MERCANTILE LAW the death of Bianca, that the latter is a

BAR EXAMINATION QUESTIONS transgender does not destroy his

SUGGESTED ANSWERS insurable interest on the life of the
1990-2014 insured.

2014 BAR EXAMINATION 2. Bong bought 300 bags of rice from Ben
for P300,000. As payment, Bong
indorsed to Ben a BPI check issued by
1. Carlo and Bianca met in the La Baby in the amount of P300,000. Upon
Boracay festivities. Immediately, they presentment for payment, the BPI
fell in love with each other and got check was dishonored because Baby’s
married soon after. They have been account from which it was drawn has
cohabiting blissfully as husband and been closed. To replace the dishonored
wife, but they did not have any check, Bong indorsed a crossed DBP
offspring. As the years passed by, check issued also by Baby for
Carlo decided to take out an insurance P300,000. Again, the check was
on Bianca’s life for P1 M with him dishonored because of insufficient
(Carlo) as sole beneficiary, given that funds. Ben sued Bong and Baby on the
he did not have a steady source of dishonored BPI check. Bong interposed
income and he always depended on the defense that the BPI check was
Bianca both emotionally and financially. discharged by novation when Ben
During the term of the insurance, accepted the crossed DBP check as
Bianca died of what appeared to be a replacement for the BPI check. Bong
mysterious cause so that Carlo cited Section 119 of the NIL which
immediately requested for an autopsy provides that a negotiable instrument is
to be conducted. It was established that discharged “by any other act which will
Bianca died of a natural cause. More discharge a simple contract for the
than that, it was also established that payment of money.” Is Bong correct?
Bianca was a transgender all along—a
fact unknown to Carlo. Can Carlo claim Answer:
the insurance benefit? No. Bong is not correct. While
Section 119 of the NIL in relation to
Answer: Article 1231 of the Civil Code provides
Yes. Carlo can claim the insurance that one of the modes of discharging a
benefit. If a person insures the life or negotiable instrument is by any other
health of another person with himself act which will discharge a simple
as beneficiary, all his rights, title and contract for the payment of money,
interests in the policy shall such as novation, the acceptance by
automatically vest in the person the holder of another check which
insured. Carlo, as the husband of replaced the dishonored bank check
Bianca, has an insurable interest in the did not result to novation.
life of the latter. Also, every person has
an insurable interest in the life and There are only 2 ways which
health of any person on whom he indicate the presence of novation and
depends wholly or in part for support. thereby produce the effect of
The insurable interest in the life of the extinguishing an obligation by another
person insured must exist when the which substitutes the same. First,
insurance takes effect but need not novation must be explicitly stated and
exist when the loss occurs. Thus, the declared in unequivocal terms as
subsequent knowledge of Carlo, upon novation is never presumed. Secondly,
 the old and the new obligation must be alleged unpaid association dues and
incompatible on every point. assessments amounting to P195,000.
DC disputed the claim, saying that he
In the instant case, there was no paid all dues as shown by the fact that
express agreement that the holder’s he was previously elected as Director
acceptance of the replacement check and President of Medici. Medici, on the
will discharge the drawer and endorser other hand, claimed that DC’s
from liability. Neither is there obligation was a Construction
incompatibility because both checks Corporation. Consequently, DC was
were given precisely to terminate a prevented from exercising his right to
single obligation arising from the same vote and be voted for during the 2011
transaction. election of Medici’s Board of Directors.
This prompted DC to file a complaint
for damages before the Special
3. Under the Financial Rehabilitation and Commercial Court of Pasig City. Medici
Insolvency Act (FRIA), the filing of a filed a motion to dismiss on the ground
petition for voluntary rehabilitation must that the court has no jurisdiction over
be approved by: the intra-corporate dispute which the
HLURB has exclusive jurisdiction over.
a. A majority vote of the Board of Is Medici correct?
Directors and authorized by the
vote of the stockholders Answer:
representing at least a majority of No. Medici is not correct. A
the outstanding capital stock. controversy between the condominium
b. A majority vote of the Board of corporation and its members-unit
Directors and authorized by the owners for alleged unpaid association
vote of the stockholders dues and assessments and the
representing at least 2/3 of the prevention of DC from exercising his
outstanding capital stock. right to vote and be voted for during the
c. 2/3 vote of the Board of Directors 2011 election of the Medici’s Board of
and authorized by the vote of the Directors, partakes of the nature of an
stockholders representing at least a intra-corporate dispute which does not
majority of the outstanding capital fall within the jurisdiction of the HLURB
stock. despite its expansive jurisdiction. It is
d. 2/3 vote of the Board of Directors considered as an intra-corporate
and authorized by the vote of the controversy falling within the jurisdiction
stockholders representing at least of the Regional Trial Court designated
2/3 of the outstanding capital stock. as special commercial court.

Answer:
b. A majority vote of the Board of 5. A corporation organized under the
Directors and authorized by the vote of Corporation Code commences to have
the stockholders representing at least corporate existence and juridical
2/3 of the outstanding capital stock. personality and is deemed
incorporated:

4. DC is a unit owner of Medici a. From the date the application for

Condominium located in Pasig City. On incorporation is filed with the SEC.
September 7, 2011, Medici b. From the date the SEC issues a
Condominium Corp. (Medici) certificate of incorporation under its
demanded from DC payment for official seal.
 c. 30 days after the date the without the permission or authority from
application for incorporation is filed the owner thereof.
with the SEC.
d. 30 days after the date the SEC
issues a certificate of incorporation 7. Jinggy went to Kluwer University (KU)
under its official seal. in Germany for his doctorate degree
(Ph.D.). He completed his degree with
Answer: the highest honors in the shortest time.
b. From the date the SEC issues a When he came back, he decided to
certificate of incorporation under its official set-up his own graduate school in his
seal. hometown in Zamboanga. After
seeking free legal advice from his high-
flying lawyer-friends, he learned that
6. On May 26, 201, Jess insured with the Philippines follows the territoriality
Jack Insurance (Jack) his 2014 Toyota principle in trademark law, i.e.,
Corolla sedan under a comprehensive trademark rights are acquired through
motor vehicle insurance policy for one valid registration in accordance with the
year. On July 1, 2014, Jess’ car was law. Forwtih, Jinggy named his school
unlawfully taken. Hence, he the Kluwer Graduate School of
immediately reported the theft to the Business of Mindanao and immediately
Traffic management Command (TMC) secured registration with the Bureau of
of the Philippine National Police (PNP), Trademarks. KU did not like the
which made Jess accomplish a unauthorized use of its name by its top
complaint sheet as part of its alumnus no less. KU sought your help.
procedure. In the complaint sheet, Jess What advice can you give KU?
alleged that a certain Ric Silat (Silat)
took possession of the subject vehicle Answer:
to add accessories and improvements I will advice KU to seek for the
thereon. However, Silat failed to return cancellation of the Kluwer Graduate
the subject vehicle within the agreed 3- School of Business of Mindanao with
day period. As a result, Jess notified the Bureau of Trademarks. Jinggy’s
Jack of his claim for reimbursement of registration of the mark “Kluwer” should
the value of the vehicle under the not have been allowed because the law
insurance policy. Jack refused to pay prohibits the registration of the mark
claiming that there is no theft as Jess “which may disparage or falsely
gave Silat lawful possession of the car. suggests a connection with persons,
Is Jack correct? living or dead, institutions, beliefs”.
Moreover, the Philippines is a signatory
Answer: to the Paris Convention for the
No. Jack is not correct. The “theft Protection of Intellectual Property
clause” of a comprehensive motor (Paris Convention), it is obligated to
vehicle insurance policy has been assure nationals of countries of the
interpreted by the Court in several Paris Convention that they are afforded
cases to cover situations like (1) when an effective protection against violation
one takes the motor vehicle of another of their intellectual property rights in the
without the latter’s consent even if the Philippines. Thus, under the Philippine
motor vehicle is later returned, there is law, a trade name of a national of a
theft—there being intent to gain as the State that is a party to the Paris
use of the thing unlawfully taken Convention, whether or not the trade
constitutes gain, or (2) when there is name forms part of a trademark, is
taking of a vehicle by another person
 protected “without the obligation of cannot deny a claim by the owner of a
filing or registration”. motor vehicle who insured it against
loss or damage because the driver he
employed stole it. Matino cannot invoke
the provision excluding malicious
8. As a rule, an insurance contract is damages caused by a person in the
consensual and voluntary. The service of the insured. In common
exception in the case of: ordinary usage, loss means failure to
keep possession, while malicious
a. Inland Marine Insurance damage is damage resulting from the
b. Industrial Life Insurance willful act of the driver. Words which
c. Motor Vehicle Liability Life Insurance have different meanings shall be
d. Life Insurance understood in the sense which is most
in keeping with the nature and object of
Answer: the insurance contract. If a stipulation
c. Motor Vehicle Liability Life Insurance admits several meanings, is should be
understood as bearing the meaning
which is most adequate to render it
9. On February 21, 2013, Barrack entered effectual. It may be shown that the
into a contract of insurance with Matino words have a local, technical or
Insurance Company (Matino) involving peculiar meaning and were so used
a motor vehicle. The policy obligates and understood by the parties.
Matino to pay Barrack the amount of
P600,000 in case of loss or damage to
said vehicle during the period covered, 10. A person is said to have an insurable
which is from February 26, 2013 to interest in the subject matter insured
February 26, 2014. where he has a relation or connection
with, or concern in it that he will derive
On April 16, 2013, at about 9:00am, pecuniary benefit or advantage from its
Barrack instructed his driver, JJ, to preservation. Which among the
bring the motor vehicle to a nearby following subject matters is not
auto shop for tune-up. However, JJ no considered insurable?
longer returned and despite diligent
efforts to locate the said vehicle, the a. A partner in a firm on its future
efforts proved futile. Resultantly, profits.
Barrack promptly notified Matino of the b. A general creditor on the debtor’s
said loss and demanded payment of property
the insurance proceeds of P600,000. c. A judgment creditor on debtor’s
property
In a letter dated July 5, 2013. Matino d. A mortgage creditor on debtor’s
denied the claim, reasoning as stated mortgaged property.
in the contract that “the company shall
not be liable for any malicious damage Answer:
caused by the insured, any member of a. A partner in a firm on its future
his family or by a person in the profits.
insured’s service. Is Matino correct in
denying the claim?
11. PA Assurance (PA) was incorporated
Answer: in 1980 to engage in the sale of pre-
No. Matino is not correct in denying need educational plans. It sold open-
the claim. An insurance company ended educational plans which
 guaranteed the payment of tuition and b. As fixed in the articles of
other fees to planholders irrespective of incorporation
the cost at the time of availment. It also c. Actually serving in the board
engaged in the sale of fixed value plans d. Actually serving in the board but
which guaranteed the payment of a constituting a quorum
pre-determined amount to planholders.
In 1982, PA was among the country’s Answer:
top corporations. However, it b. As fixed in the articles of
subsequently suffered financial incorporation
difficulties.

On September 8, 2005, PA filed a 13. Pursuant to its By-Laws, Soei

Petition for Corporate Rehabilitation Corporation’s Board of Directors
before the RTC of Makati City. On created an Executive Committee to
October 17, 2005, 10 plan holders filed manage the affairs of the corporation in
an Opposition and Motion to Exclude between board meetings. The Board of
Planholders from Stay Order on the Directors appointed the following
ground that planholders are not members of the Executive Committee:
creditors as they (planholders) have a the President, Sarah L; the Vice-
trust relationship with PA. Are the President, Jane L; and a third member
planholders correct? from the board, Juan Riles. On
December 1, 2013, the Executive
Answer: Committee, with Sarah L and Jane L
No. The planholders is not correct. present, met and decided on the
On November 21, 2000, the Court following matters:
approved the Interim Rules of
Procedure on Corporate Rehabilitation 1. Purchase of a delivery van for use in
of 2000 (Interim Rules), which took the corporation’s retail business;
effect on December 15, 2000. The 2. Declaration and approval of the 13th
Interim Rules apply to petitions for month bonus;
rehabilitation filed by corporations, 3. Purchase of an office condominium
partnerships, and associations unit at the Fort; and
pursuant to PD 902-A, as amended. 4. Declaration of P10.00 per share
Under the Interim Rules, “claim” shall cash dividend.
include “all claims or demands of
whatever nature or character against Are the actions of the Executive
the debtor or its property, whether for Committee valid?
money or otherwise.” “Creditor” shall
mean “any holder of a claim.” Hence,
the claim of the planholders from PA is
included in the definition of “claims” Answer:
under the Interim Rules. The action of the Executive Committee
with regard to the purchase of a delivery
van for use in the corporation’s retail
12. To constitute a quorum for the business, declaration and approval of
transaction of corporate business, only the 13th month bonus, purchase of an
a majority of the number of Board of office condominium unit at the Fort, and
Directors is required: the declaration of P10.00 per share
cash dividend is valid, as such matters
a. As fixed by the corporate by-laws were taken by a majority vote of all its
members, on such matters within the
 competence of the board and as Corporation. At the election for the
delegated to it in the by-laws. 2004-2005 Board of Directors, not one
of them was elected. They filed in court
a derivative suit on behalf of FLP
14. On September 25, 2013, Danny Corporation against the newly-elected
Marcial (Danny) procured an insurance members of the Board of Directors.
on his life with a face value of P5 M They questioned the validity of the
from RN Insurance Company (RN), election as it was allegedly marred by
with his wife Tina Marcial (Tina) as sole lack of quorum, and prayed for the
beneficiary. On the same day, Danny nullification of the said election. The
issued an undated check to RN for the 2004-2005 Board of Directors moved to
full amount of the premium. On October dismiss the complaint because the
1, 2013, RN issued the policy covering derivative suit is not proper. Decide.
Danny’s life insurance. On October 5,
2013, Danny met a tragic accident and Answer:
died. Tina claimed the insurance The derivative suit is not proper. The
benefit, but RN was quick to deny the party-in-interest are the petitioners as
claim because at the time of Danny’s stockholders, who were members of
death, the check was not yet encashed the 2003-2004 Board of Directors of
and therefore the premium remained FLP Corporation. The cause of action
unpaid. devolves on the petitioners, not on FLP
Corporation, which did not have the
Is RN correct? Will your answer be the right to vote. Hence, the complaint filed
same if the check is dated October 15, by A, B, C, D and E is a direct action by
2013? the petitioners, who were the members
of the Board of Directors of the
Answer: corporation before the election, against
No. RN is not correct. After the respondents, who are the newly-
issuance of the check by Danny for the elected Board of Directors. Under the
full amount of the premium, the circumstances, the derivative suit filed
unconditional delivery of an insurance by petitioners in behalf of FLP is
policy of RN to Danny corresponding to improper.
the terms of the application ordinarily
consummates the contract, and the
policy as delivered becomes the final 16. In intellectual property cases,
contract between the parties. Where fraudulent intent is not an element of
the parties, so intend, the insurance the cause of action except in cases
becomes effective at the time of the involving:
delivery of the policy notwithstanding
the fact that the check was not yet a. Trademark infringement
encashed. My answer will still be the b. Copyright infringement
same even if the check is dated c. Patent infringement
October 15, 2013 since an d. Unfair competition
acknowledgment in a policy of the
receipt of premium is conclusive Answer:
evidence of its payment for the purpose a. Trademark infringement
of making the policy binding.

17. On December 1, 2010, Kore A

15. A, B, C, D and E were members of the Corporation shipped from South Korea
2003-2004 Board of Directors of FLP to LT Corporation in Manila some
300,000 sheets of high-grade special they are discharged from the ship infer
steel. The shipment was insured that the period of time when the goods
against all risk by NA Insurance (NA). have been discharged from the ship
The carrying vessel arrived at the Port and given to the custody of the arrastre
of Manila on January 10, 2011. When operator is not covered by the COGSA.
the shipment was discharged, it was The COGSA does not mention that an
noted that 25,000 sheets were arrastre operator may invoke the
damaged and in bad order. The entire prescriptive period of one year; hence,
shipment was turned over to the it does not cover the arrastre operator.
custody of ATI, the arrastre operator,
on January 21, 2011 for storage and
safekeeping, pending its withdrawal by 18. Skechers Corporation sued Inter-
the consignee’s authorized customs Pacific for trademark infringement
broker, RVM. claiming that Inter-Pacific used
Skechers’ registered “S” logo mark on
On January 26 and 29, 2011, the Inter-Pacific’s shoe products without its
subject shipment was withdrawn by consent. Skechers has registered the
RVM from the custody of ATI. On trademark “SKECHERS” and the
January 29, 2011, prior to the trademark “S” (with an oval design)
withdrawal of the last batch of the with the Intellectual Property Office
shipment, a joint inspection of the (IPO).
cargo was conducted per the Request
for bad Order Survey (RBO) dated In its complaint, Skechers points out
January 28, 2011. The examination the following similarities: the color
report showed that 30,000 sheets of scheme of the blue, white and gray
steel were damaged and in bad order. utilized by Skechers. Even the design
and “wave-like” pattern of the mid-sole
NA Insurance paid LT Corporation the and outer sole of Inter-Pacific’s shoes
amount of P30 M for the 30,000 sheets are very similar to Skechers’ shoes, if
that were damaged, as shown in the not exact patterns thereof. On the side
Subrogation Receipt dated January 13, of Inter-Pacific’s shoes, near the upper
2013. Thereafter, NA Insurance part, appears the stylized “S” placed in
demanded reparation against ATI for the exact location as that of the stylized
the goods damaged in its custody, in “S” the Skechers shoes. On top of the
the amount of P5 M. ATI alleged that “tongue” of both shoes, appears the
the COGSA applies in this case since stylized “S” in practically the saem
the goods were shipped from a foreign location and size.
port to the Philippines. NA Insurance
claims that the COGSA does not apply,
since ATI is not a shipper or carrier. In its defense, Inter-Pacific claims that
Who is correct? under the Holistic Test, the following
dissimilarities are present: the mark “S”
Answer: found in Strong shoes is not enclosed
NA Insurance is correct. ATI should in an “oval design”; the word “Strong” is
be ordered to pay NA Insurance conspicuously placed at the backside
notwithstanding the lapse of the one and insoles; the hang tags labels
year prescriptive period for filing a suit attached to the shoes bear the word
under the COGSA. The term “carriage “Strong” for Inter-Pacific and Skeckers
of goods” under Section 1 in COGSA, U.S.A.” for Skechers; and, Strong
covers the period from the time when shoes modestly priced compared to the
the goods are loaded to the time when cost of Skechers shoes.
 c. Assuming the corporation has been
Under the foregoing circumstances, properly registered, may the Articles
which is the proper test to be applied— of Incorporation now be amended to
Holistic or Dominancy Test? Decide. reduce the number of directors to
two—Guetze and his wife—to reflect
Answer: the real owners of the shares of
The proper test to be applied is the stock?
dominancy test. Applying the
dominancy test, there is a confusing Answer:
similarity “Skechers” rubber shoes and a. Yes, the SEC should accept the
“Strong” rubber shoes. The use of the Articles of Incorporation. If the
stylized “S” by Inter-Pacific in its Strong Articles of Incorporation substantially
Shoes infringes on the trademark comply with the statute and all other
“Skechers” already registered by requirements are met, the SEC has
Skechers U.S.A. with the IPO. While it no discretion, but may be compelled
is undisputed that Skechers U.S.A. by mandamus to file them. The
stylized “S” is within an oval design, the discretion exercised by SEC does
dominant feature of the trademark is not extend to the merits of an
stylized “S” as it is precisely the stylized application for incorporation,
“S” which catches the eye of the although it may be exercised as to
purchaser. matters of form.

b. Yes, Guetze can serve as Chairman,

19. Guetze and his wife have 3 chidren: as President, and as General
Neymar, 25, who is now based in Rio Manager of the corporation all at the
de Janeiro, Brazil; Muelter, 23, who has same time. Section 25 of the
migrated to Munich, Germany; and Corporation Code provides that “two
James, 21, who resides in Bogota, or more positions may be held
Colombia. Neymar and Muelter have concurrently by the same person,
since renounced their Philippine except that no one shall act as
citizenship in favor of their country of president and secretary or as
residence. Nearing 70 years old, president and treasurer at the same
Guetze decided to incorporate his time.” Such case does not fall within
business in Binondo, Manila. He asked the exception under the aforesaid
his wife and 3 children to act as Section.
incorporators with 1 share of stock c. No, the Articles of Incorporation may
each, while he owned 999,996 shares not be amended to reduce the
of the 1,000,000 shares of the capital number of directors to two. Section
stock. 14 of the Corporation Code requires
that the Articles of Incorporation
a. Assuming all other requirements are shall contain the number of
met, should the SEC accept or reject directors, which shall not be less
the Articles of Incorporation? Why? than 5 nor more than 15. Hence, the
b. Being the control freak and micro- reduction of the number of directors
manager that he is, Guetze asked to two, to reflect the real owners of
you—his astute legal adviser—if he the shares of stock, is not valid
can serve as Chairman of the Board
of Directors, as President, and as
General Manager of the corporation, 20. On May 13, 1996, PAM, Inc. obtained
all at the same time. Please advise a P15 M fire insurance policy from
Guetze. Ilocano Insurance covering its
machineries and equipment effective limited by the policy made without the
for 1 year or until May 14, 1997. The consent of the insurer, by means within
policy expressly stated that the insured the control of the insured, and
properties were located at “Sanyo increasing the risks, entitles the insurer
Precision Phils. Building, Phase III, to rescind the contract of fire insurance.
Lots 4 and 6, Block 15, PEZA, Rosario
Cavite.” Before its expiration, the policy
was renewed on “as is” basis for 21. On July 3, 1993, Delia Sotero (Delia)
another year until May, 13, 1998. The took out a life insurance policy from
subject properties were later Ilocos Bankers Life Insurance
transferred to Pace Factory also in Corporation (Ilocos Life) designating
PEZA. On October 12, 1997, during the Creencia Aban (Aban), her niece, as
effectivity of the renewed policy, a fire her beneficiary. Ilocos Life issued
broke out at the Pace Factory which Policy No. 747, with a face value of
totally burned the insured properties. P100,000, in Sotero’s favor on August
30, 1993, after the requisite medical
The policy forbade the removal of the examination and payment of the
insured properties unless sanctioned premium.
by Ilocano. Condition 9(c) of the policy
provides that “the insurance ceases to On April 10, 1996, Sotero died. Aban
attach as regards the property affected filed a claim for the insurance proceeds
unless the insured, before the on July 9, 1996. Ilocos Life conducted
occurrence of any loss or damage, an investigation into the claim and
obtains the sanction of the company came out with the following findings:
signified by endorsement upon the
policy x x x (c) if the property insured is 1. Sotero did not personally apply
removed to any building or place other for insurance coverage, as she
than in that which is herein stated to be was illiterate.
insured.” PAM claims that it has 2. Sotero was sickly since 1990.
substantially complied with notifying 3. Sotero did not have the financial
Ilocano for the insurance coverage. Is capability to pay the premium on
Ilocano liable under the policy? the policy.
4. Sotero did not sign the
Answer: application for insurance.
Ilocano is not liable under the policy. 5. Aban was the one who filed the
With the transfer of the location of the insurance application and
subject properties, without notice and designated herself as the
without insurer’s consent, after the beneficiary.
renewal of the policy, the insured
clearly committed concealment, For the above reasons and claiming
misrepresentation and a breach of fraud, Ilocos Life denied Aban’s claim
material warranty. The Insurance Code on April 16, 1997, but refunded the
provides that a neglect to communicate premium paid on the policy.
that which a party knows and ought to
communicate, is called concealment. A a. May Sotero validly designate
concealment entitles the injured party her niece as beneficiary?
to rescind a contract of insurance in b. May the incontestability period
case of an alteration in the use or set in even in cases of fraud as
condition of the thing insured. An alleged in this case?
alteration in the use or condition of a c. Is Aban entitled to claim the
thing insured from that to which it is proceeds under the policy?
 insurance application designating
Answer: herself as beneficiary.
a. Yes. Sotero may validly designate
her niece, Aban, as beneficiary.
Sotero had insurable interest in her 22. Paul George Pua (Pua) filed a
own life, and could validly complaint for a sum of money against
designate anyone as her the spouses Benito and Caroline
beneficiary. James (Spouses James). In the
complaint, Pua prayed that the
b. Yes. The “incontestability clause” is defendants pay Pua the amount of
a provision in law that after a policy P8.5 M covered by a check. Pua
of life insurance made payable on asserts that defendants owed him a
the death of the insured shall have sum of money way back in 1988 for
been in force during the lifetime of which the Spouses James gave him
the insured for a period of 2 years several checks. The checks, however,
from the date of its issue or of its had all been dishonored and Pua has
last reinstatement, the insurer not been paid the amount of the loan
cannot prove that the policy is void plus the agreed interest. In 1996, the
ab initio or is rescindable by reason Spouses James approached Pua to get
of fraudulent concealment or the computation of their liability
misrepresentation of the insured or including the 2% compounded interest.
his agent. After bargaining to lower the amount of
their liability, the Spouses James gave
In this case, the policy was issued Pua a postdated check bearing the
on August 30, 1993, and the discounted amount of P8.5 M. Like the
insured died on April 10, 1996. The 1988 checks, the drawee bank likewise
insurance policy was thus in force dishonored this check. To prove his
for a period of 3 years, 7 months allegations, Pua submitted the original
and 24 days. Considering that the copies of the 17 checks issued by
insured died after the 2-year period, Caroline in 1988 and the check issued
Ilocos is, therefore, barred from in 1996, Manilatrust Check No. 750.
proving that the policy is void ab The Spouses James, on the other
initio by reason of the insured’s hand, completely denied the existence
fraudulent concealment or of the debt asserting that they had
misrepresentation or want of never approached Pua to borrow
insurable interest on the part of the money in 1988 or in 1996. They assert,
beneficiary. instead, that Pua is simply acting at the
instance of his sister, Lilian, to file a
c. Yes, Aban is entitled to claim the false charge against them using a
proceeds. After the 2-year period check left to fund a gambling business
lapse, or when the insured dies previously operated by Lilian and
within the period, the insurer must Caroline. Decide.
make good on the policy, even
though the policy was obtained by Answer:
fraud, concealment, or The 17 original checks, completed
misrepresentation, as in this case, and delivered to Pua, are sufficient by
when the insured did not personally themselves to prove the existence of
apply for the policy as she was the loan obligation of Spouses James
illiterate and that it was the to Pua. In Pacheco v. Court of Appeals,
beneficiary who filled up the the Court has expressly recognized
that a check “constitutes an evidence of
 indebtedness” and is a veritable “proof 24. A criminal complaint for violation of
of an obligation.” Hence, it can be used BP22 was filed by Foton Motors
“in lieu of and for the same purpose as (Foton), an entity engaged in the
a promissory note.” In fact, in the business of car dealership, against
seminal case of Lozano v. Martinez, Pura Felipe (Pura) with the office of the
the Court pointed out that a check City Prosecutor of Quezon City. The
functions more than a promissory note office found probable cause to indict
since it not only contains an Pura and filed an information before the
undertaking to pay an amount of MeTC of Quezon City, for her issuance
money but is an “order addressed to a of a postdated check in the amount of
bank and partakes of a representation P1,020,000.00 which was subsequently
that the drawer has funds on deposit dishonored upon presentment due to
against which the check is drawn, “Stop Payment”.
sufficient to ensure payment upon its
presentation to the bank.” The Court Pura issued the check because her
reiterated this rule in Lim v. Mindanao son, Freddie, attracted by a huge
Wines and Liquour Galleria stating that discount of P220,000, purchased a
“a check, the entries of which are in Foton Blizzard 4x2 from Foton. The
writing, could prove a loan transaction.” term of the transaction was Cash-on-
This is the very same principle Delivery and no down payment was
underpin Section 24 of the NIL which required. The car was delivered on May
provides that “every negotiable 14, 1997, but Freddie failed to pay
instrument is deemed prima facie to upon delivery. Despite non-payment,
have been issued for a valuable Freddie took possession of the vehicle.
consideration; and every person whose
signature appears thereon to have Pura was eventually acquitted of the
become a party for value.” charge of violating BP 22 but was
Consequently, the case should be found civilly liable for the amount of the
decided in favor of Pua and against check plus legal interest. Pura
Spouses James. appealed the decision as regards the
civil liability, claiming that there was no
privity of contract between Foton and
23. What vote is needed to consider every Pura. No civil liability could be
decision to be valid corporate act? adjudged against her because of her
acquittal from the criminal charge. It
a. A majority of the directors present at was Freddie who was civilly liable to
the meeting Foton, Pura claimed. Pura added that
b. 2/3 of the directors present at the she could not be an accommodation
meeting party either because she only came in
c. A majority of the directors present at after Freddie failed to pay the purchase
the meeting at which there is a price, or 6 months after the execution
quorum of the contract between Foton and
d. 2/3 of the directors present at the Freddie. Her liability was limited to her
meeting at which there is a quorum act of issuing a worthless check, but by
her acquittal in the criminal charge,
Answer: there was no more basis for her to be
c. A majority of the directors present at held civilly liable to Foton. Pura’s act of
the meeting at which there is a quorum issuing the subject check did not, by
itself, assume the obligation of Freddie
to Foton or automatically make her a
party to the contract. Is Pura liable?
 no need for a finding of fraud or
Answer: illegality before the doctrine of piercing
Yes. Pura is liable. The rule is that the veil of corporate fiction can be
every act or omission punishable by applied. The RTC ratiocinated that
law has its accompanying civil liability. being one and the same entity in the
The civil aspect of every criminal case eyes of the law, the service of
is based on the principle that every summons upon D-Securities has
person criminally liable is also civilly bestowed jurisdiction over both the
liable. If the accused however, is not parent and wholly-owned subsidiary. Is
found to be criminally liable, it does not the RTC correct?
necessarily mean that she will not
likewise be held civilly liable because Answer:
extinction of the penal action does not No, the RTC is not correct. The court
carry with it extinction of civil action. must have first acquire jurisdiction over
Although Pura was not an the corporation(s) involved before its or
accommodation party, she cannot their separate personalities are
escape civil liability. In cases of disregarded; and the doctrine of
violation of BP 22, a special law, the piercing the veil of corporate entity can
intent in issuing a check is immaterial. only be raised during a full-blown trial
Pura issued the bouncing check. Thus, over a cause of action duly
regardless of her intent, she remains commenced involving parties duly
civilly liable because the act or brought under the authority of the court
omission, the making and issuing of the by way of service of summons or what
subject check, from which her civil passes as such service.
liability arises.

25. In an action for collection of a sum of 26. DMP Corporation (DMP) obtained a
money, the RTC of Makati City issued loan of P20 M from National Bank (NB)
a decision finding D-Securities, Inc. secured by a real estate mortgage over
liable to Rehouse Corporation for P10 a 63,380-square meter land situated in
M. Subsequently, the writ of execution Cabanatuan City. Due to the Asian
was issued but returned unsatisfied Economic Crisis, DMP experienced
because D-Securities had no more liquidity problems disenabling it from
assets to satisfy the judgment. paying its loan on time. For that reason,
Rehouse moved for an Alias Writ of NB sought the extrajudicial foreclosure
Execution against Fairfield Bank (FB), of the said mortgage by filing a petition
the parent company of D-Securities. FB for sale on June 30, 2003. On
opposed the motion on the grounds September 4, 2003, the mortgaged
that it is a separate entity and that it property was sold at public auction,
was never made party to the case. The which was eventually awarded to NB
RTC granted the motion and issued the as the highest bidder. That same day,
Alias Writ of Execution. In its the Sheriff executed a Certificate of
Resolution, the RTC relied on the Sale in favor of NB.
following facts: 499,995 out of the
500,000 outstanding shares of stocks On October 21, 2003, DMP filed a
of D-Securities are owned by FB; FB Petition for Rehabilitation before the
had actual knowledge of the subject RTC. Pursuant to this, a Stay Order
matter of litigation as the lawyers who was issued by the RTC on October 27,
represented D-Securities are also the 2003.
lawyers of FB. As an alter ego, there is
On the other hand, NB caused the
recording of the Sheriff’s certificate of 27. ELP Insurance, Inc. issued a Marine
Sale on December 3, 2003 with the Policy No. 888 in favor of FCL Corp. to
Register of Deeds of Cabanatuan City. insure the shipment of 132 bundles of
NB executed an Affidavit of electric copper cathodes against all
Consolidation of Ownership and had risks. Subsequently, the cargoes were
the same annotated on the title of shipped on board the vessel “M/V
DMP. Consequently, the Register of Menchu” from Leyte to Pier 10, North
Deeds cancelled DMP’s title and issued Harbor, Manila.
a new title in the name of NB on
December 10, 2003. Upon arrival, FCL Corp. engaged the
services of CGM, Inc. for the release
NB also filed on March 17, 2004 an Ex- and withdrawal of the cargoes from the
Parte Petition for Issuance of Writ of pier and the subsequent delivery to its
Possession before the RTC of warehouses/plants in Valenzuela City.
Cabanatuan City. After hearing, the The goods were loaded on board 12
RTC issued on September 6, 2004 an trucks owned by CGM, Inc., driven by
Order directing the Issuance of the Writ its employed drivers and accompanied
of Possession, which was issued on by its employed truck helpers. Of the
October 4, 2004. 12 trucks en route to Valenzuela City,
only 11 reached the destination. One
DMP claims that all subsequent actions truck, loaded with 11 bundles of copper
pertaining to the Cabanatuan property cathodes, failed to deliver its cargo.
should have been held in abeyance
after the Stay Order was issued by the Because of this incident, FCL Corp.
rehabilitation court. Is DMP correct? filed with ELP Insurance, Inc. a claim
for insurance indemnity in the amount
Answer: of P1.5 M. After the requisite
No. DMP is not correct. Since the investigation and adjustment, ELP
foreclosure of the mortgage and the Insurance, Inc. paid FCL Corp. the
issuance of the certificate of sale in amount of P1,350,000.00 as insurance
favor of the mortgagee were done prior indemnity.
to the appointment of a Rehabilitation
Receiver and the issuance of the Stay ELP Insurance, Inc., thereafter, filed a
Order, all the actions taken with respect complaint for damages against CGM,
to the foreclosed mortgaged property Inc. before the RTC, seeking
which were subsequent to the issuance reimbursement of the amount it had
of the Stay Order were not affected by paid to FCL Corp. for the loss of the
the Stay Order. Thus, after the subject cargo. CGM, Inc. denied the
redemption period expired without the claim on the basis that it is not privy to
mortgagor redeeming the foreclosed the contract entered into by and
property, the mortgagee becomes the between FCL Corp. and ELP
absolute owner of the property and it Insurance, Inc., and hence, it is not
was within its right to ask for liable therefor. If you are the judge, how
consolidation of title and the issuance will you decide the case?
of new title in its favor. The writ of
possession procured by the mortgagee Answer:
despite the subsequent issuance of CGM, Inc. should be held liable for
Stay Order in the rehabilitation damages against ELP Insurance, Inc.
proceeding instituted is also valid. The insurer, upon happening of the risk
insured against and after payment to
 the insured is subrogated to the rights or phonorecord. Hence, there is no
and cause of action of the latter. As infringement by KK since the said
such, the insurer has the right to seek doctrine permitted importation and
reimbursement for all the expenses resale without the publisher’s further
paid. permission.

28. Which of the following instruments is

negotiable if all the other requirements
of negotiability are met?

a. A promissory note with promise to

pay out of the U.S. Dollar account of
the maker in XYZ Bank.
b. A promissory note which designates
the U.S. Dollar currency in which
payment is to be made.
c. A promissory note which contains in
addition a promise to paint the
portrait of the bearer.
d. A promissory note made payable to
the order of Jose Cruz or Josefa 2013 BAR EXAMINATION
Cruz.

Answer: 1. Antonio issued the following instrument:

c. A promissory note which contains in
addition a promise to paint the portrait of
the bearer.

29. KK is from Bangkok, Thailand. She

studies medicine in the Pontifical
University of Santo Tomas (UST). She
learned that the same foreign books
prescribed in UST are 40-50% cheaper
in Bangkok. So she ordered 50 copies
of each book for herself and her
classmates and sold the books at 20%
less than the price in the Philippines.
XX, the exclusive licensed publisher of
the books in the Philippines, sued KK
for copyright infringement. Decide.

Answer:
KK did not commit copyright
infringement. Under the “first sale”
doctrine, the owner of a particular copy
or phonorecord lawfully made is
entitled, without the authority of the
copyright owner, to sell or otherwise
dispose of the possession of that copy
 application
t and issued an insurance
policy
y effective Nov. 6, 2008. Benny
named his children as his beneficiaries.
P100,000.00 On April 6, 2010, Benny died of
hapatoma, a liver ailment.
Sixty days after date, I promise to
pay Bobby or his designated The insurance company denied the
representative the sum of ONE children’s claim for the proceeds of the
HUNDRED THOUSAND PESOS insurance policy on the ground that
(P100,000.00) from my BPI Acct. No. Benny failed to disclose in his
1234 if, by this due date, the sun still application 2 previous consultations with
sets in the west to usher in the evening his doctors for diabetes and
and rises in the east the following hypertension, and that he had been
morning to welcome the day. diagnosed to be suffering from
hepatoma. The insurance company also
rescinded the policy and refunded the
(Sgd.) Antonio Reyes premiums paid.

Explain each requirement of Was the insurance company correct?

negotiability present or absent in the
instrument. Answer:
The insurance company correctly
Answer: rescinded the policy because of
The instrument contains a promise concealment. Benny did not disclose
to pay and was signed by the maker, that he was suffering from diabetes,
Antonio Reyes. hypertension, and hepatoma. The
concealment is material because these
The promise to pay is unconditional are serious ailments. Benny died less
insofar as the reference to the setting of than 2 years from the date of the
the sun in the west in the evening and issuance of the policy.
its rising in east in the morning are 3. From his first term in 2007,
concerned. These are certain to Congressman Abner has been
happen. The promise to pay is endorsing his pork barrel allocations to
conditional, because the money will be Twin Rivers in exchange for a
taken from a particular fund, BPI Acct. commission of 40% of the face value of
No. 1234. the allocation. Twin Rivers is a non-
governmental organization whose
The instrument contains a promise supporting papers, after audit, were
to pay a sum certain in money, found by the COA to be fictitious. Other
P100,000.00. than to prepare and submit falsified
papers to support the encashment of the
The money is payable at a pork barrel checks, Twin Rivers does
determinable future time, 60 days after not appear to have done anything on the
August 10, 2013. endorsed projects and Congressman
Abner likewise does not appear to have
The instrument is not payable to bothered to monitor the progress of the
order or to bearer. progress of the projects he endorsed.
The congressman converted most of the
commissions he generated into US
2. Benny applied for life insurance for P1.5 dollars, and deposited these in a foreign
M. the insurance company approved his
 currency account with Banco de Plata Rudy and the cafeteria operator
(BDP) immediately confronted Bernie. While
admitting that he did not do the painting,
Based on amply-supported tips given by Bernie claimed ownership of its
a congressman from another political copyright since he had already
party, the AMLC sent BDP an order: (1) registered it in his name with the
to confirm Cong. Abner’s deposits with National Library as provided in the
the bank and to provide details of these Intellectual Property Code.
deposits; and (2) to hold all withdrawals
and other transactions involving the Who owns the copyright to the painting?
congressman’s bank accounts. Explain.

As counsel for BDP, would you advise Answer:

the bank to comply with the order? Rudy owns the copyright to the
painting because he was the one who
Answer: actually created it. His rights existed
I shall advise BDP not to comply from the moment of its creation. The
with the order of the AMLC. It cannot registration of the painting by Bernie
inquire into the deposits of with the National Library did not confer
Congressman Abner, regardless of copyright upon him. The registration is
currency, without a bank inuiry orser merely for the purpose of completing the
from a competent court, because crimes records of the National Library.
involved are not kidnapping for ransom,
violations of the Dangerous Drugs act,
hijacking and other violations of R.A. 5. You are a member of the legal staff of a
No. 6235, destructive arson, murder, law firm doing corporate and securities
and terrorism and conspiracy to commit work for Coco Products Inc., a company
terrorism. with unique products derived from
coconuts and whose shares are traded
The AMLC cannot order BDP to hold in the Philippine Stock Exchange. A
all withdrawals and other transactions partner in the law firm, Atty. Buenexito,
involving the accounts of Congressman to whom you report, is the Corporate
Abner. It is the Court of Appeals which Secretary of Coco Products. You have
has the power to issue a freeze order long been investing in Coco Products
over that accounts upon petition of the stocks even before you became a
AMLC. lawyer.

While working with Atty. Buenixito on

4. Rudy is a fine arts student in a another file, he accidentally gave you
university. He stays in a boarding house the Coco products file containing the
with Bernie as his roommate. During his company’s planned corporate financial
free time, Rudy would paint and leave rehabilitation. While you knew you had
his finished works lying around the the wrong file, your curiosity prevailed
boarding house. One day, Rudy saw and you browsed through the file before
one of his works—an abstract painting returning it. Thus, you learned that a
entitled Manila Traffic Jam—on display petition for financial rehabilitation is
at the university cafeteria. The cafeteria imminent, as the company could no
operator said he purchased the painting longer meet its obligations as they fell
from Bernie who represented himself as due.
its painter and owner.
 Soon after, your mother is rushed to the When the extended loan period expired
hospital for an emergency operation, without any significant payment from
and you have to raise money for her Delano (not even to the extent of the
hospital bills. An immediate option for proceeds of the sale of the iron pellets),
you is to sell your Coco Products BDP Bank consulted you to on how to
shares. The sale would be very timely proceed against Delano. The bank is
because the price of the company’s contemplating the filing of estafa
stocks are still high. pursuant to the provisions of PD 115
(Trust Receipts Law) to force Delano to
Would you sell the shares to raise the turn in at least the proceeds of the sale
needed funds for your mother’s of the iron pellets.
hospitalization? Take into account legal
and ethical considerations. Would you, as bank counsel and as
officer of the court, advise the bank to
Answer: proceed with its contemplated action?
The sale of the shares does not
constitute insider trading. Although Atty.
Buenixto, as corporate secretary of
Coco products, Inc. was an insider, I did Answer:
not obtain the information regarding the I will not advise BDP Bank to file a
planned corporate rehabilitation by a criminal case for estafa against Delano.
communication from him. He just Delano received the iron pellets he
accidentally gave the wrong file. imported one year before the trust
receipt was executed. As held by the
It would be unethical to sell the Supreme Court, where the execution of
shares. Rule 1.01 of the Code of a trust receipt agreement was made
Professional Responsibility provides, “A after the goods covered by it had been
lawyer shall not engage in unlawful, purchased by and delivered to the
dishonest, immoral or deceitful conduct.” entrustee and the latter as a
consequence acquired ownership to the
A lawyer should not only refrain from goods, the transaction does not involve
performing unlawful acts. He should a trust receipt but a simple loan even
also desist from engaging in unfair though the parties denominated the
deceitful conduct to conceal from the transaction as one of trust receipt.
buyer of the shares the planned
corporate rehabilitation.
7. Stable Insurance Co. (SIC) and St.
Peter Manufacturing Co. (SPMC) have
6. Delano Cruz is in default in the payment had a long-standing insurance
of his existing loan from BDP Bank. To relationship with each other; SPMC
extend and restructure this loan, Delano secured the comprehensive fire
agreed to execute a trust receipt in the insurance on its plant and facilities from
bank’s favor covering the iron pellets SIC. The standing business practice
Delano imported from China one year between them has been to allow SPMC
earlier. Delano subsequently succeeded a credit period of 90 days from the
in selling the iron pellets to a smelting renewal of the policy within which to pay
plant, but the proceeds went to the the premium.
payment of the separation benefits of
his employees who were laid off as he Soon after the new policy was issued
reduced his operations. and before premium payments could be
made, a fire gutted the covered plant
 and facilities to the ground. The day letter-complaint addressed to the board,
after the fire, SPMC issued a manager’s and later (when his letter-complaint went
check to SIC for the fire insurance unheeded), through a derivative suit
premium, for which it was issued a filed with the court. He claimed that the
receipt; a week later SPMC issued its vacancy in the board should be filled up
notice of loss. by the vote of the stockholders of
Greenville Corporation. Greenville
SIC responded by issuing its own Corporation’s directors defended the
manager’s check for the amount of the legality of their action, claiming as well
premiums SPMC had paid, and denied that Stockholder X’s derivative suit was
SPMC’s claim on the ground that under improper.
the “cash and carry” principle governing
fire insurance, no coverage existed at Rule on the issued raised.
the time the fire occurred because the
insurance premium had not been paid. Answer:
The remaining directors cannot elect
Is SPMC entitled to recover for the loss new directors to fill in the two vacancies.
from SIC? The board of directors may fill up
vacancy only if the ground is not due to
Answer: expiration of term, removal or increase
SPMC is entitled to recover for the in the number of board seats. In this
loss from SIC. SIC granted a credit term case, the term of the two directors
to pay the premiums. This is not against expired after 1 year. They remained in
the law, because the standing business office in a hold-over capacity only until
practice of allowing SPMC to pay the their resignation. The hold-over period is
premiums after 60 or 90 days, was not part of their term. The vacancies
relied upon in good faith by SPMC. SIC should be filled up by election by the
is in estoppel. stockholders.

The derivative suit was improper. In

8. In the November 2010 stockholder’s a derivative suit, the corporation, not the
meeting of Greenville Corporation, 8 individual stockholder, must be the
directors were elected to the board. The aggrieved party and that the stockholder
directors assumed their posts in January is suing on behalf of the corporation.
2011. Since no stockholders’ meeting What stockholder X is asserting is his
was held in November 2011, the 8 individual right as a stockholder to elect
directors served in a holdover capacity the two directors. The case partakes
and thus continued discharging their more of an election contest under the
powers. rules on intra-corporate controversy.

In June 2012, 2 of Greenville

Corporation’s directors—Director A and 9. Fil-Asia Air Flight 916 was on a
Director B—resigned from the board. scheduled passenger flight from Manila
Relying on Section 29 of the when it crashed as it landed at the
Corporation Code, the remaining 6 Cagayan de Oro airport; the pilot
directors elected 2 new directors to fill in miscalculated the plane’s approach and
the vacancy caused by the resignation undershot the runway. Of the 150
of Directors A and B. people on board, 10 passengers died at
the crash scene.
Stockholder X questioned the election of
the new directors, initially, through a
Of the 10 who dies, one was a A complaint based on a quasi-delict
passenger who managed to leave the can be filed against the pilots
plane but was run over by an because of their fault and
ambulance coming to the rescue. negligence. Fil-Asia Air can be
Another was an airline employee who included for negligence in the
hitched a free ride to Cagayan de Oro selection and supervision of the
and who was not in the passenger pilots.
manifest.
A third cause of action may be a
It appears from the Civil Aeronautics criminal prosecution for reckless
Authority investigation that the co-pilot imprudence resulting in homicide
who had control of the plane’s landing against two pilots. The airline will be
had less than the required flying and subsidiarily liable for the civil liability
landing time experience, and should not only after the pilots are convicted
have been in control of the plane at the and found to be insolvent.
time. He was allowed to fly as a co-pilot
because of the scarcity of pilots— b) It is the driver of the ambulance and
Philippine pilots have been recruited by his employer who should be held
foreign airlines under vastly improved liable for damages, because a
flying terms and wages so that newer passenger was run over. This is in
and less trained pilots are being locally accordance with Articles 2176 and
deployed. The main pilot, on the other 2180 of the Civil Code. There could
hand, had a very high level of blood also be a criminal prosecution for
alcohol at the time of the crash. reckless imprudence resulting in
homicide against the ambulance
You are part of the team that the victims driver and the consequent civil
hired to handle the case for them as a liability.
group. In your case conference, the
following questions came up: Since the airline employee was
being transported gratuitously, Fil-
a) Explain the causes of action legally Asia Air was not required to exercise
possible under the given facts extraordinary diligence for his safety
against the airline and the pilots; and only ordinary care.
whom will you specifically implead in
these causes of action?
b) How will you handle the cases of the 10. Bell Philippines, Inc. (BelPhil) is a
passenger run over by the public utility company, duly incorporated
ambulance and the airline employee and registered with the SEC. its
allowed to hitch a free ride to authorized capital stock consists of
Cagayan de Oro? voting common shares and non-voting
preferred shares, with equal par values
Answer: of P100/share. Currently, the issued and
a) A complaint for breach of contract of outstanding capital stock of BelPhil
carriage can be filed against Fil-Asia consists only of common shares shared
air for failure to exercise between Bayani Cruz, a Filipino with
extraordinary diligence in 60% of the issued common shares, and
transporting the passengers safely Bernard Fleet, a Canadian, with 40%.
from their point of embarkation to
their destination. To secure additional working fund,
BelPhil issued preferred shares to
Bernard Fleet equivalent to the currently
 outstanding common shares. A suit was a) No, because shares of stocks
filed questioning the corporate action on are intangible personal
the ground that the foreign equity properties whose possession
holdings in the company would now cannot be delivered and, hence,
exceed the 40% foreign equity limit cannot be the subject of a
allowed under the Constitution for public pledge;
utilities. b) No, because the pledge of
shares of stock requires double
Rule on the legality of Bernard Fleet’s registration with the Register of
current holdings. Deeds of the principal place of
business of the corporation and
Answer: of the residence of the pledgor;
The holding of Bernard Fleet c) Yes, because endorsement and
equivalent to the outstanding common delivery of the certificates of
shares is illegal. His holdings of stock is equivalent to the transfer
preferred shares should not exceed of possession of the covered
40%. Since the constitutional shares to the pledge.
requirement of 60% Filipino ownership d) Yes, because the execution of
of the capital of public utilities applies the Deed of Assignment of
not only to voting control but also to Shares of Stock is equivalent to
beneficial ownership of the corporation, a lawful pledge of the shares of
it should also apply to the preferred stock.
shares. Preferred shares are also
entitled to vote in certain corporate Answer:
matters. The State shall develop a self- d) Yes, because the execution of the
reliant and independent national Deed of Assignment of Shares of
economy effectively controlled by Stock is equivalent to a lawful
Filipinos. The effective control here pledge of the shares of stock.
should be mirrored across the board on
all kinds of shares.
1.2. After Claude defaulted on the loan,
Conrad sought to have the shares
registered in his name in the books
MULTIPLE CHOICE QUESTIONS of the corporation. If you are the
Corporate Secretary of ABC
Corporation, would you register the
1. Claude, the registered stockholder of shares in the name of Conrad
1,000 shares in ABC Corp., pledged the without any written instruction from
shares to Conrad by endorsement in Claude?
blank of the covering stock certificates
and, execution of a Deed of Assignment a) Yes, since the endorsement and
of Shares of Stock, intended as delivery of the certificates of
collateral for a loan of P1 M that was stock executed by Claude
also supported by a separate constitute the legal authority to
promissory note. cancel the shares in his name
and to place them in Conrad’s
1.1. Under these facts, is there a valid name;
pledge of the shares of stock to b) Yes, since the execution of the
Conrad? Deed of Assignment by Claude
would constitute the legal
authority to cancel the shares in
 his name and place them in 2.2. The delegation asked: aside from
Conrad’s name; Filipino citizens, what entities would
c) No, because corporate officers fall under the definition of “Philippine
can only take direct instructions National” under FIA ’91?
from the registered owners on
the proper disposition of shares You replied that the definition of
registered in their names; “Philippine National” under FIA ’91
d) No, because the corporation has covers ____.
a primary lien on the shares
covering the unpaid subscription. a) Domestic partnership wholly
composed of Filipino citizens;
Answer: b) Domestic corporations 60% of
None of the answers is whose capital stock, outstanding
correct. The pledge must be and entitled to vote, are owned
foreclosed. Conrad cannot just and held by Filipino citizens;
appropriate the shares of stock. c) Foreign corporations considered
as doing business in the
Philippines under the
2. A foreign delegation of business man Corporation Code, 100% of
and investment bankers called on your whose capital stock, outstanding
law firm to discuss the possibilities of and entitled to vote, are wholly-
investing in various projects in the owned by Filipino citizens;
Philippines, and wanted your thoughts d) All of the above, because the law
on certain issues regarding foreign considers the juridical
investments in the Philippines. personality, whether domestic or
foreign, as a mere medium; the
2.1. The delegation has been told about test of nationality is on the
the Foreign Investments Act of 1991, individuals who control the
as amended (FIA ’91), and they medium;
asked what exactly is the law’s e) None of the above, because the
essential thrust regarding foreign term Philippine national can only
investments in Philippine business cover individuals and not juridical
and industries. entities.

You replied that FIA ’91 essentially Answer:

reflects __________. d) All of the above, because the law
considers the juridical personality,
a) The “Filipino First Policy”; whether domestic or foreign, as a
b) The “Foreign Investments mere medium; the test of nationality
Positive Lists” concept; is on the individuals who control the
c) The “Foreign Investments medium.
Negative Lists” concept;
d) The “Control Test” concept;
e) All of the above.
2.3. The delegation heard that foreigners
Answer: can invest up to 100% of the equity
c) The “Foreign Investments in “export oriented enterprises” and
Negative Lists” concept. you were asked exactly what the
term covers.
 You replied that an “export oriented 3. Dennis subscribed to 10,000 shares of
enterprises” under FIA ’91 is an XYZ Corporation with a par value of 100
enterprise that ________. per share. However, he paid only 25%
of the subscription or P250,000. No call
a) Only engages in the export of has been made on the unpaid
goods and services, and does subscription.
not sell goods or services to the
domestic market; How many shares is Dennis entitled to
b) Exports consistently at least 40% vote at the annual meeting of the
of its goods or services, and stockholders of XYZ?
sells at least 60% of the rest to
the domestic market; a) 10,000 shares;
c) Exports consistently at least 60% b) 2,500 shares;
of the goods or services c) 100 shares;
produced, and sells at least 40% d) 0 shares;
of the rest to the domestic e) None of the above.
market;
d) Exports consistently at least 60% Answer:
of its goods or services a) 10,000 shares
produced, and can sell goods or
services to the domestic market;
e) None of the above. 4. ABC Corp. issued redeemable shares.
Under the terms of the issuance, the
Answer: shares shall be redeemed at the end of
e) None of the above. 10 years from date of issuance, at par
value plus a premium of 10%.

2.4. As a last question and by way of a Choose the correct statement relating to
concrete example, a delegation these redeemable shares.
member finally inquired—which of
the following corporations or a) ABC Corp. would need unrestricted
businesses in the Philippines may it retained earnings to be able to
invest and up to what extent? redeem the shares;
b) Corporations are not allowed to
a) A lifestyle magazine publication issue redeemable shares; thus, the
corporation up to 40% equity; issuance by ABC Corp. is ultra vires;
b) An advertising corporation, up to c) Holders of redeemable shared enjoy
100% equity; a preference over creditors;
c) A commercial bank, up to 60% d) ABC Corp. may redeem the shared
equity; at the end of 10 years without need
d) A jeepney manufacturing for unrestricted retained earnings
corporation, up to 100% equity; provided that, after the redemption,
e) A real estate development there are sufficient assets to cover
corporation, up to 60% equity. its debts;
e) All of the above are incorrect.
Answer:
d) A jeepney manufacturing Answer:
corporation, up to 100% equity. d) ABC Corp. may redeem the shared at
the end of 10 years without need for
unrestricted retained earnings provided
 that, after the redemption, there are Bumblebee Corp., all of whom are
sufficient assets to cover its debts. Singaporeans and officers of Gawsensit
Corp.

5. Arnold, representing himself as an agent Choose the correct statement relating to

of Brian for the sale of Brian’s car, Gawsengsit Corp.
approached Dennis who appeared
interested in buying the car. At Arnold’s a) Gawsengsit Corp. is doing business
prodding, Dennis issued a crossed in the Philippines and requires a
check payable to Brian for P25,000 on license from the SEC;
the understanding that the check would b) Gawsengsit Corp. is not doing
only be shown to Brian as evidence of business in the Philippines by its
Dennis’ good faith and interest in buying mere investment in a Philippine
the car. Instead, Arnold used the check corporation and does not need a
to pay for the medical expenses of his license from the SEC;
wife in Brian’s clinic after Brian, a c) Gawsengsit Corp. has to appoint a
doctor, treated her. resident agent in the Philippines;
d) Gawsengsit Corp. cannot elect
Is Brian a holder in due course? directors in Bumblebee Corp.;
e) All of the above choices are
a) Yes, Brian is a HIDC because he incorrect.
was the payee of the check and he
received it for services rendered; Answer:
b) Yes, Brian is a HIDC because he did b) Gawsengsit Corp. is not doing
not need to go behind the check business in the Philippines by its
that was payable to him; mere investment in a Philippine
c) No, Brian is not a HIDC because corporation and does not need a
Dennis issued the check only as license from the SEC.
evidence of good faith and interest in
buying the car;
d) No, Brian is not a HIDC because 7. The BIR assessed ABC Corp. for
Brian should have been placed on deficiency income tax for taxable year
notice: the check was crossed in his 2010 in the amount of P26,731,208.00,
favor and Arnold was not the drawer; inclusive of surcharge and penalties.
e) No, Brian is not a HIDC because the
requisite consideration to Dennis The BIR can _______.
was not present.
a) Run after the directors and officers
Answer: of the ABC Corp. to collect the
d) No, Brian is not a HIDC because deficiency tax and their liability will
Brian should have been placed on be solidary;
notice: the check was crossed in his b) Run after the stockholders of ABC
favor and Arnold was not the drawer. Corp. and their liability will be joint;
c) Run after the stockholders of ABC
Corp. and their liability will be
6. Gawsengsit Corp. is a corporation solidary;
incorporated in Singapore. It invested in d) Run after the unpaid subscriptions
Bumblebee Corp., a Philippine still due to ABC Corp., if any;
corporation, by acquiring 30% of its e) None of the above choices is
shares. As a result, Gawsengsit Corp. correct’
nominated 30% of the directors of the
 Answer: c) Through dacion en pago in
d) Run after the unpaid subscriptions satisfaction of a debt in favor of a
still due to ABC Corp., if any. bank;
d) In exchange for the purchase of
shares of stocks of the bank;
8. Anton imported perfumes from Taiwan
and these were released to him by the
bank under a trust receipt. While the 10. Under AMLA, a depositor’s bank
perfumes were in Anton’s warehouse, account may be frozen.
thieves broke in and stole all of them.
a) By the bank when the account is the
Who will shoulder the loss of the stolen subject of a suspicious or covered
perfumes? transaction report;
b) By the AMLC when the account
a) The loss of the perfumes will be belongs to a person already
borne by the bank in whose behalf convicted of money laundering;
the perfumes were held in trust; c) By the RTC, upon ex parte motion
b) Anton will bear the loss; by the AMLC, in a criminal
c) The exporter can hold both the bank prosecution for money laundering
and Anton liable for the loss; pending before it;
d) The exporter from whom Anton d) By the Court of Appeals motu
bought the perfumes will bear the proprio in an appeal from a judgment
loss; of conviction of a criminal charge for
e) No one bears the loss for an money laundering;
unforeseen event. e) None of the above.

Answer: Answer:
b) Anton will bear the loss. e) None of the above.

9. A bank may acquire real property 11. Unknown to the other four proponents,
_______. Enrico (who had been given the task of
attending to the Articles of Incorporation
a) By purchase at a public sale of of the proposed corporation, Auto Mo,
properties levied to satisfy tax Ayos Ko) misappropriated the filing fees
delinquencies; and never filed the Articles of
b) By purchase from a real estate Incorporation with the SEC. instead, he
corporation in the ordinary course of prepared and presented to the proposed
the bank’s business; incorporators a falsified SEC certificate
c) Through dacion en pago in approving the Articles. Relying on the
satisfaction of a debt in favor of a falsified SEC certificate, the latter began
bank; assuming and discharging corporate
d) In exchange for the purchase of powers.
shares of stocks of the bank;
e) All of the above; Auto Mo, Ayos Ko is a ______.
f) None of the above.
a) De jure corporation;
Answer: b) De facto corporation;
b) By purchase from a real estate c) Corporation by estoppel;
corporation in the ordinary course of the d) General partnership;
bank’s business; e) None of the above.
 estrangement removed Aurelia’s
Answer: insurable interest in Benjalani’s life;
c) Corporation by estoppel— if the term e) None of the above.
“latter” refers to the incorporators.
e) None of the above—if the term “latter” Answer:
refers to Enrico. a) Yes, the policy is valid and binding
because Aurelia has an insurable
interest on the life of Kaddafy
12. Preferred shares cannot vote on the Benjelani.
proposal _______.

a) To include other corporate officers in 14. Muebles Classico, Inc. (MC), a Manila-
the corporation’s by-laws; based furniture shop, purchased
b) To issue corporate bonds; hardwood lumber from Surigao Timber,
c) All of the above; Inc. (STI), a Mindanao-based logging
d) None of the above. company. MC was to pay STI the
amount of P5 M for 50 tons of lumber.
Answer: To pay STI, MC opened a letter of credit
e) None of the above. with Banco de Plata (BDP). BDP duly
informed STI of the opening of a letter of
credit in its favor.
13. In 2010, the PNP declared Kaddafy
Benjelani “Public Enemy No. 1” because In the meantime, MC—which had been
of his terrorist activities in the country undergoing financial reverses—filed a
that have resulted in the death of petition for corporate rehabilitation. The
thousands of Filipinos. A ransom of P15 rehabilitation court issued a Stay Order
M was placed on Kaddafy Benjelani’s to stay the enforcement of all claims
head. against MC.

Worried about the future of their family, After shipping the lumber, STI went to
Kaddafy Benjelani’s estranged wife, DBP, presented the shipping
Aurelia, secured in December 2010 a documents, and demanded payment of
life insurance policy on his life and the letter of credit opened in its favor.
designated herself as beneficiary. MC, on the other hand, informed the
bank of the Stay Order and instructed it
Is the policy valid and binding? to deny payment to STI because of the
Stay Order.
a) Yes, the policy is valid and binding
because Aurelia has an insurable BDP comes to you for advice. Your best
interest on the life of Kaddafy advice is to ______.
Benjelani.
b) No, the policy is not valid and a) Grant STI’s claim. Under the
binding because Kaddafy Benjelani “Independence Principle,” the bank
has been officially declared a public deals only with the document and
enemy; not the underlying circumstances;
c) Yes, the policy is valid and binding hence, the presentation of the letter
because it has been in force for of credit is sufficient;
more than 2 years; b) Deny STI’s claim. The Stay Order
d) No, the policy is not valid and covers all claims against the debtor
binding since the spouses’ and binds all its creditors. The letter
 of credit is a claim against the debtor commence an action to recover
that is covered by the Stay Order; damages with the court?
c) Grant STI’s claim. The letter of credit
is not a claim against the debtor a) No, the failure to file a claim with
under rehabilitation, but against the the carrier is a condition
bank which has assumed a solidary precedent for recovery;
obligation; b) Yes, provided he files the
d) Deny STI’s claim. If the bank complaint within 10 years from
disregards the Stay order, it may be delivery;
subject to contempt by the c) Yes, provided he files the
rehabilitation court. STI should file its complaint within 10 years from
claim with the rehabilitation court; discovery of the damage;
e) File an action for interpleader to d) Yes, provided he files the
resolve the parties’ competing complaint within 1 year from
claims. delivery;
e) Yes, provided he files the
Answer: complaint within 1 year from
c) Grant STI’s claim. The letter of credit discovery of the damage;
is not a claim against the debtor under
rehabilitation, but against the bank Answer:
which has assumed a solidary d) Yes, provided he files the
obligation. complaint within 1 year from
delivery.

15. Akiro of Tokyo, Japan sent various

goods to his friend Juan in Cebu City,
Philippines, through one of the vessels
of Worthwell Shippers, Inc., an
American corporation. En route to Cebu
City, the vessel had two stops, first in
Hong Kong, and second, in Manila.

15.1. While travelling from Tokyo to Hong

Kong, the goods were damaged.

What law will govern?

a) Japanese law;
b) Hong Kong law;
c) Chinese law;
d) Philippine law;
e) American law.

Answer:
d) Philippine law.

15.2. Assuming Philippine law is to be

applicable and Juan fails to file a
claim with the carrier, may he still
 of Credit in favor of BBB Corporation.
The terms of the irrevocable Letter of
Credit state that the beneficiary must
present certain documents including a
copy of the Bill of Lading of the
importation for the bank to release the
2012 BAR EXAMINATION funds. BBB Corporation could not find
the original copy of the Bill of Lading so
MULTIPLE CHOICE QUESTIONS (MCQs) it instead presented to the bank a Xerox
copy of the Bill of lading. Would you
1. Letters of Credit are financial devices in advise the bank to allow the drawndown
commercial transactions which will on the Letter of Credit?
ensure that the seller of the goods is
sure to be paid when he parts with the a) No, because the rule of strict
goods and the buyers of the goods get compliance in commercial
control of the goods upon payment. transactions involving letters of
Which statement is most accurate? credit, requiring documents set as
conditions for the release of the fund
a) The use of the Letter of Credit has to be strictly complied with or
serves to reduce the risk of non- else funds will not be released;
payment of the purchase price in a b) Yes, because an irrevocable letter of
sale transaction; credit means that the issuing bank
b) The Letters of Credit can only be undertakes to release the fund
used exclusively in sales anytime when claimed by the
transaction; beneficiary, regardless of the kind of
c) The Letters of Credit are issued for document presented;
the benefit of the seller only; c) Yes, because the issuing bank can
d) A, b, and c are all correct. always justify to CCC Corporation
that Xerox copies are considered as
Answer: faithful reproduction of the original
a) The use of the Letter of Credit copies;
serves to reduce the risk of non- d) Yes, because the issuing bank has
payment of the purchase price in a no discretion to determine whether
sale transaction. the documents presented by the
beneficiary are sufficient or not.
2. Letter of Credit which is used in non-
side transaction, where it serves to
reduce the risk of non-performance is
called—
Answer:
a) Irrevocable letter of credit; a) No, because the rule of strict
b) Standby letter of credit; compliance in commercial
c) Confirmed letter of credit; transactions involving letters of
d) None of the above. credit, requiring documents set as
conditions for the release of the fund
Answer: has to be strictly complied with or
b) Standby letter of credit. else funds will not be released.

3. At the instance of CCC Corporation, 4. AAA Carmakers opened an irrevocable

AAA Bank issued an irrevocable Letter Letter of Credit with BBB Banking
 Corporation with CCC Cars Corporation sacks of corn.” X wanted to use the
as beneficiary. The irrevocable Letter of warehouse receipt as payment of his
Credit was opened to pay for the debt in favor of Z. how can the
importation of 10 units of Mercedes ownership of the goods covered b the
Benz S class. Upon arrival of the cars, warehouse receipt be transferred?
AAA Carmakers found out that the cars
were all not in running condition and a) Negotiate the warehouse receipt by
some parts were missing. As a just delivering the warehouse receipt
consequence, AAA Carmakers to Z.
instructed BBB Banking Corporation not b) Assign the warehouse receipt to Z to
to allow drawdown on the Letter of transfer ownership of the goods.
Credit. Is this legally possible? c) Negotiate the warehouse receipt by
specifically indorsing it to Z.
a) No, because under the d) The warehouse receipt in this case
“Independence Principle” conditions is non-negotiable.
for the drawdown on the Letters of
Credit are based only on documents, Answer:
like shipping documents, and not a) Negotiate the warehouse receipt by
with the condition of the goods just delivering the warehouse receipt
subject of the importation. to Z.
b) Yes, because the acceptance by the
importer of the goods subject of
importation is material for the 6. The warehouseman, by issuing the
drawdown of the Letter of Credit. warehouse receipt, acknowledges that
c) Yes, because under the the goods are in possession, but he can
“Independence Principle”, the seller refuse to deliver the goods to the holder
of or the beneficiary is always of the warehouse receipt covering the
assured of prompt payment if there goods if—
is no breach in the contract between
the seller and the buyer. a) The warehouse receipt covering the
d) No, because what was opened was goods is not presented;
an irrevocable letter of credit and not b) The lien of the warehouseman is not
a confirmed letter of credit. satisfied;
c) The said holder presents a
Answer: materially altered warehouse receipt;
a) No, because under the d) All of the above.
“Independence Principle” conditions
for the drawdown on the Letters of Answer:
Credit are based only on documents, d) All of the above.
like shipping documents, and not
with the condition of the goods
subject of the importation. 7. The legal remedy of the warehouseman
in case of conflicting claims is to—

5. For a fee, X deposited 1,000 sacks of a) File an action for interpleader;

corn in the warehouse owned by Y. Y is b) Give the goods to the first one who
in the business of warehousing. Y first presented the warehouse
issued a warehouse receipt as proof of receipt;
the possession of the 1,000 sacks of c) Use his discretion as to who he
corn. The warehouse receipt states as believes has the prior right;
follows: “Deliver to X or bearer 1,000
 d) Keep the goods and appropriate dried fruits were so saleable but instead
them to himself. of turning over the proceeds of the sale,
X used the funds to pay for the medical
Answer: expenses of his mother who was sick of
a) File an action for interpleader. cancer of the bone. Which statement is
most accurate?
8. BBB Banking Corporation issued a
Letter of Credit in the amount of P5 M, a) X cannot be held criminally liable
for the purchase of 5 tons of corn by X. because although he did not pay the
upon arrival of the goods, the goods bank he used the proceeds for a
were delivered to the warehouse of X. good reason;
thereafter, he was asked to sign a Trust b) Fraud or deceit is a necessary
Receipt covering the goods. When the element to hold X criminally liable for
goods were sold, X did not deliver the non-payment under the Trust
proceeds to BBB Banking Corporation, Receipts Law;
arguing that he will need the fund for the c) X can be held criminally liable under
subsequent importation. Is there the Trust Receipts Law regardless of
sufficient basis to sue for criminal the purpose or intention for the use
action? of the proceeds;
d) X cannot be held criminally liable
a) Yes, because X’s failure to turn over because the underlying obligation is
the proceeds to the bank is a one of simple loan.
violation of the Trust Receipt Law;
b) No, because the trust receipt was Answer:
signed only after the delivery of the c) X can be held criminally liable under
goods. When the trust receipt was the Trust Receipts Law regardless of the
signed, the ownership of the goods purpose or intention for the use of the
was already with X; proceeds.
c) Yes, because violation of Trust
Receipt Law is mala prohibita,
intention is irrelevant; 10. X is the President of AAA Products
d) No, because X has a valid reason Corporation. X signs all the Trust
not to deliver the proceeds to BBB Receipts documents for certain
Banking Corporation. importations of the company. In the
event of failure to deliver the proceeds
Answer: of the sale of the goods to the bank,
a) Yes, because X’s failure to turn over which statement is most accurate?
the proceeds to the bank is a
violation of the Trust Receipt Law a) The criminal liability will not attach to
c) Yes, because violation of Trust X as president because of separate
Receipt Law is mala prohibita, intention juridical personality;
is irrelevant. b) For violation of Trust Receipts Law,
the law specifically provides for the
imposition of penalty upon
9. X secured a loan from BBB Bank to pay directors/officers of the corporation;
for the importation of some dried fruits. c) The officer will not be held criminally
Upon arrival of the goods consisting of accountable because he is just
dried fruits imported by X but before signing the trust receipt for and in
delivery to him, a trust receipt was behalf of the corporation;
executed by X to cover the transfer of d) The officer of the corporation will be
the dried fruits to his possession. The held liable provided it is clear that
 the officer concerned participated in a) For as long as the holder does not
the decision not to pay. know that X is only an
accommodation party;
Answer: b) Even though the holder knew all
b) For violation of Trust Receipts Law, along that X is only an
the law specifically provides for the accommodation party;
imposition of penalty upon c) For as long as X did not receive any
directors/officers of the corporation. consideration for acting as
accommodation party;
d) Provided X received consideration
11. Who is the Entrustee in a Trust Receipt for acting as accommodation party.
arrangement?
Answer:
a) The owner of the goods; b) Even though the holder knew all
b) The one who holds the goods and along that X is only an
receives the proceeds from the sale accommodation party.
of the goods;
c) The person to whom goods are
delivered for sale and who bears the 14. X issued a promissory note which
risk of the loss; states, “I promise to pay Y or order
d) The party who acquires security P100,000 or 1 unit Volvo Sedan.” Which
interest in the goods. statement is most accurate?

Answer: a) The promissory note is negotiable

c) The person to whom goods are because the forms of payment are
delivered for sale and who bears the clearly stated;
risk of the loss. b) The promissory note is non-
negotiable because the option as to
which form of payment is with the
12. Which phrase best completes the maker;
statement—In accordance with the Trust c) The promissory note is an invalid
Receipt Law, purchasers of the goods instrument because there is more
from the Entrustee will: than one form of payment;
d) The promissory note can be
a) Get the goods only as a collateral; negotiated by way of delivery.
b) Not get good title to the goods;
c) Only get security interest over the Answer:
goods; b) The promissory note is non-
d) Get good title to the goods. negotiable because the option as to
which form of payment is with the maker
Answer:
d) Get good title to the goods.
15. X issued a promissory note which
states “I promise to pay Y or bearer the
13. X acted as an accommodation party in amount of HK$50,000 on or before
signing as a maker of a promissory December 30, 2013.” Is the promissory
note. Which phrase best completes the note negotiable?
sentence—This means that X is liable
on the instrument to any holder for a) No, the promissory note becomes
value: invalid because the amount is in
foreign currency;
 b) Yes, the promissory note is c) That can still be negotiated or
negotiable even though the amount indorsed so that whoever is the
is stated in foreign currency; holder can claim payment therefrom;
c) No, the promissory note is not d) Which has not been presented for
negotiable because the amount is in payment within a period of 30 days.
foreign currency;
d) Yes, the promissory note is Answer:
negotiable because the Hong Kong a) That cannot anymore be paid
dollar is a known foreign currency in although the underlying obligation
the Philippines. still exists

Answer:
b) Yes, the promissory note is 18. In payment for his debt in favor of X, Y
negotiable even though the amount gave X a Manager’s Check in the
is stated in foreign currency amount of P100,000 dated May 30,
2012. Which phrase best completes the
statement—A Manager’s Check:
16. X delivered a check issued by him and
payable to the order of CASH to Y in a) Is a check issued by a manager of a
payment for certain obligations incurred bank for his own account;
by X in favor of Y. Y then delivered the b) Is a check issued by a manger of a
checks to Z in payment for certain bank in the name of the bank
obligations. Which statement is most against the bank itself for the
accurate? account of the bank;
c) Is like any ordinary check that needs
a) Z can encash the check even though to be presented for payment also;
Y did not indorse the check; d) Is better than a cashier’s check in
b) Z cannot encash the check for terms of use and effect.
lacking in proper endorsement;
c) Y is the only one liable because he Answer:
was the one who delivered the b) Is a check issued by a manger of a
check to Z; bank in the name of the bank
d) The negotiation is not valid because against the bank itself for the
the check is an instrument payable account of the bank.
to order.

Answer: 19. Which phrase best completes the

a) Z can encash the check even though statement— A check which is payable to
Y did not indorse the check. bearer is a bearer instrument and:

a) Negotiation can be made by delivery

17. A stale check is a check— only;
b) Negotiation must be by written
a) That cannot anymore be paid indorsement;
although the underlying obligation c) Negotiation must be by specific
still exists; indorsement;
b) That cannot anymore be paid and d) Negotiation must be by indorsement
the underlying obligation under the and delivery.
check is also extinguished;
Answer:
 a) Negotiation can be made by delivery 22. The signature of X was forged as
only; drawer of a check. The check was
deposited in the account of Y and when
deposited was accepted by AAA Bank,
20. As payment for a debt, X issued a the drawee bank. Subsequently, AAA
promissory note in favor of Y but the Bank found out that the signature of X
promissory note on its face was marked was actually forged. Which statement is
non-negotiable. Then Y instead of most accurate?
indorsing the promissory note, assigned
the same in favor of Z to whom he owed a) The drawee bank can recover from
some debt also. Which statement is Y, because the check was deposited
most accurate? in his account;
b) The drawee bank can recover from
a) Z cannot claim payment from X on X, because he is the drawer even
the basis of the promissory note though his signature was forged;
because it is marked non-negotiable; c) The drawee bank is estopped from
b) Z can claim payment from X even denying the genuiness of the
though it is marked non-negotiable; signature of the X, the drawer of the
c) Z can claim payment from Y check;
because under the NIL, negotiation d) The drawee bank can recover from
and assignment is one and the Y because as endorser he warrants
same; the genuiness of the signature.
d) Z can claim payment from Y only
because he was the endorser of the Answer:
promissory note. c) The drawee bank is estopped from
denying the genuiness of the
Answer: signature of the X, the drawer of the
b) Z can claim payment from X even check.
though it is marked non-negotiable;

23. A issued a check in the amount of

21. Negotiable instruments are used as P20,000 payable to B. B endorsed the
substitutes for money, which means— check but only to the extent of P10,000.
Which statement is most accurate?
a) That they can be considered legal
tender. a) The partial indorsement is not a valid
b) That when negotiated, they can be indorsement, although will result in
used to pay indebtedness; the assignment of that part;
c) That at all times the delivery of the b) The partial indorsement will
instrument is equivalent to delivery invalidate the whole instrument;
of the case; c) The endorsee will be considered as
d) That at all times negotiation of the a holder in due course;
instruments requires proper d) The partial indorsement is valid
indorsement. indorsemtn up to the extent of the
P10,000.
Answer:
b) That when negotiated, they can be
used to pay indebtedness;
Answer:
 a) The partial indorsement is not a valid c) Tiger Woods can sign his assumed
indorsement, although will result in name.
the assignment of that part.

27. Y, as President of and in behalf of AAA

24. A promissory note which does not have Corporation, as a way to accommodate
the words “or order” or “or bearer” will X, one of its stockholders, endorsed the
render the promissory note non- check issued by X. Which statement is
negotiable and, therefore— most accurate?

a) It will render the maker not liable; a) It is an ultra vires act;

b) The note can still be assigned and b) It is a valid indorsement;
the maker made liable; c) The corporation will be held liable to
c) The holder can become holder in any holder in due course;
due course; d) It is an invalid indorsement.
d) The promissory note can just be
delivered and the maker will still be Answer:
liable. a) It is an ultra vires act.
b) It is a valid indorsement.
Answer:
b) The note can still be assigned and 28. In a negotiable instrument, when the
the maker made liable. sum is expressed both in numbers and
in words and there is discrepancy
between the words and numbers—
25. A check is—
a) The sum expressed in words will
a) A bill of exchange; prevail over the one expressed in
b) The same as a promissory note; numbers;
c) Is drawn by a maker; b) The sum expressed in numbers will
d) A non-negotiable instrument prevail over the one expressed in
words;
Answer: c) The instrument becomes void
a) A bill of exchange. because of the discrepancy;
d) This will render the instrument
invalid.
26. A check was issued to Tiger Woods.
But what was written as payee is the Answer:
word “Tiger Woods”. To validly endorse a) The sum expressed in words will
the check— prevail over the one expressed in
numbers.
a) Tiger Woods must sign his real
name;
b) Tiger Woods must sign both his real 29. A promissory note which is undated is
name and assumed name; presumed to be—
c) Tiger Woods can sign his assumed
name; a) Dated as of the date of issue;
d) The check has become non- b) Dated as of the date of the first
negotiable. indorsement;
c) Promissory note is invalid because
Answer: there is no date;
d) Dated on due date.
 Answer: Answer:
a) Dated as of the date of issue. b) Are to be construed liberally in favor
of the insured and strictly against the
insurer who drafted the insurance policy.
30. An insurance contract is an aleatory
contract, which means that—
32. X is the common law wife of Y. Y loves
a) An insurer will pay the insured X so much that he took out a life
equivalent to the amount of the insurance on his own life and made her
premium; the sole beneficiary. Y did this to ensure
b) The obligation of the insurer is to that X will be financially comfortable
pay depending upon the happening when he is gone. Upon the death of Y—
of an uncertain event;
c) The insured pays a fixed premium a) X as sole beneficiary under the life
for the duration of the policy period insurance policy on the life of Y will
and the amount of the premiums be entitled to the proceeds of the life
paid to the insurer is not necessarily insurance;
the same amount as what the b) Despite the designation of X as the
insured will get upon the happening sole beneficiary, the proceeds of the
of an uncertain future event; life insurance will go to the estate of
d) The obligation of the insurer is to Y;
pay depending upon the happening c) The proceeds of the life insurance
of an event that is certain to happen. will go to the compulsory heirs of Y;
d) The proceeds of the life insurance
Answer: will be divided equally amongst X
b) The obligation of the insurer is to and the compulsory heirs of Y.
pay depending upon the happening
of an uncertain event. Answer:
b) Despite the designation of X as the
sole beneficiary, the proceeds of the life
31. An Insurance Contract is a contract of insurance will go to the estate of Y;
adhesion, which means that in resolving
ambiguities in the provision of the
insurance contract – 33. X, in January 30, 2009, or 2 years
before reaching the age of 65, insured
a) The general rule is that, the his life for P20 M. for reason unknown to
insurance contract is to be his family, he took his own life 2 days
interpreted strictly in accordance after his 65th birthday. The policy
with what is written in the contract; contains no excepted risk. Which
b) Are to be construed liberally in favor statement is most accurate?
of the insured and strictly against the
insurer who drafted the insurance a) The insurer will be liable;
policy; b) The insurer will not be liable;
c) Are to be construed strictly against c) The state of sanity of the insured is
the insured and liberally in favor of relevant in cases of suicide in order
the insurer; to hold the insurer liable;
d) If there is an ambiguity in the d) The state of sanity of the insured is
insurance contract, this will irrelevant in cases of suicide in order
invalidate the contract. to hold the insurer liable.
 Answer: prove that the policy is void ab initio
a) The insurer will be liable. or rescindable by reason of
fraudulent concealment or
misrepresentation of the insured.
34. X, a minor, contracted an insurance on
his own life. Which statement is most
accurate? 36. For both the Life Insurance and
Property Insurance, the insurable
a) The life insurance policy is void ab interest is required to be—
initio;
b) The life insurance is valid provided it a) Existing at the time of perfection of
is with the consent of the the contract and at the time of loss;
beneficiary; b) Existing at the time of perfection and
c) The life insurance policy is valid at the time of loss for property;
provided the beneficiary is his estate c) Existing at the time of perfection for
or his parents, or spouse or child; property insurance but for life
d) The life insurance is valid provided insurance both at the time of
the disposition of the proceeds will perfection and at the time of loss;
be subject to the approval of the d) Existing at the time of perfection
legal guardian of the minor. only.

Answer: Answer:
c) The life insurance policy is valid b) Existing at the time of perfection and
provided the beneficiary is his estate or at the time of loss for property.
his parents, or spouse or child.

37. A house and lot is covered by a real

35. The “incontestability clause” in a Life estate mortgage (REM) in favor of ZZZ
Insurance Policy means— Bank. The Bank required that the house
be insured. The owner of the policy
a) That life insurance proceeds cannot failed to endorse nor assign the policy to
be claimed 2 years after the death of the bank. However, the Deed of REM
the insured; has an express provision which says
b) That 2 years after date of issuance that the insurance policy is also
or reinstatement of the life insurance endorsed with the signing of the REM.
policy, the insurer cannot anymore Will this be sufficient?
prove that the policy is void ab initio
or rescindable by reason of a) No, insurance policy must be
fraudulent concealment or expressly endorsed to the bank so
misrepresentation of the insured; that the bank will have a right in the
c) That the insured can still claim from proceeds of such insurance in the
the insurance policy after 2 years event of loss;
even though premium is not paid; b) The express provision contained in
d) That the insured can only claim the Deed of REM to the effect that
proceeds in a life insurance policy 2 the policy is also endorsed is
years after death. sufficient;
c) Endorsement of the Insurance Policy
Answer: in any form is not legally allowed;
b) That 2 years after date of issuance d) Endorsement of the Insurance Policy
or reinstatement of the life insurance must be in a formal document to be
policy, the insurer cannot anymore valid.
 d) X can choose who he wants to claim
Answer: against.
a) No, insurance policy must be
expressly endorsed to the bank so Answer:
that the bank will have a right in the d) X can choose who he wants to claim
proceeds of such insurance in the against.
event of loss

40. When X insured his building, X

38. X is a passenger of a jeepney for hire indicated in the application that it is a
being driven by Y. the jeepney collided residential building, but actually the
with another passenger jeepney being building was being used as a
driven by Z who was driving recklessly. warehouse for some hazardous
As a result of the collision, X suffered materials. What is the effect on the
injuries. Both passenger jeepneys are insurance policy, if any?
covered by Comprehensive Motor
Vehicular Insurance Coverage. If X a) The insurance policy can be
wants to claim under the “no fault cancelled because of the change in
indemnity clause”, his claim will lie— the use;
b) The insurance policy will
a) Against the insurer of the jeepney automatically be changed;
being driven by Z who was the one c) The insurance policy need not be
at fault; changed;
b) The claim shall lie against the d) The insurance policy is fixed
insurer of the passenger jeepeney regardless of the changes in the
driven by Y because X was his use.
passenger;
c) X has a choice against whom he Answer:
wants to make his claim; Any of the above should be given full
d) None of the above. credit.

Answer:
b) The claim shall lie against the 41. X owned a house and lot. X insured the
insurer of the passenger jeepeney house. The house got burned. Then he
driven by Y because X was his sold the partially burnt house and the lot
passenger. to Y. Which statement is most accurate?

a) X is not anymore entitled to the

39. X insured the building she owns with 2 proceeds of the insurance policy
insurance companies for the same because he already sold the partially
amount. In case of damage— burnt house and lot;
b) X is still entitled to the proceeds of
a) X cannot claim from any of the 2 the insurance policy because what is
insurers because with the double material is that at the time of the
insurance, the insurance coverage loss, X is the owner of the house
becomes automatically void; and lot;
b) The 2 insurers will be solidarily liable c) No one is entitled to the proceeds
to the extent of the loss; because ownership over the house
c) The 2 insurers will be proportionately and lot was already transferred;
liable;
 d) Y will be the one entitled to the place designated as crossing for
proceeds because he now owns the train, and therefore should have
partially burnt house and lot. been more careful.

Answer:
b) X is still entitled to the proceeds of 43. The AAA Bus Company picks up
the insurance policy because what is passengers along EDSA, X, the
material is that at the time of the loss, X conductor, while on board the bus, drew
is the owner of the house and lot. his gun and randomly shot the
passengers inside. As a result, Y, a
passenger, was shot and died instantly.
42. X, while driving his Toyota Altis, tried to Is AAA Bus Company liable?
cross the railway tract of PNR along
Blumetritt Avenida Ext., Manila. The a) The bus company is not liable for as
train as it approached Blumentritt, long as the bus company can show
applied its horn as a warning to all the that when they hired X, they did the
vehicles that might be crossing the right selection process;
railway tract, but there was really b) The bus company cannot be held
nobody manning the crossing. X was liable because what X did is not part
listening to his iPod touch, hence, he did of his responsibility;
not hear the sound of the horn of the c) The bus company is liable because
train and so his car was hit by the train. common carriers are liable for the
As a result of the accident, X suffered negligence or willful act of its
some injuries and his car was totally employees even though they acted
destroyed as a result of the impact. Is beyond the scope of their
PNR liable? responsibility;
d) The bus company is not liable
a) PNR is not liable because X should because there is no way that the bus
have known that he was crossing a company can anticipate the act of X.
place designated as crossing for
train, and therefore should have Answer:
been more careful; c) The bus company is liable because
b) PNR is a liable because Railroad common carriers are liable for the
companies owe to the public a duty negligence or willful act of its employees
of exercising a reasonable degree of even though they acted beyond the
care to avoid injury to person and scope of their responsibility.
property at railroad crossings which
means a flagman or a watchman
should have been posted to warn 44. X is a trader of school supplies in
the public at all times; Calapan, Oriental Mindoro. To bring the
c) PNR is not liable because it blew its school supplies to Calapan, it has to be
horn when it was about to cross the transported by a vessel. Because there
railway along Blumentritt Avenida were so many passengers, the 2 boxes
Ext.; of schools supplies were loaded but the
d) PNR is not liable because X was shipping company was not able to issue
negligent, for listening to his iPod the Bill of lading. So, on board, the Ship
touch while driving. Captain issued the Bill of Lading. So, on
board, the Ship Captain issued instead
Answer: a “shipping receipt” to X indicating the 2
a) PNR is not liable because X should boxes of school supplies being part of
have known that he was crossing a
 the cargo of the vessel. Which phrase 46. X owns a passenger jeepney covered
therefore, is the most accurate? by Certificate of Public Convenience. He
allowed Y to use its Certificate of
a) The owner of the vessel is not liable Convenience for a consideration. Y
because no bill of lading was issued therefore was operating the passenger
to X hence, no contract of carriage jeepney under the same Certificate of
was perfected; Public Convenience (Kabit System)
b) It is possible to have a contract of under the name of X. the passenger
carriage of cargo even without a bill jeepney met an accident. Who will be
of lading, and the “shipping receipt” liable?
would be sufficient;
c) The only acceptable document of a) Y, the one actually operating the
title is a Bill of Lading; jeepney, will be liable to the injured
d) None of the above. party;
b) X will be the one liable to the injured
Answer: party despite the fact that it is Y who
b) It is possible to have a contract of is actually operating the jeepney,
carriage of cargo even without a bill because while the Kabit System is
of lading, and the “shipping receipt” tolerated, the public should not be
would be sufficient. inconvenienced by the arrangement;
c) X will not be held liable if he can
prove that he is not the owner
45. X took PAL Flight PR 102 to Los anymore;
Angeles, USA. She had 2 luggage d) Public Policy dictates that the real
checked-in and was 2 baggage checks. owner, even not the registered one,
When X reached Los Angeles, 1 of the 2 will be hld liable.
checked-in luggage could not be found.
Which statement is most accurate? Answer:
b) X will be the one liable to the injured
a) PAL is liable for the loss of the party despite the fact that it is Y who is
checked-in-luggage under the actually operating the jeepney, because
provision of the Warsaw Convention while the Kabit System is tolerated, the
on Air Transport; public should not be inconvenienced by
b) PAL is liable for the loss only if the the arrangement.
baggage check expressly states that
the airline shall be liable in case of
loss; 47. X owns a fleet of taxicabs. He operates
c) PAL cannot be held liable because it through what is known as boundary
that is the risk that a passenger system. Y drives one of such taxicabs
takes when she checks-in her and pays X a fixed amount of P1,000
baggage; daily under the boundary system. This
d) PAL can only be held liable if it can means that anything above P1,000
be proven that PAL was negligent. would be the earnings of Y. Y, driving
recklessly, hit an old lady crossing the
Answer: street. Which statement is most
a) PAL is liable for the loss of the accurate?
checked-in-luggage under the provision
of the Warsaw Convention on Air a) X as the owner is exempt from
Transport. liability because he was not the one
driving;
 b) X as the owner is exempt from
liability because precisely the a) Because X was personally acting in
arrangement is one under the behalf of the Corporation, he can be
“boundary system”; held personally liable;
c) X will not be exempt from liability b) X, as President, cannot be
because he remains to be the personally held liable for the
registered owner and the boundary obligation of the corporation even
system will not allow the though he signed all the loan
circumvention of the law to avoid documents, because the loan was
liability; authorized by the Board;
d) Y is the only one liable because he c) YYY Bank can choose as to who it
drove recklessly. wants to hold liable for the loan;
d) If ZZZ Corporation cannot pay, X
Answer: can be held subsidiarily liable.
c) X will not be exempt from liability
because he remains to be the Answer:
registered owner and the boundary b) X, as President, cannot be
system will not allow the personally held liable for the
circumvention of the law to avoid obligation of the corporation even
liability. though he signed all the loan
documents, because the loan was
authorized by the Board.
48. The Articles of Incorporation of AAA
Corporation was approved by SEC.
After the receipt of the Certificate of 50. X owns 99% of the capital stock of SSS
Approval from the SEC, AAA Corporation. X also own 99% of TTT
Corporation decided to immediately start Corporation. SSS Corporation obtained
the operation of its business despite the a loan from VVV Banks. On due date,
fact that it has no approved By-Laws. SSS Corporate defaulted. TTT
What is the legal status of the AAA Corporation is financially healthy. Which
Corporation? statement is most accurate?

a) A de jure corporation; a) X being a controlling owner of SSS

b) A de facto corporation; Corporation can automatically be
c) A corporation by estoppels; held personally liable for the loan of
d) An unregistered corporation. SSS Corporation;
b) TTT Corporation, owned by 99% by
Answer: X, can automatically be held liable;
a) A de jure corporation. c) SSS Corporation and TTT
Corporation, although both are
owned by X, are 2 distinct
49. X, the President of ZZZ Corporation, corporations with separate juridical
was authorized by the Board of personalities hence, the TTT
Directors of ZZZ Corporation to obtain a Corporation cannot automatically be
loan from YYY Bank and to sign held liable for the loan of SSS
documents in behalf of the corporation. Corporation;
X personally negotiated for the loan and d) The principle of piercing the veil of
got the loan at very low interest rates. corporation fiction can be applied in
Upon maturity of the loan, ZZZ this case
Corporation was unable to pay. Which
statement is most accurate? Answer:
 c) SSS Corporation and TTT d) A corporation sole is not legally
Corporation, although both are allowed to own real property.
owned by X, are 2 distinct
corporations with separate juridical Answer:
personalities hence, the TTT c) A corporation sole, regardless of the
Corporation cannot automatically be nationality of the head, can acquire real
held liable for the loan of SSS property either by sale or donation.
Corporation.

51. A corporation generally can issue both 53. The number of the Board of Trustees of
par value stock and no par value stock. a non-stock, non-profit education
These are all fixed in the Articles of institution be—
Incorporation of the corporation. Which
of the following corporations may not be a) 5 only;
allowed to issue no par value shares? b) Any number for as long as it is not
less than 5 and no more than 11;
a) Insurance companies; c) Any number in multiples of 5, for as
b) Banks; long as it is not less than 5 and no
c) Trust Companies; more than 15;
d) All of the above. d) Not less than 5 nor more than 10 in
multiples of 5.
Answer:
b) Banks. Answer:
c) Any number in multiples of 5, for as
long as it is not less than 5 and no more
52. Father X, an American priest who came than 15.
from New York, registered the Diocese
of Bacolod of the Roman Catholic
Church which was incorporated as a 54. X subscribed 10,000 shared in the
corporation sole. There were years capital stocks of AAA Corporation. He
when the head of the Diocese was a paid 50% of the 10,000 shares. X asked
Filipino, but there were more years the Corporate Secretary to issue him the
when the heads were foreigners. Today, corresponding stock certificate
the head is an American again. Y representing the 50% of what he already
donated a piece of land located in paid. The Corporate Secretary of the
Bacolod City for use as a school. Which corporation refused. Was the Corporate
statement is most accurate? Secretary correct?

a) The Register of Deed of Bacolod a) The Corporate Secretary is correct

City can refuse to register and because the Corporation Code
transfer the title because the present provides that no certificate of stock
head of the corporation sole is not a shall be issued to a subscriber until
Filipino; the shares as subscribed have been
b) The nationality of a corporation sole fully paid;
depends upon the nationality of the b) The Corporate Secretary cannot
head at any given time; refuse because a Stock Certificate
c) A corporation sole, regardless of the can be issued corresponding to the
nationality of the head, can acquire percentage of shares which were
real property either by sale or paid;
donation;
 c) The Corporation Secretary cannot 56. AAA Corporation is a wholly owned
refuse because a certificate of Stock subsidiary of BBB Corporation. To
can be issued provided it is indicated support the business of AAA
in the Certificate the actual Corporation, BBB Corporation agreed to
percentage of what has been paid; give its corporate guarantee to the loan
d) The Corporate Secretary cannot of AAA Corporation. What is required so
refuse because it is his legal duty to that the corporate guarantee will be
issue a stock certificate valid?
corresponding to the number of
shares actually subscribed a) It only requires the approval of the
regardless of the actual payment. Board of Directors of BBB
Corporation;
Answer: b) The Articles of Incorporation must
a) The Corporate Secretary is correct provide such power and be
because the Corporation Code approved by the Board of Directors;
provides that no certificate of stock c) Providing corporate guarantee to
shall be issued to a subscriber until another corporation is a necessary
the shares as subscribed have been exercise of power of a corporation;
fully paid. d) It would require both the approval of
the Board of Directors and the
stockholders on record.
55. XXX Corporate and YYY Corporation
have agreed to be merged into one Answer:
corporation. To facilitate the merger, a) It only requires the approval of the
both corporations agreed that the Board of Directors of BBB
merger be made effective on May 31, Corporation.
2012. The SEC approved the Articles of
Merger on June 30, 2012. Which
statement is most accurate? 57. The capital stock of ABC Corporation is
divided into common shares and
a) The effective date of merger is May preferred shares. Preferred shares are
31, 2012, the date stipulated by the preferred as to dividends and common
parties as the effective date; shares are those shares which have the
b) The effective date of the merger is regular and ordinary attributes of a
always the date of the approval of share of a corporation. Which statement
the Articles of Merger by the SEC; is most accurate?
c) The effective date of the merger
would be the date approved by the a) This kind of classification may not be
Board of Directors and the allowed or else it will violate the
stockholders; Doctrine of Equality of shares;
d) The stockholders and the Board of b) Classifications of shares may be
Directors can set the effective date allowed for as long as it is clearly
of the merger anytime after the stated as such in the Articles of
approval of the SEC. Incorporation of the Corporation;
c) Classifications of shares is mainly
Answer: for business purpose to attract
b) The effective date of the merger is investors;
always the date of the approval of d) Classifications of shares may be
the Articles of Merger by the SEC. allowed with the approval of the
stockholders and the Board of
Directors.
 employees cannot automatically be
Answer: considered separated;
b) Classifications of shares may be c) Y, as the new shareholder, has the
allowed for as long as it is clearly right to retain only those employees
stated as such in the Articles of who in his judgment are qualified;
Incorporation of the Corporation. d) For as long as the existing
employees are given their
separation pay, they can be
58. ABC Corporation declared stock terminated.
dividends to its stockholders. The stock
dividends were approved by the Board Answer:
of Directors of ABC Corporation. In the b) Despite the change in shareholder,
subsequent year, however, the Board there is actually no change in the
again approved the redemption of all juridical entity and therefore existing
stock dividends and to pay the employees cannot automatically be
shareholdings in cash. Which statement considered separated.
is most accurate?

a) The redemption of the stock 60. South China Airlines is a foreign airline
dividends can be validly approved company. South China Airlines tickets
but hr Board without any conditions; are sold in the Philippines though PAL
b) The redemption of stock dividends as their general agent. South China
may only be allowed if there are Airlines is not registered to do business
sufficient earnings and should not be as such with the Philippine SEC. which
violative of the trust fund doctrine; statement is most accurate?
c) The redemption of the shares may
be taken from the existing property a) Although unlicensed to do business
and other assets of the corporation; in the Philippines, South China
d) None of the above. Airlines can sue before the
Philippine Courts and can also be
Answer: sued;
Examinee should be giver full credit b) South China Airlines can sue but
for whatever answer they gave as the cannot be sued;
question is vague. c) South China Airlines cannot sue and
59. X sold all his shares in AAA Hotel cannot be sued also;
Corporation to Y. X owns 99% of AAA d) South China Airlines can be sued in
Hotel Corporation. As the new owner, Y the Philippine Courts but it cannot
wanted a reorganization of the hotel sue.
which is to include primarily the
separation of all existing employees and Answer:
the hiring of new employees. Which d) South China Airlines can be sued in
statement is most accurate? the Philippine Courts but it cannot sue.

a) With the change in ownership, in

effect there is a new juridical entity 61. So that ABC Corporation could venture
and therefore all employees are into more projects, it needed to raise
considered separated; funds by issuing new shares to increase
b) Despite the change in shareholder, its capitalization. X, Y, Z, J and G are
there is actually no change in the the 5 existing shareholders of the
juridical entity and therefore existing company. They hold 20% each. How will
 the additional shares be divided among the shareholders holding 2/3 share
the existing shareholders? of the outstanding capital stock.

a) The existing shareholders can Answer:

subscribe to the new shares Examinees should be given full
equivalent to their existing credit for whatever answer they gave as
shareholdings because the the question is vague.
Corporation Code provides that each
of the existing stockholders will have
preemptive rights to the extent of 63. X is a minority stockholder of CCC
their existing shareholdings; Corporation. Y is a member of the Board
b) The existing shareholders’ of Directors of CCC Corporation and at
preemptive rights is equivalent to the the same time he is the President. X
percentage that they want; believes that Y is mismanaging CCC
c) Each of the existing shareholder can Corporation hence, as a stockholder
exercise their right of first refusal and in behalf of the other stockholders,
against each other; he wanted to sue Y. which statement is
d) Preemptive rights and right of first most accurate?
refusal are one and the same.
a) X can institute a derivative suit in
behalf of himself as a stockholder;
b) A derivative suit must be instituted in
behalf of the corporation;
c) Derivative suit is an exclusive
Answer: remedy that X can institute;
a) The existing shareholders can d) Derivative suit is not the remedy in
subscribe to the new shares this situation.
equivalent to their existing
shareholdings because the Answer:
Corporation Code provides that each b) A derivative suit must be instituted in
of the existing stockholders will have behalf of the corporation.
preemptive rights to the extent of
their existing shareholdings.
64. The term of GGG Corporation in
accordance with its Articles of
62. If ABC Corporation will increase its Incorporation ended last January 30,
authorized capital stock, the Corporation 2012. The term was not extended. What
Code requires— will happen to the corporation?

a) The approval of the majority of the a) The corporation is dissolved ipso

Board of Directors only; facto;
b) The approval of the majority of the b) There is a need to pass a board
stockholders and the Board of resolution to formally dissolve the
Directors; corporation;
c) The approval of 2/3 of the c) The Board of Directors must pass a
shareholders of the outstanding resolution for the corporation to
capital stock as well as the approval formally go into liquidation;
of the SEC; d) The stockholders must pass a
d) The approval of the majority of the resolution to dissolve the
Board of Directors and approval of corporation.
 Answer: b) There is no more effect in the
a) The corporation is dissolved ipso license because anyway at the time
facto. of registration, a resident agent was
appointed;
c) This can be a ground for suspension
65. The term 1 year of the Board of only;
Directors of AAA Corporation expired d) This will result in automatic
last February 15, 2012. No new election revocation of its license to do
of the Board of Directors was called, business in the Phiippines.
hence, the existing members of the
Board continue as Directors in hold over Answer:
capacity. Which statement is most a) This can be a ground for revocation
accurate? or suspension of its license to do
business.
a) This is allowed provided there is a
valid and justifiable reason for not
calling for an election of the new 67. The By-laws of the ABC Corporation is
members of the Board; silent as to when a stockholder can be
b) This is not allowed because the term qualified to attend the meeting of the
of the directors must only be for a stockholders. The Corporate Secretary
period of 1 year; sent out the notice of the stockholders
c) The positions of the members of the meeting 2 days before the meeting and
Board of Directors will be at that time X was not yet a stockholder.
automatically declared vacant; On the day of the meeting, however, X
d) Acting as member of the Board of became a shareholder which was duly
Directors in a hold over capacity recorded in the stock and transfer book.
must be ratified by the stockholders. Which statement is most accurate?

Answer: a) X is a stockholder of ABC

a) This is allowed provided there is a Corporation as of the time of
valid and justifiable reason for not meeting of the stockholders for the
calling for an election of the new purpose of electing the members of
members of the Board. the board;
b) X is not qualified to elect members
of the board because at the time the
66. AAA Corporation is a foreign notice of the meeting was sent, she
corporation that wants to operate a was not yet a stockholder;
representative office in the Philippines. c) Qualifications as to who are
As required by the Corporation Code, considered as stockholders on
there is a need to appoint a Resident record for purposes of being able to
Agent as a condition precedent to the elect members of the board are to
issuance of a license to transact be determined by the By-laws alone;
business in the Philippines. After 2 d) None of the above.
years, AAA Corporation removed its
Resident Agent and did not appoint Answer:
anyone anymore. Which statement is a) X is a stockholder of ABC
the most accurate? Corporation as of the time of
meeting of the stockholders for the
a) This can be a ground for revocation purpose of electing the members of
or suspension of its license to do the board.
business;
 70. Section 39 of the SRC defines an
68. X, who is the Executive VP of ABC independent director as a person who
Corporation, a listed company, can be must not have a relation with the
held liable or guilty of insider trading if, corporation which would interfere with
he— his exercise of independent judgment in
carrying out the responsibilities of a
a) Bought shares of ABC Corporation director. To ensure independence
when it was planning to acquire therefore, he must be—
another company to improve its
asset base, the news of which a) Nominated and elected by the entire
increased the price of the shares in shareholders;
the Stock Exchange. b) Nominated and elected by the
b) Bought shares of XYC Corporation, minority shareholders;
a sister company of ABC c) Nominated and elected by the
Corporation when he learned that majority shareholders;
XYC Corporation was about to also d) Appointed by the board.
list its share in the Philippine Stock
Exchange; Answer:
c) Bought shares of ZZZ Corporation c) Nominated and elected by the
when he learned that ABC majority shareholders.
Corporation would acquire ZZZ
Corporation;
d) All of the above. 71. “Securities” issued to the public are
required by law to be registered with—
Answer:
d) All of the above. a) The Banko Sentral ng Pilipinas;
b) The Philippine Stock Exchange;
c) The Securities and Echange
69. The purpose of the “Tender Offer” Rule Commission;
is to— d) The Securities and Exchange
Commission and the Philippine
a) Ensure an even playing field for all Stock Exchange.
shareholders of a company in term
of opportunity to sell their Answer:
shareholdings; c) The Securities and Echange
b) Ensure that minority shareholders in Commission.
a publicly listed company are
protected in the sense that they will
equally have the same opportunity 72. The government agency granted with
as the majority shareholders in the power of supervision and
terms selling their shares; examination over banks and non-bank
c) Ensure that the shareholders who financial institutions performing quasi-
would also want to sell their banking functions, to ensure that the
shareholdings will have the conduct of its business is on a sound
opportunity for a better price; financial basis that will provide
d) All of the above. continued solvency and liquidity is—

Answer: a) The Philippine Deposit Insurance

d) All of the above. Corporation;
b) The Bangko Sentral ng Pilipinas;
c) The Anti-Money Laundering Council;
 d) The Securities and Exchange Bank Corporation. So as not to create
Commission. any unnecessary conflict, all the former
directors of both banks wanted to be
Answer: appointed/elected as members of the
b) The Bangko Sentral ng Pilipinas. Board of Directors of the merged bank.
Each bank used to have 11 members of
the board. The maximum number of
73. X maintains a savings deposit in the directors of the merged bank is—
amount of P1 M with ABC Bank
Corporation. X also has obtained a loan a) 15;
from ABC Bank Corporation in the b) 22;
amount of P1 M. in case of default: c) 21;
d) 11.
a) ABC Bank can set-off the loan from
the savings account being Answer:
maintained by X with ABC Bank; c) 21.
b) Set-off is not possible because legal
compensation is not allowed in
banking transaction; 76. All senior officers of ABC Bank are
c) Deposit accounts are usually entitled to obtain a housing loan. X is an
earmarked for specific purpose Executive VP for Operations of ABC
hence off-setting is not legally Bank. She obtained a housing loan with
possible; the ABC Bank. Which statement is most
d) Off-setting is not possible because accurate?
the obligation of X is a “simple loan”.
a) The housing loan of X required a
Answer: guarantor from somebody who is not
a) ABC Bank can set-off the loan from connected with the bank;
the savings account being b) The housing loan of X requires the
maintained by X with ABC Bank. approval of the Board of Directors of
the bank;
c) The housing loan of X, being a
74. XYZ Corporation is engaged in lending benefit for employees does not
funds to small vendors in various public require (a) but will require (b);
markets. To fund the lending, XYZ d) The housing loan of X, being a
Corporation raised funds through benefit for employees, will not
borrowings from friends and investors. require (a) and (b).
Which statement is most accurate?
Answer:
a) XYZ Corporation is a bank; d) The housing loan of X, being a
b) XYZ Corporation is a quasi-bank; benefit for employees, will not require
c) XYZ Corporation is an Investment (a) and (b).
Company;
d) XYZ is none of the above.
77. ABC Holdings Company, a Hong Kong
Answer: company, owns 10% of XYZ Bank.
b) XYZ Corporation is a quasi-bank. Because of the peace and order
situation in the Philippines, ABC Holding
Company wanted to sell its
75. XXX Bank Corporation and ZZZ shareholdings in XYZ Bank.
Corporation were merged into XX ZZ Unfortunately, nobody is interested to
 buy a 10% shareholdings in a bank. The
board of directors of XYZ Bank thought Answer:
that it would be a good idea to buy back a) Yes, because there is already a
the shares owned by ABC Holding pending case and provided the
Company. Which statement is most subpoena must be specific as to
accurate? which account.

a) Buying back the shares by XYZ

Bank is absolutely not allowed; 79. X, a private individual, maintains a
b) Buying back the shares may be dollar deposit with ABC Bank. X is
allowed provided it is with the suspected to be the leader of a Kidnap
approval of the Monetary Board and for Ransom Gang and he is suspected
disposed of within 6 months; of depositing all ransom money in said
c) Buying back the shares may be deposit account which are all in US
allowed provided such shares will be Dollars. The police want to open said
disposed of within 10 years; account to know if there are really
d) Buying back the shares may be deposits in big amounts. Which
done anytime provided the Board of statement is most accurate?
Directors will approve the same.
a) The same rules under the Secrecy
Answer: of Bank Deposit Act will apply;
b) Buying back the shares may be b) An approval from the Monetary
allowed provided it is with the approval Board is necessary to open the
of the Monetary Board and disposed of account;
within 6 months. c) Because the deposit is in US
Dollars, it is covered by the Foreign
Currency Deposit Act which allows
78. X is being charged for violation of Anti- disclosure only upon the written
Graft and Corrupt Practices because he permission of the depositor;
is suspected of having accumulated d) Approval from the court is necessary
unexplained wealth. X maintains deposit to order disclosure of the account.
accounts with ABC Bank. The
Ombudsman filed criminal cases against Answer:
X before the Sandiganbayan. Can the a) The same rules under the Secrecy
court issue subpoena against ABC Bank of Bank Deposit Act will apply.
to produce all documents pertaining to
all the deposit accounts of X?
80. X is a depositor of AAA Bank. She has
a) Yes, because there is already a 3 deposit accounts all under her name.
pending case and provided the One, in checking account, one in saving
subpoena must be specific as to account and another one in time deposit
which account; account. Each account has a balance of
b) Yes, it is enough that the specific P250,000. AAA Bank became insolvent.
bank is identified; PDIC closed the Bank. X therefore is
c) No, because the issuance of the unable to withdraw from all of the
subpoena has no real legal basis; accounts. She then filed her claims with
d) Even without a subpoena, the PDIC. Which statement is most
information about the deposit accurate?
accounts of X can be submitted to
the Sandiganbayan because it will a) X can claim a total of P500,000 for
be used in a pending case. all 3 accounts;
 b) X can only claim from 1 account of Answer:
P250,000; a) X.
c) X can claim a total of P750,000 from
all 3 accounts;
d) X cannot claim anything from any of 83. The “test of dominancy” in the Law on
the deposit accounts. Trademarks, is a way to determine
whether there exists an infringement of
Answer: a trademark by—
a) X can claim a total of P500,000 for
all 3 accounts. a) Determining if the use of the mark
has been dominant in the market;
b) Focusing on the similarity of the
81. The Bank Secrecy Law (RA 1405) prevalent features of the competing
prohibits disclosing any information marks which might create confusion;
about deposit records of an individual c) Looking at the mark whether they
without court order except— are similar in size, form or color;
d) Looking at the mark whether there is
a) In an examination to determine one specific feature that is dominant.
gross estate of a decedent;
b) In an investigation for violation of Answer:
Anti-Graft and Corrupt Practices; b) Focusing on the similarity of the
c) In an investigation by the prevalent features of the competing
Ombudsman; marks which might create confusion.
d) In an impeachment proceeding.

84. X’s painting of Madonna and Child was

Answer: used by her mother to print some
a) In an examination to determine personalized gift wrapper. As part of her
gross estate of a decedent. mother’s efforts to raise funds for
Bantay Bata, the mother of X sold the
wrapper to friends. Y, an entrepreneur,
82. X works as a research computer liked the painting in the wrapper and
engineer with the Institute of Computer made many copies and sold the same
Technology, a government agency. through National Bookstore. Which
When not busy with his work, but during statement is most accurate?
office hours, he developed a software
program for law firms that will allow a) Y can use the painting for his use
efficient monitoring of the cases, which because this is not a copyrightable
software program is not at all related to material;
his work. Assuming the program is b) X can sue Y for infringement
patentable, who has the right over the because artistic works are protected
patent? from the moment of creation;
c) Works of art need to be copyrighted
a) X; also to get protection under the law;
b) Institute of Computer Technology; d) Y can use the drawing even though
c) Neither X nor the Institute Computer not copyrighted because it is already
Technology can claim patent right a public property having been
over the invention; published already.
d) X and the employer of X will jointly
have the rights over the patent. Answer:
 b) X can sue Y for infringement because 87. Which phrase best completes the
artistic works are protected from the statement—A chattel mortgage can be
moment of creation. constituted to secure:

a) Obligation both past and future;

85. Compulsory Licensing of Inventions b) Obligation existing at the time the
which are duly patented may be mortgage is constituted;
dispensed with or will be allowed c) Future obligations only;
exploitation even without agreement of d) Past obligations only.
the patent owner under certain
circumstances, like national emergency, Answer:
for reason of public interest, like national b) Obligation existing at the time the
security, etc. The person who can grant mortgage is constituted.
such authority is—

a) The Director General of the 88. Which phrase best completes the
Intellectual Property Office; statement—A chattel mortgage can
b) The Director of Legal Affairs of the cover:
Intellectual Property Office;
c) The owner of the Patent right; a) Only property described in the deed
d) Any agent of the owner of the Patent without exception;
right. b) Can also cover substituted property;
c) Properties described in the deed
Answer: except in case of stock in trade
b) The Director of Legal Affairs of the being a substitute;
Intellectual Property Office. d) After acquired property.

Answer:
86. The Fair Use Doctrine allows others to c) Properties described in the deed
utilize copyrighted works under certain except in case of stock in trade
conditions. The factors to consider being a substitute.
whether use is fair or not would be the
purpose and character of the use,
nature of the copyrighted work, amount 89. Which phrase best completes the
and substantially of the portions used, statement—The Deed of Chattel
and else? mortgage, if not registered with the
Register of Deeds where debtor resides:
a) Effect of the use upon the creator of
the work; a) Is not valid, hence not binding
b) Effect upon the potential market of between the mortgagor and the
the work; mortgagee;
c) Effect of the use upon the public in b) Is binding between the mortgagor
general; and the mortgagee but will not affect
d) Effect of the use upon the class in third party;
which the creator belongs. c) To be valid between the mortgagor
and the mortgagee, it must be
Answer: coupled with the delivery of the
b) Effect upon the potential market of subject matter of the chattel
the work. mortgage;
d) Is as if a non-existent chattel
mortgage.
 purpose of securing the obligations
Answer: specified and that the obligation is
b) Is binding between the mortgagor just and valid.
and the mortgagee but will not affect
third party.
92. X defaulted in his loan with Y. Y
instituted extra-judicial foreclosure of the
90. Which phrase best completes the property subject to a real estate
statement—To bind third parties, a mortgage that secured the loan. X has 1
chattel mortgage of shares of stock year within which to redeem the
must be registered: property. After the foreclosure, X filed an
action questioning the validity of the
a) With the Register of Deeds where extra-judicial foreclosure sale. Which
the debtor resides; statement is most accurate?
b) With the Register of Deeds where
the principal office of the corporation a) The 1 year period within which to
is; redeem will be interrupted by the
c) In the Stock and Transfer Book of filing of an action questioning the
the corporation with the Corporate validity of the foreclosure;
Secretary; b) The 1 year period will not be
d) With the Register of Deeds where interrupted by the filing of the action;
the debtor resides and the principal c) The 1 year period will be extended
office of the corporation. for another year because of the filing
of an action questioning the validity
Answer: of the foreclosure sale;
d) With the Register of Deeds where the d) If the action which questions the
debtor resides and the principal office of validity of the foreclose prospers, the
the corporation. period will be interrupted.

Answer:
91. Which phrase best completes the b) The 1 year period will not be
statement—The affidavit of good faith in interrupted by the filing of the action.
a Deed of Chattel Mortgage is:

a) An oath where the parties swear that 93. What is the effect if the proceeds in an
the mortgage is made for the extra-judicial foreclosure sale is not
purpose of securing the obligations sufficient to pay for the obligation?
specified and that the obligation is
just and valid; a) The mortgagee can claim for
b) An affidavit, the absence of which deficiency judgment from the debtor;
will vitiate the mortgage between the b) The mortgagee can claim for
parties; deficiency judgment from the
c) Necessary only if the chattel being mortgagor even though it is a third
mortgaged are growing crops; party mortgage;
d) A certification from the mortgagor c) The mortgagee has no more
that he is the mortgagor of the recourse or claim against the debtor;
chattel. d) The mortgagee cannot claim for
deficiency judgment from the debtor
Answer: because it’s an extrajudicial
a) An oath where the parties swear that foreclosure.
the mortgage is made for the
 Answer: c) The creditor can foreclose the
a) The mortgagee can claim for mortgage and demand collection for any
deficiency judgment from the debtor. deficiency.

94. X mortgaged her residential house and 96. XYZ Corporation bought 10 units of
lot in favor of ABC Bank. X defaulted in Honda Civic from CCC Corporation.
her loan and so the bank foreclosed the ABC Bank granted a loan to XYC
real estate mortgage on the residential Corporation which executed a financing
house. Y then bought the residential agreement which provided for the
house and lot before the expiration of principal amount, the installment
the redemption period. Can Y now take payments, the interest rates and the due
possession of the property? dates. On due dates of the installment
payments, XYZ Corporation was asked
a) No, because it is still covered by the to pay for some handling charges and
redemption period and the other fees which were not mentioned in
purchaser is not yet entitled as a the financing Agreement. Can XYC
matter of right to take possession of Corporation refuse to pay the same?
the property;
b) Yes, the purchaser is now entitled to a) No, because handling charges and
the possession of the house; other fees are usual in certain
c) No, because there is a need to talk banking transactions;
to X to leave the house; b) Yes, because ABC Bank is required
d) No, because Y was not the one who to provide XYZ Corporation not only
foreclosed the mortgage on the the amount of the monthly
property. installments but also the details of
the finance charges as required by
Answer: the Truth in Lending Act;
a) No, because it is still covered by the c) No, because the Financing
redemption period and the Agreement is a valid document to
purchaser is not yet entitled as a establish the existence of the
matter of right to take possession of obligation;
the property d) Yes, because legally, finance
charges are never allowed in any
banking transaction.
95. Which phrase best completes the
statement—When a debt is secured by Answer:
a real estate mortgage, upon default of b) Yes, because ABC Bank is required
the debtor: to provide XYZ Corporation not only
the amount of the monthly
a) The only remedy of the creditor is to installments but also the details of
foreclose the real estate mortgage; the finance charges as required by
b) Another remedy is filing an action for the Truth in Lending Act.
collection and then foreclose if
collection is not enough;
c) The creditor can foreclose the 97. Which of the following is an exception
mortgage and demand collection for to the secrecy of bank deposits which
any deficiency; are in the Philippine Pesos, but NOT an
d) None of the above. exception to the secrecy of foreign
currency deposits?
Answer:
 a) Upon BSP inquiry into or a) The amount involved is not
examination of deposits or commensurate with the client’s
investments with any bank, when the business or financial capacity;
inquiry or examination is made in the b) There is no underlying legal or trade
course of the BSP’s periodic special obligation, purpose or economic
examination of said bank to ensure justification;
compliance with the AMLA; c) Client is not properly identified;
b) Upon PDIC and BSP inquiry into d) All of the above.
examination of deposit accounts in
case there is a finding of unsafe or Answer:
unsound banking practice; d) All of the above.
c) Upon inquiry in cases of
impeachment;
d) Upon inquiry by the Commissioner 100. The main feature of the Foreign
of Internal Revenue in the event a Investment Act of 1991 is to introduce
taxpayer files an application to the concept of “Negative Lists”. Under
compromise his tax liabilities on the the said law, what is a “Negative List”?
ground of financial incapacity.
a) It is a list of business activities or
Answer: enterprises in the Philippines that
c) Upon inquiry in cases of foreigners are disqualified to engage
impeachment. in;
b) It is a list of business activities or
enterprises in the Philippines that
98. The Anti-Money Laundering Law is a foreigners are qualified to engage in;
law that seeks to prevent money c) It is a list of business activities or
laundering activities by providing for enterprises that are open to foreign
more transparency in the Philippine investments provided it is with the
Financial System, hence the following approval of the Board of Investment.
institutions are covered by the law, d) It is a list of business activities or
except: enterprises that are open to foreign
investments provided it is with the
a) Bank and any financial institutions; approval of the SEC.
b) Pawnshops;
c) Casino operators; Answer:
d) All of the above. a) It is a list of business activities or
enterprises in the Philippines that
Answer: foreigners are disqualified to engage
c) Casino operators. in.

99. For purposes of determining violation of ESSAY-TYPE QUESTIONS

the provisions of the Anti-Money
Laundering Law, a transaction is 1. ABC Company filed a Petition for
considered as a “Suspicious Rehabilitation with the Court. An Order
Transaction” with “Covered Institutions” was issued by the Court, (1) staying
regardless of the amount involved, enforcement of all claims, whether
where which the following money or otherwise against ABC
circumstances exists? Company, its guarantors and sureties
not solidarily liable with the company;
and (2) prohibiting ABC Company from
making payments of its liabilities, satisfy the seemingly irreconcilable
outstanding as of the date of the filing of interest of the seller, who refuses to
the petition. XYC Company is a holder part with his goods before he is paid,
of an irrevocable Standby Letter of and a buyer, who wants to have
Credit which was previously procured by control of the goods before paying.
ABC Company in favor of XYZ To break the impasse, the buyer
Company to secure performance of may be required to contract a bank
certain obligations. In the light of the to issue a letter of credit in favor of
Order issued by the Court, the seller so that, by virtue of the
letter of credit, the issuing bank can
a) Can XYZ Company still be able to authorize the seller to draw drafts
draw on their irrevocable Standby and engage to pay them upon their
Letter of Credit when due? Explain presentment simultaneously with the
your answer. tender of documents required by the
b) Explain the nature of Letters of letter of credit. The buyer and the
Credit as a financial devise. seller agree on what documents are
to be presented for the payment, but
Answer: ordinarily they are documents of title
a) Yes, as an exception to a Stay or evidencing or attesting to the
Suspension Order included in a shipment of the goods to the buyer.
Commencement Order issued Once the credit is established, the
pursuant to Section 16(q) of the seller ships the goods to the buyer
FRIA, Section 18(c) of the said law and in the process secures the
provides that a Stay or Suspension required shipping documents or
Order shall not apply “to the documents of title. To get paid, the
enforcement of claims against seller executes a draft and presents
sureties and other persons solidarily it together with the required
liable with the debtor, and third party documents to the issuing bank. The
or accommodation mortgagors as issuing bank redeems the draft and
well as issuers of letters of credit x x pays cash to the seller if it finds that
x” Similarly, assuming that it has not the documents submitted by the
been superseded by the FRIA, seller conform with what the letter of
Section 7(b) of the Supreme Court credit requires. The bank then
Rules of Procedure on Corporate obtains possession of the
Rehabilitation (2008) provides that a documents upon paying the seller.
stay order shall not cover claims The transaction is completed when
against letters of credit and similar the buyer reimburses the issuing
security arrangements issued by a bank and acquires the documents
third party to secure the payment of entitling him to the goods, while the
the debtor’s obligations. This was buyer acquired the said documents
the basis of the decision in the case and control over the goods only after
of Metropolitan Waterworks and reimbursing the bank.
Sewerage System v. Hon. Reynaldo
B. Daway, et al., G.R. No. 160732, However, letters of credit are
June 21, 2004. also used in non-sale settings where
they serve to reduce the risk of non-
performance. Generally, letters of
b) A letter of credit is a financial device credit in non-sale settings have
developed by merchants as a come to be known as standby letters
convenient and relatively safe mode of credit.
of dealing with sale of goods to
 civil liabilities arising from the
2. CCC Car, Inc. obtained a loan from BBB criminal offense.
Bank, which fund was used to import 10
units of Mercedes Benz S Class 3. X borrowed money from Y in the amount
vehicles. Upon arrival of the vehicles of P1 M and as payment, issued a
and before the release of said vehicles check. Y then endorsed the check to his
to CCC Car, Inc, X and Y, the president sister Z for no consideration. When Z
and treasurer, respectively, of CCC deposited the check to her account, the
signed the Trust Receipt to cover the check was dishonored for insufficiency
value of the 10 units of Mercedes Benz of funds.
S class vehicles, after which, the
vehicles were all delivered to the car a) Is Z a holder in due course? Explain
display room of CCC. Sales of the your answer.
vehicles were slow, and it took a month b) Who is liable on the check? The
to dispose the 10 units. CCC wanted to drawer or the indorser? Explain your
be in business and to save on various answer.
documentations requires by the bank,
decided that instead of turning over the Answer:
proceeds of the sales, CCC used the a) Z is not a holder in due course. She
proceeds to buy another 10 units of did not give any valuable
BMW 3 series. consideration for the check. To be a
holder in due course, the holder
a) Is the action of CCC legally justified? must have taken the check in good
b) Will the corporate officers of CCC be faith and for value.
held liable under the circumstances?
Explain your answer. b) X, the drawer, will be liable. As
drawer, X engaged that on due
Answer: presentment the check would be
a) No. It is the obligation of CCC, as paid according to its tenor and that if
entrustee, to receive the proceed of it is dishonored and he is given
the sale of the Mercedes Benz S notice of dishonor, he will pay the
class vehicles in trust for BBB Bank, amount to the holder. No notice of
as entruster, and turn over the dishonor need be given to X if he is
same to BBB Bank to the extent of aware that he has insufficient funds
the amount owing to the latter or as in his account. Under Section 114(d)
appears in the trust receipt. of the NIL, notice of dishonor is not
required to be given to the drawer
b) Yes, particularly the president and where he has no right to expect that
the treasurer of CCC who both the drawee will honor the instrument.
signed the trust receipts in the
problem. Section 13 of the Trust Z cannot hold Y, the
receipts Law provides that if the endorser, liable as the latter can
violation or offense is committed by raise the defense that there was no
a corporation, partnership, valuable consideration for the
association, or other juridical entity, endorsement of the check.
the penalty provided for in the law
shall be imposed upon the directors,
officers, employees or other officials 4. Indicate and explain whether the
or persons therein responsible for promissory note is negotiable or non-
the offense, without prejudice to the negotiable.
a) I promise to pay A or bearer e) Negotiable. It conforms fully with the
P100,000 from my inheritance which requirements of negotiability under
I will get after the death of my father. Section 1 of NIL. It is payable on
b) I promise to pay A or bearer demand because the note does not
P100,000 plus the interest rate of express a time for its payment.
90—day treasury bills.
c) I promise to pay A or bearer
P100,000 if A passes the 2012 bar 5. X borrowed from CCC Bank. She
exams. mortgaged her house and lot in favor of
d) I promise to pay A or bearer the bank. X insured her house. The
P100,000 on or before December bank also got the house insured.
30, 2012.
e) I promise to pay A or bearer a) Is this double insurance? Explain
P100,000. your answer.
b) Is this legally valid? Explain your
Answer: answer.
a) Not negotiable. There is no c) In case of damage, can X and CCC
unconditional promise to pay a sum bank separately claim for the
certain in money as the promise is to insurance proceeds?
pay the amount out of a particular
funds, i.e., the inheritance from the Answer:
father of the promisor. a) No, there is no double insurance.
b) Not negotiable. There is no Double insurance exists where the
unconditional promise to pay a sum same person is insured by several
certain in money. The promise to insurers separately with respect to
pay “the interest rate of 90—day the same subject and interest.
treasury bills” is vague because,
first, there are no 90—day treasury b) Yes, X and CCC Bank can both
bills; second, the promise does not insure the house as they have
specify whether the so-called different insurable interests therein.
“interest rate” is that established at X, the borrower-mortgagor, has an
the primary market (where new T- insurable interest in the house being
bills are sold for the first time by the the owner thereof while CCC Bank,
Bureau of Treasury) or at the the lender, also has an insurable
secondary market (where T bill can interest in the house as mortgagee
be bought and sold after they have thereof.
been issued in the primary market);
and third, T-bills are conventionally c) Yes. If X obtained an open policy
quoted in terms of their discount then she could claim an amount
rate, rather than their interest rate. corresponding to the extent of the
They do not pay any interest directly; damage based on the value of the
instead, they are sold at a discount house determined as of the date the
of their face value and thus “earn” by damaged occurred, but not to
selling at face value upon maturity. exceed the face value of the
c) Not negotiable. The promise to pay insurance policy; however, if she
is subject to a condition, i.e., that A obtained a valued policy then she
will pass the 2012 bar exams. could claim an amount
d) Negotiable. It conforms fully with the corresponding to the extent of the
requirements of negotiability under damage based on the agreed upon
Section 1 of NIL. valuation of the house.
 As for CCC Bank, it could claim an persons. However, they could be
amount corresponding to the extent subscribers.
of the damage but not to exceed the
amount of the loan it extended to X b) Some of the differences are as
or so much thereof as may remain follows: first, all the incorporators are
unpaid. required to sign and acknowledge
the Articles of Incorporation while
the subscribers, as such, are not
6. X is a Filipino immigrant residing in subject to the same requirement;
Sacramento, California. Y is a Filipino second, the incorporators are all
residing Quezon City. Z is a resident required to be natural persons while
alien residing in Makati City. GGG the subscribers could either be
Corporation is a domestic corporation— natural or juridical persons; and
40% owned by foreigners and 60% third, the number of incorporators
owned by Filipinos, with T as authorized cannot exceed 15 while the number
representative. CCC Corporation is a of subscribers could be more than
foreign corporation registered with the 15 (subject to compliance, in the
Philippines SEC, KKK Corporation is a appropriate cases, with the
domestic corporation (100%) Filipino requirements of the SRC).
owned. S is a Filipino, 16 years of age,
and daughter of Y. c) X, Y, Z and T could be directors
(subject to the residency
a) Who can be incorporators? Who can requirement mentioned in (a) above
be subscribers? and any nationality requirement
b) What are the differences between an under the law governing the
incorporator and a subscriber, if business of the corporation) but not
there are any? GGG Corporation, CCC Corporation,
c) Who are qualified to become and KKK Corporation as they are not
members of the board of directors of natural persons. However, the
the corporation? aforementioned corporations could
d) Who are qualified to act as have their respective representatives
Treasurer of the company? nominated and possibly elected as
e) Who can be appointed Corporate directors by the stockholders. Each
Secretary? director must own at least one share
of the capital stock of the
corporation.
Answer:
a) X, Y, Z and T could all be d) The Corporation Code does not
incorporators and subscribers. Note, impose any nationality or residency
however, that Section 10 of the requirement in respect of the
Corporation Code requires that there Treasurer. Any such requirement or
must be at least 5 but not more than any other reasonable requirement
15 incorporators (who must all be may be adopted by the corporation
natural persons) and that a majority and reflected in its by-laws, or
of the incorporators must be required by the law(s) governing the
residents of the Philippines. S, being business of the corporation or a law
a minor, could neither be an of general application (e.g., the Anti-
incorporator nor a subscriber. GGG Dummy Law which applies to all
Corporation, CCC Corporation, and nationalized businesses).
KKK Corporation could not be Accordingly, anybody with the
incorporators as they are not natural qualifications required under the by-
 laws of the corporation or under the a) BBB Bank, as junior mortgagee,
law(s) governing the business of the would have a right to redeem the
corporation, could be elected foreclosed property, together with X,
Treasurer by the Board of Directors. his successors in interest, any
However, the Treasurer could not be judicial or judgment creditor of X, or
President at the same time. any other person or entity having a
lien on the vacation house
e) The Secretary is required to be both subsequent to the real estate
a resident and a citizen of the mortgage in favor of SSS Bank.
Philippines.
b) In case of a deficiency, SSS Bank
could file suit to claim for the
7. X obtained a loan for P50 M from SSS deficiency. BBB Bank could file an
Bank. The collateral is his vacation ordinary action to collect its loan
house in Baguio City under a real estate from X. if it does so, it would be
mortgage. X needed more funds for his deemed to have waived it mortgage
business so he again borrowed another lien. If the judgment in the action to
P10 M, this time from BBB Bank, collect is favorable to BBB Bank,
another bank, using the same collateral. and it becomes final and executor,
The loan secured from SSS Bank fell BBB Bank could enforce the said
due and X defaulted. judgment by execution. It could even
levy execution on the same
a) If SSS Bank forecloses the real mortgaged property, but it would not
estate mortgage, what rights, if any, have priority over the latter.
are left with BBB Bank as mortgagee
also? c) If the value of the property is more
b) If the value of the Baguio property is than the amount of the loan, the
less than the amount of loan, what excess could benefit and be claimed
would be the recourse of SSS bank? by BBB Bank, any judicial or
BBB Bank? judgment creditor of X, any other
c) If the value of the property is more junior mortgagee, and X.
that the amount of the loan, who will
benefit from the excess value of the d) If X defaulted in respect of his loan
property? from BBB Bank but fully paid his
d) If X defaulted with its loan in favor of loan from SSS Bank, BBB Bank
BBB Bank but fully paid his loan with could now foreclose the mortgaged
SSS Bank, can BBB foreclose the property as it would be the only
real mortgage executed in its favor? remaining mortgagee of the same.
e) Does X have any legal remedy after
the foreclosure in the event that later e) Yes, X could redeem the property
on he has the money to pay for the within 1 year from the date of
loan? registration of the sheriff’s certificate
f) If SSS Bank and BBB Bank of foreclosure sale.
abandoned their rights under the
real estate mortgage, is there any f) SSS Bank and BBB Bank could
legal recourse available to them? each file an ordinary action to collect
its loan from X.

Answer: 8. X obtained a P10 M loan from BBB

Banking Corporation. The loan is
secured by REM on his vacation house clause enables the parties to provide
in Tagaytay City. The original Deed of continuous dealings, the nature or
REM for the P10 M was duly registered. extent of which may not be known or
The Deed of REM also provides that anticipated at the time, and they
“The mortgagor also agrees that this avoid the expense and
mortgage will secure the payment of inconvenience of executing a new
additional loans or credit security on each new transaction. It
accommodations that may be granted operates as a convenience and
by the mortgagee…” Subsequently, accommodation to the borrower as it
because he needed more funds, he makes available additional funds to
obtained another P5 M loan. On due him without his having to execute
dates of both loans, X failed to pay the additional security documents,
P5 M but fully paid the P10 M. BBB thereby saving time, travel, costs of
Banking Corporation instituted extra legal services, recording fees,
extrajudicial foreclosure proceedings. etc.

a) Will the extrajudicial foreclosure The “dragnet clause” may not apply
prosper considering that the to other loans extended by the
additional P5 M was not covered by mortgagee to the mortgagor for
the registration? which other securities were given. In
b) What is the meaning of a “dragnet the case of Prudential Bank v. Alviar,
clause” in a Deed of Real Estate the Supreme Court adopted the
Mortgage? Under what “reliance on the security test” to the
circumstances will be “dragnet effect that “when the mortgagor
clause” applicable? takes another loan [from the
mortgagee] for which another
Answer: security was given, it could not be
a) Yes. X executed a REM containing a inferred that such loan was made in
“blanket mortgage clause”. reliance solely on the original
Mortgages given to secure future security with the “dragnet clause”,
advancements are valid and legal but rather, on the new security
contracts, and the amounts names given”. This means that the
as consideration in said contracts do existence of the new security must
not limit the amount for which the be respected and the foreclosure of
mortgage may stand as security if the old security should only be for
from the four corners of the the other loans not separately
instrument the intent to secure future collateralized and for any amount
and other indebtedness. not covered by the new security for
the new loan.
b) Generally, a dragnet clause is a
clause in a deed of REM stating that
the mortgage secures all the loans 9. A, B, C, D, E, are all duly elected
and advances that the mortgagor members of the Board of Directors of
may at any time owe to the XYZ Corporation. F, the general
mortgagee. The word “dragnet” is a manager, entered into a supply contract
reference to a net drawn through a with an American firm. The contract was
river or across ground to trap fish or duly approved by the Board of Directors.
game. It is also known in American However, with the knowledge and
jurisprudence as a “blanket consent of F, no deliveries were made
mortgage clause” or an “anaconda to the American firm. As a result of the
clause”. A mortgage with a dragnet non-delivery of the promised supplies,
the American firm incurred damages. of the corporation, the laws and
The American firm would like to file a regulations governing the business
suit for damages. The American firm of, or otherwise applicable to, the
would like to file a suit for damages. Can corporation, and, in the case of
the American firm sue: officers, the resolution approved by
the Board of Directors.
a) The members of the Board of
Directors individually, because they As the directors have a personality
approved the transaction? separate from that of the
b) The corporation? corporation, they would be
c) F, the general manager, personally, personally liable only if they acted
because the non-delivery was with willfully and knowingly vote for or
his knowledge and consent? assent to a patently unlawful act of
d) Explain the rules on liabilities of a the corporation, or when they are
corporation for the act of its guilty of gross negligence or bad
corporation officers and the liabilities faith in directing the affairs of the
of the corporate officers and Board corporation, or when they acquire
of Directors of a corporation acting in any personal or pecuniary interest in
behalf of the corporation. conflict with their duty as directors,
which acts result in damages to the
Answer: corporation, its stockholders or other
a) No. in approving the transaction, the persons, when they agree to hold
directors were not acting in their themselves personally and solidarily
personal capacities but rather on liable with the corporation, or when
behalf of XYZ Corporation exercising they are made, by a specific
the powers of the corporation and provision of law, to personally
conducting its business. The answer for the corporate action.
problem contains no facts that would
indicate that the directors acted
otherwise. 10. AAA Corporation is a bank. The
b) Yes. The Board approved the supply operations of AAA Corporation as a
contract and the General Manager bank were not doing well. So, to avert
entered into the contract, both of any bank run, AAA Corporation, with the
them acting on behalf of the XYZ approval of the Monetary Board, sold all
Corporation. its assets and liabilities to BBB Banking
c) Yes, F could be sued in his personal Corporation which includes all deposits
capacity because he knowingly accounts. In effect then, BBB
consented to the non-delivery of the Corporation will service all deposits of
promised supplies contrary to the AAA Corporation.
contract that was duly approved by
the Board of Directors. The problem a) Will the sale of all assets and
does not indicate any circumstance liabilities of AAA Corporation to BBB
that would excuse or favorably Banking Corporation automatically
explain the action of F. dissolve or terminate the corporate
d) A corporation would be liable for the existence of AAA Corporation?
acts of its Board of Directors and Explain your answer.
officers if the said acts were b) What are the legal requirements in
performed by them in accordance order that a corporation may be
with the powers granted to them dissolved?
under the Corporation Code, the
articles of incorporation and by-laws Answer:
 a) No, the sale of all the assets and the bus, the door of which was not
liabilities of AAA Corporation to BBB locked. At this point, V, a vendor,
Banking Corporation will not result in sneaked into the bus and offered P
the automatic dissolution or some refreshments. When P rudely
termination of the existence of the declined, V attacked him, resulting in P
former. A decision to dissolve AAA suffering from bruises and contusions.
Corporation or to terminate its Does he have cause to sue Sentinel
corporate existence would require a Liner?
separate approval by a majority of
the Board of Directors of AAA a. Yes, since the carrier’s crew did
Corporation and its stockholders nothing to protect a passenger who
holding at least 2/3 of the total remained in the bus during the stop-
outstanding capital stock, as well as over.
the separate approval by the b. No, since the carrier’s crew could
Monetary Board. not have foreseen the attack.
c. Yes, since the bus is liable for
b) A corporation may be dissolved anything that goes wrong in the
voluntarily under Section 118 (where course of the trip.
no creditors are affected) or under d. No, since the attack on P took place
Section 119 (where creditors are when the bus was at a stop-over.
affected) or by shortening of the
corporate term under Section 120, or Answer:
involuntarily by the SEC under a. Yes, since the carrier’s crew did
Section 122, all of the Corporation nothing to protect a passenger who
Code. Dissolution under Sections remained in the bus during the stop-
118, 119, and 120 require the same over.
corporate approvals stated in (a)
above.
2. A cargo ship of X Shipping Co. ran
The SEC has the authority under aground off the coast of Cebu during a
Section 6 of PD 902-A to revoke the storm and lost all its cargo amounting to
certificate of registration of a P50 M. the ship itself suffered damages
corporation upon any grounds estimated at P80 M. the cargo owners
provided by law, including the filed a suit against X Shipping but it
aforementioned Section 6-A. invoked the doctrine of limited liability
since it vessel suffered an P80 M
damage, more than the collective value
of all lost cargo. Is X Shipping correct?

a. Yes, since under the doctrine, the

value of the lost cargo and the
damage to the ship can be set-off.
2011 BAR EXAMINATION b. No, since each cargo owner has a
separate and individual claim for
SET A damages.
c. Yes, since the extent of the ship’s
1. P rode a Sentinel Liner bus going to damage was greater than that of the
Baguio from Manila. At a stop-over in value of the lost cargo.
Tarlac, the bus driver, the conductor, d. No, since X Shipping neither
and the passengers disembarked for incurred a total loss nor abandoned
lunch. P decided, however, to remain in its ship.
 c. Yes, since the denial of the right
Answer: under the By-laws is binding on T.
d. No, since X Shipping neither incurred d. No, since pre-emptive rights are
a total loss nor abandoned its ship. governed by the articles of
incorporation.

3. A writes a promissory note in favor of Answer:

his creditor, B. it says: Subject to my a. No, since the by-laws cannot deny a
option, I promise to pay B P1 M or his shareholder his right of pre-emption.
order to give P1 M worth of cement or to
authorize him to sell my house worth P1
M. signed, A.” Is the note negotiable? 5. M makes a promissory note that states:
“I, M, promise to pay P5,000.00 to B or
a. No, because the exercise of the bearer. Signed, M.” M negotiated the
option to pay lies with A, the maker note by delivery to B, B to N, N to O. B
and debtor. had known that M was bankrupt when M
b. No, because it authorizes the sale of issued the note. Who would be liable to
collateral securities in case the note O?
is not paid at maturity.
c. Yes, because the note is really a. M and N sine they may be assumed
payable to B or his order, the other to know of M’s bankruptcy.
provisions being merely optional. b. N, being O’s immediate negotiator of
d. Yes, because an election to require a bearer note.
something to be done in lieu of c. B, M, and N, being indorsers by
payment of money does not affect delivery of a bearer note.
negotiability. d. B, having known of M’s bankruptcy.

Answer: Answer:
a. No, because the exercise of the b. N, being O’s immediate negotiator of
option to pay lies with A, the maker a bearer note.
and debtor.

6. S delivered 10 boxes of cellphones to

4. ABC Corp. increased its capital stocks Trek Bus Liner, for transport from Manila
from P10 M to P15 M and, in the to Ilocos Sur on the following day, for
process, issued 1,000 new shares which S paid the freightage. Meanwhile,
divided into Common Shares “B” and the boxes were stored in the bus liner’s
common shares “C”. T, a stockholder bodega. That night, however, a robber
owning 500 shares, insists on buying broke into the bodega and stole S’s
the newly issued shares through a right boxes. S sues Trek Bus Liner for
of pre-emption. The company claims, contractual breach but the latter argues
however, that its By-laws deny T any that S has no cause of action based on
right of pre-emption. Is the corporation such breach since the loss occurred
correct? while the goods awaited transport. Who
is correct?
a. No, since the by-laws cannot deny a
shareholder his right of pre-emption. a. The bus liner since the goods were
b. Yes, but the denial of his pre- not lost while being transported.
emptive right extends only to 500 b. S since the goods were
shares. unconditionally placed with T for
transportation
 c. S since the freightage for the goods constitutes the indorsee as agent of the
had been paid. ondorser. As agent, the indorsee has
d. The bus liner since the loss was due the right, among others, to:
to a fortuitous event.
a. Demand payment of the instrument
Answer: only.
b. S since the goods were b. Notify the drawer of the payment of
unconditionally placed with T for the instrument.
transportation. c. Receive payment of the instrument.
d. Instruct that payment be made to the
drawee.
7. X Corp. operates a call center that
received orders for pizzas on behalf of Y Answer:
Corp. which operates a chain of pizza c. Receive payment of the instrument.
restaurants. The two companies have
the same set of corporate officers. After
2 years, X Corp. dismissed its call 9. Under the NIL, a signature by the
center agents for no apparent reason. procuration operates as a notice that the
The agents filed a collective suit for agent has but a limited authority to sign.
illegal dismissal against both X Corp. Thus, a person who takes a bill that is
and Y Corp. based on the doctrine of drawn, accepted, or indorsed by
piercing the veil of corporate fiction. The procuration is duty-bound to inquire into
latter set up a defense that the agents the extent of the agent’s authority by:
are in the employ of X Corp. which is a
separate juridical entity. Is the defense a. Examining the agent’s special power
appropriate? of attorney.
b. Examining the bill to determine the
a. No, since the doctrine would apply, extent of such authority.
the two companies having the same c. Asking the agent about the extent of
set of corporate officers. such authority.
b. No, the real employer is Y Corp., the d. Asking the principal about the extent
pizza company, with X Corp. serving of such authority.
as an arm for receiving its outside
orders for pizzas. Answer:
c. Yes, it is not shown that one b. Examining the bill to determine the
company completely dominates the extent of such authority.
finances, policies, and business
practices of the latter.
d. Yes, since the two companies 10. Under the NIL, if the holder has a lien
perform two distinct businesses. on the instrument which arises either
from a contract or by implication of law,
Answer: he would be a holder for value to the
c. Yes, it is not shown that one extent of
company completely dominates the
finances, policies, and business a. His successor’s interest.
practices of the latter. b. His predecessor’s interest.
c. The lien in his favor.
d. The amount indicated on the
8. A negotiable instrument can be indorsed instrument’s face.
by way of a restrictive indorsement,
which prohibits further negotiation and Answer:
 c. The lien in his favor. c. P50,000, but with the obligation to
hold P20,000 for Y’s benefit.
d. None, as Z’s remedy is to run after
11. The liability of a common carrier for the his debtor, Y.
goods it transports begins from the time
of Answer:
c. P50,000, but with the obligation to
a. Conditional receipt. hold P20,000 for Y’s benefit.
b. Constructive receipt.
c. Actual receipt.
d. Either actual or constructive receipt. 14. Under the Anti-Money Laundering Law,
a covered institution is required to
Answer: maintain a system of verifying the true
d. Either actual or constructive receipt. identity of their clients as well as
persons purporting to act on behalf of

12. On X’s failure to pay his loan to ABC a. Those doing business with such
Bank, the latter foreclosed the Real clients.
Estate Mortgage he executed in its b. Unknown principals.
favor. The auction sale was set for Dec. c. The covered institution.
1, 2010 with the notices of sale d. Such clients.
published as the law required. The sale
was, however, cancelled when Dec. 1, Answer:
2010 was declared a holiday and d. Such clients.
rescheduled to Jan. 10, 2011 without
republication of notice. The auction sale
then proceeded on the new date. Under 15. It is settled that neither par value nor
the circumstance, the auction sale is book value is an accurate indicator of
the fair value of a share of stock of a
a. Rescissible. corporation. As to unpaid subscriptions
b. Unenforceable. to its shares of stock, as they are
c. Void. regarded as corporate assets, they
d. Voidable. should be included in the

Answer: a. Capital value.

c. Void. b. Book value
c. Par value.
d. Market value.
13. X executed a promissory note with a
face value of P50,000, payable to the Answer:
order of Y. Y indorsed the note to Z, to b. Book value.
whom Y owed P30,000. If X has no
defense at all against Y, for how much 16. P sold to M 10 grams of shabu worth
may Z collect from X? P5,000. As he had no money at the time
of the sale, M wrote a promissory note
a. P20,000, as he is a holder for value promising to pay P or his order P5,000.
to the extent of the difference P then indorsed the note to X (who did
between Y’s debt and the value of not know about the shabu), and X to Y.
the note. Unable to collect from P, Y then sued X
b. P30,000, as he is a holder for value on the note. X set up the defense of
to the extent of his lien. illegality of consideration. Is he correct?
 d. Alteration.
a. No, since X, being a subsequent
indorser, warrants that the note is Answer:
valid and subsisting. a. Fraud in inducement.
b. No, since X, a general indorser,
warrants that the note is valid and
subsisting. 19. In elections for the Board of Trustees of
c. Yes, since a void contract does not non-stock corporations, members may
give rise to any right. cast as many votes as there are
d. Yes, since the note was born of an trustees to be elected but may not cast
illegal consideration which is real more than one vote for one candidate.
defense. This is true-

Answer: a. Unless set aside by the members in

b. No, since X, a general indorser, a plenary session.
warrants that the note is valid and b. In every case even if the Board of
subsisting. Trustees resolves otherwise.
c. Unless otherwise provided in the
Articles of Incorporation or in the By-
17. In a contract of carriage, the common laws.
carrier I liable for the injury or death of a d. In every case even if the majority of
passenger resulting from its employee’s the members decide otherwise
fault although the latter acted beyond during the elections.
the scope of his authority. This is based
on the Answer:
c. Unless otherwise provided in the
a. Rule that the carrier has an implied Articles of Incorporation or in the By-
duty to transport the passenger laws.
safely.
b. Rule that the carrier has an express
duty to transport the passenger 20. The rule is that valuation of the shares
safely. of a stockholder who exercises his
c. Doctrine of Respondeat Superior. appraisal rights is determined as of the
d. Rule in culpa aquiliana. day prior to the date on which the vote
was taken. This is true-
Answer:
a. Rule that the carrier has an implied a. Regardless of any depreciation or
duty to transport the passenger appreciation in the share’s fair value.
safely. b. Regardless of any appreciation in
the share’s fair value.
c. Regardless of any depreciation in
18. A holder in due course holds the the share’s fair value.
instrument free from any defect of title of d. Only if there is no appreciation or
prior parties and free from defenses depreciation in the share’s fair value.
available to prior parties among
themselves. An example of such Answer:
defense is- a. Regardless of any depreciation or
appreciation in the share’s fair value.
a. Fraud in inducement.
b. Duress amounting to forgery.
c. Fraud in esse contractus.
21. T Shipping, Co. insured all of its arising from their employment with
vessels with R insurance, Co. The him.
insurance policies stated that the insurer d. Yes, since X and Y are Z’s
shall answer for all damages due to employees.
perils of the sea. One of the insured’s
ship, the MV Don Priscilla, ran aground Answer:
in the Panama Canal when its engine c. No, since Z has no pecuniary interest
pipes leaked and the oil seeped into the in the lives of X and Y arising from their
cargo compartment. The leakage was employment with him.
caused by the extensive mileage that
the ship had accumulated. May the
insurer be made to answer for the 23. X, Co. a partnership, is composed of A
damage to the cargo and the ship? (capitalist partner), B (capitalist partner)
and C (industrial partner). If you were
a. Yes, because the insurance policy partner A, who between B and C would
covered any or all damage arising you have an insurable interest on, such
from perils of the sea. that you may then insure him?
b. Yes, since there appears to have
been no fault on the part of the a. No one, as there is merely a
shipowner and ship captain. partnership contract among A, B and
c. No, since the proximate cause of the C.
damage was the breach of warranty b. Both B and C, as they are your
of seaworthiness of the ship. partners.
d. No, since the proximate cause of the c. Only C, as he is an industrial
damage was due to ordinary usage partner.
of the ship, and thus not due to d. Only B, as he is a capitalist partner.
perils of the sea.
Answer:
b. Both B and C, as they are your
partners.
Answer:
d. No, since the proximate cause of the
damage was due to ordinary usage of 24. X is the holder of an instrument payable
the ship, and thus not due to perils of to him (X) or his order, with Y as maker.
the sea. X then indorsed it as follows: “Subject to
no recourse, pay to Z. Signed, X.” When
Z went to collect from Y, it turned out
22. X has been a long-time household that Y’s signature was forged. Z now
helper of Z. X’s husband, Y, has also sues X for collection. Will it prosper?
been Z’s long-time driver. May Z insure
the lives of both X and Y with Z as a. Yes, because X, as a conditional
beneficiary? indorser, warrants that the note is
genuine.
a. Yes, since X and Y render services b. Yes, because X, as a qualified
to Z. indorser, warrants that the note is
b. No, since X and Y have no genuine.
pecuniary interest on the life of Z c. No, because X made a qualified
arising from their employment with indorsement.
him. d. No, because a qualified indorsement
c. No, since Z has no pecuniary does not include the warranty of
interest in the lives of X and Y genuineness.
 27. T, the captain of MV Don Alan, while
Answer: asleep in his cabin, dreamt of an
b. Yes, because X, as a qualified Intensity 8 earthquake along the path of
indorser, warrants that the note is genuine. his ship. On waking up, he immediately
ordered the ship to return to port. True
enough, the earthquake and tsunami
25. A bill of exchange has T for its drawee, struck 3 days later and the ship was
U as drawer, and F as holder. When F saved. Was the deviation proper?
went to T for presentment, F learned
that T is only 15 years old. F wants to a. Yes, because the deviation was
recover from U but the latter insists that made in good faith and on
a notice of dishonor must first be made reasonable ground for believing that
the instrument being a bill of exchange. it was necessary to avoid a peril.
Is he correct? b. No, because no reasonable ground
for avoiding a peril existed at the
a. Yes, since a notice of dishonor is time of the deviation.
essential to charging the drawer. c. No, because T relied merely on his
b. No, since T can waive the supposed gift of prophecy.
requirement of notice of dishonor. d. Yes, because the deviation took
c. No, since F can treat U as maker place based on a reasonable belief
due to minority of T, the drawee. of the captain.
d. Yes, since in a bill of exchange,
notice of dishonor is at all times Answer:
required. b. No, because no reasonable ground
for avoiding a peril existed at the
Answer: time of the deviation.
c. No, since F can treat U as maker
due to minority of T, the drawee.
28. X, drawee of a bill of exchange, wrote
the words: “Accepted, with promise to
26. An insured, who gains knowledge of a make payment within two day. Signed,
material fact already after the effectivity X.” The drawer questioned the
of the insurance policy, is not obliged to acceptance as invalid. Is the acceptance
divulge it. The reason for this is that the valid?
test of concealment of material fact is
determined. a. Yes, because the acceptance is in
reality a clear assent to the order of
a. At the time of the issuance of the the drawer to pay.
policy. b. Yes, because the form of the
b. At any time before the payment of acceptance is really immaterial.
premium. c. No, because the acceptance must
c. At the time of the payment of the be a clear assent to the order of the
premium. drawer to pay.
d. At any time before the policy d. No, because the document must not
becomes effective. express that the drawee will perform
his promise within two days.
Answer:
d. any time before the policy becomes Answer:
effective. a. Yes, because the acceptance is in
reality a clear assent to the order of
the drawer to pay.
 31. A material alteration of an instrument
without the assent of all parties liable
29. X came up with a new way of thereon results in its avoidance,
presenting a telephone directory in a EXCEPT against a
mobile phone, which he dubbed as the
“iTel” and which uses lesser time for a. Prior indorsee.
locating names and telephone numbers. b. Subsequent acceptor.
May X have his “iTel” copyrighted in his c. Subsequent indorser.
name? d. Prior acceptor.

a. No, because it is a mere system or Answer:

method. c. Subsequent indorser.
b. Yes, because it is an original
creation.
c. Yes, because it entailed the 32. X constituted a chattel mortgage on a
application of X’s intellect. car (valued at P1 M) to secure a
d. No, because it did not entail any P500,000 loan. For the mortgage to be
application of X’s intellect. valid, X should have

Answer: a. The right to mortgage the car to the

a. No, because it is a mere system or extent of half its value.
method. b. Ownership of the car.
c. Unqualified free disposal of his car.
d. Registered the car in his name.
30. D, debtor of C, wrote a promissory note
payable to the order of C. C’s brother, Answer:
M, misrepresenting himself as C’s c. Unqualified free disposal of his car.
agent, obtained the note from D, then
negotiated it to N after forging C’s
signature. N indorsed it to E, who 33. B borrowed P1 M from L and offered to
indorsed it to F, a holder in due course. him his BMW car worth P1 M as
May F recover from E? collateral. B then executed a promissory
note that reads: “I, B, promise to pay L
a. No, since the forgery of C’s or bearer the amount of P1 M and to
signature results in the discharge of keep my BMW car (loan collateral) free
E. from any other encumbrance. Signed,
b. Yes, since only the forged signature B.” Is this note negotiable?
is inoperative and E is bound as
indorser. a. Yes, since it is payable to bearer.
c. No, since the signature of C, the b. Yes, since it contains an
payee, was forged. unconditional promise to pay a sum
d. Yes, since the signature of C is certain in money.
immaterial, he being the payee. c. No, since the promise to just pay a
sum of money is unclear.
Answer: d. No, since it contains a promise to do
b. Yes, since only the forged signature an act in addition to the payment of
is inoperative and E is bound as money.
indorser.
Answer:
d. No, since it contains a promise to do
an act in addition to the payment of money.
 37. D draws a bill of exchange that states:
34. A bank can be placed under “One month from date, pay to B or his
receivership when, if allowed to continue order P100,000. Signed, D.” The
in business, its depositors or creditors drawee named in the bill is E. B
would incur negotiated the bill to M, M to N, N to O,
and O to P. Due to non-acceptance and
a. Probable losses after proceedings for dishonor were
b. Inevitable losses made, P asked O to pay, which O did.
c. Possible losses From whom may O recover?
d. A slight chance of losses
a. B, being the payee.
Answer: b. N, as indorser to O.
a. Probable losses c. E, being the drawee.
d. D, being the drawer.

35. EFG Foundation, Inc., a non-profit Answer:

organization, scheduled an election for d. D, being the drawer.
its six-member Board of Trustees. X, Y
and Z, who are minority members of the
foundation, wish to exercise cumulative 38. T, an associate attorney in XYZ Law
voting in order to protect their interest, Office, wrote a newspaper publisher a
although the Foundation’s Articles and letter disputing a columnist’s claim about
By-laws are silent on the matter. As to an incident in the attorney’s family. T
each of the three, what is the maximum used the law firm’s letterhead and its
number of votes that he/she can cast? computer in preparing the letter. T also
requested the firm’s messenger to
a. 6 deliver the letter to the publisher. Who
b. 9 owns the copyright to the letter?
c. 12
d. 3 a. T, since he is the original creator of
the contents of the letter.
Answer: b. Both T and the publisher, one wrote
a. 6 the letter to the other who has
possession of it.
c. The law office since it was an
36. If the drawer and the drawee are the employee and he wrote it on the
same person, the holder may present firm’s letterhead.
the instrument for payment without need d. The publisher to whom the letter was
of a previous presentment for sent.
acceptance. In such case, the holder
treats it as a Answer:
a. T, since he is the original creator of
a. Non-negotiable instrument. the contents of the letter.
b. Promissory note.
c. Letter of credit.
d. Check. 39. E received goods from T for display and
sale in E’s store. E was to turn over to T
Answer: the proceeds of any sale and return the
b. Promissory note. ones unsold. To document their
agreement, E executed a trust receipt in
 T’s favor covering the goods. When E agreement refers to one which the
failed to turn over the proceeds from the holder made with the
sale of the goods or return the ones
unsold despite demand, he was charged a. Principal debtor
in court for estafa. E moved to dismiss b. Principal creditor
on the ground that his liability is only c. Secondary creditor
civil. Is he correct? d. Secondary debtor

a. No, since he committed fraud when Answer:

he promised to pay for the goods a. Principal debtor
and did not.
b. No, since his breach of the trust
receipt agreement subjects him to 42. Upon execution of a trust receipt over
both civil and criminal liability for goods, the party who is obliged to
estafa. release such goods and who retains
c. Yes, since E cannot be charged with security interest on those goods, is
estafa over goods covered a trust called the
receipt.
d. Yes, since it was merely a a. Holder.
consignment sale and the buyer b. Shipper.
could not pay. c. Entrustee.
d. Entrustor.
Answer:
b. No, since his breach of the trust Answer:
receipt agreement subjects him to d. Entrustor.
both civil and criminal liability for
estafa.
43. X, warehouseman, sent a text message
to Y, to whom X had issued a
40. The authorized alteration of a warehouse receipt for Y’s 500 sacks of
warehouse receipt which does not corn, notifying him of the due date and
change its tenor renders the time to settle the storage fees. The
warehouseman liable according to the message stated also that if Y does not
term of the receipt. settle the warehouse charges within 10
days, he will advertise the goods for
a. In its original tenor if the alteration is sale at a public auction. When Y ignored
material. the demand, X sold 100 sacks of corn at
b. In its original tenor. a public auction. For X’s failure to
c. As altered if there is fraud. comply with the statutory requirement of
d. As altered. written notice to satisfy his lien, the sale
of the 100 sacks of corn is
Answer:
b. In its original tenor. a. Voidable.
b. Rescissible.
c. Unenforceable.
41. Any agreement binding upon the holder d. Void.
to extend the time of payment or to
postpone the holder’s right to enforce Answer:
the instrument results in the discharge d. Void.
of the party secondarily liable unless
made with the latter’s consent. This
44. On June 1, 2011, X mailed to Y
Insurance, Co. his application for life Answer:
insurance, with payment for 5 years of a. No, since by accepting, E admits the
premium enclosed in it. On July 21, existence of the drawer.
2011, the insurance company accepted
the application and mailed, on the same
day, its acceptance plus the cover note. 46. Due to his debt to C, D wrote a
It reached X’s residence on August 11, promissory note which is payable to the
2011. But, as it happened, on August 4, order of C. C’s brother, M,
2011, X figured in a car accident. He misrepresenting himself as agent of C,
died a day later. May X’s heir recover on obtained the note from D. M then
the insurance policy? negotiated the note to N after forging the
signature of C. May N enforce the note
a. Yes, since under the Cognition against D?
Theory, the insurance contract was
perfected upon acceptance by the a. Yes, since D is the principal debtor.
insurer of X’s application. b. No, since the signature of C was
b. No, since there is no privity of forged.
contract between the insurer and X’s c. No, since it is C who can enforce it,
heirs. the note being payable to the order
c. No, since X had no knowledge of the of C.
insurer’s acceptance of his d. Yes, since D, as maker, is primarily
application before he died. liable on the note.
d. Yes, since under the Manifestation
Theory, the insurance contract was Answer:
perfected upon acceptance of the b. No, since the signature of C was
insurer of X’s application. forged.

Answer:
c. No, since X had no knowledge of the 47. T Corp. has a corporate term of 20
insurer’s acceptance of his application years under its Articles of Incorporation
before he died. or from June 1, 1980 to June 1, 2000.
On June 1, 1991 it amended its Articles
of Incorporation to extend its life by 15
45. A bill of exchange has D as drawer, E years from June 1, 1980 to June 1,
as drawee and F as payee. The bill was 2015. The SEC approved this
then indorsed to G, G to H, and H to I, amendment. On June 1, 2011, however,
the current holder presented the bill to E T Corp. decided to shorten its term by 1
for acceptance. E accepted but, as it year or until June 1, 2014. Both the
later turned out, D is a fictitious person. 1991 and 2011 amendments were
Is E freed from liability? approved by majority vote of its Board of
Directors and ratified in a special
a. No, since by accepting, E admits the meeting by its stockholders representing
existence of the drawer. at least 2/3 of its outstanding capital
b. No, since by accepting, E warrants stock. The SEC, however, disapproved
that he is solvent. the 2011 amendment on the ground that
c. Yes, if E was not aware of that fact it cannot be made earlier than 5 years
at the time of acceptance. prior to the expiration date of the
d. Yes, since a bill of exchange with a corporate term, which is June 1, 2014.
fictitious drawer is void and Is this SEC disapproval correct?
inexistent.
 a. No, since the 5-year rule on selection and supervision of the
amendment of corporate term employee by the employer.
applies only to extension, not
shortening, of term.
b. Yes, any amendment affecting 49. X is a director in T Corp. who was
corporate term cannot be made elected to a 1-year term on Feb. 1,
earlier than 5 years prior to the 2010. On April 11, 2010, X resigned and
corporation’s expiration date. was replaced by R, who assumed as
c. No, since a corporation can in fact director on May 17, 2010. On Nov. 21,
have a corporate life of 50 years. 2010, R died. S was then elected in his
d. Yes, the amendment to shorten place. Until which time should S serve
corporate term cannot be made as director?
earlier than 5 years prior to the
corporation’s expiration date. a. April 11, 2011
b. Feb. 1, 2011
Answer: c. May 17, 2011
a. No, since the 5-year rule on d. Nov. 21, 2011
amendment of corporate term
applies only to extension, not Answer:
shortening, of term. b. Feb. 1, 2011

48. B, while drunk, accepted a passenger in 50. M, the maker, issued a promissory note
his taxicab. B then drove the taxi to P, the payee which states: “I, M,
recklessly, and inevitably, it crashed into promise to pay P or order the amount of
an electric post, resulting in serious Php1 Million. Signed, M.” P negotiated
physical injuries to the passengers. The the note by indorsement to N, then N to
latter then filed a suit for tort against B’s O also by indorsement, and O to Q,
operator, A, but A raised the defense of again by indorsement. But before O
having exercised extraordinary diligence indorsed the note to Q, O’s wife wrote
in the safety of the passenger. Is his the figure “2” on the note after “Php1”
defense tenable? without O’s knowledge, making it appear
that the note is for Php12 Million. For
a. Yes, as a common carrier can rebut how much is O liable to Q?
the presumption of negligence by
raising such a defense. a. Php 1 Million since it is the original
b. No, as in tort actions, the proper tenor of the note.
defense is due diligence in the b. Php 1 Million since he warrants that
selection and supervision of the the note is genuine and in all
employee by the employer. respects what it purports to be.
c. No, as B, the common carrier’s c. Php 12 Million since he warrants his
employee, was obviously negligent solvency and that he has a good title
due to his intoxication. to the note.
d. Yes, as a common carrier can d. Php 12 Million since he warrants that
invoke extraordinary diligence in the the note is genuine and in all
safety of passengers in tort cases. respects what it purports to be.

Answer: Answer:
b. No, as in tort actions, the proper d. Php 12 Million since he warrants that
defense is due diligence in the the note is genuine and in all respects
what it purports to be.
 a. Already knows of the dishonor and it
makes no sense to notify him of it.
51. X Corp., whose business purpose is to
manufacture and sell vehicles, invested
its funds in Y Corp., an investment firm, 53. “Eagleson Refillers, Co.,” a firm that
through a resolution of its Board of sells water to the public, opposes the
Directors. The investment grew trade name application of “Eagleson
tremendously on account of Y Corp’s Laundry, Co.,” on the ground that such
excellent business judgment. But a trade name tends to deceive trade
minority stockholder in X Corp. assails circles or confuse the public with respect
the investment as ultra vires. Is he right to the water firm’s registered trade
and, if so, what is the status of the name. Will the opposition prosper?
investment?
a. Yes, since such use is likely to
a. Yes, it is an ultra vires act of the deceive or confuse the public.
corporation itself but voidable only, b. Yes, since both companies use
subject to stockholder’s ratification. water in conducting their business.
b. Yes, it is an ultra vires act of its c. No, since the companies are not
Board of Directors and thus void. engaged in the same line of
c. Yes, it is an ultra vires act of its business.
Board of Directors but voidable only, d. No, since the root word “Eagle” is a
subject to stockholders’ ratification. generic name not subject to
d. Yes, it is an ultra vires act of the registration.
corporation itself and, consequently,
void. Answer:
c. No, since the companies are not
Answer: engaged in the same line of business.
c. Yes, it is an ultra vires act of its
Board of Directors but voidable only,
subject to stockholders’ ratification. 54. For a constructive total loss to exist in
marine insurance, it is required that the
person insured relinquish his interest in
52. Notice of dishonor is not required to be the thing insured. This relinquishment
made in all cases. One instance where must be
such notice is not necessary is when the
indorser is the one to whom the a. Actual.
instrument is suppose to be presented b. Constructive first and if it fails, then
for payment. The rationale here is that actual.
the indorser c. Either actual or constructive.
d. Constructive.
a. Already knows of the dishonor and it
makes no sense to notify him of it. Answer:
b. Is bound to make the acceptance in a. Actual.
all cases.
c. Has no reason to expect the 55. The Corporation Code sanctions a
dishonor of the instrument. contract between two or more
d. Must be made to account for all his corporations which have interlocking
actions. directors, provided there is no fraud that
attends it and it is fair and reasonable
Answer: under the circumstances. The interest of
an interlocking director in one
 corporation may be either substantial or 57. In case of disagreement between the
nominal. It is nominal if his interest: corporation and a withdrawing
stockholder who exercises his appraisal
a. Does not exceed 25% of the right regarding the fair value of his
outstanding capital stock. shares, a three-member group shall by
b. Exceeds 25% of the outstanding majority vote resolve the issue with
capital stock. finality. May the wife of the withdrawing
c. Exceeds 20% of the outstanding stockholder be named to the three-
capital stock. member group?
d. Does not exceed 20% of the
outstanding capital stock. a. No, the wife of the withdrawing
shareholder is not a disinterested
Answer: person.
d. Does not exceed 20% of the b. Yes, since she could best protect
outstanding capital stock. her husband’s shareholdings.
c. Yes, since the rules do not
discriminate against wives.
56. X, an amateur astronomer, stumbled d. No, since the stockholder himself
upon what appeared to be massive should sit in the three-member
volcanic eruption in Jupiter while group.
peering at the planet through his
telescope. The following week, X, Answer:
without notes, presented a lecture on his a. No, the wife of the withdrawing
findings before the Association of shareholder is not a disinterested
Astronomers of the Philippines. To his person.
dismay, he later read an article in a
science journal written by Y, a
professional astronomer, repeating 58. Apart from economic rights, the author
exactly what X discovered without any of a copyright also has moral rights
attribution to him. Has Y infringed on X’s which he may transfer by way of
copyright, if any? assignment. The term of these moral
rights shall last
a. No, since X did not reduce his
lecture in writing or other material a. During the author’s lifetime and for
form. 50 years after his death.
b. Yes, since the lecture is considered b. Forever.
X’s original work. c. 50 years from the time the author
c. No, since no protection extends to created his work.
any discovery, even if expressed, d. During the author’s lifetime.
explained, illustrated, or embodied in
a work. Answer:
d. Yes, since Y’s article failed to make a. During the author’s lifetime and for
any attribution to X. 50 years after his death.

Answer:
c. No, since no protection extends to 59. Which of the following indorsers
any discovery, even if expressed, expressly warrants in negotiating a
explained, illustrated, or embodied in a instrument that 1) it is genuine and true;
work. 2) he has a good title to it; 3) all prior
parties have capacity to negotiate; and
 4) it is valid and subsisting at the time of a. No, since the correct remedy for X is
his indorsement? a civil action for damages.
b. No, since Y is a prior user in good
a. The irregular indorser. faith.
b. The regular indorser. c. Yes, since X is the first to register
c. The general indorser. his device for patent registration.
d. The qualified indorser. d. Yes, since Y unwittingly used X’s
patented invention.
Answer:
c. The general indorser. Answer:
b. No, since Y is a prior user in good
faith.
60. Where the insurer was made to pay the
insured for a loss covered by the
insurance contract, such insurer can run 62. P, a sales girl in a flower shop at the
after the third person who caused the Ayala Station of the Metro Rail Transit
loss through subrogation. What is the (MRT) bought two tokens or tickets, one
basis for conferring the right of for her ride to work and another for her
subrogation to the insurer? ride home. She got to her flower shop
where she usually worked from 8:00am-
a. Their express stipulation in the 5:00pm. At about 3:00pm, while P was
contract of insurance. attending to her duties at the flower
b. The equitable assignment that shop, two crews of the MRT got into a
results from the insurer’s payment of fight near the flower shop, causing
the insured. injuries to P in the process. Can P sue
c. The insured’s formal assignment of the MRT for contractual breach as she
his right to indemnification to the was within the MRT premises where she
insurer. would shortly take her ride home?
d. The insured’s endorsement of its
claim to the insurer. a. No, since the incident took place, not
in the MRT train coach, but at the
Answer: MRT station.
b. The equitable assignment that b. No, since P had no intention to
results from the insurer’s payment of board an MRT train coach when the
the insured. incident occurred.
c. Yes, since she already had a ticket
for her ride home and was in the
61. X invented a device which, through the MRT’s premises at the time of the
use of noise, can recharge a cellphone incident.
battery. He applied for and was granted d. Yes, since she bought a round trip
a patent on his device, effective within ticket and MRT had a duty while she
the Philippines. As it turns out, a year was at its station to keep her safe for
before the grant of X’s patent, Y, also an her return trip.
inventor, invented a similar device which
he used in his cellphone business in Answer:
Manila. But X files an injunctive suit b. No, since P had no intention to board
against Y to stop him from using the an MRT train coach when the incident
device on the ground of patent occurred.
infringement. Will the suit prosper?
63. Forgery of bills of exchange may be d. Yes, since ABC Bank is bound to
subdivided into, a) forgery of an know the signature of Y, its client.
indorsement on the bill and b) forgery of
the drawer’s signature, which may either Answer:
be with acceptance by the drawee, or d. Yes, since ABC Bank is bound to
know the signature of Y, its client.
a. With acceptance but the bill is paid
by the drawee.
b. Without acceptance but the bill is 66. The rule is that no stock dividend shall
paid by the drawer. be issued without the approval of
c. Without acceptance but the bill is stockholders representing at least 2/3 of
paid by the drawee. the outstanding capital stock at a regular
d. With acceptance but the bill is paid or special meeting called for the
by the drawer. purpose. As to other forms of dividends:

Answer: a. A mere majority of the entire Board

c. Without acceptance but the bill is of Directors applies.
paid by the drawee. b. A mere majority of the quorum of the
Board of Directors applies.
c. A mere majority of the votes of
64. If an insurance policy prohibits stockholders representing the
additional insurance on the property outstanding capital stock applies.
insured without the insurer’s consent, d. The same rule of 2/3 votes applies.
such provision being valid and
reasonable, a violation by the insured Answer:
b. A mere majority of the quorum of the
a. Reduces the value of the policy. Board of Directors applies.
b. Avoids the policy.
c. Offsets the value of the policy with
the additional insurance’s value. 67. X, at Y’s request, executed a Real
d. Forfeits premiums already paid. Estate Mortgage (REM) on his (X’s) land
to secure Y’s loan from Z. Z successfully
Answer: foreclosed the REM when Y defaulted
b. Avoids the policy. on the loan but half of Y’s obligation
remained unpaid. May Z sue X to
enforce his right to the deficiency?
65. X found a check on the street, drawn by
Y against ABC Bank, with Z as payee. X a. Yes, but solidarily with Y.
forged Z’s signature as an indorser, then b. Yes, since X’s is deemed to warrant
indorsed it to ABC Bank which charged that his land would cover the whole
it to the Y’s account. Y later sued ABC obligation.
Bank but it set up the forgery as its c. No, since it is the buyer at the
defense. Will it prosper? auction sale who should answer for
the deficiency.
a. No, since the payee’s signature has d. No, because X is not Z’s debtor.
been forged.
b. No, since Y’s remedy is to run after Answer:
the forger, X. d. No, because X is not Z’s debtor.
c. Yes, since forgery is only a personal
defense.
68. May a publicly listed universal bank
own 100% of the voting stocks in
another universal bank and in a 71. Can the drawee who accepts a
commercial bank? materially altered check recover from
the holder and the drawer?
a. Yes, if with the permission of the
Bangko Sentral ng Pilipinas. a. No, he cannot recover from either of
b. No, since it has no power to invest in them.
equities. b. Yes from both of them.
c. Yes, as there is no prohibition on it. c. Yes but only from the drawer.
d. No, since under the law, the 100% d. Yes but only from the holder.
ownership on voting stocks must be
in either bank only. Answer:
a. No, he cannot recover from either of
Answer: them.
d. No, since under the law, the 100%
ownership on voting stocks must be in
either bank only. 72. The rule is that the intentional
cancellation of a person secondarily
liable results in the discharge of the
69. Perils of the ship, under marine latter. With respect to an indorser, the
insurance law, refer to loss which in the holder’s right to cancel his signature is:
ordinary course of events results from
a. Without limitation.
a. Natural and inevitable actions of the b. Not limited to the case where the
sea. indorsement is necessary to his title.
b. Natural and ordinary actions of the c. Limited to the case where the
sea. indorsement is not necessary to his
c. Unnatural and inevitable actions of title.
the sea. d. Limited to the case where the
d. Unnatural and ordinary actions of indorsement is necessary to his title.
the sea.
Answer:
Answer: c. Limited to the case where the
a. Natural and inevitable actions of the indorsement is not necessary to his title.
sea.

73. X, in the hospital for kidney dysfunction,

70. Under the Intellectual Property Code, was about to be discharged when he
lectures, sermons, addresses or met his friend Y. X told Y the reason for
dissertations prepared for oral delivery, his hospitalization. A month later, X
whether or not reduced in writing or applied for an insurance covering
other material forms, are regarded as serious illness from ABC Insurance, Co.,
where Y was working as Corporate
a. Non-original works. Secretary. Since X had already told Y
b. Original works. about his hospitalization, he no longer
c. Derivative works. answered a question regarding it in the
d. Not subject to protection. application form. Would this constitute
concealment?
Answer:
b. Original works.
 a. Yes, since the previous presentment for payment and
hospitalization would influence the dishonor by the maker.
insurer in deciding whether to grant b. Yes, since as an indorser who is
X’s application. secondarily liable, there must first be
b. No, since Y may be regarded as presentment for payment and
ABC’s agent and he already knew of dishonor by the maker.
X’s previous hospitalization. c. No, since the absolute rule is that
c. Yes, it would constitute concealment there is no need for presentment for
that amounts to misrepresentation payment and dishonor to hold an
on X’s part. indorser liable.
d. No, since the previous illness is not d. Yes, since the secondary liability of
a material fact to the insurance Y and Z would only arise after
coverage. presentment for payment and
dishonor by the maker.
Answer:
a. Yes, since the previous Answer:
hospitalization would influence the a. No, since Y is the real debtor and
insurer in deciding whether to grant thus, there is no need for
X’s application. presentment for payment and
dishonor by the maker.

74. Several American doctors wanted to set

up a group clinic in the Philippines so 76. The Board of Directors of XYZ Corp.
they could render modern medical unanimously passed a resolution
services. If the clinic is to be approving the taking of steps that in
incorporated under our laws, what is the reality amounted to willful tax evasion.
required foreign equity participation in On discovering this, the government
such a corporation? filed tax evasion charges against the
company’s members of the board of
a. 40% directors. The directors invoked the
b. 0% defense that they have no personal
c. 60% liability, being mere directors of a
d. 70% fictional being. Are they correct?

Answer: a. No, since as a rule only natural

b. 0% persons like the members of the
board of directors can commit
corporate crimes.
75. X executed a promissory note in favor b. Yes, since it is the corporation that
of Y by way of accommodation. It says: did not pay the tax and it has a
“Pay to Y or order the amount of personality distinct from its directors.
P50,000.00. Signed, X.” Y thenindorsed c. Yes, since the directors officially and
the note to Z, and Z to T. When T collectively performed acts that are
sought collection from Y, the latter imputable only to the corporation.
countered as indorser that there should d. No, since the law makes directors of
have been a presentment first to the the corporation solidarily liable for
maker who dishonors it. Is Y correct? gross negligence and bad faith in the
discharge of their duties.
a. No, since Y is the real debtor and
thus, there is no need for Answer:
 d. No, since the law makes directors of
the corporation solidarily liable for gross Answer:
negligence and bad faith in the a. No, it would be deceptive since he is
discharge of their duties. a proprietor, not a corporation.

77. T is the registered trademark owner of 79. T delivers two refrigerators to the
“CROCOS” which he uses on his ready- warehouse of W who then issues a
to-wear clothes. Banking on the negotiable receipt undertaking the
popularity of T’s trademark, B came up delivery of the refrigerators to “T or
with his own “CROCOS” mark, which he bearer”. T entrusted the receipt to B for
then used for his “CROCOS” burgers. T safekeeping only. B negotiated it,
now sues B for trademark infringement however, to F who bought it in good
but B argues that his product is a faith and for value. Who is entitled to the
burger, hence, there is no infringement. delivery of the refrigerators?
Is B correct?
a. T, since he is a real owner of the
a. No, since the owner of a well-known refrigerators.
mark registered in the Philippines b. F, since he is a purchaser in good
has rights that extends even to faith and for value.
dissimilar kinds of goods. c. B, since T entrusted the receipt to
b. Yes, since the right of the owner of a him.
well-known mark registered in the d. W, since he has as a
Philippines does not extend to goods warehouseman a lien on the goods.
which are not of the same kind.
c. Yes, as B was in bad faith in coming Answer:
up with his own “CROCOS” mark. b. F, since he is a purchaser in good
d. No, since unlike T, he did not faith and for value.
register his own “CROCOS” mark for
his product.
80. The Articles of Incorporation must be
Answer: accompanied by a Treasurer’s Affidavit
a. No, since the owner of a well-known certifying under oath, among others, that
mark registered in the Philippines the total subscription paid is:
has rights that extends even to
dissimilar kinds of goods. a. Not less than P25,000.00
b. Not more than P5,000.00
c. Not less than P5,000,00
78. A, the proprietor of a fleet of 10 d. Not more than P25,000.00
taxicabs, decides to adopt, as his
business name, “A Transport Co., Inc.” Answer:
May this be allowed? c. Not less than P5,000,00

a. No, it would be deceptive since he is

a proprietor, not a corporation. 81. In a special meeting called for the
b. No, since “A” is a generic name, not purpose, 2/3 of the stockholders
suitable for registration. representing the outstanding capital
c. Yes, since his line of business is stock in X Co. authorized the company’s
public transportation. Board of Directors to amend its By-laws.
d. Yes, since such name would give his By majority vote, the Board then
business a corporate identity.
 approved the amendment. Is the a. No, since an insurance company
amendment valid? must have at least P74 M paid up
capital.
a. No, since the stockholders cannot
delegate their right to amend the By-
laws to the Board. 83. Under the Public Service Act, an
b. Yes, since the majority votes in the administrative agency has the power to
Board was sufficient to amend the approve provisionally the rates of public
By-laws. utilities without a hearing in case of
c. No, because, the voting in the Board urgent public needs. The exercise of this
should have been by a majority of a power is
quorum.
d. Yes, since the votes of 2/3 of the a. Supervisory
stockholders and majority of the b. Absolute
Board were secured. c. Discretionary
d. Mandatory
Answer:
a. No, since the stockholders cannot Answer:
delegate their right to amend the By- c. Discretionary.
laws to the Board.

84. X, creditor of Y, obtained a judgment in

82. A group of Malaysians wanted to invest his favor in connection with Y’s unpaid
in the Philippines’ insurance business. loan to him. The court’s sheriff then
After negotiations, they agreed to “FIMA levied on the goods that Y stored in T’s
Insurance Corp.” with a group of Filipino warehouse, for which the latter issued a
businessmen. FIMA would have a P50 warehouse receipt. A month before the
M paid up capital. P40 M of which would levy, however, Z bought the warehouse
come up from the Filipino group. All receipt for value. Who has a better right
corporate officers would be Filipinos and over the goods?
8 out of 10-member Board of Directors
would be Filipinos. Can FIMA operate a. T, being the warehouseman with a
an insurance business in the lien on the goods.
Philippines? b. Z, being a purchaser for value of the
warehouse receipt.
a. No, since an insurance company c. X, being Y’s judgment creditor.
must have at least P74 M paid up d. Y, being the owner of the goods.
capital.
b. Yes, since there is substantial
compliance with our nationalization Answer:
laws respecting paid-up capital and b. Z, being a purchaser for value of the
Filipino dominated Board of warehouse receipt.
Directors.
c. Yes, since FIMA’s paid up capital
more than meets the country’s 85. A promissory note states, on its face: “I,
nationalization laws. X, promise to pay Y the amount of
d. No, since an insurance company P5,000.00 five days after completion of
should be 100% owned by Filipinos. the on-going construction of my house.
Signed, X.” Is the note negotiable?
Answer:
 a. Yes, since it is payable at a fixed M. Signed, A (for and in behalf of P).”
period after the occurrence of a The bill was drawn on P. B indorsed the
specified event. bill to C, C to D, and D to E. May E treat
b. No, since it is payable at a fixed the bill as a promissory note?
period after the occurrence of an
event which may not happen. a. No, because the instrument is
c. Yes, since it is payable at a fixed payable to order and the same
period or determinable future time. person.
d. No, since it should be payable at a b. Yes, because the drawer and the
fixed period before the occurrence of drawee are one and the same
a specified event. person.
c. No, because the instrument is a bill
Answer: of exchange.
b. No, since it is payable at a fixed d. Yes, because A was only an agent
period after the occurrence of an event of P.
which may not happen.
Answer:
b. Yes, because the drawer and the
86. P sold to M a pair of gecko (tuko) for drawee are one and the same
P50,000. M issued a promissory note to person.
P promising to pay the money within 90
days. Unknown to P and M, a law was
passed a month before the sale that 88. Z wrote out an instrument that states:
prohibits and declares void any “Pay to X the amount of P1 M for
agreement to sell gecko in the country. collection only. Signed, Z.” X indorsed it
If X acquired the note in good faith and to his creditor, Y, to whom he owed P1
for value, may he enforce payment on M. Y now wants to collect and satisfy
it? X’s debt through the P1 M on the check.
May he validly do so?
a. No, since the law declared void the
contract on which the promissory a. Yes, since the indorsement to Y is
note was founded. for P1 M.
b. No, since it was not X who bought b. No, since Z is not a party to the loan
the gecko. between X and Y.
c. Yes, since he is a holder in due c. No, since X is merely an agent of Z,
course of a note which is distinct his only right being to collect.
from the sale of gecko. d. Yes, since X owed Y P1 M.
d. Yes, since he is a holder in due
course and P and M were not aware Answer:
of the law that prohibited the sale of c. No, since X is merely an agent of Z,
gecko. his only right being to collect.

Answer:
a. No, since the law declared void the 89. X Shipping Co., insured its vessel MV
contract on which the promissory Don Teodoro for P100 M with ABC
note was founded. Insurance Co. through T, an agent of X
Shipping. During a voyage, the vessel
accidentally caught fire and suffered
87. P authorized A to sign a bill of damages estimated at P80 M. T
exchange in hi (P’s) name. the bill personally informed ABC Insurance that
reads: “Pay to B or order the sum of P1 X Shipping was abandoning the ship.
 Later, ABC Insurance denied X c. Yes, since the provisions of the
Shipping’s claim for loss on the ground Corporation Code applies as well to
that a notice of abandonment through its GOCC.
agent was improper. Is ABC Insurance d. No, since the board has the power to
right? oust him even without the new law.

a. Yes, since X Shipping should have Answer:

ratified its agent’s action. b. No, since the disqualification takes
b. No, since T, as agent of X Shipping effect by operation of law, it is sufficient
who procured the insurance, can that he was declared no longer member
also give notice of abandonment for of the board.
his principal.
c. Yes, since only the agent of X
Shipping relayed the fact of 91. 002-38-0001 G, a grocery goods
abandonment. supplier, sold 100 sacks of rice to H who
d. No, since in the first place, the promised to pay once he has sold all the
damage was more than ¾ of the rice. H, in the meantime, delivered the
ship’s value. goods to W, a warehouseman, who
issued a warehouse receipt. Without the
Answer: knowledge of G and W, H negotiated
b. No, since T, as agent of X Shipping the receipt to P who acquired it in good
who procured the insurance, can also faith and for value. P then claimed the
give notice of abandonment for his goods from W, who released them. After
principal. the rice was loaded on a ship bound for
Manila, G invokes his right to stop the
goods in transit due to his unpaid lien.
90. A law was passed disqualifying former Who has a better right to the rice?
members of Congress from sitting in the
Board of Directors of GOCC. Because a. P, since he has superior rights as a
of this, the Board of Directors of ABC purchaser for value and in good
Corp., a GOCC, disqualified C, a former faith.
Congressman, from continuing to sit as b. P, regardless of whether or not he is
one of its members. C objected, a purchaser for value and in good
however, insisting that under the faith.
Corporation Code members of the board c. G, since as an unpaid seller, he has
of directors of corporations may only be the right of stoppage in transitu.
removed by vote of stockholders holding d. W, since it appears that the
2/3 of its outstanding capital stock in a warehouse charges have not been
regular or special meeting called for that paid.
purpose. Is C correct?
Answer:
a. Yes, since the new law cannot be a. P, since he has superior rights as a
applied to members of the board of purchaser for value and in good
directors already elected prior to its faith.
passage.
b. No, since the disqualification takes
effect by operation of law, it is 92. In a signature by procuration, the
sufficient that he was declared no principal is bound only in case the agent
longer member of the board. acted within the actual limits of his
authority. The signature of the agent in
 such a case operates as notice that he c. Yes, provided the drawer and the
has payee agree to the acceptance.
d. No, since he is bound as drawee to
a. A qualified authority to sign. accept the bill according to its tenor.
b. A limited authority to sign.
c. A special authority to sign. Answer:
d. A full authority to sign. a. Yes, since a drawee accepts
according to the tenor of his
Answer: acceptance.
b. A limited authority to sign.

95. May the indorsee of a promissory note

93. In return for the 20 years of faithful indorsed to him “for deposit” file a suit
service of X as a house helper to Y, the against the indorser?
latter promised to pay P100,000 to X’s
heirs if he (X) dies in an accident by fire. a. Yes, as long as the indorser
X agreed. Is this an insurance contract? received value for the restrictive
indorsement.
a. Yes, since all the elements of an b. Yes, as long as the indorser
insurance contract are present. received value for the conditional
b. Yes, since X’s services may be indorsement.
regarded as the consideration. c. Yes, whether or not the indorser
c. No, since Y actually made a received value for the conditional
conditional donation in X’s favor. indorsement.
d. No, since it is in fact an innominate d. Yes, whether or not the indorser
contract between X and Y. received value for the restrictive
indorsement.
Answer:
c. No, since Y actually made a Answer:
conditional donation in X’s favor. a. Yes, as long as the indorser
received value for the restrictive
indorsement.
94. A bill of exchange states on its face:
“One (1) month after sight, pay to the
order of Mr. R the amount of 96. X issued a check in favor of his creditor,
P50,000.00, chargeable to the account Y. It reads: “Pay to Y the amount of
of Mr. S. Signed, Mr. T.” Mr. S, the Seven Thousand Hundred Pesos
drawee, accepted the bill upon (Php700,000.00). Signed, X.” What
presentment by writing on it the words “I amount should be construed as true in
shall pay P30,000.00 three (3) months such case?
after sight.” May he accept under such
terms, which varies the command in the a. Php 700,000.00.
bill of exchange? b. Php 700.00.
c. Php 7,000.00.
a. Yes, since a drawee accepts d. Php 700,100.00.
according to the tenor of his
acceptance. Answer:
b. No, since, once he accepts, a a. Php 700,000.00.
drawee is liable according to the
tenor of the bill.
97. Shipowner X, in applying for a marine b. No, since the bill is non-negotiable,
insurance policy from ABC, Co., stated the drawer and drawee being the
that his vessel usually sails middle of same person.
August and with normally 100 tons of c. Yes, since the bill is payable to
cargo. It turned out later that the vessel order, presentment is required for
departed on the first week of September acceptance.
and with only 10 tons of cargo. Will this d. Yes, in order to hold all persons
avoid the policy that was issued? liable on the bill.

a. Yes, because there was breach of Answer:

implied warranty. a. No, since the drawer and the drawee
b. No, because there was no intent to are the same person.
breach an implied warranty.
c. Yes, because it relates to a material
representation. 100. The corporate term of a stock
d. No, because there was only corporation is that which is stated in its
representation of intention. Articles of Incorporation. It may be
extended or shortened by an
Answer: amendment of the Articles when
d. No, because there was only approved by majority of its Board of
representation of intention. Directors and:

a. Approved and ratified by at least 2/3

98. The Articles of Incorporation of ABC of all stockholders
Transport Co., a public utility, provides b. Approved by at least 2/3 of the
for 10 members in its Board of Directors. stockholders representing the
What is the prescribed minimum number outstanding capital stock.
of Filipino citizens in its Board? c. Ratified by at least 2/3 of all
stockholders.
a. 10 d. Ratified by at least 2/3 of the
b. 6 stockholders representing the
c. 7 outstanding capital stock.
d. 5
Answer:
Answer: d. Ratified by at least 2/3 of the
b. 6 stockholders representing the outstanding
capital stock.

99. P authorized A to sign a negotiable

instrument in his (P’s) name. It reads:
“Pay to B or order the sum of P1 M.
Signed, A (for and in behalf of P).” The
instrument shows that it was drawn on
P. B then indorsed to C, C to D, and D
to E. E then treated it as a bill of
exchange. Is presentment for
acceptance necessary in this case?

a. No, since the drawer and the drawee

are the same person.
 A thrift bank is one established as a
savings and mortgage bank, a stock
savings and loan association, or a
private development bank, for the
purpose of:
a. Accumulating the savings of
depositors and investing them in
outlets determined by the Monetary
2010 BAR EXAMINATION Board as necessary in the
furtherance of national economic
objectives;
Question No. 1: b. Providing short-term working capital,
Briefly describe the following types medium and long-term financing, to
of banks: business engaged in agriculture,
services, industry and housing; and
1. Universal bank c. Providing diversified financial and
allied services for its chosen market
Answer: and constituencies especially for
A universal bank is a commercial small and medium enterprises and
bank with 2 additional powers, namely: individuals.
a. The power of an investment house;
and 4. Rural bank
b. The power to invest in non-allied
enterprises. Answer:
A rural bank is one established to
provide credit facilities to farmers and
2. Commercial bank merchants or their cooperatives and, in
general, to the people of the rural
Answer: communities.
A commercial bank is a bank that
can:
a. Accept drafts; 5. Cooperative bank
b. Issue letters of credit;
c. Discount and negotiate promissory
note, bills of exchange, and other Answer:
evidence of debt; A cooperative bank is organized
d. Accept or create demand deposits; under the Cooperative Code to provide
e. Receive other types of deposits, as financial and credit services to
well as deposit substitutes; cooperatives. It may perform any or all
f. Buy and sell foreign exchange, as the services offered by a rural bank,
well as gold or silver bullion; including the operation of a Foreign
g. Acquire marketable bonds and other Currency Deposit Unit subject to certain
debts securities; and conditions.
h. Extend credit, subject to such rules
promulgated by the Monetary Board.
Question No. 2:
1. How do you characterize the legal
3. Thrift bank relationship between a commercial bank
and its safety deposit box client?
Answer:
Answer:
 The relationship between a Answer:
commercial bank and its safety deposit Any one of the following 4 purposes
box client is that of a bailee and bailor, for requiring banks to maintain reserves
the bailment being for hire and mutual against their deposits and deposit
benefit. substitutes will suffice:

Alternative Answer: a. One of the purposes of the

The legal relationship of the bank requirement to maintain bank
and its safety deposit box client is that of reserves is to control the volume of
a lessor and lessee. money created by the credit
operations of the banking system;
b. It is to enable the banks to answer
2. Is a stipulation in the contract for the use any withdrawal;
of a safety deposit box relieving the c. To help Government to finance its
bank of liability in connection with the operation;
use thereof valid? d. To help Government control money
supply.
Answer:
The stipulation relieving the bank of
liability in connection with the use of the Question No. 3:
safety deposit box is void as it is against Ozamis Paper Corporation secured
law and public policy. loans from ABC Universal Bank in the
aggregate principal amount of P100 M,
evidenced by several promissory notes, and
3. Differentiate “bank deposits” from bank secured by a continuing guaranty of its
substitutes”. principal stockholder Menandro Marquez; a
pledge of Marquez’s shares in the
Answer: corporation valued at P45 M; and a real
Bank deposits are funds obtained by estate mortgage over certain parcels of land
a bank from the public which are relent owned by Marquez.
by such bank to its own borrowers.
Deposit substitutes are alternative forms The corporation defaulted and the
of obtaining funds from the public, other bank etra-judicially foreclosed on the real
than deposits, through the issuance, estate mortgage. The bank, which was the
endorsement, or acceptance of debt sole bidder for P75 M, won the award.
instruments for the own account of the
borrower, for the purpose of relending or 1. Can the bank sue Marquez for the
purchasing of receivables and other deficiency of P25 M? Explain.
obligations. These instruments may
include, but need not be limited to, Answer:
bankers acceptances, promissory notes, Yes, the bank can sue Marquez for
participations, certificates of assignment the deficiency of P25 M. in extrajudicial
and similar instruments with recourse, foreclosure of a real estate mortgage, if
and repurchase agreements. the proceeds of the sale are insufficient
to pay the debt, the mortgagee has the
right to sue for the deficiency.
4. Why are banks required to maintain
reserves against their deposits and
deposit substitutes? State one of three 2. If the bank opts to file an action for
purposes for these reserves. collection against the corporation, can it
 afterwards institute a real action to contract” under the SRC. An
foreclose the mortgage? Explain. “investment contract” is a contract,
transaction or scheme:
Answer: a. Involving an investment of money,
No, the bank can no longer file an b. In a common enterprise,
action to foreclose the real estate c. With expectation of profits,
mortgage. When it filed a collection d. Primarily from the efforts of others.
case, it was deemed to have abandoned
the real estate mortgage.
2. What procedure must be followed under
the SRC to authorize the sale or offer for
3. Can the bank foreclose on the pledged sale or distribution of an investment
shares of Marquez and recover the contract?
deficiency from the corporation?
Answer:
Answer: Before the investment contract is
If the bank forecloses the pledge, it sold or offered for sale or distribution to
cannot recover the deficiency because the public in the Philippines, it should be
the foreclosure extinguishes the registered with the SEC in accordance
principal obligation, whether or not the with Section 8 of the SRC.
proceeds from the foreclosure are equal
to the amount of the principal obligation.
3. What are the legal consequences of
failure to follow this procedure?
Question No. 4:
Andante Realty, a marketing Answer:
company that promotes and facilitates sales The failure to follow this procedure
of real property through leverage marketing, has criminal consequences (i.e., upon
solicits investors who are required to be a conviction, a fine P50,000 to P5 M
Business Center Owner (BCO) by paying an and/or imprisonment of 7-12 years). It
enrollment fee of $250. The BCO is then carries also civil liabilities in that the
entitled to recruit two other investors who purchaser can recover from the seller (i)
pay $250 each. The BCO receives $90 from the consideration paid with interest
the $250 paid by each of his recruits and is thereon, less the amount of any income
credited a certain amount for payments received on the purchased securities,
made by investors through the initial efforts upon the tender of such securities, or (ii)
of his Business Center. Once the damages if the purchaser no longer
accumulated amount reaches $5,000, the owns such securities. Furthermore, the
same is used as down payment for the real SEC may issue a cease and desist
property chosen by BCO. order.

1. Does the multi-level marketing scheme

constitute an “investment contract” Question No. 5:
under the SRC? Define an “investment Venezia is a famous international
contract”. fashion chain outlets in Makati, Ortigas, and
Manila. It has complied with the minimum
capitalization required under the Retail
Trade Nationalization Act and carries on
Answer: retail business worth more than $3 M for
Yes. The multi-level marketing each outlets. As its Manila outlet is not
scheme constitutes an “investment doing very well, it decides to sell all of its
business there consisting of remaining 3. What are the legal consequences of a
inventory, furniture and fixtures and other failure to comply with the requirements
assets to its competitor. of a Bulk Sales Law?

1. Venezia’s Manila outlet constitutes 1/3 Answer:

of its total business. Should it comply Failure to comply with the
with the requirements of the Bulk Sales requirements of a Bulk Sales Law
Law? Why or why not? renders the sale, transfer, mortgage, or
assignment fraudulent and void, and
Answer: makes any person found guilty of
Venezia need not comply with the violating any provision of the Bulk Sales
requirements of the Bulk Sales Law as Law punishable by imprisonment for not
its Manila outlet constitutes only 1/3 of less than 6 months nor more than 5
its total business and, therefore, it would years, or a fine in an amount not
not be a sale of all or substantially all of exceeding P5,000, or both such
the business conducted by Venezia. imprisonment and fine in the discretion
Moreover, the requirements of the Bulk of the court.
Sales Law reflected in Sections 3, 4, 5,
and 9, by the express language of said
provisions, apply only to the first type of Question No. 6:
bulk sales, i.e., to any sale, transfer, 1. What contractual stipulations are
mortgage or assignment of a stock of required in all technology transfer
goods, wares, merchandise, provisions agreements?
or materials otherwise than in the
ordinary course of trade and the regular Answer:
prosecution of business of the vendor, The following stipulations are
mortgagor, transferor, or assignor, and required in all technology transfer
not to the second type (as in the sale agreements:
described in the problem) or the third
type (i.e., sale, etc. Of all or substantially a. The laws of the Philippines shall
all of the fixtures and equipment used in govern its interpretation and in the
and about the business). As the Bulk event of litigation, the venue shall be
Sales Law is penal in nature, it should the proper court in the place where
be interpreted strictly against the State. the licensee has its principal place of
business;

2. If instead of selling its Manila outlet, b. Continued access to improvements

Venezia merely mortgages its assets in techniques and processes related
there, would it need to comply with the to the technology shall be made
requirements of the Bulk Sales Law? available during the period of the
technology transfer arrangement;
Answer:
For the same reasons stated in the c. In case it shall provide for arbitration,
answer to (1) above, Venezia need not the Procedure of Arbitration of the
comply with the requirements of the Arbitration Law of the Philippines or
Bulk Sales Law. The second type of the Arbitration Rules of the
bulk sales also includes the mortgage of International Chamber of Commerce
all or substantially all of the business of (ICC) shall apply and the venue of
the mortgagor. arbitration shall be the Philippines or
any neutral country;
 d. The Philippine taxes on all payments
relating to the technology transfer The company has two principal
agreement shall be borne by the stockholders, ABC which owns 60% of the
licensor. shares of stock, and XYZ which owns 17%.

ABC in turn is owned to the extent of

2. Enumerate 3 stipulations that are 21.31% by Acme, Inc.; 29.69% by Golden
prohibited in technology transfer Boy, Inc; 9%by XYZ; and the rest by
agreements. individual stockholders.

Answer: None of the parties is a publicly-

The following stipulations are listed company.
prohibited in technology transfer
agreements: XYZ now proposes to buy Acme’s
and Golden Boy’s shares in ABC, which
a. Those that contain restrictions would give it direct control of ABC and
regarding the volume and structure indirect control of Union Mines.
of production;
b. Those that prohibit the use of Is the proposed acquisition by XYZ
competitive technologies in no- subject to the mandatory tender offer and
exclusive agreement; and when is it mandatory?
c. Those that establish a full or partial
purchase option in favor of the Answer:
licensor. Yes, the proposed acquisition is
subject to mandatory tender offer rule. A
tender offer is a publicly announced
3. Can an article of commerce serve as a intention by a person (acting alone or in
trademark and at the same time enjoy concert with other persons) to acquire
patent and copyright protection? Explain shares of a public company. A tender offer
and give an example. is meant to protect minor stockholders
against any scheme that dilutes the share
Answer: value of their investments. It gives them the
A stamped or marked container of chance to exit the company under the same
goods can be registered as a trademark. terms offered to the majority stockholders.
An original ornamental design or model
for articles of manufacturer can be Under the SRC and its implementing
copyrighted. An ornamental design rules, a mandatory tender offer is required:
cannot be patented, because aesthetic a. When at least 35% of the outstanding
creations cannot be patented. However, shares of a public company is to be
it can be registered as an industrial acquired in one transaction or a series
design. Thus, a container of goods of transaction during a 12-month period,
which has an original ornamental design or
can be registered as a trademark, can b. Even if any acquisition is less than 35%
be copyrighted, and can be registered threshold but the result thereof is the
as an industrial design. ownership of more than 51% of the total
outstanding shares of a public company.
The mandatory offer rule also applies to
Question No. 7: share acquisition meeting the threshold,
Union Mines, Inc. has a total asset which is done at the level of the holding
of P60 M with 210 stockholders holding at or parent corporation controlling a public
least 100 shares each. company
 respective rights and liabilities of the two
In this case, Union Mines is clearly a banks.
public company, since it has a total
asset of P60 M with 210 stockholders Answer:
holding at least 100 shares each. A Since the money market placement
public company is defined as a of Marlon is in the nature of a loan to Lyric
corporation listed on the stock Bank, and since he did not authorize the
exchange, or a corporation with assets release of the money market placement to
exceeding P50 M and with 200 or more Ingrid, the obligation of Lyric Bank to him
stockholders at least 200 of them has not been paid. Lyric Bank still has the
holding not less than 100 share of such obligation to pay him.
corporation.
Since Yamaha Bank indorsed the
XYZ’s acquisition of shares of Acme, check bearing the forged endorsement of
Inc. and Golden Boy, Inc., taken Marlon and guaranteed all endorsements,
separately, does not reach 35% including the forged endorsement, when it
threshold. If taken collectively, the two presented the check to Lyric Bank, it should
acquisitions total only 50%. However, be held liable to it.
when the acquisitions are added to
XYZ’s existing shares in Union Mines, However, since the issuance of the
they meet the more-than-51% threshold check was attended with the negligence of
for mandatory tender offer. Lyric Bank, it should share the loss with
Yamaha Bank on a 50% basis.

Question No. 8:
Marlon deposited with LYRIC bank a Question No. 9:
money market placement of P1 M for a term Your client Dianne approaches you
of 31 days. On maturity date, one claiming for legal advice on putting up a medium-
to be Marlon called up the LYRIC Bank sized restaurant business that will specialize
account officer and instructed him to give in a novel type of cuisine. As Dianne feels
the manager’s check representing the that the business is a little risky, she
proceeds of the money market placement to wonders whether she should use a
Marlon’s girlfriend, Ingrid. corporation as the business vehicle, or just
run it as a single proprietorship. She already
The check, which bore the forged has an existing corporation that is producing
signature of Marlon, was deposited in meat products profitably and is also
Ingrid’s account with YAMAHA Bank. considering the alternative of simply setting
YAMAHA Bank stamped a guaranty on the up the restaurant as a branch office of the
check reading: “All prior endorsements existing corporation.
and/or lack of endorsement guaranteed.”
1. Briefly explain to your client what you
Upon presentment of the check, see as the legal advantages and
LYRIC Bank funds the check. Days later, disadvantages of using a separate
Marlon goes to LYRIC Bank to collect his corporation, a single proprietorship, or a
money market placement and discovers the branch of an existing corporation for the
foregoing transactions. proposed restaurant business.

Marlon thereupon sues LYRIC Bank Answer:

which in turn files a third-party complaint If Dianne will set up a separate
against YAMAHA Bank. Discuss the corporation, her liability for its
obligations and losses will be limited to
 the amount of her subscription in the Question No. 10:
absence of showing that there is a To secure a loan of P10 M, Mario
ground to disregard its separate juridical mortgaged his building to Armando. In
personality. If she were to operate a accordance with the loan arrangements,
single proprietorship, her liability for its Mario had the building insured with First
debts and losses will be unlimited. Insurance Company for P10 M, designating
Armando as the beneficiary.
The formation and the operation of a
corporation require a great deal of paper Armando also took an insurance on
work and record-keeping. This is not the the building upon his own interest with
situation in the case of a single Second Insurance Company for P5 M.
proprietorship.
The building was totally destroyed
If she were to set-up the restaurant by fire, a peril insured against under both
as a branch office an existing insurance policies. It was subsequently
corporation, the corporation will have determined that the fire had been
more funds as capital than if she were to intentionally started by Mario and that in
form a separate corporation. However, violation of the loan agreement, he had
all the assets of the existing corporation been storing inflammable materials in the
will be liable for the debts and losses of building.
the restaurant business.
1. How much, if any, can Armando recover
from either or both insurance
2. If you advise your client to use a companies?
corporation, what officer position must
the corporation at least have?
Answer:
Answer: Armando can receive P5 M from
The corporation must have at least 4 Second Insurance Company. As
directors. It must also have a president, mortgagee, he had an insurable
treasurer, and a secretary. interest in the building. Armando
cannot collect anything from First
Insurance Company. First Insurance
3. What particular qualifications, if any, are Company is not liable for the loss of
these officers legally required to the building. First, it was due to a
possess under the Corporation Code? willful act of Mario, who committed
arson. Second, fire insurance
Answer: policies contain a warranty that the
Every director must own at least 1 insured will not store hazardous
share of the capital stock of the materials within the insured’s
corporation, which must be recorded in premises. Mario breached this
his name on the books of the warranty when he stored
corporation, and a majority of the inflammable materials in the
directors must be residents of the building. These two factors
Philippines. exonerate First Insurance Company
from liability to Armando as
The president must also be a mortgagee even though it was Mario
director. The secretary must be a who committed them.
resident and citizen of the Philippines.
2. What happens to the P10 M debt of Hence, it did not produce the effect of
Mario to Armando? Explain. payment.

Answer:
Since Armando would have Question No. 12:
collected P5 M from Second Insurance AA entered into a contract with BB
Company, this amount should be for the latter to transport ladies wear from
considered as partial payment of the Manila to France with transshipment via
loan. Armando can only collect the Taiwan. Somehow the goods were not
balance of P5 M. Second Insurance loaded in Taiwan on time, hence, these
Company can recover from Mario the arrived in France “off-season.” AA was only
amount of P5 M it paid, because it paid ½ the value by the buyer.
became subrogated to the rights of
Armando. AA claimed damages from BB. BB
invoked prescription as a defense under the
COGSA. Considering the “loss of value” of
Question No. 11: the ladies wear as claimed by AA, is BB’s
Enrique obtained from Seguro defense tenable? Explain.
Insurance Company a comprehensive
motor vehicle insurance to cover his top of Answer:
the line Aston Martin. The policy was issued No. the defense of BB is not tenable.
on March 31, 2010 and, on even date, The 1 year prescriptive period in the
Enrique paid the premium with a personal COGSA applies only in case the goods
check postdated April 6, 2010. were not delivered or were delivered in a
damaged condition. It does not apply to
On April 5, 2010, the car was damages as a result of delay in the delivery
involved in an accident that resulted in its of the goods. The prescription of the action
total loss. is governed by Article 1144 of the Civil
Code, which provides for a prescriptive
On April 10, 2010, the drawee bank period of 10 years in case of actions based
returned Enrique’s check with the notation on a written contract.
“Insufficient Funds.” Upon notification,
Enrique immediately deposited additional
funds with the bank and asked the insurer to Question No. 13:
redeposit the check. Paolo, the owner of an ocean-going
vessel, offered to transport the logs of
Enrique thereupon claimed Constantino from Manila to Nagoya.
indemnity from the insurer. Is the insurer Constantino accepted the offer, not knowing
liable under the insurance coverage? Why that the vessel was manned by an
or why not? irresponsible crew with deep-seated
resentments against Paolo, their employer.
Answer:
The insurer is not liable under the Constantino insured the cargo of
insurance policy. Under Art 1249 of the Civil logs against both perils of the sea and
Code, the delivery of a check produces the barratry. The logs were improperly loaded
effect of payment only when it is encashed. on one side, thereby causing the vessel to
The loss occurred on April 5, 2010. When tilt on one side. On the way to Nagoya, the
the check was deposited, it was returned on crew unbolted the sea valve of the vessel
April 10, 2010, for insufficiency of funds. causing water to flood the ship hold. The
The check was honored only after Enrique vessel sank.
deposited additional funds with the bank.
 Constantino tried to collect from the Answer:
insurance company which denied liability, Manuel can recover P500,000
given the unworthiness of both the vessel because this is the total of his savings
and its crew. deposit, time deposit and current account.
The trust account and the money market
Constantino countered that he was placements are not included in the insured
not the owner of the vessel and he could deposits.
therefore not be responsible for conditions
about which he was innocent.
Question No. 15:
1. Is the insurance company liable? While vacationing in Boracay,
Valentino surreptitiously took photographs
Answer: of his girlfriend Monaliza in her skimpy
No. the insurance company is not bikini. 2 weeks later, her photograph
liable because there is an implied appeared in the Internet and in a national
warranty in every marine insurance that celebrity magazine.
the ship is seaworthy whoever is
insuring the cargo, whether it be the Monaliza found out that Valentino
shipowner or not. There was a breach of had sold the photograph to the magazine
warranty, because the logs were and, adding insult to injury, uploaded them
improperly loaded and the crew was to his personal blog on the Internet.
irresponsible. It is the obligation of the
owner of the cargo to look for a reliable 1. Monaliza filed a complaint against
common carrier which keeps its vessel Valentino for damages based on,
in seaworthy condition. among other grounds, violation of her
intellectual property rights. Does she
have any cause of action? Explain.
2. Hat is “barratry” in marine insurance?
Answer:
Answer: No. Monaliza cannot sue Valentino
Barratry is any willful misconduct on for violation of her intellectual property
the part of the master or the crew in rights, because she was not the one
pursuance of some unlawful or who took the pictures. She may sue
fraudulent purpose without the consent Valentino instead for violation of her
of the owner and to the prejudice of the right to privacy. He surreptitiously took
interest of the owner. photographs of her and then sold the
photographs to a magazine and
uploaded them to his personal blog in
Question No. 14: the Internet.
When OCCIDENTAL Bank folded up
to insolvency, Manuel had the following
separate deposits in his name; P200,000 in 2. Valentino’s friend Francesco stole the
savings deposit; P250,000 in time deposit; photographs and duplicated them and
P50,000 in a current account; P1 M in a sold them to a magazine publication.
trust account; and P3 M in money market Valentino sued Francesco for
placement. Under the PDIC Act, how much infringement and damages. Does
could Manuel recover? Valentino have any cause of action?
Explain.

Answer:
 No. Valentino cannot sue Francesco
for infringement, because he has
already sold the photographs to a Question No. 17:
magazine. The Supreme Court has held that
fraud is an exception to the “independence
3. Does Monaliza have any cause of action principle” governing letters of credit. Explain
against Franceso? Explain. this principle and give an example of how
fraud can be an exception.
Answer:
Yes. Monaliza can also sue Answer:
Francesco for violation of her right to The “independence principle” posits
privacy. that the obligations of the parties to a letter
of credit are independent of the obligations
of the parties to the underlying transaction.
Question No. 16: Thus, the beneficiary of the letter of credit,
An importer of Christmas toys which is able to comply with the
loaded 100 boxes of Santa Clause talking documentary requirements under the letter
dolls aboard a ship in Korea bound for of credit, must be paid by the issuing or
Manila. With the intention of smuggling ½ of confirming bank, notwithstanding the
his cargo, he took a bill of lading for only 50 existence of a dispute between the parties
boxes to save the more precious cargo. to the underlying transaction, say a contract
of sale of goods where the buyer is not
1. Is the importer entitled to receive any satisfied with the quality of the goods
indemnity for average? delivered by the seller. The Supreme Court
in Transfield Philippines, Inc. v. Luzon
Answer: Hydro Corporation, 443 SCRA 307 (2004)
No. The importer is not entitled to for the first time declared that fraud is an
receive any indemnity for average. In exception to the independence principle.
order that the goods jettisoned may be For instance, if the beneficiary fraudulently
included in the general average and the presents to the issuing or confirming bank
owner be entitled to indemnity, it is documents that contain material facts that,
necessary that their existence on board to his knowledge, are untrue, then payment
be proven by means of the bill of lading. under the letter of credit may be prevented
through court injunction.

2. What are the types of averages in

marine commerce? Question No. 18:
For years, Y has been engaged in
Answer: the parallel importation of famous brands,
The types of averages are particular including shoes carrying the foreign brand
and general average. Particular MAGIC. Exclusive distributor X demands
averages include all expenses and that Y cease importation because of his
damages caused to the vessel or to the appointment as exclusive distributor of
cargo which did not inure to the MAGIC shoes in the Philippines.
common benefit and profit of all the
persons interested in the vessel and the Y countered that the trademark
cargo. General averages include all MAGIC is not registered with the Intellectual
damages and expenses which are Property Office as a trademark and
deliberately caused to save the vessel, therefore no one has the right to prevent its
its cargo, or both at the same time, from parallel importation.
real and known risk.
1. Who is correct? Why? diagnosis and method of treatment which
are expressly non-patentable.
Answer:
X is correct. His rights under his
exclusive distributorship agreement are
property rights entitled to protection. The
importation and sale by Y of MAGIC
shoes constitutes unfair competition.
Registration of the trademark is not
necessary in case of an action for unfair
competition.

2. Suppose the shoes are covered by a

Philippine patent issued to the brand
owner, what would your answer be?
Explain.

Answer:

A patent for a product confers upon

its owner the exclusive right of importing
the product. The importation of a
patented product without authorization
of the owner of a patent constitutes
infringement of the patent. X can
prevent the parallel importation of such
shoes by Y without its authorization.

Question No. 19:

Dr. Nobel discovered a new method
of treating Alzheimer’s involving a special
method of diagnosing the disease, treating it
with a new medicine that has been 2009 BAR EXAMINATION
discovered after long experimentation and
field testing, and novel mental isometric
exercises. He comes to you for advice on PART I
how he can have his discoveries protected.
Can he legally protect his new method of
diagnosis, the new medicine, and the new Question No. 1:
method of treatment? If no, why? If yes, TRUE OR FALSE. Answer TRUE if
how? the statement is true, or FALSE if the
statement is FALSE. Explain your answer in
Answer: not more than 2 sentences.
Dr. Nobel can be protected by a
patent for the new medicine as it falls within a) The Denicola Test in intellectual
the scope of Section 21 of the Intellectual property law states that if design
Property Code. But no protection can be elements of an article reflect a merger of
legally extended to him for the method of aesthetic and functional considerations,
the artistic aspects of the work cannot
 be conceptually separable from the transaction remain enforceable between
utilitarian aspects; thus, the article the parties thereto.
cannot be copyrighted.

Answer: d) Dividends on shares of stock can only

True. Applying the Denicola Test in be declared out of unrestricted retained
Brandir International, Inc. v. Cascade earnings of the corporation.
Pacific Lumber Co. (834 F.2d 1142,
1988 Copr.L.Dec. P26), the United State Answer:
Court of Appeals for the Second Circuit True. Dividends on shares of stock
held that if there is any aesthetic of a corporation, whether cash dividend
element which can be separated from or stock dividend, can be validly
the utilitarian elements, then the declared only out of unrestricted
aesthetic element may be copyrighted. retained earnings. It cannot be declared
out of the capital. Otherwise, such
declaration of dividend will violate the
b) If the Ombudsman is convinces that trust fund doctrine.
there is a violation of law after
investigating a complaint alleging illicit
bank deposits of public officer, the e) A bank under a receivership can still
Ombudsman may order the bank grant new loans and accept new
concerned allow in camera inspection of deposits.
bank records and documents.
Answer:
Answer: False. During the receivership, the
False. The Bank Secrecy Law assets and properties of the corporation
prohibits the inspection of a bank are being gathered for conversion into
account unless the permission of the cash in preparation for distribution to
account holder is obtained, or upon creditors. Granting new loans and
lawful order of the court or when the accepting new deposits would constitute
deposit is the subject matter of litigation. doing business for the bank in the
Investigation by the Ombudsman is not ordinary course of business which is
considered as a pending litigation to contrary to the purpose and nature of a
allow the examination of the bank receivership proceeding.
records and documents.

Question No. 2:
c) Even if the seller and the buyer in a sale Atlantis Realty Corporation (ARC), a
in bulk violate the Bulk Sales Law, the local firm engaged in real estate
sale would still be valid. development, plans to sell one of its prime
assets—a 3-hectare land valued at about
Answer: P100 M. for this purpose, the board of
False. When the Bulk Sale Law is directors of ARC unanimously passed a
violated, the sale is null and void. When resolution approving the sale of the property
the provision of the said law have not for P75 M to Shangrila Real Estate
been complied with, the sale is Ventures (SREV), a rival realty firm. The
considered as being “fraudulent and resolution also called for a special
void” and even when coupled with stockholders meeting at which the proposed
delivery, the title over the goods does sale would be up for ratification.
not transfer to the buyer. However, the
civil liabilities arising from the
 Atty. Edric, a stockholder who owns security his 500 shares of stock worth P1.5
only 1 share in ARC, wants to stop the sale. M in Xerxes Corporation, and his 2007
He then commences a derivative suit for BMW sedan, valued at P2 M. the mortgage
and in behalf of the corporation from on the shares of stock was registered in the
approving the sale. Office of the Register of Deeds of Makati
City where Xerxes Corporation has its
a) Can Atty. Edric, who owns only 1 share principal office. The mortgage on the car
in the company, initiate a derivative was registered in the Office of the Register
suit? Why or why not? of Deeds of Manila. Armando executed a
single Affidavit of Good Faith, covering both
Answer: mortgages.
Yes, Atty. Edric can initiate a
derivative suit, otherwise known as the Armando defaulted on the payment
minority stockholders’ suit. It is allowed of his obligation; thus, Bernardo foreclosed
by law to enable the minority on the two chattel mortgages. Armando filed
stockholder/s to protect the interest of suit to nullify the foreclosure and the
the corporation against illegal or mortgages, raising the following issues:
disadvantageous act/s of its officers or
directors, the people who are supposed a) The execution of only one Affidavit of
to the corporation. Good Faith for both mortgages
invalidated the two mortgages; and

b) If such a suit is commenced, would it Answer:

constitute an intra-corporate dispute? If The execution of only one Affidavit
so, why and where would such a suit be of Good Faith for both mortgages is not
filed? If not, why not? a ground to nullify the said mortgages
and the foreclosure thereof. Said
Answer: mortgages are valid as between
Yes, such suit would constitute an immediate parties, although they cannot
intra-corporate dispute as it is a suit bind third parties.
initiated by a stockholder against other
stockholders who are officers and
directors of the same corporation. Such b) The mortgage on the shares of stocks
suit should be filed in the RTC should have been registered in the
designated by the Supreme Court as a Office of the Register Deeds of Manila
corporate or commercial court. where he resides, as well as in the stock
and transfer book of Xerxes
Corporation.
c) Will the suit prosper? Why or why not?
Rule on the foregoing issues with
Answer: reasons.
No. The suit will not prosper. There
is no requisite demand on the officers Answer:
and directors concerned. There is, The mortgage on the shares of stock
therefore, no exhaustion of should be registered in the chattel
administrative remedies. mortgage registry in the register of
Deeds of Makati City where the
corporation has its principal office and
Question No. 3: also in the Register of Deeds of Manila
Armando, a resident of Manila, where the mortgagor resides.
borrowed P3 M from Bernardo, offering as Registration of chattel mortgage in the
 stock and transfer book is not required Answer:
to make the chattel mortgage valid. No. by approving the application of
Registration of dealings in the stock and Quirino who disclosed that he was
transfer book under Section 63 of the already 80 years old, ALAC waived the
Corporation Code applies only to sale or age requirement. ALAC is now stopped
disposition of shares, and has no from raising such defense of age of the
application to mortgages and other insured.
forms of encumbrances.

b) Did ALAC’s issuance of a cover note

c) Assume that Bernardo extrajudicially result in the perfection of an insurance
foreclosed on the mortgages, and both contract between Quirco and ALAC?
the car and the shared of stock were Explain.
sold at public auction. If the proceeds
from such public sale should be 1- Answer:
million short of Armando’s total Yes. The issuance of a cover note
obligation, can Bernardo recover the resulted in the perfection of the contract
deficiency? Why or why not? of insurance. In that case, it is only
because there is delay in the issuance
Answer: of the policy that the cover note was
Yes. Bernardo can recover the issued.
deficiency. Chattels are given as mere
security, and not as payment or pledge. The cover note is a receipt whereby
the company agrees to insure the
insured for 60 days pending the
Question No. 4: issuance of a regular policy. No
Antarctica Life Assurance separate premium is to be paid on a
Corporation (ALAC) publicly offered a cover note. It is not a separate policy but
specially designed insurance policy is integrated in the regular policy to be
covering persons between the ages of 50 to subsequently issued.
75 who may be afflicted with serious and
debilitating illnesses. Quirco applied for
insurance coverage, stating that he was Question No. 5:
already 80 years old. Nonetheless, ALAC Cecilio is planning up a grocery
approved his application. store in the subdivision where he and his
family reside. To promote this proposed
Quirco then requested ALAC for the business venture, he told his wife and 3
issuance of a cover note while he was trying children to send out promotional text
to raise funds to pay the insurance messages to all the residents in the
premium. ALAC granted the request. 10 subdivision. Cecilio’s family members did as
days after he received the cover note, instructed, and succeeded in reaching,
Quirco had a heart seizure and had to be through text messages, more than 80% of
hospitalized. He then filed a claim on the the residents in the subdivision.
policy.
Is Cecilio habitually engaged in
a) Can ALAC validly deny the claim on the commerce even if the grocery store has yet
ground that the insurance coverage, as to be established? Explain your answer.
publicly offered was available only to
persons 50 to 75 years of age? Why or Answer:
why not? Yes. Even if the grocery store has
yet to be established, Cecilio already
habitually engaged in commerce, when per No. The illicit cause or consideration
his instruction the members of his family does not adversely affect the
contacted more than 80% the residents of negotiability of the bill, especially in the
the subdivision where they reside. hands of a holder in due course. Under
According to Article 3 of the Code of Sec. 1 of the NIL, the bill of exchange is
Commerce, “legal presumption of habitually a negotiable instrument. Every
engaging in commerce shall exist from the negotiable instrument is deemed prima
moment the person who intends to engage facie to have been issued for valuable
therein announced through circulars, consideration, and every person whose
newspapers, handbills, posters exhibited to signature appears thereon is deemed to
the public, or in any other manner have become a party thereto for value.
whatsoever, an establishment which has for
its object some commercial operation.” Text
messages may qualify to be equivalent to Question No. 7:
electronic documents. Global Transport Services, Inc
(GTSI) operates a fleet of cargo vessels
plying interisland routes. One of its vessels,
Question No. 6: MV Donna Juana, left the port of Manila for
Lorenzo drew a bill of exchange in Cebu laden with, among other goods,
the amount of P100,000 payable to Barbara 10,000 television sets consigned to
or order, with his wife, Diana, as drawee. At Romualdo, a TV retailer in Cebu.
the time the bill was drawn, Diana was
unaware that Barbara is Lorenzo’s When the vessel was about 10
paramour. nautical miles away from Manila, the ship
captain heard on the radio that a typhoon
Barbara then negotiated the bill to which, as announced by PAG-ASA, was on
her sister, Elena, who paid for it for value, its way out of the country, had suddenly
and who did not know who Lorenzo was. On veered back into Philippine territory. The
due date, Elena presented the bill to Diana captain realized that MV Dona Juana would
for payment, but the latter promptly traverse the storm’s path, but decided to
dishonored the instrument because, by proceed with the voyage. True enough, the
then, Diana had already learned of her vessel sailed into the storm. The captain
husband’s dalliance. ordered the jettison of the 10,000 television
sets, along with some other cargo, in order
a) Was the bill lawfully dishonored by to lighten the vessel and make it easier to
Diana? Explain. steer the vessel out of the path of the
typhoon. Eventually, the vessel, with its
Answer: crew intact, arrived safely in Cebu.
No, the bill was not lawfully
dishonored by Diana. Elena, to whom a) Will you characterize the jettison of
the instrument was negotiated, was a Romualdo’s TV sets as an average? If
holder in due course inasmuch as she so, what kind of an average, and why? If
paid value therefor in good faith. not, why not?

Answer:
b) Does the illicit cause or consideration The jettison of Romualdo’s TV sets
adversely affect the negotiability of the resulted in a general average loss,
bill? Explain. which entitles him compensation or
indemnification from the shipowner and
Answer: the owners of the cargoes saved by the
jettison.
 enumerated under Sec. 30, RA No.
7653, otherwise known as the New
b) Against whom does Romualdo have a Central Bank Act, leading to the
cause of action for indemnity of his lost receivership and liquidation of a bank or
TV sets? Explain. quasi-bank. There is no requirement
that an examination be first conducted
Answer: before a banking institution may be
Romualdo has a cause of action for placed under receivership.
his lost TV sets against the shipowner
and the owners of the cargoes saved by
the jettison. The jettison of the TV sets b) If the MPBC hires you as a lawyer
resulted in a general average loss, because the Monetary Board has
entitling Romualdo to indemnity for the forbidden it from carrying on its business
lost TV sets. due to its imminent insolvency, what
action will you institute to question the
Monetary Board’s order? Explain.
Question No. 8:
Maharlikang Pilipino Banking Answer:
Corporation (MPBC) operates several The order of the Monetary Board
branches of Maharlikang Pilipino Rural may be questioned on a petition for
Bank in Eastern Visayas. Almost all the certiorari on the ground that the action
branch managers are close relatives of the taken was in excess of jurisdiction or
members of the Board of Directors of the with grave abuse of discretion
corporation. Many undeserving relatives of amounting to lack or excess of
the branch managers were granted loans. In jurisdiction. The petition of certiorari may
time, the branches could not settle their only be filed by the stockholders of
obligations to depositors and creditors. record representing the majority of the
capital stock within 10 days from receipt
Receiving reports of these by the board of directors of the MPBC of
irregularities, the Supervising and the order directing receivership,
Examining Department (SED) of the liquidation or conservatorship.
Monetary Board prepared a detailed report
(SED Report) specifying the facts and the
chronology of events relative to the Question No. 9:
problems that beset MPBC rural bank When is there an ultra vires act on
branches. The report concluded that the the part of (a) the corporation; (b) the board
bank branches were unable to pay their of directors; and (c) the corporate officers.
liabilities as they fell due, and could not
possibly continue in business without Answer:
incurring substantial losses to its depositors a) Under Sec. 45 of the Corporation
and creditors. Code, no corporation shall possess
or exercise any corporate power
a) May the Monetary Board order the except those conferred by the Code
closure of the MPBC rural banks relying or by its articles of incorporation and
only on the SED Repost, without need except such as are necessary or
of an examination? Explain. incidental to the exercise of the
powers so conferred. When the
Answer: corporation does an act or engages
Yes. Upon receipt of the report of in an activity which is outside of its
the SED, the Monetary Board is express, implied or incidental
authorized to take any of the actions powers set out in its articles of
 incorporation, the act is deemed to c. Those issued by the receiver or by
be ultra vires. the trustee in a bankruptcy duly
approved by the proper adjudicatory
b) When the Board engages in an board;
activity or enters into a contract d. Those involving the sale or transfer
without the ratificatory vote of the which is by law, under the regulation
stockholders in those instances of the OIC, HLURB, BIR; and
where the Corporation Code so e. Those issued by banks, except its
requires such ratificatory vote, such own shares.
as when the corporation is made to
invest in another corporation or
engage in a business which is not in
pursuit of its primary purpose, the PART II
board resolution not ratified by
stockholders owning or representing Question No. 10:
at least 2/3 of the outstanding capital TRUE or FALSE. Answer TRUE if
stock would make the transaction the statement is true, or FALSE if the
void, as being ultra vires. statement is FALSE. Explain your answer in
not more than 2 sentences.
c) When a corporate officer enters into
a contract on behalf of the a) A loan agreement which provides that
corporation without having been so the debtor shall pay interest at the rate
expressly or impliedly authorized by determined by the bank’s branch
the board of Directors, even when manager violates the disclosure
the act or contract falls within the requirement of the Truth in Lending Act.
corporation’s express, implied or
incidental power, then the
unauthorized act of the corporate
officer is deemed to be ultra vires. Answer:
True. This is contrary to the duty of
the creditor to disclose in detail the
Question No. 10: interests, charges and other figures
What are the so-called exempt indicating in detail the cost of the credit
securities under the SRC? granted to the debtor.

Answer:
Under Sec. 9 of the SRC, the so- b) Under the Warehouse Receipts Law, a
called exempt securities are: warehouseman loses his lien upon the
goods when he surrenders possession
a. Those issued or guaranteed by the thereof.
government of the Philippines or any
of its political subdivisions or Answer:
agencies; True. A lien is dependent on
b. Those issued or guaranteed by the possession. When a warehouseman
government of any foreign country surrenders possession, he thereby loses
with which the Philippines has his lien on the goods over which he no
diplomatic relations, or any other longer has possession.
state on the basis of reciprocity,
although the SEC may require
compliance with the form and c) The Howey Test that there is an
content of disclosures; investment contract when a person
 invests money in a common enterprise were duly indorsed by Gaudencio’s
and is led to expect profits primarily from customers.
the efforts of others.
The Deed of Assignment contains
Answer: the following stipulation:
False. The Howey Test requires a
transaction, contract, or scheme “If, for any reason, the receivables or
whereby a person makes an investment any part thereof cannot be paid by the
of money in a common enterprise with obligors, the ASSIGNOR unconditionally
the expectation of profits to be derived and irrevocably agrees to pay the same,
solely, not primarily from efforts of assuming the liability to pay, by way of a
others. penalty, 3% of the total amount unpaid, for
the period of delay until the same is fully
paid.”
d) A document, dated July 15, 2009, that
reads: “Pay to X or order the sum of When the checks became due, BFC
P5,000.00 five days after his pet dog, deposited them for collection, but the
Sparky, dies. Signed Y.” is a negotiable drawee banks dishonored all the checks for
instrument. one of the following reasons: “account
closed,” “payment stopped,” “account under
Answer: garnishment,” or “insufficiency of funds”.
True. The document is subject to a BFC wrote Gaudencio notifying him of the
term and not a condition. The dying of dishonored checks, and demanding
the dog is a day which is certain to com. payment of the loan. Because Gaudencio
Therefore, the order to pay is did not pay, BFC filed a collection suit.
unconditional, in compliance with
Section 1 of the NIL. In his defense, Gaudencio
contended that: (a) BFC did not give timely
notice of dishonor of the checks; and (b)
e) “A bank is bound to know its depositor’s considering that the checks were duly
signature” is an inflexible rule in indorsed, BFC should proceed against the
determining the liability of a bank in drawers and the indorsers of the checks.
forgery cases.
Are Gaudencio’s defenses tenable?
Answer: Explain.
False. In cases of forgery, the forger
may not necessarily be a depositor of Answer:
the bank, especially in the case of a No. Gaudencio’s defenses are
drawee bank. Yet in many cases of untenable. The cause of action of BFC was
forgery, it is the drawee that is held really on the contract of loan, with the
liable for the loss. checks merely serving as collateral to
secure the payment of the loan. By virtue of
the Deed of Assignment which he signed,
Question No. 12: Gaudencio undertook to pay for the
Gaudencio, a store owner, obtained receivables if for any reason they cannot be
a P1 M loan from Bathala Financing paid by the obligors.
Corporation (BFC). As security, Gaudencio
executed a “Deed of Assignment of
Receivables,” assigning 15 checks received Question No. 13:
from various customers who bought Ciriaco leased a commercial
merchandise from his store. The checks apartment from Supreme Building
Corporation (SBC). One of the provisions of the two corporations. Under either option,
the 1-year lease contract states: the requirements under the Corporation
Code have to be complied with.
“18. x x x The LESSEE shall not
insure against fire the chattels, The receiver seeks your advice on
merchandise, textiles, goods and effects whether the Bulk Sales Law will apply to
placed at any stall or store or space in the either, or both, options. What will your
leased premises without first obtaining the advice be?
written consent of the LESSOR. If the
LESSEE obtains five insurance coverage Answer:
without the consent of the LESSOR, the I will advice the receiver that the
insurance policy is deemed assigned and Bulk Sales Law does not apply to both
transferred to the LESSRO for the latter’s options. Section 8 of the Bulk Sales Law
benefit.” expressly provides that it will not apply to
executors, administrators, receivers, and
Notwithstanding the stipulation in the assignees in insolvency, or public officers,
contract, without the consent of SBC, acting under judicial process. In this case,
Ciriaco insured the merchandise inside the the receiver is acting under judicial process.
premises against loss by fire in the amount
of P500,000 with First United Insurance
Corporation (FUIC). Question No. 15:
After disposing of his last opponent
A day before the lease contract in only two rounds in Las Vegas, the
expired, fire broke out inside the leased renowned boxer Sonny Bachao arrived at
premises, damaging Ciriaco’s merchandise. the NAIA met by thousands of hero-
Having learned of the insurance earlier worshipping fans and hundreds of media
procured by Ciriaco, SBC demanded from photographers. The following day, a colored
FUIC that the proceeds of the insurance photograph of Sonny wearing a black polo
policy be paid directly to it, as provided in short embroidered with the 2-inch Lacoste
the lease contract. crocodile logo appeared on the front page of
every Philippine newspaper.
Who is legally entitled to receive the
insurance proceeds? Explain. Lacoste International, the French
firm that manufactures Lacoste apparel and
Answer: owns the Lacoste trademark, decided to
Ciriaco is entitled to receive the cash in on the universal popularity of the
proceeds of the insurance policy. The boxing icon. It reprinted the photographs,
stipulation that the policy is deemed with the permission of the newspaper
assigned and transferred to SBC is void, publishers, and went on a world-wide blitz of
because SBC has no insurable interest in print commercials in which Sonny is shown
the merchandise of Ciriaco. wearing a Lacoste shirt alongside the
phrase “Sonny Bachao just loves Lacoste”.

When Sonny sees the Lacoste

advertisements, he hires you as a lawyer
Question No. 14: and asks you to sue Lacoste International
XXX Corporation (XXX) and its sister before a Philippine court:
company, YYY Corporation (YYY), are both
under judicial receivership. The receiver has a) For trademark infringement in the
the option to sell all or substantially all of the Philippines because Lacoste
properties of YYY to XXX, or simply merge
 International used his image without his No. Philippine courts have
permission, jurisdiction over it, if it is doing business
in the Philippines. Moreover, under
Answer: Section 133 of the Corporation Code,
Sonny Bachao cannot sue for while a foreign corporation doing
infringement of trademark. The business in the Philippines without
photographs showing him wearing a license to do business, cannot sue or
Lacoste shirt were not registered as a intervene in any action, it may be sued
trademark. or proceeded against before our courts
or administrative tribunal.

b) For copyright infringement because of

the unauthorized use of the published Question No. 16:
photographs. On September 15, 2007, XYZ
Corporation issued to Paterno 800 preferred
Answer: shares with the following terms:
Sonny Bachao cannot sue for
infringement of copyright for the “The Preferred Shares shall have
unauthorized use of the photographs the following rights, preferences,
showing him wearing a Lacoste shirt. qualifications, and limitations, to wit:
The copyright to the photographs belong
to the newspaper which published them 1. The right to receive a quarterly
inasmuch as the photographs were the dividend of 1% cumulative
result of the performance of the regular participating;
duties of the photographers. Moreover, 2. These shares may be redeemed, by
the newspaper publishers authorized drawing of lots, at any time after 2
the reproduction of the photographs. years from date of issue, at the
option of the Corporation; x x x.”

c) For injunction in order to stop Lacoste Today, Paterno sues XYZ Corporation
International from featuring him in their for specific performance, for the payment of
commercials. dividends on, and to compel the redemption
of, the preferred shares, under the terms
Will these actions prosper? and conditions provided in the stock
certificates. Will the suit prosper? Explain.
Answer:
The complaint for injunction to stop Answer:
Lacoste International from featuring him No. the suit will not prosper. Paterno
in its advertisements will prosper. This is cannot compel XYZ Corporation to pay
a violation of subsection 123.4© of the dividends, which have to be declared by the
IPC and Art. 169 in relation to Article Board of Directors and the latter cannot do
170 of the RPC. so, unless there are sufficient unrestricted
retained earnings. Otherwise, the
corporation will be forced to use its capital
d) Can Lacoste International validly invoke to make said payments in violation of the
the defense that it is not a Philippine trust fund doctrine. Likewise, redemption of
company and, therefore, Philippine shares cannot be compelled. While the
courts have no jurisdiction? Explain. certificate allows such redemption, the
option and discretion to do so are clearly
Answer: vested in the Corporation.
 a) In 1982, Juancho, the sole heir of one of
Question No. 17: the original incorporators filed apetition
Philippine Palaces Realty (PPR) had with the SEC for the registration of his
been representing itself as a registered property rights over 120 founder’s
broker of securities, duly authorized by the shares and 12 common shares. The
SEC. On October 6, 1996, PPR sold to petition was supported by a copy of the
spouses Leon and Carina one timeshare of Articles of Incorporation indicating the
Palacio del Boracay for US$7,500. However incorporators’ initial capital stock
its Registration Statement became effective subscription. Will the petition be
only on February 11, 1998 after the SEC granted? Why or why not?
issued a resolution declaring that PPR was
authorized to sell securities, including Answer:
timeshares Yes. The articles of incorporation
defines the charter of the corporation
On March 30, 1998, Leon and and the contractual relationship between
Carina wrote PPR rescinding their purchase the State and the corporation, the State
agreement and demanding the refund of the and the stockholders, and between the
amount they paid, because the Palacio del corporation and the stockholders. Its
Boracay timeshare was sold to them by contents are thus binding upon both the
PPR without the requisite license or corporation and the stockholders,
authority from the SEC. PPR contended that conferring on Juancho a clear right to
the grant of the SEC authority had the effect have his stockholding recorded.
of ratifying the purchase agreement (with
Leon and Carina) of October 6, 1996.
b) On May 6, 1992, a special stockholders’
Is the contention of PPR correct? meeting was held. At this meeting, what
Explain. would have constituted a quorum?
Explain.
Answer:
The contention of PPR is not correct. Answer:
It is settled that no securities shall be sold or A quorum consists of the majority of
offered for sale or distribution in the the totality of the shares which have
Philippines without a registration duly filed been subscribed and issued. Thus the
and approved by the Commission. quorum for such meeting would be 289
Corporate registration is one of the shares or a majority of the 576 shares
requirements under Section 8 of BP Blg. issued and outstanding as indicated in
178. the articles of incorporation. This
includes the 33 common shares
reflected in the stocks and transfer
Question No. 18: book, there being no mention or
Triple A Corporation (Triple A) was showing of any transaction effected from
incorporated in 1960, with 500 founder’s the time of Triple A’s incorporation in
shares and 78 common shares as its initial 1960 up to the said meeting.
capital stock subscription. However, Triple A
registered its stock subscription. However,
Triple A registered its stock and transfer c) What is a stock and transfer book?
books only in 1978, and recorded merely 33
common shares as the corporation’s issued Answer:
and outstanding shares. a stock and transfer book is a book
which records all stocks in the name of
the stockholders alphabetically
 arranged; the installments paid or although he was being transported
unpaid on all stocks for which gratuitously, because he won a free
subscription has been made and the riding pass in a raffle held by CTC.
date of payment of any installment, a
statement of every alienation, sale or
transfer of stock made, the date thereof, b) Do Romeo, Samuel, Teresita, and Uriel
and by and to whom made; and such have a cause of action for damages
other entries as the by-laws may against UTI? Explain.
prescribe.
Answer:
Romeo, Samuel, Teresita, and Uriel
Question No. 19: may sue UTI on the basis of quasi-delict
One of the passenger buses owned since they have no pre-existing
by Continental Transit Corporation (CTC), contractual relationship with UTI. They
plying its usual route, figured in a collision may allege that the collision was due to
with another bus owned by Unniversla the negligence of driver of UTI and UTI
Transport Inc. (UTI). Among those injured was negligent in the selection and
inside the CTC bus were: Romeo, a stow supervision of its driver.
away; Samuel, a pickpocket then in the act
of robbing his seatmate when the collision
occurred; Teresita, the bus driver’s mistress c) What, if any, are the valid defenses that
who usually accompanied the driver on his CTC and UTI can raise in the respective
trips for free; and Uriel, a holder of a free actions against them? Explain.
riding pass he won in a raffle held by CTC.
Answer:
a) Will a suit for breach of contract of With respect to Romeo, Samuel and
carriage filed by Romeo, Samuel, Teresita, since there was no pre-existing
Teresita, and Uriel against CTC contractual relationship between them
prosper? Explain. and CTC, CTC can raise the defense
that it exercised the due diligence of a
Answer: good father of a family in the selection of
Romeo cannot sue for breach of its driver.
contract of carriage. A stowaway like
Romeo, who secures passage by fraud, It can raise the same defense
is not a passenger. against Uriel if there is a stipulation that
exempts it from liability for simple
Samuel and Teresita cannot sue for negligence, but not for willful acts or
breach of contract of carriage. The gross negligence.
element s in the definition of a
passenger are: an undertaking of a CTC cam also raise against all the
person to travel in the conveyance plaintiffs the defense that the collision
provided by the carrier and an was due exclusively to the negligence of
acceptance by the carrier of the person the driver of UTI, and this constitutes a
as a passenger. Samuel did not board fortuitous event, because there was no
the bus to be transported but to commit concurrent negligence on the part of its
robbery. Teresita did not board the bus own driver.
to be transported but to accompany the
driver while he was performing his work CTC can also raise against Samuel
the defense that he was engaged in a
Uriel can sue for breach of contract seriously illegal act at the time of the
of carriage. He was a passenger
 collision, which can render him liable for Atlantic Bank a confirmed and irrevocable
damages on the basis of quasi-delict. letter of credit which was accepted by X
Corporation in due time. 1 week before the
Since UTI had no pre-existing expiration of the 6 month period, PT
contractual relationship with any of the requested for an extension of time to
plaintiffs, it can raise the defense that it deliver claiming that the delay was due to
exercised due diligence in the selection the fault of X Corporation. A controversy as
and supervision of its driver, that the to the cause of the delay which involved
collision was due exclusively to the the workmanship of the building ensued.
negligence of the driver of CTC, and The controversy remained unresolved.
that Samuel was committing a seriously Despite the controversy, X Corporation
illegal act at the time of the collision. presented a claim against Atlantic Bank by
executing a draft against the letter of credit.

Question No. 20: a) Can Atlantic Bank refuse payment

Under the SRC, what is the Margin due to the unresolved controversy?
Trading Rule? Explain.
b) Can X Corporation claim directly
Answer: from PT Construction Company?
Under the Margin Trading Rule, no
registered broker or dealer, or member Answer:
of an exchange shall extend credit on a) Atlantic Bank cannot refuse to pay
any security an amount greater than because in a letter of credit, where
whichever is higher of: the credit is stipulated as
irrevocable, there is a definite
a) 65% of the current market price of undertaking by the issuing bank to
the security; pay the beneficiary, provided that
b) 100% of the lowest market price of the stipulated documents are
the security during the preceding 36 presented and the conditions of the
calendar months, but not more than credit are complied with. Under the
75% of the current market price. “independence principle”, the issuing
bank is not obligated to ascertain
The purpose of the Margin Trading compliance by the parties in the
Rule is to prevent excessive use of main contract. In other words, where
credit for the purchase of securities it the legal relation arises from a letter
is a counter to broker’s desire to of credit, such letter of credit
generate more sales by encouraging contains the entire contract of the
clients to buy securities on credit. parties and the resulting obligations
should be measured by its
provisions. It is unaffected by any
2008 BAR EXAMINATION breach of contract on the part of one
of the parties or by any controversy
which may arise between them.
1. X Corporation entered into a
contract with PT Construction Corp. for the b) Yes, X Corp. can claim directly from
latter to construct and build a sugar mill PT. the call upon the letter of credit
within 6 months. They agreed that in case is not exclusive; it is merely an
of delay, PT Construction Corp. will pay X alternative remedy in case of delay
Corporation P100,000 for every day of due to the fault of PT.
delay. To ensure payment of the agreed
amount of damages, PT secured from
2. Tom Cruz obtained a loan of P1M from
XYZ Bank to finance his purchase of An accommodation party may hold
5,000 bags of fertilizer. He executed a the party accommodated liable to
trust receipt in favor of XYZ Bank over him, even if the party
the 5,000 bags of fertilizer. Tom accommodated is a subsequent
withdrew the 5,000 bags from the party. The relation between them is
warehouse to be transported to Lucena that of principal and surety. For the
City where his store was located. On same reason, an acceptor for honor
the way, armed robbers took from Tom may hold the party for whose honor
the 5,000 bags of fertilizer. Tom now he accepted a bill of exchange liable
claims that his obligation to pay the to him. A payer for honor is
loan to XYZ Bank is extinguished subrogated to the rights of the holder
because the loss was not due to his as regards the party for whose honor
fault. Is Tom correct? Explain. he paid and all parties liable to the
latter.
Answer:
Being the entrustee, the obligation of b) The “shelter principle” provides that
Tom Cruz to pay XYZ Bank is not in the hands of a holder other than
extinguished by the loss of goods. a holder in due course, a negotiable
Section 10 of the Trust Receipts Law instrument is subject to the same
provides: defenses as if it were non-
“Section 10. Liability of entrustee for negotiable. This principle is
loss. The risk of loss shall be borne by extended to a holder who is not
the entrustee. Loss of goods, himself a holder in due course but
documents or instruments which are derives title from a holder in due
the subject of a trust receipt, pending course, provided he himself is not a
their disposition, irrespective of whether party to any fraud or illegality
or not it was due to the fault or affecting the instrument. Section 58
negligence of the entrustee, shall not of the NIL provides:
extinguish his obligation to the “Sec. 58. When subject to
entruster for the value thereof.” original defense. In the
hands of any holder other
than a holder in due course,
3. a) As a rule under the NIL, a a negotiable instrument is
subsequent party may hold a prior subject to the same defenses
party liable but not vice-versa. Give 2 as if it were non-negotiable.
instances where a prior party may hold But a holder who derives his
a subsequent party liable. title through a holder in due
course, and who is not
b) How does the “shelter principle” himself a party to any fraud
embodied in the NIL operate to give the or illegality affecting the
rights of a holder in due course to a instrument, has all the rights
holder who does not have the status of of such former holder in
a holder in due course? respect of all parties prior to
the latter”.
Answer:
a) A party may hold a subsequent
party liable in the following 4. AB Corporation drew a check for
instances: (1) in case of an payment to XY Bank. The check was
accommodated party; and (2) in given to an officer of AB Corporation
case of an acceptor for honor. who was instructed to deliver it to XY
 Bank. Instead, the officer, intending to
defraud the Corporation, filled up the a) Pancho asked the payor bank to
check by making himself as the payee recredit his account. Should the
and delivered it to XY Bank for deposit bank comply? Explain fully.
to his personal account. XY Bank b) Based on the facts, was Pancho as
debited AB Corporation’s account. AB drawer discharged on the
Corporation came to know of the instrument? Why?
officer’s fraudulent act after he
absconded. AB Corporation asked XY Answer:
Bank to recredit its amount. XY Bank a) Yes, the bank should recredit the full
refused. amount of the check to the account
of Pancho. Considering that the
a) If you were the judge, what issues check was payable to the account
would you consider relevant to of Pancho. Considering that the
resolve the case? Explain. check was payable to Bong and
b) How would you decide the case? Gerard jointly, the indorsement of
Explain. Gerard was necessary to negotiate
the check pursuant to Sec. 41 of
Answer: the NIL, to wit:
a) If I were the judge, I will consider
the following issues: (1) whether the “Sec. 41. Indorsement where
check was a complete instrument; payable to two or more persons.—
(2) whether the check has been Where an instrument is payable to
delivered; and (3) whether AB the order of 2 or more payees or
Corporation can be held liable for indorsees who are not partners, all
the amount of the check. must indorse unless the one
indorsing has authority to indorse
b) The check was an incomplete for the others”
instrument in as much as the name
of the payee as not written by the Since Bong forged the signature of
drawer, AB Corporation. However, Gerard without authority, the
the said instrument has been indorsement was wholly
delivered by AB Corporation to its inoperative.
officer. Thus, the check became
binding on AB Corporation as b) Pancho was not discharged on the
drawer thereof. An incomplete instrument, because the payment
instrument, if delivered, as in this was not in due course.
case, creates liability on the part of
the drawer. Therefore, AB
Corporation cannot ask XY Bank to 6. On January 1, 2000, Antonio Rivera
recredit the amount of the check to secured a life insurance from SOS
his account. Insurance Corp. for P1 M with Gemma
Rivera, his adopted daughter, as the
beneficiary. Antonio Rivera died on
5. Pancho drew a check to Bong and March 4, 2005 and in the police
Gerard jointly. Bong indorsed the check investigation, it was ascertained that
and also forged Geread’s indorsement. Gemma Rivera participated as an
The payor bank paid the check and accessory in the killing of Antonio
charged Pancho’s account for the Rivera. Can SOS Insurance Corp.
amount of the check. Gerard received avoid liability by setting up as a
nothing from the payment. defense the participation of Gemma
 Rivera in the killing of Antonio Rivera?
Discuss with reasons. Double insurance is valid. What is
prohibited is for the insured to
Answer: recover more than his interest or
SOS cannot avoid liability under the value of the property pursuant to
policy. While Gemma’s interest as the “principle of indemnity”.
beneficiary in the policy is considered
forfeited since she is an accessory to b) Yes, the owner may legally claim the
the killing of Antonio, the proceeds of entire P50 M from Eastern
the policy should be paid to the nearest Insurance, Corp. The Insurance
relative of Antonio (if not otherwise Code provides that where the
disqualified). The Insurance Code insured is overinsured by double
provides that the interest of a insurance, the insured, unless the
beneficiary in a life insurance policy policy otherwise provides, may
shall be forfeited when the beneficiary claim payment from the insurers in
is the principal, accomplice, or such order as he may select, up to
accessory in willfully bringing about the the amount for which the insurers
death of the insured; in which event, are severally liable under their
the nearest relative of the insured shall respective contracts. Each insurer
receive the proceeds of said insurance is bound, as between himself and
if not otherwise disqualified. the other insurers, to contribute
ratably to the loss in proportion to
the amount for which he is liable
7. Terrazas de Pation Verde, a under his contract.
condominium building, has a value of
P50 M. The owner insured the building
against fire with 3 insurance companies 8. City Railways, Inc. (CRI) provides train
for the following amounts: service, for a fee, to commuters from
Manila to Calamba, Laguna.
Northern Insurance Corp.—P20 M Commuters are required to purchase
Southern Insurance Corp.—P30 M tickets and then proceed to designated
Eastern Insurance Corp.—P50 M loading and unloading facilities to board
the train. Ricardo Santos purchased a
a) Is the owner’s taking of insurance for ticket for Calamba and entered the
the building with 3 insurers valid? station. While waiting, he had an
Discuss. altercation with the security guard of
b) The building was totally razed by CRI leading to a fistfight. Ricardo
fire. If the owner decides to claim Santos fell on the railway just as the
from Eastern Insurance Corp. only train was entering the station. Ricardo
P50 M, will the claim prosper? Santos was run over by the train. He
Explain. died.

Answer: In the action for damages files by the

a) The taking of insurance from the 3 heirs of Ricardo Santos, CRI
insurers is valid. It is a case of interposed lack of cause of action,
“double insurance”. The Insurance contending that the mishap occurred
Code provides that a double before Ricardo Santos boarded the
insurance exist where the same train and that it was not guilty of
person is insured by several negligence. Decide.
insurers separately in respect to the
same subject and interest. Answer:
 CRI is liable. It has a contract of typhoon moving within its general
carriage with Ricardo, created from the path. To avoid the typhoon, the
moment the latter purchased a ticket vessel changed its course.
and entered the station. The duty of a However, it was still at the fringe of
common carrier like the CRI is to the typhoon when it was repeated
provide safety to its passengers, not hit by huge waves, foundered and
only during the course of the trip, but as eventually sank. The captain and
long as they are within its premises and the crew were saved except 3 who
where they ought to be in pursuance to perished. Is CSC liable to Empire?
the contract of carriage. Furthermore, a Explain.
common carrier is liable for the death of
or injuries to passengers through the b) Assume the vessel was not
negligence or willful act of its seaworthy as in fact its hull had
employees, pursuant ot Art. 1759 of the leaked, causing flooding in the
Civil Code, to wit: vessel. Will your answer be the
same? Explain.
“Art. 1759. Common carriers are liable
for the death of or injuries to c) Assume the facts in question b).
passengers through the negligence or Can the heirs of the 3 crew
willful acts of the former’s employees, members who perished recover
although such employees may have from CSC? Explain fully.
acted beyond the scope of their
authority or in violation of the orders of Answer:
the common carriers. a) No, CSC is not liable to Empire. The
doctrine of proper deviation is
The liability of the common carriers applicable in this case. The change
does not cease upon proof that they of course made by the vessel is
exercised all the diligence of a good proper as it was to avoid the
father of a family in the selection and typhoon and the huge waves which
supervision of their employees.” are considered perils of the sea.

b) No, my answer will be different.

9. On October 30, 2007, M/V Pacific, a Allowing the vessel to depart on a
Philippine registered vessel owned by voyage when it is not seaworthy is
Cebu Shipping Company (CSC), sank a violation of the implied warranty of
on her voyage from Hong Kong to seaworthiness, and thus constitutes
Manila. Empire Assurance Company negligence on the part of owner of
(Empire) is the insurer of the lost the ship and the ship captain. The
cargoes loaded on board the vessel hypothecary principle in maritime
which were consigned to Debenhams commerce—limiting the ship
Company. After it indemnified owner’s liability to the amount of
Denbenhams, Empire as subrogee filed insurance proceeds—is not
an action for damages against CSC. applicable when the
unseaworthiness of the vessel is
a) Assume that the vessel was due to the owner’s fault or
seaworthy. Before departing, the negligence.
vesse was advised by the
Japanese Meteorological Center c) Yes, the heirs of the 3 crew
that it was safe to travel to its members perished can recover
destination. But while at sea, the from CSC for negligence which
vessel received a report of a
 constitutes a quasi-delict in this sued as the Sonnel Coonstruction
case. Company has a separate and
distinct personality. Nelson’s
controlling interest in Sonnel
10. Nelson owned and controlled Sonnel Construction Company does not
Construction Company. Acting for the justify the piercing of the corporate
company, Nelson contracted the veil.
construction of a building. Without first
installing a protective net atop the c) Yes, the heirs can hold the taxicab
sidewalks adjoining the construction owner and the driver solidarily liable
site, the company proceeded with the for breach of contract of carriage
construction work. One day a heavy and for quasi-delict. The common
piece of lumber fell from the building. It carrier has the duty to safely
smashed a taxicab which at that time transport its passenger, which it
had gone offroad and onto the sidewalk failed to do in this case. It cannot
in order to avoid the traffic. The taxicab escape liability by passing the
passenger died as a result. blame to Nelson and Sonnel
Construction Company as the
a) Assume that the company had no taxicab driver himself is
more account and property in its concurrently negligent.
name. as counsel for the heirs of
the victim, whom will you sue for
damages, and what theory will you 11. a) Since February 8, 1935, the
adopt? legislature has not passed even a
b) If you were the counsel for Sonnel single law creating a private
Construction, how would you corporation. What provision of the
defend your client? What would be Constitution precludes the passage of
your theory? such law?
c) Could the heirs hold the taxicab
owner and driver liable? Explain. b) May the composition of the board of
directors of the National Power
Answer: Corporation (NPC) be validly reduced
a) As counsel for the heirs of the victim, to 3? Explain your answer fully.
I will sue Sonnel Construction
Company and Nelson for gross Answer:
negligence which constitutes a a) Section 16, Article XII of the 1987
quasi-delict. As an officer and Constitution states “The Congress
controlling stockholder of Sonnel shall not, except by general law,
Construction Company, Nelson is provide for the formation,
solidarily liable with the corporation organization, or regulation of private
for quasi-delict. corporations.” The same provision
b) If I were the counsel for Sonnel is contained in Section 7, Article
Construction Company, I will argue XIV of the 1935 Constitution and
that the proximate cause of the Section 4, Article XIV of the 1973
death of the victim is the gross Constitution.
negligence of the taxicab driver.
The latter drove the taxicab offroad b) The composition of the board of
and onto the sidewalk in order to directors of the NPC may not be
avoid the traffic. Furthermore, I will validly reduced to 3. The
argue that assuming that Nelson Corporation Code applies in a
was negligent, he alone should be suppletory manner to corporations
 created by special law. A be ratified by the vote of the
corporation must have at least 5 stockholders representing at least 2/3
directors. of the outstanding capital stock or of at
least 2/3 of the members in a meeting
called for the purpose: Provided, that
12. Pedro owns 70% of the subscribed full disclosure of the adverse interest of
capital stock of a company which owns the directors or trustees involved is
an office building. Paolo and Juan own made at such meeting: Provided,
the remaining stock equally between however, that the contract is fair and
them. Paolo also owns a security reasonable under the circumstances.”
agency, a janitorial company and a
catering business. In behalf of the
office building company, Paolo 13. Grand Gas Corporation, a publicly
engaged his companies to render their listed company, discovered after
service to the office building. Are the extensive drilling a rich deposit of
service contracts valid? Explain. natural gas along the coast of Antique.
For 5 months, the company did not
Answer: disclose the discovery so that it could
The service contracts are voidable at quietly and cheaply acquire
the option of office building company as neighboring land and secure mining
provided in Section 32 of the rights to the land. Between the
Corporation Code, viz: discovery and its disclosure of the
information to the SEC, all the directors
“Sec. 32. Dealing of directors, trustees and key officers of the company bought
or officers with the corporation.— A shares in the company at very low
contract of the corporation with one or prices. After the disclosure, the price of
more of its directors or trustees or the shares went up. The directors and
officers is voidable, at the option of officers sold their shares at huge
such corporation, unless all the profits.
following conditions are present:
1. That the presence of such a) What provision of the SRC did they
director or trustee in the board violate, if any? Explain.
meeting in which the contract b) Assuming that the employees of the
was approved was not establishment handling the printing
necessary to constitute a work of Grand Gas Corporation saw
quorum for such meeting; the exploration reports which were
2. That the vote of such director or mistakenly sent to their
trustee was not necessary for establishment together with other
the approval of the contract; materials to be printed. They too
3. That the contract is fair and brought shares in the company at
reasonable under the low prices and later sold them at
circumstances; and huge profits. Will they be liable for
4. That in case of an officer, the violation of the SRC? Why?
contract has been previously
authorized by the board of Answer:
directors. a) They violated Sec. 27 of the SRC,
on insider’s duty to disclose when
Where any of the first two conditions trading, to wit:
set forth in the preceding paragraph is
absent, in the case of a contract with a “It shall be unlawful for an insider to
director or trustee, such contract may sell or buy securities of the insurer,
 while in possession of material Corporation to issue to him the
information with respect to the issuer stock certificate corresponding to
or the security that is not generally the P25,000 paid by him?
available to the public, unless:
1. The insider proves that the Answer:
information was not gained from a) Ace is entitled to be paid cash
such relationship; or dividends for 100,000 shares of
2. If the other party selling to or stock. Although he has not fully
buying from the insider (or his paid for his shares of stock, he is
agent) is identified, the insider not delinquent and is therefore
proves: entitled to all the rights of a
2.1. That he disclosed the stockholder.
information to the other b) No, Ace cannot compel JP to issue
party, or to him a stock certificate
2.2. That he has reason to corresponding to P25,000 paid by
believe that the other him.
party otherwise is also in
possession of the
information.” 15. Eloise, an accomplished writer, was
hired by Petong to write a bimonthly
b) Yes, the employees of the newspaper column for Diario de
establishment handling the printing manila, a newly-established newspaper
job of the corporation are also liable of which Petong was the editor-in-chief.
for violation of the prohibition Eloise was to be paid P1,000 for each
against insider trading. These column that was published. In the
employees fall within the course of 2 months, Eloise submitted 3
classification of an “insider” under columns which, after some slight
subsection 3.8 (c) of the SRC, to editing, were printed in the newspaper.
wit: “a person whose relationship or However, Diario de Manila proved
former relationship to the issuer unprofitable and closed only after 2
gives or gave him access to months. Due to the minimal amounts
material information about the involved, Eloise chose not to pursue
issuer or the security that is not any claim for payment from the
generally available to the public.” newspaper, which was owned by New
Media Enterprises.

14. Ace Cruz subscribed to 100,000 a) Does Eloise have to secure

shares of stock of JP Development authorization from New Media
Corporation, which has a par value of Enterprises to be able to publish
P1 per share. He paid P25,000 and her Diario de Manila columns in her
promised to pay the balance before own anthology? Explain fully.
December 31, 2008. JP Development b) Assume that New Media Enterpises
Corporation declared a cash dividend plans to publish Eloise’s columns in
on October 15, 2008, payable on it own anthology entitled, “The Best
December 1, 2008. of Diario de Manila”. Eloise wants to
prevent the publication of her
a) For how many shares is Ace Cruz columns in that anthology since she
entitled to be paid cash dividends? was never paid by the newspaper.
Explain. Name one irrefutable legal
b) On December 1, 2008, can Ace argument Eloise could cite to enjoin
Cruz compel JP Development New Media Enterprises from
 including her columns in its Chef Jean, a Filipino musician, to
anthology. produce an original re-mix of Warm
Warm Honey for use in one of its latest
Answer: films, Astig!. DJ Chef Jean remixed
a) Eloise does not have to secure the Warm Warm Honey with a salsa beat,
authorization of New Media, and interspersed as well a recital of a
because as the author, she owns poetic stanza by John Blake, a 17th
the copyright to her columns. century Scottish poet. DJ Chef Jean
b) Eloise could invoke that under the died shortly after submitting the
Intellectual Property Code, as the remixed Warm Warm Honey to Planet
owner of the copyright to the Films.
columns, she can either “authorize
or prevent” reproduction of the Prior to the release of Astig!, Mocha
work, including the public Warm learns of the remixed Warm
distribution of the original and each Warm Honey and demands that he be
of the work “by sale or other forms publicly identified as the author of the
of transfer of ownership”. While the remixed song in all the CD covers and
anthology as a derivative work is publicity releases of Planet Films.
protected as a new work, it does
not affect the force of the copyright a) Who are the parties or entities
of Eloise upon her columns and entitled to be credited as author of
does not imply any right to New the remixed Warm Warm Honey?
Media to use the columns without Reason out your answers.
the consent of Eloise. b) Who are the particular parties or
entities who exercise copyright over
the remixed Warm Warm Honey?
16. In 1999, Mocha Warm, an American Explain.
musician, had a hit rap single called
Warm Warm Honey which he himself Answer:
composed and performed. The single a) Mocha Warm, Majesty and Chef
was produced by a California record Jean are entitled to be credited as
company, Galactic Records. Many authors of the remixed Warm Warm
noticed that some passages from Honey, because it is their joint
Warm Warm Honey sounded eerily work. Mocha Warm retained his
similar to parts of Under Hassle, a 1978 moral right to be credited as an
hit song by the British rock band author of the remixed Warm Warm
Majesty. A copyright infringement suit Honey despite the sale of his
was filed in the United States against economic rights to Galactic
Mocha Warm by Majesty. It was later Records, because his moral rights
settled out of court, with Majesty exist independently of his economic
receiving attribution as co-author of rights. John Blake cannot be
Warm Warm Honey as well as share in credited for the use of his work
the royalties. because copyright extends only
during the lifetime of the author and
By 2002, Mocha Warm was nearing 50 years after his death.
bankruptcy and he sold his economic b) The copyright over the remixed
rights over Warm Warm Honey to Warm Warm Honey belongs to
Galactic Records for $10,000. Galactic records, Majesty, and Chef
Jean. The copyright of Mocha
In 2008, Planet Films, a Filipino move Warm belongs to Galactic Records,
producing company, commissioned DJ because he assigned it to Galactic
 Records. Majesty also has a c) Explain the key phrase “equality is
copyright, because it is a co-author. equity” in corporate rehabilitation
The copyright of Chef Jean belongs proceedings.
to him even if his work was
commissioned by Planet Firm, Answer:
because the copyright remained a) Yes, the dismissal of a petition for
with him. insolvency does not preclude the
distressed corporation from filing a
petition for corporate rehabilitation.
17. On January 1, 2008, Al obtained a The dismissal of the petition for
loan of P10,000 from Bob to be paid on insolvency only means that the
January 30, 2008, secured by a chattel corporation may still be restored to
mortgage on a Toyota motor car. On solvency.
February 1, 2008, Al obtained another
loan of P10,000 from Bob to be paid on b) Yes, the dismissal of a petition for
February 15, 2008. He secured this by rehabilitation means that the
executing a chattel mortgage on a corporation can no longer be
Honda motorcycle. On the due date of restored to solvency. Hence, it can
the first loan Al failed to pay. Bob file a petition for insolvency.
foreclosed the chattel mortgage but the
car was bidded for P6,000 only. Al also c) All assets of a corporation under
failed to pay the second loan due on rehabilitation receivership are held
February 15, 2008. Bob filed an action in trust for the equal benefit of all
for collection of sum of money. Al filed creditors, precluding one from
a motion to dismiss claiming that Bob obtaining an advantage or
should first foreclose the mortgage on preference over another by the
the Honda motorcycle before he can expediency of attachment,
file the action for sum of money. Decide execution or otherwise. Once the
with reasons. corporation is taken over by a
receiver, all the creditors stand on
Answer: equal footing and no one may be
Bob can file an action for collection paid ahead of the others. This is
of a sum of money without first precisely the reason for suspending
foreclosing the chattel mortgage on the all pending claims against the
motorcycle of Al. Bob has the right to corporation under receivership. This
abandon the chattel mortgage and file is called the “pari passu principle”.
instead an action for collection of a sum
of money.
19. Industry Bank, which has a net worth
of P1 Billion, extended a loan to
18. a) Can a distressed corporation file a celestial Properties Inc. amounting to
petition for corporate rehabilitation after P270 M. the loan was secured by a
the dismissal of its earlier petition for mortgage over a vast commercial lot in
insolvency? Why? the Fort Bonifacio Global City,
appraised at P350 M. After audit, the
b) Can the corporation file a petition for BSP gave notice that the loan to
rehabilitation first, and after it is Celestial Properties exceeded the
dismissed file a petition for insolvency? single borrower’s limit of 25% of the
Why? bank’s net worth under a recent BSP
Circular. In light of other previous
similar violations of the credit limit
 requirement, the BSP advised Industry b) No, S does not have a cause of
Bank to reduce the amount of the loan action against R in case of dishonor
to Celestial Properties under pain of of the check by the drawee bank. S
severe sanctions. When Industry Bank is not a holder in due course, thus, R
informed Celestial Properties that it can raise the defense that the check
intended to reduce the loan by P50 M, was issued for an illegal
Celestial Properties counter-proposal, consideration. (Section 58, NIL)
and referred the matter to you as
counsel. How would you advise c) Yes, R may be held secondarily
Industry Bank to proceed, with its best liable by T who took the check in
interest in mind? good faith and for value. T is a
holder in due course. R cannot raise
Answer: the defense of illegality of the
I shall advise Industry Bank that the consideration, because T took the
mortgage is indivisible. Therefore, check free from the defect of title of
Celestial Properties cannot ask for a S (Section 57, NIL)
partial release of the mortgage so long
as the loan has not been completely
paid. 2. Alex deposited goods for which Billy, a
warehouseman, issued a negotiable
warehouse receipt wherein the goods
2007 BAR EXAMINATION were deliverable to Alex or order. Alex
negotiated the receipt to Caloy.
Thereafter, Dario, a creditor, secured
1. R issued a check for P1 M which he judgment against Alex and served
used to pay S for killing his political enemy. notice of levy over the goods on the
warehouseman.
a) Can the check be considered a
negotiable instrument? a) To whom should the warehouseman
b) Does S have a cause of action deliver the goods upon demand?
against R in case of dishonor by the b) Would your answer be the same if
drawee bank? the warehouseman issued a non-
c) If S negotiated the check to T, who negotiable warehouse receipt?
accepted it in good faith and for Reason briefly.
value, may R be held secondarily
liable by T? Answer:
a) The warehouseman should deliver
Reason briefly in a, b, and c. the goods upon demand to Caloy
who is a holder of the receipt in good
Answer: faith and for value. The goods
a) Yes, the check can be considered a cannot be levied upon by the
negotiable instrument even if it was creditor of Alex after it was
issued to pay S to kill his political negotiated to Caloy (Section 25,
enemy. The validity of the NIL).
consideration is not one of the
requisites of a negotiable instrument b) No, my answer would not be the
(Section 1, NIL). It merely same if the warehouseman issued a
constitutes a defect of title. (Section non-negotiable warehouse receipt.
55, NIL) In such case, the warehouseman
should deliver the goods to Dario, if
the notice of levy was served on the
 warehouseman prior to the immediate cause of the loss and
notification of the warehouseman by there is no excepted peril under the
Alex or Caloy of the transfer of the policy?
non-negotiable receipt. In such case, c) If the fire was found to have been
the title of Caloy would be defeated caused by Alfredo’s own negligence,
by the notice of levy by Dario can he still recover on the policy?
(Section 42, Warehouse Receipts
Law). Reason briefly in a, b and c.

Answer:
3. Diana and Piolo are famous a) Yes, Alfredo may recover on the
personalities in showbusiness who kept policy. It is valid to stipulate that the
their love affair secret. They use a insured will be granted credit term
special instant messaging service which for the payment of premium.
allows them to see one another’s typing Payment by means of a check which
on their own screen as each letter key is was accepted by the insurer, bearing
pressed. When Greg, the controller of a date prior to the loss, would be
the service facility, found out their sufficient. The subsequent effects of
identities, he kept a copy of all the encashment retroact to the date of
messages Diana and Piolo sent each the check.
other and published them. Is Greg liable
for copyright infringement? Reason b) Yes, recovery under the insurance
briefly. contract is allowed if the cause of
the loss was either the proximate or
Answer: the immediate cause as long as an
Yes, Greg is liable for copyright excepted peril, if any, was not the
infringement. Letters are among the proximate cause of the loss.
works which are protected from the
moment of their creation. The c) Yes, mere negligence on the part of
publication of the letters without the the insured will not prevent recovery
consent of their writers constitutes under the insurance policy. The law
infringement of copyright. merely prevents recovery when the
cause of loss is the willful act of the
insured, alone or in connivance with
4. Alfredo took out a policy to insure his others.
commercial building against fire. The
broker for the insurance company
agreed to give a 15-day credit within 5. C contracted D to renovate his
which to pay the insurance premium. commercial building. D ordered
Upon delivery of the policy on May 15, construction materials from E and
2006, Alfredo issued a postdated check received delivery thereof. The following
payable on May 30, 2006. On May 28, day, C went to F Bank to apply for loan
2006, a fire broke out and destroyed the to pay for the construction materials. As
building owned by Alfredo. security for the loan, C was made to
execute a trust receipt. One year later,
a) May Alfredo recover on the after C failed to pay the balance of the
insurance policy? loan, F Bank charged him with violation
b) Would your answer in a) be the of the Trust Receipts Law.
same if it as found that the
proximate cause of the fire was an a) What is a Trust Receipt?
explosion and that fire was but the
 b) Will the case against C prosper?
Reason briefly.
7. In a stockholder’s meeting, S dissented
Answer: from the corporate act converting
a) A Trust Receipt is a written or preferred voting shares to non-voting
printed document signed by the shares. Thereafter, S submitted his
entrustee in favor of the entrustor certificates of stock for notation that his
containing terms and conditions shares are dissenting. The next day, S
substantially complying with the transferred his shares to T to whom new
provisions of the Trust Receipts law, certificates were issued. Now, T
whereby the bank as entruster demands from the corporation the
releases the goods to the payment of the value of his shares.
possession of the entrustee but
retains ownership thereof while the a) What is the meaning of stockholder’s
entrustee may sell the goods and appraisal right?
apply the proceeds for the full b) Can T exercise the right of
payment of his liability to the bank. appraisal? Reason briefly.

b) No, the case against C will not Answer:

prosper. Since C received the a) Appraisal right is the right of a
construction materials from E before stockholder, who dissents from a
the trust receipt transaction was fundamental or extraordinary
entered into, the transaction was a corporate action, to demand
simple loan, with the trust receipt payment of the fair value of his
merely as a collateral or security for shares. It is the right of a stockholder
the loan. This is inconsistent with a to withdraw from the corporation and
trust receipt transaction where the demand payment of the fair value of
title to the goods remains with the his shares after dissenting from
bank and the goods are released to certain corporate acts involving
the entrustee before the loan is fundamental changes in the
granted. corporate structure.

b) No, T cannot exercise the right of

6. Discuss the trust fund doctrine. appraisal in this case. When S
transferred his shares to T and T
Answer: was issued new stock certificates,
The trust fund doctrine means that the appraisal right of S ceased, and
the capital stock, properties and other T acquired all the rights of a regular
assets of a corporation are regarded as stockholder. The transfer of shares
equity in trust for the payment of from S to T constitutes an
corporate creditors. Stated simply, the abandonment of the appraisal right
trust fund doctrine states that all funds of S. All that T acquired from the
received by the corporation in payment issuance of new stock certificates
of the shares of stock shall be held in was the rights of a regular
trust for the corporate creditors and stockholder.
other stockholders of the corporation.
Under such doctrine, no fund shall be
used to buy back the issued shares of 8. Due to growing financial difficulties, Z
stock except only in instances Bank was unable to finish construction
specifically allowed by the Corporation of its 21-storey building on a prime lot
Code. located in Makati City. Inevitably, the
 Bangko Sentral ordered the closure of Z BLUE Bank extrajudicially foreclosed
Bank and consequently placed it under the property. Being the highest bidder in
receivership. In a bid to save the bank’s the auction sale conducted, the Bank
property investment, the President of Z was issued a Certificate of Sale which
Bank entered into a financing was registered on August 4, 2004.
agreement with a group of investors for
the completion of the construction of the Does RED Corporation still have the
21-storey building in exchange for a 10- right to redeem the property as of
year lease and the exclusive option to September 14, 2007? Reason briefly.
purchase the building.
Answer:
a) Is the act of the President valid? No, RED Corporation has lost its
Why or why not? right to redeem the property. Juridical
b) Will a suit to enforce the exclusive persons whose property is sold pursuant
right of the investors to purchase the to an extrajudicial foreclosure, shall
property prosper? Reason briefly. have the right to redeem the property
until registration of the certificate of sale
Answer: with the Register of Deeds, which shall
a) No, the bank president’s act is not in no case be more than 3 months after
valid. He had no authority to enter foreclosure, whichever is earlier.
into the financing agreement. Z Bank
was ordered closed and placed
under receivership. Control over the 10. Name at least 5 predicate crimes to
properties of Z Bank passed to the money laundering.
receiver. The appointment of a
receiver operates to suspend the Answer:
authority of the bank and its officers a. Kidnapping for ransom under Article
over the bank’s assets and 267 of Act no. 3815, otherwise
properties, such authority being known as the RPC, as amended;
reposed in the receiver.
b. Sections 3,4,5,7,8, and 9 of Article
b) No, the exclusive option granted to Two of R.A. No. 6425, as amended,
the investors, having been entered otherwise known as the Dangerous
into by one without authority to do Drugs Act of 1972;
so, is unenforceable. The bank,
therefore, cannot be compelled to c. Section 3 paragraphs B,C,E,G,H,
sell the property. Under Section 30 and I of R.A. No. 3019, as amended,
of the R.A. No. 7653, New Central otherwise known as the Anti-Graft
Bank Act, the properties of Z Bank and Corrupt Practices Act;
should be administered for the
benefit of its creditors. The property d. Plunder under R.A. No. 7080, as
in question can be disposed of only amended;
for the purpose of paying the debts
of Z Bank. e. Robbery and extortion under Articles
294, 295, 296, 300, 301, and 302 of
the RPC, as amended;
9. On December 4, 2003, RED
Corporation executed a real estate f. Jueteng and Masiao punished as
mortgage in favor of BLUE Bank. RED illegal gambling under PD No. 1602;
Corporation defaulted in the payment of
its loan. Consequently, on June 4, 2004,
 g. Piracy on the high seas under the Answer:
RPC, as amended and PD No. 532; a) A maritime protest is a sworn
statement made within 24 hours
h. Qualified theft under Article 310 of after a collision in which the
the RPC, as amended; circumstances thereof are declared
or made known before a competent
i. Swindling under Article 315 of the authority at the point of accident or
RPC, as amended; the first port of arrival if in the
Philippines or the Philippine consul
j. Smuggling under R.A. Nos. 455 and in a foreign country.
1937;
b) B, the shipper, can successfully
k. Violations under RA No. 8792, maintain an action to recover losses
otherwise known as the Electronic and damages arising from the
Commerce Act of 2000; collision notwithstanding his failure
to file a maritime protest since the
l. Hijacking and other violations under filing thereof is required only on the
RA No. 6235; destructive arson and part of A, who, being a passenger of
murder, as defined under the RPC, the vessel at the time of the collision,
as amended, including those was expected to know the
perpetrated by terrorists against circumstances of the collision. A’s
non-combatant persons and similar failure to file a maritime protest will
targets; therefore prevent him from
successfully maintaining an action to
m. Fraudulent practices and other recover his losses and damages.
violations under RA No. 8799,
otherwise known as the SRC of
2000; 12. Seeking to streamline its operations
and to bail out its losing ventures, the
n. Felonies or offenses of a similar stockholders of X Corporation
nature that are punishable under the unanimously adopted a proposal to sell
penal laws of other countries. substantially all of the machineries and
equipment used in and about its
manufacturing business and to sink the
11. Two vessels figured in a collision along proceeds of the sale for the expansion
the Straits of Guimaras resulting in of its cargo transport services.
considerable loss of cargo. The
damaged vessels were safely a) Would the transaction be covered by
conducted to the Port of Iloilo. the provisions of the Bulk Sales
Passenger A failed to file a maritime Law?
protest. B, a non-passenger but a b) How would X Corporation effect a
shipper who suffered damage to his valid sale?
cargo, likewise did not file a maritime
protest at all. Answer:
a) No, the transaction is not covered by
a) What is a maritime protest? the provisions of the Bulk Sales Law.
b) Can A and B successfully maintain Bulk Sales Law applies only to retail
an action to recover losses and merchants, traders and dealers. It
damages arising from the collision? does not apply to manufacturers. X
Reason briefly. Corporation is engaged in the
manufacturing business.
 common interest of the creditors,
b) To effect a valid sale, X Corporation when properly authorized and
must prepare an affidavit stating the approved by the court;
names of all its creditors, their 4. Debts, taxes, and assessments
addresses, the amount of their due the Insular Government;
credits and their maturities. X 5. Debts, taxes and assessments
Corporation should give the affidavit due to any province/s of the
to the buyer who, in turn, should Philippine Islands;
furnish a copy to each creditor and 6. Debts, taxes and assessments
notify the creditors of the proposed due to any municipality or
bulk sale to enable them to protect municipalities of the Philippine
their interest. Islands.

b) The remaining non-preferred

13. a) What are the preferred claims that creditors, whose debts are duly
shall be satisfied first from the assets of proved and allowed, shall be entitled
an insolvent corporation? to share pro-rata in the assets,
without priority or preference
b) How shall the remaining non- whatsoever.
preferred creditors share in the estate of
the insolvent corporation above?

Answer:
a) Under the Insolvency Law necessary 2006 BAR EXAMINATION
funeral expenses of the debtor is the
most preferred claim. However, this
is an insolvent corporation, thus, Question No. 1:
claims shall be paid in the following 1. What is the doctrine of “piercing the veil
order: of corporate entity?” Explain.
1. Debts due for personal services
rendered the insolvent by Answer:
employees, laborers, or Under the doctrine of “piercing the
domestic servants immediately veil of corporate entity”, the legal fiction that
preceding the commencement of a corporation is an entity with a juridical
proceedings in insolvency; personality separate and distinct from its
2. Compensation due to the members or stockholders may be
laborers or their dependents disregarded and the corporation will be
under the provisions of Act considered as a mere association of
Numbered 3428, known as the persons, such that liability will attach directly
Workmen’s Compensation Act, to the officers and the stockholders. It is an
as amended by Act Numbered equitable doctrine developed to address
3812 and under the provisions of situations where the separate corporate
Act Numbered 1874, known as personality of a corporation is abused or
the Employees’ Liability Act, and used for wrongful purposes.
of other laws providing for
payment of indemnity for
damages in cases of labor 2. To what circumstances will the doctrine
accidents; apply?
3. Legal expenses, and expenses
incurred in the administration of Answer:
the insolvent’s estate for the
 The doctrine of “piercing the veil of Answer:
corporate entity” will apply when the A bank, which honors a check
corporation’s separate juridical personality wherein the drawer’s signature was forged,
is used: must bear the loss, because it has the legal
duty to ascertain that the drawer’s signature
a) To defeat public convenience; is genuine before encashing a check. The
b) To justify wrong, protect fraud, or liability chain ends with the drawee bank.
defend crime;
c) As a shield to confuse the legitimate On the other hand, if the drawee
issues; bank pays under forged indorsement, the
d) Where a corporation is the mere drawee bank is still liable to the payee as it
alter ego or business conduit of a has guaranteed the genuineness of all prior
person; or indorsements. However, the drawee bank
e) Where the corporation is so may generally pass liability back through the
organized and controlled and its collection chain to the party who obtained
affairs are so conducted as to make the check from the forger and from the
it merely an instrumentality, agency, forger himself.
conduit or adjunct of another
corporation.
Question No. 3:
Jun was to leave for a business trip.
3. What is the minimum and maximum As his usual practice, he signed several
number of incorporators required to blank checks. He instructed Ruth, his
incorporate a stock corporation? Is this secretary, to fill them as payment for his
also the same minimum and maximum obligations. Ruth filled one check with her
number of directors in a stock name as payee, placed P30,000 thereon,
corporation? endorsed and delivered it to Marie. She
accepted the check in good faith as
Answer: payment for goods she delivered to Ruth.
To incorporate a stock corporation, a Eventually, Ruth regretted what she did and
minimum of 5 and a maximum of 15 apologized to Jun. immediately, he directed
incorporators are required. the drawee bank to dishonor the check.
When Marie encashed the check, it was
Yes, the same minimum and dishonored.
maximum number of directors is required in
a stock corporation. 1. Is Jun liable to Marie?

Answer:
4. Must all incorporators and directors be Yes. Jun is liable to Marie, as she is
residents of the Philippines? a holder in due course. Pursuant to Sec. 14
of the NIL, in order that an incomplete
Answer: instrument, when completed, may be
No. Only a majority of the enforced against any person who became a
incorporators and a majority of the directors party thereto prior to its completion, it must
must be residents of the Philippines. be filled up strictly in accordance with the
authority given and within a reasonable
time. However, if any such instrument, after
Question No. 2: completion, is negotiated to a holder in due
Discuss the legal consequences course, it is valid and effectual for all
when a bank honors a forged check. purposes in his hands, and he may enforce
it in accordance with the authority given and
within a reasonable time. Considering that
Marie accepted the check in good faith and Answer:
for value, she is a holder in due course, who No. As with any crime, the absence
has the right to enforce payment of the of a criminal record is not a defense against
check for the full amount thereof against a charge for violation of the Anti-Money
Jun. That the blank check was filled-up not Laundering Law. Moreover, having a
in accordance with the authority given is criminal record is not an element of Money
only a personal defense that cannot be Laundering Offense defined under Section 4
used against a holder in due course. of the Anti-Money Laundering Law.

2. Supposing the check was stolen while in 2. To raise funds for his defense, Rudy
Ruth’s possession and a thief filled the sold the houses and lots to a friend. Can
blank check, endorsed and delivered it Luansing Realty, Inc. be compelled to
to Marie in payment for the goods he transfer to the buyer ownership of the
purchased from her, is Jun liable to houses and lots?
Marie if the check is dishonored?
Answer:
Answer: Yes. In the absence of a freeze
No. section 15 of the NIL provides order on the subject houses and lots
that “where an incomplete instrument has pending criminal proceedings against Rudy,
not been delivered, it will not, if completed the ownership thereof may be validly
and negotiated without authority, be a valid transferred to another, and Luansing Realty,
contract in the hands of any holder, as Inc. can be compelled to recognize the
against any person whose signature was rights of the buyer as the new owner.
placed thereon before delivery.” The want of Section 7(6) in relation to Section 10 of the
delivery of an incomplete instrument is a Anti-Money Laundering Law required an
real defense available against any holder, Order from the Court of Appeals for the
including a holder in due course. freezing of any money or property believed
to be the proceeds of any unlawful activity.

Question No. 4:
Rudy is jobless but s reputed to be a 3. In disclosing Rudy’s bank accounts to
jueteng operator. He has never been the AMLC, did the bank violate any law?
charged or convicted of any crime. He
maintains several banks accounts and has Answer:
purchased 5 houses and lots for his children Yes. The bank violated RA No. 1405
from the Luansing Realty, Inc. since he (Secrecy of Bank Deposits Act), which
does not have any visible job, the company considers all deposits of whatever nature
reported his purchases to the AMLC. with banks or banking institutions as
Thereafter, AMLC charged him with absolutely confidential and may not be
violation of the Anti-Money Laundering Law. examined, inquired or looked into by any
Upon request of the AMLC, the bank person, government officials, bureau or
disclosed to it Rudy’s bank deposits office except upon depositor’s written
amounting to P100 M. Subsequently, he permission; in cases of impeachment; upon
was charged in court for violation of the order of a competent court in cases of
Anti-Money Laundering Law. bribery of, or dereliction of duty by public
official; and in cases where the money
1. Can Rudy move to dismiss the case on deposited or invested is the subject matter
the ground that he has no criminal of the litigation. The disclosure was made
record? before Rudy was charged in court for
violation of the Anti-Money Laundering Law. insurance premium can be paid in
Hence, his deposits were technically not yet installments, and the insurance contract
the subject matter of litigation. became valid and binding upon payment of
the first premium. When the insurer granted
Moreover, under RA No. 9160, the a credit term for the payment of the
AMLC may inquire into or examine any premium, it is liable when the loss occurred
particular deposit or investment with any before the expiration of such term. It could
banking institution upon order of any not deny liability on the ground that payment
competent court for violation of the said Act. was not made in full, for the reason that it
In the case at bar, the AMLC merely agreed to accept installment payments. For
requested the disclosure; it did not secure the same reason, it could not validly cancel
the requisite court order. The bank, the policy, more so, without giving notice to
therefore, was under no obligation to the insured of its cancellation.
disclose Rudy’s deposits.

Question No. 6:
4. Supposing the titles of the houses and 1. In several addresses extensively
lots are in possession of the Luansing covered by media since his appointment
Realty, Inc., is it under obligation to on December 21, 2005, Chief Justice
deliver the titles to Rudy? Artemio V. Panganiban vowed to leave
a judiciary characterized by “four Ins”
Answer: and to focus in solving the “four ACID”
Yes. There being no freeze order problem that corrode the administration
over the subject houses and lots, Luansing of justice in our country.
Realty, Inc., is obliged to deliver the titles to
Rudy who is the owner thereof. Explain this “four Ins” and “four ACID”
problems.
Question No. 5:
The Peninsula Insurance Company Answer:
offered to insure Francis’ brand new car Chief Justice Artemio V.
against all risks in the sum of P1 M per Panganiban’s vision for the judiciary is
year. The policy was issued with the characterized by four “Ins” as follows: (1)
premium fixed at P60,000 payable in 6 Independence; (2) Integrity; (3) Industry;
months. Francis only paid the first two and (4) Intelligence. He vows to focus in
months installments. Despite demands, he solving the four ACID problem corroding the
failed to pay the subsequent installments. 5 administration of justice as follows: (1)
months after the issuance of the policy, the limited Access to justice by the poor; (2)
vehicle was carnapped. Francis filed with Corruption; (3) Incompetence; and (d) delay
the insurance company a claim for its value. in the Delivery of quality judgments.
However, the company denied his claim on
the ground that he failed to pay the premium
resulting in the cancellation of the policy. 2. The Chief Justice also said that the
judiciary must “safeguard the liberty”
Can Francis recover from the and “nurture the prosperity” of our
Peninsula Insurance Company? people. Explain the philosophy. Cite the
Decisions of the Supreme Court
Answer: implementing each of these twin
Yes, Francis can recover from beacons of the Chief Justice.
Peninsula considering that his car was
carnapped before the 6 month period to pay Answer:
the premium installments expired. An
 The philosophies of “safeguard the A mutual insurance company is a
liberty” and “nurture the prosperity” of our cooperative enterprise where the members
people are goals which the judiciary must are both the insurer and the insured. In it,
achieve. These twin beacons of Liberty and the members all contribute, by a system of
Prosperity are founded on the faith that our premiums or assessments, to the creation
people enjoy the inalienable right to be free of a fund from which all losses and liabilities
from the bondage of fear, and that they are paid, and where the profits are divided
possess a boundless capacity to redeem among themselves, in proportion of their
themselves from misery, to respond interest.
positively to opportunities as they arise, and
to soar above the challenges of fear and
want. 2. Distinguish between the role of a
conservator and that of a receiver of a
bank.

Decisions implementing these twin Answer:

beacons include: The role of a conservator is to
restore the viability of the bank. The role of
a) Senate of the Philippines v. Executive a receiver is to determine whether or not a
Secretary Ermita, G.R. Nos. 169777, bank can be rehabilitated.
169659, 169660, 169667, 169834 and
171246, April 20, 2006, on the validity of
E.O. No. 464 which barred officials from Question No. 8:
testifying in congressional investigations Pio is the president of Western
without the express approval of the Bank. His wife applied for a loan with the
president (deferential interpretation of said bank to finance an internet café. The
laws and executive issuances); loan officer told her that her application will
not be approved because the grant of loans
b) Bayan v. Executive Secretary Ermita, to related interests of bank directors,
G.R. Nos. 169838, 169848 and 169881, officers, and stockholders is prohibited by
April25, 2006 on the validity of the so- the General Banking Law.
called preemptive response policy of the
Executive Department deferential Explain whether the loan officer is
interpretation of laws and executive correct.
issuances);
Answer:
c) Prof. Randy S. David v. Pres. Gloria No. the loan officer should have
Macapagal-Arroyo, G.R. No. 171396, advised the wife to ask her husband to
171409, 171485, 171483, 171400, secure the approval of the bank’s Board of
171489 and 171424, May 3, 2006, on Directors for the intended loan and to limit
the validity of Pres. Proclamation No. the same in an amount not to exceed its
1017 (“heightened” scrutiny or “strict” unencumbered deposits and book value of
review of actions and policies of the its paid-up capital contribution in the bank; if
government). the intended loan should exceed the
foregoing limit, the borrower should have
the same secured by a non-risk assets as
Question No. 7: determined by the Monetary Board, unless
1. What is a mutual insurance company or the loan shall be in the form of a fringe
association? benefit.

Answer:
 2. Is lack of intent to defraud a bar to the
Question No. 9: prosecution of these acts or omissions?
The Blue Star Corporation filed with
the RTC a petition for rehabilitation on the Answer:
ground that it foresaw the impossibility of No. there is no requirement to prove
paying its obligations as they fall due. intent to defraud. The mere failure to
Finding the petition sufficient in form and account for or return the goods, documents
substance, the court issued an Order or instruments in question gives rise to the
appointing a rehabilitation receiver and crime, which is malum prohibitum.
staying the enforcement of all claims
against the corporation.
Question No. 11:
What is the rationale for the Stay Under RA No. 1405 (The Bank
Order? Secrecy Law), bank deposits are
considered absolutely confidential and may
Answer: not be examined, inquired or looked into by
The stay order is a recognition that any person, government official, bureau or
all assets of a corporation under office.
rehabilitation are held in trust for the equal
benefit of all creditors under the doctrine of What are the exceptions?
“equality is equity”. As all the creditors ought
to stand on equal footing, not any one of Answer:
them should be paid ahead of others. The following are the exceptions to
Furthermore, the stay order will enable the the Bank Secrecy Law under Section 2 of
management committee or the RA No. 1405, viz:
rehabilitation receiver to effectively exercise 1. Upon written permission of the
its or his powers free from judicial or depositor;
extrajudicial interference that might unduly 2. In cases of impeachment;
hinder or prevent the “rescue” of the 3. In cases where the money deposited
distressed company, rather than to waste or invested is the subject matter of
its/his time, effort and resources in litigation; and
defending claims against the corporation. 4. Upon order of a competent court in
cases of bribery or dereliction of duty
of public officials.
Question No. 10:
1. What acts or omissions are penalized The following circumstances also
under the Trust Receipts Law? constitute exceptions to the secrecy of bank
deposits:
Answer:
Failure of the entrustee to turn over 1. Upon order of the court in cases of
the proceeds of the sale of the goods, unexplained wealth under Section 8
documents or instrument covered by a trust of the Anti-Graft and Corrupt
receipt to the extent of the amount owing to Practices Act.
the entruster or to return the goods, 2. Upon order of the Commissioner of
documents or instruments if they were not the Internal Revenue with respect to
sold or disposed of in accordance with the the bank deposits of a decedent for
terms of the trust receipt is penalized as the purpose of determining the
estafa under Article 315(1) of the Revised decedent’s gross estate.
Penal Code. 3. Upon the order of the Commissioner
of the Internal Revenue with respect
to the bank deposits of a taxpayer
 who has filed an application for examination of a bank and is
compromise of his tax liability under specially authorized by the Monetary
Section 204(A)(2) of the NIRC by Board after being satisfied that there
reason of financial incapacity to pay is reasonable ground to believe that
his tax liability. a bank fraud or serious irregularity
4. In the case of unclaimed balances. has been or is being committed and
5. Without need of court order, if the that it is necessary to look into the
AMLC determines that a particular deposit to establish such fraud or
deposit or investment with any irregularity;
banking institution is related to any 7. When examination is made by an
one of the following unlawful independent auditor hired by the
activities: bank to conduct its regular audit
provided that examination is for audit
a. Kidnapping for ransom under purposes only and the results
Art.267 of Act No. 3815 (RPC); thereof shall be for the exclusive use
b. Violations of Sections 4, 5, 6, 8, of the bank;
9, 10, 12, 13, 14, 15, and 16 of 8. Upon order of the court in cases filed
RA No. 9165 (Comprehensive by the Ombudsman and upon the
Dangerous Drugs Act of 2002); latter’s authority to examine and
c. Hijacking and other violations have access to bank accounts and
under RA No. 6235; destructive records.
arson and murder, as defined
under the RPC, as amended,
including those perpetrated by
terrorists against non-combatant Question No. 12:
persons and similar targets; 1. What is an intra-corporate controversy?
d. Upon order of the court, if the
AMLC determines that a
particular deposit or investment
with any banking institution is Answer:
related to any one of the An intra-corporate controversy is a
unlawful activities under Sec. dispute between a stockholder and the
3(i), except those referred to in corporation of which he is a stockholder, or
Section 3(i)[1],[2] and [12] of RA between a stockholder and another
No. 9160 or a money laundering stockholder of the same corporation, where
offense under Section 4 (Sec.11, the subject of the dispute or controversy
RA 9160); and arose out of such relationship.
e. Inquiry into or examination of
nay deposit or investment with
any banking institution when the 2. Is the SEC the venue for actions
examination is made by the involving intra-corporate controversies?
Bangko Sentral ng Pilipinas to
insure compliance with the Anti- Answer:
Money Laundering Law in the No. Actions involving intra-corporate
course of a periodic or special controversies are cognizable by the RTC,
examination of the BSP (Sec.11, designated by the Supreme Court under SC
RA 9160; see also Sec.4, RA Adm. Memo No. 00-11-03, which has
8791). jurisdiction over the principal office of the
corporation, partnership or association
6. When the examination is made in concerned.
the course of a special or general
 In what instance may a mortgage
Question No. 13: extrajudicially foreclose a real estate
Supposing that Albert Einstein were mortgage?
alive today and he filed with the Intellectual
Property Office (IPO) an application for
patent for his theory of relativity expressed Answer:
in the formula E=mc2. The IPO disapproved A mortgage may extrajudicially
Einstein’s application on the ground that his foreclose a real estate mortgage when the
theory of relativity is not patentable. right to foreclose extrajudicially has been
expressly stipulated in the deed of mortgage
Is the IPO’s action correct? or there is a special power in the real estate
mortgage authorizing it.
Answer:
Yes. The IPO’s action is correct that
the theory of relativity is not patentable. Question No. 16:
Under Section 22.1 of the Intellectual Pursuant to a writ of execution
Property Code (RA 8293), “Discoveries, issued by the RTC in “Express Bank v. Don
scientific theories and mathematical Rubio,” the sheriff levied and sold at public
methods” are not patentable. auction 8 photocopying machines of Don
Rubio. Is the sheriff’s sale covered by the
Bulk Sales Law?
Question No. 14:
In a written legal opinion for a client Answer:
on the difference between apprenticeship No. The sheriff’s sale is not covered
and learnership, Liza quoted without by the Bulk Sales Law. If the sale and
permission a labor law expert’s comment transfer in bulk is made by a public officer,
appearing in his book entitled “Annotations acting under judicial process, as is true in
on the Labor Code.” this case, said sale or transfer is not
covered by the Bulk Sales Law.
Can the labor law expert hold Liza
liable for infringement of copyright for
quoting a portion of his book without his 2005 BAR EXAMINATION
permission?

Answer: Question No. 1:

No. the labor law expert cannot hold 1. What is a negotiable instrument? Give
Liza liable for infringement of copyright. the characteristics of a negotiable
Under Section 184.1(k) of the Intellectual instrument?
Property Code, “Any use made of a work for
the purpose of any judicial proceeding or for Answer:
giving of professional advice by a legal A negotiable instrument is an
practitioner” shall not constitute infringement instrument in writing, signed by the
of a copyright. maker or drawer, containing an
unconditional promise or order to pay a
sum certain in money, on demand, or at
Question No. 15: a fixed or determinable future time. It
A real estate mortgage may be must be payable to order or bearer.
foreclosed judicially or extrajudicially. When in the form of a bill of exchange,
the drawee to whom the order to pay is
addressed must be named or otherwise
indicated therein with reasonable
 certainty. Otherwise stated, to be c. Letters of credit;
negotiable, the instrument must comply d. Warehouse receipts;
with Section 1 of the NIL. e. Treasury warrants payable from
a specific fund.
It must be capable of being
transferred from one person to another, Answer:
thereby transferring the title thereof to a. A Postal Money Order is not a
the latter so as to make him a holder negotiable instrument because
who is entitled to payment thereof. of the condition appearing at the
Another characteristic is that the back thereof, thereby making the
instrument is capable of accumulating order conditional, contrary to
contracts resulting from indorsements at Section 1 of the NIL.
the back thereof.
b. A certificate of time deposit is a
negotiable instrument, because it
2. Distinguish a negotiable document from is an acknowledgment in writing
a negotiable instrument. by the bank of the amount of
deposit with a promise to repay
Answer: the same to the depositor or
A negotiable document is governed bearer thereof at a specific time.
by the Civil Code, while a negotiable
instrument is governed by the NIL. The c. A letter of credit is not a
subject matter of a negotiable document negotiable instrument, because it
is things or goods, while that of a is not payable to order or bearer
negotiable instrument is capable of and is generally conditional;
accumulating secondary contracts therefore, it does not comply with
resulting from indorsements at the back Section 1 of the NIL.
thereof, while a negotiable document is
not, especially considering that d. Warehouse receipts are not
indorsement of the latter does not result negotiable instruments, because
in liability of the indorser when the their subject matter is things or
depositary, like the warehouseman, fails goods, and not a sum certain in
to comply with his duty to deliver the money as required by Section 1
things or goods deposited and covered of the NIL.
by the warehouse receipt by the
depositary. e. Treasury warrants payable from
a specific fund are not negotiable
instruments as they are payable
3. State and explain whether the following out of a particular fund which
are negotiable instruments under the may or may not exist, thereby
NIL: making the order conditional, in
contravention of Section 1 of the
a. Postal Money Order; NIL.
b. A certification of time deposit
which states “This is to certify
that bearer has deposited in this Question No. 2:
bank the sum of FOUR 1. Dagul has a business arrangement with
THOUSAND PESOS Facundo. The latter would lend money
(P4,000.00) only, repayable to to another, through Dagul, whose name
the depositor 200 days after would appear in the promissory note as
date”. the lender. Dagul would then
 immediately indorse the note to complying with the drawer’s
Facundo. instruction.

Is Dagul an accommodation party? b) An irregular indorser, not otherwise

Explain. a party to the instrument, places his
signature thereon in blank before
Answer: delivery to add credit thereto. A
Dagul is not an accommodation general indorser is a regular party to
party. An accommodation party is one the instrument like a maker, drawer
who signs the instrument as maker, or acceptor and he signs upon
drawer, or indorser, without receiving delivery of the instrument. While an
any valuable consideration and for the irregular indorser signs for valuable
purpose of lending his name or credit to consideration.
another.

3. Brad was in desperate need of money to

2. a) What is a crossed check? What are pay his debt to Pete, a loan shark. Pete
the effects of crossing a check? Explain. threatened to take Brad’s life if he failed
b) Distinguish an irregular indorser from to pay. Brad and Pete went to Senorita
a general indorser. Isobel, Brad’s rich cousin, and asked
her if she could sign a promissory note
Answer: in his favor in the amount of P10,000 to
a) a crossed check is a check with 2 pay Pete. Fearing that Pete would kill
parallel lines, written diagonally on Brad, Senorita Isobel acceded to his
the upper right corner thereof. It is a request. She affixed her signature on a
warning to the drawee bank that piece of paper with the assurance of
payment must be made to the right Brad that he will just fill it up later. Brad
party, otherwise the bank has no then filled up the blank paper, making a
authority to use the drawer’s funds promissory note for the amount of
deposited with the bank. To be P100,000. He then indorsed and
assured that it will avoid any mistake delivered the same to Pete, who
in paying to the wrong party, banks accepted the note as payment of the
adopted the policy that crossed debt.
checks must be deposited in the
payee’s account. When withdrawal What defense/s can Senorita Isobel set
is made, the banks can be sure that up against Pete? Explain.
they are paying to the right party.
Later, jurisprudence added to the Answer:
development of crossed checks in Senorita Isobel can raise the
that the crossing becomes a warning personal defense of breach of trust
also to whoever deals with the said against Pete that Brad’s authority to fill
instrument to inquire as to the up the amount of the promissory note
purpose of its issuance. Otherwise, if was limited o P10,000. Pete is not a
something wrong happens to the holder in due course as he was present
payment thereof, that person cannot when Brad asked Senorita Isobel to sign
claim to be a holder in due course. the promissory note for P10,000. Hence,
Hence, he is subject to the personal Pete was aware of the infirmity of the
defense on the part of the drawer instrument.
that there is breach of trust
committed by the payee in not
Question No. 3:
1. Under what conditions may a stock Fashion Corporation? What are the
corporation acquire its own shares? requirements to the validly sell the
items? Explain.
Answer: c) How would you protect the interest
The conditions under which a stock of the creditors of Divine
corporation can acquire its own share Corporation?
are as follows: d) In case Divine Corporation violated
the law, what remedies are available
a. That it be for a legitimate and proper to Top Grade Fashion Corporation?
corporate purpose; and
b. That there shall be unrestricted Answer:
retained earnings to purchase the a) The sale is a sale in bulk, because it
same and its capital is not thereby is a sale of all or substantially all of
impaired. the fixtures used in and about the
business of the vendor, a garments
manufacturer.
2. Janice rendered some consultancy work
for XYZ Corporation. Her compensation b) Divine Corporation can sell the
included shares of stock therein. aforesaid items to Top Grade
Fashion Corporation. But it must
Can XYZ Corporation issue shares of secure the approval of at least 2/3 of
stock to pay for the service of Janice as its stockholders and a majority vote
its consultant? Discuss your answer. of the members of its board of
directors as this is a sale of all or
Answer: substantially all of its assets.
The corporation can issue shares of
stock to pay for actually performed c) To protect the interest of the
services to the corporation, but not for creditors, I will require the seller to
future services or services yet to be prepare an affidavit stating the
performed. names of all its creditors, their
addresses, the amount of their
credits and their respective
Question No. 4: maturities, and to submit the affidavit
Divine Corporation is engaged in the to the buyer who, in turn, should
manufacture of garments for export. In the notify the creditors about the
course of its business, it was able to obtain transaction he is about to conclude
loans from individuals and financing with the seller.
institutions. However, due to the drop in the
demand for garments in the international If the transaction was made to
market, Divine Corporation could not meet defraud the creditors, the latter may
its obligations. It decided to sell all its have the contract rescinded. The
equipment such as sewing machines, creditors may also file a petition for
perma-press machines, high speed sewers, involuntary insolvency and have the sale
cutting tables, ironing tables, etc., as well as voided if it was made in fraud of
it supplies and materials to Top Grade creditors.
Fashion Corporation, its competitor.
d) Top Grade Fashion Corporation may
a) How would you classify the recover the amount paid if the sale
transaction? was made in fraud of creditors and
b) Can Divine Corporation sell the sue for damages.
aforesaid items to Top Grade
Question No. 5:
1. a) Under what circumstances may a
corporation declare dividends? 2. A Korean national joined a corporation
b) Distinguish dividend from profit; cash which is engaged in the furniture
dividend from stock dividend. manufacturing business. He was
c) From what funds are cash and stock elected to the Board of Directors. To
dividends sourced? Explain why. complement its furniture manufacturing
business, the corporation also engaged
Answer: in the logging business.
a) A corporation may declare dividends
if it has unrestricted retained With the additional logging activity, can
earnings. the Korean nationals still be a member
of the Board of Directors? Explain.
b) Profits belong to the corporation,
while dividends belong to the Answer:
stockholders when dividend is Yes. The Korean national can still be
declared. a member of the board of directors, if
he has sufficient equity to entitle him to
A cash dividend involves a seat. Since the corporation is only
disbursement of earnings to required to be at least 60% owned by
stockholders, while stock dividend Filipino citizens, foreigners can be
does not involve any disbursement. members of the board of directors in
A cash dividend affects the fractional proportion to their equity which cannot
interest in property which each share exceed 40%.
represents, while a stock dividend
decreases the fractional interest in
corporate property which each share Question No. 6:
represents. A cash dividend does Jojo deposited several cartons of
not increase the legal capital, while a goods with SN Warehouse Corporation. The
stock dividend does, as there is no corresponding warehouse receipt was
cash outlay involved. Cash issued to the order of Jojo. He endorsed the
dividends are subject to income tax, warehouse receipt to EJ who paid the value
while stock dividends are not. of the goods deposited. Before EJ could
Declaration of stock dividend withdraw the goods, Melchor informed SN
requires the approval of both the Warehouse Corporation that the goods
majority of the members of the board belonged to him and were taken by Jojo
of directors and at least 2/3 of the without his consent. Melchor wants to get
stockholders. In the declaration of the goods, but EJ also wants to withdraw
cash dividend, the approval by a the same.
majority of the members of the board
of directors will suffice. a) Who has the better right to the
goods? Why?
c) Both cash dividend and stock b) If SN Warehouse Corporation is
dividend may be declared out of uncertain as to who is entitled to the
unrestricted retained earnings. Paid- property, what is the proper recourse
in surplus can be declared stock of the corporation? Explain.
dividend but not cash dividend,
because a stock dividend merely Answer:
transfers the paid-in surplus to a) EJ has better right to the goods. The
capital. goods are covered by a negotiable
 warehouse receipt which was City and that its development was
indorsed to EJ for value. The undertaken by a new corporation known
negotiation to EJ was not impaired as Fort Patio, Inc., where both Schiera
by the fact that Jojo took the goods and Jaz are directors. Malyn also found
without the consent of Melchor, as that Schiera and Jaz, on behalf of Patio
EJ had no notice of such fact. Investments and personally guaranteed
Moreover, EJ is in possession of the by Schiera and Jaz.
warehouse receipt and only he can
surrender it to the warehouseman. Malyn then filed a corporate derivative
action before the RTC of Makati City
b) Since there is a conflicting claim of against Schiera and Jaz, alleging that
ownership or title, SN Warehouse the two directors had breached their
Corporation should file a complaint fiduciary duties by misappropriating
in interpleader requiring EJ and money and assets of Patio Investments
Melchor to interplead. The matter in the operation of Fort Pation Café.
involves a judicial question as to
whose claim is valid. a) Did Schiers and Jaz violate the
principle of corporate opportunity?
Explain.
Question No. 7: b) Was it proper for Malyn to file a
1. Briefly discuss the doctrine of corporate derivative suit with a prayer for
opportunity. injunctive relief? Explain.
c) Assuming that a derivative suit is
Answer: proper, may the action continue if
The doctrine of corporate the corporation is dissolved during
opportunity means that if the director the pendency of the suit? Explain.
acquired for himself a business
opportunity that should belong to the Answer:
corporation, he must account to the a) Schiera and Jaz violated the
corporation for all the profits he principle of corporate opportunity,
obtained, unless his act was ratified by because they used Patio
at least 2/3 of the stockholders. Investments to obtain a loan,
mortgaged its assets and used the
proceeds of the loan to acquire a
2. Malyn, Schiera and Jaz are directors of coffee shop through a corporation
Patio Investments, a close corporation they formed.
formed to run the Patio Café, an al
fresco coffee shop in Makati City. In b) It was proper for Malyn to file a
2000, Patio Café began experiencing derivative suit with a prayer for
financial reverses, consequently, some injunction, because Schiera and Jaz
of the checks it issued to its beverage diverted the assets of the
distributors and employees bounced. corporation for their own personal
benefit.
In October 2003, Schiera informed
Malyn that she found a location for a c) The case should be allowed to
second café in Taguig City. Malyn continue so that the assets and
objected because of the dire financial claims should be administered for
condition of the corporation. the benefit of all concerned, as they
should have been administered
Sometime inApril 2004, Malyn learned before the dissolution of the
about Fort Patio Café located in Taguig corporation.
 claims may be commenced with
leave of the insolvency court.
Question No. 8:
Aaron, a well-known architect, is c) The guarantors are not discharged,
suffering from financial reverses. He has 4 because the discharge is limited to
creditors with a total claim of P26 M. Aaron only.
Despite his intention to pay these
obligations, his current assets are d) Their remedy is to prove in the
insufficient to cover all of them. His creditors insolvency proceeding that they paid
are about to sue him. Consequently, he was the debt and that they substitute for
constrained to file a petition for insolvency. the creditors, if the creditors have
not proven their claims.
a) Since Aaron was merely forced by
circumstances to petition the court to
declare him insolvent, can the judge
properly treat the petition as one for Question No. 9:
insolvency? Explain. 1. What are the effects of an irrevocable
b) If Aaron is declared an insolvent by designation of a beneficiary under the
the court, what would be the effect, if Insurance Code? Explain.
any, of such declaration on his
creditors? Explain. Answer:
c) Assuming that Aaron has guarantors The irrevocable beneficiary has a
for his debts, are the guarantors vested interest in the policy, including its
released from their obligations once incident such as the policy loan and
Aaron is discharged from his debts? cash surrender value.
Explain.
d) What remedies are available to the
guarantors in case they are made to 2. Jacob obtained a life insurance policy
pay the creditors? Explain. for P1 M designating irrevocably Diwata,
a friend, as his beneficiary, Jacob,
however, changed his mind and wants
Yob and Jojo, his other friends, to be
Answer: included as beneficiaries considering
a) The petition cannot be treated as that the proceeds of the policy are
one of the involuntary insolvency, sufficient for the three friends.
because it was filed by Aaron
himself, the debtor, and not by his Can Jacob still add Yob and Jojo as his
creditors. To treat it as one of beneficiaries? Explain.
involuntary insolvency would unduly
benefit Aaron as a debtor, because Answer:
he would not be subject to the The insured cannot add other
limitation of time within which he is beneficiaries as this would diminish the
subject in the case of voluntary interest of Diwata who is the irrevocably
insolvency for purposes of designated beneficiary. The insured can
discharge. only do so with the consent of Diwata.

b) Actions for unsecured claims cannot

be filed, because the claims should Question No. 10:
be filed in the insolvency 1. MV Pearly Shells, a passenger and
proceeding. Actions for secured cargo vessel, was insured for P40 M
against “constructive total loss”. Due to
 typhoon, it sank near Palawan. Luckily,
there were no casualties, only injured Question No. 11:
passengers. The shipowner sent a Ricardo mortgaged his fishpond to
notice of abandonment of his interest AC Bank to secure a P1 M loan. In a
over the vessel to the insurance separate transaction, he opened a letter of
company which then hired professionals credit with the same bank for $500,000 in
to afloat the vessel for P900,000. When his favor of HS Bank, a foreign bank, to
re-floated, the vessel needed repairs purchase outboard motors. Likewise,
estimated at P2 M. the insurance Ricardo executed a Surety Agreement in
company refused to pay the claim of the favor of AC Bank.
shipowner, stating that there was “no
constructive total loss.” The outboard motors arrived and
were delivered to Ricardo, but he was not
a) Was there “constructive total loss” to able to pay the purchase price thereof.
entitle the shipowner to recover from
the insurance company? Explain. a) Can AC Bank take possession of the
b) Was it proper for the shippowner to outboard motors? Why?
send a notice of abandonment to the b) Can AC Bank also foreclose the
insurance company? Explain. mortgage over the fishpond?
Explain.
Answer:
a) There was constructive total loss. Answer:
When the vessel sank, it was likely a) If what Ricardo executed is a trust
that it would be totally lost because receipt, AC Bank can take
of the improbability of recovery. possession of the outboard motors
so that it can exercise its lien and
b) It was proper for the shipowner to sell them. If what Ricardo executed
send a notice of abandonment to the is a Surety Agreement, AC Bank
insurance company, because there cannot take possession of the
was reliable information of the loss outboard motors, because it has no
of the vessel. lien on them.

b) AC Bank can also foreclose the

2. a) When does double insurance exist? mortgage over the fishpond if
b) What is the nature of the liability of Ricardo fails to pay the loan of P1 M.
the several insurers in double
insurance? Explain.
Question No. 12:
Answer: Hi Yielding Corporation filed a
a) Double insurance exists where the complaint against 5 of its officers for
same person is insured by two or violation of Section 31 of the Corporation
more insurers separately with Code. The corporation claimed that the said
respect to the same subject matter officers were guilty of advancing their
and interest. personal interests to the prejudice of the
corporation, and that they were grossly
b) In double insurance, the insurers are negligent in handling its affairs. Aside from
considered as co-insurers. Each one documents and contracts, the corporation
is bound to contribute ratably to the also submitted in evidence records of the
loss in proportion to the amount for officers’ U.S. Dollar deposits in several bank
which he is liable under his contract. overseas—Boston Bank, Bank of
Switzerland, and Bank of New York.
 as a consequence of the negligent
For their part, the officers filed a operation of the motor vehicle.
criminal complaint against the directors of Hi
Yielding Corporation for violation of RA No.
6426, otherwise known as Foreign Currency 2. Procopio purchased an Isuzu passenger
Deposit Act of the Philippines. The officers jeepney from Enteng, a holder of a
alleged that their bank deposits were certificate of public convenience for the
illegally disclosed for want of a court order, operation of public utility vehicle plying
and that such deposits were not even the the Calamba-Los Banos route. While
subject of the case against them. Procopio continued offering the jeepney
for public transport services he did not
a) Will the complaint filed against the have the registration of the vehicle
directors of Hi Yielding Corporation transferred in his name. Neither did he
prosper? Explain. secure for himself a certificate of public
b) Was there a violation of the Secrecy convenience for its operation. Thus, per
of Bank Deposits Law (RA 1405)? the records of the LTFRB, Enteng
Explain. remained its registered owner and
operator. One day, while the jeepney
Answer: was travelling southbound, it collided
a) No. Section 2 of RA No. 6426, as with a ten-wheeler truck owned by
amended, speaks of deposit with Emmanuel. The driver of the truck
such Philippine banks in good admitted responsibility for the accident,
standing, as may be designated by explaining that the truck lost its brakes.
the Central Bank for the purpose,
and is inapplicable to the foreign Procopio sued Emmanuel for damages,
currency account in question. but the latter moved to dismiss the case
on the ground that Procopio is not the
b) No. Section 2of RA No. 1405 or the real party in interest since he is not the
Bank Secrecy Law covers only registered owner of the jeepney.
“deposits of whatever nature with
banks or banking institutions in the Resolve the motion with reasons.
Philippines xxx”, hence, cannot be
made to apply to foreign banks. Answer:
The motion to dismiss should be
denied. The rule enjoining the registered
Question No. 13: owner of the motor vehicle under the
1. Discuss the “kabit system” in land “kabit system” from proving another
transportation and its legal person is the owner is intended to
consequences. protect third parties. Since this case
does not involve liability of the
Answer: registered owner to third parties, and it
The “kabit system” is an is the owner of the motor vehicle who is
arrangement whereby a person who has seeking compensation for damages, the
been granted a certificate of public rule is not applicable.
convenience allows another who owns a
motor vehicle to operate under his
certificate for a fee or a percentage of the 3. Baldo is a driver of Yellow Cab
earnings. The owner of the certificate of Company under the boundary system.
public convenience and the actual owner of While cruising along the South
the motor vehicle should be held jointly and Expressway, Baldo’s cab figured in a
severally liable for damages to third persons collision, killing his passenger, Pietro.
 The heirs of Pietro sued Yellow Cab other than its port of destination?
Company for damages, but the latter Explain.
refused to pay to the heirs, insisting that
it is not liable because Baldo is not an Answer:
employee. a) The insurance company should bear
the loss. Since the deviation was
Resolve with reasons. caused by a strong typhoon, it was
caused by circumstances beyond
Answer: the control of the captain, and also
Yellow Cab Company is liable to avoid a peril whether or not
because there exists an employer- insured against. Deviation is
employee relationship between a therefore proper.
jeepney owner and a driver under the
boundary system arrangement in b) A vessel can properly proceed to a
accordance with Art. 103 of the RPC. port other than its port of destination
Indeed to exempt from liability the owner in the following cases:
of a public vehicle who operates it under
the “boundary system” on the ground 1. When caused by circumstances
that he is a mere lessor would not only over which neither the master or
to abet a flagrant violations of the Public the owner of the ship has any
Service Law but also to place the riding control;
public at the mercy of reckless and 2. When necessary to comply with
irresponsible drivers reckless because a warranty, or to avoid a peril,
the measure of their earnings depends whether or not the peril is
largely on the number of trips they make insured against;
and, hence, the speed at which they 3. When made in good faith, and
drive; and irresponsible because most, if upon reasonable grounds of
not all of them, are in no position to pay belief in the necessity to avoid
the damages they might cause. peril;
4. When made in good faith for the
purpose of saving human life or
Question No. 14: relieving another vessel in
1. On a clear weather, MV Sundo, carrying distress.
insured cargo, left the port of Manila
bound for Cebu. While at sea, the
vessel encountered a strong typhoon 2. Star Shipping Lines accepted 100
forcing the captain to steer the vessel to cartons of sardines from Master to be
the nearest island where it stayed for 7 delivered to 555 Company of Manila.
days. The vessel ran out of provisions Only 88 cartons were delivered,
for its passengers. Consequently, the however, these were in bad condition.
vessel proceeded to Leyte to replenish
its supplies. 555 Company claimed from Star
Shipping Lines the value of the missing
a) Assuming that the cargo was goods, as well as the damaged goods.
damaged because of such deviation, Star Shipping Lines refused because
who between the insurance the former failed to present a bill of
company and the owner of the cargo lading.
bears the loss? Explain.
b) Under what circumstances can a Resolve with reasons the claim of 555
vessel properly proceed to a port Company.
 Answer: tradename, since it was the first to
Star Shipping Lines should pay the register the logo and tradename.
claim of 555 Company. The mere fact
that some cartons were lost and the 88 b) Since Shangrila Corporation is not
cartons were damaged is sufficient proof the owner of the logo and tradename
of the fault of Star Shipping Lines. The but is merely an affiliate of the
fact that 555 Company failed to present international organization which has
a bill of lading makes no difference, been using them it is not the owner
because it was the actual consignee. and does not have the rights of an
Moreover, under Art. 353 of the Code of owner.
Commerce, the surrender of the original
bill of lading is not a condition precedent
for a common carrier to be discharged 2. Cezar works in a car manufacturing
of its obligation. If surrender of the company owned by Joab. Cezar is quite
original bill of lading is not possible, innovative and loves to tinker with
acknowledgment of delivery by signing things. With the materials and parts of
the delivery receipt suffices. the car, he was able to invent a gas-
saving device that will enable cars to
consume less gas. Francis, a co-worker,
Question No. 15: saw how Cezar created the device and
1. S Development Corporation sued likewise, came up with a similar gadget,
Shangrila Corporation for using the “S” also using scrap materials and spare
logo and the tradename “Shangrila”. parts of the company. Thereafter,
The former claims that it was the first to Francis filed an application for
register the logo and the tradename in registration of his device with the
the Philippines and that it had been Bureau of Patents. 18 months later,
using the same in its restaurant Cezar filed an application for registration
business. his device with the Bureau of Patents.

Shangrila Corporation counters that it is a) Is the gas-saving device patentable?

in an affiliate of an international Explain.
organization which has been using such b) Assuming that it is patentable, who
logo and tradename “Shangrila” for over is entitled to the patent? What, if
20 years. any, is the remedy of the losing
party?
However, Shangrila Corporation c) Supposing Joab got wind of the
registered the tradename and logo in inventions of his employees and also
the Philippines only after the suit was laid claim to the patents, asserting
filed. that Cezar and Francis were using
his materials and company time in
a) Which of the 2 corporations has a making the devices, will his claim
better right to use the logo and the prevail over those of his employees?
tradename? Explain. Explain.
b) How does the international affiliation
of Shangrila Corporation affect the Answer:
outcome of the dispute? Explain. a) It is patentable because it is new, it
involves an inventive step and it is
Answer: industrially applicable.
a) S Development Corporation has a b) Francis is entitled to the patent,
better right to use the logo and because he had the earlier filing
date. The remedy of Cezar is to file
 a petition in Court for the
cancellation of the patent of Francis Answer:
on the ground that he is the true and No. The appeal of Coca-Cola
actual inventor, and ask for his will not prosper. Under Article 587 of
substitution as patentee. the Code of Commerce, the shipping
c) The claim of Joab will not prevail agent is civilly liable for damages in
over those of his employees, even if favor of third persons due to the
they used his materials and conduct of the carrier’s captain, and
company time in making the gas- the shipping agent can exempt
saving device. The invention of the himself therefrom only by
gas-saving device is not part of their abandoning the vessel with all his
regular duties as employees. equipment and the freight he may
have earned during the voyage. On
the other hand, assuming there is
bareboat charter, the stipulation in
the charter party exempting the
owner from liability is not against
public policy because the public at
large is not involved.

(B) AA entered into a contract with

BB thru CC to transport ladies’ wear
from Manila to France with
transshipment at Taiwan. Somehow
the goods were not loaded at
Taiwan on time. Hence, when the
2004 BAR EXAMINATION goods arrived in France, they arrived
“off-season” and AA was paid only
for ½ the value by the buyer. AA
1. (A) Under a charter party XXO claimed damages from the shipping
Trading Company shipped sugar to company and its agent. The defense
Coca-Cola Company through SS of the respondents was prescription.
Negros Shipping Corp., insured by
Capitol Insurance Company. The Considering that the ladies’ wear
cargo arrived but with shortages. suffered “loss value”, as claimed by
Coca-Cola demanded from Capital AA, should the prescriptive period be
Insurance Co. P500,000 in one year under the COGSA, or 10
settlement for XXO Trading. The MM years under the Civil Code? Explain
RTC, where the civil suit was filed, briefly.
“absolved the insurance company,
declaring that under the Code of Answer:
Commerce, the shipping agent is The applicable prescriptive
civilly liable for damages in favor of period is 10 years under the Civil
third persons due to the conduct of Code. The 1-year prescriptive period
the carrier’s captain, and the under the COGSA applies in cases
stipulation in the charter party of loss or damage to the cargo. The
exempting the owner from liability is term “loss” as interpreted by the
not against public policy. Coca-Cola Supreme Court in Mitsui O.S.K.
appealed. Will its appeal prosper? Lines, contemplates a situation
Reason briefly. where no delivery at all was made
 by the carrier of the goods because OB is also liable for damages
the same had perished or gone out to sellers or buyers with whom she
of commerce deteriorated or traded. Under Subsection 63.1 of the
decayed while in transit. In the SRC, the damages awarded could
present case, the shipment of ladies’ be an amount not exceeding triple
wear was actually delivered. The the amount of the transaction plus
“loss of value” is not the total loss actual damages. Exemplary
contemplated by the COGSA. damages may also be awarded in
case of bad faith, fraud, malevolence
or wantonness in the violation of the
2. (A) Ms. OB was employed in MAS SRC or its implementing rules. The
Investment Bank. WIC, a medical court is also authorized to award
drug company, retained the Bank to attorney’s fees not exceeding 30%
assess whether it is desirable to of the award.
make a tender offer for DOP
company, a drug manufacturer. OB
overheard in the course of her work (B) CX maintained a checking
the plans of WIC. By herself and thru account with UBANK, Makati
associates, she purchased DOP Branch. One of his checks in a stub
stocks available at the stock of 50 was missing. Later, he
exchange price at P20 per share. discovered that Ms. DY forged his
When WIC’s tender offer was signature and succeeded to encash
announced, DOP stocks jumped to P15,000 from another branch of the
P30 per share. Thus OB earned a bank. DY was able to encash the
sizable profit. check when ET, a friend, guaranteed
due execution, saying that she was
Is OB liable for breach and misuse a holder in due course.
of confidential or insider information
gained from her employment? Is she Can CX recover the money from the
also liable for damages to sellers or bank? Reason briefly.
buyers with whom she traded? If so,
what is the measure of such Answer:
damages? Explain briefly. Yes, CX can recover from
the bank. Under Section 23 of the
Answer: NIL, forgery is a real defense. The
OB is an insider (as defined forged check is wholly inoperative in
in Subsection 3.8(3) of the SRC) relation to CX. CX cannot be held
since she is an employee of the liable thereon by anyone, not even
Bank, the financial adviser of DOP, by a holder in due course. Under a
and this relationship gives her forged signature of the drawer, there
access to material information about is no valid instrument that would give
the issuer (DOP) and the latter’s rise to a contract which can be the
securities (shares), which basis or source of liability on the part
information is not generally available of the drawer. The drawee bank has
to the public. Accordingly, OB is no right or authority to touch the the
guilty of insider trading under drawer’s funds deposited with the
Section 27 of the SRC, which drawee bank.
requires disclosure when trading in
securities.
3. (A) What is a corporation sole? How Congress. A private corporation
does one pierce the veil of corporate must be organized under the
fiction? Corporation Code.

Answer: A stock corporation is one

Section 10 of the Corporation that has capital stock divided into
Code defines a “corporation sole” as shares and is authorized to distribute
one formed for the purpose of to the holders of such shares
administering and managing, as dividends or allotment of the surplus
trustee, the affairs, property and profits on basis of the shares held.
temporalities of any religious All other corporations are non-stock
denomination, sect or church. It is corporations.
formed by the chief archbishop,
bishop, priest, minister, rabbi or
other presiding elder of such (C) Is there a difference between a
religious denomination, sect or de facto corporation and a
church. corporation by estoppels? Explain
briefly.
The veil of corporate fiction
may be pierced by proving the court Answer:
that the notion of legal entity is being A de facto corporation is one
used to defeat public convenience, which actually exists for all practical
justify wrong, protect fraud, or purposes as a corporation but which
defend a crime or the entity is just an has no legal right to corporate
instrument or alter ego or adjunct of existence as against the State. It is
another entity or person. essential to the existence of a de
facto corporation that there be:
(B) Distinguish clearly (1) a private 1. A valid law under which a
corporation from a public corporation might be
corporation; and (2) a stock incorporated
corporation from a non-stock 2. A bona fide attempt to organize
corporation. as a corporation under such law,
and
Answer: 3. Actual use or exercise in good
A private corporation is one faith of corporate powers
formed for some private purpose, conferred upon it by law
benefit or end, while a public
corporation is formed for the A corporation by estoppels exists
government of a portion of the State when person assume to act as a
for the general good or welfare. The corporation knowing it to be
true test is the purpose of the without authority to do so. In this
corporation. If the corporation is case, those persons will be liable
created for political or public purpose as general partners for all debts,
connected with the administration of liabilities and damages incurred
government, then it is a public or arising as a result of their
corporation. If not, it is a private actions.
corporation although the whole or
substantially the whole interest in the
corporation belongs to the State. A (D) Distinguish clearly (1) crossed
public corporation is created by checks from cancelled checks; and
special legislation or act of (2) cash bond from surety bond.
 and transfer books of the assigned
Answer: shares, the cancellation of the stock
A crossed check is one with two certificates in PX’s name, and the
parallel lines drawn diagonally issuance of new stock certificates in
across its face or across a corner the names of his wife and his
thereof. On the other hand, a children as the new owners. The
cancelled check is one marked or officers of the Corporation denied
stamped “paid” and/or “cancelled” by the request on the ground that
or on behalf of a drawee bank to another heir is contesting the validity
indicate payment thereof. of the deed of assignment.

A surety bond is issued by a May the Corporation be compelled

surety or insurance company in by mandamus to register the shares
favor of a designated beneficiary, of stock in the names of the
pursuant to which such company assignees? Explain briefly.
acts as a surety to the debtor or
obligor of such beneficiary. Answer:
Yes. The corporation may be
A cash bond is a security in the compelled by mandamus to register
form of cash established by a the shares of stock in the name of
guarantor or surety to secure the the assignee. The only legal
obligation of another. limitation imposed by Section 63 of
the Corporation Code is when the
(E) What is the difference between Corporation holds any unpaid claim
government deregulation and against the shares intended to be
privatization of an industry? Explain. transferred. The alleged claim of
another heir of PX is not sufficient to
Answer: deny the issuance of new certificates
Government deregulation is the of stock to his wife and children. It
relaxation or removal of regulatory would be otherwise if the
constraints on firms or individuals, transferee’s title to the shares has
with a view to promoting competition no prima facie validity or is
and market-oriented approaches uncertain.
toward pricing, output, entry, and
other related economic decisions.
(B) The Board of Directors of ABC,
Privatization of an industry refers Inc., a domestic corporation, passed
to the transfer of ownership and a resolution authorizing additional
control by the government of assets, issuance of shares of stocks without
firms and operations in an industry notice nor approval of the
to private investors. stockholders.

DX, a stockholder, objected to the

4. (A) Four months before his death, issuance, contending that it violated
PX assigned 100 shares of stock his right of pre-emption to the
registered in his name in favor of his unissued shares. Is his contention
wife and his children. They then tenable? Explain briefly.
brought the deed of assignment to
the proper corporate officers for Answer:
registration with the request for the Yes. DX/s contention is
transfer in the corporation’s stock tenable. Under Section 39 of the
 Corporation Code, all stockholders being contrary to law and public
of ABC, Inc. enjoy preemptive right policy. The deposit box is located in
to subscribe to all issues of shares the bank premises and is under the
of any class, including the absolute control of the bank.
reissuance of treasury shares in
proportion to their respective
shareholdings. (B) The Law on Secrecy of Bank
Deposits provides that all deposits of
whatever nature with banks or
5. (A) MN and OP rented a safety banking institutions are absolutely
deposit box at SIBANK. The parties confidential in nature and may not
signed a contract of lease with the be examined, inquired or looked into
conditions that: the bank is not a by any person, government official,
depository of the contents of the bureau or office. However, the law
safe and has neither the possession provides exceptions in certain
nor control of the same; the bank instances.
assumed no interest in said contents
and assumes no liability in Which of the following may not be
connection therewith. The safety among the exceptions:
deposit box had two keyholes: one 1. In cases of impeachment.
for the guard key which remained 2. In cases involving bribery.
with the bank; and the other for the 3. In cases involving BIR inquiry.
renter’s key. The box can be opened 4. In cases of anti-graft and corrupt
only with the use of both keys. practices.
5. In cases where the money
The renters deposited certificates of involved is the subject of
title in the box. But later, they litigation.
discovered that the certificates were
gone. MN and OP now claim for Explain your answer or choice
damages from SIBANK. Is the bank briefly.
liable? Explain briefly.
Answer:
Answer: Under Section 6(F) of the
The bank is liable, based on NIRC, the Commissioner of Internal
the decision of the Supreme Court in Revenue can inquire into the
CA Agro-Industrial Development deposits of a decedent for the
Corp. v. Court of Appeals. 219 purpose of determining the gross
SCRA 426 (1993) and Sia v. Court estate of such decedent. Apart from
of Appeals, 222 SCRA 24 (1993). In this case, a BIR inquiry into bank
those cases, the Supreme Court deposits cannot be made. Thus,
ruled that the renting out of safety exception 3 may not always be
deposit boxes is a “special kind of applicable.
deposit” wherein the bank is the
depositary. In the absence of any Turning to exception 4, an
stipulation prescribing the degree of inquiry into bank deposits is possible
diligence required, that of a good only in prosecutions fro unexplained
father of a family is to be observed wealth under the Anti-Graft and
by the depositary. Any stipulation Corrupt Practices Act, according to
exempting the depositary from any the Supreme Court in the cases of
liability arising from the loss of the Philippine National Bank v.
thing deposited would be void for Gancayco, 15 SCRA 91 (1965) and
 Banco Filipino Savings and law prohibiting aliens from engaging
Mortgage Bank v. Purisima, 161 in domestic timber trade. Violators
SCRA 576 (1988). However, all including dummies would, after
other cases of anti-graft and corrupt proper trial, be fined and imprisoned
practices will not warrant an inquiry or deported. Mrs. BC, a citizen of
into bank deposits. Thus, exception, LVM but married to ZC, an alien
it must be interpreted strictly. merchant of PNG, filed suit to
invalidate the law or exempt from its
Exceptions 1, 2, and 5, on coverage their timber business.
the other hand, are provided
expressly in the Law on Secrecy of She contended that the law is, inter
Bank Depositor. They are available alia, gravely oppressive and
to depositor at all times. discriminatory. It violated the
Universal Declaration of Human
Rights (UDHR) passed in 1948 by
6. (A) AX, a businessman, was the United Nations, of which LVM is
preparing for a business trip abroad. a member, she said, as well as the
As he usually did in the past, he reciprocity provisions of the World
signed several checks in blank and Trade Organization (WTO)
entrusted them to his secretary with Agreement of 1994, of which PNG
instruction to safeguard them and fill and LVM are parties. Aside from
them out only when required to pay denying them equal protection,
accounts during his absence. OB, according to BC, the law will also
his secretary, filled out one of the deprive her family their livelihood
checks by placing her name as the without due process nor just
payee. She filled out the amount, compensation.
endorsed and delivered the check to
KC, who accepted it in good faith for Assuming that the legal system of
payment of gems that KC sold to LVM is similar to ours, would Mrs.
OB. Later, OB told AX of what she BC’s contention be tenable or not?
did with regrets. AX timely directed Reason.
the bank to dishonor the check.
Could AX be held liable to KC? Answer:
Answer and reason briefly. Mrs. BC’s contention is not
tenable. First, the UDHR does not
Answer: purport to limit the right of states
Yes. AX could be held liable (like LVM) to regulate domestic
to KC. This is a case of an trade. Second, the WTO Agreement
incomplete check, which has been involves international trade between
delivered. Under Section 14 of the states or governments, not domestic
NIL, KC, as a holder in due course, trade in timber or other commodities.
can enforce payment of the check as Third, nationality is an accepted
if it had been filled up strictly in norm for making classifications that
accordance with the authority given do not run counter to the equal
by AX to OB and within a reasonable protection of law clause of the
time. Constitution. Fourth, there is no
impairment of due process here
because violators of the law will be
(B) In its exercise of police power punished only after “proper trial”.
and business regulation, the Fifth, the issue of “just
legislature of LVM State passed a compensation” does not arise,
 because the property of Mrs. BC is corporation concerned the right of
not being expropriated. On the withdrawing or dismissing the suit, at
contrary, as a citizen of LVM, Mrs. the instance of the majority
BC is freely allowed to engage in stockholders and directors who
domestic timber trade in LVM. themselves are the persons alleged
to have committed the breach of
trust against the interest of the
7. (A) AA, a minority stockholder, filed corporation would be to emasculate
a suit against BB, CC, CC, and EE, the right of minority stockholders to
the holders of majority shares of seek redress for the corporation.
MOP Corporation, for alleged Filing such action as a derivative suit
misappropriation of corporate funds. even by a lone stockholder is one of
The complaint averred, inter alia, the protections extended by law to
that MOP Corporation is the minority stockholders against
corporation in whose behalf and for abuses of the majority.
whose benefit the derivative suit is
brought. In their capacity as
members of the Board of Director, (B) XYZ Corporation entered into a
the majority stockholders adopted a contract of lease with ABC, Inc.,
resolution authorizing MOP over a piece of real estate for a term
Corporation to withdraw the suit. of 20 years, renewable for another
Pursuant to said resolution, the 20 years, provided that XYZ’s
corporate counsel filed a Motion to corporate term is extended in
Dismiss in the name of the MOP accordance with law. Four years
Corporation. after the term of XYZ Corporation
expired, but still within the period
Should the motion be granted or allowed by the lease contract for the
denied? Reason briefly. extension of the lease period, XYZ
Corp. notified ABC Inc., that it is
Answer: exercising the option to extend the
No. All the requisites for a lease. ABC Inc. objected to the
valid derivative suit exist in this case. proposed extension, arguing that
First, AA was exempt from since the corporate life of XYZ Corp.
exhausting his remedies within the had expired, it could no longer opt to
corporation, and did not have to renew the lease. XYZ Corp.
make a demand on the Board of countered that withstanding the
Directors for the latter to sue. Here, lapse of its corporate term it still has
such a demand would be futile, the right to renew the lease because
since the directors who comprise the no quo warranto proceedings for
majority (namely, BB, CC, DD and involuntary dissolution of XYZ Corp.
EE) are the ones guilty of the wrong has been instituted by the Office of
complained of. Second, AA appears the Solicitor General.
to be stockholder at the time the
alleged misappropriation of Is the contention of XYZ Corp.
corporate funds. Third, the suit is meritorious? Explain briefly.
brought on behalf and for the benefit
of MOP Corporation. In this Answer:
connection, it was held in Conmart XYZ Corporation’s contention
(Phils.) Inc. v. Securities and is not meritorious. Based on the
Exchange Commission, 198 SCRA ruling of the Supreme Court in
73 (1991) that to grant to the Philippine National Bank v. CFI of
 Rizal, 209 SCRA (1992). XYZ Corp. by TON Corp. from Hong Kong for
was dissolved ipso facto upon the violation of customs law because
expiration of its original term. It they were falsely declared as used
ceased to be a body corporate for office equipment and then
the purpose of continuing the undervalued for purposes of
business for which it was organized, customs duties. TON filed a
except only for purposes connected complaint before the MM RTC for
with its winding up or liquidation. replevin, alleging that the Customs
Extending the lease is not an act to officials erred in the classification
wind up or liquidate XYZ Corp.’s and valuation of its shipment, as well
affairs. It is contrary to the idea of as in the issuance of the warrant of
winding up the affairs of the seizure. The Collector moved to
corporation. dismiss the suit for lack of
jurisdiction on the part of the trial
court.
8. (A) CDC maintained a savings
account with CBank. On orders of Should the Collector’s motion be
the MM RTC, the Sheriff garnished granted or denied?
P50,000 of his account, to satisfy the
judgment in favor of his creditor, Answer:
MO. CDC complained that the The Collector’s motion
garnishment violated the Law on the should be granted. Under Section
Secrecy of Bank Deposits because 602(g) of the Tariff and Customs
the existence of his saving account Code, the Bureau of Customs has
was disclosed to the public. exclusive original jurisdiction over
seizure and forfeiture cases under
Is CDC’s complaint meritorious or the tariff and customs laws.
not? Reason briefly

Answer: 9. (A) YKS Trading filed a complaint for

No. CDC’s complaint is not specific performance with damages
meritorious. It was held in China against the PWC Corporation for
Banking Corporation v. Ortega, 49 failure to deliver cement ordered by
SCRA 355 (1973) that peso deposits plaintiff. In its answer, PWC denied
may be garnished and the liability on the ground, inter alia, that
depositary bank can comply with the YKS has no personality to sue, not
order of garnishment without being incorporated, and that the
violating the Law on the Secrecy of President of PWC was not
Bank Deposits. Execution is the goal authorized to enter into a contract
of litigation as it is its fruit. with plaintiff by the PWC Board of
Garnishment is part of the execution Directors, hence the contract is ultra
process. Upon service of the notice vires. YKS Trading replied that it is a
of garnishment on the bank where sole proprietorship owned by YKS,
the defendant deposited funds, such and that the President of PWC had
funds become part of the subject made it appear in several letters
matter of litigation. presented in evidence that he had
authority to sign contracts on behalf
of the Board of Directors of PWC.
(B) The Collector of Customs
ordered the seizure and forfeiture of Will the suit prosper or not? Reason
new electronic appliances shipped briefly.
 Section 43(u) of the Electric Power
Answer: Industry Reform Act of 2001, the
Yes, the suit will prosper. As Energy Regulatory Commission has
the sole proprietorship, the original and exclusive jurisdiction
proprietor of YKS Trading has the over all cases contesting power
capacity to act and the personality to rates.
sue PWC. It is not necessary for
YKS Trading to be incorporated
before it can sue. On the other hand, 10. (A) BR and CT are noted artists
PWC is stopped from asserting that whose paintings are highly prized by
its President had no authority to collectors. Dr. DL commissioned
enter into the contract, considering them to paint a mural at the main
that, in several of PWC’s letters, it lobby of his new hospital for
had clothed its President with children. Both agreed to collaborate
apparent authority to deal with YKS on the project for a total fee of P2 M
Trading. to be equally divided between them.
It was also agreed that Dr. DL had to
provide all the materials for the
(B) CG, a customer, sued painting and pay for the wages of
MERALCO in the MM RTC to technicians and laborers needed for
disclose the basis of the the work on the project.
computation of the purchased power
adjustment (PPA). The trial court Assume that the project is
ruled it had no jurisdiction over the completed and both BR and CT are
case because, as contended by the fully paid the amount of P2 M as
defendant, the customer not only artists’ fee by DL. Under the law on
demanded a breakdown of intellectual property, who will own
MERALCO’s bill with respect to PPA the mural? Who will own the
but questioned as well the imposition copyright in the mural? Why?
of the PPA, a matter to be decided
by the Board of Energy, the Answer:
regulatory agency which should also Under Section 178.4 of the
have jurisdiction over the instant Intellectual Property Code, in case of
suit. commissioned work, the creator (in
the absence of a written stipulation
Is the trial court’s ruling correct or to the contrary) owns the copyright,
not? Reason briefly. but the work itself belongs to the
person who commissioned its
Answer: creation. Accordingly, the mural
The trial court’s ruling is belongs to DL. However, BR and CT
correct. As held in Manila Electric own the copyright, since there is no
Company v. Court of Appeals, 27 stipulation to the contrary.
SCRA 41& (1997), the Board of
Energy had the power to regulate
and fix power rates to be charged by (B) CNI insured SAM under a
franchised electric utilities like homeowner’s policy against claims
MERALCO. In fact, pursuant to E.O. for accidental injuries by neighbors.
No. 478 (April 17, 1998), this power SAM’s minor son, BOY, injured 3
has been transferred to the Energy children of POS, a neighbor, who
Regulatory Board (now the Energy sued SAM for damages.
regulatory Commission). Under
SAM’s lawyer was at ATT, who was is no accident when a deliberate act
paid for his services by the insurer is performed, unless some additional
for reporting periodically on the case and unforeseen happening occurs
to CNI. In one report, ATT disclosed that brings about the injury. This
to CNI that after his investigations, element of deliberateness is not
he found the injuries to the 3 clearly shown from the facts of the
children not accidental but case, especially considering the fact
intentional. that BOY is a minor, and the injured
parties are also children.
SAM lost the case in court, and POS Accordingly, it is possible that CNI
was awarded P1 M in damages may not prosper. ATT’s report is not
which he sought to collect from the conclusive on POS or the court.
insurer. But CNI used ATT’s report
to deny the claim on the ground that
the injuries to POS’ 3 children were
intentional, hence excluded from the
policy’s coverage. POS countered
that CNI was stopped from using
ATT’s report because it was
unethical for ATT to provide
prejudicial information against his
client to the insurer, CNI.

Who should prevail: the claimant,

POS; or the insurer, CNI? Decide
with reasons briefly.

Answer:
CNI is not stopped from
using ATT’s report because CNI, in
the first place, commissioned it and
paid ATT for it. On the other hand,
ATT has no conflict of interest
because SAM and CNI are on the
same side—their interests being
congruent with each other, namely,
to oppose POS’ claim. It cannot be
said that ATT has used the
information to the disadvantage or
prejudice of SAM.

However, in Finman General

Assurance Corp. v. Court of
Appeals, 213 SCRA 493 (1992), it
was explained that there is no
“accident” in the context of an
accident policy, if it is the natural
result of the insured’s voluntary act, 2002 BAR EXAMINATION
unaccompanied by anything
unforeseen except the injury. There
1. Name 3 methods by which a stock dividends without approval of the
corporation may be voluntarily dissolved. stockholders.
Explain each method. 3) XL Food Corporation guaranteed the
loan of its sister company XL Meat
Answer: Products.
The 3 methods by which a stock
corporation may be voluntarily dissolved Answer:
are: 1) Voidable—A contract of the corporation
with one or more of its directors or
a. Voluntary dissolution where no trustees or officers is voidable, at the
creditors are affected. This is done by a option of such corporation.
majority vote of the directors, and 2) Valid
resolution of at least 2/3 vote of 3) Void—This is an ultra vires act on the
stockholders, submitted to the SEC. part of XL Foods Corporation, and is
not one of the powers provided for in
b. Voluntary dissolution where creditors Sec. 36 of the Corporation Code.
are affected. This is done by a petition
for dissolution which must be filed with
the SEC, signed by a majority of the 3. Explain the 3 distinct but intertwined
members of the board of directors, contract relationships that are
verified by the president or secretary, indispensable in a letter of credit
and upon affirmative vote of transaction.
stockholders representing at least 2/3
of the outstanding capital stock. Answer:
The 3 distinct but intertwined
c. Dissolution by shortening of the contract relationships that are indispensable
corporate term. This is done by in a letter of credit transaction are:
amendment of the articles of 1. Between the applicant/buyer/importer
incorporation. and the beneficiary/seller/exporter—The
applicant/buyer/importer is the one who
procures the letter of credit and obliges
2. Which of the following corporate acts are himself to reimburse the issuing bank
valid, void, or voidable? Indicate your upon receipt of the documents of title,
answer by writing the paragraph number of while the beneficiary/seller/exporter is
the query, followed by your corresponding the one who in compliance with the
answer as “valid”, “void” or “voidable”, as contract of sale ships the goods to the
the case may be. If your answer is “void”, buyer and delivers the documents of title
explain your answer. In the case of a and draft to the issuing bank to recover
“voidable” answer, specify what conditions payment for the goods. Their
must be present or complied with to make relationship is governed by the contract
the corporate act valid. of sale.

1) XL Foods Corporation, which is 2. Between the issuing bank and the

engaged in the fastfood business, beneficiary/seller/exporter—The issuing
entered into a contract with its bank is the one that issues the letter of
President Jose Cruz, whereby the latter credit and undertakes to pay the seller
would supply the corporation with its upon receipt of the draft and proper
meat and poultry requirements. documents of title and to surrender the
2) The board of directors of XL Food documents to the buyer upon
Corporation declared and paid cash reimbursement. Their relationship is
 governed by the terms of the letter of than those offered to non-DOSRI
credit issued by the bank. borrowers.

3. Between the issuing bank and the 3) No commercial bank shall make any
applicant/buyer/importer—Their loan or discount on the security of
relationship is governed by the terms of shares of its own capital stock.
the application and agreement for the
issuance of the letter of credit by the
bank. 5. You have been asked to incorporate a new
company to be called FSB Savings &
Mortgage Bank, Inc. List the documents that
4. As part of the safeguards against imprudent you must submit to the SEC to obtain a
banking, the General Banking Law imposes certificate of incorporation for FSB Savings
limits or restrictions on loans and credit & Mortgage Bank, Inc.
accommodations which may be extended
by banks. Identify at least 2 of these limits Answer:
or restrictions and explain the rationale of The documents to be submitted to
each of them. the SEC to incorporate a new company to
be called FSB Savings & Mortgage Bank,
Answer: Inc., to obtain the certificate of incorporation
Any 2 of the following limits or for said company, are:
restrictions on loan and credit transaction 1) Articles of Incorporation;
which may be extended by banks, as part of 2) Treasurer’s affidavit;
the safeguard against imprudent banking, to 3) Certificate of Authority from the
wit: Monetary Board of the BSP;
1) SBL Rules—SBL (i.e., single borrower’s 4) Verification slip from the records of the
limit) rules are those promulgated by the SEC whether or not the proposed name
BSP, upon the authority of Section 35 of has already been adopted by another
the General Banking Law (GBL) of corporation, partnership or association;
2000, which regulate the total amount of 5) Letter undertaking to change the
loans, credit accommodations and proposed name if already adopted by
guarantees that may be extended by a another corporation, partnership or
bank to any person, partnership, association;
association, or corporation or other 6) Bank certificate of deposit concerning
entity. The rules seek to protect a bank the paid-up capital;
from making excessive loans to a single 7) Letter authorizing the SEC or Monetary
borrower by prohibiting it from lending Board or its duly authorized
beyond a specified ceiling. representative to examine the bank
records regarding the deposit of the
2) DOSRI Rules—These are rules paid-up capital;
promulgated by the BSP, upon authority 8) Registration sheet.
of Section 5 of the GBL of 2000, which
regulate the amount of credit
accommodations that a bank may 6. A. What is a tender offer?
extend to its directors, officers, B. In what instances is a tender offer
stockholders and their related interests. required to be made?
Generally, a bank’s credit
accommodations to its DOSRI must be Answer:
in the regular course of business and on A. Tender offer is a publicly announced
terms not less favorable to the bank intention of a person acting alone or in
concert with other persons to acquire
 equity securities of a public company. It investment house and invest in non-
may also be defined as a method of allied enterprises.
taking over a company by asking
stockholders to sell their shares at a 3) Thrift banks—these banks (such as
price higher that the current market savings and mortgage banks, stock
price and on a particular date. savings and loan associations, and
private development banks) may
B. Instances where tender offer is required exercise most of the powers and
to be made: functions of a commercial bank except
1. The person intends to acquire 15% that they cannot, among others, open
or more of the equity share of a current or check accounts without prior
public company pursuant to an Monetary Board approval, and they
agreement made between or among cannot issue letter of credit. Their
the person and one or more sellers. operations are governed primarily by the
2. The person intends to acquire 30% Thrift Banks Act of 1995 (RA No, 7906)
or more of the equity shares of a
public company within a period of 12 4) Rural Banks—these are those which
months. are organized primarily to extend loans
3. The person intends to acquire equity and other credit facilities to farmers,
shares of a public company that fishermen or farm families, as well as
would result in ownership of more cooperatives, merchants, and private
than 50% of the said shares. and public employees and whose
operations are primarily governed by the
Rural Banks Act of 1992 (RA No. 7353)
7. There are 6 classes of banks identified in
the General Banking Law of 2000. Name at 5) Cooperative Banks—these are those
least 4 of them and explain the which are organized primarily to provide
distinguishing characteristic or function of financial and credit services to
each one. cooperatives and whose operations are
primarily governed by the Cooperative
Answer: Code of the Philippines (RA No. 6938)
Any 4 of the following 6 classes of banks
identified in the GBL of 2002, to wit: 6) Islamic Banks—these are those which
are organized primarily to provide
1) Universal Banks—these are those financial and credit services in a manner
which used to be called expanded or transaction consistent with the Islamic
commercial banks and the operations of Shari’a. at present, only the Al Amana
which are now primarily governed by the Islamic Investment Bank of the
GBL of 2000. They can exercise the Philippines has been organized as an
powers of an investment house and Islamic bank.
invest in non-allied enterprises. They
have the highest capitalization
requirement. 8. A. Name 2 characteristics which
differentiate a common carrier from a
2) Commercial Banks—these are private carrier.
ordinary or regular commercial banks,
as distinguished from a universal bank. B. Why is the defense of due diligence in
They have a lower capitalization the selection and supervision of an
requirement than universal banks and employee not available to a common
cannot exercise the powers of an carrier?
 Answer:
A. Two characteristics that differentiate a
common carrier from a private carrier 10. Primetime Corporation (the Borrower)
are: obtained a P10 M, 5-year term loan from
1. A common carrier offers its service Universal Bank (the Bank) in 1996. As
to the public; a private carrier does security for the loan and as required by the
not. Bank, the Borrower gave the following
2. A common carrier is required to collateral security in favor of the Bank:
observe extraordinary diligence; a
private carrier is not required. 1) A real estate mortgage over the land
and building owned by the Borrower and
located in Quezon City;
B. The defense of due diligence in the 2) The joint and several promissory note of
selection and supervision of an Mr. Primo Timbol, the President of the
employee is not available to a common Borrower; and
carrier because the degree of diligence 3) A real estate mortgage over the
required of a common carrier is not the residential house and lot owned by Mr.
diligence of a good father of a family but Timbol, also located in Quezon City
extraordinary diligence, i.e., diligence of
the greatest skill and utmost foresight Because of business reverses, neither the
Borrower nor Mr. Timbol was able to pay
the loan. In June 2001, the Bank
9. Discuss whether or not the following extrajudicially foreclosed the two real estate
stipulations in a contract of carriage of a mortgages, with the Bank as the only bidder
common carrier are valid: in the foreclosure sale. On September 16,
2001, the certificates of sale of the two
1) A stipulation limiting the sum that may properties in favor of the Bank were
be recovered by the shipper or owner to registered with the Register of Deeds of
90% of the value of the goods in case of Quezon City.
loss due to theft.
2) A stipulation that in the event of loss, 10 months later, both the Borrower and Mr.
destruction or deterioration of goods on Timbol were able to raise sufficient funds to
account of the defective condition of the redeem their respective properties from the
vehicle used in the contract of carriage, Bank, but the Bank refused to permit
the carrier’s liability is limited to the redemption on the ground that the period for
value of the goods appearing in the bill redemption had already expired, so that the
of lading unless the shipper or owner Bank now has absolute ownership of both
declares a higher value. properties. The Borrower and Mr. Timbol
came to you today, September 15, 2002, to
Answer: find out if the position of the Bank is correct.
1) The stipulation is considered What would be your answer? State your
unreasonable, unjust and contrary to reasons.
public policy under Article 1745 of the
Civil Code. Answer:
1) With respect to the real estate mortgage
2) The stipulation limiting the carrier’s over the land and building owned by the
liability to the value of the goods Borrower, Primetime Corporation, a
appearing in the bill of lading unless the juridical body, the period of redemption
shipper or owner declares a higher is only 3 months, which period already
value, is expressly recognized in Article expired.
1749 of the Civil Code.
 2) As to the real estate mortgage over the Andrew failed to pay the loan on its due
residential house and lot owned by Mr. date on September 1, 2002. When the Bank
Timbol, the period of redemption is 1 attempted to collect from the Obligor, the
year from the date of registration of the Bank discovered that the latter had already
sale, which period has not yet expired in closed operations and liquidated its assets.
this case. The Bank sued Andrew for collection, but
Andrew moved to dismiss the complaint on
the ground that the debt had already been
11. Andrew is engaged in the business of the paid by reason of his execution of the
building low-cost housing units under aforesaid Deed of Assignment which, being
contracts with real estate developers. He absolute and unconditional, was in essence
applied for a loan of P3 M from Ready a dacion en pago. The Bank opposed the
Credit Bank (the Bank), which required motion, contending that the Deed of
Andrew to provide collateral security for it. Assignment was only a security for the loan.
Andrew offered to assign to the Bank his
receivables amounting to P4 M from Home If you were the judge, how would you
Builders Development Corporation (the resolve the motion to dismiss filed by
Obligor). Andrew? Explain.

The Bank accepted the offer. Accordingly, Answer:

Andrew obtained the loan and he executed The motion to dismiss should be
a promissory note undertaking to pay the granted. The simple absolute and
loan in full in one lump sum on September unconditional conveyance embodied in the
1, 2002, together with interest thereon at the deed of assignment would be operative, and
rate of 20% per annum. At the same time, the assignment would constitute essentially
Andrew executed a Deed of Assignment in a mode of payment or dacion en pago.
favor of the Bank, assigning to the Bank his
receivables from the Obligor. The Deed of
Assignment read: 12. As of June 1, 2002, Edzo Systems
Corporation (Edzo) was indebted to the
“I, Andrew Lee, hereby assign, following creditors:
transfer and convey, absolutely and
unconditionally, to Ready Credit Bank 1. Ace Equipment Supplies- for various
(hereinafter called the Bank) all my right, personal computers and accessories
title and interest in and to my accounts sold to Edzo on credit amounting to
receivable from Home Builders P300,000.
Development Corporation (hereinafter 2. Handyman Garage- for mechanical
called the Obligor) arising from delivery of repairs (parts and service) performed on
housing units with a total contract price of Edzo’s company car amounting to
P4 M, the description and contract value of P10,000.
which are attached hereto as Annex A 3. Joselyn Reyes- former employee of
(hereinafter called the Receivables). Edzo who sued Edzo for unlawful
termination of employment and was able
In the event that I shall be unable to to obtain a final judgment against Edzo
pay my outstanding indebtedness owed to for P100,000.
the Bank, the Bank shall have the right, 4. BIR- for unpaid VAT amounting to
without any further formality or act on its P30,000.
part, to collect the Receivables from the 5. Integrity Bank- which granted Edzo a
Obligor and to apply the proceeds thereof loan in 2001 in the amount of P500,000.
toward payment of my said indebtedness. The loan was not secured by any asset
of Edzo, but it was guaranteed
 unconditionally and solidarily by Edzo’s the respective credits or claims of the 5
President and controlling stockholder, creditors mentioned above in terms of
Eduardo Z. Ong, as accommodation preference or priority against each other?
surety.
Answer:
The loan owed to Integrity Bank fell due on The claim of the Handyman Garage
June 15, 2002. Despite pleas for extension for P10,000 has a specific lien on the car
of payment by Edzo, the bank demanded repaired.
immediate payment. Because the bank
threatened to proceed against the surety, The remaining 4 claims have
Eduardo Z. Ong, Edzo decided to pay up all preference or priority against each other in
of its obligations to Integrity Bank. On June the following order:
20, 2002, Edzo paid to Integrity Bank the full 1. No. 4- claim of the BIR for unpaid
principal amount of P500,000, plus accrued VAT;
interests amounting to P55,000. As a result, 2. No. 3- claim of Joselyn Reyes for
Edzo has hardly any cash left for operations unlawful termination;
and decided to close its business. After 3. No. 1- claim of Ace Equipment
paying the unpaid salaries of its employees, Supplies as an unpaid seller; and
Edzo filed a petition for insolvency on July 4. No. 5- claim of Integrity Bank.
1, 2002.

In the insolvency proceedings in court, the 14. A. Define the following: (1) a negotiable
assignee in insolvency sought to invalidate promissory note, (2) a bill of exchange and
the payment made by Edzo to Integrity (3) a check.
Bank for being a fraudulent transfer
because it was made within 30 days before B. You are Pedro Cruz. Draft the
the filing of the insolvency petition. In appropriate contract language for (1) your
defense, Integrity Bank asserted that the negotiable promissory note and (2) your
payment to it was for a legitimate debt that check, each containing the essential
was not covered by the prohibition because elements of a negotiable instrument.
it was “a valuable pecuniary consideration
made in good faith,” thus falling within the Answer:
exception specified in the Insolvency Law. A. (1) A negotiable promissory note is an
unconditional promise in writing made
As judge in the pending insolvency case, by one person to another, signed by the
how would you decide the respective maker, engaging to pay on demand or
contentions of the assignee in insolvency at a fixed determinable future time, a
and of Integrity Bank? Explain. sum certain in money to order or bearer.

Answer: (2) A bill of exchange is an unconditional

The contention of the assignee in order in writing addressed by one
insolvency is correct. The payment made by person to another, signed by the person
Edzo to Integrity Bank was a fraudulent giving it, requiring the person to whom it
preference or payment, being made within is addressed to pay on demand or at a
30 days before the filing of the insolvency fixed or determinable future time a sum
petition. certain in money to order or bearer.

(3) A check is a bill of exchange drawn

13. Based on the same facts as stated in the on a bank payable on demand.
preceding question, how would you, as
judge in the insolvency proceedings, rank B. (1) Negotiable promissory note—
 “
the PN is otherwise negotiable? Indicate
your answer
S by writing the paragraph
numbere of the stipulation or feature of the
PN asp shown below and explain your
corresponding
t answer, either “Affected” or
“Not affected”.
e Explain.
m
1) Theb date of the PN is “February 30,
2002”
e
2) Ther PN bears interest payable on the
last day of each calendar quarter at a
rate1 equal to 5% above the then
prevailing
5 91-day Treasury Bill rate as
published
, at the beginning of such
calendar quarter.
3) The2PN gives the maker the option to
make0 payment either in money or in
quantity
0 of palay of equivalent value.
4) The2 PN gives the holder the option
either to require payment in money or to
“For value received, I hereby require the maker to serve as the
promise to pay Juan Santos or order the bodyguard or escort of the holder for 30
sum of TEN THOUSAND PESOS days.
(P10,000.00) thirty (30) days from date
hereof. Answer:
1) Paragraph 1—negotiability is “NOT
AFFECTED”. The date is not one of the
(Signed) Pedro Cruz” requirements for negotiability.

2) Paragraph 2—negotiability is “NOT

AFFECTED”. The interest is to be
computed at a particular time and is
(2) Check— determinable. It does not make the sum
uncertain or the promise conditional.
“September 15, 2002
3) Paragraph 3—negotiability is
“Pay to the order of Juan Santos the “AFFECTED”. Giving the maker the
sum of TEN THOUSAND PESOS option renders the promise conditional.
(P10,000.00), Philippine currency.
4) Paragraph 4—negotiability is “NOT
AFFECTED”. Giving the option to the
(Signed) holder does not make the promise
Pedro Cruz conditional.

To: Philippine National Bank

Escolta, Manila Branch” 16. A. AB issued a promissory note for P1,000
payable to CD or his order on September
15, 2002. CD indorsed the note in blank and
15. Which of the following stipulations or delivered the same to EF. GH stole the note
feature of a promissory note (PN) affect or from EF and on September 14, 2002
do not affect its negotiability, assuming that presented it to AB for payment. When asked
 by AB, GH said CD gave him the note in but need not exist in the meantime. In
payment for 2 cavans of rice. AB therefore life insurance, it is enough that insurable
paid GH P1,000 on the same date. On interest exists at the time when the
September 15, 2002, EF discovered that the contract is made but it need not exist at
note of AB was not in possession and he the time of loss.
went to AB. It was then that EF found out
that AB had already made payment on the
note. Can EF still claim payment from AB? 18. Equity Online Corporation (EOL), a New
Why? York corporation, has a securities brokerage
service on the Internet after obtaining all
B. As a sequel to the same facts narrated requisite U.S. licenses and permits to do so.
above, EF, out of pity for AB who had EOL’s website (www.eonline.com), which is
already paid P1,000 to GH, decided to hosted by a server in Florida, enables
forgive AB and instead go after CD who Internet users to trade on-line in securities
indorsed the note in blank to him. Is CD still listed in the various stock exchanges in the
liable to EF by virtue of the indorsement in U.S. EOL buys and sells U.S.-listed
blank? Why? securities for the accounts of its clients all
over the world, who convey their buy and
Answer: sell instructions to EOL through the Internet.
A. No. EF cannot claim payment from AB. EOL has no offices, employees or
EF is not a holder of the promissory representatives outside the U.S. The
note. To make presentment for website has icons for many countries,
payment, it is necessary to exhibit the including an icon “For Filipino Traders”
instrument, which EF cannot do containing the day’s prices of U.S.—listed
because he is not in possession thereof. securities expressed in U.S. dollars and in
their Philippine peso equivalent. Grace
B. No, because CD negotiated the Gonzales, a resident of Makati, is a regular
instrument by delivery. customer of the website and has been
purchasing and selling securities through
EOL with the use of her American Express
17. Distinguish insurable interest in property credit card. Grace has never traveled
insurance from insurable interest in life outside the Philippines. After a series of
insurance. erroneous stock picks, she had incurred a
net indebtedness of US$30,000 with EOL,
Answer: at which time she cancelled her American
1) In property insurance, the expectation of Express credit card. After a number of
benefit must have a legal basis. In life demand letters sent to Grace, all of them
insurance, the expectation of benefit to unanswered, EOL, through a Makati law
be derived from the continued existence firm, filed a complaint for collection against
of a life need not have any legal basis. Grace with the RTC of Makati. Grace,
through her lawyer, filed a motion to dismiss
2) In property insurance, the actual value on the ground that EOL (a) was doing
of the interest therein is the limit of the business in the Philippines without a license
insurance that can validly be placed and was therefore barred from bringing suit
thereon. In life insurance, there is no and (b) violated the SRC by selling or
limit to the amount of insurance that offering to sell securities within the
may be taken upon life. Philippine SEC and thus came to court “with
unclean hands”. EOL opposed the motion to
3) In property insurance, an interest dismiss, contending that it had never
insured must exist when the insurance established a physical presence in the
takes effect and when the loss occurs Philippines, and that all of the activities
 related to plaintiffs trading in U.S. securities 3. Participating in the management,
all transpired outside the Philippines. If you supervision or control of any
are the judge, decide the motion to dismiss domestic entity
by ruling on the respective contentions of 4. Entering into service contracts
the parties on the basis of the facts 5. Appointing representatives or
presented above. distributor, operating under the
control of the foreign entity, who is
Answer: domiciled in the Philippines or who
1) The grounds of the motion to stays in the country for a period
dismiss are both untenable. EOL is totaling at least 180 days in any
not doing business in the calendar year.
Philippines, and it did not violate the
Securities Act, because it was not
selling securities in the country.
2) The contention of EOL is correct,
because it never did any business in
the Philippines. All its transactions in
question were consummated outside
the Philippines

19. A. What is the legal test for determining if

an unlicensed foreign corporation is doing
business in the Philippines?

B. Give at least 3 examples of the acts or

activities that are specifically identified
under our foreign investment laws as
constituting “doing business” in the
Philippines.

Answer: 2001 BAR EXAMINATION

A. The test is whether or not the
unlicensed foreign corporation has
performed an act or acts that imply a 1. “X” company is a stock corporation
continuity of commercial dealings or composed of the Reyes family
arrangements, and contemplate to that engaged in real estate business.
extent the performance of acts or works, Because of the regional crisis, the
or the exercise of some of the functions stockholders decided to convert their
normally incident to, and in progressive stock corporation into a charitable
prosecution of, commercial gain or of non-stock and non-profit association
the purpose and object of the business by amending the articles of
organization. incorporation.

B. Any three of the following acts or a) Could this be legally done? Why?
activities constitute “doing business” in b) Would your answer be the same if
the Philippines under our foreign at the inception, “X” company is a
investment laws: non-stock corporation? Why?
1. Soliciting orders
2. Opening offices by whatever name Answer:
 a) Yes, it can be legally done. In corporation and its Articles of
converting the stock corporation to Incorporation or By-Laws are silent,
a non-stock corporation by a mere the corporation is deemed to have the
amendment of the Articles of power to declare dividends under
Incorporation, the stock Section 43. Since it has the power to
corporation is not distributing any declare dividends, “XY” is a stock
of its assets to the stockholders. corporation.
On the contrary, the stockholders
are deemed to have waived their The provision in its Articles of
right to share in the profits of the Incorporation that at dissolution the
corporation which is a gain not a assets of the corporation shall be
loss to the corporation. given to a charitable corporation does
b) No, my answer will not be the not prohibit the corporation from
same. In a non-stock corporation, declaring dividends before dissolution.
the members are not entitled to
share in the profits of the
corporation because all present 3. Suppose that “X” Corporation has
and future profits belong to the already issued the 1000 originally
corporation. In converting the non- authorized shares of the corporation
stock corporation to a stock so that its Board of Directors and
corporation by a mere amendment stockholders wish to increase “X’s”
of the Articles of Incorporation, the authorized capital stock. After
non-stock corporation is deemed complying with the requirements of the
to have distributed an asset of the law on increase of capital stock, “X”
corporation—i.e. its profits, among issued an additional 1000 shares of
its members, without a prior the same value.
dissolution of the corporation.
Under Section 122, the non-stock a) Assume that the stockholder “A”
corporation must be dissolved first. presently holds 200 out of the
1000 original shares. Would “A”
have a preemptive right to 200 of
2. “XY” is a recreational club which was the new issue of 1000 shares?
organized to operate a golf course for Why?
its members with an original b) When should stockholder “A”
authorized capital stock of P100 M. exercise the preemptive right?
the articles of incorporation nor the by-
laws did not provide for distribution of Answer:
dividends although there is a provision a) Yes, “A” would have a preemptive
that after its dissolution, the assets right to 200 of the new issue of
shall be given to a charitable 1000 shares. “A” is a stockholder
corporation. Is “XY” a stock of record holding 200 shares in “X”
corporation? Give reasons for you Corporation. According to the
answer. Corporation Code, each
stockholder has the preemptive
Answer: right to all issues of shares made
“XY” is a stock corporation because by the corporation in proportion to
it is organized as a stock corporation the number of share he holds on
and there is no prohibition in its record in the corporation.
Articles of Incorporation or in its by-
laws for it to declare dividends. When b) Preemptive right must be
a corporation is organized as a stock exercised in accordance with the
 Articles of Incorporation or the By- 1. Increase the number of shares
Law. When the Articles of from 100,000 to 150,000
Incorporation and By-Laws are shares with the same par value
silent, the Board may fix a of P10 each.
reasonable time within which the 2. Increase par value of the
stockholders may exercise the 1000,000 shares to P15 each.
right.
b) Three practical reasons for a
corporation to increase its capital
4. In 1999, Corporation “A” passed a stock are:
board resolution removing “X” from his 1. To generate more working
position as manager of said capital;
corporation. The by-laws of “A” 2. To have more shares with
corporation provides that the officers which to pay for the acquisition
are the president, vice-president, of more assets like acquisition
treasurer and secretary. Upon of company car, stocks, house,
complaint filed with the SEC, it held machinery or business; and
that a manager could be removed by 3. To have extra share with which
mere resolution of the board of to cover or meet the
directors. On motion for requirement for declaration of
reconsideration, “X” alleged that could stock dividend.
only be removed by the affirmative
vote of the stockholders representing
2/3 of the outstanding capital stock. Is 6. For the past 3 years of its commercial
“X’s” contention legally tenable. Why? operation, “X”, an oil company, has
been earning tremendously in excess
Answer: of 100% of the corporation’s paid-in
No. Stockholders’ approval is capital. All of the stockholders have
necessary only for the removal of the been claiming that they share in the
members of the Board. For the profits of the corporation by way of
removal of a corporate officer or dividends but the Board of Directors
employee, the vote of the Board of failed to lift its finger.
Directors is sufficient for the purpose.
a) Is Corporation “X” guilty of
violating a law? If in the
5. Suppose “X” Corporation has an affirmative, state the basis.
authorized capital stock of P1 M b) Are there instances when a
divided into 100,000 shares of stock corporation shall not be liable for
with par value of P10 each. not declaring dividends?

a) Give two ways whereby said Answer:

authorized capital stock may be a) Corporation “X” is guilty of violating
increased to about P1.5 M. Section 43 of the Corporation
b) Give three practical reasons for a Code. This provision prohibits
corporation to increase its capital stock corporations from retaining
stock. surplus profits in excess of 100%
of their paid-in capital.
Answer: b) The instances when a corporation
a) Two ways of increasing the shall not be held liable for not
Authorized Capital Stock of “X” declaring dividends are:
Corporation to P1.5 M are:
 1. When justified by definite bona fide purchaser who relied on
corporate expansion projects the endorsement by “A” of the
or programs approved by the certificate of stock.
board of directors; b) Yes. In the case where the
2. When the corporation is certificate of stock was lost or stole
prohibited under any loan from “A”, “A” has a right to claim
agreement with any financial the certificate of stock from the
institution or creditor, whether thief who has no right or title to the
local or foreign, from declaring same. “One who has lost any
dividends without its or his movable or has been unlawfully
consent, and such consent has deprived thereof, may recover it
not yet been secured; or from the person in possession of
3. When it can be clearly shown the same.”
that such retention is
necessary under special
circumstances obtaining in the 8. “X” Corporation shortened its
corporation, such as when corporate life by amending its articles
there is need for special of incorporation. It has no debts but
reserve for probable owns a prime property located in
contingencies. Quezon City. How would the said
property be liquidated among the five
stockholders of said corporation?
7. “A” is the registered owner of Stock Discuss two methods of liquidation
Certificate No. 000011. He entrusted
the possession of said certificate to his Answer:
best friend “B” who borrowed the said The prime property of “X”
endorsed certificate to support B’s Corporation can be liquidated among
application for passport (or for a the five stockholders after the property
purpose other than transfer). But “B” has been conveyed by the corporation
sold the certificate to “X”, a bona fide to the five stockholders, by dividing or
purchaser who relied on the endorsed partitioning it among themselves in
certificates and believed him to be the any two of the following ways:
owner thereof. 1. By physical division or partition
based on the proportion of the
a) Can “A” claim the shares of stocks values of their stockholdings; or
from “X”? Explain. 2. Selling the property to a third
b) Would your answer be the same if person and dividing the proceeds
“A” lost the stock certificate in among the five stockholders in
question or if it was stolen from proportion to their stockholdings;
him? or
3. After the determination of the
Answer: value of the property, by assigning
a) No. Assuming that the shares or transferring the property to one
were already transferred to “B”. “A” stockholder with the obligation on
cannot claim the shares of stock the part of said stockholder to pay
from “X”. the certificate of stock the other four stockholders the
covering said shares have been amount/s in proportion to the value
duly endorsed by “A” and of the stockholding of each.
entrusted by him to “B”. by his said
acts “A” is now stopped from
claiming said shares from “X”, a
9. Suppose that the by-laws of “X” conclusion that the latter is merely an
Corporation, a mining firm, provides extension of the personality of the
that “The directors shall be relieved former, and that the former controls
from all liability for any contract the policies of the latter. Added to this
entered into by the corporation with is the fact that “Y” Corporation controls
any firm in which the directors may be the finances of “X” Corporation which
interested.” Thus, director “A” acquired is merely an adjunct, business conduit
claims which overlapped with “X’s” or alter-ego of “Y” Corporation.
claims and where necessary for the
development and operation of “X’s”
mining properties. 11. Is a by-law provision of “X”
Corporation “rendering ineligible or if
a) Is the by-law provision valid? elected, subject to removal, a director
b) What happens if director “A” is if he is also a director in a corporation
able to consummate his mining whose business is in competition with
claims over and above that of the or is antagonistic to said corporation”
corporation’s claims? valid and legal? State your reason.
Answer:
a) No. it is in violation of Section 32
of the Corporation Code. Answer:
b) “A” should account to the Yes, the by-law provision is valid. It
corporation for the profits which he is the right of a corporation to protect
realized from the transaction. He itself against possible harm and
grabbed the business opportunity prejudice that may be caused by its
from the corporation. competitors. The position of director is
highly sensitive and confidential. To
say the least, to allow a person, who is
10. Plaintiffs filed a collection action a director in a corporation whose
against “X” Corporation. Upon business is in competition with or is
execution of the court’s decision, “X” antagonistic to “X” Corporation, to
Corporation was found to be without become also a director in “X”
assets. Thereafter plaintiffs filed an Corporation would be harboring a
action against its present and past conflict of interest which is harmful to
stockholder “Y” Corporation which the latter.
owned substantially all of the stocks of
“X” Corporation. The two corporations
have the same board of directors and 12. Debtor “A” issued a promissory note
“Y” Corporation financed the in the amount of P10 M in favor of a
operations of “X” Corporation. May “Y” commercial bank “Y” secured by
Corporation be held liable for the mortgage of his properties worth P30
debts of “X” Corporation? Why? M. When “A” failed to pay his
indebtedness, despite demands made
Answer: by bank “Y”, the latter instituted a
Yes, “Y” Corporation may be held collection suit to enforce payment of
liable for the debts of “X” Corporation. the P10 M account. Subsequently,
The doctrine of piercing the veil of bank “Y” also filed foreclosure
corporate fiction applies to this case. proceedings against “A” for the
The two corporations have the same security given for the account. If you
board of directors and “Y” corporation were the judge, how would you
owned substantially all of the stocks of resolve the two cases?
“X” Corporation, which facts justify the
 Answer: had capacity to contract; that he has
The case for collection will be no knowledge of any fact which would
allowed to proceed. But the impair the validity of the instrument or
foreclosure proceedings have to be render it valueless; that at the time of
dismissed. In instituting a foreclosure his indorsement, the instrument is
proceedings, after filing a collection valid and subsisting; and that on due
case involving the same account or presentment, it shall be accepted or
transaction, bank “Y” is guilty of paid, or both, according to its tenor,
splitting a cause of action. The loan of and that if it be dishonored and the
P10 M is the principal obligation while necessary proceedings on dishonor be
the mortgage securing the same is duly taken, he will pay the amount
merely an accessory to said loan thereof to the holder, or to any
obligation. The collection of the loan subsequent indorser who may be
and the foreclosure of the mortgage compelled to pay.
securing said loan constitute one and
the same cause of action. The filing of “C” is not liable to “F” since the latter
the collection case bars the cannot trace his title to the former. The
subsequent filing of the foreclosure signature of “C” in the supposed
proceedings. indorsement by him to “D” was forged
by “X”. “C” can raise the defense of
forgery since it was his signature that
13. “A” issed a promissory note payable was forged.
to “B” or bearer. “A” delivered the note
to “B”. “B” indorsed the note to “C”. “C”
placed the note in his drawer, which 14. X, Y and Z signed a promissory note
was stolen by the janitor “X”. “X” in favor of A stating: “We promise to
indorsed the note to “D” by forging pay A on December 31, 2001 the sum
“C’s” signature. “D” indorsed the note of P5,000. “When the note fell due, A
to “E” who in turn delivered the note to sued X and Y who put up the defense
“F”, a holder in due course, without that A should have impleaded Z. is the
indorsement. Discuss the individual defense valid? Why?
liabilities to “F” of “A”, “B” and “C”.
Answer:
Answer: The defense is not valid. The liability
“A” is liable to “F” as the maker of of X, Y and Z under the promissory
the promissory note, “A” is directly or note is joint. Such being the case, Z is
primarily liable to “F”, who is a holder not an indispensable party. The fact
in due course. Despite the presence of that A did not implead Z will not
the special indorsements on the note, prevent A from collecting the
these do not detract from the fact that proportionate share of X and Y in the
a bearer instrument, like the payment of the loan.
promissory note in question, is always
negotiable by mere delivery, until it is
indorsed restrictively “For Deposit 15. The Law on Secrecy of Bank
Only”. Deposits, otherwise known as RA
1405, is intended to encourage people
“B”, as a general endorser, is liable to deposit their money in banking
to “F” secondarily, and warrants that institutions and also to discourage
the instrument is genuine and in all private hoarding so that the same may
respects what it purports to be; that he be properly utilized by banks to assist
has good title to it; that all prior parties in the economic development of the
 country. Is a notice of garnishment Insurance Co., and made the loss
served on a bank at the instance of a payable to his brother, MLQ. In case
creditor of a depositor covered by the of loss by fire of the said condominium
said law? State the reason/s for your unit, who may recover on the fire
answer. insurance policy? State the reason/s
for your answer.
Answer:
No. The notice of garnishment Answer:
served on a bank at the instance of a JQ can recover on the fire insurance
creditor of a depositor is not covered policy for the loss of the said
by the Law on Secrecy of Bank condominium unit. He has the
Deposits. Garnishment is just a part of insurable interest as owner-insured.
the process of execution. The moment As beneficiary in the fire insurance
a notice of garnishment is served on a policy, MLQ cannot recover on the fire
bank and there exists a deposit by the insurance policy. For the beneficiary to
judgment debtor, the bank is directly recover on the fire or property
accountable to the sheriff, for the insurance policy, it is required that he
benefit of the judgment creditor, for the must have insurable interest in the
whole amount of the deposit. In such property insured. In this case, MLQ
event, the amount of the deposit does not have insurable interest in the
becomes, in effect, a subject of the condominium unit.
litigation.

18. “A” is a merchant engaged in the sale

16. “A” applied for a non-medical life of a variety of goods and
insurance. The insured did not inform merchandise. Because of the
the insurer that one week prior to his economic crisis, he incurred
application for insurance, he was indebtedness to “X”, “Y” and “Z”.
examined and confined at St. Luke’s thereafter, “A” sold to “B” all the stock
Hospital where he was diagnosed for of goods and merchandise.
lung cancer. The insured soon
thereafter died in a plane crash. Is the a) What steps should “A” undertake
insurer liable considering that the fact to effect a valid sale in bulk of his
concealed had no bearing with the goods to “B”.
cause of death of the insured? Why? b) Suppose “A” submitted a false
statement on the schedule of his
Answer: creditors. What is the effect of
No. The concealed fact is material to such false statement as to vendee
the approval and issuance of the “B”.
insurance policy. It is well settled that c) What is the right of creditors “X”,
the insured need not die of the “Y”, and “Z” if “A” failed to comply
disease he failed to disclose to the with the procedure/steps required
insurer. It is sufficient that his non- by law under question letter a)
disclosure misled the insurer in hereof?
forming his estimate of the risks of the
proposed insurance policy or in Answer:
making inquiries. a) “A” must prepare an affidavit
stating the names of all his
creditors, in this case, “X”, “Y” and
17. JQ, owner of a condominium unit, “Z”, their addresses, the amount of
insured the same against fire with XYZ their credits and their maturity. “A”
 should give the affidavit to “B” claimed that (1) there was a stipulation
who, in turn, should furnish a copy in the ticket issued to “A” absolutely
to each creditor and notify the exempting the carrier from liability
creditors that there is a proposed from the passenger’s death or injuries
bulk sale in order to enable the and notices were posted by the
latter to protect their interest. common carrier dispensing with the
extraordinary diligence of the carrier,
b) If the vendee does not have and (2) “A” was given a discount on
knowledge of the falsity of the his plane fare thereby reducing the
schedule, the sale is valid. liability of the common carrier with
However, if the vendee has respect to “A” in particular.
knowledge of such falsity, the sale
is void because he is in bad faith. a) Are those valid defenses?
b) What are the defenses available to
c) The recourse of “X”, “Y” and “Z” is any common carrier to limit it from
to question the validity of the sale liability?
from “A” to “B” so as to recover the
goods and merchandise to satisfy Answer:
their credits. a) No. These are not valid defenses
because they are contrary to law
as they are in violation of the
19. Suppose “A” is the owner of several extraordinary diligence required of
inactive securities. To create an common carriers.
appearance of active trading for such
securities, “A” connives with “B” by b) The defenses available to any
which “A” will offer for sale some of his common carrier to limit or exempt
securities and “B” will buy them at it from liability are: observance of
certain fixed price, with the extraordinary diligence, or the
understanding that although there proximate cause of the incident is
would be an apparent sale, “A” will a fortuitous event or force majeure,
retain the beneficial ownership thereof. act or omission of the shipper or
owner of the goods, the character
a) Is the arrangement lawful? of the goods or defects in the
b) If the sale materializes, what is it packing or in the containers, and
called? order or act of competent public
authority, without the common
Answer: carrier being guilty of even simple
a) No. the arrangement is not lawful. negligence.
It is an artificial manipulation of the
price of securities. This is
prohibited by the Securities
Regulation Code.
b) If the sale materializes, it is called
a wash sale or simulated sale.

20. Suppose “A” was riding on an

airplane of a common carrier when the
accident happened and “A” suffered
serious injuries. In an action by “A”
against the common carrier, the latter
 2000 BAR EXAMINATION to a hearing of the Committee on
Racketeering and Other Syndicated
1. a) What is a joint account? Crimes of the House of
b) Distinguish joint account from Representatives, which was conducting
partnership. a congressional investigation “in aid of
legislation” on the involvement of police
Answer: and military personnel, and possibly
a) A joint account is a transaction of even of local government officials, in the
merchants where other merchants illegal activities of suspected gambling
agree to contribute the amount of and drug lords. Subpoenaed to attend
capital agreed upon, and the investigation were officers of certain
participating in the favorable or identified banks with a directive to them
unfavorable results thereof in the to bring the records and documents of
proportion they may determine. bank deposits of individuals mentioned
in the subpoenas, among them GP. GP
b) The following are the distinctions and the banks opposed the production
between joint account and of the banks records of deposits on the
partnership: ground that no such inquiry is allowed
1. A partnership has a firm name under the Law on Secrecy of Bank
while a joint account has none Deposits. (RA 1405). Is the opposition of
and is conducted in the name of GP and the bank valid? Explain.
the ostensible partner.
2. While a partnership has juridical Answer:
personality and may sue or be Yes. The opposition is valid. GP is
sued under its firm name, a joint not a public official. The investigation
account has no juridical does not involve one of the exceptions
personality and can sue or be to the prohibition against disclosure of
sued only in the name of the any information concerning bank
ostensible partner. deposits under the Law on Secrecy of
3. While a partnership has a Bank Deposits. The Committee
common fund, a joint account conducting the investigation is not a
has none. competent court or the Ombudsman
4. While in a partnership, all authorized under the law to issue a
general partners have the right subpoena for the production of the bank
of management, in a joint record involving such disclosure.
account, the ostensible partner
manages its business
operations. 3. Company X, engaged in the business of
5. While liquidation of a partnership manufacturing car parts and
may, by agreement, be entrusted accessories, operates a factory with
to a partner or partners, in a joint equipment, machinery and tools for this
account liquidation thereof can purpose. The manufactured goods are
only be done by the ostensible sold wholesale to distributors and
partner. dealers throughout the Philippines.
Company X was among the business
entities adversely hit by the 1997 Asian
2. GP is a suspected jueteng lord who is business crisis. Its sales dropped with
rumored to be enjoying police and the decline in car sales and its operating
military protection. The envy of many costs escalated, while its creditor banks
drug lords who had not escaped the and other financial institutions tightened
dragnet of the law, GP was summoned their loan portfolios. Company X was
 faced with the dismal choice of either the goods. W could not deliver because
suspending its operations or selling its the goods were nowhere to be found in
business. It chose the latter. Having his warehouse. He claims he is not
struck a deal with Company Z, a more liable because of the free-from-liability
viable entity engaged in the same clause stipulated in the receipt. Do you
business, Company X sold its entire agree with W’s contention? Explain.
business to the former without much
fanfare or any form of publicity. In fact, Answer:
evidence exists that the transaction was No. I do not agree with the
furtively entered into to avoid the prying contention of W. the stipulation that W
eyes of Company X’s creditors. The would not be responsible for the loss of
creditor banks and other financial all or any portion of the hardware
institutions sued Company X for materials covered by the receipt even if
violation of the Bulk Sales Law. Decide. such loss is caused by the negligence of
W or his representative or employees is
Answer: void. The law requires that a
Company X violated the Bulk Sales warehouseman should exercise due
Law when it sold its entire business to diligence in the care and custody of the
Company Z furtively to avoid the prying things deposited in his warehouse.
eyes of its creditors. Its manufactures
goods are sold wholesale to distributors
and dealers. The sale of all or 5. a) MP bought a used cellphone from JR.
substantially all of its stocks, not in the JR preferred cash but MP is a friend so
ordinary course of business, constitutes JR accepted MP’s promissory note for
bulk sale. The transaction being a bulk P10,000. JR thought of converting the
sale, entering into such transaction note into cash by endorsing it to his
without complying with the requirements brother KR. The promissory note is a
of the Bulk Sales law, Company X piece of paper with the following hand-
violated said law. printed notation: “MP WILL PAY JR TEN
THOUSAND PESOS IN PAYMENT
FOR HIS CELLPHONE 1 WEEK FROM
4. S stored hardware materials in the TODAY”. Below this notation MP’s
bonded warehouse of W, a licensed signature with “8/1/00” next to it,
warehousemen under the General indicating the date of the promissory
Bonded Warehouse Law (Act 3893 as note. When JR presented MP’s note to
amended). W issued the corresponding KR, the latter said it was not a
warehouse receipt in the form he negotiable instrument under the law and
ordinarily uses for such purpose in the so could not be a valid substitute for
course of his business. All the essential cash. JR took the opposite view,
terms required under Section 2 of the insisting on the note’s negotiability. You
Warehouse Receipts Law (Act 2137 as are asked to referee. Which of the
amended) are embodied in the form. In opposing views is correct? Explain.
addition, the receipt issued to S contains
a stipulation that W would not be b) TH is an indorsee of a promissory
responsible for the loss of all or any note that simply states: “PAY TO JUAN
portion of the hardware materials TAN OR ODER 400 PESOS.” The note
covered by the receipt even if such loss has no date, no place of payment and
is caused by the negligence of W or his no consideration mentioned. It was
representatives or employees. S signed by MK and written under his
endorsed and negotiated the warehouse letterhead specifying the address, which
receipt to B, who demanded delivery of happens to be his residence. TH
 accepted the promissory note as own name in the blank space as the
payment for services he rendered to SH, payee. PN dishonored the note,
who in turn received the note from Juan contending that he did not authorize its
Tan as payment for a prepaid cellphone completion and delivery. But X said he
card worth 450 pesos. The payee had no participation in, or knowledge
acknowledged having received the note about, the pilferage and alteration of the
on August 1, 2000. A Bar reviewee had note and therefore he enjoys the rights
told TH, who happens to be your friend, of a holder in due course under the NIL.
that TH is not a holder in due course Who is correct and why?
under Article 52 of the NIL and therefore
does not enjoy the rights and protection b) Can the payee in a promissory note
under the statute. TH asks for your be a “holder in due course” within
advice specifically in connection with the the NIL? Explain your answer.
note being undated and not mentioning
a place of payment and any Answer:
consideration. What would your advice a) PN is right. The instrument is
be? incomplete and undelivered. It did
not create any contract that would
Answer: bind PN to an obligation to pay the
KR is right. The promissory note is amount thereof.
not negotiable. It is not issued to order
or bearer. There is no word of b) A payee in a promissory note cannot
negotiability contained therein. It is not be a “holder in due course” within
issued in accordance with Section 1 of the meaning of the NIL, because a
the NIL. payee is an immediate party in
relation to the maker. The payee is
The fact that the instrument is subject to whatever defenses, real or
undated and does not mention the place personal, available to the maker of
of payment does not militate against its the promissory note.
being negotiable. The date and place of
payment are not material particulars
required to make an instrument 7. PN is the holder of a negotiable
negotiable. promissory note within the meaning of
the NIL. The note was originally issued
The fact that no mention is made of by RP to XL as payee. XL indorsed the
any consideration is not material. note to PN for goods bought by XL. The
Consideration is presumed. note mentions the place of payment on
the specified maturity date as the office
of the corporate secretary of PX bank
6. a) PN makes a promissory note for during banking hours. On maturity date,
P5,000, but leaves the name of the RP was at the aforesaid office ready to
payee in blank because he wanted to pay the note but PN did not show up.
verify its correct spelling first. He What PN later did was to sue XL for the
mindlessly left the note on top of his face value of the note, plus interest and
desk at the end of the workday. When costs. Will the suit prosper? Explain.
he returned the following morning, the
note was missing. It turned up later Answer:
when X presented it to PN for payment. Yes. The suit will prosper as far as
Before X, T, who turned out to have the face value of the note is concerned,
filched the note from PN’s office, had but not with respect to the interest due
endorsed the note after inserting his subsequent to the maturity of the note
 and the costs of collection. RP was his bank deposit of half a million
ready and willing to pay the note at the pesos minus P100,000 which is the
specified place of payment on the maximum amount recoverable from
specified maturity date, but PN did not the PDIC.
show up. PN lost his right to recover the
interest due subsequent to the maturity
of the note and the cost of collection. 9. a) Name at least 3 instances when an
insured is entitled to a return of the
premium paid.
8. a) May a member of the MILF or its
breakaway group, the Abu Sayyaf, be b) What warranties are implied in marine
insured with a company licensed to do insurance?
business under the Insurance Code of
the Philippines? Explain. Answer:
a) Three instances when an insured is
b) BD has a bank deposit of half a entitled to a return of premium paid
million pesos. Since the limit of the are:
insurance coverage of the PDIC is only
1/10 of BD’s deposit, he would like 1. To the whole premium, if no part
some protection for the excess by taking of his interest in the thing insured
out an insurance against all risk or be exposed to any of the perils
contingencies of loss arising from any insured against.
unsound or unsafe banking practices 2. Where the insurance is made for
including unforeseen adverse effects of a definite period of time and the
the continuing crisis involving the insured surrenders his policy, to
banking and financial sector in the Asian such portion of the premium as
region. Does BD have an insurable corresponds with the unexpired
interest within the meaning the time at a pro rata rate, unless a
Insurance Code of the Philippines? short period rate has been
agreed upon and appears on the
Answer: face of the policy, after deducting
a) a member of the MILF or the Abu from the whole premium any
Sayyaf may be insured with a claim for loss or damage under
company licensed to do business the policy which has previously
under the Insurance Code of the accrued.
Philippines. What is prohibited to be 3. When the contract is voidable on
insured is a public enemy. A public account of the fraud or
enemy is a citizen or national of a misrepresentation of the insurer
country with which the Philippines is or of his agent or on account of
at war. Such member of the MILF or facts the existence of which the
the Abu Sayyaf is not a citizen or insured was ignorant without his
national of another country, but of fault; or when, by any default of
the Philippines. the insured other than actual
fraud, the insurer never incurred
b) Yes. BD has insurable interest in his any liability under the policy.
bank deposit. In case of loss of said
deposit, more particularly to the b) The following warranties are implied
extent of the amount in excess of the in marine insurance:
limit covered by the PDIC Act, BD
will be damnified. He will suffer
pecuniary loss of P400,000, that is,
 1. That the ship is seaworthy to property insured. BX, a mere friend-
make the voyage and/or to take companion of IS, has no insurable
in certain cargoes; interest in the residential house of IS.
2. That the ship shall not deviate BX is not entitled to receive the
from the voyage insured; proceeds from IS’ insurance on his
3. That the ship shall carry the property.
necessary documents to show
nationality or neutrality and that it As to the insurance coverage on the
will not carry document which will life of IS, BX is entitled to receive the
cast reasonable suspicion proceeds. There is no requirement that
thereon; BX should have insurable interest in the
4. That the ship shall not carry life of IS. It was IS himself who took the
contraband, especially if it is insurance on his own life.
making voyage through
belligerent waters.
11. a) X Company procured a group
accident insurance policy for its
10. IS, is an elderly bachelor with no known construction employees variously
relatives, obtained life insurance assigned to its provincial infrastructure
coverage for P250,000 from Starbrite projects. Y Insurance Company
Insurance Corporation, an entity underwrote the coverage, the premiums
licensed to engage in the insurable of which were paid for entirely by X
business under the Insurance Code of Company without any employee
the Philippines. He also insured his contributions. While the policy was in
residential house for twice that amount effect, five of the covered employees
with the same corporation. He perished at sea on their way to their
immediately assigned all his rights to the provincial assignments. Their wives
insurance proceeds to BX, a friend- sued Y Insurance Company for payment
companion living with him. 3 years later, of death benefits under the policy. While
IS died in a fire that gutted his insured the suit was pending, the wives signed a
house 2 days after he had sold it. There power of attorney designating an X
is no evidence of suicide or arson or Company executive. PJ as their
involvement of BX in these events. BX authorized representative to enter into a
demanded payment of the insurance settlement with the insurance company.
proceeds from the 2 policies, the When a settlement was reached, PJ
premiums for which IS had been instructed the insurance company to
faithfully paying during all the time he issue a settlement check to the order of
was alive. Starbrite, refused payment, the X Company, which will undertake
contending that BX had no insurable the payment to the individual claimants
interest and therefore was not entitled to of their respective shares. PJ
receive the proceeds from IS’ insurance misappropriated the settlement amount
coverage on his life and also on his and the wives pursued their case
property. Is Starbrite’s contention valid? against Y Insurance Company. Will the
Explain. suit prosper? Explain.

Answer: b) X was riding a suburban utility vehicle

Starbrite is correct with respect to (SUV) covered by a comprehensive
the insurance coverage on the property motor vehicle liability insurance (CMVLI)
of IS. The beneficiary in the property underwritten by FastPay Insurance
insurance policy or the assignee thereof Company when it collided with a
must have insurable interest in the speeding bus owned by RM Travel, Inc.
the collision resulted in serious injuries 12. X has a Tamaraw FX among other
to X; Y, a passenger of the bus; and Z, a cars. Every other day during the
pedestrian waiting for a ride at the workweek, he goes to his office in
scene of the collision. The police report Quezon City using his Tamaraw FX and
established that the bus was the picks up friends as passengers at
offending vehicle. The bus had a CMVLI designated points along the way. His
policy issued by Dragon Insurance passengers pay him a flat fee for the
Corporation, X, Y and Z jointly sued RM ride, usually P20 per person, one way.
Travel and Dragon Insurance for Although a lawyer, he never bothered to
indemnity under the Insurance Code of obtain a license to engage in this type of
the Philippines. The lower court applied income-generating activity. He believes
the “no-fault” indemnity policy of the that he is not a common carrier within
statute, dismissed the suit against RM the purview of the law. Do you agree
Travel, and ordered Dragon insurance with him? Explain.
to pay indemnity to all three plaintiffs.
Do you agree with the court’s judgment? Answer:
Explain. No. I do not agree with X. A common
carrier holds himself out to the public as
Answer: engaged in the business of transporting
a) Yes. The suit will prosper. Y persons or property from place to place,
insurance Company is liable. X for compensation, offering his services
Company, through its executive, PJ, to the public generally. The fact that X
acted as agent of Y Insurance has a limited clientele does not exclude
Company. The latter is thus bound him from the definition of a common
by the misconduct of its agent. It is carrier. The law does not make any
the usual practice in the group distinction between one whose principal
insurance business that the business activity is the carrying of
employer-policy holder is the agent persons or goods or both, and the one
of the issuer. who does such carrying only as an
ancillary activity or in the local idiom, as
b) No. The cause of action of Y is a “sideline”
based on the contract of carriage,
while that of X and Z is based on
torts. The court should not have 13. a) X Shipping Company spent almost a
dismissed the suit against RM fortune in refitting and repairing its
Travel. The court should have luxury passenger vessel, the MV
ordered Dragon Insurance to pay Marina, which plied the inter-island
each of X, Y, and Z to the extent of routes of the company from La Union in
the insurance coverage, but the north to Davao City in the south. The
whatever amount is agreed upon in MV Marina met an untimely fate during
the policy should be answered first its post-repair voyage. It sank off the
by RM Travel and the succeeding coast of Zambales while en route to La
amount should be paid by Dragon Union from Manila. The investigation
Insurance up to the amount of the showed that the captain alone was
insurance coverage. The excess of negligent. There were no casualties in
the claims of X, Y and Z, over and that disaster. Faced with a claim for the
above such insurance coverage, if payment of the refitting and repair, X
any, should be answered or paid by Shipping Company asserted exemption
RM Travel. from liability on the basis of the
hypothecary or limited liability rule under
Article 587 of the Code of Commerce. Is
X Shipping Company’s assertion valid? vessel and also from the owners of
Explain. the cargoes saved.

b) MV SuperFast, a passenger-cargo SF Shipping is not entitled to

vessel owned by SF Shipping Company contribution/reimbursement for the
plying the inter-island routes, was on its cost of repairs on the vessel from
way to Zamboanga City from the Manila the shippers.
port when it accidentally, and without
fault or negligence of anyone on the
ship, hit a huge floating object. The 14. a) MV Mariposa, one of five passenger
accident caused damage to the vessel ships owned by the Marina Navigation
and loss of an accompanying crated Company, sank off the coast of Mindoro
cargo of passenger PR. In order to while en route to Iloilo City. More than
lighten the vessel and save it from 200 passengers perished in the
sinking and in order to avoid risk of disaster. Evidence showed that the ship
damage to or loss of the rest of the captain ignored typhoon bulletins issued
shipped items (none of which was by PAGASA during the 24-hour period
located on the deck), some had to be immediately prior to the vessel’s
jettisoned. SF Shipping had the vessel departure from Manila. The bulletins
repaired at its port of destination. SF warned all types of sea crafts to avoid
Shipping thereafter filed a complaint the typhoon’s expected path near
demanding all the other cargo owners to Mindoro. To make matters worse, he
share in the total repair costs incurred took more load than was allowed for the
by the company and in the value ship’s rated capacity. Sued for damages
jettisoned cargoes. In answer to the by the victim’s surviving relatives,
complaint, the shippers’ sole contention Marina Navigation Company contended:
was that, under the Code of Commerce, (1) that its liability, if any, had been
each damaged party should bear its or extinguished with the sinking of MV
his own damage and those that did not Mariposa; and (2) that assuming it had
suffer any loss or damage were not not been so extinguished, such liability
obligated to make any contribution in should be limited to the loss of the
favor of those who did. Is the shippers cargo. Are these contentions meritorious
contention valid? Explain. in the context of applicable provisions of
the Code of Commerce?
Answer:
a) No. the assertion of X Shipping b) RC imported computer motherboards
Company is not valid. The total from the USA and had them shipped to
destruction of the vessel does not Manila aboard an ocean-going cargo
affect the liability of the shipowner ship owned by BC Shipping Company.
for repairs on the vessel completed When the cargo arrived at the Manila
before its loss. seaport and delivered to RC, the crate
appeared intact; but upon inspection of
b) No. the shippers’ contention is not the contents, RC discovered that the
valid. The owners of the cargo items inside had all been badly
jettisoned, to save the vessel from damaged. He did not file any notice of
sinking and to save the rest of the damage or anything with anyone, least
cargoes, are entitled to contribution. of all with BC Shipping Company. What
The jettisoning of said cargoes he did was to proceed directly to your
constitute general average loss office to consult you about whether he
which entitles the owners thereof to should have given a notice of damage
contribution from the owner of the and how long a time he had to initiate a
 suit under the provisions of the COGSA. services. WWW seeks your professional
What would your advise be? advice on whether or not its reorganized
business activity would be considered a
public utility requiring a franchise or
Answer: certificate or any other form of
a) Yes. The contentions of Marina authorization from the government.
Navigation Company are What will be your advice? Explain.
meritorious. The captain of MV
Mariposa is guilty of negligence in Answer:
ignoring the typhoon bulletins issued The reorganized business activity of
by PAGASA and in overloading the WWW Communications Inc. would not
vessel. But only the captain of the be considered a public utility requiring a
vessel MV Mariposa is guilty of franchise or certificate or any other form
negligence. The shipowner is not. of authorization from the government. It
Therefore, the shipowner can invoke owns the facilities, but does not operate
the doctrine of limited liability. the same.

b) My advice would be that RC should

give notice of the damage sustained 16. Nine individuals formed a private
by the cargo within 3 days and that corporation pursuant to the provisions of
he has to file the suit to recover the the Corporation Code of the Philippines.
damage sustained by the cargo Incorporator S was elected director and
within 1 year from the date of the president—general manager. Part of his
delivery of the cargo to him. emolument is a Ford Expedition, which
the corporation owns. After a few years.
S lost his corporate positions but he
15. WWW Communications Inc., is an e- refused to return the motor vehicle
commerce company whose present claiming that as a stockholder with a
business activity is limited to providing substantial equity share, he owns that
its clients with all types of information portion of the corporate assets now in
technology hardware. It plans to re- his possession. Is the contention of S
focus its corporate direction of gradually valid? Explain.
converting itself into a full convergence
organization. Towards this objective, the Answer:
company has been aggressively No. the contention of S is not valid.
acquiring telecommunications The Ford Expedition is owned by the
businesses and broadcast media corporation. The corporation has a legal
enterprises, and consolidating their personality separate and distinct from
corporate structures. The ultimate plan that of its stockholder. What the
is to have only two organizations: one to corporation owns is its own property and
own the facilities of the combined not property of any stockholder even
businesses and to develop and produce how substantial the equity share that
content materials, and another to stockholder owns.
operate the facilities and provide mass
media and commercial
telecommunications services. WWW 17. Marulas Creative Technology Inc., an
Communications will be the flagship e-business enterprise engaged in the
entity which will own the facilities of the manufacture of computer multimedia
conglomerate and provide content to the accessories, rents an office and store
other new corporation which, in turn, will space at a commercial building owned
operate those facilities and provide the by X. being a start-up company, Marulas
 enjoyed some leniency in its rent
payment; but after 3 years, X put a stop b) The SEC approved the amendment
to it and asked Marulas president and of the articles of incorporation of GHQ
general manager, Y, who is a Corporation shortening its corporate life
stockholder, to pay back rentals to only 25 years in accordance with
amounting to a hundred thousand pesos Section 120 of the Corporation Code. As
or to vacate the premises at the end of shortened, the corporation continued its
the month. Marulas neither paid its debt business operations until May 30, 1997,
nor vacated the premises. X sued the last day of its corporate existence.
Marulas and Y for collection of the Prior to said date, there were a number
unpaid rentals, plus interest and costs of of pending civil actions, of varying
litigation. Will the suit prosper against nature but mostly money claims filed by
X? Against Y? creditors, none of which was expected
to be completed or resolved within 5
Answer: years from May 30, 1997.
Yes, the suit will prosper against
Marulas. It is the one renting the office If the creditors had sought your
and store space, as lessee, from the professional help at that time about
owner of the building, X, as lessor. whether or not their cases could be
pursued beyond May 30, 1997, what
But the suit against Y will not would have been your advice?
prosper. Y, as president and general
manager, and also stockholder of Answer:
Marulas Creative Technology, Inc., has a) The provision in the amended by-
a legal personality separate and distinct laws, disqualifying any stockholder
from that of the corporation and not that who is also a director or stockholder
of its officers and stockholders who are of a competing business from being
not liable for corporate liabilities. elected to the Board of Directors of
MS Corporation, is valid. The
corporation is empowered to adopt a
18. a) At the annual stockholders’ meeting code of by-laws for its government
of MS Corporation, the stockholders not inconsistent with the Corporation
unanimously passed a resolution Code. Such disqualifying provision is
authorizing the Board of Directors to not inconsistent with the Corporation
amend the corporate by-laws so as to Code.
disqualify any stockholder who is also a
director or stockholder of a competing b) The cases can be pursued even
business from being elected to the beyond May 30, 1997, the last day
Board of Directors of MS Corporation. of the corporate existence of GHQ
The by-laws were accordingly amended. Corporation. The Corporation is not
GK, a stockholder of MS Corporation actually dissolved upon the
and a majority stockholder of a expiration of its corporate term.
competitor, sought election to the Board There is still the period for liquidation
of Directors of MS Corporation. His or winding up.
nomination was denied on the ground
that he was ineligible to run for the
position. Seeking a nullification of the 19. a) The Monetary Board of the Bangko
offending disqualification provision, GK Sentral closed Urban Bank after it
consults you about its validity under the encountered crippling financial
Corporation Code of the Philippines. difficulties that resulted in a bank run. X,
What would your legal advice be? one of the members of the Board of
Directors of the bank, attended and
stayed throughout the entire meeting of b) No. The salesgirl’s understanding
the Board that was held well in advance that coins are not legal tender is not
of the bank run and before news had correct. Coins are legal tender in
begun to trickle to the business amounts not exceeding P50 for
community about the dire financial pit denominations from 25-centavos
the bank had fallen into. Immediately and above, and in amounts not
after the meeting, X caused the exceeding P20 for denominations
preparation and issuance of a 10-centavos and less.
manager’s check payable to himself in
the sum of P5 M equivalent to the
amount placed or invested in the bank 20. Embassy Appliance sells home theater
by a business acquaintance. He now components that are designed and
claims that he is keeping the funds in customized as entertainment centers for
trust for the owner and that he had consumers within the medium-to-high
committed no violation of the General price bracket. Most, if not all, of these
Banking Act for which he should be packages are sold on installment basis,
punished. Do you agree that there has usually by means of credit cards
been no violation of the statute? allowing a maximum of 36 equal
monthly payments. Preferred credit
b) After many years of shopping in the cards of this type are those issued by
Metro Manila area, housewife HW has banks, which regularly hold mall-wide
developed the sound habit of making sales blitzes participated in by appliance
cash purchases only, none on credit. In retailers like Embassy Appliances. The
one shopping trip to Mega Mall, she got salesclerk who is attending to you
the shock of her shopping life for the simply swipes your credit card on the
first time, a store’s smart salesgirl electronic approval machine (which
refused to accept her coins in payment momentarily prints out your charge slip
for a purchase worth not more than since you have unlimited credit), tears
P100. HW was paying P70 in 25- the slip from the machine, hands the
centavo coins and P25 in 10-centavo same over to you for your signature, and
coins. Strange as it may seem, the without more, proceeds to arrange the
salesgirl told HW that her coins were not delivery and installation of your new
“legal tender”. Do you agree with the home theatre system. You know you will
salesgirl in respect of her understanding receive a statement on your credit card
of “legal tender”? Explain. purchases from the bank containing an
option to pay only a minimum amount,
Answer: which is usually 1/36 of the total price
a) No. I do not agree that there is no you were charges for your purchase.
violation of the statute. X violated Did Embassy Appliance comply with the
Section 85 when he caused the provisions of the Truth in Lending Act?
preparation and issuance of a
manager’s check payable to himself Answer:
in the sum of P5 M. This is paying There is no need for Embassy
out or permitting to be paid out funds Appliances to comply with the Truth in
of the bank after the latter became Lending Act. The transaction is not a
insolvent. This act is penalize by fine sale on installment basis. Embassy
of not less than P1,000 nor more Appliances is a seller on cash basis. It is
than P10,000 and by imprisonment the credit card company which allows
for not less than 2 nor more than 10 the buyer to enjoy the privilege of paying
years. the price on installment basis.
 2. As a result of perennial business losses,
a corporation’s net worth has been
wiped out. In fact, it is now in negative
territory. Nonetheless, the stockholders
did not like to give up.
1999 BAR EXAMINATION
Creditor-banks, however, do not share
the confidence of the stockholders and
1. Government plans to impose an refuse to grant more loans.
additional duty on imported sugar on top
of the current tariff rate. The intent is to a) What tools are available to the
ensure that the landed cost of sugar stockholders to replenish capital?
shall not be lower than P800 per bag. b) Assuming that the corporation
This is the price at which locally continues to operate even with
produced sugar would be sold in order depleted capital, would the
to enable sugar producers to realize stockholders or the managers be
reasonable profits. Without this solidarily liable for the obligations
additional duty, the current low price of incurred by the corporation? Explain.
sugar in the world, the current low price
of sugar in the world market will surely Answer:
pull the domestic price—a situation that a) In the face of the refusal of the
could spell the demise of the Philippine creditor-banks to grant more loans,
sugar industry. the following are tools available to
the stockholders to replenish capital,
a) Discuss the validity of this proposal to wit: (1) additional subscription to
to impose an additional levy on shares of stock of the corporation by
imported sugar. stockholders or by investors; (2)
b) Would the proposal be consistent advances by the stockholders to the
with the tenets of the World Trade corporation; (3) payment of unpaid
Organization (WTO) subscription by the stockholders.

Answer: b) No. As a general rule, the

a) The proposal to impose an stockholders or the managers
additional duty on imported sugar on cannot be held solidarily liable for
top of the current tariff rate is valid, the obligations incurred by the
not being prohibited by the corporation. The corporation has a
Constitution. It would enable separate and distinct personality
producers to realize reasonable from that of the stockholders and
profits, and would allow the sugar managers. The latter are presumed
industry of the country to survive. to be acting in good faith in
continuing the operation of the
b) No. The proposal would not be corporation. The obligations incurred
consistent with the tenets of the by the corporation are those of the
WTO which call for the liberalization corporation which alone is liable
of trade. However, such proposal therefor. However, when the
may be acceptable within the corporation is already insolvent, the
allowable period under the WTO for directors and officers become
adjustment of the local industry. trustees of the business and assets
of the corporation for the benefit of
the creditors and are liable for
negligence or mismanagement.
 mortgage was executed, debtor was not
yet the owner of the lot on which the
3. Debtor purchased a parcel of land from house was built. Accordingly, the house
a realty company payable in 5 yearly was a personal property and a proper
installments. Under the contract of sale, subject of a chattel mortgage.
title to the lot would be transferred upon
full payment of the purchase price. a) Discuss the validity of the position
taken by the surety company.
But even before full payment, debtor b) Who has a better claim to the house,
constructed a house on the lot. the surety company or the lending
Sometime thereafter, debtor mortgaged investor? Explain.
the house to secure his obligation c) Would the position of the surety
arising from the issuance of a bond company be bolstered by the fact
needed in the conduct of his business. that it acquired title in a foreclosure
The mortgage was duly registered with sale conducted by the Provincial
the proper chattel mortgage registry. Sheriff. Explain.

5 years later after completing payment Answer:

of the purchase price, debtor obtained a) The house is always a real property
title to the lot. And even as the chattel even though it was constructed on a
mortgage on the house was still land not belonging to the builder.
subsisting, debtor mortgaged to a bank However, the parties may treat it as
the lot and improvement thereon to personal property and constitute a
secure a loan. This real estate mortgage chattel mortgage thereon. Such
was duly registered and annotated at mortgage shall be valid and binding
the bank of the title. but only on the parties. It will not
bind or affect third parties.
Due to business reverses, debtor failed
to pay his creditors. The chattel b) The lending investor has a better
mortgage was foreclosed when the claim to the house. The real estate
debtor failed to reimburse the surety mortgage covering the house and lot
company for payments made on the was duly registered and binds the
bond. In the foreclosure sale, the surety parties and third persons. On the
company was awarded the house as the other hand, the chattel mortgage on
highest bidder. the house securing the credit of the
surety company did not affect the
Only after the foreclosure sale did the rights of third parties such as the
surety company learn of the real estate lending investor despite registration
mortgage in favor of the lending investor of the chattel mortgage.
on the lot and the improvement thereon.
Immediately, it filed a complaint praying c) No. The chattel mortgage over the
for the exclusion of the house from the house which was foreclosed did not
real estate mortgage. It was submitted affect the rights of third parties like
that as the chattel mortgage was the lending investor. Since third
executed and registered ahead, it was parties are not bound by the chattel
superior to the real estate mortgage. mortgage, they are not also bound
by any enforcement of its provisions.
On the suggestion that a chattel The foreclosure of such chattel
mortgage on a house—a real property— mortgage did not bolster or add
was a nullity, the surety company anything to the position of the surety
countered that when the chattel company.
 the insured with the Second
Insurance Company. The same is
4. A businessman in the grocery business true with respect to the interests
obtained from First Insurance an insured in the two policies.
insurance policy for P5 M to fully cover
his stocks-in-trade from the risk of fire. c) As judge, I would allow the
businessman to recover his total
3 months later, a fire of accidental origin loss of P5 M pesos representing the
broke out and completely destroyed the full value of his goods which were
grocery including his stocks-in-trade. lost through fire. As to the creditor, I
This prompted the businessman to file would allow him to recover the
with First Insurance a claim for P5 M amount to the extent of or equivalent
representing the full value of his goods. to the value of the credit he
extended to the businessman for the
First Insurance denied the claim stocks-in-trade which were
because it discovered that at the time of mortgaged by the businessman.
the loss, the stock-in-trade were
mortgaged to a creditor who likewise
obtained from Second Insurance 5. Debtor Corporation and its principal
Company fore insurance coverage for stockholders filed with the SEC a
the stocks at their full value of P5 M. petition for rehabilitation and declaration
of a state of suspension of payments
a) May the businessman and the under P.D. 902-A. The objective was for
creditor obtain separate insurance SEC to take control of the corporation
coverage over the same stocks-in- and all its assets and liabilities, earnings
trade? Explain. and operations and rehabilitating the
b) First Insurance refused to pay company for the benefit of investors and
claiming that double insurance is creditors.
contrary to law. Is this contention
tenable? Generally, the unsecured creditors had
c) Suppose you are the Judge, how manifested willingness to cooperate with
much would you allow the Debtor Corporation. The secured
businessman and the creditor to creditors, however, expressed serious
recover from their respective objections and reservations.
insurers. Explain.
First Bank had already initiated judicial
Answer: foreclosure proceedings on the
a) Yes. The businessman, as owner, mortgage constituted on the factory of
and the creditor, as mortgagee, have Debtor Corporation.
separate insurable interests in the
same stocks-in-trade. Each may Second Bank had already initiated
insure such interest to protect his foreclosure proceedings on a third-party
own separate interest. mortgage constituted on certain assets
b) The contention of First Insurance of the principal stockholders.
that double insurance is contrary to
law is untenable. There is no law Third Bank had already filed a suit
providing that double insurance is against the principal stockholders who
illegal per se. moreover, in the had held themselves liable jointly and
problem at hand, there is no double severally for the loans of Debtor
insurance because the insured with Corporation with said Bank.
the First Insurance is different from
After hearing, the SEC directed the foreclosure is against the property of
appointment of a rehabilitation receiver a third party, it is in reality an action
and ordered the suspension of all to collect the principal obligation
actions and claims against the Debtor owed by the corporation. During the
Corporation as well as against the time that the payment of the
principal stockholders. principal obligation is suspended,
the debtor corporation is considered
a) Discuss the validity of the SEC order to be not in default and, therefore,
of suspension? even the right to enforce the
b) Discuss the effects of the SEC order security, whether owned by the
of suspension on the judicial debtor-corporation or of a third party,
foreclosure proceedings initiated by has not yet arisen.
First Bank.
c) Would the order of suspension have d) For the same reason as in (c), the
any legal effect on the foreclosure order of suspension of payments
proceedings initiated by Second suspended the suit filed by Third
Bank? Explain. Bank against the principal
d) Would the order of suspension have stockholders.
any effect on the suit filed by Third
Bank? Explain. e) Under PD 902-A, the appointment of
e) What are the legal consequences of a rehabilitation receiver will suspend
a rehabilitation receivership? all actions for claims against the
f) What measures may the receiver corporation and the corporation will
take to preserve the assets of be placed under rehabilitation in
Debtor Corporation? accordance with a rehabilitation plan
approved by the Commission.
Answer:
a) The SEC order of suspension of f) To preserve the assets of the Debtor
payment is valid with respect to the Corporation, the receiver may take
debtor corporation, but not with custody of, and control over, all the
respect to the principal stockholder. existing assets and property of the
The SEC has jurisdiction to declare corporation; evaluate existing assets
suspension of payments with and liabilities, earnings and
respect to corporations, partnership operations of the corporation; and
or associations, but not with respect determine the best way to salvage
to individuals. and protect the interest of the
investors and creditors.
b) The SEC order of suspension of
payment suspended the judicial
proceedings initiated by First Bank. 6. On December 1, 1996, Borrower
According to the Supreme Court in a executed a chattel mortgage in favor of
line of cases, the suspension order the bank to secure a loan of P3 M. in
applies to secured creditors and to due time the loan was paid.
the action to enforce the security
against the corporation regardless of On December 1, 1997, Borrower
the stage thereof. obtained another loan of P2 M which the
Bank granted under the same security
c) The order of suspension of as that which secured the first loan.
payments suspended the
foreclosure proceedings initiated by For the second loan, Borrower merely
the Second Bank. While the delivered a promissory note; no new
chattel mortgage agreement was b) Yes. The chattel mortgage is not
executed as the parties relied on a valid as against any person, except
provision in the 1996 chattel mortgage the mortgagor, his executors and
agreement which included future debts administrators.
as among the obligations secured by the
mortgage. The provision reads:
7. ABC Corporation has an authorized
“In case the MORTGAGOR executes capital stock of P1 M divided into 50,000
subsequent promissory note or notes common shares and 50,000 preferred
either as renewal, as an extension, or as shares.
a new loan, this mortgage shall also
stand as security for the payment of said At its inception, the Corporation offered
promissory note or notes without the for subscription all the common shares.
necessity of executing a new contract However, only 40,000 shares were
and this mortgage shall have the same subscribed.
force and effect as if the said promissory
note or notes were existing on date Recently, the directors thought of raising
hereof.” additional capital and decided to offer to
the public all the authorized shares of
As borrower failed to pay the second the Corporation at their market value.
loan, the Bank proceeded to foreclose
the Chattel Mortgage. a) Would Mr. X, a stockholder holding
4,000 shares, have pre-emptive
Borrower sued the Bank claiming that rights to the remaining 10,000
the mortgage was no longer in force. shares?
Borrower claimed that a fresh chattel b) Would Mr. X have pre-emptive rights
mortgage should have been executed to the 50,000 preferred shares?
when the second loan was granted. c) Assuming that the existing
stockholders are entitled to pre-
a) Decide the case and ratiocinate. emptive rights, at what price will the
b) Supposed the chattel mortgage was shares be offered?
not registered, would its validity and d) Assuming a stockholder disagrees
effectiveness be impaired? Explain. with the issuance of new shares and
the pricing for the shares, may the
Answer: stockholder invoke his appraisal
a) The foreclosure of the chattel rights and demand payment for his
mortgage regarding the second loan shareholdings?
is not valid. A chattel mortgage
cannot validly secure after-incurred Explain your answers.
obligations. The affidavit of good
faith required under the chattel Answer:
mortgage law expressly provides a) Yes. Mr. X, a stockholder holding
that “the foregoing mortgage is 4,000 shares, has pre-emptive right
made for securing the obligation to the remaining 10,000 shares. All
specified in the conditions hereof, stockholders of a stock corporation
and for no other purpose.” The after- shall enjoy preemptive right to
incurred obligation not being subscribe to all issues or disposition
specified in the affidavit, it is not of shares of any class, in proportion
secured by the mortgage. to their respective shareholdings.
The ruling in Benito v. Datu and Tan
v. SEC to the effect that preemptive
 right applies only to issuance of b) Assuming that a week prior to the
shares in connection with an levy, the receipt was sold to a rice
increase in capital is no longer a mill on the basis of which it filed a
valid rule under the Corporation claim with the sheriff. Would the rice
Code. The facts in those cases mill have better rights to the rice
happened during the regime of the than the creditor? Explain your
old Corporation Law. answer.

b) Yes. Mr. X would have pre-emptive Answer:

rights to the 50,000 preferred a) The 1000 bags of rice were
shares. All stockholders of a stock delivered to the Warehouse
corporation shall enjoy pre-emptive Company by a merchant, and a
right to subscribe to all issues or negotiable receipt was issued
disposition of shares of any class, in therefore. The rice cannot thereafter,
proportion to their respective while in possession of the
shareholdings. Warehouse Company, be attached
by garnishment or otherwise, or be
c) The shares will be offered to existing levied upon under an execution
stockholders, who are entitled to unless the receipt be first
pre-emptive right, at a price fixed by surrendered to the warehouseman,
the Board of Directors, which shall or its negotiation enjoined. The
not be less than the par value of Warehouse Company cannot be
such shares. compelled to deliver the actual
possession of the rice until the
d) No, the stockholder may not receipt is surrendered to it or
exercise appraisal right because the impounded by the court.
matter that he dissented from is not
one of those where right of appraisal b) Yes. The rice mill, as a holder for
is available under the Corporation value of the receipt, has a better
Code. right to the rice than the creditor. It is
rice mill that can surrender the
receipt which is in its possession
8. A Warehouse Company received for and can comply with the other
safekeeping 1000 bags of rice from a requirements which will oblige the
merchant. To evidence the transaction, warehouseman to deliver the rice,
the Warehouse Company issued a namely, to sign a receipt for the
receipt expressly providing that the delivery of the rice, and to pay the
goods be delivered to the order of said warehouseman’s lien and fees and
merchant. other charges.

A month after, a creditor obtained

judgment against the said merchant for 9. Borrower obtained a loan against the
a sum of money. The sheriff proceeded security of a mortgage on a parcel of
to levy on the rice and directed the land. While the mortgage was
Warehouse Company to deliver to him subsisting, borrower leased for 50 years
the deposited rice. the mortgaged property to Land
development Company (LDC). The
a) What advice will you give the mortgagee was duly advised of the
Warehouse Company? Explain your lease.
answer.
Thereafter, LDC constructed on the Since the mortgagee was informed
mortgaged property an office of the lease and did not object to it,
condominium. the mortgagee became bound by the
terms of the lease when it acquired
Borrower defaulted on his loan and the property as the highest bidder.
mortgagee foreclosed the mortgage. At Hence, the mortgagee steps into the
the foreclosure sale, the mortgagee was shoes of the mortgagor and acquires
awarded the property as the highest the rights of the lessor under Article
bidder. The corresponding Certificate of 1678 of the Civil Code. This
Sale was executed and after the lapse provision gives the lessor the right to
of 1 year, title was consolidated in the appropriate the condominium
name of the mortgagee. building but after paying the lessee
half of the value of the building at
Mortgagee then applied with the RTC that time. Should the lessor refuse to
for the issuance of a writ of possession reimburse said amount, the lessee
not only over the land but also the may remove the improvement even
condominium building. The mortgagee though the land will suffer damage
contended that the mortgage included thereby.
all accessions, improvements and
accessories found on the mortgaged b) The lease rentals belong to the
property. mortgagor. However, the mortgage
extends to rentals not yet received
LDC countered that it had built on the when the obligation becomes due
mortgaged property with the prior and the mortgagee may ran after the
knowledge of mortgagee which had said rentals for the payment of the
received formal notice of the lease. mortgage debt.

a) How would you resolve the dispute

between the mortgagee and LDC? 10. A check for P50,000 was drawn against
b) Is the mortgagee entitled to the drawee bank and made payable to XYZ
lease rentals due from LDC under Marketing or order. The check was
the lease agreement? deposited with payee’s account at ABC
Bank which then sent the check for
Answer: clearing to drawee bank.
a) The mortgagee has a better right
than LDC. The mortgage extends to Drawee bank refused to honor the
the improvements introduced on the check on ground that the serial number
land, with the declarations, thereof had been altered.
amplifications, and limitations
established by law, whether the XYZ Marketing sued drawee bank.
estate remains in the possession of
the mortgagor or passes into the a) Is it proper for the drawee bank to
hands of a third person. The notice dishonor the check for the reason
given by LDC to the mortgagee was that it had been altered? Explain.
not enough to remove the building b) In instant suit, drawee bank
from coverage of the mortgage contended that XYZ Marketing as
considering that the building was payee could not sue the drawee
built after the mortgaged was bank as there was no privity
constituted and the notice was only between them. Drawee theorized
as regards the lease and not as to that there was no basis to make it
the construction of the building.
 liable for the check. Is this to the surviving corporation, those
contention correct? Explain. receivables which were created after
the merger agreement remained to
Answer: be owned by the absorbed
a) No. The serial number is not a corporation. These receivables
material particular of the check. Its would be distributed to the
alteration does not constitute stockholders conformably with the
material alteration of the instrument. dissolution and liquidation
The serial number is not material to procedures under the New
the negotiability of the instrument. Corporation Code? Discuss the
merits of this argument.
b) Yes. As a general rule, the drawee is
not liable under the check because Answer:
there is no privity of contract a) No. There is no need for the
between XYZ Marketing, as payee, absorbed corporation to undertake
and ABC Bank as the drawee bank. dissolution and winding up
However, if the action taken by the procedure. As a result of the merger,
bank is an abuse of right which the absorbed corporation is
caused damage not only to the automatically dissolved and its
issuer of the check but also to the assets and liabilities are acquired
payee, the payee has a cause of and assumed by the surviving
action under quasi-delict. corporation.

b) No. The merger does not become

11. Two corporations agreed to merge. effective until and unless approved
They then executed an agreement by the SEC. before the approval by
specifying the surviving corporation and the SEC of the merger, the surviving
the absorbed corporation. Under the corporation has no legal personality
agreement of merger dated November with respect to receivables due to
5, 1998, the surviving corporation the absorbed corporation.
acquired all the rights, properties and
liabilities of the absorbed corporation. c) Whether the receivable was incurred
by the absorbed corporation before
a) What would happen to the absorbed or after the merger agreement, or
corporation? Must the absorbed before or after the approval thereof
corporation undertake dissolution by the SEC, the said receivable
and the winding up procedures? would still belong to the surviving
Explain your answer. corporation under Section 80 of the
b) Pending the approval of the merger Corporation Code which does not
by the SEC, may the surviving make any distinction as to the assets
corporation already institute suits to and liabilities of the absorbed
collect all receivables due to the corporation that the surviving
absorbed corporation from its corporation would inherit.
customers? Explain your answer.
c) A case was filed against a customer
to collect on the promissory note 12. Various buyers of lots in a subdivision
issued by him after the date of the brought actions to compel either or both
merger agreement. The customer the developer and the bank to release
raised the defense that while the and deliver free and clear the titles to
receivables as of the date of the their respective lots.
merger agreement were transferred
 The problem arose because per month plus 2% per annum as
notwithstanding prior sales mostly on service charge.
installments—made by the developer to
buyers, developer had mortgaged the On maturity of the loan, borrower failed
whole subdivision to a commercial bank. to pay the principal debt as well as the
The mortgage was duly executed and stipulated interest and service charge.
registered with the appropriate Hence, he was sued.
governmental agencies. However, as
the lot buyers were completely unaware How would you dispose of the issues
of the mortgage lien of the bank, they raised by the borrower?
religiously paid the installments due
under their sale contracts. a) That the stipulated interest rate is
excessive and unconscionable?
As the developer failed to pay its loan,
the mortgage was foreclosed and the Answer:
whole subdivision was acquired by the The rate of interest of 5.5% per
bank as the highest bidder. month is excessive and unconscionable.

a) May the bank dispossess prior a) The interest cannot be considered

purchasers of individual lots or, usurious. The Usury Law has been
alternatively, require them to pay suspended in its application, and the
again for the paid lots? Discuss. interest rates are made “floating”.
b) What are the rights of the bank vis-
à-vis those buyers with remaining
unpaid installments? Discuss. 14. Thinking that the impending typhoon
was still 24 hours away, MV Pioneer left
Answer: port to sail for Leyte. That was a
a) No. The bank may not dispossess miscalculation of the typhoon signals by
the prior purchasers of the individual both the ship-owner and the captain as
lots, much less require them to pay the typhoon came earlier and overtook
for the paid lots. The bank has to the vessel. The vessel sank and a
respect the rights of the prior number of passengers disappeared with
purchasers of the individual lots. The it.
purchasers have the option to pay
the installments of the mortgagee. Relatives of the missing passengers
claimed damages against the
b) The bank has to respect the rights of shipowner. The shipowner set up the
the buyers with remaining unpaid defense that under the doctrine of
installments. The purchaser has the limited liability, his liability was co-
option to pay the installments to the extensive with his interest in the vessel.
mortgagee who should apply the As the vessel was totally lost, his liability
payments to the mortgage had also been extinguished.
indebtedness.
a) How will you advice the claimants?
Discuss the doctrine of limited
13. Borrower obtained a loan from a money liability in maritime law.
lending enterprise for which he issued a b) Assuming that the vessel was
promissory note undertaking to pay at insured. May the claimants go after
the end of a period of 30 days the the insurance proceeds?
principle plus interest at the rate 5.5%
 a) Under the doctrine of limited liability b) A bill of lading has two-fold
in maritime law, the liability of the character, namely, (a) it is a receipt
shipowner arising from the operation of goods to be transported; and (b) it
of a ship is confined to the vessel, constitutes a contract of carriage of
equipment, and freight, or insurance, the goods.
if any, so that if the shipowner
abandoned the ship, equipment, and
freight, his liability is extinguished. 2. X took a plane from Manila bound for
However, the doctrine of limited Davao via Cebu where there was a
liability does not apply when the change of planes. X arrived in Davao
shipowner or captain is guilty of safely but to his dismay, his two
negligence. suitcases were left behind in Cebu. The
airline company assured X that the
b) Yes. In case of a lost vessel, the suitcases would come in the next flight
claimants may go after the proceeds but they never did.
of the insurance covering the vessel.
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 the loss
cannot exceed P250 for each piece of
luggage. X however reasoned out that
he did not sign the stipulation and in fact
had not even read it.

X did not declare a greater value despite

the fact that the clerk had called his
attention to the stipulation in the ticket.
Decide the case.

Answer:
Even if he did not sign the ticket, X is
bound by the stipulation that any claim
for loss cannot exceed P250 for each
luggage. He did not declare a higher
1998 BAR EXAMINATION value. X is entitled to P500 for the two
luggages lost.

1. a) What do you understand by a “bill of

lading”? 3. A severe typhoon was raging when the
b) Explain the two-fold character of a vessel SS Masdaam collided with the
“bill of lading.” M/V Princess. It is conceded that the
typhoon was the major cause of
Answer: collision, although there was a very
a) A bill of lading may be defined as strong possibility that it could have been
written acknowledgment of the avoided if the captain of the SS
receipt of goods and an agreement Masdaam was not drunk and the
to transport and to deliver them at a captain of the M/V Princess was not
specified place to a person named asleep at the time of the collisions.
therein or on his order.
 Who should bear the damages to the sues X on the note, can X set up the
vessels and their cargoes? defenses of minority and lack of
consideration?
Answer:
The shipowners of the SS Masdaam Answer:
and M/V Princess shall each bear their a) Where a negotiable instrument is so
respective loss of vessels. ambiguous that there is doubt
For the losses and damages whether it is a bill or note, the holder
suffered by their cargoes, both may treat is either as a bill of
shipowner are solidarily liable. exchange or a promissory note at
his election.

4. The Batong Bakal Corporation filed with b) Yes. C is not a holder in due course.
the Board of Energy an application for a The promissory note is not a
Certificate of Public Convenience for the negotiable instrument as it does not
purpose of supplying electric power and contain any word of negotiability,
lights to the factory and its employees that is, order or bearer, or words of
living within the compound. The similar meaning or import. Not being
application was opposed by the Bulacan a holder in due course, C is to
Electric Corporation, contending that the subject such personal defenses of
Batong Bakal Corporation has not minority and lack of consideration. C
secured a franchise to operate and is a mere assignee who is subject to
maintain an electric plant. all defenses.

Is the opposition’s contention correct?

6. X draws a check against his current
Answer: account with the Ortigas branch of
No. A certificate of public Bonifacio Bank in favor of B. Although X
convenience may be granted to Batong does not have sufficient fund, the bank
Bakal Corporation, though not honors the check when it is presented to
possessing a legislative franchise, if it payment. Apparently, X has conspired
meets all the other requirements. There with the bank’s bookkeeper so that his
is nothing in the law nor the ledger card would show that he still has
Constitution, which indicates that a sufficient funds.
legislative franchise is necessary or
required for an entity to operate as The bank files an action for recovery of
supplier of electric power and light to its the amount paid to B because the check
factory and its employees living within presented has no sufficient funds.
the compound. Decide the case.

Answer:
5. a) How do you treat a negotiable The bank cannot recover the amount
instrument that is so ambiguous that paid to B for the check. When the bank
there is doubt whether it is a bill or a honored the check, it became an
note? acceptor. As acceptor, the bank became
primarily and directly liable to the
b) X makes a promissory note for payee/holder B.
P10,000 payable to A, a minor, to help
him buy school books. A endorses the The recourse of the bank should be
note to B for value, who in turn endorses against X and its bookkeeper who
the note to C. C knows A is a minor. If C
 conspired to make X’s ledger show that Clinton. May Napoleon proceed against
he has sufficient funds. Richard Clinton for the note?

Answer:
7. For the purpose of lending his name Yes. Richard Clinton is liable to
without receiving value therefor, Pedro napoleon under the promissory note.
makes a note for P20,000 payable to The note made by Richard Clinton is a
the order of X who in turn negotiates it bearer instrument. Despite special
to Y, the latter knowing that Pedro is not indorsement made by Aurora Page
a party for value. thereon, the note remained a bearer
instrument and can be negotiated by
a) May Y recover from Pedro if the mere delivery. When X delivered and
latter interposes the absence of transferred the note to Napoleon, the
consideration? latter became a holder thereof. As such
b) Supposing under the same facts, holder, Napoleon can proceed against
Pedro pays the said P20,000, may Richard Clinton.
he recover the same amount from
X?
9. a) What are the responsibilities and
Answer: primary objectives of the Bangko Sentral
a) Yes. Y can recover from Pedro. ng Pilipinas?
Pedro is an accommodation party. b) What is the principal purpose of laws
Absence of consideration is in the and regulations governing securities in
nature of an accommodation. the Philippines?
Defense of absence of consideration
cannot be validly interposed by Answer:
accommodation party against a a) The Bangko Sentral ng Pilipinas
holder in due course. shall provide policy directions in the
areas of money, banking and credit.
b) If Pedro pays the said P20,000 to Y, It shall have supervision over the
Pedro can recover the amount from operations of banks and exercise
X. X is the accommodated party or such regulatory powers as provided
the party ultimately liable for the in the Central Bank Act and other
instrument. Pedro is only an pertinent laws over the operations of
accommodation party. Otherwise, it finance companies and non-bank
would be unjust enrichment on the financial institutions performing
part of X if he is not to pay Pedro. quasi-banking functions, such as
quasi-banks and institutions
performing similar functions. The
8. Richard Clinton makes a promissory primary objective of the BSP is to
note payable to bearer and delivers the maintain price stability conducive to
same to Aurora Page. Aurora Page, a balanced and sustainable growth
however, endorses it to X in this of the economy. It shall also promote
manner: and maintain monetary stability and
convertibility of the Peso.
“Payable to X. Signed: Aurora Page.”
b) The principal purpose of laws and
Later, X, without endorsing the regulations governing securities in
promissory note, transfers and delivers the Philippines is to protect the
the same to Napoleon. The note is public against nefarious practices of
subsequently dishonored by Richard
 unscrupulous brokers and salesmen
in selling securities. Answer:
a) Yes. Juan is liable for infringement
of copyright. It is not necessary that
10. Juan de la Cruz was issued Policy No. Juan is aware that the story of
8888 of the midland Life Insurance Co. Manoling was protected by
On a whole life plan for P20,000 on copyright. The work of Manoling is
August 19, 1989. Juan de la Cruz is protected from the time of its
married to Cynthia with whom he has creation.
three legitimate children. He, however,
designated Purita, his common-law-wife, b) Yes. The private reproduction of a
as the revocable beneficiary. Juan de la published work in a single copy,
Cruz referred to Purita in his application where the reproduction is made by a
and policy as the legal wife. natural person exclusively for
research and private study, is
3 years later, Juan de la Cruz died. permitted, without the authorization
Purita filed her claim for the proceeds of of the owner of the copyright in the
the policy as the designated beneficiary work.
therein. The widow, Cynthia, also filed a
claim as the legal wife. To whom should
the proceeds of the insurance policy be 12. Renato was issued a life insurance
awarded? policy on January 2, 1990. He
concealed the fact that 3 years prior to
Answer: the issuance of his life insurance policy,
The proceeds of the insurance policy he had been seeing a doctor about his
shall be awarded to the estate of Juan. heart ailment.
Purita, the common-law wife, is
disqualified as the beneficiary of the On March 1, 1992, Renato died of heart
deceased because of illicit relation failure. May the heirs file a claim on the
between the deceased and Purita, the proceeds of the life insurance policy of
designated beneficiary. Due to such Renato?
illicit relation, Purita cannot be a donee
of the deceased. Hence, she cannot Answer:
also be his beneficiary. Yes. The life insurance policy in
question was issued on January 2,
1990. More than 2 years had elapsed
11. a) Juan Xavier wrote and published a when Renato, the insured, died on
story similar to an unpublished March 1, 1992. The incontestability
copyrighted story of Manoling Santiago. clause applies.
It was, however, conclusively proven 13. A marine insurance policy on a cargo
that Juan Xavier was not aware that the states that “the insurer shall be liable for
story of Manoling Santiago was losses incident to perils of the sea”.
protected by copyright. Manoling During the voyage, seawater entered
Santiago sued Juan Xavier for the compartment where the cargo was
infringement of copyright. Is Juan Xavier stored due to the defective drainpipe of
liable? the ship. The insured filed an action on
the policy for recovery of the damages
b) May a person have photocopies of caused to the cargo. May the insured
some pages of the book of Professor recover damages?
Rosario made without violating the
copyright law? Answer:
 No. the proximate cause of the his creditors. While his liabilities are
damage to the cargo insured was the P1.2 M, his assets, however are worth
defective drainpipe of the ship. This is P1.5. M. May Horacio be declared
peril of the ship, and not peril of the sea. insolvent?
The defect in the drainpipe was the
result of the ordinary use of the ship. To Answer:
recover under a marine insurance a) In insolvency, the liabilities of the
policy, the proximate cause of the loss debtor are more than his assets,
or damage must be peril of the sea. while in suspension of payments,
assets of the debtor are more than
his liabilities.
14. Luzon Warehouse Corporation received
from Pedro 200 cavans of rice for In insolvency, the assets of the
deposit in its warehouse for which a debtor are to be converted into cash
negotiable warehouse receipt was for distribution among his creditors,
issued. While the goods were stored in while in suspension of payments, the
the said warehouse, Cicero obtained a debtor is only asking for time within
judgment against Pedro for the recovery which to convert his frozen assets
of a sum of money. The sheriff into liquid cash with which to pay his
proceeded to levy upon the goods on a obligations when the latter fall due.
writ of execution and directed the
warehouseman to deliver the goods. Is b) No. Horacio may not be declared
the warehouseman under obligation to insolvent. His assets worth P1.5 M
comply with the sheriff’s order? are more than his liabilities worth
P1.2 M.
Answer:
No. There was a valid negotiable
receipt as there was a valid delivery of 16. In a complaint filed against XYZ
200 cavans of rice for deposit. In such Corporation, Luzon Trading Corporation
case, the warehouseman (LWC) is not allege that its President & General
obliged to deliver the 200 cavans of rice Manager, who is also a stockholder,
deposited to any person, except to one suffered mental anguish, fright, social
who can comply with Section 8 of the humiliation and serious anxiety as a
Warehouse Receipts law, namely: (1) result of the tortuous acts of XYZ
surrender the receipt of which he is a Corporation.
holder; (2) willing to sign a receipt for
the delivery of the goods; and (3) pays In its counterclaim, XYZ Corporation
the warehouseman’s liens, that is, his claimed to have suffered moral
fees and advances, if any. damages due to besmirched reputation
or goodwill as a result of Luzon Trading
The sheriff cannot comply with these Corporation’s complaint.
requisites, especially the first, as he is
not the holder of the receipt. a) May Luzon recover moral damages
based on the allegations in the
complaint?
15. a) Distinguish insolvency from b) May XYZ Corporation recover moral
suspension of payment. damages?
b) Horacio opened a coffee shop using
money borrowed from financial Answer:
institutions. After 3 months, Horacio left a) No. A corporation, being an artificial
for the USA with the intent of defrauding person which has no feelings,
 emotions or senses, and which shows an intention to continue
cannot experience physical suffering transacting with the latter
or mental anguish, is not entitled to
moral damages.
18. The stockholders of People Power, Inc.
b) Yes. When a juridical person has a (PPI) approved two resolutions in a
good reputation that is debased, special stockholders’ meeting:
resulting in social humiliation, moral
damages may be awarded. a) Resolution increasing the authorized
Moreover, goodwill can be capital stock of PPI; and
considered an asset of the b) Resolution authorizing the Board of
corporation. Directors to issue, for cash payment,
the new shares from the proposed
capital stock increase in favor of
17. a) What is the nationality of a outside investors who are non-
corporation organized and incorporated stockholders.
under the laws of a foreign country, but
owned 100% by Filipinos? The foregoing resolutions were
approved by stockholders representing
b) when is a foreign corporation deemed 99% of the total outstanding capital
to be “doing business in the stock. The sole dissenter was Jimmy
Philippines?” Morato who owned 1% of the stock.

Answer: a) Are the resolutions binding on the

a) Under the control test of corporate corporation and its stockholders
nationality, this foreign corporation is including Jimmy Morato, the
of Filipino Nationality. dissenting stockholder?
b) What remedies, if any, are available
Where there are grounds for piercing to Morato?
the veil of corporate entity, that is,
disregarding the fiction, the Answer:
corporation will follow the nationality a) No. the resolutions are not binding
of the controlling members or on the corporation and its
stockholders, since the corporation stockholders including Jimmy. While
will then be considered as one and these resolutions were approved by
the same. the stockholders, the directors’
approval, which is required by law in
b) A foreign corporation is deemed to such case, does not exist.
be “doing business in the
Philippines” if it is continuing the b) Jimmy can petition the SEC to
body or substance of the business or declare the 2 resolutions, as well as
enterprise for which it was any and all actions taken by the
organized. Board of Directors thereunder, null
and void.
It is the intention of an entity to
continue the body of its business in
the country. The grant and extension 19. The Board of Directors of X
of 90-day credit terms by a foreign Corporation, acting on a standing
corporation to a domestic authority of the stockholders to amend
corporation for every purchase the by-laws, amended its by-laws so as
to disqualify any of its stockholders who
 is also a stockholder and director of a scam. Upon such realization, the
competitor from being elected to its insurance company files an action
Board of Directors. against A for recovery of the amount
defrauded and obtains a writ of
Y, a stockholder holding sufficient preliminary attachment. In addition to
shares to assure him of a seat in the the writ, the bank is also served a
Board, filed a petition with the SEC for a subpoena to examine the account
declaration of nullity of the amended by- records of A. the bank declines to
laws. He alleged among other things provide any information in response to
that as a stockholder, he had acquired the writ and moves to quash the
rights inherent in stock ownership such subpoenas invoking secrecy of bank
as the right to vote and be voted upon in deposits under RA 1405, as amended.
the election of directors. Is the Can the Bank justifiably invoke RA 1405
stockholder’s petition tenable? and (a) not respond to the writ and (b)
quash for examination?
Answer:
No. There is no vested right of a Answer:
stockholder to be elected as director. Yes. Whether the transaction is
When a person buys stock in a considered a sale or money placement
corporation he does so with the does not make the money subject
knowledge that its affairs are dominated matter of litigation within the meaning of
by a majority of the stockholders. To this Sec. 2 of RA 1405 which prohibits the
extent, the stockholder parted with his disclosure or inquiry into bank deposits
personal right to regulate the disposition except “in cases where the money
of his property which he invested in the deposited or invested is the subject
capital stock of the corporation and matter of litigation” nor will it matter
surrendered it to the will of the majority whether the money was “swindled”.
of his fellow incorporators or
stockholders.

Corporations have the power to

make by-laws declaring a person
employed in the service of a rival
company to be ineligible for the
Corporation’s Board of Directors. An
amendment which renders a director
ineligible, or if elected, subjects him to
removal, if he is also a director in a
corporation whose business is in
competition with or is antagonistic to the
other corporation, is valid.

20. An insurance company is deluded into

releasing a check to A for P35 M to pay
for T-bills which A claims to e en route
on board an armoured truck from a
government bank. The check is
delivered to A who deposits it to his
account with XYZ Bank before the
insurance company realized it is a
 Yes. This is a sale of all the stock of
goods, fixtures and entire business, not
in the ordinary course of business or
trade of the vendor. Before receiving
from the vendee any part of the
purchase price, the vendor must deliver
to such vendee a written statement, duly
sworn, of the names and addresses of
all creditors to whom said vendor may
be indebted, together with the amount of
indebtedness due or owing, on the
account of the goods, fixtures or
business subject matter of the bulk sale.

3. Juan was a stockholder of X

Corporation. He owned a total of 500
shares evidenced by Certificate of Stock
1997 BAR EXAMINATION No. 1001. He sold the shares to Pedro.
After getting paid, Juan indorsede and
delivered said certificate of Stock No.
1. The Civil Code adopts the theory of 1001 to Pedro. The following day, Juan
cognition, while the Code of Commerce went to the offices of the corporation
generally recognizes the theory of and claimed that his Certificate of Stock
manifestation, in the perfection of No. 1001 was lost and that, despite
contracts. How do these two theories diligent efforts, the certificate could not
differ? be located. The formalities prescribed
by law for the replacement of the “lost”
Answer: certificate, Certificate of Stock No. 2002.
Under the theory of cognition, the Juan forthwith transferred for valuable
acceptance is considered to effectively consideration the new certificate to Jose
bind the offeror only from the time it who knew nothing of the previous sale
came to his knowledge. Under the to Pedro. In time, the corporation was
theory of manifestation, the contract is confronted with the conflicting claims of
perfected at the moment when the Pedro and Jose. The Board of Directors
acceptance is declared or made by the of X Corporation invited you to enlighten
offeree. them on these questions; viz:

a) If a suit were to be initiated in order

2. The sole proprietor of a medium-size to resolve the controversy between
grocery shop, engaged in both Pedro and Jose, should the matter
wholesale and retail transactions, sells be submitted to SEC or to the
the entire business “lock, stock barrel” regular courts?
because of his plan to emigrate abroad b) Between Pedro and Jose, whom
with his family. Is he covered by the should the corporation so recognize
provisions of the Bulk Sales Law? In the as the rightful stockholder?
affirmative, what must be done by the
parties so as to comply with the law? How would you respond to the above
queries?
Answer:
Answer:
 a) The matter should be submitted to capacity as director and officer
the regular court. The controversy because of the corporation’s
between Pedro and Jose is not an insolvency being the result of
intra-corporate controversy. fraudulent practices within the
company. Directors are liable jointly
b) If there is no over-issuance of and severally for damages sustained
shares resulting from the two by the corporation, stockholders or
transactions of Juan, the corporation other persons resulting from gross
should recognize both Pedro and negligence or bad faith in directing
Jose as rightful stockholders. This is the affairs of the corporation.
without prejudice to the right of the
corporation to claim against Juan for
the value of the shares which Juan 5. The Board of Directors of a corporation,
sold to Jose. by a vote of ten in favor and one
against, declared due and payable all
unpaid subscription to the capital stock.
4. A, B and C are shareholders of XYZ The lone dissenting director failed to pay
Company. A has an unpaid subscription on due date, i.e., September 19, 1997,
of P100,000, B’s shares are fully paid his unpaid subscription. Other than the
up, while C owns only nominal but fully shares wherein he was unable to
paid up shares and is a director and complete payment, he did not own any
officer. XYZ Company becomes share in the corporation. On September
insolvent, and it is established that the 23, 1997, he was informed by the Board
insolvency is the result of fraudulent of Directors that, unless due payment is
practices within the company. If you meanwhile received, he
were counsel for a creditor of XYZ
Company, would you advice legal action a) Could no longer serve as a director
against A, B and C? of the corporation forthwith;
b) Would not be entitled to the cash
Answer: and stock dividends which were
declared and payable on September
a) An action can be brought against A 24, 1997; and
for P100,000 which is the amount of c) Could not vote in the stockholders
his unpaid subscription. Since the meeting scheduled to take place on
corporation is insolvent, the limit of a September 26, 1997.
stockholder’s liability to the creditor
is only up to the extent of his unpaid Was the action of the Board of Directors
subscription. on each of the foregoing matters valid?

b) There is no cause of action against Answer:

B because he has already fully paid a) No. the period 30 days within which
for his subscription. As stated the stockholder can pay the unpaid
earlier, the limit of the stockholder’s subscription had not yet expired.
liability to the creditor of the
corporation, when the latter b) No. The delinquency did not deprive
becomes insolvent, is the extent of the stockholder of his right to receive
his subscription. dividends declared. However, the
cash dividend declared may be
c) An action can be filed against C, not applied by the corporation to the
as a stockholder because he has unpaid subscription.
already paid up the shares, but in his
 c) No. the period of 30 days within
which the stockholder can pay the b) The P10,000 savings account and
unpaid subscription had not yet the P20,000 checking account are
expired. covered by the Law on Secrecy of
Bank Deposits.

6. The corporation, once dissolved,

thereafter continues to be a body 8. Give the basic requirements to be
corporate for 3 years for purposes of complied with by the Central Bank
prosecuting and defending suits by and before the Monetary Board can declare
against it and of enabling it to settle and a bank insolvent, order it closed and
close its affairs, culminating in the final forbid it from doing further business in
disposition and distribution of its the Philippines.
remaining assets. If the 3-year extended
life expires without a trustee or receiver Answer:
being designated by the corporation Before the Monetary Board can
within that period and by that time declare a bank insolvent, order it closed
(expiry of the 3-year extended term), the and forbid it from doing further business
corporate liquidation is not yet over, in the Philippines, the following basic
how, if at all, can a final settlement of requirements must be complied with by
the corporate affairs be made? the Central Bank, to wit:

Answer: a) There must be an examination by

The liquidation can continue with the the head of the Department of
winding up. The members of the Board Supervision or his examiners or
of Directors can continue with the agents into the condition of the bank.
winding of the corporate affairs until final b) The examination discloses that the
liquidation. They can act as trustees or condition of the bank is one of
receivers for this purpose. insolvency, or that its continuance in
business would involve probable
loss to creditors or depositors.
7. An employee of a large manufacturing c) The head of said Department shall
firm earns a salary which is just a bit inform in writing the Monetary Board
more than what he need for a of such facts.
comfortable living. He is thus able to still d) Upon finding said information or
maintain a P10,000 savings account, a statement to be true, the Monetary
P20,000 checking account, a P30,000 Board shall appoint a receiver to
money market placement and a take charge of the assets and
P40,000 trust fund in a medium-size liabilities of the bank.
commercial bank. e) Within 60 days, the Monetary Board
shall determine and confirm if the
a) State which of the four accounts are bank is insolvent, and public interest
deemed insured by the PDIC? requires, to order the liquidation of
b) State which of the above accounts the bank.
are covered by the Law on Secrecy
of Bank Deposits.
9. A, single proprietor of a business
Answer: concern, is about to leave for a business
a) The P10,000 savings account and trip and, as he so often does on these
the P20,000 checking account are occasions, signs several checks in
deemed insured by the PDIC. blank. He instructs B, his secretary, to
 safekeep the checks and fill them out d) A bill may not be addressed to two
when and as required to pay accounts or more drawees in the alternative or
during his absence. B fills out one of the in succession, to be negotiable. To
checks by placing her name as payee, do so makes the order conditional.
fills in the amount, endorses and
delivers the check to C who accepts it in
good faith as payment for goods sold to 11. A delivers a bearer instrument to B. B
B. B regrets her action and tells A what then specially indorses it to C and C
she did. A directs the Bank in time to later indorses it in blank to D. E steals
dishonor the check. When C encashes the instrument from D and, forging the
the check, it is dishonored. signature of D, succeeds in “negotiating”
it to F who acquires the instrument in
Can A be held liable to C? good faith and for value.

Answer: a) If, for any reason, the drawee bank

Yes. A can be held liable to C, refuses to honor the check, can F
assuming that the latter gave notice of enforce the instrument against the
dishonor to A. this case of an drawer?
incomplete instrument but delivered as it b) In case of the dishonor of the check
was entrusted to B, the secretary of A. by both the drawee and the drawer,
Moreover, under the doctrine of can F hold any of B, C and D liable
comparative negligence, as between A secondarily on the instrument?
and C, both innocent parties, it was the
negligence of A in entrusting the check Answer:
to B which is the proximate cause of the a) Yes. The instrument was payable to
loss. bearer as it was a bearer instrument.
It could be negotiated by mere
delivery despite the presence of
10. Can a bill of exchange or a promissory special indorsements. The forged
note qualify as a negotiable instrument signature is unnecessary to presume
if— the juridical relation between or
among the parties prior to the
a) It is not dated; or forgery and the parties after the
b) The day and month, but not the year forgery. The only party who can
of its maturity, is given; or raise the defense of forgery against
c) It is payable to “cash”; or a holder in due course is the person
d) It names two alternatives drawees. whose signature is forged.

Answer: b) Only B and C can be held liable by

a) Yes. Date is not a material particular F. the instrument at the time of the
required by Sec. 1, NIL, for the forgery was payable to bearer, being
negotiability of an instrument. a bearer instrument. Moreover, the
b) No. The time for payment is not instrument was indorsed in blank by
determinable in this case. The year C to D. D, whose signature was
is not stated forged by E cannot be held liable by
c) Yes. Sec. 9(d), NIL, makes the F.
instrument payable to bearer
because the name of the payee
does not purport to be the name of 12. A buys goods from a foreign supplier
any person. 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 concealment. It is not material that the
trust receipt before A is allowed to take insured died of a different cause than
delivery of the goods. The trust receipt the fact concealed. The fact concealed,
contains the usual language. A disposes that is the heart ailment, is material to
of the goods and receives payment but the determination by the insurance
does not pay the bank. The bank files a company whether or not to accept the
criminal action against A for violation of application for insurance and to require
the Trust Receipts Law. A asserts that the medical examination of the insured.
the trust receipt is only to secure his
debt and that a criminal action cannot lie However, of the incontestability clause
against him because that would be applies t the insurance policy covering
violative of his constitutional right the life of the insured had been in force
against “imprisonment for non-payment for 2 years from the issuance thereof,
of a debt.” Is he correct? the insurance company would not be
justified in denying the claim for the
Answer: proceeds of the insurance and in
No. Violation of a trust receipt is returning the premium paid. In that case,
criminal as it is punished as estafa the insurer cannot prove the policy void
under Art. 315 of the RPC. There is a ab initio or rescindable by reason of
public policy involved which is to assure fraudulent concealment or
the entruster with the reimbursement of misrepresentation of the insured.
the amount advanced or the balance
thereof for the goods subject of the trust
receipt. The execution of the trust 14. a) A obtains a fire insurance on his
receipt or the use thereof promotes the house and as a generous gesture
smooth flow of commerce as it helps the names his neighbor as the beneficiary. If
importer or buyer of the goods covered A’s house is destroyed by fire, can B
thereby. successfully claim against the policy?

b) A obtains insurance over his life and

13. The assured answers “No” to the names his neighbor B the beneficiary
question in the application for a life because of A’s secret love for B. if A
policy. “Are you suffering from any form dies, can B successfully claim against
of heart illness?” In fact, the assured the policy?
has been a heart patient for many years.
On September 7, 1991, the assured is Answer:
killed in a plane crash. The insurance a) No. in property insurance, the
company denies the claim for insurance beneficiary must have insurable
proceeds and returns the premium paid. interest in the property insured. B
does not have insurable interest in
Is the decision of the insurance the house insured.
company justified?
b) Yes. In life insurance, it is required
Answer: that the beneficiary must have
Assuming that the incontestability insurable interest in the life of the
clause does not apply because the insured. It was the insured himself
policy has not been in force for 2 years who took the policy on his own life.
from date of issue, during the lifetime of
the insured, the decision of the
insurance company not to pay is 15. Antonio, a paying passenger, boarded
justified. There was fraudulent a bus bound for Batangas City. He
 chose a seat at the front row, near the fault or negligence on the part of the
bus driver, and told the bus driver that carrier. The carrier must rebut such
he had valuable items in his hand- presumption. Otherwise, the conclusion
carried bag which he then placed beside can be properly made that the carrier
the driver’s seat. Not having slept for 24 failed to exercise extraordinary diligence
hours, h requested the driver to keep an as required by law.
eye on the bag should he doze off
during the trip. While Antonio was
asleep, another passenger took the bag 17. Explain these two doctrines in Maritime
away and alighted at Calamba, Laguna. accidents—
Could the common carrier be held liable
by Antonio for the loss? a) The Doctrine of Inscrutable Fault;
and
Answer: b) The Doctrine of Limited Liability
Yes. Ordinarily, the common carrier
is not liable for acts of other passengers. Answer:
But the common carrier cannot relieve a) Under the “doctrine of inscrutable
itself from liability if the common fault”, where fault is established but
carrier’s employees could have it cannot be determined which of the
prevented the act or omission by 2 vessels were at fault, both shall be
exercising due diligence. In this case, deemed to have been at fault.
the passenger asked the driver to keep
an eye on the bag which was placed b) Under the “doctrine of limited
beside the driver’s seat. liability” the exclusively real and
hypothecary nature of maritime law
If the driver exercised due diligence, he operates to limit the liability of the
could have prevented the loss of the shipowner to the value of the vessel,
bag. earned freightage and proceeds of
the insurance. However, such
doctrine does not apply if the
16. In a court case involving claims for shipowner and the captain are guilty
damages arising from death and injury of negligence.
of bus passengers, counsel for the bus
operator files a demurrer to evidence
arguing that the complaint should be 18. In an action for damages on account of
dismisses because the plaintiffs did not an infringement of a copyright, the
submit any evidence that the operator or defendant (the alleged pirate) raised the
its employees were negligent. If you defense that he was unaware that what
were the judge, would you dismiss the he had copied was a copyright material.
complaint? Would this defense be valid?

Answer: Answer:
No. in the carriage of passengers, No. An intention to pirate is not an
the failure of the common carrier to element of infringement. Hence, an
bring the passengers safely to their honest intention is no defense to an
destination immediately raises the action for infringement.
presumption that such failure is
attributable to the carrier’s fault or
negligence. In the case at bar, the fact 19. Ritz bought a new car on installments
of death and injury of the bus which provided for an acceleration
passengers raises the presumption of clause in the event of default. To secure
 payment of the unpaid installment, as or not included in the schedule
and when due, he constituted 2 chattel submitted by, the insolvent debtor.
mortgages. i.e., one over his very old
car and the other covering the new car 1996 BAR EXAMINATION
that he had just bought, as aforesaid, on
installment. After Ritz defaulted on 3 1. a) What are the requisites of a
installments, the seller-mortgagee negotiable instrument?
foreclosed on the old car. The proceeds b) When is notice of dishonor not
of the foreclosure were not enough to required to be given to the drawer?
satisfy the due obligation; hence, he c) What constitutes a holder in course?
similarly sought to foreclose on the new d) What are the effects of crossing a
car. Would the seller-mortgagee be check?
legally justified in foreclosing on this
second chattel mortgage? Answer:
a) The requisites of a negotiable
Answer: instrument are as follows:
No. the 2 mortgages were executed
to secure the payment of the unpaid 1. It must be in writing and signed
installments for the purchase of a new by the maker or drawer;
car. When the mortgage on the old car 2. It must contain an unconditional
was foreclosed, the seller-mortgagee is promise or order to pay a sum
deemed to have renounced all other certain in money;
rights. A foreclosure of additional 3. It must be payable to order or to
property, that is, the new car covered by bearer; and
the second mortgage would be a nullity. 4. Where the instrument is
addressed to a drawee, he must
be named or otherwise indicated
20. An insolvent debtor, after a lawful therein with reasonable certainty.
discharge following an adjudication of
insolvency, is released from, generally, b) Notice of dishonor not required to be
all debts, claims, liabilities and demands given to the drawer in any of the
which are or have been proved against following cases:
his estate. Give 5 obligations of the
insolvent debtor that survive. 1. Where the drawer and the
drawee are the same person;
Answer: 2. When the drawee is a fictitious
The 5 obligations of the insolvent person or a person not having
debtor that survive are as follows: capacity to contract;
3. When the drawer is the person
1. Taxes and assessments due the to whom the instrument is
government, national or local; presented for payment;
2. Obligations arising from 4. Where the drawer has no right to
embezzlement or fraud; expect or require that the drawee
3. Obligation of any person liable with or acceptor will honor the
the insolvent debtor for the same instrument;
debt, either as a solidary co-debtor, 5. Where the drawer has
surety, guarantor, partner, indorser countermanded payment
or otherwise;
4. Alimony or claim for support; and
5. Debts not payable against the estate
(such after-incurred obligations) of,
 c) A holder in due course is one who If Fund House files a complaint against
has taken the instrument under the Pentium and CD Bytes for the payment
following conditions: of the dishonored check, will the
complaint prosper? Explain.
1. That it is complete and regular
upon its face; Answer:
2. That he became a holder of it The complaint filed by Fund
before it was overdue and House against Pentium will not
without notice that t had been prosper but the one against CD
previously dishonored, if such Bytes will. Fund House is not a
was the fact; holder in due course and, therefore,
3. That he took it in good faith and Pentium can raise the defense of
for value; failure of consideration against it.
4. That at the time it was The check in question was issued by
negotiated to him, he had no Pentium to pay for a computer that it
notice of any infirmity in the ordered from CD Bytes. The
instrument or defect in the title of computer not having been delivered,
the person negotiating it. there was a failure of consideration.
The check discounted with Fund
d) The effects of crossing a check are House by CD Bytes is a crossed
as follows: check and this should have put Fund
House on inquiry. It should have
1. The check may not be encashed ascertained the title of CD Bytes to
but only deposited in a banks; the check or the nature of the latter’s
2. The check may be negotiated possession. Failing in this respect,
only once to one who has an Fund House is deemed guilty of
account with a bank; gross negligence amounting to legal
3. The act of crossing a check absence of good faith and, thus, not
serves as a warning to the a holder in due course. Fund House
holder thereof that the check has can collect from CD Bytes as the
been issued for a definite latter was the immediate indorser of
purpose so that the holder must the check.
inquire if he has received the
check pursuant to that purpose,
otherwise he is not a holder in b) Eva issued to Imelda a check in the
due course. amount of P50,000 post-dated
September 30, 1995, as security for a
diamond ring to be sold on commission.
2. a) On March 1, 1996, Pentium Company On September 15, 1995, Imelda
ordered a computer from CD Bytes, and negotiated the check to MT Investment
issued a crossed check in the amount of which paid the amount of P40,000 to
P30,000 post-dated March 31, 1996. her.
Upon receipt of the check, CD Bytes
discounted the check with Fund House. Eva failed to sell the ring, so she
returned it to Imelda on September 19,
On April 1, 1996, Pentium stopped 1995. Unable to retrieve her check, Eva
payment of the check for failure of CD withdrew her funds from the drawee
Bytes to deliver the computer. Thus, bank. Thus, when MT Investment
when Fund House deposited the check, presented the check for payment, the
the drawee bank dishonored it. drawee bank dishonored it. Later on,
when MT Investment sued her, Eva
 raised the defense of absence of as BUR Bank. This is true even if
consideration, the check having been BUR Bank was aware at the time it
issued merely as security for the ring took the instrument that Vilma is
that she could not sell. merely an accommodation party and
received no part of the loan.
Does Eva have a valid defense?
Explain.
b) William issued to Albert a check for
Answer: P100,000 drawn on XM Bank. Albert
alerted the amount of the check to
No, Eva does not have a P210,000, and deposited the check to
valid defense. First, MT Investment his account with ND Bank. When ND
is a holder in due course and, as Bank presented the check for payment
such, holds the post dated check through the Clearing House, XM Bank
free from any defect of title of prior honored it. Thereafter, Albert withdrew
parties and from defenses available the P210,000, and closed his account.
to prior parties among themselves.
Eva can invoke the defense of When the check was returned to him
absence of consideration against MT after a month, William discovered the
only if the latter was a privy to the alteration. XM Bank recredited
purpose for which the checks were P210,000 to William’s current account,
issued and, therefore, not a holder in and sought reimbursement from ND
due course. Second, it is not a Bank. ND Bank refused, claiming that
ground for the discharge of the post- XM Bank failed to return the altered
dated check as against a holder in check to it within the 24-hour clearing
due course that it was issued merely period.
as security. The only grounds for the
discharge of negotiable instruments Who, as between, XM Bank and ND
Law and none of those grounds are Bank, should bear the loss? Explain.
available to Eva. The latter may not
unilaterally discharge herself from Answer:
her liability by mere expediency of ND Bank should bear the
withdrawing her funds from the loss if XM Bank returned the altered
drawee bank. check to ND Bank within 24 hours
after its discovery of the alteration.
Under the given facts, William
3. a) Nora applied for loan of P100,000 discovered the alteration when the
with BUR Bank. By way of altered check was returned to him
accommodation, Nora’s sister, Vilma, after a month. It may safely be
executed a promissory note in favor of assumed that William immediately
BUR Bank. When Nora defaulted, BUR advised XM Bank of such fact and
Bank sued Vilma, despite its knowledge that William immediately advised XM
that Vilma received no part of the loan. Bank of such fact and that the latter
promptly notified ND Bank
May Vilma be held liable? Explain. thereafter. CB Circular No. 9, as
amended, on which the decisions of
Answer: the Supreme Court, in the Hongkong
Yes, Vilma may be held & Shanghai Banking Corporation v.
liable. Vilma is an accommodation People’s Bank & Trust Co. and
party. As such, she is liable on the Republic Bank v. CA, et al. were
instrument to a holder for value such based was expressly cancelled and
 superseded by the CB Circular No. issuance of the insurance policy.
317, dated December 23, 1970. The They would have affected Good
latter was in turn amended by CB Life’s action on his application, either
Circular No. 580, dated September by approving it with the
19, 1977. As to the altered checks, corresponding adjustment for a
the new rules provide that the higher premium or rejecting the
drawee bank can still return them same. Moreover, a disclosure may
even after 4:00pm of the next day have warranted a medical
provided it does so within 24 hours examination of Juan by Good Life in
from discovery of the alteration but order for it to reasonably assess the
in no event beyond the period fixed risk involved in accepting the
or provided by law for filing of a legal application. In any case, good faith
action by the returning bank against is no defense in concealment. The
the bank sending the same. waiver of a medical examination in
Assuming that the relationship the “non-medical” life insurance from
between the drawee bank and the Good Life makes it even more
collecting bank is evidenced by necessary that Juan supply
some written document, the complete information about his
prescriptive period would be 10 previous hospitalization for such
years. information constitutes an important
factor which Good Life takes into
consideration in deciding whether to
4. a) Juan procured a “non-medical” life issue the policy or not.
insurance from Good Life Insurance. He
designed his wife, Petra, as the If the policy of life insurance
beneficiary. Earlier, in his application in has been in force for a period of 2
response to the question as to whether years or more from the date of its
or not he had ever been hospitalized, he issue (on which point the given facts
answered in the negative. He forgot to are vague) then Good Life can no
mention his confinement at the Kidney longer prove that the policy is void
Hospital. ab initio or is rescindable by reason
of the fraudulent concealment or
After Juan died in a plane crash, Petra misrepresentation of Juan.
filed a claim with Good Life. Discovering
Juan’s previous hospitalization, Good
Life rejected Petra’s claim on the ground b) RC Corporation purchased from
of concealment and misrepresentation. Thailand, which it intended to sell
Petra sued Good Life, invoking good locally. Due to stormy weather, the ship
faith on the part of Juan. carrying the rice became submerged in
sea water and with it the rice cargo.
Will Petra’s suit prosper? Explain. When the cargo arrived in Manila, RC
filed a claim for total loss with the
insurer, because the rice was no longer
Answer: fit for human consumption. Admittedly,
No. Petra’s suit will not the rice could still be used as animal
prosper (assuming that the policy of feed.
life insurance has been in force for a
period of less than 2 years from the Is RC’s claim for total loss justified?
date of its issue). The matters which Explain.
Juan failed to disclose was material
and relevant to the approval and Answer:
 Yes, RC’s claim for total loss Robin’s claim. The reason for this
is justified. The rice, which was rule is to insure that claims against
imported from Thailand for sale insurance companies are promptly
locally, is obviously intended for settled and that insurance suits are
consumption by the public. The brought by the insured while the
complete physical destruction of the evidence as to the origin and cause
rice is not essential to constitute an of the destruction has not yet
actual loss. Such a loss exists in this disappeared.
case since the rice, having been
soaked in sea water and thereby
rendered unfit for human b) While driving his car along EDSA,
consumption, has become totally Cesar sideswiped Roberto, causing
useless for the purpose for which it injuries to the latter. Roberto sued Cesar
was imported. and the third party liability insurer for
damages and/or insurance proceeds.
The insurance company moved to
5. a) Robin insured his building against fire dismiss the complaint, contending that
with EFG Assurance. The insurance the liability of Cesar has not yet been
policy contained the usual stipulation determined with finality.
that any action or suit must be filed
within 1 year after the rejection of the 1. Is the contention of the insurer
claim. correct? Explain.
2. May the insurer be held liable with
After his building burned down, Robin Cesar?
filed his claim for fire loss with EFG. On
February 28, 1994, EFG denied Robin’s Answer:
claim. On April 3, 1994, Robin sought 1. No, the contention of the insurer
reconsideration of the denial, but EFG is not correct. There is no need
reiterated its position. On March to wait for the decision of the
20,1995, Robin commenced judicial court determining Cesar’s liability
action against EFG. with finality before the third party
liability insurer could be sued.
Should Robin’s action be given due The occurrence of the injury to
course? Explain. Roberto immediately gave rise to
the liability of the insurer under
Answer: its policy. In other words, where
No, Robin’s action should not an insurance policy insures
be given due course. His filing of the directly against liability, the
request for reconsideration did not insurer’s liability accrues
suspend the running of the immediately upon the
prescriptive period of 1 year occurrence of the injury or event
stipulated in the insurance policy. upon which the liability depends.
Thus, when Robin commenced
judicial action against EFG on March 2. The insurer cannot be held
20, 1995, his ability to do so had solidarily liable with Cesar. The
already prescribed. The 1 year liability of the insurer is based on
period is counted from February 28, contract while that of Cesar is
1994 when EFG denied Robin’s based on tort. If the insurer were
claim, not from the date (presumably solidarily liable with Cesar, it
after April 3, 1994) when EFG could be made to pay more than
reiterated its position denying the amount stated in the policy.
 This would, however, be contrary affairs of the corporation, or in
to the principles underlying conflict with the interest of the
insurance contracts. On the corporation, its stockholders or
other hand, if the insurer were other persons;
solidarily liable with Cesar and it 3. When he consents to the
is made to pay only up to the issuance of watered stocks or
amount stated in the insurance who, having knowledge thereof,
policy, the principles underlying does not forthwith file with the
solidary obligations would be corporate secretary his written
violated. objection thereto;
4. When he agrees to hold himself
personally and solidarily liable
6. a) What are the rights of a stockholder? with the corporation; or
5. When he is made, by specific
Answer: provision of law, to personally
The rights of a stockholder are as answer for the corporate action.
follows:

1. The right to vote, including the a) When may a corporation invest its
right to appoint a proxy; funds in another corporation or
2. The right to share in the profits of business or for any other purposes?
the corporation, including the
right to declare stock dividends; Answer:
3. The right to proportionate share A corporation may invest its
of the assets of the corporation funds in another corporation or
upon liquidation; business or for any purpose other
4. The right of appraisal; than the primary purpose for which it
5. The preemptive right to shares; was organized when the said
6. The right to inspect corporate investment is approved by a majority
books and records; of the Board of Directors and such
7. The right to elect directors; approval is ratified by the
8. Such other rights as may stockholders representing at least
contractually be granted to the 2/3 of the outstanding capital.
stockholders by the corporation Written notice of the proposed
or by special law. investment and the date, time and
place of the stockholders’ meeting at
which such proposal will be taken up
b) When may a corporate director, must be sent to each stockholder.
trustee or officer be held personally
liable with the corporation?
b) May a corporation enter into a joint
Answer: venture?
A corporate director, trustee
or officer be held personally liable Answer:
with the corporation under the A corporation may enter into
following circumstances: a joint venture. However, inasmuch
as the term joint venture has no
1. When he assents to a patently precise legal definition, it may take
unlawful act of the corporation; various forms. It could take the form
2. When he acts in bad faith or with of a simple pooling of resources (not
gross negligence in directing the involving incorporation) between 2 or
 more corporations for a specific
project, purpose or undertaking, or b) Arnold has in his name 1,000 shares
for a limited time. It may involve the of the capital stock of ABC Corporation
creation of a more formal structure as evidenced by a stock certificate.
and, hence, the formation of a Arnold delivered the stock certificate to
corporation. If the joint venture Steven who now claims to be the real
would involve the creation of a owner of the shares, having paid for
partnership, as the term is Arnold’s subscription. ABC refused to
understood under the Civil Code, recognize and register Steven’s
then a corporation cannot be a party ownership.
to it.
Is the refusal justified? Explain.

7. a) Leonardo is the Chairman and Answer:

President, while Raphael is a Director of ABC’s refusal to recognize
NT Corporation. On one occasion, NT and register Steven’s ownership is
Corporation, represented by Leonardo, justified. The facts indicate that the
and A Enterprises, a single stock certificate for the 1,000 shares
proprietorship owned by Raphael, in question is in the name of Arnold.
entered into a dealership agreement Although the certificate was
whereby NT Corporation appointed A delivered to Steven or that the
Enterprises as exclusive distributor of its procedure for the effective transfer
products in Northern Luzon. of shares of stock set out in the by-
laws of ABC Corporation, if any, was
Is the dealership agreement valid? observed. Since the certificate was
Explain. not endorsed in favor of Steven (or
anybody else for that matter), the
Answer: only conclusion could be no other
The dealership agreement is than that the shares in question still
voidable at the option of NT belong to Arnold.
inasmuch as the facts do not
indicate that the same was approved
by the Board of Directors of NT 8. a) PR Corporation owns a beach resort
Corporation before it was signed or, with several cottages. Jaime, the
assuming such approval, that it was President of PR, occupied one of the
approved under the following cottages for residential purposes. After
conditions: Jaime’s term expired, PR wanted to
recover possession of the cottage.
1. That the presence of Raphael, the Jaime refused to surrender the cottage,
owner of A Enterprises, in the contending that as a stockholder and
meeting of the Board of Directors at former President, he has a right to
which the agreement was approved possess and enjoy the properties of the
was not necessary to constitute a corporation.
quorum for such meeting;
2. That the vote of Raphael was not Is Jaime’s contention correct? Explain.
necessary for the approval of the
agreement; Answer:
3. That the agreement is fair and Jaime’s contention is not
reasonable under the correct. Jaime may own shares of
circumstances. stock in PR Corporation but such
ownership does not entitle him to the
 possession of any specific property Second, TF has specifically informed
of the corporation or a definite Gregorio that it has not ratified the
portion thereof. Neither is he a co- contract for the sale of 5,000 bags of
owner of a corporate property. fertilizer and that the delivery to
Properties registered in the name of Gregorio of 500 bags, which
the corporation are owned by it as Gregorio accepted, is an entirely
an entity separate and distinct from new transaction.
its stockholders.

Stockholders like Jaime only 9. a) E Corporation sold its assets to M,

own shares of stock in the Inc. after complying with the
corporation. Such shares of stock do requirements of the Bulk Sales Law.
not represent specific corporate Subsequently, one of the creditors of E
property. Corporation tried to collect the amount
due it, but found out that E Corporation
had no more assets left. The creditor
b) Rodman, the President of TF then sued M, Inc. on the theory that M,
Corporation wrote a letter to Gregorio, Inc. is a mere alter ego of E
offering to sell to the latter 5,000 bags of Corporation.
fertilizer at P100 per bag. Gregorio
signed his conformity to the letter-offer, Will the suit prosper? Explain.
and paid a down payment of P50,000. A
few days later, the Corporate Secretary Answer:
of TF informed Gregorio of the decision The suit will not prosper. The
of the Board of Directors not to ratify the sale by E Corporation of its assets to
letter-offer. However, since Gregorio M, Inc. does not result in the transfer
had already paid the down payment, TF of the liabilities of the latter to, nor in
delivered the 500 bags of fertilizer which the assumption thereof by the
Gregorio accepted. TF made it clear that former. The facts given do not
the delivery should be considered an indicate that such transfer or
entirely new transaction. Thereafter, assumption took place or was
Gregorio sought enforcement of the stipulated upon by the parties in their
letter-offer. agreement. Furthermore, the sale by
E Corporation of its assets is a sale
Is there a binding contract for the 5,000 of its property. It does not involve the
bags of fertilizer? Explain. sale of the shares of stock of the
corporation belonging to its
Answer: stockholder. There is, therefore, no
No, there is no binding merger or consolidation that took
contract for the 5,000 bags of place. E Corporation continues to
fertilizers. First, the facts do not exist and remains liable to the
indicate that Rodman, the President creditor.
of TF Corporation, was authorized
by the Board of Directors to enter
into the said contract or that he was b) Richard owns 90% of the shares of
empowered to do so under some the capital stock of GOM Corporation.
provision of the by-laws of TF. The On one occasion, GOM Corporation,
facts do not also indicate that represented by Richard as President
Rodman has been clothed with the and General Manager, executed a
apparent power to execute the contract to sell a subdivision lot in favor
contract or agreements similar to it. of Tomas. For failure of GOM
 Corporation to develop the subdivision, The SEC has original and exclusive
Tomas filed an action for rescission and jurisdiction over case involving:
damages against GOM Corporation and
Richard. 1. Devices or schemes amounting
to fraud and misrepresentation;
Will the action prosper? Explain. 2. Controversies arising out of
intra-corporate or partnership
Answer: relations;
The action may prosper 3. Controversies in the election or
against GOM Corporation but appointment of directors,
definitely not against Richard. officers, etc.;
Richard has a legal personality 4. Petitions to be declared in the
separate and distinct from that of state of suspension of payment.
GOM Corporation. If he signed the
contract to sell, he did so as the
President and General Manager of 11. a) In 1970, Magno joined AMD
GOM Corporation and not in his Corporation as a Junior Accountant. He
personal capacity. Mere ownership steadily rose from the ranks until he
by Richard of 90% of the capital became AMD’s Executive VP.
stock of GOM Corporation is not of Subsequently, however, because of his
itself sufficient ground to disregard involvement in certain anomalies, the
his separate legal personality absent AMD Board of Directors considered him
a showing, for example, that he resigned from the company due to loss
acted maliciously or in bad faith. of confidence.

Aggrieved, Magno filed a complaint in

10. a) Define securities. the SEC, questioning the validity of hi
termination, and seeking reinstatement
Answer: to his former position, with back wages,
Stocks, bonds, notes, vacation and sick leave benefits, 13th
convertible debentures, warrants or month pay and Christmas bonus, plus
other documents that represent a moral and exemplary damages,
share in a company or debt owed by attorney’s fees and costs. AMD filed a
a company or government entity. motion to dismiss, arguing that the SEC
Evidences of obligations to pay has no jurisdiction over cases of illegal
money or rights to participate in dismissal, and has no power to award
earnings and distribution of damages.
corporate assets. Instruments giving
to their legal holders rights to money Should the motion to dismiss be
or other property; they are therefore granted? Explain.
instruments which have intrinsic
value and are recognized and used Answer:
as such in the regular channels of The motion to dismiss should
commerce. be denied. The dismissal of Magno
is a corporate act as it resulted in his
non-reelection to his position, and
b) What is the original and exclusive his non-acceptance of such
jurisdiction of the SEC? dismissal is an intra-corporate
controversy. The fact that Magno
Answer: sought payment of his back wages
and other benefits, as well as moral
 and exemplary damages and
attorney’s fees in his complaint for 12. a) With a capital of P92,000, Maria
illegal dismissal, does not operate to operates a stall in the public market.
prevent the SEC from exercising its She manufactures soap that she sells to
jurisdiction under PD 902-A. While the general public. Her common law
the affirmative reliefs and monetary husband, Ma Lee, who has a pending
claims sought by Magno may, at first petition for naturalization, occasionally
glance, mislead one into placing the finances the purchase of goods for
case under the jurisdiction of the resale, and assist in the management of
Labor Arbiter, a closer examination business.
reveals that they are actually part of
the perquisites of his elective Is there a violation of the Retail trade
position, hence, intimately linked Law? Explain.
with his relations with the
corporation. Answer:
No, there is no violation of
the Retail Trade Law. Maria is a
b) Jennifer and Gabriel owned the manufacturer who sells to the
controlling stocks in MFF Corporation general public, through her stall in
and CLO, Inc., both family corporations. the public market, the soap which
Due to serious disagreements, Jennifer she manufactures. Inasmuch as her
assigned all her shares in MFF capital does not exceed P5,000 then
Corporation to Gabriel, while Gabriel she is considered under Sec.4 (a) of
assigned all his shares in CLO, Inc. to the Retail Trade Law as not
Jennifer. Subsequently, Jennifer and engaged in the “retail business”.
CLO, Inc., filed a complaint against Inasmuch as Maria’s business is not
Gabriel and MFF Corporation in the a “retail business,” then the
SEC, seeking to recover the corporate requirement in Section 1 of the
records and funds of CLO, Inc., which Retail Trade Law that only Philippine
Gabriel allegedly refused to turn over, nationals shall engage , directly or
and which remained in the offices of indirectly, in the retail business is
MFF Corporation. inapplicable. For this reason, the
participation of Ma Lee in the
Is there an intra-corporate controversy management of the business would
in this case? Explain. not be a violation of the Retail Trade
Law in relation to the Anti-Dummy
Answer: Law.
Yes, there is an intra-
corporate controversy in this case.
The fact that, when the complaint b) EL, Inc., a domestic corporation with
against Gabriel and MFF the foreign equity, manufactures electric
Corporation was filed with the SEC, generators, and sells them to the
Jennifer and CLO, Inc. were no following customers: (a) government
longer stockholders of MFF offices which use the generators during
Corporation did not divest the SEC brownouts to render public service, (b)
of its jurisdiction over the case agricultural enterprises which utilize the
inasmuch as Jennifer was a former generators as back up in the processing
stockholder of MFF Corporation and of goods, (c) factories, and (d) its own
the controversy arose out of this employees.
relation.
Is EL engaged in retail trade? Explain.
 Answer: 14. a) AM Trucking, a small company,
The sale by EL of generators operates 2 trucks for hire on selective
to government offices agricultural basis. It caters to only a few customers,
enterprises and factories are outside and its trucks do not make regular or
the scope of the term “retail scheduled trips. It does not even have a
business” and may, therefore, be certificate of public convenience.
made by the said corporation.
However, sales of generators by EL On one occasion, Reynaldo contracted
to its own employees constitute retail AM to transport, for a fee, 100 sacks of
sales and are proscribed. Under the rice from Manila to Tarlac. However, AM
amendment to the Retail Trade Law failed to deliver the cargo, because its
introduced by PD 714, the term truck was hijacked when the driver
“retail business shall not include a stopped in Bulacan to visit his girlfriend.
manufacturer (such as EL) selling to
industrial and commercial users or 1. May Reynaldo hold AM liable as a
consumers who use the products common carrier? Explain.
bought by them to render service to 2. May AM set up the hijacking as a
the general public (e.g. the defense to defeat Reynaldo’s claim?
government offices) and/or to
produce or manufacture goods Answer:
which are in turn sold by them (e.g., 1. Reynaldo may hold AM liable as
the agricultural enterprises and a common carrier. The facts that
factories). AM operates only 2 trucks for
hire on a selective basis, caters
only to a few customers, does
13. a) Define a common carrier? not make regular or scheduled
trips, and does not have a
Answer: certificate of public convenience
A common carrier is a are of no moment as the law (i)
person, corporation, firm or does not distinguish between
association engaged in the business one whose principal business
of carrying or transporting activity is the carrying of persons
passengers or goods or both, by or goods or both and one who
land, water or air for compensation, does such carrying only as an
offering its services to the public. ancillary activity, (ii) avoids
making any distinction between
a person or enterprise offering
b) What is the test for determining transportation service on a
whether or not one is a common carrier? regular or scheduled basis and
one offering such service on an
Answer: occasional, episodic or
The test for determining unscheduled basis, and (iii)
whether or not one is a common refrains from the general public
carrier is whether the person or and one who offers services or
entity, for some business purpose solicits business only from a
and with general or limited clientele, narrow segment of the general
offers the service of carrying or population.
transporting passengers or goods or
both for compensation. 2. AM may not set up the hijacking
as a defense to defeat
 Reynaldo’s claim as the facts considered a passenger and is
given do not indicate that the entitled to all the rights and
same was attended by the use of protection pertaining to a contract of
grave or irresistible threat, carriage.
violence or force. It would
appear that the truck was left
unattended by its driver and was 15. a) What is the distinction between
taken while he was visiting his infringement and unfair competition?
girlfriend.
Answer:
The distinction between
b) A bus of GL Transit on its way to infringement (presumably of
Davao stopped to enable a passenger trademark) and unfair competition
to alight. At that moment, Santiago, who are as follows:
had been waiting for a ride, boarded the 1. Infringement of a trademark is
bus. However, the bus driver failed to the unauthorized use of a
notice Santiago who was still standing trademark, whereas unfair
on the bus platform, and stepped on the competition is the passing off of
accelerator. Because of the sudden one’s goods as those of another;
motion, Santiago slipped and fell down, 2. Fraudulent intent is unnecessary
suffering serious injuries. in infringement of trademark,
whereas fraudulent intent is
May Santiago hold GL Transit liable for essential in unfair competition;
breach of contract of carriage? Explain. 3. The prior registration of the
trademark is a prerequisite to an
Answer: action for infringement of
Santiago may hold GL liable trademark, whereas registration
for breach of contract of carriage. It of the trademark is not
was the duty of the driver, when he necessary in unfair competition.
stopped the bus, to do no act that
would have the effect of increasing
the peril to a passenger such as b) What is the “test of dominancy”?
Santiago while he was attempting to
board the same. When a bus is not Answer:
in motion there is no necessity for a The test of dominancy
person who wants to ride the same requires that if the competing
to signal his intention to board. A trademark contains the main or
public utility bus, once it stops, is in essential features of another and
effect making a continuous offer to confusion and deception is likely to
bus riders. It is the duty of common result, infringement takes place.
carriers of passengers to stop their Duplication or imitation is not
conveyances for a reasonable length necessary; nor is it necessary that
of time in order to afford passengers the infringing label should suggest
an opportunity to board and enter, an effort to imitate. Similarity in size,
and they are liable for injuries form and color, while relevant, is not
suffered by boarding passengers conclusive.
resulting from the sudden starting up
or jerking of their conveyances while
they are doing so. Santiago, by c) N Corporation manufactures rubber
stepping and standing on the shoes under the trademark
platform of the bus, is already “Jordann” which hit the Philippine
 Market in 1985, and registered its foreclosed the chattel mortgage, and
trademark with the Bureau of sought to recover the deficiency.
Patents, Trademarks and
Technology Transfer (BPTTT) in May IOU still recover the deficiency?
1990. PK Company also Explain.
manufactures rubber shoes with the
trademark “Javorski” which it Answer:
registered with the BPTTT in 1978. IOU may no longer recover the
deficiency. Under Article 1484 of the
In 1992, PK Company adopted and Civil Code, in a contract of sale of
copied the design of N Corporation’s personal property the price of which is
“Jordann” rubber shoes, both as to payable in installments, the vendor may,
shape and color, but retained the among several options, foreclose the
trademark “Javorski” on its products. chattel mortgage on the thing sold, if
one has been constituted, should the
May PK Company be held liable to N vendee’s failure to pay cover 2 or more
Corporation? Explain. installments. In such case, however, the
vendor shall have no further action
Answer: against the purchaser to recover any
PK may be held liable unpaid balance of the price and any
for unfairly competing against agreement to the contrary is void. While
N Corporation. By copying the given facts did not explicitly state
the design, shape and color that Anjo’s failure to pay covered 2 or
of N’s “Jordann” rubber more installments, this may safely be
shoes and using the same in presumed because the right of IOU to
its rubber shoes trademarked foreclose the chattel mortgage under the
“Javorski”, PK is obviously circumstances is premised on Anjo’s
trying to pass off its shoes for failure to pay 2 or more installment. The
those of N. it is of no moment foreclosure would not have been valid if
that the trademark “Javorski” it were not so.
was registered ahead of the
trademark “Jordann”. Priority
in registration is not material 17. ON June 16, 1995, Vicente obtained a
in an action for infringement writ of preliminary attachment against
of trademark. The basis of an Carlito. The levy on Carlito’s property
action for unfair competition occurred on June 25, 1995. On July 29,
is confusing and misleading 1995, another creditor filed a petition for
similarly in general involuntary insolvency against Carlito.
appearance, not similarity of The insolvency court gave due course to
trademarks. the petition. In the meantime, the case
filed by Vicente proceeded, and resulted
in a judgment award in favor of Vicente.
16. Finding a 24-month payment plan
attractive, Anjo purchased a Tamaraw May the judgment obtained by Vicente
FX from Toyota Quezon City. He paid a be enforced independently of the
down payment of P100,000, and insolvency proceedings? Explain.
obtained financing for the balance from
IOU Company. He executed a chattel Answer:
mortgages over the vehicle in favor of The judgment obtained by Vicente
IOU. When Anjo defaulted, IOU can be enforced independently of the
insolvency proceedings. Under Section
32 of the Insolvency Law, the
assignment to the assignee of all the
real and personal property, estate and
effects of the debtor made by the clerk
of court shall vacate and set aside any
judgment entered in any action 1995 BAR EXAMINATION
commenced within 30 days immediately
prior to the commencement of
insolvency proceedings. In this case, Question No. 1:
however, the action filed by Vicente
against Carlito was commenced by 1. What requirements must be met before
Vicente not later than June 16, 1995 a certificate of public convenience may
(the facts on this point are not clear) be granted under the Public Service
when Vicente obtained a writ of Act?
preliminary attachment against Carlito or
more than 30 days before the petition 2. What is the prescriptive period for
for involuntary insolvency was filed actions involving lost or damaged cargo
against Carlito by his other creditors. under the Carriage of Goods by Sea
Act?

3. Under the Revised Securities Act, it is

unlawful for an insider to sell or buy a
security of the issuer if he knows a fact
or special significance with respect to
the issuer or the security that is not
generally available, without disclosing
such fact to the other party.

a. What does the term “insider” mean

as used in the Revised Securities
Act?
b. When is a fact considered to be “of
special significance” under the same
Act?
c. What are the liabilities of a person
who violates the pertinent provisions
of the Revised Securities Act
regarding the unfair use of inside
information?

Answer:
1. The following are the requirements for
the granting of a certificate of public
convenience, to wit:

a) The applicant must be a citizen

of the Philippines, or a
corporation, co-partnership or
association organized under the
laws of the Philippines and at
least 60% of the stock or paid-up
 capital of which must belong to more than P500,000, or (2)
citizens of the Philippines. imprisonment of not less than 7
b) The applicant must prove public years nor more than 21 years, (3) or
necessity. both such fine and imprisonment in
c) The applicant must prove that the discretion of the court.
the operation of the public
service proposed and the If the offender is a corporation,
authorization to do business will partnership, association or other
promote the public interest in a juridical entity, the penalty shall be
proper and suitable manner. imposed upon the officers of the
d) The applicant must be financially corporation, etc. responsible for the
capable of undertaking the violation. And if such an officer is an
proposed service and meeting alien, he shall, in addition to the
the responsibilities incident to its penalties prescribed, be deported
operation. without further proceedings after
service of sentence.
2. One (1) year after delivery of the goods
or the date when the goods should have
been delivered. Question No. 2:
Ronald Sham doing business under
3. a) “Insider” means (1) the issuer, (2) a the name of SHAMRON Macineries
director or officer of or a person (SHAMRON) sold to Turtle Mercantile
controlling, controlled by, or under (TURTLE) a diesel farm tractor. In payment,
common control with, the issuer, (3) a TURTLE’s President and Manager Dick
person whose relationship or former Seldon issued a check for P50,000 in favor
relationship to the issuer gives or gave of SHAMRON. A week after, TURTLE sold
him access to a fact of special the tractor to Briccio Industries (BRICCIO)
significance about the issuer or the for P60,000. BRICCIO discovered that the
security that is not generally available, engine of the tractor was reconditioned so
or (4) a person who learns such a fact he refused to pay TURTLE. As a result,
from any of the foregoing insiders with Dick Seldon ordered “stop payment” of the
knowledge that the person from whom check issued to SHAMRON.
he learns the facts is such an insider.
SHAMRON sued TURTLE and Dick
b) It is one which, in addition to Seldon. SHAMRON obtained a favorable
being material, would be likely to judgment holding co-defendants TURTLE
affect the market price of a security and Seldon jointly and severally liable.
to a significant extent on being made
generally available, or one which a Comment on the decision of the trial
reasonable person would consider court. Discuss fully.
especially important under the
circumstances in determining his Answer:
course of action in the light of such The trial court erred in holding Dick,
factors as the degree of its President and General Manager of Turtle,
specificity, the extent of its difference jointly and severally liable with TUTRTLE.
from information generally available
previously, and its nature and In issuing the check issued to
reliability. SHAMRON and, thereafter, stopping
payment thereof, Seldon was acting in his
c) The person may be liable to (1) a capacity as an officer of TURTLE. He was
fine of not less than P5,000 nor not acting in his personal capacity.
Furthermore, no facts have been provided 2. If the conditions relating to quorum and
which would indicate that the action of required number of votes are not met,
Seldon was dictated by an intent to defraud the contract must be ratified by the vote
SHAMRON by himself or in collusion with of stockholders representing at least
TURTLE. Having acted in what he 2/3 of the outstanding capital stock in a
considered as his duty as an officer of the meeting called for the purpose.
corporation, Seldon should not be held
personally liable. Furthermore, the adverse interest of
Chito in the contract must be disclosed
and the contract is fair and reasonable.
Question No. 3:
Chito Santos is a director of both
Platinum Corporation (PLATINUM) and Question No. 4:
KWIK Silver Corporation (KWIK). He owns Stikki Cement Corporation (STIKKI)
1% of the outstanding capital stock of was organized primarily for cement
PLATINUM and 40% of KWIK. PLATINUM manufacturing. Anticipating substantial
plans to enter into a contract with KWIK that profits, its President proposed that STIKKI
will make both companies earn very invest in (a) a power plant project, (b) a
substantial profits. The contract is presented concrete road project, and (c) quarry
at the respective board meetings of operations for limestone used in the
PLATINUM and KWIK. manufacture of cement.

1. In order that the contract will not be 1. What corporate approvals or votes are
voidable, what conditions will have to be needed for the proposed investments?
complied with? Explain. Explain.
2. If these conditions are not met, how may 2. Describe the procedure in securing
this contract be ratified? Explain. these approvals.

Answer: Answer:
1. At the meeting of the Board of 1. Unless the power plant and the concrete
Directors of PLATINUM to approve the road project are reasonably necessary
contract, Chito Santos would have to to the manufacture of cement by STIKKI
make sure that: (and they do not appear to be so), then
the approval of the said projects by a
a) His presence as director at the majority of the Board of Directors and
meeting is not necessary to the ratification of such approval by the
constitute a quorum for such stockholders representing at least 2/3 of
meeting; the outstanding capital stock would be
b) His vote is not necessary for the necessary.
approval of the contract; and
c) The contract is fair and reasonable As for the quarry operations for
under the circumstances. limestone, the same is an indispensable
ingredient in the manufacture of cement
At the meeting of the Board of Directors and may, therefore, be considered
of KWIK to approve the contract, Chito reasonably necessary to accomplish the
would have to make sure that: primary purpose of STIKKI. In such
case, only the approval of the Board of
a) There is no fraud involved; and Directors would be necessary.
b) The contract is fair and reasonable
under the circumstances.
2. a) The procedure in securing the
approval of the Board of Directors is as 1. What are the remedies available to
follows: Robert under the Corporation Code to
i) A notice of meeting of the break the deadlock? Explain.
Board should be sent to all 2. Are there any remedies to prevent the
the directors. The notice paralyzation of the business available to
should state the purpose of Robert under PD 902-A while the
the meeting. petition to break the deadlock is pending
ii) At the meeting, each of the litigation? Explain.
project should be approved
by a majority of the Board Answer:
(not merely a majority of 1. Robert can petition the SEC to arbitrate
those present at the the dispute, with such powers as
meeting). provided in the Corporation Code.
2. The SEC can appoint a rehabilitation
b) The procedure in securing the receiver or a management committee.
approval of the stockholders is as
follows:
i) Written notice of the proposed Question No. 6:
investment and the time and On October 12, 1993, Chelsea
place of the stockholders’ Straights (CHELSEA), a corporation
meeting should be sent to each engaged in the manufacture of cigarettes,
stockholder at his place of ordered from Moises Lim 2,000 bales of
residence as shown on the tobacco. CHELSEA issued to Moises Lim 2
books of the corporation and crossed checks postdated March 15, 1994
deposited to the addressee in and April 15, 1994 in full payment therefor.
the post office with postage On January 19, 1994 Moises Lim sold to
prepaid, or served personally. Dragon Investment House (DRAGON) at a
ii) At the meeting, each of the discount the 2 checks drawn by CHELSEA
projects should be approved by in his favor.
the stockholders representing at
least 2/3 of the outstanding Moises Lim failed to deliver the
capital stock. bales of tobacco as agrees despite
CHELSEA’s demand. Consequently, on
March 1, 1994 CHELSEA issued a “stop
Question No. 5: payment” order on the 2 checks issued to
Robert, Rey and Ben executed a Moises Lim. DRAGON, claiming to be a
joint venture agreement to form a close holder in due course, filed a complaint for
corporation under the Corporation Code the collection against CHELSEA for the value of
outstanding capital stock of which the 3 of the checks.
them would equally own. They also
provided therein that any corporate act Rule on the complaint of DRAGON.
would need the vote of 70% of the Give your legal basis.
outstanding capital stock. The terms of the
agreement were accordingly implemented Answer:
and the corresponding close corporation DRAGON cannot collect from
was incorporated. After 3 years, Robert, CHELSEA. The instruments are crossed
Rey and Ben could not agree on the checks which were intended to pay for the
business in which to invest the funds of the 2,000 bales of tobacco to be delivered by
corporation. Robert wants the deadlock Moises Lim. It was therefore the obligation
broken. of DRAGON to inquire as to the purpose of
the issuance of the 2 crossed checks before
causing them to be discounted. Failure on 2. Celso has the right to collect from Alex
its part to make such inquiry, which resulted and Benito. Celso is a party subsequent
in its bad faith, DRAGON cannot claim to be to the two. However, Celso has no right
a holder in due course. Moreover, the to claim against Felix who is a party
checks were sold, not endorsed, by him to subsequent to Celso.
DRAGON which did not become a holder in
due course. Not being a holder in due
course, DRAGON is subject to the personal Question No. 8:
defense on the part of CHELSEA Sun-Moon Insurance issued a
concerning the breach of trust on the part of Personal Accident Policy to Henry Dy with a
Moises Lim in not complying with his face value of P500,000. A provision in the
obligation to deliver the 2,000 bales of policy states that “the company shall not be
tobacco. liable in respect of bodily injury consequent
upon the insured person attempting to
commit suicide or willfully exposing himself
to needless peril except in an attempt to
Question No. 7: save human life”. 6 months later, Henry died
Alex issued a negotiable promissory of a bullet wound in his head. Investigation
note (PN) payable to Benito or order in showed that one evening Henry was in a
payment of certain goods. Benito indorsed happy mood although he was not drunk. He
the PN to Celso in payment of an existing was playing with his handgun from which he
obligation. Later Alex found the goods to be had previously removed its magazine. He
defective. While in Celso’s possession the pointed the gun at his sister who got scared.
PN was stolen by Dennis who forged He assured her it was not loaded. He then
Celso’s signature and discounted it with pointed the gun at his temple and pulled the
Edgar, a money lender who did not make trigger. The gun fires and Henry slumped
inquiries about the PN. Edgar indorsed the dead on the floor.
PN to Felix, a holder in due course. When
Felix demanded payment of the PN from Henry’s wife, Beverly, as the
Alex the latter refused to pay. Dennis could designated beneficiary, sought to collect
no longer be located. under the policy. Sun-Moon rejected her
claim on the ground that the death of Henry
1. What are the rights of Felix, if any, was not accidental. Beverly sued the
against Alex. Bento, Celso and Edgar? insurer.
Explain.
2. Does Celso have nay right against Alex, Decide. Discuss fully.
Benito and Felix? Explain.
Answer:
Answer: Beverly can recover the proceeds of
1. Felix has no right to claim against Alex, the policy from the insurer. The death of the
Benito and Celso who are parties prior insured was not due to suicide or willful
to the forgery of Celso’s signature by exposure to needless peril which are the
Dennis. Parties to an instrument who excepted risks. The insured’s act was purely
are such prior to the forgery cannot be on act of negligence which is covered by the
held liable by any party who became policy and for which the insured got the
such at or subsequent to the forgery. insurance for his protection. In fact, he
However, Edgar, who became a party to removed the magazine from the gun and
the instrument subsequent to the forgery when he pointed the gun to his temple he
and who indorsed the same to Felix, can did so because he thought that it was safe
be held liable by the latter. for him to do so. He did so to assure his
sister that the gun was harmless. There is the debtor is insolvent, that is, his assets
none in the policy that would relieve the are less than his liabilities
insurer of liability for the death of the
insured since the death was an accident. 2. In voluntary insolvency, it is the debtor
himself who files the petition for
insolvency, while in involuntary
insolvency, at least 3 creditors are the
Question No. 9: ones who file the petition for insolvency
House of Pizza (PIZZA) is the owner against the insolvent debtor.
and operator of a nationwide chain of pizza
outlets. House of Liquor (LIQUOR) is a
retailer of all kinds of liquor. Question No. 11:
Michael withdrew authority funds of
House of Foods (FOODS) has the partnership in the amounts of P500,000
offered to purchase all of the outlets, and used US$50,000 for services he claims
equipment, fixtures and furniture of PIZZA. he rendered for the benefit of the
FOODS also offered to purchase from partnership. He deposited the P500,000 in
LIQUOR all of its moderately priced stock his personal peso current account with
constituting 50% of its total inventory. Prosperity Bank and the US$50,000 in his
personal foreign currency savings account
Both PIZZA and LIQUOR have with Eastern Bank.
creditors. What legal requirements must
PIZZA and LIQUOR comply with in order for The partnership instituted an action
FOODS to consummate the transactions? in court against Michael, Prosperity Bank
Discuss fully. and Eastern Bank to compel Michael to
return the subject funds to the partnership
Answer: and pending litigation to order both banks to
PIZZA and LIQUOR must prepare disallow any withdrawal from his accounts.
an affidavit stating the names of all their
creditors, their addresses, the amounts of At the initial hearing of the case the
their credits and their respective maturities. court ordered Prosperity Bank to produce
PIZZA and LIQUOR must submit said the records of Michaels’s peso current
affidavit to FOODS which, in turn, should account, and Eastern Bank to produce the
notify the creditors about the transaction records of his foreign currency savings
which is about to be concluded with PIZZA account.
and LIQUOR.
Can the court compel Prosperity
Bank and Eastern Bank to disclose the bank
Question No. 10: deposits of Michael? Discuss fully.
1. Distinguish between suspension of
payments and insolvency. Answer:
2. Distinguish between voluntary Yes, as far as the peso account is
insolvency and involuntary insolvency. concerned. Section 2 of RA No. 1405 allows
the disclosure of bank deposits in case
Answer: where the money deposited is the subject
matter of the litigation. Since the case filed
1. In suspension of payments, the debtor is against Michael is aimed at recovering the
not insolvent. He only needs time within amount he withdrew from the funds of the
which to convert his asset/s into cash partnership, which amount he allegedly
with which to pay his obligations when
they fall due. In the case of insolvency,
deposited in his account, a disclosure of his to the damage caused to them and their
bank deposits would be proper. cargoes? Explain.
2. If it cannot be determined which of the
No, with respect to the foreign vessels was at fault resulting in the
currency account. Under the Foreign collision, which party should bear the
Currency Law, the exemption to the damage caused to the vessels and the
prohibition against disclosure of information cargoes? Explain.
concerning bank deposits is the written 3. Which party should bear the damage to
consent of the depositor. the vessels and the cargoes if the cause
of the collision was a fortuitous event?
Explain.
Question No. 12:
Global KL Malaysia (GLOBAL), a Answer:
100% Malaysian-owned corporation, 1. Each vessel must bear its own damage.
desires to build a hotel beach resort in Both of them are at fault.
Samal Island, Davao City, to take 2. Each of them should bear their
advantage of the increased traffic of tourists respective damages. Since it cannot be
and boost the tourism industry of the determined as to which vessel is at fault.
Philippines. This is under the doctrine of “inscrutable
fault”.
1. Assuming that GLOBAL has US$100 3. No party shall be held liable since the
Million to invest in a hotel beach resort cause of the collision is fortuitous event.
in the Philippines, may it be allowed to The carrier is not an insurer.
acquire the land on which to build the
resort? If so, under what terms and
conditions may GLOBAL acquire the
land? Discuss fully.
2. May GLOBAL be allowed to manage the Question No. 14:
hotel beach resort? Explain. M. Dizon Trucking (DIZON) entered
3. May GLOBAL be allowed to operate into a hauling contract with Fairgoods
restaurants within the hotel beach Corporation (FAIRGOODS) whereby the
resort? Explain. former bound itself to haul the latter’s 2,000
sacks of soya bean meal from Manila Port
Answer: Area to Calamba, Laguna. To carry out
1. GLOBAL can secure a lease on the faithfully its obligation DIZON subcontracted
land. As a corporation with a Malaysian with Enrico Reyes the delivery of 400 sacks
nationality, GLOBAL cannot own the of the soya bean meal. Aside from the
land. driver, three male employees of Reyes rode
2. Yes, GLOBAL can manage the hotel on the truck with the cargo. While the truck
beach resort. There is no law prohibiting was on its way to Laguna two strangers
it from managing a resort. suddenly stopped the trucks and hijacked
3. GLOBAL may be allowed to operate the cargo. Investigation by the police
restaurants within the beach resort. This disclosed that one of the hijackers was
is part of the operation of the resort. armed with a bladed weapon while the other
was unarmed. For failure to deliver the 400
sacks, FIARGOODS sued Dizon for
Question No. 13: damages. DIZON in turn set up a third-party
1. Two vessels coming from opposite complaint against Reyes which the latter
directions collided with each other due resisted on the ground that the loss was due
to fault imputable to both. What are the to force majeure.
liabilities of the two vessels with respect
 Did the hijacking constitute force sell any manuscripts or any record
majeure to exculpate Reyes from any whatsoever thereof;
liability to DIZON? Discuss fully. d) To make any other use or
disposition of the work consistent
Answer: with the laws of the land.
No. the hijacking in this case cannot
be considered force majeure. Only one of 2. a) SOLID owns the mural. SOLID was
the two hijackers was armed with a bladed the one who commissioned the artists to
weapon. As against 4 male employees of do the work and paid for the work in the
Reyes, 2 hijackers, with only one of them sum of P2 M.
being armed with a bladed weapon, cannot
be considered force majeure. The hijackers b) Unless there is a stipulation to the
did not act with grave or irresistible threat, contrary in the contract, the copyright
violence or force. shall belong in joint ownership to SOLID
and Mon Blanco and his son Steve.

Question No. 15:

1. What intellectual property rights are Question No. 16:
protected by copyright? Mario Guzman issued to Honesto
2. Solid Investment House (SOLID) Santos a check for P50,000 as payment for
commissioned Mon Blanco and his son a second-hand car. Without the knowledge
Steve, both noted artist, to paint a mural of Mario, Honesto changed the amount to
for the Main Lobby of the new building P150,000 which alteration could not be
of SOLID for a contract price of P2 M. detected by the naked eye. Honesto
deposited the altered check with Shure
a) Who owns the mural? Explain. Bank which forwarded the same to
b) Who owns the copyright of the Progressive Bank for payment. Progressive
mural? Explain. Bank without noticing the alteration paid the
check, debiting P150,000 from the account
Answer: of Mario. Honesto withdrew the amount of
1. Section 5 of PD 49 provides that P150,000 from Shure Bank and
Copyright shall consist the exclusive disappeared. After receiving his bank
right: statement, Mario discovered the alteration
and demanded restitution from Progressive
a) To print, reprint, publish, copy, Bank.
distribute, multiply, sell and make
photographs, photo engravings, and Discuss fully the rights and liabilities
pictorial illustrations of the works; of the parties concerned.
b) To make any translation or other
version or extracts or arrangements Answer:
or adaptation thereof; to dramatize if The demand of Mario for restitution
it be a non-dramatic work; to convert of the amount of P150,000 to his account is
it into a non-dramatic work if it be a tenable. Progressive Bank has no right to
drama; to complete or execute if it deduct said amount from Mario’s account
be a model or design; since the order of Mario is different.
c) To exhibit, perform, represent, Moreover, Progressive Bank is liable for the
produce, or reproduce the work in negligence of its employees in not noticing
any manner or by any method the alteration which, though it cannot be
whatever for profit or otherwise; if detected by the naked eye, could be
not reproduced in copies for sale, to detected by a magnifying instrument used
by tellers.
 1. Under the “no fault indemnity” clause
As between Progressive Bank and any claim for the death or injury of any
Shure Bank, it is the former that should bear passenger or third party shall be paid
the loss. Progressive Bank failed to notify without the necessity of proving fault or
Shure Bank that there was something negligence of any kind. The indemnity in
wrong with the check within the clearing respect of any one person shall not
hour rule of 24 hours. exceed P15,000, provided they are
under oath, the following proofs shall be
sufficient:

a) Police report of the accident; and

b) Death certificate and evidence
sufficient to establish the proper
payee; or
c) Medical report and evidence of
medical or hospital disbursement in
respect of which refund is claimed.

Claim may be made against one

motor vehicle only.

2. Co-insurance is the percentage in the

value of the insured property which the
insured himself assumes or undertakes
to act as insurer to the extent of the
deficiency in the insurance of the
insured property. In case of loss or
damage, the insurer will be liable only
for such proportion of the loss or
damage as the amount of insurance
bears to the designated percentage of
the full value of the property insured.

Reinsurance is where the insurer

procures a third party, called the
reinsurer, to insure him against liability
1994 BAR EXAMINATION by reason of such original insurance.
Basically, a reinsurance is an insurance
against liability which the original insurer
Question No.1: may incur in favor of the original
1. What is your understanding of a “no insured.
fault indemnity” clause found in an
insurance policy? 3. In case anything wrong happens to the
2. Distinguish co-insurance from re- letter of credit, a confirming bank incurs
insurance. liability for the amount of the letter of
3. In letters of credit in banking credit, while a notifying bank does not
transactions, distinguish the liability of a incur any liability.
confirming bank from a notifying bank.

Answer:
Question No. 2:
1. Give a case where a person who is not Jose failed to deliver the newsprint, Po
an issuing corporation, director or officer ordered the drawee bank to stop payment
thereof, or a person controlling, on the check.
controlled by or under common control
with the issuing corporation, is also Efforts of Excel to collect from Po
considered an “insider”. failed. Excel wants to know from you as
2. In Securities Law, what is a “shortswing” counsel:
transaction.
3. In “insider trading”, what is a “fact of 1. What are the effects of crossing a
special significance”? check?
2. Whether as second indorser and
Answer: holder of the crossed check, is it a
1. It may be a case where a person, whose holder in due course?
relationship or former relationship to the 3. Whether Po’s defense of lack of
issuer gives or gave him access to a consideration as against Jose is also
fact of special significance about the available as against Excel?
issuer or the security that is not
generally available, or a person, who Answer:
learns such a fact from any of the 1. The effects of crossing a check are:
insiders, with knowledge that the person
from whom he learns the fact, is such an a) The check is for deposit only in the
insider. account of the payee.
b) The check may be indorsed only
2. A “shortswing” is a transaction where a once in favor of a person who has
person buys securities and sells or an account with the bank.
disposes of the same within a period of c) The check is issued for a specific
6 months. purpose and the person who takes it
not in accordance with said purpose
3. In “insider trading”, a “fact of special does not become a holder in due
significance” is, in addition to being course and is not entitled to payment
material, such fact as would likely, on thereunder.
being made generally available, to affect
the market price of a security to a 2. No. It is a crossed check and Excel did
significant extent, or which a reasonable not take it in accordance with the
person would consider as especially purpose for which the check was issued.
important under the circumstances in Failure on its part to inquire as to said
determining his course of action in the purpose, prevented Excel from
light of such factors as the degree of its becoming a holder in due course, as
specificity, the extent of its difference such failure or refusal constituted bad
from information generally available faith.
previously, and its nature and reliability.
3. Yes. Not being a holder in due course,
Excel is subject to the personal defense
Question No. 3: which Po Press can set up against Jose.
Po Press issued in favor of Jose a
postdated crossed check, in payment of
newsprint which Jose promised to deliver. Question No. 4:
Jose sold and negotiated the check to Excel Gemma drew a check on Septmeber
Inc. at a discount. Excel did not ask Jose 13, 1990. The holder presented the check to
the purpose of crossing the check. Since the drawee bank only on March 5, 1994.
The bank dishonored the check on the
same date. After dishonor by the drawee offered by ECQ; and MWSS awarded the
bank, the holder gave a formal notice of contract to supply its asbestos pipes to
dishonor to Gemma through a letter dated Celeste. ECQ sought to nullify the award in
April 27, 1994. favor of Celeste.

1. What is meant by “unreasonable 1. Is Celeste barred under the Flag

time” as applied to presentment? Law from taking part in bidding to
2. Is Gemma liable to the holder? supply the government?
2. Did Celeste and Matilde violate the
Answer: Anti-Dummy Law?
1. As applied to presentment for payment, 3. Did Celeste and Matilde violate the
“reasonable time” is meant not more Retail Trade Nationalization Law?
than 6 months from the date of issue. Explain.
Beyond said period, it is “unreasonable
time” and the check becomes stale. Answer:
2. No. Aside from the check being already 1. No. The materials offered in the bids
stale, Gemma is also discharged from submitted are made in the Philippines
liability under the check, being a drawer from articles produced or grown in the
and a person whose liability is Philippines, and the bidder, Celeste, is a
secondary, this is due to the giving of domestic entity. The Flag Law does not
the notice of dishonor beyond the period apply. It can be invoked only against a
allowed by law. The giving of notice of bidder who is not a domestic entity, or
dishonor on April 27, 1994 is more than against a domestic entity who offers
1 month from March 5, 1994 when the imported materials.
check was dishonored. Since it is not 2. No, since Celeste is merely a dealer of
shown that Gemma and the holder Matilde and not an alter ego of the latter.
resided in the same place, the period Celeste buys and sells on its own
within which to give notice of dishonor account the products of Matilde.
must be the same time that the notice 3. Matilde did not violate the Retail Trade
would reach Gemma if sent by mail. Law since it does not sell its products to
consumers, but to dealers who resell
them. Neither did Celeste violate the
Question No. 5: Retail Trade Law since, in the first
Celeste, a domestic corporation place, it is not prohibited to engage in
wholly owned by Filipino citizens, is retail trade. Besides, Matilde’s sale of
engaged in trading and operates as general the asbestos products to Celeste, being
contractor. It buys and resells the products wholesale, the transaction is not
of Matilde, a domestic corporation, 90% of covered by the Retail Trade Law.
whose capital stock is owned by aliens. All
of Matilde’s goods are made in the
Philippines from materials found or Question No, 6:
produced in the Philippines. Stanrus, Inc., a department store
with outlets in Makati, Mandaluyong and
On the other hand, ECQ Integrated Quezon City, is contemplating to refurbish
is a 100% Filipino-owned corporation and and renovate its Makati store in order to
manufacturer of asbestos products. introduce the most modern and state of the
art equipment in merchandise display. To
Celeste and ECQ took part in a carry out its plan, it intends to sell ALL of the
public bidding conducted by MWSS for its existing fixtures and equipment (display
asbestos pipe requirements. Celeste won cases, wall decoration, furniture, counters,
the bid, having offered 13% lower than that etc.) to Crossroads Department Store.
Thereafter, it will buy and install new fixtures refused to make good its obligation to
and equipment and continue operations. Benjie under the insurance contract.

Crossroads wants to know from you, 1. Is Garapal Insurance legally justified

as counsel: in refusing payment to Benjie?
1. Whether the intended sale is “bulk 2. Is Nat entitled to collect on the
sale”. insurance policy?
2. How can it protect itself from future
claims of creditors of Stanrus. Answer:
1. Yes. At the time of the loss, Benjie was
Answer: no longer the owner of the property
1. Yes. The sale involves all fixtures and insured as he failed to redeem the
equipment, not in the ordinary course of property. The law requires in property
trade and the regular prosecution of insurance that a person can recover the
business of Stanrus, Inc. proceeds of the policy if he has
insurable interest at the time of the
2. Crossroads should require from issuance of the policy and also at the
Stanrus, Inc. submission of a written time when the loss occurs. At the time of
waiver of the Bulk Sales Law by the fire, Benjie no longer had insurable
creditors as shown by verified interest in the property insured.
statements or to comply with the
requirements of the Bulk Sales Law, that 2. No. While at the time of the loss he has
is, the seller must notify his creditors of insurable interest in the building, as he
the terms and conditions of the sale, was the owner thereof, Nat did not have
and also, before receiving from the any interest in the policy. There was no
vendee any part of the purchase price, automatic transfer clause in the policy
deliver to such vendee a written sworn that would give him such interest in the
statement of the names and addresses policy.
of all his creditors together with the
amount of indebtedness due to each.
Question No. 8:
Raul’s truck bumped the car owned
Question No. 7: by Luz. The car was insured by Cala
In a civil suit, the Court ordered Insurance. For the damage caused, Cala
Benjie to pay Nat P500,000. To execute the paid Luz P5,000 in amicable settlement. Luz
judgment, the sheriff levied upon Benjie’s executed a release claim, subrogating Cala
registered property (a parcel of land and the to all her rights against Raul. When Cala
building thereon), and sold the same at demanded reimbursement from Raul, the
public auction to Nat, the highest bidder. latter refused saying that he had already
The latter, on March 18, 1992, registered paid Luz P4,500 for the damage to the car
with the Register of Deeds the certificate of as evidenced by a release of claim
sale issued to him by the sheriff. Meanwhile, executed by Luz discharging Raul.
on January 27, 1993, Benjie insured with
Garapal Insurance for P1 M the same So Cala demanded reimbursement
building that was sold at public auction to from Luz, who refused to pay, saying that
Nat. Benjie failed to redeem the property by the total damage to the car was P9,500.
March 18, 1993. Since Cala paid P5,000 only, Luz contends
that she was entitled to go after Raul to
On March 19, 1993, a fire razed the claim the additional P4,500.
building to the ground. Garapal Insurance
 1. Is Cala, as subrogee of Luz, entitled Question No. 10:
to reimbursement from Raul? Mariter, a paying bus passenger,
2. May Cala recover what it has paid was hit above her left eye by a stone hurled
Luz? at the bus by an unidentified bystander as
the bus was speeding through the National
Answer: Highway. The bus owner’s personnel lost no
1. No. Luz executed a release in favor of time in bringing Mariter to the provincial
Raul. hospital where she was confined and
2. Yes. Cala lost its right against Raul treated.
because of the release executed by Luz.
Since the release was made without the Mariter wants to sue the bus
consent of Cala, Cala may recover the company for damages and seeks your
amount of P5,000. advice whether she can legally hold the bus
company liable?

Question No. 9: Answer:

On September 23, 1990, Tan took a Mariter cannot legally hold the bus
life insurance policy from Philam. The policy company liable. There is no showing that
was issued on November 6, 1990. He died any such incident previously happened so
on April 26, 1992 of hepatoma. The as to impose an obligation on the part of the
insurance company denied the personnel of the bus company to warn the
beneficiaries’ claim and rescinded the policy passengers and to take the necessary
by reason of alleged misrepresentation and precaution. Such hurling of a stone
concealment of material facts made by Tan constitutes fortuitous event in this case. The
in his application. It returned the premiums bus company is not an insurer.
paid.

The beneficiaries contend that the Question No. 11:

company had no right to rescind the Toni, a copra dealer, loaded 1,000
contract as rescission must be done “during sacks of copra on board the vessel M/V
the lifetime” of the insured within 2 years Tonichi (a common carrier engaged in
and prior to the commencement of the coastwise trade owned by Ichi) for shipment
action. from Puerto Galera to Manila.

Is the contention of the beneficiaries The cargo did not reach Manila
tenable? because the vessel capsized and sank with
all its cargo.
Answer:
No. The incontestability clause does When Toni sued Ichi for damages
not apply. The insured died within less than based on breach of contract, the latter
2 years from the issuance of the policy on invoked the “limited liability rule”
September 23, 1990. The insured died on
April 26, 1992, or less than 2 years from 1. What do you understand of the “rule”
September 23, 1990. invoked by Ichi?
2. Are there exceptions to the “limited
The right of the insurer to rescind is liability rule”
only lost if the beneficiary has commenced
an action on the policy. There is no such Answer:
action in this case. 1. By “limited liability rule” is meant that the
liability of a ship owner for damages in
case of loss is limited to the value of the
 vessel involved. His other properties Question No. 13:
cannot be reached by the parties A corporation was created by a
entitled to damages. special law. Later, the law creating it was
declared invalid. May such corporation
2. Yes. When the ship owner of the vessel claim to be a de facto corporation?
involved is guilty of negligence, the
“limited liability rule” does not apply. In Answer:
such case, the ship owner is liable to the No. a private corporation may be
full extent of the damages sustained by created only under the Corporation Code.
the aggrieved parties. Only public corporation may be created
under a special law.

Question No. 12: Where a private corporation is

Angelene is a customer of Meralco created under a special law, there is no
Electric Company (MECO). Because of the attempt at a valid incorporation. Such
abrupt rise of the electricity rates. Angelene corporation cannot claim a de facto status.
complained with MECO insisting that she
should be charged the former rates.
However, Angelene did not tender any Question No. 14:
payment. Victor was employed in MAIA
Corporation. He subscribed to P1,500
When MECO’s employees served shares of the corporation at P100 per share
the first 48-hour notice of disconnection, or a total of P150,000. He made an initial
Angelene protested. MECO, however, did down payment of P37,500. He was
not implement the 48-hour notice of appointed President and General Manager.
disconnection. Instead, its employees Because of his disagreement with the Board
examined Angelene’s electric meter, of Directors, he resigned and demanded
changed the same, and installed another. payment of his unpaid salaries, his cost of
Still, Angelene made no tender of payment. living allowance, his bonus, and
reimbursement of his gasoline and
MECO served a second 48-hour representation expenses.
notice of disconnection on June 22, 1984. It
gave Angelene until 5:00pm of June 25, MAIA Corporation admits that it
1984, within which to pay. As no payment owed Victor P40,000 but told him that this
had been made, MECO cut Angelene’s will be applied to the unpaid balance of his
electric service on June 28, 1984. subscription in the amount of P100,000.
There was no call or notice for the payment
Angelene contends that the 48-hour of the unpaid subscription. Victor
written notice of disconnection rule cannot questioned the set-off.
be invoked by MECO when there is a bona
fide and just dispute as to the amount due 1. May MAIA set-off unpaid
as her electric consumption rate. subscription with Victor’s claim for
salaries?
Is Angelene’s contention valid? 2. Would your answer be the same if
indeed there had been a call for the
Answer: unpaid subscription?
No. Angelene’s only legal recourse
in this case was to pay the electric bill under Answer:
protest. Her failure to do so justified Meralco 1. No. MAIA cannot set-off the unpaid
to cut the electric service. subscription with Victor’s claim for
 salaries. The unpaid subscription is not stockholder and a corporation of which
yet due as there is no call. he is a stockholder, and the dispute
arose out of such relationship.
2. Yes. The reason is that Victor is entitled Moreover, the question whether or not
to the payment of his salaries which the transaction falls under the right of
MAIA has no right to withhold in appraisal so as to make the withdrawal
payment of unpaid subscription. To do legal, properly falls under the SEC
so would violate Labor Laws. jurisdiction.

Question No. 15: Question No. 16:

Because of disagreement with Rafael inherited from his uncle
the Board of Directors and a threat by the 10,000 shares of Sta. Ana Corporation, a
Board to expel her for misconduct and close corporation. The shares have a par
inefficiency, Carissa offered in writing to value of P10.00 per share. Rafael notified
resign as President and Member of the Sta. Ana that he was selling his shares at
Board of Directors, and to sell to the P70 per share. There being no takers
company all her shares therein for among the stockholders, Rafael sold the
P300,000. Her offer to resign was “effective same to his cousin Vicente (who is not a
as soon as my shares are fully paid”. At its stockholder) for P700,000.
meeting, the Board of Directors accepted
Carissa’s resignation, approved her offer to The Corporate Secretary refused to
sell back her shares of stock to the transfer the shares in Vicente’s name in the
company, and promised to buy the stocks corporate books because Alberto, one of
on a staggered basis. Carissa was informed the stockholders, opposed the transfer on
of the Board Resolution in a letter the ground that the same violated the by-
agreement to which she affixed her consent. laws. Alberto offered to buy the shares at
The Company’s new President signed the P12.50 per share, as fixed by the by-laws or
promissory note. After paying P100,000, the a total price of P125,000 only.
company defaulted in paying the balance of
P200,000. While the by-laws of Sta. Ana
provides that the right of first refusal can be
Carissa wants to sue the Company exercised “at a price not exceeding 25%
to collect the balance. If you were retained more than the par value of such shares, the
by Carissa as her lawyer, where will you file Articles of Incorporation simply provides that
the suit? (a) Labor Arbiter; (b) RTC; or (c) the stockholders of record” shall have
SEC? preferential right to purchase the said
shares.” It is silent as to pricing.

Answer:
Answer: Yes. In a close corporation, the
a) No. the Labor Arbiter has no jurisdiction. restriction as to the transfer of shares has to
This is not a labor case, involving be stated/ annotated in the Articles of
employer-employee relationship. Incorporation, the By-Laws and the
certificate of stock. This serves as notice to
b) No. The RTC has no jurisdiction over the person dealing with such shares like
this case which involves intra-corporate Rafael in this case. With such notice, he is
controversy. bound by the pricing in the By-Laws.

c) Yes. The SEC has jurisdiction over this

case. The case is between a Question No. 17:
 Miguel, a special customs agent is 1. Can the Victoria Hotel be enjoined
charged before the Ombudman with having for infringing copyrights and held
acquired property out of proportion to his liable for damages?
salary, in violation of the Anti-Graft and 2. Would it make any difference if
Corrupt Practices Act. The Ombudsman Victoria Hotel does not charge any
issued a subpoena duces tecum to the fee for the use of the videotape?
Banco de Cinco commanding its
representative to furnish the Ombudsman Answer:
records of transactions by or in the name of 1. Yes. Victoria Hotel has no right to
Miguel, his wife and children. A second use such video tapes in its hotel
subpoena was issued expanding the first by business without the consent of the
including the production of records of creator/owner of the copyright.
friends of Miguel in said bank and in all its 2. No. The use if the videotapes is for
branches and extension offices, specifically business and not merely for home
naming them. consumption.

Miguel moved to quash the

subpoenas arguing that they violate the Law Question No. 19:
on Secrecy of Bank Deposits. In addition, Gigi obtained a loan from JOJO
he contends that the subpoenas are in the Corporation, payable in installments. Gigi
nature of “fishing expedition” or “general executed a chattel mortgage in favor of
warrants” and are constitutionally JOJO whereby she transferred “in favor of
impermissible with respect to private JOJO, its successors and assigns, all her
individuals who are not under investigation. title, rights xxx to a vessel of which GIGI is
the absolute owner.” The chattel mortgage
Is Miguel’s contention tenable? was registered with the Philippine Coast
Guard pursuant to PD No. 1521. Gigi
Answer: defaulted and had a total accountability of
No. Miguel’s contention is not P3 M. But JOJO could not foreclose the
tenable. The inquiry into illegally acquired mortgage on the vessel because it sank
property extends to cases where such during a typhoon.
property is concealed by being held by or
recorded in the name of other persons. To Meanwhile, Lutang Corporation
sustain Miguel’s theory and restrict the which rendered salvage for refloating the
inquiry only to property held by or in the vessel sued Gigi.
name of the government who illegally
acquire property an easy means of evading Whose lien should be given
prosecution. All they have to do would be to preference, that of JOJ or of Lutang?
simply place the property in the name of
persons other than their spouses and Answer:
children. Lutang Corporation’s lien should be
given preference. The lien of JOJO by virtue
of a loan on bottomry was extinguished
Question No. 18: when the vessel sank. Under such loan on
The Victoria Hotel chain reproduces bottomry JOJO acted not only as creditor
videotapes, distributes the copies thereof to but also as insurer. JOJO’s right to recover
its hotels and makes them available to hotel the amount of the loan is predicated on the
guests for viewing in the hotel guest rooms. safe arrival of the vessel at the port of
It charges a separate normal fee for the use destination. The right was lost when the
of the videotape player. vessel sank.
Question No. 20:
Laberge, Inc. manufactures and
markets after-shave lotion, shaving cream,
deodorant, talcum powder and toilet soap,
using the trademark “PRUT”, which is
registered with the Philippine Patent Office.
Laberge does not manufacture briefs and
underwear and these items are not
specified in the certificate of registration.

JG, who manufactures briefs and

underwear, wants to know whether, under
our laws, he can use and register the
trademark “PRUTE” for his merchandise.
What is your advice?

Answer:
Yes. The trademark registered in the
name of Laberge, Inc. covers only after- 1993 BAR EXAMINATION
shave lotion, shaving cream, deodorant,
talcum powder and toilet soap. It does not
cover briefs and underwear. Question No. 1:
Discuss the negotiability or non-
The limit of the trademark is stated negotiability of the following notes:
in the certificate issued to Laberge, Inc. It
does include briefs and underwear which 1.
are different products protected by Manila, September 1, 1993
Laberge’s trademark.
P2,500.00
JG can register the trademark I promise to pay Pedro San Juan or
“PRUTE” to cover its briefs and underwear. order the sum of P2,500.00

(Sgd.) NOEL CASTRO

2.
Manila, June 3, 1993
P10,000.00

For value received, I promise

to pay Sergio Dee or order the sum
of P10,000.00 in five (5)
installments, with the first installment
payable on October 5, 1993 and the
other installments on or before the
fifth day of the succeeding month
thereafter.
 personal defense. As a holder in due
(Sgd.) LITO VILLA course, Devi is not subject to such
personal defense.
Answer:
1. The promissory note is negotiable as it 2. Yes. Baby is not a holder in due course
complies with Sec. 1, NIL. because she had knowledge of the
breach of trust committed by Evelyn
Firstly, it is in writing and signed by the against Larry which is just a personal
maker, Noel Castro. defense. But having taken the
instrument from Devi, a holder in due
Secondly, the promise is unconditional course, Baby has all the rights of a
to pay a sum certain in money, that is, holder in due course. Baby did not
P2,500.00 participate in the breach of trust
committed by Evelyn who filled the
Thirdly, it is payable on demand as no blank but filled up the instrument with
date of maturity is specified. P5,000 instead of P1,000 as instructed
by Larry.
Fourth, it is payable to order.

2. The promissory note is not negotiable. Question no. 3:

All the requirements of Sec. 1, NIL, are Juan Sy purchased from “A”
complied with. The sum to be paid is still Appliance center 1 generator set on
certain despite that the sum is to be paid installment with the chattel mortgage in
by installments. favor of the vendor. After getting hold of the
generator set, Juan Sy immediately sold it
without consent of the vendor. Juan Sy was
Question No. 2: criminally charged with estafa.
Larry issued a negotiable promissory
note to Evelyn and authorized the latter to To settle the case extra-judicially,
fill up the amount in blank with his loan Juan Sy paid the sum of P20,000 and for
account in the sum of P1,000. However, the balance of P5,000, he executed a
Evelyn inserted P5,000 in violation of the promissory note for said amount with Ben
instruction. She negotiated the note to Julie Lopez as an accommodation party. Juan Sy
who had knowledge of the infirmity. Julie in failed to pay the balance.
turn negotiated said note to Devi for value
and who had no knowledge of the infirmity. 1. What is the liability of Ben Lopez as
1. Can Devi enforce the note against an accommodation party? Explain.
Larry and if she can, for how much? 2. What is the liability of Juan Sy?
Explain.
2. Supposing Devi endorses the note Answer:
to Baby for value but who has 1. Ben, as an accommodation party, is
knowledge of the infirmity, can the liable as maker to the holder up to the
latter enforce the note against Larry? sum of P5,000 even if he did not receive
any consideration for the promissory
Answer: note. This is the nature of
1. Yes. Devi can enforce the negotiable accommodation. But Ben can ask for
promissory note against Larry in the reimbursement from Juan, the
amount of P5,000. Devi is a holder in accommodated party.
due course and the breach of trust 2. Juan is liable to the extent of P5,000 in
committed by Evelyn cannot be set up the hands of a holder in due course. If
by Larry against Devi because it is a Ben paid the promissory note, Juan has
 the obligation to reimburse Ben for the assignment of stock of goods,
amount paid. If Juan pays directly to the wares, merchandise, provision, or
holder of the promissory note, or he materials otherwise than in the
pays Ben for the reimbursement of the ordinary course of trade and the
payment by the latter to the holder, the regular prosecution of the business
instrument is discharged. of the vendor are not deemed to be
a sale or transfer in bulk?

Question No. 4: Answer:

On October 10, 1981, B borrowed 1. The requirements of the Bulk Sales Law
from C the sum of P1.5 M. To hedge must be complied with. The seller
against the depreciation of the Philippine delivers to the purchaser a list of his
Peso, it was stipulated in the promissory creditors and the purchaser in turn
note executed by B in favor of C that the notifies such creditors of the proposed
loan shall be paid in US dollars at the sale at a stipulated time in advance.
exchange rate prevailing on the date the
obligation was incurred, plus interest at 12% 2. If the sale and transfer is made (1) by
per annum. vendor, mortgagor, transferor or
assignor who produces and delivers a
1. Is the stipulation valid? Explain. written waiver of the provisions of the
2. Assuming that the stipulation is Bulk Sales Law from his creditors as
invalid, does the obligation to pay shown by verified statement; and (2) by
subsist? How should it be a vendor, mortgagor, receiver, assignee
discharged? in insolvency, or public officer acting
under judicial process, the sale or
Answer: transfer is not covered by the Bulk Sales
1. No. The obligation was incurred in the Law.
Philippines. Hence, the Uniform
Currency Law, which requires payment
in the Philippine currency, applies. Question No. 6:
1. “A” invested P500,00 in a security
2. Yes. It should be discharged in agency on October 30, 1990. He
Philippine pesos at the rate of exchange was charged with being a dummy of
prevailing at the time of payment. his friend, a foreigner. If you were
the prosecutor, what evidence can
you present to prove violation of the
Anti-Dummy Law?
Question No. 5:
In the annual meeting of the “XYZ” 2. Juana de la Cruz, a common-law
Corporation, the stockholders unanimously wife of a foreigner wrested the
adopted a resolution proposed by the Board control of a television firm. At the
of Directors to sell substantially all the instance of the minority group of the
fixtures and equipment used in and about its firm, she was charged with violation
business. The President of the Corporation of the Anti-Dummy Law. May she be
approached you and asked for legal convicted by the mere fact that she
assistance to effect the sale. is a common-law wife of a foreigner?
Explain.
1. What steps should you take so that
the sale may be valid? Answer:
2. What are two instances when the
sale, transfer, mortgage or
1. “A” allows or permits the use or therefore, does not violate the Retail
exploitation or enjoyment of a right, Trade Act.
privilege or business, the exercise of
enjoyment of which is expressly
reserved by the Constitution or the laws Question No. 8:
to citizens of the Philippines, by the BV agreed to sell to AC, a Ship and
foreigner not possessing the requisites Merchandise Broker, 2,500 cubic meters of
prescribed by the Constitution or the logs at $27 per cubic meter FOB. After
laws of the Philippines. The prosecutor inspecting the logs, CD issued a purchase
should prove the above elements of the order.
crime and also the facts that “A” does
not have the means and resources to On the arrangements made upon
invest P500,000 in the security agency. instruction of the consignee, H&T
Corporation of Los Angeles, California, the
2. No. The mere fact of being a common- SP Bank of Los Angeles issued an
law wife of a foreigner does not bring irrevocable letter of credit available at sight
her within the ambit of the Anti-Dummy in favor of BV for the total purchase price of
law. the logs. The letter of credit provided that
the draft to be drawn is on SP Bank and that
it be accompanied by, among other things,
Question No. 7: a certification from AC, stating that the logs
A foreign firm is engaged in the have been approved prior to shipment in
business of manufacturing and selling accordance with the terms and conditions of
rubber products to dealers who in turn sell the purchase order.
them to others. It also sells directly to
agricultural enterprises, automotive Before loading on the vessel
assembly plants, public utilities which buy chartered by AC, the logs were inspected by
them in large bulk, and to its officers and custom inspectors and representatives of
employees. the Bureau of Forestry, who certified to the
good condition and exportability of the logs.
1. Is there a violation of the Retail After the loading was completed, the Chief
Trade Law? Explain. Mate of the vessel issued a mate receipt of
2. May said firm operate a canteen the cargo which stated that the logs are in
inside the premises of its plant good condition. However, AC refused to
exclusive for its officials and issue the required certification in the letter of
employees without violating the credit. Because of the absence of the
Retail Trade Act? Explain. certification, FE Bank refused to advance
payment on the letter of credit.
Answer:
1. On the assumption that the foreign firm 1. May FE Bank be held liable under
is doing business in the Philippines, the the letter of credit? Explain.
sale to the dealers of agricultural 2. Under the facts stated above, the
enterprises, automotive assembly seller, BV, argued that FE Bank, by
plants, and public utilities is wholesale accepting the obligation to notify him
and, therefore, not in violation of the that the irrevocable letter of credit.
Retail Trade Act. Consequently, FE Bank is liable
under the letter of credit. Is the
2. Yes. The operation of the canteen inside argument tenable? Explain.
the premises exclusively for its officers
and employees, would amount to an Answer:
input in the manufacturing process and,
1. No. The letter of credit provide as a author of the utility model or the
condition a certification from AC. plaintiff did not derive his rights
Without such certification, there is no from the true and actual inventor,
obligation on the part of FE Bank to designer or author of the utility
advance payment of the letter of credit. model.

2. No. FE Bank may have confirmed the

letter of credit when it notified BV, that Question No. 10:
an irrevocable letter of credit has been S Insurance Company issued a
transmitted to it on its behalf. But the Personal Accident Policy to Bob Tan with a
conditions in the letter of credit must first face value of P500,000.
be complied with, namely, that the draft
be accompanied by a certification from In the evening of September 5,
AC. Further, confirmation of a letter of 1992, after his birthday party, Tan was in a
credit must be expressed. happy mood but not drunk. He was playing
with his handgun, from which he previously
removed the magazine. As his secretary
Question no. 9: was watching television, he stood in front of
Ferdie is a patent owner of a certain her and pointed the gun at her. She pushed
invention. He discovered that his invention it aside and said that it may be loaded. He
is being infringed by Johann. assured her that it was not and then pointed
it at his temple. The next moment, there
1. What are the remedies available to was an explosion and Tan slumped to the
Ferdie against Johann? floor lifeless.
2. If you were the lawyer of Johann in
the infringement suit, what are the The wife of the deceased sought
defenses that your client can assert? payment on the policy but her claim was
rejected. The insurance company agreed
Answer: that there was no suicide. However, it was
1. The following are the remedies available the submission of the insurance company
to Ferdie against Johann: that there was no accident. In support
thereof, it contended (a) that there was no
a. Seize and destroy accident when a deliberated act was
b. Injunction performed unless some additional,
c. Damages in such amount may unexpected, independent and unforeseen
have been obtained from the use happening occur which produces or brings
of the invention if properly about the injury or death; and (b) that the
transacted which can be more insured willfully exposed himself to needless
than what the infringer (Johann) peril and thus removed himself from the
received. coverage of the insurance policy. Are the
d. Attorney’s fees and costs. two contentions of the insurance company
tenable? Explain.
2. These are the defenses that can be
asserted in an infringement suit: Answer:
No. these 2 contentions of the
a. Patent is invalid insurance company are not tenable. The
b. Patent is not new or patentable insurer is liable for injury or death even due
c. Specification of the invention to the insured’s gross negligence. The fact
does not comply with Sec.14 that the insured removed the magazine from
d. Patent was issued not to the true the handgun means that the insured did not
and actual inventor, designer or willfully expose himself to needless peril. At
most, the insured is only guilty of the accessory contract. The unpaid
negligence. balance on the promissory note should
be paid and not only the installments
due and payable before the loss of the
Question No. 11: car.
HL insured his brand new car with P
Insurance Company for comprehensive
coverage wherein the insurance company Question No. 12:
undertook to indemnify him against loss or The City of Manila passed an
damage to the car (a) by accidental collision ordinance banning provincial buses from the
xxx (b) by fire, external explosion, burglary, city. The ordinance was challenged as
or theft, and (c) malicious act. invalid under the Public Service Acct by X
who has a certificate of public convenience
After a month, the car was to operate auto-trucks with fixed routes from
carnapped while parked in the parking certain towns in Bulacan and Rizal to Manila
space in front of the Intercontinental Hotel in and within Manila. Firstly, he claimed that
Makati. HL’s wife who was driving the said the ordinance was null and void because,
car when it was carnapped was in among other things, it in effect amends his
possession of an expired driver’s license, a certificate of public convenience, a thing
violation of the “authorized driver” clause of which only the Public Service Commission
the insurance company. can do so under Section 16(m) of the Public
Service Act. Under said section, the
1. May the insurance company be held Commission is empowered to amend,
liable to indemnify HL for the loss of modify or revoke a certificate of public
the insured vehicle? Explain. convenience after notice and hearing.
2. Supposing that the car was brought Secondly, he contended that even if the
by HL on installment basis and there ordinance was valid, it is only the
were installments due and payable Commission which can require compliance
before the loss of the car, the vendor with its provisions under Section 17(j) of
demanded from HL the unpaid said Act and since the implementation of the
balance of the promissory note. HL ordinance was without sanction or approval
resisted the demand and claimed of the Commission, its enforcement was
that he was only liable for the unauthorized and illegal.
installments due and payable before
the loss of the car but no longer 1. May the reliance of X on Section
liable for the other installments not 16(m) of the Public Service Act be
yet due at the time of the loss of the sustained? Explain.
car. 2. Was X correct in his contention that
under Section 17 (j) of the public
Decide. Service Act it is only the
Commission which can require
Answer: compliance with the provision of the
1. Yes. The car was lost due to theft. What ordinance? Explain.
applies in this case is the “theft” clause,
and not the “authorized driver” clause. It Answer:
is immaterial that HL’s wife was driving 1. No. The power vested in the public
the car with an expired driver’s license Service Commission under Section
at the time it was carnapped. 16(m) is subordinate to the authority of
the City of Manila under Section 18(hh)
2. The promissory note is not affected by of its revised charter, to superintend,
whatever befalls the subject matter of
 regulate or control the streets of the City 1. a) No. A single hold-up incident which
of Manila. does not link Robert’s taxicab cannot be
construed that he rendered a service
2. No. The powers conferred by law upon that is unsafe, inadequate and improper.
the Public Service Commission were not
designed or supersede the regulatory b) Under Section 19(a) of the Public
power of local governments over motor Service Act, the Commission (Board)
traffic in the streets subject to their can suspend or revoke a certificate of
control. public convenience when the operator
fails to provide a service that is safe,
proper or adequate, and refuses to
Question No. 13: render any service which can be
1. Robert is a holder of a certificate of reasonably demanded and furnished.
public convenience to operate a taxicab
service in Manila and suburbs. One 2. No. The reasons given by Pepay are
evening, one of his taxicab units was not sufficient grounds to excuse her
boarded by 3 robbers as they escaped from completing her units. The same
after staging a hold-up. Because of said could be undertaken by her children or
incident, the LTFRB revoked the by other authorized representatives.
certificate of public convenience of
Robert on the ground that said operator
failed to render safe, proper and
adequate service as required under
Section 19(a) of the Public Service Act. Question No. 14:
JRT, Inc. entered into a contract with
a. Was the revocation of the C. Co. of Japan to export anahaw fans
certificate of public convenience valued at $23,000. As payment thereof, a
of Robert justified? Explain. letter of credit was issued to JR, Inc. by the
b. When can the Commission buyer. The letter of credit required was
(Board) exercise its power to issued to JR, Inc. by the buyer. The letter of
suspend or revoke certificate of credit required the issuance of an on-board
public convenience? bill of lading and prohibited the
transhipment. The President of JRT, inc.
2. Pepay, a holder of a certificate of public then contracted a shipping agent to ship the
convenience, failed to register the anahaw fans through O Containers Lines,
complete number of units required by specifying the requirements of the letter of
her certificate. However, she tried to credit. However, the bill of lading issued by
justify such failure by the accidents that the shipping lines bore the notation
allegedly befell her, claiming that she “received for shipment” and contained an
was so shocked and burdened by the entry indicating transshipment in Hongkong.
successive accidents and misfortunes The President of JRT, Inc, personally
that she did not know what she was received and signed the bill of lading and
doing, she was confused and thrown off despite the entries, he delivered the
tangent momentarily, although she corresponding check in payment of the
always has the money and financial freight.
ability to buy new trucks or repair the
destroyed one. Are the reasons given by The shipment was delivered at the
Pepay sufficient grounds to excuse her port of discharge but he buyer refused to
from completing her units? Explain. accept the anahaw fans because there was
no on-board bill of lading, and there was
Answer: transshipment since the goods were
transferred in Hongkong from MV Pacific, airlines failed to comply with the demand of
the feeder vessel, to MV Oriental, a mother X to produce the missing luggage, X filed an
vessel. The same cannot be considered action for breach of contract with damages
transshipment because both vessels belong against LG Airlines. In its answer, LG
to the same shipping company. Airlines of the carrier, if any, with respect to
cargo to a sum of $20 per kilo or $9.07 per
1. Was there transshipment? Explain. pound, unless a higher value is declared in
2. JRT, Inc. further argued that advance and additional charger are paid by
assuming there was transshipment, the passenger and the conditions of the
it cannot be deemed to have agreed contract as set forth in the air waybill.
thereto even if it signed the bill of Expressly subject the contract of the
lading containing such entry carriage of cargo to the Warsaw
because it has made known to the Convention. May the allegation of LG
shipping lines from the start that Airlines be sustained? Explain.
transshipment was prohibited under
the letter of credit and that, Answer:
therefore, it had no intention to allow Yes. Unless the contents of a cargo
transshipment of the subject cargo. are declared or the contents of a lost
Is the argument tenable? Reason. luggage are proved by the satisfactory
evidence other than the self-serving
Answer: declaration of one party, the contract should
1. Yes. Transshipment is the act of taking be enforced as it is the only reasonable
cargo out of one ship and loading it in basis to arrive at a just award. The
another. It is immaterial whether or not passenger or shipper is bound by the terms
the same person, firm or entity owns the of the passenger ticket or the waybill.
2 vessels.

2. No. JRT is bound by the terms of the bill Question No. 16:
of lading when it accepted the bill of A became a stockholder of prime
lading with full knowledge of its contents Real Estate Corporation (PREC) on July 10,
which included transshipment in 1991, when he was given one share by
Hongkong Acceptance under such another stockholder to qualify him as a
circumstances makes the bill of lading director. A was not re-elected director in the
binding contract. July 1, 1992 annual meeting but he
continued to be a registered shareholder of
PREC.
Question No. 15:
A shipped 13 pieces of luggage When he was still a director, A
through LG Airlines from Teheran to Manila discovered that on January 5, 1991, PREC
as evidences by LG Air Waybill which issued free of charge 10,000 shares to X, a
disclosed that the actual gross weight of the lawyer who assisted in a court case
luggage was 180Kg. Z did not declare an involving PREC.
inventory of the contents or the value of the
13 pieces of luggage. After the said pieces 1. Can A now bring an action in the
of luggage arrived in Manila, the consignee name of the corporation to question
was able to claim from the cargo broker only the issuance of the shares to X
12 pieces, with a total weight of 174Kg. X without receiving any payment?
adviced the airlines of the loss of one of the 2. Can X question the right of A to sue
13 pieces of luggage and of the contents him in behalf of the corporation on
thereof. Efforts of the airlines to trace the the ground that A has only one
missing luggage were fruitless. Since the share in his name?
 3. Can not the shares issued to X be 2. Can the Foundation operate a
considered as watered stock? specialty restaurant that caters to
the general public in order to
Answer: augment its funds?
1. As a general rule, A cannot bring a 3. One of the original trustees died and
derivative suit in the name of the the other 2 resigned because they
corporation concerning an act that took immigrated to the United States.
place before he became a stockholder. How will the vacancies in the board
However, if the act complained of is a of trustees be filled?
continuing one, A may do so.

2. No. In a derivative suit, the action is Answer:

instituted/ brought in the name of a 1. Yes, Sec. 36 (9) of the Corporation
corporation and the reliefs are prayed Code provides that as long as the
for therein for the corporation and reliefs amount of donation is reasonable.
are prayed for therein for the
corporation, by a minority stockholder. 2. If the purposes of the corporation are
The law does not qualify the term limited to the establishment and
“minority” in terms of the number of maintenance of the library and museum
shares owned by a stockholder bringing as stated in the problem, the foundation
the action in behalf of the corporation. cannot operate a specialty restaurant
that caters to the general public. In such
3. No. Watered shares are those sold by case, the action of the foundation will be
the corporation for less than the par/ ultra vires.
book value. In the instant case, it will
depend upon the value of services
rendered in relation to the total par value Question No. 18:
of the shares. A purchased from S 150 cavans of
palay on credit. A deposited the palay in
W’s warehouse. W issued to A a negotiable
Question No. 17: warehouse receipt in the name of A.
The AB Memorial Foundation, Inc. thereafter, A negotiated the receipt to B who
was incorporated as a non-profit, non-stock purchased the said receipt for value and in
corporation in order to establish and good faith.
maintain a library and museum in honor of
the deceased parents of the incorporators. 1. Who has a better right to the
Its Articles of Incorporation provide for a deposit, S, the unpaid vendor, or B,
board of trustees composed of the 5 the purchaser of the receipt for value
incorporators, which is authorized to admit and in good faith? Why?
new members. The Articles of Incorporation 2. When can the warehouseman be
also allow the Foundation to receive obliged to deliver the palay to A?
donations from members. As of January 30,
1993, 60 members had been admitted by Answer:
the board of trustees. 1. B has a better right than S. the right of
the unpaid seller, S, to the goods was
1. Can the Foundation use the funds defeated by the act of A in endorsing
donated to it by its members for the the receipt to B.
purchase of food and medicine for
distribution to the victims of the 2. The warehouseman can be obliged to
Pinatubo eruption? deliver the palay to A if B negotiates
back the receipt to A. in that case, A
 becomes a holder again of the receipt, holding of the annual stockholders’
and A can comply with Sec. 8 of the meeting in Manila is proper.
Warehouse Receipts Law.
3. No. The law allows the Board of
Directors to hold its meeting
Question No. 19: anywhere in the Philippines. The
Under the Articles of Incorporation of holding of the board meeting in
Manila Industrial Corporation, its principal Makati was proper and the validity of
place of business shall be in Pasig, Metro the resolution adopted by the Board
Manila. The principal corporate offices are in that meeting cannot be question.
at the Ortigas Center, Pasig, Metro Manila
while its factory processing leather products
is in Manila. The corporation holds its Question No. 20:
annual stockholder’s meeting at the Manila Julie and Alma formed a business
Hotel in Manila and, its board of directors’ partnership. Under the business name Pino
meeting at a hotel in Makati, Metro Manila. Shop, the partnership engaged in a sale of
The by-laws are silent as to the place of construction materials. Julie insured the
meetings of the stockholders and the stocks in trade of Pino Shop with WGC
directors. Insurance Company for P350,000.
Subsequently, she again got an insurance
1. Who shall preside at the meeting of contract with RSI for P1 M and then from
the directors? EIC for P200,000. A fire of unknown origin
2. Can Ting, a stockholder, who did not gutted the store of the partnership. Julie
attend the stockholder’ annual filed her claims with the 3 insurance
meeting in Manila, question the companies. However, her claims were
validity of the corporate resolutions denied separately for breach of policy
passed at such meeting? condition which required the insured to give
3. Can the same stockholder question notice of any insurance effected covering
the validity of the resolutions the stocks in trade. Julie went to court and
adopted by the board of directors at contended that she should not be blamed
the meeting held in Makati? for the omission, alleging that the insurance
agents for WGC, RSI and EIC knew of the
Answer: existence of the additional insurance
1. The President presides over the coverage and that she was not informed
meeting of the directors, if there is about the requirement that such other or
no position of Chairman provided in additional insurance should be stated in the
the By-Laws. If there is the position policy.
of Chairman provided in the By-
Laws, the Chairman presides over 1. Is the contention of Julie tenable?
the meeting of the Directors. Explain.
2. May she recover on her fire
2. No. The law provides that the annual insurance policies? Explain.
stockholders’ meeting shall be held
in the city or municipality where the Answer:
principal office of the Corporation is 1. No. An insured is required to
located. For this purpose, the law disclose the other insurances
also provides that Metro Manila is covering the subject matter of the
considered a city or municipality. insurance being applied for.
Since the principal place of business 2. No, because she is guilty of violation
of MIC is Pasig, Metro Manila, the of a warranty/ condition.
 Automotive
Company
By:
(Sgd.)
Manager

Because Perla defaulted in the

payment of her installments, Reliable
Finance Corporation initiated a case against
her for a sum of money. Perla argued that
the promissory note is merely open to all
defenses available to the assignor and,
therefore, Reliable Finance Corporation is
not a holder in due course.

a) Is the promissory note a mere

assignment of credit or a negotiable
instrument? Why?

Answer:
The promissory note in the problem
is a negotiable instrument, being in
1992 BAR EXAMINATION compliance with the provisions of Section 1
of the NIL. Neither the fact that the payable
sum is to be paid with interest nor that the
Question No. 1: maturities are in stated installments renders
Perla brought a motor car payable in uncertain the amount payable.
installments from Automotive Company for
P250,000. She made a down payment of b) Is Reliable Finance Corporation a holder
P50,000 and executed a promissory note in due course? Explain briefly.
for the balance. The company subsequently
indorsed the note to Reliable Finance Answer:
Corporation which financed the purchase. Yes, Reliable Finance Corporation is
The promissory note read: a holder in due course given the factual
settings. Said corporation apparently took
“For value received, I promise to pay the promissory note for value, and there are
Automotive Company or order at its office in no indications that it acquired it in bad faith.
Legaspi City, the sum of P200,000.00 with
interest at twelve (12%) per cent per
annum, payable in equal installments of Question No. 2:
P20,000.00 monthly for ten (10) months A Cooperative purchased from “Y”
starting October 21, 1991. Corporation on installments a rice mill and
made a down payment therefor. As security
Manila September 21, 1991. for the payment of the balance, the
Cooperative executed a chattel mortgage in
(Sgd.) Perla favor of Y Corporation. Y Corporation, in
turn, assigned its rights to the chattel
Pay to the order of Reliable Finance mortgage to Z, Inc., a 5% foreign-owned
Corp. company doing business in the Philippines.
The cooperative thereafter made installment
payment to Z, Inc.
 Answer:
Because the Cooperative was The insurance company is not liable
unable to meet its obligations in full, Z, Inc. under its policy covering against “total loss
filed against it a court suit for collection. The only” the shipment of 1,000 pieces of
Cooperative resisted contending that Z, Inc. Mindoro garden stones. There is no
was illegally engaged in the retail trade constructive total loss that can be claimed
business for having sold a consumer good since the ¾ rule is to be computed on the
as opposed to a producer item. The total 1,000 pieces of Mindoro garden stones
Cooperative also alleged that Z, Inc had covered by the single policy coverage.
violated the Anti-Dummy Law.

Is Z, Inc. guilty of violating the Retail Question No. 4:

Trade Law and the Anti-Dummy Law? Why? Marino was a passenger on a train.
Another passenger, Juancho, had taken a
Answer: gallon of gasoline placed in a plastic bag
Z, Inc. is not guilty of violating the into the same coach where Marino was
Retail Trade Law and the Anti-Dummy Law. riding. The gasoline ignited and exploded
The term “retail” under the Retail Trade Act causing injury to Marino who filed a civil suit
requires that the seller must be habitually for damages against the railway company
engaged in selling to the general public claiming that Juancho should have been
consumption goods. By consumption goods subjected to inspection by its conductor.
are meant “personal, family and household”
purposes. A Rice Mill does not fall under The railway company disclaimed
that category. Neither does it appear that Z, liability resulting from the explosion
Inc, is habitually engaged in selling to the contending that it was unaware of the
general public that commodity. Since there contents of the plastic bag and invoking the
is no violation of the Retail Trade Law, there right of Juancho to privacy.
would likewise be no violation of the Anti-
Dummy Law. a) Should the railway company be held
liable for damages?

Question No. 3: Answer:

An insurance company issued a No. The railway company is not
marine insurance policy covering a liable for damages. In overland
shipment by sea from Mindoro to Batangas transportation, the common carrier is not
of 1,000 pieces of Mindoro garden stones bound nor empowered to make an
against “total loss only”. The stones were examination on the contents of packages or
loaded in two lighters, the first with 600 bags, particularly those hand carried by
pieces and the second with 400 pieces. passengers.
Because of rough seas, damage was
caused the second lighter resulting in the
loss of 325 out of the 400 pieces. The b) If it were an airline company involved,
owner of the shipment filed claims against would your answer be the same?
the insurance company on the ground of Explain your answer briefly.
constructive total loss inasmuch as more
than ¾ of the value of the stones had been Answer:
lost in one of the lighter. No. If it were an airline company, the
common carrier should be made liable. In
Is the insurance company liable the case of air carriers, it is not lawful to
under its policy? Why? carry flammable materials in passenger
aircrafts, and airline companies may open
and investigate suspicious packages and Should Antonio’s and Carlos’ joint
cargoes. application be approved? Give your
reasons.

Question No. 5: Answer:

For a cargo of machinery shipped The joint application of Antonio and
from abroad to a sugar central in Carlos for the sale and transfer of Antonio’s
Dumaguete, Negros Oriental, the Bill of CPC and substitution of the vessel MV
Lading (B/L) stipulated “To Shipper’s Lotus with another vessel owned by the
Order,” with notice of arrival to be transferee should not be approved. The
addressed to the Central. The cargo arrived CPC and “MV Lotus” are inseparable. The
at its destination and was released to the unserviceability of the vessel covered by the
Central without surrender of the B/L on the certificate had likewise rendered ineffective
basis of the latter’s undertaking to hold the the certificate itself, and the holder thereof
carrier free and harmless from any liability. may not legally transfer the same to
another.
Subsequently, a Bank to whom the
Central was indebted, claimed the cargo
and presented the original of the B/L stating Question No. 7:
that the Central had failed to settle its A corporation executed a promissory
obligations with the Bank. note binding itself to pay its President/
Director, who had tendered his resignation,
Was there misdelivery by the carrier a certain sum in payment of the latter’s
to the sugar central considering the non- shares and interests in the company. The
surrender of the B/L? Why? corporation defaulted in paying the full
amount so that the said former President
Answer: filed suit for collection of the balance before
There was no misdelivery to the the SEC.
carrier since the cargo was consigned to the
sugar central per the “Shipper’s Order”. a) Under what condition is a stock
corporation empowered to acquire its
own shares?
Question No. 6:
Antonio was granted a Certificate of Answer:
Public Convenience (CPC) in 1986 to A stock corporation may only
operate a ferry between Mindoro and acquire its own shares of stock if the trust
Batangas using the motor vessel “MV fund doctrine is not impaired. This is to say,
Lotus”. He stopped operations in 1988 due for instance, that it may purchase its own
to unserviceability of the vessel. shares of stock by utilizing merely its
surplus profits over and above the
In 1989, Basilio was granted a CPC subscribed capital of the corporation.
for the same route. After a few months, he
discovered that Carlos was operating on his
route under Antonio’s CPC. Because Basilio b) Is the arrangement between the
filed a complaint for illegal operations with corporation and its President covered by
the Maritime Industry Authority, Antonio and the trust fund doctrine? Explain your
Carlos jointly filed an application for sale answers briefly.
and transfer of Antonio’s CPC and
substitution of the vessel “MV Lotus” with Answer:
another owned by Carlos. The arrangement between the
corporation and its President to the extent
that it calls for the payment of the latter’s A local consignee sought to enforce
shares is covered by the trust fund doctrine. judicially a claim against the carrier for loss
The only exceptions from the trust fund of a shipment of drums of lubricating oil
doctrine are the redemption of redeemable from Japan under the COGSA after the
shares and, in the case of close corporation, carrier had rejected its demand. The carrier
when there should be a deadlock and the pleaded in its Answer the affirmative
SEC orders the payment of the appraised defense of prescription under the provisions
value of a stockholder’s share. of the same Act inasmuch as the suit was
brought by the consignee after 1 year from
delivery of the goods. In turn, the consignee
Question No. 8: contended that the period of prescription
A distressed company executed a was suspended by the written extrajudicial
voting trust agreement for a period of 3 demand it had made against the carrier
years over 60% of its outstanding paid-up within the 1-year period, pursuant to Article
shares in favor of a bank to whom it was 1155 of the Civil Code providing that the
indebted, with the Bank named as trustee. prescription of actions is interrupted when
Additionally, the Company mortgaged all its there is a written extrajudicial demand by
properties to the Bank. the creditors.

Because of the insolvency of the a) Has the action, in fact, prescribed?

Company, the Bank foreclosed the Why?
mortgaged properties, and as the highest
bidder, acquired said properties and assets Answer:
of the Company. The action taken by the local
consignee has, in fact, prescribed. The
The 3-year period prescribed in the period of 1 year under the COGSA is not
Voting Trust Agreement having expired, the interrupted by a written extrajudicial
company demanded the turnover and demand. The provision of Article 1155 of the
transfer of all its assets and properties, Civil Code merely apply to the prescriptive
including the management and operation of periods provided for in said Code and not
the Company, claiming that under the the special laws except when otherwise
Voting Trust Agreement, the bank was provided.
constituted as trustee of the management
and operations of the Company. b) If the consignee’s action were
predicated on misdelivery or conversion
Does the demand of the Company of the goods, would your answer be the
tally with the concept of a Voting Trust same? Explain briefly.
Agreement? Explain briefly.
Answer:
Answer: If the consignee’s action were
No. The demand of the Company predicated on misdelivery or conversion of
does not tally with the concept of a Voting the goods, the provisions of the COGSA
Trust Agreement. The Voting Trust would be inapplicable. In these case, the
Agreement merely conveys to the trustee Civil Code prescriptive periods, including
the right to vote the shares of grantor/s. the Art. 1155 of the Civil Code, will apply.
consequence of the foreclosure of the
mortgaged properties would be alien to the
Voting Trust Agreement and its effects. Question No. 10:
Family Bank was placed under
statutory receivership and subsequently
Question No. 9: ordered liquidated by the Central Bank (CB)
due to fraud and irregularities in its lending
operations which rendered it insolvent. The facts disclose that even to the
Judicial proceedings for liquidation were naked eye, there were marked differences
thereafter commenced by the CB before the between Placido’s signature and the one in
RTC. Family Bank opposed the petition. the check forged by the visitor.

Shortly thereafter, Family Bank filed As between Placido and the bank,
in the same court a special civil action who should bear the loss? Explain.
against the CB seeking to enjoin and
dismiss the liquidation proceeding on the Answer:
ground of grave abuse of discretion by the The bank should bear the loss. A
CB. The court was poised to: (1) restrain the drawee bank must exercise the highest
CB from closing Family Bank; and (2) diligence in safeguarding the accounts of its
authorize Family Bank to withdraw money client-depositors. The bank is also charged
from its deposits during the pendency of the with genuineness of the signatures of its
case. current account holders. But what can be
more striking is that there were marked
If you were the judge, would you differences between Placido’s signature and
issue such orders? Why? the one in the check forged by the visitor.
Certainly, Placido was not negligent in
Answer: leaving his checkbook on his desk.
No. the RTC has no authority to
restrain the monetary board of the Central
Bank from statutory authority to undertake Question No. 12:
receivership and ultimate liquidation of a Socorro received $10,000 from a
bank. Any opposition to such an action foreign bank although she was entitled only
could be made to the court itself where to $1,000. In an apparent plan to conceal
assistance is sought. the erroneously sent amount, she opened a
dollar account with her local bank,
The action of the RTC where the deposited the $10,000 and issued 4 checks
proceeding is pending appeal have to be in the amount of $2,000 and 1 check for
made in the Court of Appeals. $1,000 each payable to different individuals
who deposited the same in their respective
dollar accounts with different local banks.
Question No. 11:
Placido, a bank depositor, left his The sender bank then brought a civil
checkbook on his desk at his house. suit before the RTC for the recovery of the
Unknown to him, a visitor at the time, erroneously sent amount. In the course of
noticing the same, took a check therefrom, the trial, the sender presented testimonies
filled it up in the amount of P3,000 and of the bank officials to show that the funds
succeeded in encashing the check on the were, in fact, deposited in a bank by
same day. Placido’s account was thereby Socorro and paid out to several persons,
debited in the same amount. who participated in the concealment and
dissipation of the amount that Socorro had
Discovering the erroneous debit, erroneously received.
Placido demanded that the bank credit him
with a like amount. The bank refused on the Socorro moved to strike out said
ground that Placido was negligent in leaving testimonies from the record invoking the law
his checkbook on his desk so that he could on secrecy of bank deposits.
not put up the defense of forgery or want of
authority under the NIL.
 If you were the Judge, would you safeguard the bank’s security interest.
issue an order to strike them out? Why? Dacion en pago can only be considered as
having taken place when a creditor accepts
Answer: and appropriates the ownership of goods in
No. I will not strike out the payment of a due obligation.
testimonies from the record. The
testimonies of bank officials indicating The mere taking of possession of
where the questioned dollar accounts were mortgaged assets does not amount to
opened in depositing misappropriated sums foreclosure. Foreclosure requires a sale at
must be considered as likewise involved in public auction. The foreclosure, therefore,
litigation—one which is among the excepted has not yet been effected.
cases under the Secrecy of Bank Deposits
Act.
Question No. 14:
To guarantee the payment of a loan
Question No. 13: obtained from a bank, Raoul pledged 500
X & Co., obtained a loan from a local bales of tobacco deposited in a warehouse
bank in the amount of P500,000, to said bank and endorsed in blank the
mortgaging as security therefore its real warehouse receipt. Before Raoul could pay
property. Subsequently, the company for the loan, the tobacco disappeared from
applied with the same bank for a Letter of the warehouse.
Credit (L/C) for $200,000 in favor of a
foreign bank to cover the importation of Who should bear the loss—the
machinery. To guarantee payment of the pledgor or the bank? Why?
obligation under the L/C, the company and
its President and Treasurer executed a Answer:
Surety Agreement in the local bank’s favor. The pledgor should bear the loss. In
the pledge of a warehouse receipt the
The machinery arrived and was ownership of the goods remain with
received to the company under a trust depositor or his transferee. Any contract or
receipt agreement. As the company real security, among them a pledge, does
defaulted in the payment of its obligations, not amount to or result in an assumption of
the bank took possession of the imported risk of loss by the creditor. The Warehouse
machinery. At the same time, it sought to Receipts Law did not deviate from this rule.
foreclose the mortgaged property and to
hold the company, as well as its President
and Treasurer, liable under the Surety Question No. 15:
Agreement. In an action for infringement of
patent, the alleged infringer defended
Did the taking of possession of the himself by stating (1) that the patent issued
machinery by the bank result in the (1) full by the Patent Office was not really an
payment of the obligations of the company, invention which was patentable; (2) that he
and (2) foreclosure of the mortgage? Why? had no intent to infringe so that there was
no actionable case for infringement; and (3)
Answer: that there was no exact duplication of the
The taking of possession of the patentee’s existing patent but only a minor
machinery by the bank did not result in full improvement.
payment of the obligations owing from the
company and its officers. The taking of such With those defenses, would you
possession must be considered merely as a exempt the alleged violator from liability?
measure in order to protect or further Why?
Answer:
I would not exempt the alleged
violator from liability for the following
reasons:

1. A patent once issued by the Patent

Office raises a presumption that the
article is patentable; it can, however
be shown otherwise. A mere
statement or allegation is not
enough to destroy that presumption.

2. An intention to infringe is not

necessary nor an element in a case
for infringement of a patent.

3. There is no need of exact duplication

of the patentee’s existing patent
such as when the improvement 1991 BAR EXAMINATION
made by another is merely minor. To
be independently patentable, an
improvement of an existing patented Question No. 1:
invention must be a major The law (RA No. 6832) creating a
improvement. Commission to Conduct a Thorough Fact-
Finding Investigation of the Failed Coup
D’Etat of December 1989, Recommended
Measures to Prevent The Occurrence of
Similar Attempts at a Violent Seizure of
Power and for Other Purposes, provides
that the Commission may ask the
Monetary Board to disclose information on
and/or grant authority to examine any bank
deposits, trust or investment funds, or
banking transactions in the name of and/or
to grant authority to examine any bank
deposits, trust or investment funds, or
banking transactions in the name of and/or
utilized by a person, natural or juridical,
under investigation by the Commission, in
any bank or banking institution in the
Philippines, when the Commission has
reasonable ground to believe that said
deposits, trust or investment funds, or
banking transactions have been used in
support or in furtherance of the objectives
of the said coup d’etat.

Does not the above provision violate

the Law on Secrecy of Bank Deposits (RA
No. 1405)?
 proper remedy would be to complete
Answer: the foreclosure of the mortgages and
The law on Secrecy of Bank only thereafter can there be an action
Deposits is itself merely a statutory for collection of any deficiency. In
enactment, and it may, therefore, be Caltex vs. Intermediate Appellate Court
modified, or amended (such as by (G.R. 74730, 25 August 1989). The
providing further exceptions therefrom), or remedies on a secured debt, said the
even repealed, expressly or impliedly, by a court, are either an action to collect or
subsequent law. The Secrecy of Bank to foreclose a contract of real security.
Deposits Act did not amount to a contract These remedies are alternative
between the depositors and depositary remedies, although an action for any
banks within the meaning of the non- deficiency is not precluded, subject to
impairment clause of the Constitution. certain exception such as those stated
Even if it did, the police power of the State in Article 1484 of the Civil Code, by a
is superior to the non-impairment clause. foreclosure on the mortgages. While
RA No, 6832, creating a commission to the factual settings in the case of Suria
conduct an investigation of the failed 1989 vs. Intermediate Appellate Court (30
coup d’etat and to recommend measures June 1987) are not similar to the facts
to prevent similar attempts to seize power given in the problem, the Supreme
is a valid exercise of police power. Court implied that foreclosure as a
remedy in secured obligations must
first be availed of by a creditor in
Question No. 2: preference to other remedies that might
A. To secure the payment of his loan of also be invoked by him.
P200,000, A executed in favor of the
Angeles Banking Corp., in 1 document,
a real estate mortgage over 3 lots B. To secure the payment of an earlier
registered in his name and a chattel loan of P20,000, as well as subsequent
mortgage over his 3 cars and 1 Isuzu loans which her friend, Noreen, would
cargo truck. extend to her, Karen executed in favor
of Noreen a chattel mortgage over her
Upon his failure to pay the loan on due (Karen) care.
date, the bank foreclosed the mortgage
on the 3 lots, which were subsequently Is the mortgage valid?
sold for only P99,000 at the foreclosure
sale. Thereafter, the bank filed an Answer:
ordinary action for the collection of the A chattel mortgage cannot
deficiency. A contended that the effectively secure after-incurred
mortgage contract he executed was obligations. While a stipulation to
indivisible and consequently, the bank include after-incurred obligations in a
had no legal right to foreclose only the chattel mortgage is itself not invalid, the
real estate mortgage and leave out the obligation cannot, however, be deemed
chattel mortgage, and then sue him for automatically secured by that mortgage
a supposed deficiency judgment. until after a new chattel mortgage or an
addendum to the original chattel
If you were the Judge, would you mortgage is executed to cover the
sustain the contention of A? obligation after it has been actually
incurred. Accordingly, unless such
Answer: supplements are made, the chattel
If I were the Judge, I would dismiss mortgage in the problem given would
the action as being premature since the
 be deemed to secure only the loan of entitled to receive stock dividends. I would
P20,000. add that the unsubscribed capital stock of a
corporation may only be issued for cash or
property or for services already rendered
Question No. 3: constituting a demandable debt. As an
A. During the annual stockholders meeting, alternative, I would suggest that the
Riza, a stockholder proposed to the managing corporation should instead be
body that a part of the corporation’s given a net profit participation and, if later so
undeserved earned surplus be desires, to then convert the amount that
capitalized and stock dividends be may be due thereby to equity or shares of
distributed to the stockholders, arguing stock at no less than the par value thereof.
that as owners of the company, the
stockholders, by majority vote, can do
anything. As chairman of the meeting, C. Assuming that the minority block of the
how would you rule on the motion to XYZ Corporation is able to elect only 1
declare stock dividends? director and therefore, the majority
stockholders can always muster a 2/3
Answer: vote, would you allow the majority
As the chairman of the meeting, I stockholders to remove the one director
would rule against the motion representing the minority?
considering that a declaration of stock
dividends should initially be taken by the Answer:
board of directors and thereafter to be No. I would not allow the majority
concurred in by a 2/3 vote of the stockholders to remove the director. While
stockholders. There is no prohibition, the stockholders may, by a 2/3 vote, remove
however, against the stockholders’ a director, the law also provides, however,
resolving to recommend to the board of that this right may not, without just cause,
directors that it consider a declaration of be exercised so as to deprive the minority of
stock dividends for concurrence representation in the board of directors.
thereafter by the stockholders.

D. After many difficult years, which called

B. ABC Management, Inc. presented to for sacrifices on the part of the
DEF Mining Corp. the draft of its company’s directors, ABC
proposed Management Contract. As an Manufacturing Inc. was finally earning
incentive, ABC included in the terms of substantial profits. Thus, the President
compensation that ABC would be proposed to the Board of Directors that
entitled to 10% of any stock dividend the directors be paid a bonus equivalent
which DEF may declare during the to 15% of the company’s net income
lifetime of the Management Contract. before tax during the preceding year.
Would you approve of such provision? If The President’s proposal was
not, what would you suggest as an unanimously approved by the Board. A
alternative? stockholder of ABC questioned the
bonus. Does he have grounds to object?
Answer:
I would not approve of a proposed Answer:
stipulation in the management contract that Yes, the stockholder has a valid and
the managing corporation, as an additional legal ground to object to the payment to the
compensation to it, should be entitled to directors of a bonus equivalent to 15% of
10% of any stock dividend that may be the company’s net income. The law
declared. Stockholders are the only ones provides that the total annual compensation
of directors, in the preceding year, cannot Answer:
exceed 10% of the company’s net income The plaintiff can avail himself of the
before income tax. doctrine of piercing the veil of corporate
fiction which can be invoked when a
corporation is formed or used in
Question No. 4: avoiding a just obligation. While it is true
A. ABC Piggery, Inc. is engaged in raising that a family corporation may be
and selling hogs in the local market. Mr. organized to pursue an estate tax
De Dios, one of its directors, while planning, which is not per se illegal or
travelling abroad, met a leather goods unlawful, the factual settings, however,
manufacturer who was interested in indicate the existence of a lawsuit that
buying pig skins from the Philippines. could subject Mr. Pablo to a substantial
Mr. De Dios set up a separate company amount of damages. It would thus be
and started exporting pig skins to his difficult for Mr. Pablo to convincingly
foreign contact but the pig skins assert that the incorporation of the
exported were not sourced from ABC. family corporation was intended merely
His fellow directors in ABC complained as a case of “estate tax planning”.
that he should have given his business
to ABC. How would you decide this
matter? Question No. 5:
On June 1, 1990, A obtained a loan
Answer: of P100,000 from B, payable not later than
I would decide in favor of Mr. De December 20, 1990. B required A to issue
Dios. ABC, Inc., is engaged in raising him a check for that amount to be dated
and selling hogs in the local market. The December 20, 1990. Since he does not
company that Mr. De Dios had set up have any checking account, A, with the
was to engage, as it did, in the export of knowledge of B, requested his friend, C,
pig skins. There is thus no conflict of President of the Saad Banking Corp.
interest situation under the law. (SAAD), to accommodate him. C agreed, he
signed a check for the aforesaid amount,
dated December 20, 1990, drawn against
B. Mr. Pablo, a rich merchant in his early SAAD’s account with the ABC Commercial
forties, was a defendant in a lawsuit Banking Corp. the By-laws of SAAD
which could subject him to substantial requires that checks issued by it must be
damages. A year before the court signed by the President and the Treasurer
rendered judgment, Mr. Pablo sought or the Vice-President. Since the Treasurer
his lawyer’s advice on how to plan his was absent, C requested the Vice-President
estate to avoid taxes. His lawyer to co-sign the check, which the latter
suggested that he should form a reluctantly did. The check was delivered to
corporation with himself, his wife and his B. the check was dishonored upon
children (all students and still presentment on due date for insufficiency of
unemployed) as stockholders and then funds.
transfer all his assets and liabilities to
this corporation. Mr. Pablo and the a) Is the SAAD liable on the checks as an
plaintiff sought to enforce this judgment. accommodation party?
The sheriff, however, could not locate
any property in the name of Mr. Pablo Answer:
and therefore returned the writ of No. SAAD is not liable on the checks
execution unsatisfied. What remedy, if as an accommodation party. The act of
any, is available to the plaintiff? the corporation in accommodating a
friend of the President, is ultra vires.
 While it may be legally possible for a enrichment. Even in negotiable
corporation, whose business is to instruments, the Civil Code and other
provide financial accommodation in the laws of general application can still
ordinary course of business, such as apply suppletorily.
one given by a financing company, to be
an accommodation party, this situation,
however, is not the case in the bar B. Mr. Lim issued a check drawn against
problem. BPI Bank in favor of Mr. Yu as payment
for certain shares of stock which he
purchased. On the same day that he
b) If it is not, who then, under the above issued the check to Mr. Yu, Mr. Lim
facts, is/are the accommodation party? ordered BPI to stop payment. Per
standard banking practice, Mr. Lim was
Answer: made to sign a waiver of BPI’s liability in
Considering that both the President the event that it should pay Mr. Yu
and the Vice-President were signatories through oversight or inadvertence.
to the accommodation, they themselves Despite the stop order by Mr. Lim, BPPI
can be subject to the liabilities of nevertheless paid Mr. Yu upon
accommodation parties to the presentation of the check. Mr. Lim sued
instrument in their personal capacity. BPI for paying his order. Decide the
case.

Question No. 6: Answer:

A. Mr. Pablo sought to borrow P200,000 In the event that Mr. Lim, in fact, had
from Mr. Carlos. The latter agreed to sufficient legal reasons to issue the stop
loan the amount in the form of a post- payment order, he may sue BPI for
dated check which was crossed (i.e., paying against his order. The waiver
two parallel lines diagonally drawn on executed by Mr. Lim did not mean that it
the top left portion of the check). Before need not exercise due diligence to
the due date of the check, Mr. Pablo protect the interest of its account holder.
discounted it with Mr. Noble. On due It is not amiss to state that the drawee,
date, Mr. Noble deposited the check unless the instrument had earlier been
with his bank. The check was accepted by it, is not bound to honor
dishonored. Mr. Noble sued Mr. Pablo. payment to the holder of the check that
The court dismissed Mr. Noble’s thereby excludes it from any liability if it
complaint. Was the court’s decision were to comply with the stop payment
correct? order.

Question No. 7:
Answer: A. Atty. Roberto took out a life insurance
The court’s decision was incorrect. policy from Dana Insurance Corp. (DIC)
Mr. Pablo and Mr. Carlos, being on September 1, 1989. On August 31,
immediate parties to the instrument, are 1990, Roberto died. DIC refused to pay
governed by the rules of privity. Given his beneficiaries because it discovered
the factual circumstances of the that Roberto had misrepresented certain
problem, Mr. Pablo has no valid excuse material facts in his application. The
from denying liability. Mr. Pablo beneficiaries sued on the basis that DIC
undoubtedly had benefited in the can contest the validity of the insurance
transaction. To hold otherwise would policy only within 2 years from the date
also contravene the basic rules of unjust
 of issue and during the lifetime of the Sheryl insured her newly acquired
insured. Decide the case. car, a NISSAN Maxima against any loss or
damage for P50,000 and against third party
Answer: liability for P20,000 with the XYZ Insurance
I would rule in favor of the insurance Corp. (XYZ). Under the policy, the car must
company. The incontestability clause, be driven only by an authorized driver who
applies only if the policy had been in is either: (1) the insured, or (2) any person
effect for at least 2 years. The 2-year driving on the insured’s order or with his
period is counted from the time the permission: provided that the person driving
insurance becomes effective until the is permitted in accordance with the licensing
death of the insured and not thereafter. or other laws or regulations to drive the
motor vehicle and is not disqualified from
driving such motor vehicle by order of a
B. The policy of insurance upon his life, court.
with a face value of P100,000, was
assigned by Jose, a married man with 2 During the effectivity of the policy,
legitimate children, to his nephew, Y as the car, then driven by Sheryl herself, who
security for a loan of P50,000. He did had no driver’s license, met an accident and
not give the insurer any written notice of was extensively damaged. The estimated
such assignment despite the explicit cost of the repair was P40,000. Sheryl
provision to that effect in the policy. immediately notified XYZ, but the latter
Jose died. Upon the claim on the policy refused to pay on the policy alleging that
by the assignee, the insurer refused to Sheryl violated the terms thereof when she
pay on the ground that it was not drove it without a driver’s license.
notified of the assignment. Upon the
other hand, the heirs of Jose contended Is the insurer correct?
that Y is not entitled to any amount
under the policy because the Answer:
assignment without due notice to the No. the insurer is not correct in
insurer was void. Resolve the issues. denying the claim since the proviso “that the
person driving is permitted in accordance
Answer: with the licensing, etc.” qualifies only a
A life insurance is assignable. A person driving the vehicle, other than the
provision, however, in the policy stating insured, at the time of the accident.
that written notice of such an
assignment should be given to the
insurer is valid. The failure of the notice Question No. 9:
of assignment would thus preclude the A piece of machinery was shipped to
assignee from claiming rights under the Mr. Pablo on the basis of C&F, Manila. Mr.
policy. The failure of notice did not, Pablo insured said machinery with the
however, avoid the policy; hence, upon Talaga Merchants Insurance Corp. (TAMIC)
the death of Jose, the proceeds would, for loss or damage during the voyage. The
in the absence of a designated vessel sank en route to Manila. Mr. Pablo
beneficiary, go to the estate of the then filed a claim with TAMIC which was
insured. The estate, in turn, would be denied for the reason that prior to delivery,
liable for the loan of P50,000 owing in Mr. Pablo had no insurable interest. Decide
favor of Y. the case.

Answer:
Question No. 8: Mr. Pablo had an existing insurable
interest on the piece of machinery he
bought. The purchase of goods under a own behalf and, therefore, the sale
perfected contract of sale already vested to the general public is made by the
equitable interest on the property in favor of dealer and not by the manufacturer.
the buyer even while it is pending delivery.
b) The second arrangement would be
violative of the Retail Trade Law,
Question No. 10: since the sale is done through
Mr. Noble, as the President of ABC individuals being paid strictly on a
Trading, Inc., executed a trust receipt in commission basis. The said
favor of BPI Bank to secure the importation individuals would then be acting
by his company of certain goods. After merely as agents of the
release and sale of the imported goods, the manufacturer. Sales, therefore,
proceeds from the sale were not turned over made by such agents are deemed
to BPI. Would BPI be justified in filing a direct sales by the manufacturer
case for estafa against Noble? itself.

Answer:
BPI would be justified in filing a case B. Is the Filipino common-law wife of a
for estafa under PD 115 against Noble. The foreigner is not barred from engaging in
fact that the trust receipt issued in favor of a retail business. On the assumption that
bank, instead of a seller, to secure the she acts for and in her own behalf, and
importation of the goods did not preclude absent a violation of the Anti-Dummy
the application of the Trust Receipts Law Law which prohibits a foreigner from
(PD 115). Under the law, any officer or being either the real proprietor or an
employee of a corporation responsible for employee of a person engaged in the
the violation of a trust receipt is subject to retail trade, she should be violating the
the personal liability thereunder. Retail Trade Act.
Question No. 11:
A. ABC Manufacturing, Inc., a company Answer:
wholly owned by foreign nationals, It is possible that the examinee
manufactures typewriters which ABC would have responded on the basis of
distributes to the general public in 2 the basis of the Anti-Dummy Law
ways: exclusively in which case the
engagement by the common-law wife
a) ABC consigns its typewriters to may, by presumption, be considered as
independent dealers who in turn sell having violated the law.
them to the public; and,
b) Through individuals, who are not
employees of ABC, and who are Question No. 12:
paid strictly on a commission basis
for each sale. SONY is a registered trademark for
TV, stereo, radio, cameras, betamax and
Do these arrangements violate the other electronic products. A local company,
Retail Trade Law? Best Manufacturing, Inc., produced electric
fans which it sold under the trademark’s
Answer: SONY without the consent of SONY. SONY
a) The first arrangement would not be sued Best Manufacturing for infringement.
in violation of the Retail Trade Law. Decide the case.
The law applies only when the sale
is direct to the general public. A Answer:
dealer buys and sells for and in his
 In order that a case for infringement damage to the goods arising from the
of trademark can prosper, the products on collision is solidary. Neither carrier may
which the trademark is used must be of the invoke the doctrine of last clear chance
same kind. The electric fans produced by which can only be relevant, if at all,
Best Manufacturing cannot be said to be between the 2 vessels but not on the
similar to such products as TV, stereo and claims made by passengers or shippers.
radio sets or cameras or betamax products
of SONY.
b) If M/V Don Claro was at fault, may the
heirs of the passengers who died and
the owners of the cargoes recover
damages from the owner of said vessel?
Question No. 13:
In a collision between M/T Manila, a Answer:
tanker, and M/V Don Claro, an inter-island Yes, but subject to the doctrine of
vessel, M/V Don Claro sank and many of its limited liability. The doctrine is to the
passengers drowned and died. All its effect that the liability of the shipowners
cargoes were lost. The collision occurred at would only be to the extent of any
nighttime but the sea was calm, the weather remaining value of the vessel, proceeds
fair and visibility was good. Prior to the of insurance, if any, and earned
collision and while still 4 nautical miles freightage. Given the factual settings,
apart, M/V Don Claro already sighted M/T the shipowner himself was not guilty of
Manila on its radar screen. M/T Manila had negligence and, therefore, the doctrine
no radar equipment. As for speed, M/V Don can well apply.
Claro was twice as fast as M/T Manila.

At the time of the collision, M/T Question No. 14:

Manila failed to follow Rule 19 of the A. Is the issuance of an order, declaring a
International Rules of the Road which petitioner in a Voluntary Insolvency
required 2 vessels meeting head on to proceeding insolvent, mandatory upon
change their course by each vessel steering the court?
to starboard (right) so that each vessel may
pass on the port side (left) of the other. M/T Answer:
Manila signaled that it would turn to port Assuming that the petition was in
side and steered accordingly, thus resulting due form and substance and that the
in the collision. M/T Don Claro’s captain was assets of the petitioner are less than his
off-duty and was having a drink at the ship’s liabilities, the court must adjudicate the
bar at the time of the collision. insolvency.

a) Who would you hold liable for the

collision? B. What are the effects of a judgment in
insolvency in Voluntary Insolvency
Answer: cases?
I could hold the 2 vessels liable. In
the problem given, whether on the basis Answer:
of the factual settings or under the The adjudication or declaration of
doctrine of inscrutable fault, both insolvency by the court, after hearing or
vessels can be said to have been guilty default, shall have the following effects:
of negligence. The liability of the 2
carriers for the death or injury of 1. Forbid the payment to the debtor of
passengers and for the loss of or any debt due to him and the delivery
 to him of any property belonging to B. The term “owner pro hac vice of the
him; vessel.” In what kind of charter party
2. Forbid the transfer of any property does this obtain?
by him; and
3. Stay of all civil proceedings against Answer:
the insolvent but foreclosure may be The term “owner pro hac vice of the
allowed. vessel”, is generally understood to be
the charterer of a vessel in the case of
bareboat or demise charter.
Question No. 15:
A. The Saad Development Corp. enters
into a voyage charter with the XYZ Question No. 16:
Shipping Corp. over the latter’s vessel, Alejandro Camaling of Alegria,
the M/V Lady Love. Before the Saad Cebu, is engaged in buying copra, charcoal,
Development Corp. could load it, XYZ firewood and used bottles and in reselling
Shipping Corp. sold M/V Lady Love to them in Cebu City. He uses 2 big Isuzu
Oslob Maritime Corp., which decided to trucks for the purpose; however, he has no
load it for its own account. certificate of public convenience or
franchise to do business as a common
a) May YZ Shipping Corp. validly ask carrier. On the return trips to Alegria, he
for the rescission of the charter loads his trucks with various merchandise of
party? If so, can Saad Development other merchants in Alegria and the
Corp. recover damages? To what neighboring municipalities of Badian and
extent? Ginatilan. He charges them freight rates
much lower than the regular rates. In one of
Answer: the return trips, which left Cebu City at
XYZ Shipping Corporation may ask 8:30pm, 1 cargo truck was loaded with
for the rescission of the charter party if, several boxes of sardines, valued at
as in this case, it sold the vessel before P100,000, belonging to one of his
the charterer has begun to load the customers, Pedro Rabor. While passing the
vessel and the purchaser loads it for his zigzag road between Carcar and Barili,
own account. Saad Development Corp. Cebu, which is midway between Cebu City
may recover damages to the extent of and Alegria, the trucks was hijacked by 3
its losses. armed men who took all the boxes of
sardines and kidnapped the driver and his
helper, releasing them in Cebu City only 2
b) If Oslob Maritime Corp. did not load days later.
it for its own account, is it bound by
the charter party? Pedro Rabor sought to recover from
Alejandro the value of the sardines. The
Answer: latter contends that he is not liable therefor
Oslob Maritime Corp. did not load because he is not a common carrier under
M/V Lady Love for its own account, it the Civil Code and, even granting for the
would be bound by the charter party, but sake of argument that he is, he is not liable
XYZ Shipping would have to indemnify for the occurrence of the loss as it was due
Oslob Maritime if it was not informed of to a cause beyond his control.
the Charter Party at the time of sale.
If you were the Judge, would you
sustain the contention of Alejandro?

Answer:
 If I were the Judge, I would hold charges consisting of interests, fees and
Alejandro as having engaged as a common service charges. It did not, however, submit
carrier. A person who offers his services to to Dana a written statement setting forth
carry passengers or goods for a fee is a therein the information required by the Truth
common carrier regardless of whether he in Lending Act (RA No. 3765).
has a certificate of public convenience or Nevertheless, the conditional deed of sale
not, whether it is his main business or which the parties executed mentioned that
incidental to such business, whether it is the total amount indicated therein included
scheduled or unscheduled service, and such finance charges.
whether he offers his services to the general
public or to a limited few. a) Has there been substantial compliance
of the aforesaid Act?
I will however, sustain the contention
of Alejandro that he is not liable for the loss Answer:
of the goods. A common carrier is not an No. there was no substantial
insurer of the cargo. If it can be established compliance with the Truth in Lending
that the loss, despite the exercise of Act. The law provides that the creditor
extraordinary diligence, could not have been must make a full disclosure of the credit
avoided, liability does not ensue against the cost. The statement that the total
carrier. The hijacking by 3 armed men of the amount due includes the principal and
truck used by Alejandro is one of such the financial charges, without specifying
cases. the amounts due on each portion
thereof would be insufficient and
unacceptable.
Question No. 17:
When is a warehouseman bound to
deliver the goods upon a demand made b) If your answer to the foregoing question
either by the holder of a receipt for the is in the negative, what is the effect of
goods or by the depositor? the violation on the contract?

Answer: Answer:
The warehouseman is bound to A violation of the Truth in Lending
deliver the goods upon demand made either Act will not adversely affect the validity
by the holder of the receipt for the goods or of the contract itself.
by the depositor if the demand is
accompanied by (a) an officer to satisfy the
warehouseman’s lien, (b) an offer to c) In the event of a violation of the Act,
surrender the receipt, if negotiable, with what remedies may be availed of by
such indorsements as would be necessary Dana?
for the negotiation thereof, and (c)
readiness and willingness to sign when the Answer:
goods are delivered if so requested by the The violation of the Truth in Lending
warehouseman. Act would allow Dana to refuse payment
of financial charges or, if already paid, to
recover the same. Dana may also
Question No. 18: initiate criminal charges against the
Dana Gianina purchase on a 36- creditor.
month installment basis the latest model of
the NISSAN Sentra Sedan car from the
Jobel Cars, Inc. In addition to the advertised Question No. 19:
selling price, the latter imposed finance
 On December 6, 1988, A, an
incorporator and the General Manager of
the PAJE Multi-Farms Corp., resigned as
General Manager and sold the corporation
his shares of stocks in the corporation for
P300,000, the book value thereof, payable 1990 BAR EXAMINATION
as follows: (a) P100,000 as downpayment;
(b) P100,000 on or before September 30,
1989. A promissory note, with an Question No. 1:
acceleration clause, was executed by the The articles of incorporation to be
corporation for the unpaid balance. registered in the SEC contained the
following provisions—
The corporation failed to pay the first
installment on due date. A then sued PAJE a) “First Article. The name of the
Mulit-Farms Corp. on the promissory note in corporation shall be Toho Marketing
the RTC. Company.”
b) “Third Article. The principal office of
a) Does said court have jurisdiction over the corporation shall be located in
the case? Region III, in such municipality
therein as its Board of Directors may
Answer: designate.”
The RTC has no jurisdiction over the c) “Seventh Article. The capital stock of
case. In Boman Environmental the corporation is One Million Pesos
Development Corporation v. Court of (P1,000.00), Philippine Currency.”
Appeals (G.R. No. 77860, November
22, 1988), the Supreme Court observed What are your comments and
that a corporation may only buy its own suggested changes to the proposed
shares of stock if it has enough surplus articles?
profits therefor. On an issue involving
the trust fund doctrine, the SEC would Answer:
be in better position than ordinary courts a) On the First Article, I would suggest
to make an assessment and judgment that the corporate name indicate the
on the matter. fact of incorporation by using either
“Toho Marketing Corporation” or
“Toho Marketing Company,
b) Would your answer be the same if A Incorporated”.
instead sold his shares to his friend
Mabel and the latter filed a case with the b) The Third Article should indicate the
RTC against the corporation to compel it City or the Municipality and the
to register the sale and to issue new Province in the Philippines, and not
certificates of stock in her name? merely the region or as its Board of
Directors may later designate, to be
Answer: its place of principal office.
My answer would be the same. An
action to compel a corporation to c) The Seventh Article must
register a sale and to issue new additionally point out the number of
certificates of stock is itself an shares into which the capital stock is
intracorporate matter exclusively lies divided, as well as the par value
with the SEC to take cognizance. thereof or a statement that said
stock or a portion thereof are without
par value.
 Can his father who is a beneficiary
Question No. 2: under said insurance policy successfully
At least 2/3 of the stockholders of claim indemnity from the insurance
Solar Corporation, meeting upon the company? Explain your answer.
recommendation of the Board of Directors,
declared a 50% stock dividend during their Answer:
annual meeting. The notice of the annual Yes, the father who is a beneficiary
stockholders’ meeting did not mention under the accident insurance can
anything about a stock dividend declaration. successfully claim indemnity for the death of
The matter was taken up only under the the insured. Clearly, the proximate cause of
item “Other Business” in the agenda of the the death was the boxing contest. Death is
meeting. C.K. Senwa, a stockholder, who sustained in a boxing contest is an accident.
received his copy of the notice but did not
attend the meeting, subsequently learned
about the 50% stock dividend declaration. Question No. 4:
He desires to have the stock dividend Acme Trading Company, Inc.
declaration cancelled and set aside, and (Acme), a trading company wholly owned by
wishes to retain your services as a lawyer foreign stockholders, was persuaded by
for the purpose. Paulo Alva, a Filipino, to invest in 20% of
the outstanding shares of stock of a
Will you accept the case? Discuss corporation he is forming which will engage
with reasons. in the department store business (the
“department store corporation”). Paulo also
Answer: urged Acme to invest in 40% of the
I will not accept the case. Section 43 outstanding shares of stock of the realty
of the Corporation Code states that no stock corporation he is putting up to own the land
dividend shall be issued without the on which the department store will be built
approval of the stockholders representing (the “realty corporation”).
not less than 2/3 f the outstanding capital
stock at a regular or special meeting duly a) May Acme invest in the said
called for that purpose. Conformably with department store corporation?
Section 50 of the Corporation Code, a Explain your answer.
written notice of the holding of the regular b) May Acme invest in the realty
meeting sent to the shareholders will corporation? Discuss with reasons.
suffice. The notice itself specifies the said c) May the President of Acme, a
subject matter. foreigner, sit in the Board of
Directors of the said department
store corporation? Discuss with
reasons.
Question No. 3: d) May the Treasurer of Acme, another
Luis was the holder of an accident foreigner, occupy the same position
insurance policy effective November 1, in the said department store
1988 to October 31, 1989. At a boxing corporation? May he be the
contest held on January 1, 1989 and treasurer of the said realty
sponsored by his employer, he slipped and corporation? Explain your answers?
was hit on the face by his opponent so he
fell and his head hit one of the posts of the Answer:
boxing ring. He was rendered unconscious a) Acme may not invest in the
and was dead on arrival at the hospital due department store corporation since
to “intracranial hemorrhage.” the Retail Trade Act allows, in the
 case of corporations, only 100% e) May Pablo recover from either Mario
Filipino-owned companies to engage or Jose?
in retail trade.
Explain your answers.
b) Acme may invest in the realty
corporation, on the assumption that Answer:
the balance of 60% of ownership of a) Camilo may not enforce said
the latter corporation, is Filipino- promissory note against Mario and
owned since the law merely required jose. The promissory note at the
60% Filipino holding in land time of forgery being payable to
corporate ownership. order, the signature of Pablo was
essential for the instrument to pass
c) The Anti-Dummy Law allows board title to subsequent parties. A forged
representation to the extent of actual signature is inoperative. Accordingly,
and permissible foreign investments the parties after the forgery are not
in corporations. Accordingly, the juridically related to parties after the
President of Acme may not sit in the forgery to allow such enforcement.
Board of Directors of the department
store corporation but can do so in b) Camilo may not go against Pablo,
the realty corporation. the latter not having indorsed the
instrument.
d) The Treasurer of Acme may not hold
that position either in the department c) Camilo may enforce the instrument
store corporation or in the realty against Julian because of his special
corporation since the Anti-Dummy indorsement to Camilo, thereby
Law prohibits the employment of making him secondarily liable, both
aliens in such nationalized areas of being parties after the forgery.
business except those that call for
highly technical qualifications. d) Julian, in turn, may enforce the
instrument against Bert who, by his
Question No. 5: forgery, has rendered himself
Jose loaned Mario some money primarily liable.
and, to evidence his indebtedness, Mario
executed and delivered to Jose a e) Pablo preserves his right to recover
promissory note payable to his order. from either Marion or Jose who
remain parties juridically related to
Jose endorsed the note to Pablo. him. Mario is still considered
Bert fraudulently obtained the note from primarily liable to Pablo. Pablo may,
Pablo and endorsed it to Julian by forging in case of dishonor, go after Jose
Pablo’s signature. Julian then endorsed the who, by his special indorsement, is
note to Camilo. secondarily liable.

a) May Camilo enforce the said

promissory note against Mario and Question No. 6:
Jose? Che-che invented a device that can
b) May Camilo go against Pablo? convert rainwater to automobile fuel. She
c) May Camilo enforce said note asked Macon, a lawyer, to assist in getting
against Julian? her invention patented. Macon suggested
d) Against whom can Julian have the that they form a corporation with other
right of recourse? friends and have the corporation apply for a
patent, 80% of the shares of stock thereof to
be subscribed by Che-hhe and 5% by a) The Secrecy of Bank Deposits Act
Macon. The corporation was formed and the prohibits, subject to its exclusionary
patent application was filed. However, Che- clauses, any person from examining,
che died 3 months later of a heart attack. inquiring or looking into all deposits of
whatever nature with banks or banking
Franco, the estranged husband of institutions in the Philippines which by
Che-che, contested the application of the law are declared “absolutely
corporation of the corporation and filed his confidential” in nature. Manosa, who
own patent application of the corporation merely overheard what appeared to be
and filed his own patent application as the vague remark of a Bank employee to a
sole surviving heir of Che-che. Decide the co-employee and writing the same in his
issue with reasons. newspaper column is neither the inquiry
nor disclosure contemplated by the law.
Answer:
The estranged husband of Che-che b) Among the instances excepted from the
cannot successfully contest the application. coverage of the Secrecy of Bank
The right over inventions accrue from the Deposits Act are anti-graft cases.
moment of creation and as a right it can Hence, Gigi may not validly oppose the
lawfully be assigned. Once the title thereto issuance of a subpoena duces tecum for
is vested in the transferee, the latter has the the bank records on her.
right to apply for its registration. The
estranged husband of Che-che, if not
disqualified to inherit, merely would succeed Question No. 8:
to the interest of Che-che. One day jerry haw, doing business
under the name Starlight Enterprises, a sole
proprietorship, finds himself short on cash
Question No. 7: and unable to pay his debts as they fall due
a) Manosa, a newspaper columnist, while although he has sufficient property to cover
making a deposit in a bank, overheard a such debts. He asks you, as his retained
pretty bank teller informing a co- counsel, for advice on the following queries:
employee that Gigi, a well-known public
official, has just a few hundred pesos in a) Should he file a petition with the SEC to
her bank account and that her next be declared in a state of suspension of
check will in all probability bounce. payments in view of the said financial
Manosa wrote this information in his condition he faces? Explain your
newspaper column. Thus, Gigi filed a answer.
complaint with the Office of the City
Fiscal of Manila for unlawfully disclosing b) Should he sell profit participation
information about her bank account. Will certificates to his 10 brothers and sisters
the said suit prosper? Explain your in order to raise cash for his business?
answer. Explain your answer.

b) Supposing that Gigi is charged with Answer:

unlawfully acquiring wealth under RA a) I would counsel Jerry Haw to file the
No. 1379 and that the fiscal issued a Petition for Suspension of Payment with
subpoena duces tecum for the records the ordinary courts, rather than the SEC.
of the issuance on the ground that the SEC’s jurisdiction over such cases is
same violates the law on secrecy of confined only to petitions filed by
bank deposits? Explain your answer. corporations and partnerships under its
regulatory powers.
Answer:
 10 days after the execution of the
b) Instead of selling profit participation abovementioned documents, Zonee had the
certificates, I would urge Jerry Haw to car transferred and registered in her name.
enter into a partnership or to incorporate Contemporaneously, Anadelaida had the
in order to raise cash for his business. chattel mortgage on the car registered in the
Chattel Mortgage Registry of the Office of
the Register of Deed of Quezon City.
Question No. 9:
Peter So hailed a taxicab owned and In September 1989, Zonee sold the
operated by Jimmy Cheng and driven by sedan to Jimbo without telling the latter that
Hermie Cortez. Peter asked Cortez to take the car was mortgaged to Anadelaida.
him to his office in Malate. On the way to When Zonee failed to pay the first
Malate, the taxicab collided with a installment on October 1, 1989, Anadelaida
passenger jeepney, as a result of which went to see Zonee and discovered that the
Peter was injured, i.e., he fractured his left latter had sold the car to Jimbo.
leg. Peter sued Jimmy for damages, based
upon a contract of carriage, and Peter won. a) Jimbo refused to give up the car on
Jimmy wanted to challenge the decision the ground that the chattel mortgage
before the Supreme Court on the ground executed by Zonee in favor of
that the trial court erred in not making an Anadelaida is not valid because it
express finding as to whether or not Jimmy was executed before the car was
was responsible for the collision and, hence, registered in Zonee’s name, i.e,
civilly liable to Peter. He went to see you for before Zonee became the registered
advice. What will you tell him? Explain your owner of the car. Is the said
answer. argument meritotios? Explain your
answer.
Answer:
I will counsel Jimmy to desist from b) Jimbo also argued that even if the
challenging the decision. The action of chattel mortgage is valid, it cannot
Peter being based on culpa contractual, the affect him because it was not
carrier’s negligence is presumed upon the properly registered with the
breach of contract. The burden of proof government offices where it should
instead would lie on Jimmy to establish that be registered. What government
despite an exercise of utmost diligence the office is Jimbo referring to?
collision could not have been avoided.
Answer:
a) Jimbo’s argument is not meritorious.
Question No. 10: Zone became the owner of the
Zone, who lives in Bulacan, bought a property upon delivery; registration
1988 model Toyota Corolla sedan on July 1, is not essential to vest that
1989 from Anadelaida, who lives in Quezon ownership in the buyer. The
City, for P300,000, paying P150,000 as execution of the chattel mortgage by
down payment and promising to pay the the buyer in favor of the seller, in
balance in 3 equal quarterly installments fact, can demonstrate the vesting of
beginning October 1, 1989. Anadelaida such ownership to the mortgagor.
executed a deed of sale of the vehicle in
favor of Zonee and, to secure the unpaid b) Jimbo was referring to the Register
balance of the purchase price, had Zonee of Deeds of Bulacan where Zonee
execute a deed of chattel mortgage on the was a resident. The Chattel
vehicle in Anadelaida’s favor. Mortgage Law requires the
registration to be made in the Office
 of the Register of Deeds of the same against fire with 3 insurance
province where the mortgagor companies as follows:
resides and also in which the
property is situated as well as the X ------------------- P400,000.00
LTO where the vehicle is registered. Y ------------------- P200,000.00
Z ------------------- P600,000.00

Question No. 11: In the absence of any stipulation in

Johnny owns a Sarao jeepney. He the policies from which insurance
asked his neighbor Van if he could operate company or companies may Fortune
the said jeepney under Van’s certificate of recover in case of fire should destroy
public convenience. Van agreed and, his house completely?
accordingly, Johnny registered his jeeney in
Van’s name. b) If each of the fire insurance policies
obtained by Fortune in problem (a) is
On June 10, 1990, one of the a valued policy and the value of his
passenger jeepneys operated by Van house was fixed in each of the
bumped Tomas. Tomas was injured and in policies at P1 M, how much would
due time, he filed a complaint for damages Fortune recover from X if he has
against Van and his driver for the injuries he already obtained full payment on the
suffered. The court rendered judgment in insurance policies issued by Y and
favor of Tomas and ordered Van and his Z?
driver, jointly and severally, to pay Tomas
actual and moral damages, attorney’s fees, c) If each of the policies obtained by
and cost. Fortune in problem (a) above is an
open policy and it was immediately
The Sheriff levied on the jeepney determined after the fire that the
belonging to Johnny but registered in the value of Fortune’s house was P2.4
name of Van. Johnny filed a third-party M, how much may he collect from X,
claim with the Sheriff alleging ownership of Y and Z?
the jeepney levied upon and stating that the
jeepney was registered in the name of Van d) In problem (a), what is the extent of
merely to enable Johnny to make use of the liability of the insurance
Van’s certificate of public convenience. companies among themselves?

May the Sheriff proceed with the e) Supposing in problem (a) above,
public auction of Johnny’s jeepeny? Discuss Fortune was able to collect from
the reasons. both Y and Z, may he keep the
entire amount he was able to collect
Answer: from the said 2 insurance
Yes, the Sheriff may proceed with companies?
the auction sale of Jjohnny’s jeepney. In
contemplation of law as regards the public Explain your answer.
and third persons, the vehicle is considered
the property of the registered operator. Answer:
a) Fortune may recover from the insurers
in such order as he may select up to
Question No. 12: their concurrent liability.
a) Suppose that Fortune owns a house
valued at P600,000 and insured the b) One Answer (assuming that the real
value is P1 M):
 Fortune may still recover only the
balance of P200,000 from X Insurance What will be your advice?
Company since the insured may only
recover up to the extent of his loss. Answer:
The application for registration by
Another Answer (assuming that the real Turbo Corporation may be contested. The
value is P600,000): Trademark Law would not allow the
Having obtained full payment on the registration of a trademark which, when
insurance policies issued by Y and Z, applied to or used in connection with his
Fortune may no longer recover from X products, is merely descriptive or
Insurance Company. deceptively misdescriptive of them.
Confusion can result from the result from
c) In an open policy, the insured may the use of “Axilon” as the generic product
recover his total loss up to the amount itself.
of the insurance coverage. Thus, the
extent of recovery would be P400,000
from X; P200,000 from Y; and P600,000 Question No. 14:
from Z. Mercy subscribed to 1,000 shares of
stock of Rosario Corporation. She paid 25%
d) In the problem (a), the insurance of said subscription. During the
companies among themselves would be stockholders’ meeting, ca mercy vote all her
liable, viz: subscribed shares? Explain your answer.

X— 4/12 of P600,000 = P200,000 Answer:

Y— 2/12 of P600,000 = P100,000 Yes, Mercy can vote all her
Z— 6/12 of P600,000 = P300,000 subscribed shares. Section 72 of the
Corporation Code state that holders of
subscribed shares not fully paid which are
e) No, he can only be indemnified for his
not delinquent shall have all the rights of a
loss, not profit thereby; hence, he must
stockholder.
return P200,000 of the P800,000 he was
able to collect.
Question No. 15:
To accommodate Carmen, drawer
Question No. 13:
(sic- should be maker) of a promissory
In 1988, the FDA approved the
note, Jorge signed as indorser thereon, and
labels submitted by Turbo Corporation for
the instrument was negotiated to Raffy a
its new drug brand name, “Axilon”. Turbo is
holder for value. At the time Raffy took the
now applying with the Bureau of Patents,
instrument, he knew Jorge to be an
Trademarks and Technology Transfer for
accommodation party only. When the
the registration of said brand name. It was
promissory note was not paid, and Raffy
subsequently confirmed that “Accilonne” is a
discovered that Carmen had no funds, he
generic term for a class of anti-fungal drugs
sued Jorge. He pleads in defense the fact
and is used as such by the medical
the he had endorsed the instrument without
professional and the pharmaceutical
receiving value therefor, and the further fact
industry, and that it is used as generic
that Raffy knew that at the time he took the
chemical name in various scientific and
instrument Jorge had not received any
professional publications. A competing drug
value or consideration of any kind for his
manufacturer asks you to contest the
instrument.
registration of the brand name “Axilon” by
Turbo.
 Is Jorge liable? Discuss with
reasons.

Answer:
Yes, Jorge is liable. Section 29 of
the NIL provides that an accommodation
party is 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.