Commercial Law Review

Midterm Exam

1. Discuss the Prior Operator Rule.(5%)

2. Discuss the Registered owner rule and the “kabit System” .(5%)

3. What is the Doctrine of INSCRUTABLE FAULT. (5%)

4. Don Mariano owns 30 buses which are registered in his own name and also owns a
franchise on these buses. Fermina entered into a contract with Don Mariano to
operate one of the buses subject to the condition that no fixed wage will be received
by the former, only a percentage of her earnings will go to Don Mariano, and that
Fermina will pay for her own gas. One day, while Fermina was operating one of the
buses, she met an accident where one of her passengers, Mr. Partas, suffered
physical injuries. The cause of the accident was a mechanical defect on the bus. The
said part of the bus which had a mechanical defect was purchased by Don Mariano
from Mr. Partas’ car shop, Partas Inc.

Don Mariano contends that he is not liable because Fermina was the one driving
when the accident happened. In addition, Don Mariano said that even though
Fermina may be his employee, he should still not be held liable since he exercised
due diligence in the selection and supervision of their employees. Lastly, he
contends that he should not be held liable since Mr. Partas will be the one ultimately
liable for the mechanical defects by filing a third-party complaint against the latter
in the same action.

Q: Rule on the contentions of Don Mariano.(10%)

5. Enumerate and Distinguish Insurable interest in Property vs. Insurable interest in life.
(5%)

6. To secure the payment of a loan f P3M, D mortgaged his house worth P5M in favor of
C, the creditor.

A) Who has an insurable interest in the house? What is the extent of said insurable
interest? (5%)

B) Will an insurance of said house procured by D in his own name and for his own
benefit inure to the benefit of C? (5%)

C) If C insures the house for P3M, in his own name and for his own interest only and the
loss occurs after the full payment of the loan, who can recover under the policy?(5%)

7. An instrument was indorsed by A in blank and delivered to B. B wrote above the

signature of A the following: “To B.” Thereafter, is the indorsement still a blank
indorsement?(10%)

8. What constitutes a holder in due course?(5%)

9. What are the Liabilities of a General Indorser? (10%)

10. Give as many examples of material alterations(10%)

11. A check for P50,000.00 was drawn against drawee bank and made payable to XYZ
Marketing or order. The check was deposited with payee‘s account at ABC Bank
which then sent the check for clearing to drawee bank. Drawee bank refused to
honor the check on ground that the serial number thereof had been altered. XYZ
marketing sued drawee bank.

A. Is it proper for the drawee bank to dishonor the check for the reason that it had
been altered? Explain (5%)

B. In instant suit, drawee bank contended that XYZ Marketing as payee could not sue
the drawee bank as there was no privity between then. Drawee theorized that there
was no basis to make it liable for the check. Is this contention correct? Explain(5%).

12. Bonus 10%

Everyone knows you are the best student out there. All you need to do is work hard and revise with
care. Good luck.