promise
to
Giving
the
option
the
holder
does
not make
the past, heFOR
signed
checks 1
in WEEK
blank
PAYMENT
HISseveral
CELLPHONE
incomplete
instrument,
under
Section
14
of
manner
promise
as
to
give
conditional.
a
holder
in
due
course
the
pay
Sergio
Dee
or
order
the
sum
of
the
and entrusted
to this
his secretary
with
FROM
TODAY.them
Below
notation MPs
the
Negotiable
Instruments
Law,
which
right
to
hold
the
instrument
free
from
P10,000.00
in
five
(5)
installments,
with
the
instructionwith
to safeguard
them
fill them
signature
8/1/00 next
to and
it, indicating
provides
that
was
prima
Negotiability;
Holderthere
in Due
Course
(1992)
defenses
available
to
prior
parties.
Suchfacie
installment
payable to
onnote.
October
5, 1993
out
only
when
pay accounts
thefirst
date
of
the required
promissory
When
JR
authority
onmust
the part
of Ruth
to
fill-up
any
Perla
brought
a
motor
car
payable
instrument
comply
with
Sec.
1
ofon
the of
and
the
other
installments
on
or
before
the
during
his
absence.
OB,
his
secretary,
filled
presented MPs note to KR, the latter said it
theinstallments
material
particulars
thereof.
Having
from
Automotive
Company
for
Negotiable
Instrument
Law
to
be
considered
fifth
day
of
the
succeeding
month
or
out
one
of
the
checks
by
placing
her
name
was not a negotiable instrument under the
The
characteristics
ofaaitdown
negotiable
done
so, and
when
is first
completed
P250th.
She
made
payment
of
P50th
negotiable.
thereafter.
as
the
payee.
She
filled
out
the
amount,
law and so could not be a valid substitute for
instrument
(Sgd.) Lito
before
it isare;
negotiated
to a note
holder
and executed
a promissory
for in
thedue
endorsed
andVilla
delivered
check
to KC,
cash. JR took
the
oppositethe
view,
insisting
on
b)
TH
is
an
indorsee
of
a
promissory
note
1)
Negotiability
That
quality
or
attribute
whereby a
course
like
Marie,
it
is
valid
for
all
purposes,
balance.
The
company
subsequently
who
accepted
it in good faith
theSUGGESTED
notes
negotiability.
You for
arepayment
asked of
to
ANSWER:
that
simply
states:
PAY
TO
JUAN
TAN
OR
bill,
note
or
check
passes
or
may
pass
from
hand
to
and
Marie
may
enforce
it
within
a
indorsed
the
note
to
Reliable
Finance
gems
KC sold
tothe
OB.
Later, OBviews
told
AX
referee.
Which
ofnote
is
Thethat
promissory
is opposing
negotiable
as
it
2.
Supposing
the
check
was
stolen
while
in in
SUGGESTED
ANSWER:
ORDER
400
PESOS.
The
note
has
no
date,
hand,
similar
to
money,
so
as
to
give
the
holder
reasonable
time,
as
if
it
had
been
filled
up
Corporation
which
financed
the
purchase.
of
what
shewith
did
with
regrets.
AXThis
timely
correct?
Yes.
AX could
be Sec
held
to consideration
KC.
is a
complies
1,liable
NIL.
Ruth's
possession
and
thief
filled
the
blank
no
place
of payment
and
no
due
course
right
toahold
the
instrument
and
strictly
in the
accordance
with
the
authority
The
promissory
note
read:
For
value
directed
the
bank
to
dishonor
the
check.
case
of
an
incomplete
check,
which
has
been
check,
endorsed
and
delivered
it
to
Marie
in

Firstly,
it
is
in
writing
and
signed
by
the
mentioned.
It
was
signed
by
MK
and
written
collect
the
sum
payable
for
himself
free
from
given.
received,
I
promised
to
pay
Automotive
Could
AX Noel
beUnder
held
liable
to KC? Answer
delivered.
Section
of and
the
payment
for
the
goods
heof
purchased
from
maker,
Castro.
under
his
letterhead
specifying 14
the address,
defenses.
2) Accumulation
Secondary
Contracts
Company
or
order
at its
office
in Legaspi
reason
briefly.
(5%)
Negotiable
Instruments
Law,
a holder
her,
is
Jun
liable
to
Marie
if
the
check
is at

Secondly,
isas
unconditional
toas
which
happens
to the
bepromise
his KC,
residence.
TH
they
from onewith
person
to another.
City, are
the transferred
sum of P200,000.00
interest
in pay
due acourse,
can enforce
of the
dishonored?
(5%)
sum
in money,
that
is, P2,500.00
accepted
the certain
promissory
notepayment
as
payment
for
twelve (12%)
percent per annum, payable in
SUGGESTED
ANSWER:
check
as Thirdly,
if
it hadit been
filled on
updemand
strictly
in no date
Manila
September of
21, 1991.

istopayable
as
services
rendered
SH,
who
in turn
equal
installments
monthly
No.
Even
though
MarieP20,000.00
is a holder
in duefor
accordance
the
authority
given
by AX to
of maturity
is specified.
received
thewith
note
from
Juan Tan
as payment
ten (10)this
months
starting
October 21, 1991.
course,
is
an
incomplete
and
(sgd) Perla
OB
within
reasonable
Fand
ourth,
it is apayable
to time.
for
a prepaid
cell
phone
card worth 450
undelivered instrument, covered by Section
Incomplete
and Delivered
(2005)
order.The payee acknowledged having
pesos.
15 Pay
of tothe
Negotiable
Instruments
Brad was in desperate need of money to pay
the order
of Reliable
Finance Law.
The promissory
note
is negotiable.
received
the note on
August
1, 2000.All
A the
Bar
Where
an
incomplete
instrument
has not
his debt to Pete, a loan shark. Pete
Corporation. Automotive Company
requirements
of Sec
NIL are
complied
reviewee
had told
TH,1who
happens
to be
been delivered, it will not, if completed and
threatened to take Brads life if he failed to
with.
The sum
beispaid
certain
your
friend,
that to
TH
not isa still
holder
in due
negotiatedBy:without
authority,
pay. Brad and Pete went to see Seorita
(Sgd)
Manager be a valid
despite
that
the
sum
is
to
be
paid
by
course under Article 52 of the Negotiable
contract in the hands of any holder, as
Isobel, Brads rich cousin, and asked her if
installments
(Sec
2b NIL)
Instruments
Law
(Act
2031) and therefore
against
anyPerla
person,
including
whose
Because
defaulted
in the Jun,
payment
of
sheNegotiability
could sign
a promissory note in his favor
(2002)
does not enjoy
the rights and protection
signature
was
placed
thereon
before
her
installments,
Reliable
Finance
in Which
the amount
of
P10,000.00
to
pay
Pete.
ofstatute.
the following
stipulations
under
the
TH asks
for our or
advice
SUGGESTED
ANSWER:
delivery.
Such defense
realagainst
defenseher
even
Corporation
initiatedisaacase
for a
Fearing
thatof Pete
would kill
Brad,
Seorita
features
a
promissory
note
(PN)
affect
or
Indorser:
Irregular
Indorser
vs. course,
General Indorser
(2005)to a
specifically
in
connection
with
the
note
being
a)
KR
is
right.
The
promissory
note
is
not
against
a
holder
in
due
available
sum of money. Perla argued that the
Isobel
acceded
to negotiability,
the request. assuming
She affixed
do
not
affect
its
that
Distinguish
an irregular
indorser appeared
from a
undated
andIt not
mentioning
place or
of
negotiable.
is anot
issued
toa order
party
like Jun
whose
signature
promissory
note
is merely
an assignment of
herthe
signature
on
piece
of paper
with the
PN
is
otherwise
negotiable?
Indicate
your
general
indorser.
(3%)
payment
and
any
consideration.
What
would
bearer.
There
is no
of just
negotiability
prior
to delivery.
credit,
a non-negotiable instrument open to
assurance
of writing
Brad
thatword
he
will
fill it upof
SUGGESTED
ANSWER:
answer
paragraph
number
your
advicebybe?
(2%).the
containing
therein.
Itup
isthe
notblank
issued
in
all
defenses
available
to the
later.
Brad
then
filled
paper,
Irregular Indorser
is not
a assignor
party to and,
the
the stipulation
or feature
ofthe
theNegotiable
PN as shown
accordance
with Section
1 for
of
therefore,
Reliable
Finance
Corporation
is
making
a
promissory
note
the
amount
of
instrument
but
he
places
his
signature
in
below
and
your
corresponding
answer,
either
What defense
or defenses can Seorita
Instruments
LawHe
not
a
holder
in
due
course.
a)
Is
the
P100,000.00.
then
indorsed
and
blank before delivery. He is not a party but
or Not
affected.
Explain
(5%).
b) Affected
Theset
fact
the Pete?
instrument
is (3%)
undated
Isobel
upthat
against
Explain.
a)
The
thePete,
PN iswho
February
30,
note
a mereofassignment
of credit
delivered
the date
sameof to
accepted
he promissory
becomes one
because
his signature
in
SUGGESTED
and doesANSWER:
not mention the place of payment
b)
The
PN
bears
interest
payable
on
the
or
a
negotiable
instrument?
Why?
b)
the
2002.
note
as
payment
of
the
debt.
theSUGGESTED
instrument.
Because his signature Is
he is
The defense
(personal
defense)
ANSWER:
does
not militate
against
its which
being
last dayIsobel
of each
calendar
quarter
atPete
a rate
Reliable
Finance
Corp
ainholder
due istoa
considered
an indorser
he problem
isinliable
Seorita
can
set
against
is
a) The promissory
noteand
the
negotiable.
The date
andup
place
of payment
equal
to
five
percent
(5%)
above
the
then
course?
Explain
briefly.
While,
a
General
Indorser
warrants
that the
the
parties
in
the
instrument.
that not
the amount
P100,000.00
is not to
in
negotiable instrument, being in compliance
are
material ofparticulars
required
prevailing
91-day
Treasury
Bill
rate
as
instrument
is
genuine,
that
he
has
a good
accordance
with thenegotiable.
authority given to her
with the provisions of Sec 1 NIL. Neither
make
an instrument
atno
the
beginning
of
such
calendar
title
to
it,
that
all
prior
parties
had
capacity
to published
Brad
the
presence
ofisPete)
and
that
The
fact (in
that
mention
made
of
any
the fact that the payable sum is to be paid
c)
The PN gives the maker the option to
quarter.
to with
contract;
thatnor
thethat
instrument
at theare
time
Pete
consideration
was not isa not
holder
material.
in due
Consideration
course for
interest
the maturities
in
make payment either in money or in quantity
of SUGGESTED
the
indorsement
is
valid
and
subsisting;
ANSWER:
acting
in bad faith when accepted the note
is
presumed.
stated
installments
renders
uncertain
the
of palay
or equivalent
value.
and1.
that
Felix
onpayable
has
dueno
presentment,
right
claim
the instrument
against Alex,
Negotiable
Instrument:
Ambiguous
Instruments (1998)
as d)
payment
his
it
amount
(Sec 2toNIL)
Thedespite
PN gives
theknowledge
holder the that
option
will
Benito
be
accepted
and
Celso
or
who
paid
are
or
both
parties
accepted
prior
How
do you
treat a negotiable
instrument
b) Yes, Reliable Finance Corporation
is a to
was
only
that was
allowed
by
either
to10,000.00
requireIncomplete
payment
in money
or to
Incomplete
Instruments;
Delivered
and
the
paid
forgery
according
of
Celsos
to
its
tenor,
signature
and
by
that
if it
that
is soIsobel
ambiguous
that
is doubt
holder in due course given the factualDennis.
Seorita
during
theirthere
meeting
with
requirevs.
the
maker
to serve
as
the
Instruments
Incomplete
Undelivered
Instrument
is
dishonored,
Parties
to
an
he
instrument
will
pay
who
if
the
are
necessary
such
prior
whether
it is a bill or a note? (5%)
settings. Said corporation apparently took
Brad.
Negotiability
(1993)
bodyguard
SUGGESTED
ANSWER:or escort of the holder for 30
(2006)
proceedings
to
the
forgery
for
dishonor
cannot
are
be
held
made.
liable
by
any
the promissory note for value, and there are
SUGGESTED ANSWER:
Discuss
the
negotiability
or at
non-negotiability
1.
Where
a negotiable
instrument
is so
Jundays.
was
about
to
leave
for
a
business
trip.
As
party
who
became
such
or
subsequent
to
no
indications
that
it
acquired
it
in
bad
faith
a)
Paragraph 1 negotiability is NOT
of the
following
notes
ambiguous
that there
issigned
doubt whether
it is
hisAFFECTED.
usual practice,
he
several
blank
the
forgery.
However,
Edgar,
who
became
a
(Sec
52
NIL
see
Salas
v
CA
181
s
296)
The date is not one of the
a
bill orHea instructed
note, the Ruth,
holderhismay
treat itto
checks.
secretary,
party
to
the
instrument
subsequent
to
the
Negotiability;
Requisites
(2000)
requirements for negotiability.
1) Manila,
1, 1993the same to Felix,
either
asas
a payment
bill of exchange
or a promissory
fill them
for his obligations.
Ruth
forgery September
and who indorsed
note atone
his election.
filled
check with her name as payee,
can be held liable by the latter.
placed P30,000.00 thereon, endorsed and
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Mercantile Law Bar Examination Q & A (1990-2006)

Negotiable Instrument: Negotiable Document vs.

Negotiable Instrument (2005)
Distinguish a negotiable document from a
negotiable instrument. (2%)
SUGGESTED ANSWER:

Negotiable Instrument have requisites of

Sec. 1 of the NIL, a holder of this instrument
have right of recourse against intermediate
parties who are secondarily liable, Holder in
due course may have rights better than
transferor, its subject is money and the
Instrument itself is property of value.
On the other hand, negotiable document
does not contain requisites of Sec. 1 of NIL,
it has no secondary liability of intermediate
parties, transferee merely steps into the
shoes of the transferor, its subject are goods
and the instrument is merely evidence of
title; thing of value are the goods mentioned
Negotiable
Instrument; Negotiability (1997)
in the document.
Can a bill of exchange or a promissory note
qualify as a negotiable instrument if
a.
it is not
b.
the day and the month, but not the
dated; or
year of its maturity, is given; or
c.
it is payable to
d.
cashitornames two
alternative drawees

Negotiable Instrument: Identification (2005)

State and explain whether the following are
instruments under the Negotiable Instruments
negotiable
1)
Postal
Money
Law: (5%)
2)
A certificate of time deposit which
Order;
states This is to certify that bearer has
deposited in this bank the sum of FOUR
THOUSAND
PESOS
(P4,000.00)
only,
3)
Letters
of credit;
repayable
to the
depositor 200 days after
4)
date. Warehouse
5)
Treasury warrants payable from a
receipts;
specific fund.
SUGGESTED ANSWER:

1)
Postal Money Order Non-Negotiable
as it is governed by postal rules and
regulation which may be inconsistent with
the NIL and it can only be negotiated once.
2)
A certificate of time deposit which
states This is to certify that bearer has
deposited in this bank the sum of FOUR
THOUSAND
PESOS
(P4,000.00)
only,
repayable to the depositor 200 days after
date. Non-Negotiable as it does not
comply with the requisites of Sec. 1 of NIL
3)
Letters of credit - NonNegotiable
4)
Warehouse receipts - Non-Negotiable
for the same as Bill of Lading it merely
represents good, not money.
5)
Treasury warrants payable from a
specific fund - Non-Negotiable being
payable out of a particular fund.

Mercantile Law Bar Examination Q & A (1990-2006)

be duly taken, he will pay the amount

thereof to the holder, or to any subsequent
indorser who may be compelled to pay.
C is not liable to F since the latter cannot
trace his title to the former. The signature of
C in the supposed indorsement by him to D
was forged by X. C can raise the defense of
forgery since it was his signature that was
ALTERNATIVE ANSWER:
forged.
As a general endorser, B is secondarily liable
to F. C is liable to F since it is due to the
negligence of C in placing the note in his
drawer that enabled X to steal the same and
forge the signature of C relative to the
indorsement in favor of D. As between C and
F who are both innocent parties, it is C
whose negligence is the proximate cause of
the loss. Hence C should suffer the loss.
Negotiable Instruments; incomplete and undelivered
instruments; holder in due course (2000)
PN makes a promissory note for P5,000.00,
but leaves the name of the payee in blank
because he wanted to verify its correct
spelling first. He mindlessly left the note on
top of his desk at the end of the workday.
When he returned the following morning, the
note was missing. It turned up later when X
SUGGESTED ANSWER:
presented
it to PN for payment. Before X, T,
a) turned
Yes. Date
not filched
a material
particular
who
out toishave
the note
from
required
by
Sec
1
NIL
for
the
negotiability
PNs office, had endorsed the note after
of an instrument.
inserting
his own name in the blank space as
b) No. The time for payment is not
the payee. PN dishonored the note,
determinable in this case. The year is not
contending that he did not authorize its
stated.
completion
and 9d
delivery.
But X the
saidinstrument
he had
c) Yes. Sec
NIL makes
no payable
participation
in,
or
knowledge
about,
the
to bearer because the name of
the
pilferage
and
alteration
of
the
note
and
payee
does
not
purport
to
be
the
name
b) Can the payee in a promissory note be a of
therefore
he enjoys the rights of a holder in
any person.
holder
in due course within the meaning of
dued) Acourse
under
the
Negotiable
bill may
not be addressed
two or
the Negotiable
Instruments
Law (Actto2031)?
Instruments
Law.
Who
is
correct
and why?
more your
drawees
the alternative
or in
Explain
answer.in(2%)
(3%)
SUGGESTED
ANSWER: to be negotiable (Sec 128 NIL).
succession,
a) PN
is so
right.
Thethe
instrument
is incomplete
To do
makes
order conditional.
Instruments;
(1998) any
andNegotiable
undelivered.
It Bearer
did Instrument
not create
Richard
Clinton
makes
note
contract
that
would bind
PNatopromissory
an obligation
payable
to bearer
and delivers the same to
to pay
the amount
thereof.
b) A
payee inPage.
a promissory
cannot
be a
Aurora
Aurora note
Page,
however,
holder
in
due
course
within
the
meaning
of
Payable
to
X.
Signed:
Aurora
endorses it to X in this manner:
the Negotiable Instruments
Law, because a
Page.
Later,
X, without
endorsing
promissory
payee
is an
immediate
party inthe
relation
to
transfers
and
deliverstothe
same to
thenote,
maker.
The payee
is subject
whatever
Napoleon.
The
note available
is
subsequently
defenses,
real of
personal,
to the
ALTERNATIVE
dishonored
by
Richard
Clinton.
May
maker
of ANSWER:
the promissory
note.
b) A
payee can
be a holder
in due
course.
Napoleon
proceed
against
Richard
Clinton
A holder
defined
as the payee or indorsee
SUGGESTED
ANSWER:
for theisnote?
(5%)
Yes.instrument
Richard Clinton
liable to Napoleon
of the
who is is
in possession
of it.
under
the is
promissory
note. facie
The note
Every
holder
deemed prima
to be made
a
by Richard
Clinton is a bearer instrument.
holder
in due course.
Negotiable
Instruments;
Incomplete
Despite special
indorsement
made by Aurora
DeliveredInstruments;
Comparative
Page thereon, the note
remained a bearer
Negligence
(1997) and can be negotiated by mere
instrument
delivery. When X delivered and transferred
the note to Napoleon, the

Page
Page
86 85
of 103
of 103
A, single
latter became
proprietor
a holder
of a

business
thereof.
concern,
As suchisholder,
about Napoleon
to leave for
can
a
business
proceed
trip
against
and, as
Richard
he so often
Clinton.
does on
these occasions, signs several checks in
Negotiable
Instruments;
Instrumentsto
(1997)
blank.
He instructs
B,Bearer
his secretary,
A
delivers
a
bearer
instrument
to
B.
B then
safekeep the checks and fill them out when
indorses
it accounts
to C and C
later his
andspecially
as required
to pay
during
indorses
it inout
blank
E steals
absence.
B fills
onetoofD.
the
checksthe
by
instrument
from
and, forging
placing
her name
asDpayee,
fills in the
signature
of D, succeeds
in negotiating
amount,
endorses
and delivers
the check to it
to F accepts
who acquires
the faith
instrument
in good
C who
it in good
as payment
and
fortovalue.
a) If, forher
anyaction
reason,
the
forfaith
goods
sold
B. B regrets
and
drawee
to honor
check,
tells
A whatbank
she refuses
did. A directs
thethe
Bank
in can
SUGGESTED ANSWER:
F enforce
the instrument
against
time
dishonor
the
check.
When
C the that
Yes, Atocan
be held
liable
to C,
assuming
drawer?
b)check,
In caseitof
the
dishonor Can
of the
encashes
the
is
dishonored.
A
the latter gave notice of dishonor to A. This
check
by both
the drawee and the drawer,
be
held
liable
to
C?
is aSUGGESTED
case of ANSWER:
an incomplete instrument but
can
F hold
of B, C and
Dpayable
liable to bearer
a) Yes.
Theitany
instrument
wasto
delivered
as
was entrusted
B, the
secondarily
on
the
instrument?
as it was
instrument.
It could
be
secretary
of aA.bearer
Moreover,
under the
doctrine
negotiated
by
mere
delivery
despite
the
of comparative negligence, as between A
of specialparties,
indorsements.
The
andpresence
C, both innocent
it was the
forged signature
is unnecessary
to presume
negligence
of A in entrusting
the check
to B
Negotiable
Instruments;
kinds cause
of
negotiable
instrument;
the is
juridical
relation
between
or
among
which
the proximate
of the
loss. the
words
of negotiability
parties
prior to(2002)
the forgery and the parties
A. Define
the
following:
a negotiable
after the forgery.
The(1)
only
party who can
promissory
note,
(2)
a
bill
of
exchange
and
raise the defense of forgery
against a
holder
(3)in
a check.
(3%)
due course is the person whose signature
b)
Only
and C
can Draft
be held
by F. The
B. You
are B
Pedro
Cruz.
theliable
appropriate
is forged.
instrument
at the
of thenegotiable
forgery was
contract
language
fortime
(1) your
payable to
bearer,
being
a bearer
instrument.
promissory
note
and (2)
your
check, each
Moreover,
instrument
was indorsed
in
containing
thethe
essential
elements
of a
blank byinstrument
C to D. D, whose
negotiable
(2%) signature was
SUGGESTED
forgedANSWER:
by E cannot be held liable by F.
A. (1)
A negotiable
promissory
note isliabilities
an
Negotiable
Instruments;
bearer instruments;
of
unconditional
promise
maker and indorsers
(2001)in writing made by
oneAperson
another, signed
the maker,
issued to
a promissory
note by
payable
to B or
engaging
on demand
or at
or
bearer.to
A pay
delivered
the note
to aB.fixed
B indorsed
determinable
time, the
a sum
certain
the note to future
C. C placed
note
in hisin
money
to order
orwas
bearer.
drawer,
which
stolen by the janitor X. X
indorsed the note to D by forging Cs
(2)signature.
A bill of exchange
is an
unconditional
D indorsed
the
note to E who in
order
in
writing
addressed
byF,one
person
turn delivered the note to
a holder
into
due
another,
signed
by
the
person
giving
it,
course, without indorsement. Discuss the
SUGGESTED
ANSWER:
requiring
the
person toto
whom
it is
individual
liabilities
F of A,
B and C. (5%)
A is liable
F. on
As demand
the maker
addressed
to to
pay
or of
at the
a fixed or
(3)
A check is future
anote,
bill of
exchange
drawn
on
promissory
Atime
is directly
or primarily
determinable
a sum certain
in a
bank
payable
onor
demand.
liable
F, who
is
holder in due course.
money
toto
order
to abearer.
Despite the presence of the special
B. (1)
Negotiableon the note, these do not
indorsements
promissory
notethe
- fact that a bearer
detract from
instrument, like the promissory note in
question, is always negotiable by mere
B,
as a general
is liable
to F
delivery,
until itindorser,
is indorsed
restrictively
secondarily,
warrants that the
For Depositand
Only.
instrument is genuine and in all respects
what it purports to be; that he has good title
to it; that all prior parties had capacity to
contract; that he has no knowledge of any
fact which would impair the validity of the
instrument or render it valueless; that at the
time of his indorsement, the instrument is
valid and subsisting; and that on due
presentment, it shall be accepted or paid, or
both, according to its tenor, and that if it be
dishonored and the necessary proceedings
on dishonor

Mercantile Law Bar Examination Q & A (1990-2006)

Negotiable Instruments; Requisites (1996)

What are the requisites of a negotiable
SUGGESTED
ANSWER:
instrument?
The requisites of a negotiable instrument
are as follows: a) It must be in writing and
drawer;
b)the
It must
contain
an unconditional
signed by
maker
or
promise or order
to pay a sum certain in money; c) It must be
payable to order or to bearer; and d) Where
the instrument is addressed to a drawee, he
must be named or otherwise indicated therein
reasonable certainty. (Sec 1
with
NIL)
Notice Dishonor (1996)
When is notice of dishonor not required to
be given to the drawer?
SUGGESTED ANSWER:

Notice of dishonor is not required to be

given to the drawer in any of the following
cases: a) Where the drawer and drawee are
the same person; b) When the drawee is a
not
having
capacity
contract; c) When the
fictitious
person
or atoperson
drawer is the person to whom the
instrument is presented for payment; d)
Where the drawer has no right to expect or
that the drawee or acceptor will honor the
require
instrument; e) Where the drawer has
countermanded payment (Sec
114 NIL)
Parties; Accommodation Party (1990)
To accommodate Carmen, maker of a
promissory note, Jorge signed as indorser
thereon, and the instrument was negotiated
to Raffy, a holder for value. At the time Raffy
took the instrument, he knew Jorge to be an
accomodation party only. When the
promissory note was not paid, and Raffy
discovered that Carmen had no funds, he
sued Jorge. Jorge pleads in defense the fact
that he had endorsed the instrument without
receiving value therefor, and the further fact
that
Raffy knew that at the time he took the
SUGGESTED ANSWER:
instrument
had
not
any value
Yes. Jorge isJorge
liable.
Sec
29received
of the NIL
or
consideration
of
any
kind
for
his
provides that an accommodation party is
indorsement.
Is Jorge liable?
Discuss.
liable on the instrument
to a holder
for

value, notwithstanding the holder at the

time of taking said instrument knew him to
be only an accommodation party. This is the
nature or the essence of accommodation.
Parties; Accommodation Party (1991)
On June 1, 1990, A obtained a loan of P100th from B, payable
not later than 20Dec1990. B required A to issue him a check
for that amount to be dated 20Dec1990. Since he does not
have any checking account, A, with the knowledge of B,
requested his friend, C, President of Saad Banking Corp
(Saad) to accommodate him. C agreed, he signed a check for
the aforesaid amount dated 20Dec 1990, drawn against Saads
account with the ABC

Page

87 of 103

Commercial Banking Co. The By-laws of Saad requires that

checks issued by it must be signed by the President and the
Treasurer or the Vice-President. Since the Treasurer was
absent, C requested the Vice-President to co-sign the check,
which the latter reluctantly did. The check was delivered to B.
The check was dishonored upon presentment on due date for
insufficiency of funds. a) Is Saad liable on the check as an
accommodation party? b) If it is not, who then, under the above
facts, is/are the accommodation party?
SUGGESTED ANSWER:

a.) Saad is not liable on the check as an

accommodation party. The act of the
corporation in accommodating a friend of
the President, is ultra vires (Crisologo-Jose v
CA GR 80599, 15Sep1989). While it may be
legally possible for the corporation, whose
business is to provide financial
accommodations in the ordinary course of
business, such as one given by a financing
company to be an accommodation party, this
b) Considering
that is
both
and
situation,
however,
not the
the President
case in the
bar
Vice-President
were
signatories
to
the
problem.
accommodation, they themselves can be
subject to the liabilities of accommodation
parties to the instrument in their personal
capacity (Crisologo-Jose v CA 15Sep1989)
Parties; Accommodation Party (1996)
Nora applied for a loan of P100th with BUR
Bank. By way of accommodation, Noras
sister, Vilma, executed a promissory note in
favor of BUR Bank. When Nora defaulted,
BUR Bank sued Vilma, despite its
knowledge that Vilma received no part of
SUGGESTED ANSWER:
the loan. May Vilma be held liable? Explain.
Yes, Vilma may be held liable. Vilma is an
accommodation party. As such, she is liable
on the instrument to a holder for value such
as BUR Bank. This is true even if BUR Bank
was aware at the time it took the instrument
that Vilma is merely an accommodation party
and received no part of the loan (See Sec 29,
NIL; Eulalio Prudencio v CA GR L-34539, Jul 14,
Parties;
Party (1998)
86 143 Accommodation
s 7)

For the purpose of lending his name without

receiving value therefore, Pedro makes a
note for P20,000 payable to the order of X
who in turn negotiates it to Y, the latter
1.
May that
Y recover
Pedro
if the
knowing
Pedrofrom
is not
a party
forlatter
value.
interposes
the15,
absence
September
2002 of consideration?
(3%)
For
2. value
Supposing
received,
under
I hereby
the same
promise
facts,
toPedro
pay
Juan Santos
or order
the summay
of TEN
pays the
said P20,000
he recover
THOUSAND
the same
PESOS
amount
(P10,000)
from X?thirty
(2%)(30)
days from date hereof.
(Signed) Pedro Cruz
to: Philippine
National Bank
Escolta, Manila
Branch

Mercantile Law Bar Examination Q & A (1990-2006)

2. If Pedro pays the said P20,000 to Y, Pedro

can recover the amount from X. X is the
accommodated party or the party ultimately
liable for the instrument. Pedro is only an
accommodation party. Otherwise, it would
be unjust enrichment on the part of X if he is
Parties;
not to Accommodation
pay Pedro. Party (2003)
Susan Kawada borrowed P500,000 from XYZ
Bank which required her, together with Rose
Reyes who did not receive any amount from
the bank, to execute a promissory note
payable to the bank, or its order on stated
maturities. The note was executed as so
agreed. What kind of liability was incurred
by Rose, that of an accommodation party or
SUGGESTED ANSWER:
that of a solidary debtor? Explain. (4%)
(per Dondee) Rose may be held liable. Rose is
an
accommodation
party.
Absence
of
consideration is in the nature of an
accommodation. Defense of absence of
consideration cannot be validly interposed by
accommodation party against a holder in due
Parties;
Accommodation Party (2003)
course.
Juan Sy purchased from A Appliance
Center one generator set on installment with
chattel mortgage in favor of the vendor.
After getting hold of the generator set, Juan
Sy immediately sold it without consent of
the vendor. Juan Sy was criminally charged
To
settle
the case extra judicially, Juan Sy
with
estafa.
paid the sum of P20,000 and for the balance
of P5,000.00 he executed a promissory note
for said amount with Ben Lopez as an
accommodation party. Juan Sy failed to pay
the balance. 1) What is the liability of Ben
Lopez as an accommodation party? Explain.
SUGGESTED ANSWER:
2) What is the liability of Juan Sy?
1) Ben Lopez, as an accommodation party, is
liable as maker to the holder up to the sum
of P5,000 even if he did not receive any
consideration for the promissory note. This
is the nature of accommodation. But Ben
Lopez can ask for reimbursement from Juan
Sy, the accommodation party.
2) Juan Sy is liable to the extent of P5,000 in
the hands of a holder in due course (Sec 14
NIL). If Ben Lopez paid the promissory note,
Juan Sy has the obligation to reimburse Ben
Lopez for the amount paid. If Juan Sy pays
directly to the holder of the promissory note,
or he pays Ben Lopez for the reimbursement
of the payment by the latter to the holder,
Parties;
Accommodation
Party (2005)
the instrument
is discharged.
Dagul has a business arrangement with
Facundo. The latter would lend money to
another, through Dagul, whose name would
appear in the promissory note as the lender.
Dagul would then immediately indorse the
note
to
Facundo.
Is
Dagul
an
SUGGESTED ANSWER:
accommodation party? Explain. (2%)

88 of 103 YES! Dagul is an

accommodation party because in the case at
bar, he is essentially, a person who signs as
maker without receiving any consideration,
signs as an accommodation party merely for
the purpose of lending the credit of his name.
And as an accommodation party he cannot
set up lack of consideration against any
holder, even as to one who is not a holder in
Parties;
Holder in Due Course (1993)
due course.
Larry issued a negotiable promissory note to
Evelyn and authorized the latter to fill up the
amount in blank with his loan account in the
sum of P1,000. However, Evelyn inserted
P5,000 in violation of the instruction. She
negotiated the note to Julie who had
knowledge of the infirmity. Julie in turn
negotiated said note to Devi for value and
who had no knowledge of the infirmity. 1)
Can Devi enforce the note against Larry and
if she can, for how much? Explain. 2)
Supposing
Devi endorses the note to Baby
SUGGESTED ANSWER:
for
value
but
who
has knowledge
of the
1) Yes, Devi can
enforce
the negotiable
infirmity,
can
the
latter
enforce
the
promissory note against Larry in thenote
amount
against
Larry?
of P5,000.
Devi is a holder in due course
Page

and the breach of trust committed by Evelyn

cannot be set up by Larry against Devi
because it is a personal defense. As a holder
in due course, Devi is not subject to such
2)
Yes. Baby
is not a holder in due course
personal
defense.
because she has knowledge of the breach of
trust committed by Evelyn against Larry
which is just a personal defense. But having
taken the instrument from Devi, a holder in
due course, Baby has all the rights of a
holder in due course. Baby did not
participate in the breach of trust committed
by Evelyn who filled the blank but filled up
the instrument with P5,000 instead of
Parties;
in Due Course
P1,000Holder
as instructed
by(1996)
Larry (Sec 58 NIL)
What constitutes a holder in due
SUGGESTED
course? ANSWER:
A holder in due course is one who has taken
the instrument under the following
1
That it is complete and regular upon
conditions:
its face;
2
That he became holder of it before it
was overdue and without notice that it had
been previously dishonored, if such was the
fact;
3
That he took it in good faith and for
value;
4
That at the time it was negotiated to
him,
he
had no notice of any infirmity in the
SUGGESTED ANSWER:
instrument
in the
title
of the
1. Yes. Y or
candefect
recover
from
Pedro.
Pedro is an
person
negotiating
it.
(Sec
52,
NIL)
accommodation party. Absence of

consideration is in the nature of an

accommodation. Defense of absence of
consideration cannot be validly interposed by
accommodation party against a holder in due
course.

Page
Page
92
90 91
89
93
of 103
of 103
who
A
connives
gave
course
passenger,
hadhim
aof
certificate
with
the
her
Pietro.
note
B
work
by The
in
which
of
the
payment
public
heirs
plans
A of
of
convenience
for
WIC.
Pietro
offer
two
By
sued
for
cavans
herself
sale
toYellow
operate
some
ofand
rice.
Cab
thru
of
auto-trucks
AB
his
Company
associates,
therefore
securities
with
forpaid
she
and GH
Port
legislative
important
her
The
number
Area
funds
reorganized
to
franchise,
ofunder
Calamba,
from
demand
the
business
the
ifdrawee
Laguna.
letters
it meets
circumstances
activity
bank.
sent
To
allcarry
the
to
Thus,
ofGrace,
other
WWW
out
when
in all will
B
fixed
will
P1,00
purchased
damages,
routes
buyon
them
the
from
but
DOP
same
at
the
certain
astocks
certain
latter
date.
towns
available
refused
On
fixed
September
inprice,
Bulacan
to
at pay
the
with
the
stock
15,
requirements.
determining
faithfully
MTthem
Communications
of
Investment
itsunanswered,
obligation
his
There
course
presented
Inc.
is Dizon
nothing
of
would
EOL,
action
the
subcontracted
through
not
incheck
in
the
bethe
law
considered
afor
light
Makati
the
andexchange
2002,
heirs,
understanding
RizalEF
insisting
to Manila
discovered
priced
that
that
at
and
P20
italthough
that
within
is per
not
theshare.
liable
Manila.
note
there
because
of
When
AB was
norlaw
of
with
payment,
a
the
such
public
Enrico
firm,
Constitution,
factors
utility
Reyes
the
filed
drawee
requiring
the
a
aswhich
complaint
delivery
the
bank
a
indicates
degree
franchise
dishonored
of 400
for that
sacks
collection
of
or it.
aits
would
Firstly,
not
WIC's
Baldo
be
in
heis
his
tender
an
claimed
not
possession
apparent
its
offer
employee.
that
was
sale,
the
and
announced,
ordinance
Ahe
will
Resolve
went
retain
towas
with
DOP
AB.
the It
legislative
specificity,
of
the
Later
certificate
against
Soya
on,
franchise
Grace
the
bean
when
orextent
any
meal.
with
MT
other
is Investment
necessary
of
the
Aside
its
form
Regional
difference
from
ofor
sued
authorization
the
required
Trial
her,
from
Court
Eva
ANSWER:
beneficial
nullSUGGESTED
was
stocks
reasons.
andthen
void
jumped
ownership
(2%)
that
because,
EF
to P30
found
thereof.
among
per
out
share.
a)
other
that
Is the
AB
Thus
things,
had
OBit
forof
information
driver,
raised
from
anMakati.
entity
three
the
thegovernment.
to
male
generally
defense
Grace,
operate
employees
through
ofas
available
absence
Itsupplier
owns
of
her
Reyes
of
the
lawyer,
previously,
offacilities,
rode
filed a
Yellowamends
Cab
Company
shall
beof
liable
with EF
arrangement
in effect
already
earned
amade
sizable
lawful?
payment
hisprofit.
certificate
(3%)
on
Is
b) OB
the
If
the
liable
note.
public
salefor
Can
electric
and
on
consideration,
but
motion
the
itsdoes
truck
nature
power
tonot
with
dismiss
and
and
operate
the
reliability.
light
on
check
cargo.
the
them.
to its
ground
having
While
(Sec.
factory
the
30c,
been
that
and
truck
RSA)
EOL
issued
its (a)
Baldo,
on
apayment
basis,
for
the Public
death
of
Revocation
ofsecurity
Certificate
(1993)
3c.
The
person
may
be
liable
tothe
1)
aPhilippines
fine
of
materializes,
convenience,
still
breach
claim
and
what
asolidary
misuse
thing
is it
which
of
from
called?
confidential
AB?
only
(2%)
Why?
the
or(3%)
insider
employees
was
merely
was
on its
doing
as
way
living
to
business
within
Laguna
for
the
the
two
in
compound.
ring
strangers
that
she could
SUGGESTED
ANSWER:
SUGGESTED
ANSWER:
passenger
Pietro.
Baldo
is
an
employee
of
Certificate
of
Public
inseparability
of of the
B. As Commission
a sequel
to the
same
facts
narrated
1)
Robert
aConvenience;
holder
of was
a
certificate
public
not
less
than
P5th
nor
more
than
P500th
or
Service
information
gained
can
from
do her
under
employment?
Sec
16 (m) Is
suddenly
not
without
sell.
stopped
Does
a is
license
Eva
the
have
and
truck
a and
valid
therefore
hijacked
defense?
barred
No.
Eva
doesto
not
have
aa valid
defense.
First,
a)
No.
The
arrangement
is
not
lawful.
It is
Yellow
Cab
under
the
boundary
system.
certificate
and
vessel
(1992)
above,
EF,
out
of
ABto
who
had
convenience
taxicab
service
in
2) imprisonment
ofoperate
not
less
than
years
nor
of the
she
Public
also
liable
Service
forpity
damages
Act.for
Under
said
sellers
section,
or As
cargo.
Explain.
from
Investigation
bringing
suit
by the
and
police
(b)7disclosed
violated
the
MT
Investment
is
a
holder
in
due
course
an
artificial
manipulation
of
the
price
of
such,
the
death
of
passenger
Pietro
is
Antonio
was
granted
a
Certificate
of
Public
already
paid
P1,000.00
to
GH,
decided
to is
Manila
suburbs.
One
evening,
one
more
than
21
3) or
both
such
fine
and
thebuyers
Commission
with whom
is empowered
she traded?
to amend,
If so, what
that
Securities
one
ofand
theyears,
Regulation
hijackers
was
Code
armed
by with
selling
aof his
or
SUGGESTED
ANSWER:
and,
as
such,
holds
the
postdated
check
free
securities.
This
is
prohibited
by
the
breach
of
contract
of
carriage,
making
both
Convenience
(CPC)
in
1986
to
operate
a
forgive
AB
and
instead
go
after
CD
who
taxicab
units
was
boarded
by
three
robbers
imprisonment
the
the
court. the
modify,
the
measure
or revoke
of
asuch
certificate
damages?
of public
Explain
bladed
offering
weapon
toinwhile
selldiscretion
the
securities
other of
was
within
(Hernandez
v. carrier
Dolor,
G.R,
No.b)to
160286,
July
30,
OB
anRegulation
insider
(as
defined
in
Subsection
from
any
defect
of title
of
prior
parties
and
Securities
Code.
Ifhim.
the
sale
If
the
person
is
a after
corporation,
partnership,
the is
common
Yellow
Cab
and
its
ferry
between
Mindoro
and
Batangas
using
indorsed
the
note
in
blank
Is
CD
still
as
they
escaped
staging
a the
hold-up.
convenience
briefly.
(5%)
after
notice
and
hearing.
unarmed.
Philippines
For
failure
without
toregistering
deliver
the
400
securities
2004)
3.8(3)
of
the
Securities
Regulation
Code)
from
defenses
available
toLTFRB
prior revoked
parties
materializes,
it
is
called
a
wash
sale
or
association
or
other
juridical
entity,
the
employee,
Baldo,
solidarily
liable.
the
motor
vessel
MV
Lotus.
He
stopped
liable
to
EF
by
virtue
of
the
indorsement
in
Because
of
said
incident,
the
Secondly,
he
contended
that
even if of
the
sacks,
withFairgoods
the Philippine
sued Dizon
SEC for
anddamages.
thus came to
Carriage;
Breach
of employee
Contract;
Presumption
SUGGESTED
ANSWER:
since she
is an
of the Bank,
the
among
themselves.
Eva
can
invoke
the
simulated
sale.
penalty
shall
be
imposed
upon
the
officers
of
operations
in
1988
due
to
unserviceability
of
blank?
Why?
(2%)
the
certificate
of
public
convenience
of
ordinance
was
valid,
itPurpose
is only(1998)
the
Dizon
court
in turn
with
setunclean
up a 3rdhands.
party complaint
EOL opposed
Negligence
(1990)
Securities
Code;
A. No.Regulation
EF
cannot
claim
financial
adviser
of
DOPpayment
, and thisfrom AB.
defense
ofthe
absence
ofthat
consideration
the
corporation,
etc.
responsible
for
the
vessel.
In
1989,
Basilio
was
granted
aagainst
Robert
on
ground
said
operator
Commission
which
can
require
against
the
motion
Reyes
to
which
dismiss,
the
latter
contending
registered
that
on
it
had
Peter
so
hailed
a
taxicab
owned
and
SUGGESTED
ANSWER:
What
purpose
ofcompliance
laws
and
EF is
is the
not principal
a holder
of
the
promissory
note. To
relationship
gives her
access
to
material
MT
only
ifproper
the
latter
privy to
violation.
And
ifthe
such
officer
is was
an
alien,
CPC
forInvestment
the
same
route.
After
a and
few
months,
to
render
safe,
adequate
with
its
provisions
under
Sec
17
(j)
of said
thefailed
never
ground
established
that
loss
a an
physical
was
due
presence
to
force
in the
operated
by
Jimmy
Cheng
and
driven
by
No.
The
hijacking
in
this
case
cannot
be
regulations
governing
securities
in
the
make
the
presentment
for
payment,
it
isthe
information
about
the
issuer
(DOP)
and
the
purpose
for
which
the
checks
were
he
shall,
in
addition
to
the
penalties
discovered
that
Carlos
was
operating
on
service
as required
under
Sec
19a
of
the
Act
and
since
the
implementation
of
the
majeure.
Philippines,
Did
the
and
hijacking
that
all
constitute
ofone
the
force
activities
SUGGESTED
ANSWER:
Hermie
Cortez.
Peter
asked
Cortez
to
take
considered
force
majeure.
Only
of
the
Philippines?
(2%)
necessary
to
exhibit
the
instrument,
which
latter's
securities
(shares),
which
issued
and,
therefore,
not
a
holder
in
due
prescribed,
be
deported
without
further
hisrelated
routeto
under
Antonios
CPC.
Because
Public
Service
Act.Reyes
a)
Was
the
revocation
of
ordinance
was
without
sanction
orthe
approval
majeure
to
exculpate
plaintiffs
trading
from
in
U.S.
any securities
The
principal
purpose
of
laws
and
SUGGESTED
ANSWER:
him
to his
office
ingenerally
Malate.
waytotothe
two
hijackers
was armed
with
EF
cannot
do
he isOn
not
in
information
isbecause
not
available
course.
Second,
it isfor
not
aa bladed
ground
for the
proceedings
service
ofillegal
sentence.
(Sec
Basilio
filed
aafter
complaint
operations
the
certificate
of
public
convenience
of
of
the
Commission,
its
enforcement
was
liability
all
transpired
to
Dizon?
outside
Discuss
the
fully.
Philippines.
If
you
regulations
governing
securities
in
the
The
grounds
of
the
motion
to
dismiss
are
Malate,
the
taxicab
collided
with
a
weapon.
As
against
the
4
male
employees
of
Insider
Trading;
Manipulative
Practices
(1994)
possession
thereof.
(j)
of
the
Public
Service
Act
it
is
only
the
public. Accordingly, OB is guilty of insider
discharge
of theIndustry
postdated
check
as
against
56
RSA)
with
the
Maritime
Authority,
Robert
justified?
Explain.
b)motion
Whenbusiness
candismiss
the in Philippines
unauthorized
and
illegal.
1)
May
the
reliance
are
the
judge,
decide
to
is jeepney,
to
protect
public
against
B.
No, because
CDcan
negotiated
SUGGESTED
ANSWER:
both
EOL
isthe
not
doing
passenger
asthe
a
result
ofSecurities
which
Reyes,
2auntenable.
hijackers,
with
only
one
of
them
1)
Give
case
where
a person
who
is
not
an
Commissioner
which
require
trading
under
Section
27
of thethe
a
holder
in
due
course
that
it
was
issued
Antonio
and
Carlos
jointly
filed
an
Commission
(Board)
exercise
its
power
to
of
X
on
Section
16
(m)
of
the
Public
Service
by
ruling
on
the
respective
contentions
of
the
nefarious
practices
of
unscrupulous
OB
is was
alsowith
liable
for
damages
tothe
sellers
1a)
No.
A single
incident
does
instrument
by the
delivery.
the
Philippines,
and
it only
did
not which
violate
the compliance
Peter
injured,
i.e.,
he
fractured
his or
left
being
armed
with
ahold-up
bladed
weapon,
cannot
issuing
corporation,
director
or officer
provisions
of
Regulation
Code,
which
requires
disclosure
merely
as
security.
The
grounds
for
the
application
for
sale
and
transfer
Antonios
suspend
or
revoke
certificate
ofofpublic
Act
be sustained?
Explain.
2)damages,
Was
X correct
the
parties
onbecause
the
basis
the selling
facts
brokers
and
salesmen
in selling
securities.
SUGGESTED
ANSWER:
buyers
with
whom
she
traded.
Under
not
link
Roberts
taxicab
cannot
be
Securites
Act,
it
was
not
leg.
Peter
sued
Jimmy
for
based
be
considered
force
majeure.
The
hijackers
thereof,
or
a
person
controlling,
controlled
ordinance?
Explain.
when
trading
in
securities.
discharge
of negotiable
instruments
CPC
and substitution
of the vessel
MV that are
convenience?
Securities;
(1996)
in his
contention
that
under
Section
17 won.
above.
(10%)
Place
ofaDefinition
Payment
(2000)
1)
No.
The
power
vested
the
Public
Subsection
63.1
of carriage,
thein
Securities
Regulation
construed
that
he
rendered
aof
service
is
securities
in
the
country.
upon
contract
of
and
Peter
didpresented
not
act
with
grave
or irresistible
threat,
by
or
under
common
control
with
the
issuing
those
set
forth
in
Sec
119
the
NIL and
Lotus
with
another
owned
by
Carlos.
Should
Define
securities
Carriage;
Liability;
Lost
Baggage
or
Acts
of
Passengers
The
contention
of
EOL
is
correct,
because
it
PN
is
the
holder
of
a
negotiable
promissory
SUGGESTED
ANSWER:
Service
Commission
under
Sec
16m
isbe an
Code,
the
damages
awarded
could
unsafe,
inadequate
and
improper
(Manzanal
Jimmy wanted to challenge the decision
violence
or those
force.
corporation,
isCarlos
also
considered
an insider.
none of
grounds
are
available
SUGGESTED ANSWER:
Antonios
and
joint
application
beto Eva.
(1997)
never
did
any
business
in
the
Philippines.
All
The
joint
application
of
Antonio
and
Carlos
note
within
the
meaning
of
the
Negotiable
subordinate
to
the
authority
of
the
City
amount
not
exceeding
triple
the
amount
v
Ausejo
164
s
36)
before
the SC
on the
ground that
theof
trialof
2)
In
Securities
Law,
what
is a shortswing
The
latter
may
not
unilaterally
discharge
Stocks,
bonds
notes,
convertible
debentures,
approved?
Giver
your
reasons.
Parties;
Holder
in
Due
Course
(1998)
1b)
Under
Sec
19a
of
the
Public
Service
Act,
1997
(15)
Antonio,
a
paying
passenger,
for
its
the
sale
transactions
and
transfer
of
in
Antonios
question
CPC
were
Instruments
Law
(Act
2031).
The
note
was
Manila
under
Sec
18
(hh)
of
its
revised
the
transaction
plus
actual
damages.
court
erred
in not
making an
express
finding
transaction.
3) In insider
trading,
what
ismere
a
herself
from
her
liability
byfor
the
warrants
or
other
documents
that
represent
SUGGESTED
ANSWER:
SUGGESTED
X
makes
ANSWER:
a
promissory
note
P10,000
the
Commission
(Board)
can
suspend
or
boarded
a
bus
bound
for
Batangas
City.
He
consummated
outside
the
Philippines.
and
substitution
of
the
vessel
MV
Lotus
originally
issued
by
RP
to
XL
as
payee.
XL in
charter
to
superintend,
regulate
or
control
Exemplary
damages
may
also
be
awarded
as
to
whether
or
not
Jimmy
was
responsible
fact
of special of
significance?
expediency
withdrawing
her
funds
from
a
in a
company
or
athe
debt
owned
by va by
IXL.
will
counsel
Jimmy
to
desist
from
Tender
Offer
(2002)
1)
It another
may
a the
case
where
ato
person,
whose
The
note
mentions
ofbought
payment
payable
to
A,
afront
minor,
help
him
buy
revoke
abecertificate
of row,
public
convenience
chose
a seat
at
near
the
bus
with
vessel
owned
by
the
transferee
indorsed
the
note
to
PN
forplace
goods
theshare
streets
of
the
city
of
Manila.
(Lagman
case
of collision
bad
faith,
fraud,
malevolence
or to
for
the
and,
hence,
civilly
liable
the
drawee
bank.
(State
Investments
v for
CA
company
or
government
entity.
Evidences
of
challenging
thes decision.
The
action
of
Peter
2002
(6)
relationship
or
former
relationship
to
on
specified
maturity
date
as powers
the
office
school
books.
A bus
endorses
the
to
B
when
the
operator
fails
to certificate
provide
service
driver,
and
told
the
driver
thatnote
heahad
should
not
be
approved.
The
of the
City
ofthe
Manila
17
579)
2)
No.
The
wantonness
in the
violation
the
Securities
Peter.
He
went
to
see
you
forof
advice.
What
GR
101163,
Jan
11,
93
217s32).
obligations
to
pay
money
or
of
rights
to
being
based
on
culpa
contractual,
the
A.
What
isor
ain
tender
offer?
issuer
gives
gave
him
access
to
a fact
of C
of
the
corporate
secretary
of PX
Bankrules.
value,
who
turn
endorses
the
note
to C.
that
isitems
safe,
proper
or
adequate,
and
refuses
valuable
in
hisand
hand
carried
bag
public
convenience
MV
Lotus
are
conferred
by
law
upon
theimplementing
Public
Service
Regulation
Code
or
its
will
you
tell
him?
Explain.
in
earnings
and
distribution
oftheRP
carriers
negligence
is ON
presumed
upon
B.
Insignificance
instances
is
adrivers
offer participate
special
about
issuer
or the
during
banking
hours.
maturity
date,
knows
Awhat
isany
aplaced
minor.
Ifwhich
C the
sues
Xoftender
on
the
note,
to
render
service
can
be
which
he
then
beside
the
inseparable.
The
unserviceability
the
Commission
were
not
designed
to
deny
or
The court is also authorized to award
corporate
assets.
Instruments
giving
to
their
breach
of
contract.
The
burden
of
proof
required
be
made?
security
not
generally
available,
a
was
at the
aforesaid
office
ready
toof
pay
canNot
Xthat
settois
up
the
defenses
ofhad
minority
reasonably
demanded
furnished.
seat.
having
slept
forand
24 hours,
he or and
vessel
covered
by
the
certificate
supersede
thefees
regulatory
power
of
local
attorney's
not exceeding
30%
thethe
SUGGESTED
ANSWER:
legal
holders
rights
to
other
instead
onmoney
Jimmy
toin
establish
that
Insider
Trading
(1995)
Revocation
oflearns
Certificate
(Lagman
v would
City
oflie
Manila
17 up.
sor
person,
who
such
a fact
from
note
but
PN
did
not
show
What
PN later
lack of
consideration?
(3%)
requested
the
driver
to(1993)
keep
an
on any
the of
likewise
rendered
ineffective
theeye
certificate
governments
over
motor
traffic
the streets
award.
Yes.
A.
Tender
C
is
not
offer
a
holder
is
a
publicly
in
due
course.
announced
The
property;
they
are
therefore
instruments
despite
an
exercise
of
utmost
diligence
the
Under
the
Revised
Securities
Act,
it
is
579)
Pepay,
a
holder
of
a
certificate
of
public
the insiders,
knowledge
that
the legally
person
did was
to Sec
sue
XLoffor
face value
of the
bag
should
hewith
doze
off
duringmay
the not
trip.
While
itself,
and the
holder
thereof
subject
to their
control.
(Note:
2a
thethe
Revised
Securities
SUGGESTED
ANSWER:
promissory
intention
of Convenience;
note
a
person
isthe
acting
not
ato
negotiable
or
Public
utilities
(2000)
which
have
intrinsic
value
and
Certificate
of
Public
Requirements
collision
could
have
been
avoided.
unlawful
for
annot
insider
to
sell are
or buy
convenience,
failed
to
register
the
from
whom
he
learns
fact,
isalone
such
an in
note,
plus
interest
anddefine
costs.
Will
theasuit
Antonio
was
asleep,
passenger
took
transfer
the
same
to another
another.
(Cohon
v(1995)
CA
Act
does
not
really
the
term
Carriage;
of issuer
Contract;
of
Yes.
TheBreach
suit
will
prosper
as
far
as
SUGGESTED
ANSWER:
instrument
concert
with
asother
it is
does
persons
notSecurities
contain
to before
acquire
any
equity
word
2)
Abag
shortswing
transaction
where
a
WWW
Communications
an
e-commerce
recognized
and
used
as Inc.
such
in
the
regular
What
requirements
must
be
a her
security
of
the
ifPresumption
heis
knows
athe
factface
of
complete
number
ofa
units
required
by
insider
(Sec
par
(b)
Rev
Act)
prosper?
Explain.
(5%)
the
away30,
and
alighted
atmet
Calamba,
188
sOrdinarily,
719).
securities.)
Negligence
(1997)
Yes.
the
common
carrier
is
not
value
of
the
note
is
concerned,
but
not
with
of
securities
negotiability,
of
a
public
that
is,
company.
order
or
It
bear,
may
also
or
person
buys
securities
and
sells
or
disposes
channels
company
of
whose
commerce.
present
business
activity
is
certificate
of
public
convenience
may
be
special
significance
with
respect
to
the
certificate.
However,
she
tried
to
justify
such
2002
(18)
Equity
Online
Corporation
(EOL),
a
Laguna. Could the common carrier be held
Securities;
Sellingcase
of Securities;
Meaning
(2002)
In
a court
involving
claims
for
damages
liable
for
acts
of
other
passengers.
But
the
respect
tothe
thesecurity
interest
due
subsequent
to of
words
be
defined
of the
similar
as
a
method
meaning
ofallegedly
ortaking
import.
over
Not
a
of
the
same
within
a
period
of
six
(6)
limited
to
providing
its
clients
with
all
types
granted
under
the
Public
Service
Act?
issuer
or
that
is
not
generally
failure
by
accidents
that
befell
New
York
corporation,
has
a
securities
liable
byANSWER:
Antonio
for the loss?
arising
from
death
and
injury
ofIt
bus
ALTERNATIVE
ANSWER:
SUGGESTED
common
carrier
cannot
relieve
from
the
maturity
of the
note
and the
costs
being
company
a
holder
by asking
in due
stockholders
course,
C isto
to
sell
subject
their
months.
information
technology
hardware.
plans
available,
without
such
fact of
totothe
her, claiming
that
she
was
soitself
shocked
and
brokerage
service
on disclosing
the
Internet
after
2)
It
is
a
purchase
by
any
person
for
the
passengers,
counsel
for
the
bus
operator
Theshares
following
are
the
requirements
for
the
liability
if
the
common
carriers
employees
collection.
RP
was
ready
and
willing
to pay
such
personal
at
a
price
defenses
higher
of
minority
than
the
and
current
lack
re-focus
its
corporate
direction
of
gradually
other
party.
3.a)
What
does
the
term
burdened
by
the
successive
accidents
and
obtaining
all
requisite
U.S.
licenses
and
ALTERNATIVE
B.
Instances
where
tender
offer
is
required
issuer
or of
any
person
controlling,
controlled
files
a demurrer
toused
that the
granting
aANSWER:
certificate
ofparticular
public
could
have
prevented
or
omission
by
the
note
at
theinto
specified
place
of payment
of
market
consideration.
price
andshe
on
Cthe
is
adid
aact
mere
assignee
date.
whoto be
converting
itself
aevidence
full
convergence
insider
mean
as
in
thearguing
Revised
misfortunes
that
not
know
what
she
permits
to do
so.
EOL
s
website
X
cannot
set
up
the
defense
of
the
minority
a)
The
person
intends
to
acquire
15%
or
made:
by,
or
under
common
control
with
the
issuer,
complaint
should
be
dismissed
because
the
convenience,
to
wit:
a)
The
applicant
must
exercising
due
diligence.
In this and
case,thrown
the
on the specified
maturity
butby
PN
is
subject
toshe
all was
defenses.
organization.
Towards
this objective,
the
Securities
act?
3.b)
When
is
a fact
was
doing,
confused
off
(www.eonline..com),
which
isdate,
hosted
a did
of
A.
Defense
of
minority
is
available
to
the
the
equity
share
of
a
public
company
more
a
corporation,
co-partnership
or
or
a
purchase
subject
to
the
control
of
the
plaintiffs
did
not
submit
any
evidence
that
be
a
citizen
of
the
Philippines,
or
passenger
asked
the driver
to keepshe
analways
eye
not show
lost
hisInternet
right
tousers
recover
company
hasup.
been
aggressively
acquiring
considered
toPN
be
of special
significance
tangentonly.
momentarily,
although
server
in Florida,
enables
to the
defense
is
not
available
to among
towhich
anSuch
agreement
made
between
association
organized
under
the
laws
ofinor
issuer
orpursuant
any
such
person,
resulting
the
operator
or its
employees
were
on minor
the
bag
was
placed
beside
the
interest
due
subsequent
to
the
maturity
of
telecommunications
businesses
and
broadcast
under
the
same
Act?
3.c)
What
are
the
had
the
money
and
financial
ability
to
buy
trade
on-line
in securities listed in the
SUGGESTED
ANSWER:
X.
person
and
one
or
more
sellers.
the
the Philippines
and
least
60%
of
the of
beneficial
ownership
ofat the
more
than
10%
negligent.
If ayou
were
the
judge, would
you
drivers
seat.
Ifand
the
driver
exercised
due
the
note
and
the
costs
ofthe
collection.
media
enterprises,
and
consolidating
their
liabilities
of
person
who
violates
the
new
trucks
repair
destroyed
one.
various
stock
exchanges
in
U.S.
EOL
buys
No. In the
carriage of passengers, the
Xstock
cannot
set
the
defense
against
C. Lack
Carriage;
&up
Valid
Stipulations
(2002)
b)Prohibited
The
person
intends
to
acquire
30% orSUGGESTED
ANSWER:
ANSWER:
of
paid-up
capital
of
which
must
anySUGGESTED
class
of
shares
(Sec
32
RPepay
Sec
Act)
dismiss
the
complaint?
diligence,
he
could
have
prevented
the
loss
corporate
structures.
The
ultimate
plan
is to
pertinent
provisions
ofcarrier
the
Revised
Are
the
reasons
given
by
sufficient
and
sells
U.S.
listed
securities
forto
the
failure
of
the
common
bring
of
consideration
is
a
personal
defense
which
3)
In
insider
the
equity
trading,
shares
a
of
fact
a
public
of
special
company
within
3a.
Insider
means
1)
the
issuer,
2) a the
No.
The
reasons
given
by
Pepay
are
not
more
of
Discuss
whether
or
not
the
following
belong
to citizens of the Philippines. (Sec
of the
bag.
have
only
two
organizations:
one
to
own
the
Securities
Act
regarding
the
unfair
use
of
grounds
to
excuse
her
from
completing
Certificate
of
public
Convenience
(1998)
accounts
of
its
clients
all
over
the
world,
who
passengers
safely to
destination
is16a,
only
available
between
immediate
parties
period
of
significance
in
addition
to
being
director or officer
of,their
or a person
controlling,
b) sufficient
The
a
applicant
must
public
grounds
tomonths.
excuse
her
from
stipulations
in
ais,
contract
ofprove
carriage
of a
CA
146,
as 12
amended)
facilities
of
the
combined
businesses
and
to
inside
information?
units?
Explain.
The
Batong
Bakal
Corporation
filed
with
convey
their
buy
and
sell
instructions
to
EOL
immediately
raises
the
presumption
that
or against
parties
who
are
notsum
holders
in due
c)
The
person
intends
to
acquire
c) completing
1
The
a
stipulation
applicant
limiting
must
prove
the
that
that
the
may
be
necessity.
material,
such
fact
as
would
likely,
on
being
controlled by, or under common control the
her
units.
The
same
could
be
common
carrier
are
valid:
develop
and
produce
Board
of Energy
ancontent
forcarriers
a and
through
the
Internet.
EOL
hasmaterials,
no
offices,
such
is attributable
to
the
course.
Cs
knowledge
that
A
is
a
minor
does
equity
shares
of
a or
public
company
that
operation
recovered
of
by
the
the
shipper
service
owner
proposed
toother
90%the
of
the
made
generally
available,
to
affect
with, failure
the
issuer,
3)
aapplication
person
whose
undertaken
bypublic
her
children
or
by
another
to
operate
the
facilities
and
provide
Certificate
of
Public
Convenience
for
employees
or
representatives
outside
fault
or
negligence.
In
the
case
at
bar,
the
not
prevent
C
from
being
a
holder
in
due
would
result
ownership
of
more
than
andauthorized
value
the
of
authorization
the goods
case
to
doofbusiness
loss
will
toPub
theft.
market
price
of ainin
security
to(Sec
adue
significant
relationship or former relationship the
to the
the
representatives
16n
mass
media
and
commercial
purpose
of
supplying
electric
power
and
U.S.
The
website
has
icons
for
many
fact
of
death
and
injury
of
the
bus
course.
C
took
the
promissory
note
from
a
50%
ofHalili
the a
said
shares.
promote
2
aor
stipulation
the
public
that
in the
in asevent
proper
and
loss,
extent,
which
reasonable
person
issuer gives or gave him access to a fact of
Serv
Act;
vinterest
Herras
10
769)of would
telecommunications
services.
WWW
lights
tosignificance
the
factory
and
its
employees
living
countries,
including
an
icon
For
Filipino
Parties;
Holder
in Due
Course
(1996)
passengers
raises
the
presumption
oforfault
d)
The
applicant
beoffinancially
holder
for
value,
B.must
suitable
destruction
manner.
or
deterioration
(Sec
16a
CA
146
goods
as
on account
consider
as
especially
important
under
the
special
about
the
issuer
the
Parties;
Holder
in
Due
Course;
Indorsement
in
blank
Communications
will
be
the
flagship
entity
within
the
compound.
The
application
was
Traders
containing
the
days
prices
of
U.S.
1996
2.2)
Eva
issued
to
Imelda
a
check
in
or
negligence
on
the
part
of
the
carrier.
The
capable
of
undertaking
the
proposed
service
amended)
of
the
defective
condition
of
the
vehicle
used
in
circumstances in determining his course of
security that is not generally available, or
4)
which
will must
own
the
facilities
ofU.S.
the
by
the
Bulacan
Electric
Corporation
listed
securities
expressed
in
dollars
andof
theopposed
amount
of
P50th
post-dated
Sep
30, any
carrier
rebut
such
presumption.
and(2002)
meeting
the
responsibilities
incident
to
the
contract
of
carriage,
the
carriers
liability
is
action
in
the
light
of
such
factors
as
the
a
person
who
learns
such
a
fact
from
Insider
(2004)
AB
issued
a promissory
note
for P1,000
conglomerate
and
provide
content
toproperly
the
contending
that
the
Batong
Bakal
Philippine
peso
equivalent.
Grace
1995,
as
security
for
a
diamond
ring
to
beother
Otherwise,
the
conclusion
be
its A.
operation.
limited
to
of the goods
appearing
in the their
degree
ofthe
itsvalue
specificity,
the
of its
the
foregoing
insiders
withcan
knowledge
that
Ms.ofOB
was
employed
in
MASextent
Investment
Carriage;
Fortuitous
Event
(1995)
Boundary
System
(2005)
payable
to
CD
or
his
order
on
September
new
corporation
which,
in
turn,
will
operate
3b.
It
is
one
which,
in
addition
to
being
Powers
the
Public
Service
Commission
(1993)
Corporation
has
not
secured
a
franchise
to
Gonzales,
a resident
of Makati,
is1995,
a regular
sold
on
commission.
On
Sep
15,
made
that
the
carrier
failed
to
exercise
bill
of
lading
unless
the
shipper
or
owner
difference
from
information
generally
the
person
from
whom
he
learns
the
fact
is
SUGGESTED
ANSWER:
Bank.
WIC,
adriver
medical
company,
M.
Dizon
Trucking
entered
into
a
hauling
Baldo
is
a
of drug
Yellow
Cab
Company
15,
2002.
CD
indorsed
the
note
in
blank
and
those
facilities
and
provide
the
services.
WWW
Manipulative
Practices
(2001)
material,
would
be
likely
to
affect
the
operate
and
maintain
an
electric
plant.
Is
the
The
City
of
Manila
passed
an
ordinance
customer
of
the
website
and
has
been
Imelda
negotiated
the
check
to
MT
extraordinary
diligence
as
required
by
law.
declares
a previously,
higher valueand
(5%) its nature and
available
such
an
insider
(Sec
30b,
RSA)
No. A certificate
of public
convenience
may
retained
the
Bank
totoassess
whether
it
isnote
contract
with
Fairgoods
Co
whereby
the
under
the
boundary
system.
While
cruising
delivered
the
same
EF.
GH
stole
the
Communications
seeks
your
professional
Suppose
A
is
the
owner
of
several
inactive
market
price
of
a
security
to
a
significant
oppositions
contention
correct?
(5%)
banning
provincial
buses
from
the
city.
The
purchasing
and
selling
securities
through
investment
which
paid the
amount
of P40th
reliability
(Sec
30
paractender
RSecAct)
be granted
to Batong
Bakal
Corporation,
desirable
toand
make
offer for
DOP
former
bound
itself
tothe
haul
the
latters
along
the
South
Baldos
from EF
onExpressway,
September
14,
2002
advice
SUGGESTED
on
ANSWER:
whether
or
not
itsring,
reorganized
securities.
To
create
anas appearance
of cab EOL
extent
on
being
generally
available,
or
ordinance
was
challenged
invalid
under
with
the
use
ofmade
her
American
Express
to her.
Eva
failed
to
sell
so
she 2000
though
not
possessing
a
company,
a
drug
manufacturer.
OB
sacks
of
Soya
bean
meal
from
Manila
figured
in
a
collision,
killing
his
itfor
to such
AB
payment.
When asked
business
activity
would
be
considered
a public
active
trading
securities,
onecard.
which
aImelda
reasonable
person
would
thepresented
Public
Service
Actfor
by
X
credit
Grace
hason
never
traveled
outside
returned
it to
Sep
19,
1995.
overheard
theCD
by AB, GH in
said
utility
requiring
a franchise
orEva
certificate
or
consider
especially
the
Philippines.
After
series
of
erroneous
Unable
to retrieve
heracheck,
withdrew
any other
form
authorization
from the
stock
picks,
sheof
had
incurred a net
government. What
will be your
advice?
indebtedness
of US$30,000.
with
EOL, at
Explain
(5%)
which time she cancelled her American
Express credit card. After a
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Public Service Law

Transportation
Law
Securities
Regulation

Mercantile Law Bar Examination Q & A (1990-2006)

turned out that the ticket was inadvertently

cut and wrongly worded. PAL employees
manning the airports ground services
nevertheless scheduled her to fly two hours
later aboard their plane. She agreed and
arrived in Hongkong safely. The aircraft used
by Far East Airlines developed engine
trouble, and did not make it to Hongkong
but returned to Manila. Vivian sued both
airlines, PAL and Far East, for damages
SUGGESTED ANSWER:
because of her having unable to take the Far
(per dondee) No, there was breach of
East flight. Could either or both airlines be
contract and that she was accommodated
held liable to Vivian? Why? (6%)
well with the assistance of PAL employees
to take the flight without undue delay.
Common Carrier; Defenses (2002)
Why is the defense of due diligence in the
selection and supervision of an employee
not available to a common carrier? (2%)
SUGGESTED ANSWER:

The defense of due diligence in the selection

and supervision of an employee is not
available to a common carrier because the
degree of diligence required of a common
carrier is not the diligence of a good father
of a family but extraordinary diligence, i.e.,
diligence of the greatest skill and utmost
Common
Carrier; Defenses; Fortuitous Events (1994)
foresight.
Marites, a paying bus passenger, was hit
above her left eye by a stone hurled at the
bus by an unidentified bystander as the bus
was speeding through the National Highway.
The bus owners personnel lost no time in
bringing Marites to the provincial hospital
where she was confined and treated.
Marites wants to sue the bus company for
damages and seeks your advice whether she
SUGGESTED ANSWER:
can legally hold the bus company liable.
Marites can not legally hold the bus
What will you advise her?
company liable. There is no showing that
any such incident previously happened so as
to impose an obligation on part of the
personnel of the bus company to warn the
passengers and to take the necessary
precaution. Such hurling of a stone
constitutes fortuitous event in this case. The
Common
Carrier; Defenses;
Liability (1998)
bus company
is not anLimitation
insurer.of(Pilapil
v CA
X
took
a
plane
from
Manila
bound
for Davao
180 s 346)
via Cebu where there was a change of
planes. X arrived in Davao safely but to his
dismay, his two suitcases were left behind in
Cebu. The airline company assured X that
the suitcases would come in the next flight
but they never did. X claimed P2,000 for the
loss of both suitcases, but the airline was
willing to pay only P500 because the airline
ticket stipulated that unless a higher value
was declared, any claim for loss cannot
SUGGESTED ANSWER:
exceed P250 for each piece of luggage. X
reasoned out that he did not sign the
stipulation and in fact had not even read it.

Page 95 of 103 X did not

Pagedeclare
94 of 103
a greater
despite
the fact
the clerk had
1 value
The
stipulation
is that
considered
called his attention
to the
stipulation
in the
unreasonable,
unjust and
contrary
to public
ticket.
Decide
the1745
case of
(5%)
policy
under
Article
the Civil Code.
2 SUGGESTED
The ANSWER:
stipulation limiting the carriers
Even
if he
notof
sign
ticket,
X is bound
liability to
thedid
value
thethe
goods
appearing
by
the
stipulation
that
any
claim
for
loss
in the bill of lading unless the shipper or
cannot
exceed
P250 for
eachisluggage.
He
owner
declares
a higher
value,
expressly
did not declare
a higher
value.
X is entitled
recognized
in Article
1749 of
the Civil
Code.
to P500 for the two luggages lost.
Common
Carrier;ofDefenses;
of Liability (2001)
Carriage;
Valuation
Damaged Limitation
Cargo (1993)
Supposethirteen
A was riding
airplane
of a
A shipped
pieceson
ofan
luggage
through
the accident
LGcommon
Airlinescarrier
from when
Teheran
to Manila as
happened
suffered
injuries. In
evidenced
byand
LG A
Air
Waybillserious
which disclosed
an
action
by
A
against
the
common
carrier,
that the actual gross weight of the luggage
the
latter
claimed
that
1)
there
was
a of
was 180 kg. Z did not declare an inventory
stipulation
in
the
ticket
issued
to
A
the contents or the value of the 13 pieces of
absolutely
exempting
carrier
luggage.
After
the saidthe
pieces
of from
luggage
liability
from
the
passengers
death
or to
arrived in Manila, the consignee was able
injuries
notices
posted
claim
fromad
the
cargo were
broker
only by
12 the
pieces,
common
the
with
a total carrier
weight dispensing
of 174 kg. with
X advised
the
extraordinary
of the
the 13
carrier,
and
airline
of the lossdiligence
of one of
pieces
of
2) A was
a discount
his plane
fare
luggage
andgiven
of the
contentson
thereof.
Efforts
reducing
the the
liability
of theluggage
common
of thereby
the airline
to trace
missing
carrier
with respect
particular.
Are
were
fruitless.
Since to
theA in
airline
faileda)to
thosewith
valid
defenses?
are the
the
comply
the
demand(1%)
of X b)
to What
produce
SUGGESTED
ANSWER:
defenses
available
to valid
any
common
to
missing
X filed
an action
forcarrier
breach
a) No.luggage,
These
are
not
defenses
because
limit
or
exempt
it
from
liability?
(4%)
of they
contract
with to
damages
against
are contrary
law as they
are in LG
Airlines.
In of
itsthe
answer,
LG Airlines
alleged
violation
extraordinary
diligence
that
the Warsaw
Convention
which
limits1757,
the
required
of common
carriers.
(Article
liability
theCivil
carrier,
if any, with respect to
1758 of
New
Code)
b) The
available
to any
common
cargo
to adefenses
sum of $20
per kilo
or $9.07
per
carrier
to limit
or exempt
it from
liabilityin
pound,
unless
a higher
value
is declared
of extraordinary
are:1 ANSWER:
advance
and observance
additional charges
are paid by
SUGGESTED
diligence,
Yes.
Unless
theand
contents
of a cargo
the passenger
the conditions
of are
the
2 or
or
proximate
of
the
declared
contents
acause
lost
contract
as the
setthe
forth
inofthe
air luggage
waybill,
incident
fortuitous
event or
force
are
proved
byis athe
satisfactory
evidence
expressly
subject
the
contract
of
the
majeure,
other
than
the self-serving
declaration
of
carriage
of cargo
to the Warsaw
Convention.
3
act
or omission
of the
shipper
or
one
contract
be
enforced
May party,
the the
allegation
ofshould
LG
Airlines
be
owner
of
the
goods,
as
it is the only
reasonable basis to arrive at
sustained?
Explain.
character
of the
or is
a just 4award.the
The
passenger
or goods
shipper
defects
in
the
packing
or
in
the
bound by the terms of the passenger ticket
Common
Carrier (1996)
and v Rapadas 209 s 67)
or the containers,
waybill.
(Panama
Define5a common
ordercarrier?
or act of competent public
SUGGESTED ANSWER:
authority, without the common carrier
A common
iseven
a person,
beingcarrier
guilty of
simplecorporation,
negligence
firm or(Article
association
engaged
1734, NCC). in the business
of carrying or transporting passengers or
goods or both, by land, water or air for
compensation, offering its services to the
public (Art 1732, Civil Code)
Common Carrier; Breach of Contract; Damages (2003)
Vivian Martin was booked by PAL, which
acted as a ticketing agent of Far East
Airlines, for a round trip flight on the
latters aircraft, from Manila-HongkongManila. The ticket was cut by an employee
p.m.
on The
05 January
2002 aboard
Far Easts
of PAL.
ticket showed
that Vivian
was
Flight
F007.
Vivian
arrived
at
the
Ninoy
scheduled to leave Manila at 5:30
Aquino International Airport an hour before
the time scheduled in her ticket, but was
told that Far Easts Flight F007 had left at
12:10 p.m. It

Mercantile Law Bar Examination Q & A (1990-2006)

person who wants to ride the same to signal

his intention to board. A public utility bus,
once it stops, is in effect making a
continuous offer to bus riders. It is the duty
of common carriers of passengers to stop
their conveyances for a reasonable length of
time in order to afford passengers an
opportunity to board and enter, and they are
liable for injuries suffered by boarding
passengers resulting from the sudden
starting up or jerking of their conveyances
while they are doing so. Santiago, by
(Dangwa
Trans
Co v CAon95582
Oct 7,91of the
stepping and
standing
the platform
202s574)
bus, is already considered a passenger and
Common Carrier; Duty to Examine Baggages; Railway
is entitled to all the rights and protection
and Airline (1992)
pertaining to a contract of carriage.
Marino was a passenger on a train. Another
passenger, Juancho, had taken a gallon of
gasoline placed in a plastic bag into the
same coach where Marino was riding. The
gasoline ignited and exploded causing injury
to Marino who filed a civil suit for damages
against the railway company claiming that
Juancho should have been subjected to
inspection by its conductor. The railway
company disclaimed liability resulting from
the explosion contending that it was
unaware of the contents of the plastic bag
and invoking the right of Juancho to privacy.
a) Should the railway company be held liable
for
damages?
SUGGESTED
ANSWER:b) If it were an airline
company
would your
answer
befor
the
a) No. Theinvolved,
railway company
is not
liable
same? Explain
briefly. transportation, the
damages.
In overland
common carrier is not bound nor empowered
to make an examination on the contents of
packages or bags, particularly those
handcarried by passengers.
b) If it were an airline company, the common
carrier should be made liable. In case of air
carriers, it is not lawful to carry flammable
materials in passenger aircrafts, and airline
companies may open and investigate
suspicious packages and cargoes (RA 6235)
Common Carrier; Test (1996)
What is the test for determining whether or
not one is a common carrier?
SUGGESTED ANSWER:

The test for determining whether or not one

is a common carrier is whether the person
or entity, for some business purpose and
with general or limited clientele, offers the
service of carrying or transporting
passengers or goods or both for
Common
Carriers; Defenses (1996)
compensation.
1) AM Trucking, a small company, operates
two trucks for hire on selective basis. It
caters only to a few customers, and its
trucks do not make regular or scheduled
trips. It does not even have a certificate of
public convenience.

96 of 103 On one occasion, Reynaldo

contracted AM to transport for a fee, 100
sacks of rice from Manila to Tarlac.
However, AM failed to deliver the cargo,
because its truck was hijacked when the
driver stopped in Bulacan to visit his
a)
May Reynaldo hold AM liable as a
girlfriend.
carrier?
common
b)
May AM set up the hijacking as a
defeat
defense
to Reynaldos claim?
Page

SUGGESTED ANSWER:

a) Reynaldo may hold AM Trucking liable as

a common carrier. The facts that AM
Trucking operates only two trucks for hire
on a selective basis, caters only to a few
customers, does not make regular or
scheduled trips, and does not have a
certificate
the law
does not
distinguishare
between
of public
convenience
of no
one
whose
moment
as principal business activity is the
carrying of persons or goods or both and
anyone who does such carrying only as an
ancillary activity,

the law avoids making any distinction

between a person or enterprise offering
transportation service on a regular or
scheduled basis and one offering such
service on an occasional, episodic or
unscheduled basis, and

the law refrains from making a

distinction between a carrier offering its
services to the general public and one who
offers services or solicits business only from
a narrow segment of the general population

Common Carrier; Duration of Liability (1996)

A bus of GL Transit on its way to Davao
stopped to enable a passenger to alight. At
that moment, Santiago, who had been
waiting for a ride, boarded the bus.
However, the bus driver failed to notice
Santiago who was still standing on the bus
platform, and stepped on the accelerator.
Because of the sudden motion, Santiago
slipped and fell down suffering serious
SUGGESTED ANSWER:
injuries. May Santiago hold GL Transit liable
Santiago may hold GL Transit liable for
for breach of contract of carriage? Explain.
breach of contract of carriage. It was the
duty of the driver, when he stopped the bus,
to do no act that would have the effect of
increasing the peril to a passenger such as
Santiago while he was attempting to board
the same. When a bus is not in motion there
is no necessity for a

Mercantile Law Bar Examination Q & A (1990-2006)

sardines and kidnapped the driver and his

helper, releasing them in Cebu City only 2
days later.
Pedro Rabor sought to recover from
Alejandro the value of the sardines. The
latter contends that he is not liable
therefore because he is not a common
carrier under the Civil Code and, even
granting for the sake of argument that he is,
he is not liable for the occurrence of the
loss as it was due to a cause beyond his
SUGGESTED ANSWER:
control. If you were the judge, would you
If I were the Judge, I would hold Alejandro
sustain the contention of Alejandro?
as having engaged as a common carrier. A
person who offers his services to carry
passengers or goods for a fee is a common
carrier regardless of whether he has a
certificate of public convenience or not,
whether it is his main business or incidental
to such business, whether it is scheduled or
unscheduled service, and whether he offers
his services to the general public or to a
I will however, sustain the contention of
limited few (De Guzman v CA GR 47822
Alejandro that he is not liable for the loss of
27Dec1988)
the goods. A common carrier is not an
insurer of the cargo. If it can be established
that the loss, despite the exercise of
extraordinary diligence, could not have been
avoided, liability does not ensue against the
carrier. The hijacking by 3 armed men of the
truck used by Alejandro is one of such cases
Common
vs. Private
Defenses
(2002)
(De Guzman
v CA Carrier;
GR 47822
27Dec1988).
(Pedro de Guzman v CA L-47822 Dec 22,88
Name
two
(2)
characteristics
which
168s612)
differentiate a common carrier from a SUGGESTED ANSWER:
SUGGESTED
ANSWER: (3%).
private carrier.
b) AM Trucking may not set up the hijacking
Two (2) characteristics that differentiate a
as a defense to defeat Reynaldos claim as
common carrier from a private carrier are:
the facts given do not indicate that the same
1
A common carrier offers its service to the
was attended by the use of grave or
public; a private carrier does not.
irresistible threat, violence, or force. It
2
A common carrier is required to observe
would appear that the truck was left
extraordinary diligence; a private carrier is not so
unattended by its driver and was taken
required.
while he was visiting his girlfriend. ( Pedro de
Common
LiabilityDec
for Loss
(1991)
Guzman Carriers;
v CA L-47822
22,88
168 scra 612 ).
Alejandor Camaling of Alegria, Cebu, is
engaged in buying copra, charcoal, firewood,
and used bottles and in reselling them in
Cebu City. He uses 2 big Isuzu trucks for the
purpose; however, he has no certificate of
public convenience or franchise to do
business as a common carrier. On the return
trips to Alegria, he loads his trucks with
various merchandise of other merchants in
Alegria and the neighboring municipalities of
Badian and Ginatilan. He charges them
freight rates much lower than the regular
rates. In one of the return trips, which left
Cebu City at 8:30 p.m. 1 cargo truck was
loaded with several boxes of sardines, valued
at P100th, belonging to one of his customers,
Pedro Rabor. While passing the zigzag road
between Carcar and Barili, Cebu, which is
midway between Cebu City and Alegria, the
truck was hijacked by 3 armed men who took
all the boxes of

Page
Page
98 97
of 103
of 103
received
policy and
for shipment
therefore void
and and
contained
inexistent.
an entry
(Art. 1409[1],
indicating
Civil
transshipment
Code)
seemingly inadequate despite its efforts of
Trust Receipts
Liability
for Transportation,
estafa (1991)
in Hongkong. The President of JRT
improving
the Law;
same.
Pasok
Mr.
Noble,
as for
the the
President
ofto
ABC
personally received and signed the bill of
Inc.,
now
applies
issuance
it byTrading
the
Kabitand
System;
Agent of
theentries,
Registered
(2005)
IncTransportation
executed a trust
receipt inand
favor of BPI lading
despite
the
heOwner
delivered
Land
Franchising
Procopio
purchased
an
Isuzu
passenger
Bank
to
secure
the
importation
by
his
the corresponding check in payment of the
Regulatory Board of a certificate of public
jeepney
from Enteng,
a holder
company of
goods.
After release and freight.
The shipment
was delivered
at the of a
convenience
forcertain
the same
Manila-Tarlaccertificate
of but
public
convenience
for the
sale route.
of theCould
imported
the Inc.,
proceeds port
of discharge
the buyer
refused to
Manila
Bayangoods,
Bus Lines,
SUGGESTED ANSWER:
operation
of public
vehicle
fromthe
theprior
sale operator
were not rules
turned
over to BPI. accept
the anahaw
fansutility
because
thereplying
was the
invoke
against
(per
Dondee)
No,
Bus Lines,
Inc.,
SUGGESTED
ANSWER:
Baos
While
Procopio
Would
BPI
be Bayan
justified
filing
a case for no Calamba-Los
on-board bill of
lading,route.
and there
was
Pasok
Transportation,
Inc.? in
Why?
(6%)
BPI
would
be
justified
in
filing
a case for
cannot
invoke
the
prior
operator
rules
continued offering
jeepney
estafa against Noble?
transshipment
since thethe
goods
were for public
estafaPasok
under
PD 115 againstInc.
Noble.
The fact
against
Transportation,
because
transportin services,
did
have the
transferred
Hongkonghe
from
MVnot
Pacific,
that
the trust
wasRule
issued
in favor
such
Prior
or Oldreceipt
Operator
under
the of
of to
theMV
vehicle
transferred
theregistration
feeder vessel,
Oriental,
a motherin his
a bank,
instead
of applies
a seller,asto
secureofthe
Public
Service
Act only
a policy
name.
for himself
a
vessel.
JRTNeither
argued did
thathe
thesecure
same cannot
be
of theService
goods Commission
did not preclude
theimportation
law of the Public
to
certificate
of public because
convenience
considered
transshipment
both for its
thea application
the Trust
Receipt
issue
certificate ofofpublic
convenience
to Law.
a
operation.
theshipping
records of the Land
vessels
belongThus,
to theper
same
(PD operator
115) Under
any officer
or
second
whenthe
priorlaw,
operator
is
Transportation
Franchising
and Regulatory
company. 1) Was there transshipment?
employee
of a corporation
responsible for
rendering
sufficient,
adequate and
Board,
Enteng
remained
its
registered
owner
Explain 2) JRT further argued that assuming
ALTERNATIVE ANSWER:
the violation
of a and
trust
receipt
subject to
satisfactory
service,
who
in all is
things
and
operator.
One
day,
while
the
jeepney
was
that
there
was
transshipment,
it
cannot
be
The filing of a case for estafa under the
penal liability
thereunder
People
andthe
respects
is complying
with the(Sia
rulev and
traveling
southbound,
it
collided
with
a
tendeemed
to
have
agreed
thereto
even
if
it
penal provisions of the RPC would not be
166s655)
regulation
of the Commission. In the facts of
wheeler
truck
owned
by Emmanuel.
The
signed
the bill
of lading
containing
such but
justified. It has been held in Sia v People
Procopio
sued
Emmanuel
for damages,
the case at bar, Bayan Bus Lines service
driver
of the
truck
admitted
responsibility
because
it
was
made
known
to
the
(161 s 655) that corporate officers and entry
the latter moved to dismiss the case on the
became seemingly inadequate despite its
for the
accident,the
explaining
that the truck
lines
that
directors are not criminally liable for a shipping
SUGGESTED
ANSWER:
ground
thatfrom
Procopiostart
is not
the real party in
efforts of improving the same. Hence, in the
lost its
brakes.
was
prohibited
under
the owner
Registered
Owner;
Presumption
(1990)
1) Yes.
Transshipment
is
the
act
of
taking
violation
ofConclusive
said Code.
2 conditions
are transshipment
interest since he is not the registered
interest of providing efficient public
of
credit
and
that,
therefore,
it
no
Johnny
ownsbefore
a Saraoa jeepney.
Heofficer
asked his
cargo
out
of
one
ship
and
loading
it
in
required
corporate
may be letter
of the jeepney. Resolve the motionhad
with
transport
services,
the
use
ofa the
'priorprovision of intention
1 Van
There
must
be
specific
to
allow
transshipment
of
the
SUGGESTED
ANSWER:
neighbor
if he could
the
said
It
is
immaterial
whether
or
not
the
criminally
liable
for
anoperate
offense
committed
by another.
reasons. (3%)
operator'
and
the 'priority
of filing' rules
mandating
a corporation
to act or not to subject
Theperson,
motion
dismiss
should
cargo.
Is to
the
argument
tenable?
jeepney
under
Vansviz:
certificate
of public
same
firm,
or
entity owns
thebe
twodenied
the law
corporation;
shall isact;
untenable
n
this
case.
andVan agreed and, accordingly,
because
Procopio,
as201
thes real
Reason.
convenience.
vessels.
(Magellan
v CA
102)owner of the
Therehis
must
be anunder
explicit
statement in
2) No.
JRT is is
bound
the terms
the bill
jeepney,
thebyreal
partyof in
interest.
Johnny2registered
jeepney
Van
the
law
itself
that,
in
case
of
such
violation
by
of
lading
when
it
accepted
the
bill
of
lading
Procopio
falls
under
the
Kabit
system.
name. On June 10, 1990, one of the
a corporation,
the officers
and bumped
directors
with
full knowledge
of restriction
its contentsaswhich
However,
the legal
regards the
passenger
jeepneys operated
by Van
be personally
andtime,
criminally included
in Hongkong.
Kabit transshipment
system does not
apply in this case
Tomas.thereof
Tomas are
wastoinjured
and in due
liable
therefore.
Acceptance
under
suchat
circumstances
because the
public
large is not deceived
he filed
a complaint
for damages against Van
makes
bill of (Lim
ladingv.aCourt
binding
nor the
involved.
of contract.
Appeals, G.R.
and his driver for the injuries he suffered.
(Magellan
v Ca 201January
s 102) 16, 2002, citing
No. 125817,
The court rendered judgment in favor of
In
any event,
Procoprio
toG.R.
be "the
Baliwag
Transit
v. Courtisofdeemed
Appeals,
No.
Tomas and ordered Van and his driver, jointly
agent"
of
the
registered
owner.
57493,
and severally, to pay Tomas actual and moral
Trust
ReceiptsJanuary
Law; Acts7,
& 1987)
Omissions; Covered (2006) (First
The Sheriff levied on the jeepney belonging
Malayan Leasing v. Court of Appeals, G.R.
damages, attorneys fees, and costs.
What
or June
omissions
penalized
to Johnny but registered in the name of Van.
No.acts
91378,
9,1992;are
and
"F" Transit Co.,
under
the
Trust
Receipts
Law?
(2.5%)
Johnny filed a 3rd party claim with the
Inc. v. NLRC,
SUGGESTED
ANSWER: G.R. Nos, 88195-96, January
Commerce;
(2003)
Sheriff alleging ownership of the jeepney
27,
1994)
TheMaritime
Trust
Receipts Bareboat
Law (P.D.
No. 115)
For
the
transportation
its goods
cargoor
from the
levied upon and stating that the jeepney was
declares the failure to turnof
over
Port
of
Manila
to
the
Port
of
Kobe,
registered in the name of Van merely to
proceeds realized from sale thereof, as a Japan,
Osawaoffense
& Co.,under
chartered
bareboat
enable Johnny to make use of Vans
criminal
Art. 315(l)(b)
of M/V Ilog
Kabit System (2005)
of
Karagatan
Corporation.
M/V
Ilog
certificate of public convenience. May the
Revised Penal Code. The law is violatedmet a sea
Discuss
the kabit system in land
SUGGESTED
ANSWER:
accidentthe
resulting
in the
loss of to
the
cargo and
Sheriff proceed with the public auction of
whenever
entrustee
or person
whom
transportation
and
its legal
Yes,
the Sheriff may
proceed
withconsequences.
the
thereceipts
death ofwere
some
of thefails
seamen
manning
the
Johnnys
jeepney.
Discuss with reasons.
SUGGESTED
ANSWER:
trust
issued
to:
(a)
return
(2%) sale of Johnnys jeepney. In
auction
vessel.
Who
should
bear
the
loss
of
the
cargo
(Metropolitan
Bank
v.
Tonda,
G.R.
No.
134436,
August
The kabit system
arrangement
where a
theSUGGESTED
goods covered
ANSWER: by the trust receipts; or
contemplation
of lawisasan
regards
the public
16,and
2000).
thethe
death
of the seamen?
Why?
(4%)
person
granted
a
certificate
of
public
(b)
return
proceeds
theCo.
sale
of said
(per Dondee)
Osawa of
and
shall
bear the
and third persons, the vehicle is considered
Is
lack
of
intent
to
defraud
a
bar
to
the
allows
other persons
to operate
goods
loss because under a demise or bareboat
theconvenience
property of the
registered
operator
prosecution
of
these
acts
or
omissions?
theirv motor
vehicles
his license,
Trans-Shipment;
Bill
of Lading;
binding contract
(1993) for a
charter,ANSWER:
the charterer (Osawa & Co.) mans
(Santos
Sibug
104
S 520)under
SUGGESTED
(2.5%)
percentage
of their with
earnings
JRTfee
Incor
entered
into a contract
C Co(Lim
of v.
vessel
his own
and becomes,
No.the
The
Trustwith
Receipts
Lawpeople
is violated
Court
Appeals
and Gonzalez,
G.R, at
No. 125817,
Japan
to of
export
anahaw
fans valued
in effect,
the
owner for
theto:
voyage
or service
whenever
the
entrustee
fails
(1) turn
JanuaryAs
16,payment
2002, citing
Baliwag
Trannit
$23,000.
thereof,
a letter
of v. Court
stipulated,
subject
tosale
liability
damages
over
the proceeds
of the
of thefor
goods,
of Appeals,
G.R. No.
57493,
January
7, 1987)
credit
was issued
to JRT
by the
buyer.
The The
caused
by
negligence.
or (2) return the goods covered by the trust
lawofenjoining
the kabit
systemofaims
to
Prior Operator
(2003)
letter
credit required
the issuance
an
receipts
if the Rule
goods
are not sold. The mere
identify
the
person
responsible
for
an
Bayan
Bus
Lines
hadgives
been
operating
on-board bill of lading and prohibited the
failure to account or return
rise to
the
accident
in
order
to
protect
the
riding
satisfactorily
a
bus
service
over
the
transshipment.
The
President
of
JRT
then
crime
which
is
malum
prohibitum.
There
isroute
The law does not penalize the parties to a
public.
The
policy
has
no
force
when
the
Manila
to
Tarlac
and
vice
versa
via
the
contracted
a shipping But
agent
to ship
kabit agreement.
the
kabitthe
system is no requirement to prove intent to defraud
public
at
large
is
neither
deceived
nor
McArthur
Highway.
With
the
upgrading
of
anahaw
fanstothrough
(Ching v. Secretary of Justice, G.R. No. 164317,
contrary
public O Containers Lines,
involved.
the
new
North
Expressway,
Bayan
Bus
Lines
specifying the requirements of the letter of
February 6, 2006; Colinares v. Court of Appeals,
service
became
credit. However, the bill of lading issued by
G.R.
No. 90828,
September 5, 2000; Ong v. Court
the shipping lines bore the notation
of Appeals, G.R. No. 119858, April 29, 2003).
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &Q
A&
(1990-2006)
A (1990-2006)

Trust Receipts Law

Mercantile Law Bar Examination Q & A (1990-2006)

b. The interest cannot be considered

usurious. The Usury Law has been
suspended in its application, and the
interest rates are made floating.

Warehouse Receipts Law

Bill of Lading (1998)
1. What do you understand by a bill of
2.
Explain
the two-fold character of a bill of
lading?
(2%)
lading. (3%)

Page

99 of 103

Trusts Receipt Law (2003)

PB & Co., Inc., a manufacturer of steel and
steel products, imported certain raw
materials for use by it in the manufacture of
its products. The importation was effected
through a trust receipt arrangement with AB
Banking corporation. When it applied for the
issuance by AB Banking Corporation of a
letter of credit, PB & Co., Inc., did not make
any representation to the bank that it would
be selling what it had imported. It failed to
pay the bank. When demand was made upon
it to account for the importation, to return
the articles, or to turn-over the proceeds of
the sale thereof to the bank, PB & Co., Inc.,
also failed. The bank sued PB & Co.s
President who was the signatory of the trust
receipt for estafa. The President put up the
defense that he could not be made liable
because there was no deceit resulting in the
violation
of the trust receipt. He also
SUGGESTED ANSWER:
submitted
that there
violation of The
the
No, the defenses
arewas
notnosustainable.
trust
because
the raw
were
lack receipt
of deceit
should
not materials
be sustained
not
sold the
but mere
used by
the corporation
in the
because
failure
to account for
the
manufacture
Wouldarticles
those
importation, oforits products.
return
the
defenses
be the
sustainable?
(6%) in the
constitutes
abuse ofWhy?
confidence
crime of estafa. The fact that the goods
arent sold but are used in the manufacture
of its products is immaterial because a
violation of the trust receipts law happened
when it failed to account for the goods or
return them to the Bank upon demand.
Usury Law (199)
Borrower obtained a loan from a money
lending enterprise for which he issued a
promissory note undertaking to pay at the
end of a period of 30 days the principal plus
interest at the rate 5.5% per month plus 2%
per annum as service charge.
On maturity of the loan, borrower failed to
pay the principal debt as well as the
stipulated interest and service charge.
1 he How
would you dispose of the
Hence,
was sued.
issues raised by the borrower?
2
That the stipulated interest rate
is excessive and unconscionable? (3%)
3
Is the interest rate usurious?
(3%)

Usury Law

These conditions are not met in the penal

provisions of the RPC on trust receipts.
Trust Receipts Law; Liability for Estafa (1997)
A buys goods from a foreign supplier using his
credit line with a bank to pay for the goods.
Upon arrival of the goods at the pier, the bank
requires A to sign a trust receipt before A is
allowed to take delivery of the goods. The
trust receipt contains the usual language. A
disposes of the goods and receives payment
but does not pay the bank. The bank files a
criminal action against A for violation of the
Trust Receipts Law. A asserts that the trust
receipt is only to secure his debt and that a
criminal
action cannot lie against him because
SUGGESTED ANSWER:
that
would
of hisisconstitutional
No. Violationbe
of violative
a trust receipt
criminal as
right
against
imprisonment
it is punished as estafa under for
Art nonpayment
315 of the
of
a debt.
correct?
RPC.
ThereIsishe
a public
policy involved which
is to assure the entruster the reimbursement
of the amount advanced or the balance
thereof for the goods subject of the trust
receipt. The execution of the trust receipt or
the use thereof promotes the smooth flow of
commerce as it helps the importer or buyer
of the goods covered thereby.

Recommendation: Since the subject matter

of these two (2) questions is not included
within the scope of the Bar Questions in
Mercantile Law, it is suggested that
whatever answer is given by the examinee,
or the lack of answer should be given full
SUGGESTED
ANSWER:
credit.
If the examinee gives a good answer,
a. The
rate
of 5.5%credit.
per month is
he shouldof
beinterest
given additional

excessive and unconscionable.

Page

SUGGESTED ANSWER:

1.

A bill of lading may be defined as a written

acknowledgement of the receipt of goods and
an agreement to transport and to deliver them
at a specified place to a person named therein
or on his order.
2. A bill of lading has a two-fold character,
namely, a) it is a receipt of the goods to be
transported; and b) it constitutes a contract of
carriage of the goods.
Delivery of Goods; Requisites (1998)
Luzon Warehousing Co received from Pedro
200 cavans of rice for deposit in its
warehouse for which a negotiable receipt
was issued. While the goods were stored in
said warehouse, Cicero obtained a judgment
against Pedro for the recover of a sum of
money. The sheriff proceeded to levy upon
the goods on a writ of execution and
directed the warehouseman to deliver the
SUGGESTED ANSWER:
goods.
Is
the
warehouseman
under
No. There was a valid negotiable receipt as
obligation to comply with the sheriffs order?
there was a valid delivery of 200 cavans of
(5%)
rice for deposit. In such case, the
warehouseman (LWC) is not obliged to
deliver the 200 cavans of rice deposited to
any person, except to the one who can
1
surrender
theof
receipt
which he is a
comply
with
sec 8
the ofWarehouse
holder;
Receipts
Law, namely:
2
willing to sign a receipt for the
delivery of the goods; and
3
pays the warehousemans liens that is,
his fees and advances, if any.
The sheriff cannot comply with these
requisites especially the first, as he is not
the holder of the receipt.
Delivery of the Goods (1991)
When is a warehouseman bound to deliver
the goods, upon a demand made either by
the holder of a receipt for the goods or by
SUGGESTED
ANSWER:
the depositor?
The warehouseman is bound to deliver the
goods upon demand made either by the
holder of the receipt for the goods or by the
depositor if the demand is accompanied by
1
an offer to satisfy the warehousemans
lien,
2
an offer to surrender the receipt, if
negotiable, with such indorsements as would be
necessary for the negotiation thereof,

100 of 103

3.
and readiness and willingness to sign
when the goods are delivered if so requested
by the warehouseman (Sec 8 Warehouse
Receipts Law).
Garnishment or Attachment of Goods (1999)
A Warehouse Company received for
safekeeping 1000 bags of rice from a
merchant. To evidence the transaction, the
Warehouse Company issued a receipt
expressly providing that the goods be
delivered to the order of said merchant. A
month after, a creditor obtained judgment
against the said merchant for a sum of
money. The sheriff proceeded to levy on the
rice and directed the Warehouse Company to
1
will you give
deliver What
to himadvice
the deposited
rice.the
Warehouse Company? Explain (2%)
2
Assuming that a week prior to the
levy, the receipt was sold to a rice mill on
the basis of which it filed a claim with the
sheriff. Would the rice mill have better
SUGGESTED ANSWER:
rights to the rice than the creditor? Explain
1
The 1000
your answer.
(2%)bags of rice were delivered
to the Warehouse Company by a merchant,
and a negotiable receipt was issued therefor.
The rice cannot thereafter, while in the
possession of the Warehouse Company, be
attached by garnishment or otherwise, or be
levied upon under an execution unless the
receipt be first surrendered to the
warehouseman, or its negotiation enjoined.
The Warehouse Company cannot be
compelled to deliver the actual possession of
the rice until the receipt is surrendered to it
or impounded by the court.
2
Yes. The rice mill, as a holder for
value of the receipt, has a better right to the
rice than the creditor. It is the rice mill that
can surrender the receipt which is in its
possession and can comply with the other
requirements which will oblige the
warehouseman to deliver the rice, namely, to
sign a receipt for the delivery of the rice, and
to pay the warehousemans liens and fees
and other charges.

101 of Page
103
103 102
SN Warehouse
equal
of 103
protection
can
of file
law an
clause
INTERPLEADER
the Chief
Constitution.
to Fourth,
compel
EJ
there
and
isMelchor
no the
2. of
The
Justice
also said
that
to litigate
impairment
against
of"safeguard
dueeach
process
other
here
for
because
the and
judiciary
must
the
liberty"
ownership
violators
ofof
the
the
law
goods.
will be
Sec.
17
the
only
"nurture
the
prosperity"
ofpunished
ourof people.
Warehouse
after
"proper
Receipts
trial." Fifth,
Law
the
issue
"If of
more
Explain
this
philosophy.
Cite states,
Decisions
of"just
the
than one
compensation"
person
does
claims
notthe
arise,
title
because
orof these
the
Supreme
Court
implementing
each
SUGGESTED
ANSWER:
possession
property
ofof
of
Mrs.
theBC
goods,
is not
the
being
warehouse
twin
beacons
the
Chief
Justice.
(2.5%) may,
Theexpropriated.
ChiefasJustice's
"Safeguarding
either
a defense
On philosophy
the
tocontrary,
an action
as
brought
a citizen of
Liberty,
Nurturing
Prosperity"
embodies
against
LVM,
Mrs.
himBC
forisnon-delivery
freely allowed
of
the
to engage
goodsthe
or
in
Supreme
Court's
approach
in
decision-making
as an original
domestic
timber
suit,
trade
whichever
in LVM.is appropriate,
in Tariff
the exercise
ofCode:
itsclaimants
constitutional
power
and Customs
Violation ofto
Customs
Laws of
require
all known
interplead."
judicial
review
whichof the
provides:
In cases
Unpaid Seller;
Negotiation
Receipt (1993)
(2004)
involving
liberty,
of justice
should
A purchased
from
Sscales
150 cavans
of the
palay
on
The
Collector
ofthe
Customs
ordered
weight
heavily
against
government
credit.
Aand
deposited
theof
palay
Ws and in
seizure
forfeiture
new in
electronic
favor
of theshipped
warehouse.
W poor,
issued
toTON
A aoppressed,
negotiable
appliances
bythe
Corp.
from the
marginalized,
theviolation
dispossessed
and
weak;
warehouse for
receipt
in the
of the
A.
Hongkong
ofname
customs
laws
andbecause
that they
laws
andfalsely
action
that as
restrict
Thereafter,
A negotiated
the
receipt
toused
B who
were
declared
fundamental
rights
come
to the
purchased
the said
receipt
for court
value "with
andfor
ina
office
equipment
and
then
undervalued
heavy
presumption
against
their
good
faith.
1)
Who
has
a
better
right
to
the
purposes of customs duties. TON filed a
constitutional
validity.
theRegional
other
hand,
deposit, S, before
the
unpaid
vendor
or b,
the
complaint
theOn
MM
Trialas a
general
rule,
the
Supreme
Court
must
adopt
purchaser
of the
receipt
for that
value
and
in a
Court
for replevin,
alleging
the
Customs
deferential
orWhy?
respectful
attitude
towards
good faith?
2) When
can the and
officials
erred
in the
classification
SUGGESTED ANSWER:
actions
taken by
the
governmental
agencies
warehouseman
be obliged
towell
deliver
the
valuation
its shipment,
as
in
the
1) B has aof
better
right than
S. Theasright
of
that
have
primary
responsibility
for the
palay
to A?
issuance
of
the
warrant
of
seizure.
The
the unpaid seller, S, to the goods was
economic
development
of the
country;
and
Collector
moved
to dismiss
the
suit for
lack
Decisions
"safeguarding
SUGGESTED
ANSWER:
defeatedimplementing
by
the act
of Athe
in endorsing
the
only
when
an
act
has
been
clearly
made
of
jurisdiction
on
the
part
of
the
trial
court.
of receipt
The
liberty"
Collector's
include
motion
those
should
involving
be granted.
theor
to B.
executed
with
grave
abuse
of
discretion
does
Should
the
Collector's
motion
be
granted
or
2) The Section
warehouseman
can
beTariff
obliged
Under
602(g)ofof
the
andto
constitutionality
Presidential
the
Court
get
involved
in
policy
issues.
denied?
Reason
briefly.
(5%)
deliver the
palay
to Bureau
A if (David
B negotiates
back
Proclamation
Customs
Code,
No. the
1017
of Customs
v. Arroyo,
has
the
receipt
to A.May
Injurisdiction
that
case, A
becomes
a
exclusive
original
over
seizure
G.R.
No.
171390,
3, 2006);
the
validity
NOTE:
(This
question
is
outside
the
coverage
of
holder
again
of
the
receipt,
and
A
can
of and
Calibrated
forfeiture
Pre-emptive
cases under
Response
the tariff (CPR)
and
Bar
Examinations.
ItWarehouse
is therefore
the
comply
with
Sec
of the
laws.
andcustoms
B.P. Big.
880
or8the
Public
Assemblyrecommended
Act
whatever
answer
made
by the candidate
should
that
Validity
stipulations
excusing
warehouseman
Receipts
Law. G.R.
(Bayan
v.ofErmita,
No. 169848,
Aprilfrom
25,
given
full
credit.)
be
negligence
2006);
and (2000)
the legality of Executive Order
hardware
materials inexercise
the bonded
No.S stored
464 and
the President's
of
On
the
other
hand,
cases
that
to
warehouse
of
W,
a
licensed
warehouseman
Executive
Privilege
(Senate relate
of
the
"nurturing
the
prosperity"
of
the
people
under
the
General
Bonded
Warehouse
Law
Philippines v. Ermita, G.R. No. 169777, April
include
the question
the constitutionality
of
3893
as amended).
W issued the
20,(Act
2006).
thecorresponding
Mining Law (La
Bugal-B'Laan
v. in
Ramos,
warehouse
receipt
the form
G.R.
127882,uses
Dec.
1,such
2004)
and theinWTO
heNo.
ordinarily
for
purpose
the
Government
vs.
Privatization
of an118295,
Industry
Agreement
v. Angara,
course Deregulation
of(Tanada
his business.
All theG.R.
essential
terms
(2004)
May
2,1997).
required
under Section 2 of the Warehouse
What
is the Law
difference
between
government
Receipts
(Act 2137
as amended)
are
Negotiable
Documents
of
Title
(1992)
deregulation
and
the
privatization
of an
embodied in the form. In addition, the
SUGGESTED
ANSWER:
Forreceipt
a cargo
of to
machinery
from
industry?
Explain
briefly.
(2%) shipped
issued
S contains
a stipulation
Government
deregulation
is the
relaxation that
or
abroad
to
anot
sugar
central
infor
Dumaguete,
W
would
be
responsible
the
loss
oforall
removal Oriental,
of regulatory
constraints
on firms
Negros
the
Bill
of
Lading
(B/L)
or any portion
of the
hardware
individuals,
with
a order,
view with
to materials
promoting
stipulated
to
shippers
notice
of
covered
by
the
receipt
even
if
such
loss is
competition
and
market-oriented
approaches
arrival
to
be
addressed
to
the
Central.
The
causedpricing,
by the negligenceentry,
of W or his other
toward
cargo
arrived at output,
itsemployees.
destinationS and
and was
representatives
or
endorsed
related
economic
decisions.
released
to
the
Central
without
surrender
of
and negotiated
theindustry
warehouse
receipt
Privatization
ofthe
an
refers
to to
theB,
thewho
B/L
on
basis
of
the
latters
demanded
delivery
the goods.
transfer
of ownership
andof
control
by W
the
undertaking
to hold
the
carrier
free
and
could
not
deliver
because
the
goods
were
SUGGESTED
ANSWER:
government
of
assets,
firms
and
operations
Subsequently,
a
Bank
to
whom
the
central
harmless
from
anyfound
liability.
nowhere
to to
be
in
his
HeW.
No.
I do not
agree
with
the
contention
of
in
an
industry
private
investors.
was
indebted,
claimed
thewarehouse.
cargo and
claims
he
is
not
liable
because
of
the
freePolitical
Law;
WTO
(1999)
The
stipulation
that
W
would
not
be
presented the original of the B/L stating
from-liability
clause
stipulated
theportion
receipt.
Government
plans
to loss
impose
additional
responsible
for
the
of allan
orinsettle
any
that
the Central
had
failed
to
its
Doon
you
agree
with
Ws
Explain.
duty
imported
sugar
oncontention?
top
of the current
of
the
hardware
materials
covered
by
the
obligations
with the
Bank.
(5%)
tariff
rate.even
The ifintent
is
the
receipt
such loss
isensure
caused
by
Was
there
misdelivery
by to
the
carrierthat
tothe
the
landed
cost ofconsidering
sugar
notnon-surrender
be lower than
negligence
of
W orshall
his representative
or
sugar
central
the
SUGGESTED
ANSWER:
P800
per
bag.
This The
is the
at which
employees
is void.
lawprice
requires
that a
of the
B/L?
Why?
locally
produced
sugar
would
be
warehouseman should exercise duesold in
order
to enable
producers
diligence
in thesugar
care and
custodytoofrealize
the
reasonable
profits. Without
things deposited
in his warehouse.

Mercantile Q
Law
Examination Q & A (1990-2006)Page
Mercantile Law Bar Examination
& ABar
(1990-2006)

this additional
There
was noduty,
misdelivery
the current
by low
theprice
carrier
of
since the
sugar
in the
cargo
world
wasmarket
considered
will surely
consigned
pull to
the domestic
Sugar central
priceper
to levels
the Shippers
lower than
Order
the
(Eastern
cost
to producer
Shipping
domestic
Lines v CA
sugar
190 sa 512)
ALTERNATIVE
situation ANSWER:
that could spell the demise of the
Energy
Commission:
Jurisdiction
&B/L
Power
There
wasindustry.
misdelivery.
Thethe
was ofa
PhilRegulatory
sugar
a) Discuss
validity
(2004)
negotiable
document
of
title
because
it was
this proposal to impose an additional levy
on
CG,to
acustomer,
sued
MERALCO
in
the
MM
the
Shippers
Order.
Hence,
the
common
imported sugar (3%) b) Would the proposal
Regional
Trial
Court
to disclose
the
basis
of to
carrier
should
have
the
cargo
be consistent
with
thedelivered
tenets of the
World
thethe
computation
of
the
purchased
power
Central
only
upon
surrender
of
the
B/L.
Trade Organization (WTO)? (3%)
adjustment
(PPA). Theoftrial
court
ruled
it it
Recommendation:
Since
the
subject
The non-surrender
the
B/L will
make
of over
these
two
(2) questions
hadliable
no jurisdiction
the
case
because, isasnot
tomatter
holders
in due
course.
Ownership
of
Stored
(1992)
included
the scope
of the Bar
contended
byGoods
the within
defendant,
the customer
To
guarantee
Questions
the
payment
in
Mercantile
of
a
loan
Law,
obtained
it
not only demanded a breakdown
of is
that
whatever
answer
isbut
given
from a suggested
bank,
pledged
500to
bales
MERALCO's
billRaul
with
respect
PPAof
examinee,
or the lack
answer
tobaccobydeposited
a warehouse
toofsaid
questioned
asthe
well
theinimposition
of the
PPA,
should
be
given
full
credit.
bank and
in blank
the warehouse
a matter
toendorsed
be decided
by the
BoardIf ofthe
examinee
gives
a
good
answer,
he loan,
should
receipt.
Raul could
pay
for the
SUGGESTED
ANSWER:
Energy,
theBefore
regulatory
agency
which
should
SUGGESTED ANSWER:
be
given
additional
credit.
the
tobacco
disappeared
from
the suit. Is
a)
The
proposal
to over
impose
an
additional
duty
also
have
jurisdiction
the
instant
Thewarehouse.
trial
court's
ruling
is correct.
As
held
in
Who
should
loss
not?
the
ontrial
imported
sugar
on bear
top the
of the
current
the
court's
ruling
correct
or
Manila
SUGGESTED
Electric
ANSWER:
Company
v.
Court
of
Appeals,
pledgor
or the
bank?not
Why?
tariff briefly.
rate
is valid,
being prohibited by
Reason
The pledgor
should the
bear
the loss.
In the
271SCRA
417 (5%)
(1997),
Board
of Energy
the Constitution. It would enable producers
of ato regulate
warehouse
the
hadpledge
the power
and receipt
fix power
to realize reasonable profits, and would
ownership
of theby goods
remain
with
rates
to be charged
franchised
electric
allow the sugar industry of the country to
depositor
his transferee.
Any
utilities
MERALCO.
In fact
pursuant
toor
b) No.like
Theor
proposal
would
not
becontract
consistent
survive.
real
security,
among
them
a
pledge,
does
Executive
Order
No.
478
(April
17,
1998),
with the tenets of the WTO which call not
for
to has
or result
an assumption
risk
thisamount
been
transferred
to ofthe
thepower
liberalization
ofintrade.
However,
such
of
loss
by
thebe
creditor.
Thethe
Warehouse
Energy
Regulatory
Board
(now
Energy
proposal
may
acceptable
within
the
Receipts
Law
did notunder
deviate
from WTO
this
rule.
Regulatory
Commission).
Under
Section
allowable
period
the
for
Right
to
the
Goods
(2005)
43(u)
of the Electric
Power
Industry Reform
adjustment
of
the
local
industry
of goods
ActJojo
ofdeposited
2001,
the cartons
Energy
Regulatory
Power
of the
State:several
Regulating
of Domestic
Tradewith
(2004)SN
Warehouse
Corporation.
The
corresponding
Commission
has of original
and and
exclusive
its Problems
exercise
policeJudiciary
power
business
FourIn
ACID
of Philippine
(2006)
warehouse
receipt
was issued
to
the power
order of
jurisdiction
over
cases
contesting
regulation,
thealllegislature
of LVM
State
In several
addresses
extensively
Jojo. Hepolicy
endorsed
the warehouse
receipt to EJ
rates.
passed a law prohibiting aliens from
covered
who paid
by media
the value
since his
of the
appointment
goods deposited.
on
engaging
in domestic
timber
trade. Violators
Before EJ
the goods,
Melchor
December
21,could
2005,withdraw
Chief Justice
Artemio
V.
including
dummies
would,
after proper trial,
informed vowed
SN
Warehouse
Corporation
Panganiban
to leave a
judiciary that the
be
fined
and imprisoned
or
deported.
goods
belonged
to him
and
were
takeninbyMrs.
Jojo
characterized
by "four
Ins"
and
to focus
BC,
a
citizen
of
LVM
but
married
to ZC, an
without
consent.
wants
solving
thehis
"four
ACID"Melchor
problems
that to get the
alien
merchant
of PNG,
filed
suit
to
goods,the
but
EJhas
alsoa wants
to
withdraw
same.

Who
better
right
to the
goods?
corrode
administration
of
justice
inthe
our
invalidate
the
law
or
exempt
from
its
SUGGESTED
ANSWER:
SUGGESTED
ANSWER:
(5%) Explain this "four Ins" and "four
Why?
country.
She
contended
that office,
the law
is, inter
alia,
Upon
coverage
assuming
timber
his
Chief
Justice
EJ has
a their
better
rightbusiness.
to the
goods,
being
ACID"
problems.
gravely
oppressive
and
discriminatory.
It
Panganiban
to lead
a judiciary
covered byvowed
a negotiable
document
of title,
violated
the
Universal
Declaration
of
Human
characterized
by the "four
Ins:"issued
Integrity,
namely the warehouse
receipts
to the
Rights (UDHR)
passed in 1948
by the United
Independence,
Industry
one of
"order of Jojo."
Underand
the Intelligence;
Sales provisions
Nations,
of which
LVM istoa resist
member,
she said,
that
is morally
courageous
influence,
the
Civil Code
on negotiable
documents
of
as well as indifference
the reciprocity provisions
of the
interference,
insolence.
title, and under the and
provisions
of He
the
World Trade
Organization
(WTO) Agreement
envisions
a judiciary
that isLaw,
impervious
the
Warehouse
Receipts
when to goods
of
1994,
of
which
PNG
and
LVM are
parties.
plague
of
undue
influence
brought
about
deposited with the bailee are covered by a
Aside from
denying them
equal protection,
kinship,
relationship,
negotiable
document friendship
of
title, and
the
according
to
BC,
the
law
will also
deprive
fellowship.
He calls
the judiciary
battle
endorsement
andon
delivery
of the to
document
family
their
livelihood
without due
theher
"Four
ACID"
problems
corroding
transfers
ownership
of the
goods toour
the
process
nor
just
compensation.
Assuming
justice
system:
(1)
access to
SUGGESTED
ANSWER:
transferee.
Bylimited
operation
of justice
law, by
the
the
legal
systemis of
LVM
is similar
to
thethat
poor;
(2)
corruption;
(3)
incompetence;
Mrs.
BC's
contention
tenable.
First, the
transferee
obtains
the not
direct
obligation
of
ours,
would
Mrs.
BC's
contention
be
tenable
andUDHR
delay
in
the
delivery
ofhis
quality
doestonot
purport
to
limit
the
right
the(4)
bailee
hold
the
goods
in
name."
(NOTA
BENE:
It
is of
or
not? Reason
briefly.
(5%)
judgments.
The
judicial
department
should
states
LVM)
to
regulate
domestic
trade.
(Art. (like
1513,
Civil
Code;
Section
respectfully
suggested 41,
discharge
itsthe
functions
with
transparency,
Second,
WTO
Agreement
Warehouse
Receipts
Since
EJ involves
is the
that Law)
all
Bar
Candidates

If SN
Warehouse
Corporation
is
accountability
and
dignity.
international
trade
between
states
or
holder of the
warehouse
receive
a
receipt,
2.5% bonus
he
has
forthe
uncertain
as not
to domestic
who is
entitled
to the
the
above
question
governments,
trade
in
timber
or
better right to the goods. SN Warehouse is
property,
what is the
properof
recourse
ofisthe
the
answer)
other
Third,
nationality
an
obligedcommodities.
to
hold theregardless
goods
in his
name.
SUGGESTED
ANSWER:
corporation?
Explain.
accepted norm for making classifications that
do not run counter to the

Miscellaneous