2016 MERC MOCK BAR (Q) Final Version for Printing

JURISTS BAR REVIEW CENTER™ COMMERCIAL LAW MOCK BAR EXAMINATION

12 June 2016

8 am to 12 noon

This mock bar examination consists of 19 items in 6 pages. Write your answers in your Bar Examination Notebook in the same order the questions are posed. Write your answers only at the front, not the back, page of every sheet in your Examination Notebook. In In your answers, use the numbering system in the questionnaire. If the sheets provided in your Examination Notebook are not sufficient for your answers, use the back pages of every sheet of your Examination Notebook, starting at the back of the first page and the succeeding back pages as may be necessary.  Answer the questions legibly, clearly, and concisely. Start each number on a separate page. An answer to a sub-question under the same number may be written continuously on the same page and the immediately succeeding pages until completed. Your answer should demonstrate your ability to analyze the facts presented by the question, to select the material from the immaterial facts, and to discern the points upon which the question turns. It should show your knowledge and understanding of the pertinent principles and theories of law involved. It should demonstrate your ability ability to apply the law to the given facts, and to reason logically   in a lawyer-like manner to a sound conclusion from the given premises. A mere "Yes" or "No" answer without any corresponding explanation or discussion will not be given any credit. Thus, always briefly but fully explain your answers although the question does not expressly ask for an explanation. At the same time, remember that a complete explanation does not require that you volunteer information or discuss legal doctrines that are not necessary or pertinent to the solution to the problem. You  to re-write or repeat the question in your Examination Notebook. do not need  to Make sure you do not write your name or any extraneous notes or distinctive marking/s on your Examination Notebook that can serve as an identifying mark/s (such as names that are not in the given questions, prayers, or private notes to the Examiner). Writing, leaving or making any distinguishing or identifying mark in the Examination Notebook is considered cheating and can disqualify you for the Bar examinations. You can use the questionnaire for outlines/notes you may wish/need to write during the examination. I You are the general counsel of Tripolitan Bank. NBI agents come to your bank head office. They bear an authorization from the Anti-Terrorism Council and a written order from the Court of Appeals authorizing them to inquire into and gather information about the bank accounts of of Dragan Tankov, a suspected terrorist, pursuant to the Human Security Act. You verify the NBI agents’   documents and find them to be authentic. authentic. Dragan Tankov has two bank accounts with with Tripolitan Bank: (a) a Philippine Peso deposit in the amount of P50 million and (b) a US Dollar Dollar deposit in the amount of of US$1 million. million. As the general counsel of the bank, would you disclose and allow the inquiry into these bank deposits by the NBI agents? Explain.

 Jurists Mock Bar Examinations in Commercial Law. Law. All rights reserved reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 1 of 6

II You have just been hired by the SEC and assigned to its investigation and prosecutorial division. Your boss gives you the case folder of a complaint against Mr. Rico Dineros for insider trading. The case folder shows that the following facts have been established: Mr Rico Dineros is the corporate secretary of Philex Mining Corporation, which is listed in the Philippine Stock Exchange. On 30 December 2015, the Philex Mining Corporation assay or test results confirmed that Philex’s mining exploration site No. 123 in Agusan del Sur

contained vast amounts of gold. On 4 January 2016 Mr Dineros bought ten million shares of Philex for P1 or a total of P10 million. On 6 January 2016, the gold discovery was disclosed to the PSE and to the news media. Almost instantly the stock price of Philex rocketed to P7 per share. The next day Mr. Dineros sold ten million shares of Philex for P70 million, pocketing a cool profit of P60 million. Your boss asks for your opinion on whether a charge for insider trading against Mr. Dineros would prosper. Your boss doubts it, saying that there is no evidence that Mr. Dineros was in possession of material non-public information when he bought the Philex shares. a) What would your opinion be? Explain. b) You are the general counsel of Philex Mining Corporation and the President asks for your opinion on whether the corporation may recover the P60 million profit from Mr. Dineros. What your opinion be? Explain. III  A special stockholder’s meeting of Allies Bank  was set for 27 May 2008 in order for the stockholders to vote on whether they would approve the proposed merger of Allies Bank with Bank of the Philippine Archipelago. In connection therewith, proxies were required to be submitted on or before 17 May 2008 and the proxy validation was slated for 22 May 2008. The proxy validation on 22 May was undertaken by Allies’ Bank  assistant corporate secretary  Atty. Tuscan. Sunshine Holdings Inc., a minority Allies Bank stockholder, filed with the Securities and Exchange Commission an urgent petition seeking to restrain Atty. Tuscan from validating proxies in favor of Boris Reyes and other Allies Bank executives on the ground of fraud and serious irregularities. Does the SEC have jurisdiction over the petition? Explain. IV  Alex was an incorporator in Scriptoria Corporation (Scr iptoria for brevity), a corporation which Alex and his friends incorporated for the purpose of engaging in the call-center business. Alex invested P10 million as paid-up capital in Scriptoria. After incorporation, Scriptoria obtained a 10-year P50 million peso loan from Citibank. As security for the loan, Scriptoria executed a real estate mortgage in favor of Citibank over its parcel of land in Dasmariñas, Cavite. a) Scriptoria’s business did not prosper and it sustained heavy losses within 3 years

from its incorporation. Alex wants the corporation to return his P10 million investment. The other stockholders have no objection to returning Alex’s investment to him. corporation return Alex’s investment to him? Explain.

May the

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Scriptoria was unable to pay its loan to Citibank despite due demand. Citibank hence extrajudicially foreclosed upon the land. At the public auction the land was sold to Jose Dela Cruz. The certificate of sale was registered with the Register of Deeds. b) May Scriptoria redeem the property? If so, within what period? Explain. V  ABC, a foreign company, is the owner of the trademark GOODWILL for goods in class 25, which is generally accepted as a universally known or popular mark in the world market.  ABC opposed an application by S for the mark GOODWILT for goods in class 25 filed in our country. S contends that it has used the mark GOODWILT in our country for about 8 months now, whereas ABC has never used the mark in our country or even applied for registration of the mark GOODWILL in our country. Decide on the opposition filed by ABC. VI Romulus drew and issued to Argus a BPI check for P500,000 payable to the order of  Argus. While in Argus’ office drawer, the check was stolen by Paco Patagotago, Argus’ close

friend and classmate, who used a skeleton key to open the drawer. Paco forged the indorsement of Argus. Paco then indorsed and deposited the check with his bank account in RCBC. RCBC forwarded the check to the drawee bank BPI, stamping on the back of the check, “all prior indorsements or lack of indorsements guaranteed.” BPI did not return the

check to RCBC within 24 hours, so RCBC considered the check good and credited the amount of P500,000 to the bank account of Paco. BPI’s clearing account was debited with P500,000 and RCBC’s clearing account was credited with P500,000. Correspondingly, Romulus’ BPI checking account was debited P500,000. Paco withdrew the P500,000 from

his RCBC account and disappeared. The theft and forgery was later discovered by Argus who promptly advised Romulus. Romulus promptly informed BPI who promptly informed RCBC. RCBC could no longer locate Paco. a) Can Argus demand that Romulus issue a replacement check in the amount of P500,000 to him or that Romulus pay him P500,000? b) Can Romulus demand that BPI recredit his checking account for P500,000? c) Assuming that BPI recredits Romulus’ checking account, can it recover the P500,000 from RCBC? VII Lopez, Inc. filed a collection suit against Velarde (the general manager of Sky Vision Inc.) who had borrowed P10 million from Lopez, Inc. Lopez, Inc. owns 33% of the shares of Sky Vision. Velarde filed an answer and counterclaimed against Lopez, Inc. for his (Velarde’s) unpaid share in the net income of Sky Vision arising from his services to the latter. (a) Was the counterclaim against Lopez, Inc. proper? (b) Would your answer be the same if Lopez, Inc. owned 99% (rather than 33%) of the shares of Sky Vision? VIII In 7 May 2013, the COMELEC issued Resolution No. 9688 prohibiting banks from allowing cash withdrawals of more than P100,000 in one day and prohibiting the carrying of more than P500,000 in cash effective from 8 May 2013 until 13 May 2013 (election day). The  Jurists Mock Bar Examinations in Commercial Law. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 3 of 6

avowed purpose of the resolution was to curb vote-buying. valid? Explain.

Was the COMELEC resolution

IX On 3 May 2003, a life insurance policy was issued by the insurer to Brenda payable upon her death. She designated her husband Joseph as her beneficiary. In the application form for the life policy, there was a question whether Brenda had ever consulted a psychiatrist. Brenda answered never although the truth was that she had undergone psychiatric counseling for depression. On 10 May 2005, Brenda deliberately jumped off the plane she was riding without a parachute and perished. Joseph filed a claim on the policy. The insurer denied the claim on the ground that Brenda committed suicide and on the ground that Brenda was guilty of fraudulent misrepresentation. a) Is the insurer’s refusal to pay the proceeds of the policy justified? b) Would your answer be the same if the application form was attached to the policy when issued and the policy contained a stipulation that the policy and the application constitute the entire contract between the parties? Explain. X Simon gave his nephew, Alvin, a negotiable promissory note to pay his fees for the pre-bar review. The amount and payee was left blank because Alvin is still scouting for a review school, but Simon instructed Alvin that once he has chosen the school to put the name of the school as payee and the assessed as amount as the amount of the note. However, in breach of trust, Alvin placed his name as the payee, and placed the amount of P = 50,000. Thereafter, Alvin negotiated the note to Dave who acquired it in good faith and for value. Dave negotiated the note to Wil for value but who has knowledge of the infirmity. When the note matured, Wil presented the note for payment, but Simon set up against Wil the defense that the instrument was completed in breach of trust. Can Will enforce the note against Simon? Explain. XI  Acme Corporation is famous for its “wash -your-car-while-you-shop” business.

This

involves washing the car of a person in the parking lot while the car owner is shopping in the mall. Acme corporation, through its officers, markets a franchise wherein a person can become a franchisee of the business. The franchisees do not need to operate the business as Acme will manage the franchises for the franchisees under an accompanying management contract and give to a franchisee his proportionate share of the income. Many persons bought the franchise and accompanying management contract from  Acme. However Acme failed to remit the corresponding shares of the profits to the franchisees. You were hired as a lawyer for several disgruntled franchisees and you discovered that the franchise and management contracts were not registered as securities with the SEC. a) Are the franchise agreements and the corresponding management contracts considered as securities? b) Are the officers of Acme Corporation criminally liable? XII Mr. X bought a vintage World War II warship which he converted into a passenger vessel, The Queen Donna. On its maiden voyage, it collided with a brand new vessel of Juan  Jurists Mock Bar Examinations in Commercial Law. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 4 of 6

Carlos and it sank. Juan Carlos sued Mr X. for recovery of damages. Mr. X interposed the defense that his liability was extinguished by the loss of the Queen Donna. It was proven during trial that Queen Donna lacked equipments necessary for safe navigation. Is Mr. X liable? XIII The Spouses Steiner entered into a contract with Acme Group Inc. (AGI), a construction company, to design and construct a 5-storey commercial/residential building for a price of P7 million in accordance with the specifications attached to the construction contract. The President of AGI was Jan Giri. Giri materially revised and deviated from the specifications and structural plan of the building in order to reduce costs without notice to or approval of the Spouses Steiner. The Spouses Steiner filed a complaint for damages against  AGI and Jan Giri before the Construction Industry Arbitration Commission, which rendered a decision holding Giri jointly and severally liable with AGI for damages to the Spouses Steiner. On appeal to the Court of Appeals, Giri argued that he cannot be jointly and severally held liable with AGI as it would violate the doctrine of separate juridical personality of a corporation. Is Giri’s argument correct? Explain.

XIV  Acme Corporation registered its mark “Hyena” for sports shoes and socks. It did not use its mark for any of its products during the first 6 years after its registration. a) Will Acme Corporation automatically lose its registration? b) Can Acme Corporation retain protection over its mark? XV (a) A group of students chartered a passenger bus in one of their field-study trips. In the charter agreement signed between the bus company and the students, there is a written stipulation that the bus company shall exercise ordinary diligence in transporting the students. Is this stipulation valid? Explain. (b) In a plane ticket stub, unsigned by the passenger, there appears a statement that the liability “for any loss or damage of checked baggage or for delay in the delivery thereof” of the air carrier “is limited to its value and unless the passenger

declares in advance a higher valuation and pays an additional charge therefor, the value shall be conclusively deemed not to exceed P1,000 for each ticket.” A passenger whose baggage was lost due to the negligence of the carrier’s

employees, sued for a higher amount, i.e., P10,0000, which was his actual loss. The passenger did not declare a higher value and pay the additional charge thereon. Rule on the suit. XVI Gawsengsit Corp. is a corporation incorporated in Singapore. It invested in Bumblebee Corp., a Philippine corporation operating a fast food chain, by acquiring 30% of its shares. As a result, Gawsengsit Corp. nominated 30% of the directors of Bumblebee Corp., all of whom are Singaporeans and officers of Gawsengsit Corp. Subsequently Fortius Holdings Corporation bought shares in Bumblebee Corp. which brought its total Bumblebee shareholdings to 52% of the total outstanding shares of Bumblebee Corp. Gawsengsit Corp. filed a complaint with the SEC to compel Fortius Holdings to make a tender offer to Gawsengsit Corp. Fortius Holdings filed a motion to dismiss the complaint on the following grounds:  Jurists Mock Bar Examinations in Commercial Law. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 5 of 6

a) Gawsengsit Corp. is not permitted to maintain a proceeding in any administrative agency in the Philippines since it is a foreign corporation doing business here without a license; and b) While the SEC as an administrative agency has the power to investigate and impose fines for the violation of the tender offer rule under the Securities Regulation Code, it has no power under the said code to grant the affirmative relief of compelling Fortius Holdings to make a tender offer to Gawsengsit. Should the motion to dismiss be granted? Explain. XVII On 1 March 2015, Mario issues a negotiable promissory note to Pedro for P30,000 payable to Pedro’s order on 1 April 2015. Pedro surreptitiously alters the amount from P30,000 to P80,000. Pedro indorses the note on 30 March 2015 to Aldo. Aldo indorses the note on 1 April 2015 to Bugoy who indorses the note on the same day to Caloy. At the time Caloy took the note, he was already aware that its amount had been fraudulently altered. Caloy presents the note to Mario, who refuses to pay on the ground that the note was fraudulently altered. Caloy failed to give due notice of dishonor to Aldo and Bugoy. All indorsements were general indorsements. a) Can Caloy enforce the note against Mario? If so for how much? b) Caloy presents the note to Bugoy for payment. Bugoy refuses to pay on the following grounds: (i) Caloy did not give him (Bugoy) due notice of dishonor; and (ii) Caloy is a holder not in due course since he has notice of an infirmity in the instrument. Can Caloy enforce the note against Bugoy? XVIII Mr. Koh, in his capacity as President of Tong Trading, Inc., executed a trust receipt in favor of Wang Bank to secure the importation by his company of certain goods. Tong was able to sell the goods but failed to apply the proceeds thereof to its loan to the Bank. Can the Bank file a case for estafa against Mr. Koh even if he signed the trust receipt as officer of Tong? XIX Malakas Department Store had an existing fire insurance coverage over its department store issued by ABC Insurance Company. The fire insurance policy was good for one year. ABC Insurance Company had been the insurer of Malakas for several years. The practice between Malakas and ABC Insurance was that Malakas was granted a 60-day credit term (that is, 60 days from the expiration of the policy) for the payment of the premiums to renew the policy. The fire policy expired on 22 May 2006. On 25 May 2006 ABC Insurance called up Malakas and informed the latter that it was cancelling and no longer renewing the policy. On 12 June 2006 a fire razed the Malakas Department Store to the ground. Two days later Malakas filed a notice of loss and claim upon the policy. ABC denied the claim stating that (a) the policy had already been cancelled and that (b) the fire policy was not valid and binding since the premiums to renew the policy had not been paid. May Malakas recover against ABC Insurance on the fire policy?

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