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

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ANSWERS TO BAR EXAMINATION QUESTIONS IN

Mercantile Mercantile Law Law Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) 14 Corporation of 103 Page payable Page 2 6 8 10of9 3 5 7 11 of 103 to of 103 of 103 himself 103 Page 13in of the 103sum Page 4Page of 103 Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) ABar (1990-2006) Page 12 of 103

ofvs. P5 million. This is Insurer: paying out or permitting the “I,Common ordinary Andrew Lee, course hereby of assign, business, transfer or and has Chattel Insolvency; Parties; Derivative Insured; Retail Mortgage Accommodation Trade Accident Fraudulent vs. Suit: Private Law vs. Requisites vs. After-Incurred (1993) Payment Carrier; Suicide Party 76 (1998) Defenses (1993) (2004) (2002) Retail Obligations 56 87 34 65 Trade (2002) Insured; Parties; Insolvency; Derivative Law 97 (1999) Accident Accommodation Kabit (1996) Suit: Jurisdiction; 44System Chattel 76 Watered Suicide Retail (2005) Mortgage; Sole Party (1995) Trade Stock 97 Proprietorship (2003) Kabit 56 Law (1993) Foreclosure System; 88(1996) Parties; 34(1990) Effects: Agent Derivative 76 (1997) Accommodation Retail 66 ofSeveral the Insolvency; 44Trade Suit; Registered Chattel Insurers Close Law; Law....................................................................................................................22 to be paid out funds of the bank after the insufficient convey, absolutely realizable and assets unconditionally, to meet to its Banks; Classifications of Banks (2002) Mortgage; obligations Party Corporation; (2005) Consignment Owner (2003) 56 (2005) Ownership that88 Insurer; survive Corporate (1991) Parties; 97 Maritime 3rd of (1997) 76Accommodation Party Thing Opportunity 66 Commerce; Liability Mortgaged Insolvency; (2005) (1996) Party Bareboat (1990) Voluntary 34 56(2005) Derivative Insurer; 45 (2003) Insolvency 88 Credit 3rd Parties; 97 Suit; Party Transactions Prior Minority Proceeding Holder Liability Operator Stockholder in(2000) (1999) Due (1991) Rule Course 57 (2003) 45 66Insurer; (2003) Insolvency; Mortgage 97 (1993) Registered 35 3rd 88 Distinction: Party (1999) Voluntary Parties; Liability; Owner; 45 De BOD: Election of Aliens(hereinafter as members (2005) 22 BOD; Capacity of Directors (1996) 22This BOD; Compensation latter became insolvent. act is penalized liabilities, Ready Credit or Principles cannot Bank continue in called business the Banks: There Applicability: are six Foreign (6) classes Currency of Deposit banks Actidentified & General of Mercantile Law..............................................................................12 Mortgage vs. Holder facto No Conclusive Involuntary Fault in Corporation Due vs. Indemnity Levy Course Presumption Solvency (2003) vs. (1996) (1994) (1995) Corporation 46 (1990) 88 57 Mortgage; 66 Parties; Insurer; 98 Law Trans-Shipment; by on Holder Estoppel 3rd Extrajudicial Corporate Party in Due (2004) Liability; Recovery Bill Foreclose Course of 35 Quitclaim Lading; Distinction: (1996) (2003) (2006) binding (1994) 88 67 46 Parties; Dividends Rehabilitation; contract Mortgage; 57 Insurer; Holder vs. (1993) Foreclosure Profit: Authorized in Stay Due 98 Order Cash Course Driver (2003) (2006) Dividend (1998) Clause 46 vs. 67 by fine not(1995) lessBanking than P1,000.00 norDirectors more without Bank)22 probable allBOD; of my right, losses to and its (1994) depositors interest in and orInterlocking (1991) Conflict of title Interest 22 BOD; Directors 22(2005) BOD; Interlocking Secrecy in the ofofBank General Deposits Law of 2000. Name at Mortgage; Suspension 89 Stock (1991) Dividend 57 Foreclosure Holder ofhas Insurer; Payment in(2005) Due Authorized (2003) vs.Course; 35 Insolvency Distinction; 46from Driver Indorsement Mortgage; Clause Private 67 Foreclosure in(2003) vs. Suspension blank Public 57 (2002) Insurer; of Corporation of Improvements 89 Payments Place Authorized of (2004) Payment vs. (1999) Driver Stay 35 Partnership Distinction; Order (2000) Clause; 46them Mortgage; (2003) 89 vehicle Stock 67aForeclosure; isSuspension vs. stolen Non-Stock (1993) Commercial Transaction (2003) 12a(1995) Joint Account (2000) 12 Joint Account vs. (2000) 12 Theory of than P10,000.00 and by imprisonment for creditors; toParties; my23 accounts or willfully receivable violated Home final cease Hi least Yielding four Corporation (4) of filed and complaint explain the (1996) By-Laws; Validity; limiting qualifications of BOD members (1998) 23 By-Laws; Validity; limiting Commercial Transaction (2003) Effect of Payments; Corporation 58 of Insurer; mere Rehabilitation Group taking (2004) Insurance; by 36 creditor-mortgagor Dividends: Receiver Employer-Policy (1999) Declaration 67 of Suspension property Holder of Dividends (2000) (1992) of Payments; (2005) 58 47 Insurer; Mortgage; 36 Remedies Dividends: Liability Redemption (2003) of the Sources Insurers 68 Period; of Dividends; (1990) Foreclosed 58 Loss: Trust not less than two nor more than ten years. and Builders desist Development order, involving Corporation acts against distinguishing five of its characteristic or violation function This work isvs. intended forLaw sale or commerce. This work is freeware. Itfor may be Cognition Theory of Manifestation (1997) 12or Validity; qualifications ofnot BOD members (2000) 23 By-Laws; limiting qualifications ofofficers BOD members (2001) 23of of Negotiable Instruments ..............................................................................................76 What do(2002) you byfraud the term SUGGESTED ANSWER: transactions (hereinafter amounting called the toLoss: arising or from Section each one. 31 of (5%) the Code. The Property Fund Actual Doctrine Total Loss 47understand (2005) Mortgage; (1996) 36Obligor) 59 Dividends; Remedies Constructive Declaration (2003) 48aTotal Preference of Dividends Loss (2005) of Credits (1990) 59 Loss: 36 (2002) Dividends; Total 48Corporation Promissory LossDeclaration Only (1992) Note: ofLiability 59 Dividends Marine By-Laws; Validity; limiting qualifications of BOD members (2003) 24 Close Corporations; Deadlocks (1995) 24 vs. AnyInsolvency; four (4) of the six (6) classes of Banks; Requirements (1997) “commercial transaction”? Is itinstitution. essential that dissipation delivery of the housing assets units of the with aof total contract The corporation claimed that the said officers Bond: Bond vs. Surety Bond (2004) 76 Checks: Crossed Checks (2005) 77following Checks: Crossed Checks (2001) (1991) Insurance; 48Cash 36 Remedies; Implied Dividends; Warranties Available Declaration to (2000) Mortgagee-Creditor 60 Dividends Marine Insurance; (2001) (1996) 36 Peril Dividends; 48 of Remedies; the Ship Right; vs. Available Managing Peril of to the Corporation Mortgagee-Creditor Sea (1998) (1991) 60 Mutual 37 banks identified in the General Banking Law at least one party to a contract be a Give the basic requirements to beto complied Closed Corporation; Restriction; Transfer of shares (1994) 24 Controversy; Intra-Corporate (1994) 25 freely copied and distributed. It is primarily intended for all those who desire have a main price purpose of P4,000,000.00, of the the Receiver description is and to were guilty of advancing their personal Cancelled Checks (2004) 77 Crossed Check (1991) 77 Checks; Crossed Check (1994) 77Merger Checks; (2001) Doctrine Insurance 49 Remedies; ofCompany; Corporate Secured Nature Opportunity Debt & Checks; Definition (1991) (2005) 49 (2006) 37 Effect: Expiration of the Corporate TermBanks (2004) Effects; 1 Universal –37 These are thoseof Banks; Diligence Required (1992) of by 2002, to wit: merchant in order to consider such a60 Intra-Corporate with BSP before the Monetary Board Trust Receipts Law...............................................................................................................98 Controversy; Intra-Corporate (1996) 25 Controversy; (1996) 25 Controversy; Intra-Corporate recommend contract value the rehabilitation of which are or attached liquidation hereto of interests to the prejudice of the corporation, Banking Law...........................................................................................................................12 SUGGESTED ANSWER: Crossed Check (1995) 78 Checks; Crossed Check (1996) 78 Checks; Crossed Check (1996) 78 Checks; Effect; which used to be called expanded “In the event that I shall be unable to pay my Corporations (1999) 37 Effects; Winding Up Period of a Corporation (1997) 38 Effects; Winding Up Period of a Placido, a bank depositor, left his checkbook commercial transaction? (4%) can declare a bank insolvent, order it closed the as bank. Annex A (hereinafter called the Jurisdiction and 25 thatCorporation they were grossly negligent (2006) 25 Controversy; Intra-corporate; (1997) Sole; Definition (2004) 26in99 A transaction” is defined as ...... deeper understanding of the issues touched by the Philippine Bar Examinations and its commercial banks and the operations of outstanding Trust Receipts indebtedness Law; Acts & Omissions; owned to Covered the (2006) 98 Trust Receipts Law; Liability for estafa (1991) Acceptance by the drawee bank (1998) 78 Checks; Effects; Alterations; Prescriptive Period (1996) 78 Checks; on“Commercial his desk at his house. Unknown to him, a and forbid it from doing further business in Corporation (2000) 38Foreign ForeignCurrency Corporation; “Doing in oftheBank Philippines (1998) 38from Foreign Corporation; Banks: Applicability: Deposit Act Business” & Secrecy Deposits (2005) 12 Banks: Collateral Receivables).” handling its affairs. Aside documents Corporation: Issuance ofLiability shares of stock to pay for services (2005) 26now Corporation: Right ofAlterations; Repurchase of It is not essential that at least one party to SUGGESTED ANSWER: which are primarily governed by the Bank, Bank shall have the right, without visitor at the the time, noticing the same, took a the the Philippines. Trust Receipts Law; for (1997) 99 Trusts Receipt Law (2003) 99 Forged Check; Effects (2006) 79Estafa Checks; Liability; Drawee Bank (1995) 80 Checks; Material Liability “Doing Business” in the Philippines; Acts or Activities (2002) 38 Foreign Corporation; “Doing Business” in the and contracts, the corporation also submitted Security (2002) 12 Banks: Secrecy of Bank Deposits; Garnishment (2004) 13 Banks; Classifications of Banks the commercial transaction be a merchant. Before the Monetary Board can declare Public Service Law Shares; Trust Fund Doctrine (2005) 26 Corporation: Sole Proprietorship (2004) 26the Corporation; Articles ofa General Banking Law ofValidity; 2002. Waiver They can any further formality orupact its part, toof check therefrom, filled it...............................................................................................................89 in on the amount (1999) 80 Checks; Presentment (1994) 80 Checks; Presentment in evidence (2003) records 80 Checks; of officers’ U.S. of Dollar Bank’s Philippines; Test (2002) 39 Venture; Corporation (1996) 39 provinces Liabilities; BOD; Corporate Actsforbid (1996) (2002) 13 Banks; Conservator vs. Receiver (2006) Banks; Diligence Required (1992) 14 Banks; Insolvency; What is essential is that the transaction bank insolvent, order itof(2001) closed and it 39 trend. It isthe specially intended for law students from the who, very often, are exercise the powers an investment house collect Receivables from the Obligor and P3,000.00 and succeeded inJoint encashing the Letters of Credit ....................................................................................................................68 Incorporation (1990) 26 Corporation; Bulk Sales Law 13 (2005) 27 Corporation; By-laws 28 Corporation; deposits in several banks overseas - Boston Certificate of public Convenience (1998) 89 Certificate of Public Convenience; inseparability of certificate and liability for negligence (1991) 80 Defenses; Forgery (2004) 81 Forgery; Liabilities; Prior & Subsequent Parties evince an intent to engage in commerce or from doing further business in the Liabilities; Stockholders, Directors, Officers (1997) 39 Piercing the Corporate Veil (1994) 39 Piercing the Prohibited Transactions (2000) 14 Banks; Insolvency; Requirements (1997) 14 Banks; Restrictions on Loan and invest in non-allied enterprises. They to apply the same proceeds toward check on the day.thereof Placido’s account For their part, the officers filed a Bank criminal Commencement; Corporate Existence (2003) 28 Corporation; Conversion of Stock Corporation (2001) 28 82 Bank, Bank of Switzerland, and of New trade. Philippines, the following basic requirements Letter vessel of (1992) Credit: 90 Mortgage Certificate (2005) of Public 68 Letter Convenience; of Credit; Certification Requirements from (1995) Consignee 90 Powers (1993) of 68 the Letters Public of Service Credit; (1990) 81 Forgery; Liabilities; Prior & Subsequent Parties (1995) 81 Incomplete & Delivered (2004) Corporate Veil (1996) 4014 Piercing the CorporateonVeil (2001) 40 Piercing the Corporate Veil Safety (2004) 40 Piercing have the highest capitalization payment of my...............................................................................................................................99 said Accommodations (2002) Banks;amount. Restrictions Loan Accommodations (2006) 15 Banks; Box; was thereby debited in indebtedness.” the same complaint against the directors of requirement. Hi Deposit Yielding Usuryfailed Law York. Joint Account Corporation; De Facto Corporation (1994) 28 Corporation; Dissolution; Methods of Liquidation (2001) 28 recipients of deliberately distorted notes from other unscrupulous schools and 1 There must an examination by the must be complied with by the BSP, to wit: Andrew toDelivered pay the loan on its due Discovering the erroneous debit, Placido Liability Commission of a(2000) (1993) confirming 90 Public and notifying utilities bank (2000) (1994) 90 date Revocation 69 Letters of of Certificate Credit; Liability (1993) ofbe 91 alaw Notifying Revocation Bank of (2003) Certificate 69 Incomplete and (2005) 82 Incomplete Instruments; 2 Incomplete Commercial Delivered Banks Instruments – These vs. Incomplete are Corporation for violation of Republic Act No. the Corporate Veil (2006) 40 Pre-emptive Right (2001) 40 Pre-Emptive Right vs. Appraisal Right (1999) 41 SEC; Liability 15 Banks; Secrecy of Bank Deposit; AMLC (2006) 15 Banks; Secrecy of Bank Deposit; Exceptions What is a joint account? (2%) head of the Incorporation; Department of Supervision his Corporation; Incorporation; Requirements (2006) Corporation; Requisites (2002)or as 29 onUsury September 1,99 2002. When the Bank demanded that the bank credit him with a 28 Law (199) ordinary or regular commercial banks, 6426, known as the Foreign Letters (1993) 91 ofANSWER: Credit; Three Distinct Contract Relationships (2002) 69 Undelivered Instrument (2006) 82 Indorser: Irregular Indorser vs.otherwise General Indorser (2005) 82condition Negotiability (1993) SUGGESTED Jurisdiction; Transferred Jurisdiction (1996) 41 Stockholder; Delinquent; Unpaid Subscription (1997) 41 (2006) 16 Banks; Secrecy of Bank Deposits (1990) 16 Banks; Secrecy of Bank Deposits (1991) 16 Banks; examiners or agents into the of the attempted toThe collect from&refused the Obligor, like amount.Meetings; bank on the the Corporation; BOD Stockholders (1993) 29 Currency Corporation; Nationality of Corporation (1998) 29 83 distinguished from a by universal bank. They Deposit Act of the Philippines. The A joint account is a transaction of merchants students. Share to others this work and you will be richly rewarded God in heaven. 82 Negotiability (2002) 83 Negotiability; Holder in Due Course (1992) 83 Negotiability; Requisites (2000) Stockholders: Preemptive Right (2004) 42 Stockholders; Appraisal Right that (2003) 42 Stockholders; Removal of Secrecy of Bank Deposits (1992) 17 Banks; Secrecy bank. of Banktoalleged Deposits (1994) 17 Banks; Secrecy of Bank Warehouse Receipts Law .................................................................................................100 Bank discovered that the latter had already ground that Placido was negligent in leaving have aInvest lower capitalization requirement than officers their bank deposits were Corporation; Corporation (1993) 29 Corporation; Power Corporate Funds for other Purpose where other Non-Stock merchants agree to contribute Negotiable Instrument: Ambiguous Instruments (1998) 84 Negotiable Instrument: Definition & Characteristics 2 The examination discloses that the Officers & BOD (2001) 42 Stockholders; Removal; Minority Director (1991) 42 Stockholders; Rights (1996) 42 closed operations and liquidated all its his checkbook Deposits (1995) on his 17 Banks; desk so Secrecy of heBank could Deposits (1998) 17disclosed Banks; Secrecy of Bank Deposits (2000) universal banks and cannot exercise the 18 illegally for want of a30 court order, the amount of capital agreed upon, and Requisites (1995) 30 84 Corporation; Power tothat Invest Corporate Funds in Negotiable another Corporation (1996) Corporation; Bill of Lading (1998) 100 Delivery of Goods; (1998) 100 Delivery of the Goods (1991) 100 condition of the bank is one of Garnishment insolvency, or (2005) Instrument: Identification (2005) 84 Instrument: Negotiable Document vs. assets. The Bank sued Andrew for collection, not put up theNegotiable defense of forgery or want of Stockholders; Voting Power of Stockholders (1990) 42 Stocks; Increase of Capital Stock (2001) 42 Stocks; Sale, Banks; Secrecy of Bank Deposits; Exceptions (2004) 18 Banks; Secrecy of Bank Deposits; (2001) powers of an investment house and invest in and that such deposits were not even the It is also very good karma. Maritime Commerce .............................................................................................................69 participating in the favorable or unfavorable Insurance Intellectual Law........................................................................................................................49 Property .............................................................................................................60 Recovery of Moral Damages (1998) 30 Corporation; Separate Juridical Personality (1995) 31 Corporation; Thebut Garnishment Facts disclose or Attachment that even of85 Goods toNegotiable the (1999) naked 100 Negotiable Documents of Title (1992) 100 Ownership ofthe Goods that its continuance in business would Andrew moved to(2005) dismiss the complaint authority under the NIL. Negotiable Instrument Instrument; Negotiability (1997) 85 Negotiable Instruments; Bearer non-allied enterprises. subject of the case against them. a) Will Transfer of Certificates of Stock (1996) 43 Stocks; Sale, Transfer Certificates of Stock (2001) 43 Stocks; Sale, 18 BSP; Receivership; Jurisdiction (1992) 18 Legal Tender (2000) 19 PDIC Law vs. Secrecy of Bank Deposits results thereof in the proportion they may Securities Regulation ..........................................................................................................91 eye, there were marked differences between involve probable loss toReceipt creditors or Separate Juridical Personality (1996) 31 Corporation; Separate Juridical Personality 31banks Corporation; Corporation prosper? Explain. onStored the ground that the had already (1992) 101 Right todebt the Goods (2005) 101 Unpaid Seller; Negotiation ofCarriage the (1993) 101 Average; Particular Average vs. General Average (2003) 69 Bottomry (1994) 70 of Goods: Deviation: 319Yielding Thrift Banks –(1996) These (such asof complaint filed against the directors ofin HiValidity Beneficiary: Copyright Effects: (1995) Irrevocable 60 Copyright; Beneficiary Commissioned (2005) 49 Artist Beneficiary: (1995) 60 Rights; Copyright; Irrevocable Commissioned Beneficiary Artist (2005) (2004) 50 60 Instrument (1998) 85 Negotiable Instruments; Bearer Instruments (1997) 85 Negotiable Instruments; bearer determine. Transfer of Certificates of Stock (2004) 43 Trust Fund Doctrine (1992) Trust Fund Doctrine; Intra-Corporate Act (1997) 19 Responsibilities & Objectives ofthe BSP (1998) Truth in 43 Lending Act (1991) 19 Truth Lending SUGGESTED ANSWER: Placido’s signature and the one in the check depositors. been paid by reason of his execution of Separate Juridical Personality (1999) 31 Corporation; Separate Juridical Personality (2000) 32 Corporation; stipulations excusing warehouseman from (2000) 101 savings and mortgage banks, savings Joint Account vs. Partnership (2000) Liability Insider (2004) (2005) 91 70 Insider Carriage Trading of Goods; (1995) Deviation; 91negligence Insider When Trading; Proper Manipulative (2005) Practices Carriage (1994) of Goods; 92stock Manipulative Exercise Beneficiary; Copyright; Life Infringement Insurance; Prohibited (1994) 60 Beneficiaries Copyright; Infringement (1998) Concealment; (1997) 6170 Material Copyright; Concealment Infringement (2001) (1998) 50 61 instruments; liabilities maker and indorsers 85 Instruments; and undelivered No, because the Foreign Currency Deposit Act Controversy (1991) 43 Actby (2000) 19 forged the visitor. Asofbetween Placido and(2001) 350Negotiable The head of saidincomplete Department shall aforesaid Deed of Assignment which, being and loan associations, and private Distinguish Separate Juridical joint Personality account (2000) from 32 partnership. Corporation; Set-Off; Unpaid Subscription (1994) 32 Corporation; Stock Extraordinary Practices (2001) Diligence 92 Securities (2005) Regulation 70 Charter Code; Party Purpose (1991) 70 (1998) Charter 92 Securities; Party (2004) Definition 71 COGSA: (1996) Prescription 92 Securities; of SUGGESTED ANSWER: Concealment; Copyright; Infringement Material Concealment: (2006) 61 Incontestability Copyright; Photocopy; Clause (1994) when 50 allowed Concealment; (1998) 61 Material Infringement Concealment: vs. Unfair (R.A. No. 6426), including its punitive instruments; holder in due course (2000) 86 Negotiable Instruments; Incomplete Delivered Instruments; the bank, who should bear the loss? Explain. inform in writing the Monetary Board of such absolute and unconditional, was in essence a SUGGESTED ANSWER: development banks)Validity may exercise most of (3%) The Corporation bank (2001) bear Corporation; the loss. APrescription Validity drawee of Corporate bank Acts (1998) 33 Corporation; of Corporate Acts provisions, refers toinstrument; foreign deposits Claims/Actions Selling of should Securities; (2004) 71 COGSA; (2002) 92 Tender of Claims (2002) (1992) 93 71 COGSA; Prescription ofcurrency Claims (2000) 72 We would to32Meaning seek the indulgence of the reader for some Bar Questions which facts. Incontestability Competition (1996) Clause 61 (1996) Infringement 50 Concealment; vs. Unfair Competition Material Concealment: (2003) 61 Infringement; Incontestability Jurisdiction Clause (1997) 61are Patent; 51 Comparative Negligence (1997) 86 Negotiable Instruments; kinds of negotiable of negotiability dacion enlike pago. The Bank opposed the Offer The following are the distinctions between the powers and functions ofwords a (2003) commercial must exercise the highest diligence in (2002) 33Prescriptive Corporation; Voluntary Dissolution (2002)of 33Inscrutable Corporation; Voting Trust Agreement (1992) 33 62 accounts constituted within the Philippines. It 4 Upon finding said or Fault COGSA; Period (1995) 72Requisites Doctrine Fault (1995) 72 of Inscrutable motion, contending that the Deed of Patents: joint account and partnership: Concealment; Non-Patentable Material Concealment; (2006) 61 Gas-Saving Clause (1991) Device: 51 Concealment; first toDoctrine file87information Material rule (2005) Concealment; Patents: (2002) 86 Negotiable Instruments; (1996) 87 Notice Dishonor (1996) Parties; Accommodation bank except that they cannot, among others, Edited and Arranged by: SUGGESTED ANSWER: safeguarding the Inventions accounts of Incontestability its clienthas no application at all to accounts, even statement to be true, the Monetary Board (1) AInfringement; partnership has a firm name while ascope Assignment was only a security for aParty loan. If (1997) 72(1990) Doctrine of Inscrutable Fault (1998) 72 Limited Liability Rule (1994) 72 Limited Liability 72 open current or check accounts without prior Incontestability (Since Clause the Remedies question (1998) &also 51 is Defenses outside Insurable the (1993) Interest: 62 of Bank Patents; Deposit Infringement (2000) 51(1992) Insurable 62 Interest: Patents; Public Rights Enemy over the Party 87 Parties; Accommodation (1991) 87though Parties; Accommodation Party (1996)Rule 87 depositors. The bank is with improperly classified under acharged topic Silliman and for University some topics College which are improperly or(1997) they are banks, opened and shall appoint a receiver to take charge of the joint account has none and is conducted in Rule you were the Judge, how72 would you resolve the Bar Examination, it is recommended Monetary Board approval, and they cannot Limited Liability Rule (1999) Limited Liability (2000) 73 Limited Liability Rule; Doctrine of Inscrutable genuineness (2000) Invention 52of Insurable (1990) of theInterest: 63signatures Trademark Separate of (1990) Insurable its current 63 Law Trademark Interest (1999) (1994) 52 63 Insurable Trademark, Interest; Test Equitable Dominancy Interest (1996) (1991) 63 b) Was there a violation ofofthe Secrecy of Bank constituted abroad. assets and liabilities of the bank. of 2005 thethe name the partner. motion to ostensible dismiss filed by Andrew? that the candidate be given full credit of Batch issue letters of credit. Their operations are account holders. But what can be more Fault (1991) 73 Limited Liability Rule; General Average Loss (2000) 73 Limited Liability Rule; General Average Deposits Law (Republic Act No. 1405)? Explain. 52 Trademark; Insurable Interest; Infringement Life vs. (1991) Property 63 Insurance Trademark; (1997) Test of 52 Dominancy Insurable Interest; (1996) 64 Life Tradename: vs. Property International Insurance (2000) Affiliation Withinprimarily 60 days,by the Monetary Board (2) Explain While Miscellaneous a5%, partnership has be juridical (5%) whatever......................................................................................................................102 may his answer, and he Bar5Reviewees governed the Thrift Banks Act of ignorantly phrased, for the authors are just who have prepared this striking is that there were marked (5%) Loss (2000) 73 The motion to dismiss should bedifferences granted. shall determine and confirm if the bank is 53 personality 52 (2005) Insurable 64 and Interest; may Life sue vs. or be Property sued Insurance under (2002) 53 Insurable Interest; Property Insurance (1994) be given a bonus if he made an answerThe in 1995 (RA 7906). SUGGESTED ANSWER: between Placido’s signature andJurisdiction the one &inPower Energy Regulatory Commission: (2004) by: 102 and Fourpublic ACID Problems of Philippine simple absolute and unconditional insolvent, interest requires, toJudiciary the following manner:) Updated itsInsurable firm name, a joint account has no juridical Interest; Property Insurance (2001) 53 Insurance; &Rural Carry (2003) 53 Insurance; 4Cash Banks – these are those which No, because theBasis punitive provisions of Cothe102 Transportation Law ..............................................................................................................93 the check forged by the visitor. Certainly, (2006) 102 Government Deregulation vs. Privatization of an Industry (2004) 102 Political Law; WTO (1999) conveyance embodied in the deed of order the liquidation of the bank. personality and can sue or be sued only in work while reviewing for the Bar Exams under time constraints and within their are organized primarily to Double extend loans No. and Insurance vs. Re-Insurance (1994) 53 Insurance; Double Insurance (2005) 54 Insurance; Insurance; Secrecy of Bank Deposits Law (R.A. Placido was not negligent in leaving his (3) While has a common fund, assignment be operative, and theTrade the name the ostensible partner. Poweraof ofpartnership thewould State: Regulating of Domestic (2004) 103 Tariff and Customs Code: Violation of Customs Boundary System (2005) 93 Carriage; Breach of Contract; Presumption offacilities Negligence (1990) 93 Carriage; other credit to farmers, fishermen or 1405), including the statutory exemptions effect (1993) 54 Insurance; Effects; Payment of Premiums by Installment (2006) 54 Insurance; Life Insurance; checkbook in his own desk ( PNB v Quimpo a joint account has assignment would constitute essentially a Banks; Insolvency; Prohibited Transactions (2000) Laws (2004) 103 none. farm families, as well as cooperatives, Breach of Contract; Presumption of Negligence (1997) 93 Carriage; Fortuitous Event (1995) 93 Carriage; provided therein, are not applicable to FCDU D’ BAR-Retake 2007 158 SCRA 582 ) Assignment Policy (1991) 54 Insurance; Perfection of to Insurance Contracts (2003) 54 Insurance; Property (4) While in payment aofpartnership, all general mode of dacion en pago. limited knowledge of the law. We would like seek the reader’s indulgence for alocally. lot94 The Monetary Board or of the BSP closed Urban merchants, and& private and public employees accounts, even when constituted Liability; Lost Baggage orof Acts ofGarnishment Passengers (1997) 94 Carriage; Prohibited Valid Stipulations (2002) partners have the right management, in a Banks: Secrecy of Bank Deposits; (2004) Insurance; Prescription of Claims (1996) 54 Insurance; Return of Premiums (2000) 55 Insured; Accident Policy Bank after it encountered crippling financial and whose operations are Carrier; primarily governed (Intengan v. Court Appeals, G.R. No. 128996, Carriage; Valuation ofa savings Damaged Cargo (1993) 94 Common Carrier (1996) 94of Common Breach of joint account, ostensible partner CDC maintained account with (2004) 55 Insured; Accident (1990) difficulties thatthe resulted invs.a Suicide bank run. X,55 one by the Rural Banks Act of 1992 (RA 7353). February 15, 2002 ) (5) While liquidations of aCommon partnership of typographical errors in this work. manages its business operations. CBank. On orders of the MM Regional Trial Banks: Collateral Security (2002) Contract; Damages (2003) 94 Carrier; Defenses (2002) 95 Common Carrier; Defenses; Fortuitous of the members of the BOD of the bank, 5 Cooperative Banks – these are those may, by agreement, be entrusted to a partner Court, the garnished P50,000 of his is(1998) engaged in the business Events (1994) 95 Common Carrier; Defenses; Limitation Andrew of which Liabilityare 95 Common Carrier; Defenses;of attended andSheriff stayed throughout the entire organized primarily to provide or partners, in satisfy a joint account liquidation account, to the judgment in favor of building low-cost housing units under meeting of the Board that95was held well in Duration of Limitation Liability (2001) Common Carrier; financial Liability and (1996) credit 95 Common services Carrier; to cooperatives Duty to The Authors thereof canofonly be CDC done by the ostensible his creditor, MO. complained that the contracts with real estate developers. He advance of the bank run and before news and whose operations are primarily governed Bulk Sales Law ......................................................................................................................20 Examine Baggages; Railwaythe andLaw Airline 96 Commonapplied Carrier; Test (1996) 96ofCommon Carriers; Defenses partner. garnishment violated on(1992) the Secrecy July 26, 2005 for a loan P3 Million from Ready had begun to trickle to the business by the Cooperative Code of the Philippines Theory of 96 Cognition vs. Theory of Liability Manifestation (1997) (1996) Common for Loss (1991) ofBulk Bank Deposits because the existence of2096 Bank (the Bank), (2000) which20required Sales Law; Carriers; Covered Transactions (1994) Bulk Credit Sales Covered Transactions Bulk Sales community about the dire financial pit the (RALaw; 6938). Thehis Civil Code adopts the theory of savings account was disclosedafter to thethe Banks; Conservator vs. Receiver (2006) Andrew to provide collateral security forofit.the bank had fallen into. Immediately Law; Covered Transactions (2006) 20 Bulk Sales Law; Exclusions (1993) 20 Banks Bulk Sales Law; Obligation 6 Islamic – these are those SUGGESTED ANSWER: cognition, while the Code of Commerce public. (5%) Is CDC's complaint meritorious Distinguish between the role ofhis a Andrew offered to assign to the Bank meeting, X caused the preparation and No. CDC's complaint not meritorious. held which organized primarily to provide (1995) 21 BulkisSales Law; ObligationItof the Vendor (1997) are 21 Bulk Sales Law; Obligation of the Vendor generally recognizes the theory ofwas Nationalized Activities or Undertakings........................................................................74 orVendor not? of Reason briefly. conservator and that of a receiver of a bank. receivables amounting to P4 million from issuance a manager’s check payable to in(2001) China Banking Corporation v. of Ortega, 49 SCRA 355 financial and credit services in a manner or manifestation, in the perfection contracts. 21 SUGGESTED ANSWER: (2.5%) Home Builders Development Corporation (the Insolvency Corporate Recovery SUGGESTED that peso ANSWER: deposits and the himself in Activities the sum of be 5 garnished million (1973) transaction consistent with the Islamic Nationalized ormay Undertakings (1993)pesos 74...................................................................................64 Nationalized Activities or Undertakings (1994) 74for Nationalized How do these two& theories differ? The Conservator is appointed a period Obligor). The Bank accepted the offer.not Under theto bank theory of placed cognition, the of depositary can comply with order equivalent the amount or the invested Shari’ah. Atone present, only the Al charge Amanah Activities or Undertakings (1995) 75 Retail Trade Law (1990) 75 Retail Trade Law (1991) 75 Retail Trade exceeding (1) year, to take of the Insolvency vs. ofacquaintance. Payment (1998) 64the Insolvency: Voluntary Insolvency (2005) 64 Insolvency; Assets Accordingly, Andrew obtained thePhilippines loan Law and acceptance considered to effectively bind garnishment without violating the Law on in the bank is by aSuspension business He Islamic Investment Bank of the assets, liabilities, and the management (1992) 75 of executed a promissory undertaking vs. Liabilities (1998) 65 Insolvency; Assignees (1996) 65he Insolvency; Effect; Declaration ofnote Insolvency (1991)of65a the offeror only from the time itthe came tothe his Secrecy Bank Execution is now claims that heDeposits. is keeping funds in has been organized asinan Islamic Bank. bank or a quasi-bank a state of continuing to pay the loan in full in one lump sum on knowledge. the theory of goalfor of litigation as it isand its fruit. Garnishment trust the Under owner that he had SUGGESTED ANSWER: inability, or to maintain a Consumer Protection Law..................................................................................................21 September 1, unwillingness 2002, together with interest Credit Transactions..............................................................................................................44 manifestation, the contract is perfected at isI part of agree the process. Upon committed no execution violation ofis no the General No. do not that there violation of condition of liquidity deemed adequate to thereon at the rate of 20% per annum. At the theservice moment when the acceptance is declared of(RA the337, notice of garnishment on the Banking (RA 337, as amended) which the statute as amended). Xfor violated MetricAct System Law (1994) 21 Chattel Mortgage vs. After-Incurred Obligations (1991) 44 protect the interest of depositors and same time, Andrew executed a Deed of or made bybe the offeree. bank where the defendant deposited he should punished. Do preparation you agreefunds, that Sec 85 when he caused the and creditors. in Onfavor the other Receiver Assignment of thehand, Bankthe assigning tois such funds become part of the subject there has been no violation of the statute? issuance of a manager’s check appointed to manage a bank or quasi-bank the Bank his receivables from the Obligor. matter of litigation. (3%) is unable to pay its liabilities in Thethat deed of assignment read:

General PrinciplesTABLE ofF O R OFECONTENTS W A RBanking D Law Mercantile Law

MERCANTILE LAW

ARRANGED BY TOPIC (1990 – 2006)

Dondee

From the ANSWERS TO BAR EXAMINATION QUESTIONS bythe UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS 2005

Updated: June 27, 2007

June 27, 2007

Banks; Restrictions on Loan Accommodations (2002) As part of the safeguards against imprudent banking, the General Banking Law imposes limits or restrictions on loans and credit accommodations which may be extended by banks. Identify at least two (2) of these limits or restrictions and explain the rationale of SUGGESTED ANSWER: each of them. (5%) Any two (2) of the following limits or restrictions on loan and credit transactions which may be extended by banks, as part of the safeguards against imprudent banking, 1 to wit: SBL Rules – (i.e., Single Borrower’s Limit) rules are those promulgated by the Bangko Sentral ng Pilipinas, upon the authority of Section 35 of the General Banking Law of 2000, which regulate the total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation or other entity. The rules seek to protect a bank from making excessive loans to a single borrower by prohibiting it from lending beyond a specified ceiling. 2 DOSRI Rules – These rules promulgated by the BSP, upon authority of Section 5 of the General Banking Law of 2000, which regulate the amount of credit accommodations that a bank may extend to its

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

deposits 4. Supposing impairment directors, under the RA clause. officers, titles 1405, ofRA stockholders as the amended. 6832, housescreating and and Canlots theira arecommission the Bank inrelated possession justifiably interests to conduct invoke of (thus, the RA Luansing anDOSRI). 1405 investigation and Generally, Realty, a) of Inc., not the respond isaitbank’s failed under to the credit obligation 1989 writ accommodations and coup tob)deliver quash d’etatthe theto and titles its to SUGGESTED ANSWER: to Rudy? subpoena recommend DOSRI (2.5%) for must examination? measures be in the(5%) to regular prevent course similar of Yes. Yes, Whether it has an obligation transaction tois deliver is considered titles to a of attempts business tothe seize and on power terms not a valid lessexercise favorable sale Rudy. orto money As Luansing placement Realty, does Inc. not make istonot thea Banks; Secrecy of Bank Deposits (1992) police the power. bank than those offered nonmoney covered “subject institution matter under ofbank litigation” Section within of the 3. DOSRI No commercial shall make any Socorro received $10,000 from a3 foreign bank borrowers. the Anti-Money meaning of Laundering Sec 2 entitled of RAAct, 1405 itwhich may notof loan or discount on the security of shares although she was only to $1,000.00. prohibits invoke this law disclosure to stock. refuseor delivery inquiry into the bank titles the its own capital In anthe apparent plan to of conceal Banks; Secrecy of Bank Deposit; Exceptions (2006) deposit to Rudy. except “in cases where the money erroneously sent amount, she opened a dollar Under Republic Act (The Bank Banks; Restrictions onNo.1405 Loan Accommodations (2006) the deposited orwith invested is the subject matter account her local bank, deposited Secrecy bank are considered Pio is Law), the and president Bank. His of litigation” nor willdeposits it of matter whether the $10,000 issued 4Western checks in the amount Banks; Secrecy of Bank Deposits (2000) absolutely confidential and may not be bank each wife applied for a loan with the said to money was “swindled.” of $2,000 and 1 check for $1,000 GP is a suspected lord who isofficer examined, inquired or cafe. looked into by any finance an internet The loan told payable to jueteng different individuals who rumored to her bethe enjoying police and military person, government official, bureau orapproved office. her that application will not be deposited same in their respective dollar SUGGESTED ANSWER: protection. The envy of many drug lords who suit What The are sender the exceptions? bank then (5%) brought a civil because the grant of loans tobanks. related accounts with different local The exceptions to the Bank Secrecy Law are hadbefore not escaped the dragnet of the law, GP the RTC for the recovery interests of bank directors, officers, andof the the following: waserroneously summonedsent to prohibited a amount. hearing of In the the of the by the course General 1. stockholders Special orisgeneral examination of a SUGGESTED Committee onANSWER: Racketeering and Other trial, theLaw. sender presented testimonies of Banking Explain whether the loan bank, authorized by General the Sentral ngof Section 36 of the Banking Law Syndicated Crimes theBangko House offunds bank officials to of show that the were, in officer is correct. (5%) Pilipinas' Monetary Board, inconducting connection 2000 does not which entirely prohibit directors or Representatives, was awith fact, deposited in a bank by Socorro and paid a bank fraud or serious irregularity. officers of the bank, directly or indirectly, congressional investigation “in aid of out to several persons, who participated in 2. fromExamination by an borrowing theindependent bank. this and case, legislation” on the from involvement of In police the concealment and dissipation of the Auditor, hired by the Bank and for Bank, the which Pio is personnel, the president ofpossibly Western military and evenerroneously of local amount thatuse. Socorro had 3. Disclosure with the Depositor's written Bank's exclusive makes him an officer, director and Socorro moved to strike out said testimonies government officials, in the illegal activities of received. permission. stockholder of the said bank. The General from the record invoking the law on secrecy suspected gambling and drug lords. 1 bank In case ofprovides Impeachment. Banking Law additional of deposits. If for you were thewere Judge, Subpoenaed to attend the investigation 2 In cases of Bribery or dereliction of out? restrictions to the bank before it can lend to would you issue an order to strike them officers of certain identified banks with a duty by a ANSWER: Public Officer,A upon order of a of SUGGESTED its directors or officers. written approval Why? directive to them to bring the records and competent court. Ithe willmajority not strike thethe testimonies from voteout of all of the the documents of bank deposits ofdirectors individuals record. 3 In cases The of testimonies money deposited/invested of bank officials bank, excluding the director concerned, mentioned in the subpoenas, among them is which, in Furthermore, turn, is thethe subject of Litigation, indicating where questioned dollar required. such dealings must GP. GP andANSWER: the banks opposed the production SUGGESTED accounts upon order were of a competent opened Court. in depositing beThe upon terms not less favorable toa the bank of banks’ records of deposits on the Yes. opposition isLoans valid. GP is not public 4. the Loans: with their Banks 4 DOSRI misappropriated sums must be considered as than those offered to others (Section 1326, ground that no such inquiry is allowed under of Bank official. The Directors, investigation Officers, does Stockholders not– involve and one is likewise involved in litigation one which Central "Manual ofDeposits Regulations the Law onBank's Secrecy of Bank (RA for of the exceptions to the prohibition related interests. among the Other excepted cases underagainst the Secrecy Banks and Financial Intermediaries, 1405 as amended). Is the opposition of GP disclosure 5 Bank Loans of any in excess information of(Melon 5% concerning of the Bank's bank of Deposits Act Bank v Magsino cited in Ranioso v.Box; CA, G.R. No. 117416, and the banks valid? Explain. Banks; Secrecy of Bank Deposits (1994) deposits under the Law on Secrecy of Bank Capital Safety & Surplus Deposit Liability 190 SCRA 633) December 8, 2000). violation of this Miguel, aBorrower special customs agent is charged Deposits. 6 and TheThe Committee waived conducting his right the as MN OP rented aA safety deposit box at provision will cause his or her position to be before the Ombudsman with having investigation is not a competent court oracquired the regards the Secrecy of Bank Deposits SIBANK. The parties signed a contract of and the erring director 5. declared the Anti-Graft property out of proportion toand his salary, Ombudsman 7 Violation authorized under the lawbank to or lease withvacant theof conditions that: the is in officer subjected to the penal provisions of Corrupt Practices Act. violation of the Anti-Graft Corrupt issue forofthe production the notaasubpoena depository the contents and ofofthe safe the New Central Bank Act. 6. Coup d' etat Law (RA 6968, Practices Act. the Thesuch Ombudsman issued ofa bank record involving disclosure. and has neither possession nor control Banks; Secrecy ofduces Bank Deposits; Exceptions (2004) 7. BIR Commissioner's authority to verify Octsubpoena 24,1990). tecum to theno Banco de Cinco the same; the bank assumed interest in The Lawcontents on Secrecy of Bank Deposits a decedent's Gross and a taxpayer's commanding its representative to furnish said andEstate assumes no liability in the provides that all depositsof of whatever nature request for a compromise agreement due Ombudsman records transactions bytoor in connection therewith. The safety deposit box with banks or banking institutions are incapacity to pay his tax liability. the name of Miguel, his wife and children. A had two keyholes: one for the guard key 8. Foreign Currency Deposits by may foreign absolutely confidential in nature and not second subpoena was issued expanding the which remained with the bank; and the other lenders & investors under PDs 1034. be examined, inquired looked intoof by any of first by including theor production records renters' key. The box can be opened 9. for the Violations of the Anti-Money person, government official, bureau or office. friends ofthe Miguel inboth saidkeys. bankThe andrenters in all its only When with use of 10. the exercises/invokes Laundering Law. Miguel moved to quash the subpoenas arguing However, the law State provides exceptions in its branches and extension offices, specifically deposited certificates of title in the box. But (NOTA BENE:Which Itthe is suggested that anyDeposits 6 of Police Power. that they violate Secrecy of Bank certain instances. of the following may naming them. later, they discovered that the certificates the above beexceptions: given full credit) 1. cases of ANSWER: SUGGESTED Law. In addition, he contends that the notIn be among the were gone. MN andbased OP now for 2. In The cases bank involving is liable, on claim the decisions of impeachment. subpoenas are in the nature of “fishing damages from SIBANK. Is the bank liable? Banks; Secrecy of Bank Deposits (1990) 3. In cases involving BIR the Supreme Court in CA Agro-Industrial bribery expedition” or “general warrants” and are Explain briefly. (5%) Manosa, newspaper while 4. In casesa of anti-graft andcolumnist, corrupt inquiry. Development Corp. v. Court of Appeals, 219 SCRA constitutionally impermissible with respect to making a deposit in a bank, overheard a 5. In cases where thev.who money is the practices. 426 (1993) and Sia Court ofinvolved Appeals, 222 SCRA private individuals are not under pretty bank teller informing coemployee SUGGESTED ANSWER: subject of 24 (1993). In those cases, contention thea Supreme Court investigation. Is Miguel’s tenable? that No. Gigi, Miguel’s a well contention known public is not official, tenable. hasThe ruled that the renting out of safety deposit illegally property justinquiry a few hundred pesos in herwherein bank boxes is ainto "special kind ofacquired deposit" account extends andis tothat cases her where next check such property in all ofis the bank the depositary. In thewill absence concealed by being held by recorded probability bounce. Manosa wrote this in any stipulation prescribing theor degree of information the in his newspaper Thus, diligence required, that of a column. good father of a Gigi family is to be

Page Page 16 17 15 of 103 of 103 filed observed name a complaint of other by the with persons. depositary. the City To

Fiscal Anyofstipulation sustain Manila Miguel’s forexempting unlawfully theory andthe disclosing restrict depositary the information from any inquiry only about liability to property her arising bankheld from account. by the orloss a) in the Will of the thename thing said suit deposited of the prosper? government would Explain be official void yourfor answer. would beingmake contrary to available to law persons and public in government policy. The who deposit box illegally acquire is located property in the an easy bank means premises of b) evading Supposing thatabsolute Gigi iscontrol charged with and is under prosecution. the All they haveoftothe do unlawfully under RA 1379 bank. beacquiring would to simply wealth place the property in the Banks; of Bank Deposit; (2006) andname that Secrecy the fiscal issued a AMLC subpoena duces of persons other than their spouses Rudyfor is the jobless but is toaccount be tecum records of reputed the bank of and children (Banco Filipino Savings vs.a jueteng operator. He been the charged Gigi. May 161 Gigi validly Purisima scrahas 576;never Secoppose 8 Anti-Graft Lawsaid as or Banks; Secrecy of Bank Deposits (1995) convicted any crime. Hethat maintains several issuance the ground the same amendedon byofBP 195) Michael withdrew without authority funds of SUGGESTED ANSWER: bank accounts and has purchased 5 houses violates the law on secrecy of bank deposits? a) The Secrecy of Bank Deposits Act the partnership in the amounts of P500th and and lots his children from the Luansing Explain your for answer. prohibits, to its he exclusionary clauses, US$50th for services hedoes claims rendered Realty, subject Inc. Since nothe have any anyfor person from examining, inquiring the benefit of the partnership. He visible job, the company reportedor his looking into all deposits of whatever nature deposited the P500th in his personal peso purchases to the Anti-Money Laundering with banksaccount or banking institutions incharged the the current with Prosperity Bank and Council (AMLC). Thereafter, AMLC Philippines which by law are declared US$50th in his personal foreign currency him with violation of the Anti-Money “absolutely confidential” in nature. savings account Eastern Bank. Laundering Law.with Upon request of Manosa the The partnership instituted an action in AMLC, court who merely overheard what appeared to be the bank disclosed to it Rudy's bank deposits against Michael, Prosperity, and Eastern to 1. Can Rudy move to dismiss the case a vague remark a Bank employee to a co-on amounting to of P100 Million. he ALTERNATIVE ANSWER: compel Michael tohereturn theSubsequently, subjectinfunds to the ground that has no criminal record? employee and writing the same his in court for violation of thenot Antia) was The charged complaint against Manosalitigation will SUGGESTED ANSWER: the partnership and pending to (2.5%) newspaper column is neither the inquiry nor Money Laundering Law. prosper because writing vague No. the merely Anti-Money Law, orderUnder both banks to disallow any awithdrawal disclosure contemplated by law.Laundering remark aaccounts. Bank a co-employee Rudyof would beemployee guilty of ato"money laundering from his is not the initial disclosure contemplated bythe law.court If an At the hearing of the crime" committed when the case proceeds of anyone should be liable, it will be bank of ordered Prosperity tolike produce thethe records "unlawful activity," jueteng operations, SUGGESTED ANSWER: employee who information. Michael’s peso current account, and Eastern are made todisclosed appear asthe having originated from b) Among the instances excepted from the to producesources. the records of hislaundering foreign legitimate The money coverage of the Secrecy of Bank Deposits currency savings account. crime is separate from the unlawful activity of ActCan are the Anti-graft cases. Prosperity Hence Gigi may not court compel Eastern being a jueteng operator, andand requires no validly oppose the issuance of a subpoena to disclose the bankfordeposits of Michael? previous conviction the unlawful activity duces tecum for the bank records on her. SUGGESTED ANSWER: Discuss fully. (See also Sec. 3, Anti-Money Laundering Act Banks; Secrecy Bank Deposits (1991) Yes, asraise farof as the peso account is concerned. 2. To funds for his defense, Rudy sold of 2001). Thethe law 6832) creating a the Commission to of Sec 2(RA of RA allows disclosure houses and1405 lots to a friend. Can Luansing conduct a Thorough Fact-Finding Investigation bank in case where the money Realty,deposits Inc. be compelled to transfer to the of deposited the Failed Coup of Dec 1989, is the subject of and litigation. buyer ownership ofd’etat the matter houses lots? Recommend Measures to Michael Preventis aimed the SUGGESTED ANSWER: Since filed against (2.5%)the case Occurrence ofRealty, Similar Attempts a Violent Luansing Inc. ishe aAt real estate at recovering the amount withdrew from Seizure of Power for a Other Purposes, company, hence itpartnership, is not covered institution the funds of theand which amount provides that the3deposited Commission may account, ask the a under Section of the Anti-Money Laundering he allegedly in his Monetary Board to disclose information onbe Act. Only banking institutions, insurance disclosure of his bank deposits would No, with respect to tothe foreign and/or to grant authority examine anycurrency bank companies, securities dealers and brokers, proper. account. Under Foreign Currency Law, deposits, orthe investment funds,entities or pre-needtrust companies and other the exemption to inthe against banking transactions the prohibition name dealing of and/or administering or otherwise in disclosure of commodities information bank utilized by a person, natural or concerning juridical, under currency, or financial deposits writteninstitutions. consent the investigation byare thecovered Commission, in any of bank derivativesis Hence, Banks; Secrecy of BankInc. Deposits (1998) depositor. or banking institution in the when Luansing Realty, mayPhilippines, not use the Anti(20) An insurance is deluded the1998 Commission has Act reasonable ground to to Money Laundering to company refuse to transfer 3. In disclosing Rudy's bank accounts the into releasing a check to A for P35th pay believe that said deposits, trust or investment the buyer ownership of the houses and to lots. AMLC, did the bank violate any law? (2.5%) for Treasury Bills (T-bills) which A claims funds, or ANSWER: banking transactions have been to SUGGESTED SUGGESTED ANSWER: be en route on board an armored truck from used inthe support orofnot in furtherance of the The Law on Secrecy Bank Deposits islaw. itself No, bank did violate any The a government bank. The check is delivered objectives of the said coup d’etat. Does the to merely a statutory enactment, and it "covered may, bank being specified as a A who depositsnot it toviolate his account with on XYZ above provision the (such Law therefore, be modified, amended as institution" under theorAnti-Money Laundering Bank before the insurance company realizes Secrecy of Bank Deposits (RA 1405)? by Law, providing further exceptions therefrom), report to therealization, AMLC covered it is isaobliged scam. toUpon such the or and evensuspicious repealed, transactions, expressly or impliedly, by without thereby insurance company files an action against A a violating subsequentany law.law. TheThis Secrecy of Bank is defrauded one of and the for recovery of the amount Deposits Act did not Secrecy amount of to Bank a contract exceptions to the Deposit obtains a writ of preliminary attachment. In between the depositors and depository Act. addition to the writ, the Bank is also served a banks within the meaning of the nonsubpoena to examine the account records of impairment clause of the Constitution. Even A. The Bank declines to provide any if it did, the police power of the State is information in response to the writ and superior to the nonmoves to quash the subpoena invoking secrecy of bank

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

shall the National promote Internal and maintain Revenuemonetary Code, thestability Commissioner and convertibility of Internal of theRevenue Peso. can inquire into the deposits of a decedent for in Lending Act (1991) theTruth purpose of determining the gross estate Dana Gianina purchased on case, a 36a BIR month of such decedent. Apart from this installment basis the cannot latest be model of the inquiry into bank deposits made. Nissan Sentra3Sedan caralways from the Thus, exception may not be Jobel Cars Turning exception 4, an inquiry into bankprice, Inc. Intoaddition to the advertised selling applicable. deposits is possible only in prosecutions for the latter imposed finance charges consisting unexplained wealth the Anti-Graft and of interests, feesunder and service charges. It did Corrupt Practices Act, according to the not, however, submit to Dana a written Supreme Court in the casesforth of Philippine statement setting therein the National Bank v. Gancayco, 15 SCRA 91 (1965) information required by the Truth in Lending However, all other casesand of anti-graft and v. and Banco Mortgage Act (RAFilipino 3765).Savings Nevertheless, the Bank conditional corrupt practices will not warrant an inquiry 1 Has there been substantial Purisima, (1988). deed 161 of SCRA sale 576 which the parties executed intocompliance bank deposits. Thus, exception of the aforesaid Act? 4 may mentioned that the total amount indicated not2alwaysIfbe applicable. Like any other your answer to the therein included such financeforegoing charges. exception, benegative, interpreted strictly. questionitismust in the what is the effect Exceptions 1, 2 and on contract? the other hand, are of the violation on5,the provided expressly in the on Secrecy 3 In the event of aLaw violation of theof Act, Bank Depositors. They are available what remedies may be availed of to by Dana? depositors at all times. Banks; Secrecy of Bank Deposits; Garnishment (2001) The Law on Secrecy of Bank Deposits, otherwise known as RA 1405, is intended to encourage people to deposit their money in pesos for denominations from twenty five banking institutions and also to discourage centavos and above, and in amounts not private hoarding so that the same may be exceeding twenty pesos for denominations PDIC Law vs. Secrecy Bank Deposits Act (1997) properly utilized by banks to assist in the ten centavos and of less. An employee of a large manufacturing firm economic development of the country. Is a earns a salary which is just a bit more than notice of garnishment served on a bank at what he needs for a comfortable living. He is the instance of a creditor of a depositor SUGGESTED ANSWER: thus able to still maintain a P10,000 savings covered by the said law? State the reason(s) No. The notice of garnishment served on a account, a P20,000 checking account, a for your answer. (5%) bank at the instance of a creditor is not P30,000 money market placement and a covered by the Law on Secrecy of Bank P40,000 trust fund in a medium-size Deposits. Garnishment is just a part of the by the PDIC. b) State which of the above commercial bank. a) State which of the four process of execution. The moment a notice of accounts are are deemed covered by accounts insured garnishment is served on a bank and there the Law on Secrecy of Bank SUGGESTED ANSWER: exists a deposit by the judgment debtor, the Deposits. a) The P10th savings account and the P20th bank is directly accountable to the sheriff, for account are deemed insured by the PDIC. b) checking the benefit of the judgment creditor, for the The P10th savings account and the P20th whole amount of the deposit. In such event, account are covered by the Law on Secrecy of checking the amount of the deposit becomes, in effect, BSP; Receivership; Deposits. Bank a subject of theJurisdiction litigation.(1992) Family Bank was placed under statutory receivership and subsequently ordered Responsibilities & Objectives of BSP (1998) liquidated by the Central Bank (CB) due to What are the responsibilities and primary fraud and irregularities in its lending objectives of the BSP? (5%) SUGGESTED ANSWER: operations which rendered it insolvent. The BSP shall provide policy directions in the Judicial proceedings for liquidation were areas of money, banking and credit. It shall thereafter commenced by the CB before the have supervision over the operations of RTC. Family Bank opposed the petition. banks and exercise such regulatory powers Shortly thereafter, Family Bank filed in the as provided in the Central Bank Act and same court a special civil action against the other pertinent laws over the operations of CB seeking to enjoin and dismiss the finance companies and non-bank financial liquidation proceeding on the ground of grave litigation. Explain your answer or institutions performing quasi-banking abuse of discretion by the CB. The court choice briefly.such (5%) functions, as quasi-banks and poised to: 1) restrain the CB from closing SUGGESTED ANSWER: The primary objective ofsimilar the BSP is to institutions performing functions. Family Bank; and 2) authorize Family Bank to SUGGESTED ANSWER: maintain price stability conducive to a withdraw money from its deposits during the balanced and sustainable growth pendency of the case. If you were the Judge, would you issue such orders? Why? Mercantile Law Bar Examination Q & A (1990-2006)

No. The RTC has no authority to restrain the monetary board of the BSP from statutory authority to undertake receivership and ultimate liquidation of a bank. Any opposition to such an action could be made to the court itself where assistance is sought. The action of the RTC where the proceeding is pending appeal have to be made in the Court of Legal Tender (2000) Appeals. After many years of shopping in the Metro Manila area, housewife HW has developed the sound habit of making cash purchases only, none on credit. In one shopping trip to Mega Mall, she got the shock of her shopping life for the first time, a store’s smart salesgirl refused to accept her coins in payment for a purchase worth not more than one hundred pesos. HW was paying seventy pesos in 25centavo coins and twenty five pesos in 10 centavo coins. Strange as it may seem, the salesgirl told HW that her coins were not SUGGESTED ANSWER: “legal tender.” Do you agree with that the coins No. The salesgirl’s understanding salesgirl in respect of her understanding of are not legal tender is not correct. Coins are “legal tender?” Explain (2%) legal tender in amounts not exceeding fifty

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

when without 2) If there the more, is sale aproceeds bona and transfer fide toand arrange is just made dispute the a) by as the delivery to the vendor, amount andmortgagor, installation due as herof transferor electric your new or home assignor theater consumption who system. produces rate. You and Is know Angelene’s delivers you will acontention written receivewaiver a SUGGESTED ANSWER: statement valid? of the provisions on your credit of the card Bulk purchases Sales Law from No. Angelene’s only legal an recourse in from his the creditors bank containing as shown by option verified tothis statement; pay case was to pay the electric bill under only and a minimum b) by a vendor, amount, mortgagor, which is usually transferor or protest. Hertotal failure sowere justified MECO 1/36 assignor of the who price is to ando you executor, charged administrator, forto cut the electric service (Ceniza v CA 218 or S 290) your receiver, purchase. assignee Did Embassy in insolvency, Appliances public

SUGGESTED ANSWER: comply officer with acting the provisions under judicial of the process, Truth in the sale There is no need for Embassy Appliances to Lending or transfer Act (RA is 3765)? not covered by the Bulk Sales comply with the Truth in Lending Act. The Bulk Law.Sales Law; Obligation of the Vendor (1995) transaction a sale on installment basis.and House ofis not Pizza (Pizza) is the owner Embassy Appliances is a seller on cash basis. operator of a nationwide chain of pizza BOD: Election of Aliens as members (2005) It isoutlets. the credit cardofcompany which allows House Liquor (Liquor) is a retailer A Korean national joined a corporation which theofbuyer to enjoy the privilege of paying the all kinds of liquor. is engaged in the furniture manufacturing House of Foodsbasis. (Foods) has offered to price on installment business. He was elected to the Board of purchase all of the outlets, equipment, Directors. To complement its furniture fixtures and furniture of Pizza. Foods also manufacturing business, the corporation toCovered purchase from (1994) Liquor all of its Bulkoffered Sales Law; also engaged in the Transactions logging business. With moderately priced stock constituting 50% Stanrus Inc a department storecan withthe outlets in of the additional logging activity, its total inventory. SUGGESTED ANSWER: Makati, national Mandaluyong, Quezonof City, Korean stillLiquor beand a member theis What Both and have creditors. Yes, just Pizza as long as sixty percent (60%) ofits the contemplating to refurbish and renovate Board of Directors? Explain. (3%) legal requirements must Pizza and Liquor Board of Directors are Filipinos. Corporations Makati store in order to introduce the most comply with in (60%) order for byFoods to that are and sixtystate percent owned modern oftransactions? the art equipment in fully. consummate the Discuss Filipinos can engage business merchandise display.in Tothe carry out itsof plan, it SUGGESTED ANSWER: exploration, development and utilization of intends sell ALL of must the existing fixtures and Pizza toand Liquor prepare an affidavit natural resources. (Art. XII, Sec. 2, 1987 equipment (display cases, wall decorations, stating the names of all their creditors, their Constitution) The aliens furniture, counters, etc.) toofCrossroads addresses, theelection amounts of theirascredits and members of the Board Of Directors Department Store. Thereafter, willengaging buy their respective maturities. itPizza and and Liquor in partially-nationalized activities isand allowed install new fixtures equipment must submit saidand affidavit to Foods which, in in proportion to their allowable participation continue operations. Crossroads wantsabout to turn, should notify the creditors the or share in the capital of such entities. (Sec. ALTERNATIVE ANSWER: know from you which as counsel: 1) Whether the transaction is about to be concluded creditors Stanrus. 2-A, As Anti-Dummy far asof Law) Nothing is concerned, in the facts it intended sale isLiquor “bulk sale.” 2) How can it must with Pizza and Liquor. SUGGESTED ANSWER: shows that more than forty percent (40%) prepare an affidavit stating the names of all protect itselfsale future claims of and of BOD; Capacity offrom Directors (1996)all 1) Yes. The involves fixtures the its Board creditors, of Directors their addresses, are foreigners. the amounts of Rodman, thenot President of TF Co,course wroteof a letter equipment, in thetheir ordinary their credits and respective maturities. to Gregorio, offering toprosecution sell to the latter 5,000 trade and the regular of business It must submit said affidavit to its buyer, who bags of fertilizer at P100 per bag.asGregorio of Stanrus, Inc. (Sec 2 Act 3952, amended) in turn, should notify the creditors about the signed his conformity to the letter-offer, and transaction which is about to be concluded 2) Crossroads should require from Stanrus paid a down-payment of P50th. A few days But as Pizza is concerned, it is not with as his far seller. Inc.covered submission of aBulk written waiver the Bulkcan later, the Corporate Secretary of TFof informed by the Sales Law. So Foods Sales Lawofby the creditors shown by Gregorio the decision of as their BOD not todoing consummate the transaction without verified orHowever, to complysince with Gregorio the ratify thestatements letter offer. anything. requirements of the Bulk Sales Law, that had already paid the down-payment, TF Bulk Sales Law; Obligation of the Vendor (1997) is, theThe seller must notify of the delivered 500 bags of his fertilizer which Gregorio sole proprietor of creditors a medium-size grocery terms and conditions of the sale, and accepted. TF made it clear that the delivery shop, engaged in both wholesale also, and retail before receiving from an vendee any part “lock, of should be considered new transactions, sells theentirely entire business thestock purchase price, deliver to such vendee a to transaction. Gregorio sought andThereafter, barrel” because of his plan written swornof statement of the names and enforcement the letter-offer. Is there a emigrate abroad with his family. Is he SUGGESTED ANSWER: addresses of all his creditors together with binding contract for the 5,000 bags of covered by the provisions of the Bulk Sales No, there is no binding contract for the 5,000 Bulk Sales Law; Covered Transactions (2000) theLaw? amount of indebtedness due to eachbe (Sec fertilizer? InExplain. the affirmative, what must done bags of fertilizer. First, the facts do not Company X, engaged in the business of SUGGESTED ANSWER: 2 Act 3952, amended) by the parties so as to comply with the law? indicate that Rodman, the President TF goods, Co, manufacturing parts and accessories, Yes. This is car a sale of the stockofof was authorized by the BOD to enter into the operates a factory with equipment, fixtures and entire business, not in the said contract ortools thatofhe was machinery and forbusiness this empowered purpose. Thetoofdothe ordinary course or trade so under some provision the by-laws TF manufactured goods are of sold wholesale to vendor. Before receiving from the of vendee Co. The facts do not also indicate that distributors dealers throughout any part and of the purchase price, the the vendor Rodman been to clothed with the apparent Philippines. Company X was among the must has deliver such vendee a written power to entities execute thesworn, contract agreements business adversely hit by thenames 1997 and statement, duly of or the similar to it. Second, Co hasdropped specifically Asian business crisis. Its sales with said addresses of all TF creditors to whom informed Gregorio that it has not ratifiedwith the the thevendor declinemay in car and itstogether operating besales indebted, contract for the sale of 5,000 bags of fertilizer costs escalated, while its creditor banks and amount of and the delivery to otherthat financial institutions tightened

Corporation Law

Bulk Sales Law

20 21 of 103 their loan of portfolios. Page Page 22 103 of 103 Gregorio indebtedness 500 bags, dueCompany or which owing, Xon

wasaccount facedaccepted, with thegoods, dismal choice new of business either Gregorio of the is an entirely fixtures or suspending its operations or selling its 53820 transaction. subject matter (Yao Ka ofSin theTrading bulk sale. v CA GR business. It chose the latter. Having struck a June 15, 1992 209s763) Bulk Sales Law; Obligation the Vendor deal with Company Z, a of more viable(2001) entity BOD; (1991) A Compensation is a merchant engaged in the sale of X a engaged in the same business, Company After years, for variety of difficult goods and merchandise. Because sold itsmany entire business to thewhich formercalled without sacrifices on orthe part of publicity. the company’s of the economic incurred much fanfare anycrisis, form he of In fact, directors, ABC Manufacturing was indebtedness to X,the Y and Z. Inc Thereafter, A evidence exists that transaction wasfinally earning substantial profits. Thus, sold toentered B all the stock of goods furtively into to avoid the and prying the bulk of his goods to B.BOD (2%). President proposed to steps the that merchandise. a) What should A the eyes ofinCompany X’s creditors. The creditor SUGGESTED ANSWER: directors be paid a bonus equivalent to 15% undertake to effect a valid sale banks and other financial institutions sued Athemust prepare net an income affidavitbefore statingtaxthe SUGGESTED ANSWER: of company’s Company X for violation of the Bulk Sales Company theyear. Bulk Sales Law when names ofviolated all his creditors, in this case, X, Y, during theX preceding The President’s Law. Decide. (5%) it sold its entire business to Company Z and Z, their addresses, the amount of their proposal was unanimously approved by the SUGGESTED ANSWER: furtively to avoid the prying eyes of its credits and their maturity. A should give BOD. A stockholder of ABC questioned thethe Yes, the Its stockholder as agoods valid andsold legal a creditors. manufactured are affidavit Bhave who,grounds in turn, furnish bonus. Doesto he toshould object? ground to object to the payment to the wholesale distributors and notify dealers. copy to to each creditor and theThe creditors directors of a bonus equivalent to 15% of the sale of all or substantially allbulk of its stocks, not to that there is a proposed sale in order company’s net income. The their law interests. provides in the ordinary course business, enable the latter to of protect b) the Suppose Aannual submitted a false statement that total compensation of the constitutes bulk sale. The transaction being a on the schedule of his creditors. What is the effect of directors, in the preceding year, cannot bulk sale, entering into such transaction false as requirements to Vendee B.of such SUGGESTED ANSWER: exceed 10%statement of the company’s net income without complying with the BOD; Conflict of Covered Interest (1994) ANSWER: Bulk Sales Law; Transactions (2006) a)Bulk There was no30substantial (2%) before income tax (Sec Corp Code).compliance theSUGGESTED Sales Law, Company X violated said If the vendee does not have knowledge of ABC Pigger Inc is engaged in raising and law Pursuant to a writ of execution issued the with the Truth in Lending Act.byThe law. the falsity the schedule, the sale valid. selling hogs inof the local market. Mr. De Dios, Regional Trial Court in "Express Bank v. is Don provides that the creditor must make a full However, ifofthe vendee has of one of the its directors while abroad, Rubio," sheriff levied andtraveling sold knowledge at public disclosure the credit lost. The statement such falsity, the sale is voiddue because is the in met a leather goods manufacturer who was auction 8 photocopying machines ofincludes Donhe that the total amount bad faith. interested buying pig skins from the Rubio. Is thein sheriff's covered by the without principal and the sale financial charges, c) WhatANSWER: is the right creditors X, Y,portion and Z if A SUGGESTED Philippines. Mr De Dios ofset upona each separate Bulk Sales Law? (5%) specifying the amounts due No.failed The to sale comply by sheriff with the at public procedure/steps sale is not a required by company and started exporting pig skins to thereof would be insufficient and under question letter (a) hereof? sale by law a merchant. Section 8 of the Bulk b) A violation of the Truth in Lending Act his foreign contact but the pig skins exported unacceptable. SUGGESTED ANSWER: (1%) Sales provides thatABC. it has no fellow willLaw notitself adversely affect the validity of the were not sourced from His The recourse of X, Y, and Z is to question the application to executors, administrators, contract itself. directors in ABC complained that he should validity of the sale from A to B so as to SUGGESTED ANSWER: receivers, in insolvency, or public c) given Itassignees would allow Dana to refuse payment have this business to ABC. How would recover the goods and merchandise Iofficers, would decide in favor of Mr De Dios. ABC is acting under process. Bulk Sales ofdecide financial charges or, if The already paid, to to yousatisfy on this matter? their credits. engaged in raising and selling hogs in the Law only applies to the sale encumbrance recover the same. Danaor may also initiate local market. The company that Mr De of acriminal merchant of goods, merchandise or Dios charges against the creditor. had set up was to engage, as it did, the commodity done "in bulk" as defined byinthe Bulk Sales Law; Exclusions (1993) export of pigs skins. There is thus no conflict ALTERNATIVE ANSWER: Law itself. c) (Per Atty Jomby Paras if u In the annual meeting of XYZ of interest between Mr. De Corporation, Dios andread ABCthe Metric System Law (1994) the theprovisions stockholders unanimously adopted a Pigger Inc so asclosely) to makeUnder the case fall Truth within in Angelene is a customer ofcharges Meralco Electric Observation: The term “conflict of Lending Act, said financial valid, resolution proposed by the BOD to sell are the conflict of interest situation under the Company (MECO). Because of the abrupt rise interest” is susceptible to varied views and Dana may not refuse payment thereof. substantially all the fixtures and equipment law (Sec 34 Corp Code) in electricity rates, Angelene complained and interpretations. Only criminal charges may be initiated used in and about its business. The President BOD; Interlocking Directors (1995)that she should be with MECO insisting against the creditor. of the Corporation approached you and asked Chito Santos is Act a (2000) director ofrates. both Platinum the former However, Truth Lending for charged legalinassistance to effect the sale. 1) What Corporation and Kwik Silver Corporation. He Angelene did not tender any payment. valid? 2) What are the two instances when Embassy Appliances sells home theater steps should you take so that the sale may When MECO’s employees served the first 48owns 1% of the outstanding capital stock the sale, transfer, that are designed of and be components hour notice of disconnection, Angelene Platinum and or 40T ofentertainment Kwik. Platinum plans tofor mortgage assignment of stockcenters of goods, customized as protested. MECO, however, did not implement enter into a contract with Kwik that will make merchandise, provision, or materials otherwise wares, consumers within the medium-to-high price the 48-hour notice of of disconnection. Instead, both very substantial incompanies the ordinary course trade and profits. the regular than bracket. Most,earn if not all, of these packages employees examined Angelene’s electric Theits contract is presented at the respective prosecution ofinstallment the businessbasis, of theusually vendor are are sold on by 1. meter, In meetings orderchanged that contract willKwik. not be installed theor transfer same, and board ofthe and deemed to be aPlatinum sale in not means of credit cards allowing a maximum voidable, whatAngelene, conditions made will have be ofof another. Still, no to tender SUGGESTED ANSWER: bulk? 36 equal monthly payments. Preferred credit complied with? Explain. 1) The requirements of the Bulk Sales Law payment. cards of this type are those issued by banks, MECO served a second 48-hour notice 2. If be these conditions are met, how must complied with. Thenot seller delivers to of which regularly hold mall22, wide salesIt blitzes June 1984. gave may this contract Explain. thedisconnection purchaser a listonofbe hisratified? creditors and the participated like Angelene untilinnotifies 5 by pm appliance ofsuch Junecreditors 25,retailers 1984 purchaser in turn ofwithin Embassy Appliances. You are a buyer of a which to pay. As no payment had been the proposed sale at a stipulated time in home theater center at Embassy Appliances. made, MECO cut Angelene’s electric service advance. TheJune salesclerk who isAngelene attendingcontends to you simply on 28, 1984. that swipes your written credit card electronic the 48-hour noticeon of the disconnection approval machine (which prints rule cannot be invoked by momentarily MECO out your charge slip since you have unlimited credit), tears the slip from the machine, hands the same over to you for your signature, and

Consumer Protection Law

Page Page 24 23 of 103 of 103 which Theto BOD invest of Xthe Co,funds acting ofon a thestanding corporation. authority Robert of wants the stockholders the deadlock to Is a a) by-law his provision presence of as director X Corporation at the broken. amend the by-laws, amended its by-laws so “rendering meeting ineligible is not necessary or if elected, to constitute subject toa 1. asWhat are the remedies to who is to disqualify any of itsavailable stockholders removal, quorum a director for such if hemeeting; is also a director in a b) his whose vote is business not necessary for the Robert under the Corp code to of break also a stockholder and director a the corporation is in competition of the contract; c) the deadlock? Explain. competitor from being elected to its BOD. with orapproval is antagonistic to saidand corporation” SUGGESTED ANSWER: contract is fair and reasonable under the 2. Are there any remedies to prevent the valid and legal? State your reasons. (5%). Yes, the by-law provision is valid. It is the Y, a stockholder holding sufficient assets circumstances. paralyzation of the business available to to right of a corporation to protect itself against assure seat while in thethe BOD, filed a Robert him underofPDa 902-A petition possible and prejudice be ANSWER: At the harm meeting of the BOD ofthat Kwik may to approve theSUGGESTED petition with the SECisfor a declaration of to break the deadlock pending 1. nullity Robert petition the SEC to arbitrate caused by its competitors. position contract, Chito would haveThe to make sure of that ofcan the amended by-laws. He alleged litigation? Explain. the dispute, with such powers as director is highly sensitive and confidential. - a) there is no fraud involved; and b) the among other things that as a stockholder, he provided in Sec 104 of the Corp Code. To contract say the least, a person, whothe is a is fair to andallow reasonable under had acquired rights inherent in stock 2. ownership The SEC can appoint rehabilitation director incircumstances. a corporation whose business is in such as thea right to vote and be SUGGESTED ANSWER: receiver or a management committee. competition with or is antagonistic to X voted upon in the election of directors. Is the SUGGESTED ANSWER: No. There is no vested right of a stockholder Corporation, to become also a director in X stockholder’s petition tenable? (5%) 2. If the conditions relating to the quorum to be elected as director. When a person Corporation would be harboring a conflict of and required number of votes are not met, buys stock in a corporation he does so with interest which is harmful to the latter By-Laws; Validity; limiting the contract must qualifications be ratified of byBOD the vote of the knowledge that its affairs are dominated (Gokongwei Jr v SEC 89 S 336 (1979); 97 S 78 members (2003) stockholders representing at least 2/3 of the by a majority of the stockholders. To this (1980)). To outstanding prevent the entry of in Marlo Enriquez, capital stock a meeting called extent, the stockholder parted with his whom it considered as one antagonistic to its for the purpose. Furthermore, the adverse personal right to regulate the disposition of interests, its Board Directors, interestinto of Chito in the of contract mustBayan be his property which he invested in the capital Corporation amended itsis fair articles of disclosed and the contract and stock of the corporation and surrendered it BOD; Interlocking Directors incorporation and by-laws to BP add68)certain reasonable. (Secs. 32 (1996) and 33, to the will of the majority of his fellow Leonardo isof thestockholders Chairman and Corporations have the power to make byqualifications to President, be elected incorporators or stockholders. Raphael is a Director of NT Corporation. laws declaring a person employed in the as while members of its Board of Directors. When On one occasion, NT Co, by its service of a rival company to be ineligible for presented for approval at represented a meeting of Leonardo and A Ent, a single proprietorship the Corporation’s BOD. An amendment stockholders duly called for the purpose, the owned by Raphael, entered into a dealership which renders a director ineligible, or if amendments were overwhelmingly ratified. agreement Co appointed A Ent elected, subjects him to removal, if he is also Marlo Enriquezwhereby broughtNT suits against Bayan SUGGESTED ANSWER: as exclusive distributor of its amendments. products in a director in a corporation whose business is Corporation to question the SUGGESTED ANSWER: (perNorthern Dondee) Luzon. The SCIsreiterated in theagreement case of the dealership in competition with or is antagonistic to the Would action prosper? Why? (4%) The dealership agreement is voidable at the SMC vs.the SEC decided in April 11, 1979, that it By-Laws; Validity; limiting qualifications of BOD valid? Explain. other corporation is valid. option of NTby Co all inasmuch as the facts do not is recognized authorities that 'every members (2000) indicate that was power approved by the corporation has the thesame inherent to adopt At the annual stockholders’ meeting of MS BOD of NT Co before it was signed or, by-laws 'for its internal government, and to Corporation, the stockholders unanimously assuming such approval, that it was regulate the conduct and prescribe the rights passed a resolution authorizing the Board of the following conditions: 1) andapproved duties ofunder its members towards itself and Directors to amend the corporate by-laws so the meeting of ofinRaphael, thereference BOD at Thatinthe presence thewhich owner of A among themselves to the the as to disqualify any stockholder who is also a was approved was not law, Ent,agreement management of its affairs.'" At common director or stockholder of a competing necessary to constitute quorum the rule was "that the powera to makefor and business from being elected to the Board of 2) That the vote of Raphael was not meeting; adopt such bylaws was inherent in every Directors of MS Corporation. The by-laws necessary as for the the corporation oneapproval of its of necessary and were accordingly amended. GK, a stockholder agreement; 3) That the agreement is fair inseparable legal incidents. And it is settled of MS Corporation and a majority stockholder and reasonable under the circumstances throughout the United States that in the of a competitor, sought election to the Board ALTERNATIVE ANSWER: (Sec 32 Corp Code) absence of positive legislative provisions The dealership agreement is valid upon the of Directors of MS Corporation. His limiting it, every private corporation has this assumption that the same was approved by nomination was denied on the ground that he inherent power of its necessary and the BOD of NTas Coone before it was signed and was ineligible to run for the position. Seeking inseparable legal incidents, independent that such approval was made under the of a nullification of the offending disqualification SUGGESTED ANSWER: any specific enabling provision in its charterof following conditions: 1) That the presence provision, GK consults about its by-laws validity Close Corporations; Deadlocks (1995) The provision in theyouamended or in ingeneral law, executed such power of selfthe the meeting ofof the BOD at which the Raphael, owner A Ent, under the Corporation Code of the Phils. What Robert, Rey and Ben a joint venture disqualifying any stockholder who is also a government towas enable the agreement was approved notunder would your legal advice be? (3%) agreement tobeing form aessential close corporation director or stockholder of a competing corporation to accomplish the apurposes of its necessary to constitute quorum for the Corp Code the outstanding capital stock business from being elected to the Board of 2) That the vote of Raphael was not creation." such meeting; of which the three of them would equally Directors of MS Corp is valid. The corporation necessary for the approval of the that any own. They also provided therein is empowered to adopt a code of by-laws for agreement; 3) That the the agreement fair of corporate act would need vote of is 70% its government SUGGESTED ANSWER: not inconsistent with the Corp reasonablecapital under stock. the circumstances theand outstanding The terms of Code. Such provision 1. At the meetingdisqualifying of the BOD of Platinumisto not 32 Corp Code) were the(Sec agreement accordingly inconsistent with the Corp Code. approve the contract, Chito would have to By-Laws; Validity; limiting qualifications of BOD By-Laws; Validity; limiting qualifications of BOD implemented make sure that members (1998)and the corresponding close members (2001) corporation was incorporated. After 3 years, Robert, Rey and Ben could not agree on the business in Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Page Page 26 25 of 103 of 103 stock Jennifer may include and Gabriel laborowned the controlling for stocks or services in MFF actually Co andrendered CLO Inc, notHere, be located. limiting The theformalities price to be prescribed paid, when by the performed bothcorporation. family corporations. Due to serious lawright for the of first replacement refusal isofexercised, the “lost” to not more to the disagreements, Jennifer assigned all her certificate than 25% were parcomplied value, without with. Eventually any qualification X Right of Repurchase Shares;Gabriel Trust Fund shares in MFF to Gabriel,ofwhile Co whatsoever, issued in substitution is not in the of the articles. “lost” It is merely Corporation: Doctrine (2005) assigned all his shares in CLO to Jennifer. certificate, stated Cert in the of Stock By-laws. No 2002. Therefore Juan such what conditions a stock Subsequently, Jennifer andmay CLO filed a forthwith limitation transferred shall not for valuable be binding on the Under own shares? (2%) complaintacquire againstits Gabriel and MFF in the consideration purchaser. the (GoSock new & certificate Sons & Sy toGui Jose Huat whoInc v corporation Controversy; Intra-Corporate (1994)sale to Pedro. SUGGESTED ANSWER: SEC seeking to recover the corporate records IACnothing 19 Feb 87 knew of Min theRes) previous In line with doctrine that Because of disagreement with the BOD and a and funds ofthe CLOtrust whichfund Gabriel allegedly In time, the corporation was confronted with generally renders it unlawful for thein threat by the BOD to expel her for refused to turn over, and which remained the conflicting claims of Jose and Pedro. The SUGGESTED ANSWER: corporation to return assets to the misconduct and inefficiency, Carissa offered controversy between Pedro and Jose, should the the offices of MFF. Is there an intra-corporate BOD of X Co invited you to enlighten them on Yes, there is an intra-corporatecapital, controversy stockholders representing a in matter be submitted to the SEC or to the regular in writing to resign as President and member controversy in this case? these questions; viz: a) If a suit were to be this case. The fact that, when the complaint courts? Between Jose and Pedro, whom all her corporation may acquire its own shares only of theb) BOD, and sell tothe the company initiated in order to to resolve against MFFbooks was filed with the should the therein for P300,000.00 Her offer to when thereGabriel exists and in the unrestricted shares SEC (per 2006, RTC’s Jurisdiction), Jennifer corporation so recognize as the rightful of resign was “effective as soon as my shares retained earnings to cover the repurchase Closed Corporation; Restriction; Transfer of shares 1 ELIMINATE fractional shares arising and CLO were no longer stockholders of MFF stockholder? shares. The purpose of the repurchase of are fully paid.” At its meeting, the BOD (1994) out of stock dividends; did not divest the SEC (per 2006, RTC’s How would you respond to the above shares must be a legitimate business accepted Carissa’s resignation, approved her inherited his uncle 10,000 SUGGESTED 2 COLLECT COMPROMISE anto: Jurisdiction) ofor itsfrom jurisdiction over the case queries? purpose of the corporation, such as offer toANSWER: sell back her shares of stock to the Rafael a) The matter should be submitted to the shares of Sta. Ana Corporation, a close toJennifer the corporation arising out inasmuch as was a former company, and promised to buy the stocks on indebtedness regular courts – specifically in the Regional corporation. The a par value of unpaid subscription in have a the delinquency sale; stockholder of shares MFF and controversy arose a staggered basis. Carissa was informed of of Trial Court where the principal office of the P10.00 per share. Rafael notified Sta. Ana 3 to PURCHASE delinquent shares sold out of this relation. (SEC v CA GR 93832 Aug 23 the BOD Resolution in a letter-agreement to Controversy; Intra-Corporate (2006) at P70.00 per corporation is located. The controversy that was selling the sale; and his shares 91;he 201s124) which she affixed her consent. The during What is an intra-corporate controversy? between Pedro and Jose is not an intrashare. to There being no or takers among the PAY dissenting withdrawing Company’s new President singed the 4 SUGGESTED ANSWER: (8%) Carissa wants to sue the Company to collect corporate controversy. stockholders, Rafael sold the same to his stockholders entitled to such payment under promissory After payment P100,000 the An intra-corporate controversy is a conflict b) If there is nonote. over-issuance of shares the balance. If you were retained by Carissa cousin Vicente (who is not a stockholder) for the Corporation Code. (Sees. 41 and 82, company defaulted in paying the balance of Thebetween stockholders, partners resulting thewhere two-transactions Juan, Corporate Secretary members refused toortransfer as her from lawyer, will you fileof the suit? A) P700,000. Corporation Code) the in corporation, association SUGGESTED ANSWER: theP200,000. corporation should recognize both Pedro theand shares Vicente’s name in the or corporate Labor Arbiter; b) RTC; or c) SEC? partnership regarding the regulation the The RTC has jurisdiction over this case which and Jose as rightful stockholders. This is books because Alberto, one of of the corporation. The controversy must arise out involves intra-corporate controversy. As of without prejudice to the right of the stockholders, opposed the transfer on the of intra-corporate or partnership relations 2006, the applicable rule is that there is a corporation to claim against Juan for the ground that the same violated the by-laws.of the parties; corporation, TRANSFERRED under Sec. 5.2 value of the sharesJURISDICTION which Juan sold to Jose. Alberto offeredortobetween buy thesuch shares at P12.50 Corporation Definition (2004) or association and the of the Sole; SRC, the Commission’s jurisdiction perpartnership share, as fixed by the by-laws orState a total What is aallcorporation sole? insofar as it concerns their While the by-laws of Sta. Anaindividual provides that over cases enumerated under PD 902-A price of P125,000 only. SUGGESTED ANSWER: It is further required that the“at thefranchises. right of first refusal can be exercised sec. 5 has been transferred to the Courts of Section 110 of the Corporation Code defines dispute be intrinsically connected with the a price not exceeding 25% more than general jurisdiction or the appropriate a "corporation sole" as one formed for the Controversy; Intra-Corporate (1996) the corporation (Speed parregulation value ofof such shares, the Articles of Regional Trial Court. purpose of administering managing, In 1970, Magno joinedand AMD Co as aasJunior Incorporation Distributing Corp., etand al. provides v.Exchange Court of Appeals, et al, simply that the Is the Securities trustee, the affairs, propertyrose and from the ranks stockholders Accountant. He steadily G.R. No. 149351, March 17, 2004; Intestate Estate of record “shall have Commission the venue for actions temporalities any religious denomination, until he of became AMD’s Executive VP. preferential of Alexander T.Tyv. Court of Appeals, G.R. No.It right to purchase said shares.” involving intra-corporate controversies? sect or church. It is however formed by the chief of his Is Subsequently, because Rafael bound by 2001). the pricing proviso under 112872, April 19, SUGGESTED ANSWER: is silent as to pricing. (2%) archbishop, bishop, priest, minister, rabbi by-laws of Sta. Ana Corporation? involvement in certain anomalies, theorAMD theNo, pursuant to Subsection 5.2 of the ANSWER: other presiding elder of suchresigned religious from the SUGGESTED BOD considered him Securities Regulation Code, the quasi-judicial Corporation: Issuance of loss shares stock to pay for the Yes. In a closeofcorporation, theand restriction as denomination, sect or church. company due to ofofconfidence. jurisdiction the Securities Exchange services (2005) Magno filed a complaint in the to Commission the transfer to ofhear shares has to be stated/ Aggrieved, corporate cases, Janice some work for annotated the Articles controversies, of Incorporation, SECrendered questioning theconsultancy validity of his includinginintra-corporate under XYZ Corporation. Her compensation included By-Laws and the certificate stock.has This termination, and seeking reinstatement to his theSection 5 of Pres. Decree No. of 902-A, been shares of stock therein. XYZ Corporation serves as notice to the to person dealing with former position, with Can backwages, vacation expressly transferred the designated issue of stock to pay13th for the services such sharesTrial likeCourt. Rafael in this tocase. With andshares sick leave benefits, month pay and Regional Pursuant a ALTERNATIVE ANSWER: of Janice as itsbonus, consultant? Discuss such notice, he is bound by the pricing Christmas plus moral andyour exemplary circularby issued by the proviso Supreme No,memorandum Rafael is By-laws. not bound the pricing SUGGESTED ANSWER: answer. (2%) stated in the damages, attorney’s fees and costs. AMD Court, particularly designated RTC Yes, provided the approval of stockholders under theonly By-laws of Sta Ana Corporation. filed a motion to dismiss, arguing that the special in each judicialon representing two-thirds (2/3) of the Under the commercial corporation courts law, the restrictions SEC has no jurisdiction over cases of illegal originalshares and exclusive jurisdiction outstanding stock is obtained. theregion right have to transfer must appear in SUGGESTEDcapital ANSWER: dismissal, and has no power to award over such cases (See Intestate Estate of As of 2006, the applicable rule is that there is Although the facts indicate that the theControversy; articles of incorporation and in the byIntra-corporate; Jurisdiction (1997) damages. Should the motion to dismiss be Alexander T.stockholder Ty v.inCourt G.R. No. a TRANSFERRED consultancy work has JURISDICTION already been under Sec. laws aswas wella as the ofcertificate of stock, Juan ofAppeals, X Co. He owned a granted? Explain. 112872, April 19, 2001). 5.2 of the SRC, the Commission’s jurisdiction "rendered" constituting "previously contracted otherwise, the shares same shall not be total of 500 evidenced bybinding Cert of on overunder all cases enumerated under PD 902-A debt," Section 39 of the Corporation anyStock purchaser thereof in good faith. Moreover No 1001. He sold the shares to Pedro. sec.the 5 has been transferred to the Courts of Code, pre-emptive rights of existing theAfter restriction be indorsed more onerous gettingshall paid,not Juan and than general jurisdiction or the "in appropriate stockholders need not be respected granting thesaid existing stockholders theto delivered Certificate of Stock Noor1001 REGIONAL COURT. payment of a TRIAL previously contracted debt," but corporation the option to purchase theto shares Pedro. The following day, Juan went the Controversy; (1996) only with the Intra-Corporate indicated stockholders' approval. of offices the transferring stockholder with that such of the corporation and claimed Under Section 62 of the Corporation Code, reasonable term or period stated therein. his Certificate of Stock No 1001 was lost and consideration for the issuance of that, despite diligent efforts, the certificate could Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

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

1) Can Top IsGrade this the can Foundation also compel the use Divine same theCorporation funds minimum donated toand c)by “Seventh Article. The capital stock the return to it maximum the its members purchase number price for of purchase directors and payof required damages. foodofand in a SUGGESTED ANSWER: corporation is One Million Pesos medicine stock corporation? for distribution (2.5%) to the victims of the Under Section 10 of the Corporation Corporation; By-lawsPhilippine (2001) (P1,000,000) Currency.” Pinatubo eruption? 2) Can the Foundation Code, any number of natural persons not lesstothan What are your comments and suggested Suppose that the by-laws of X Corp, a mining operate a specialty restaurant that caters five (5) but not more than fifteen (15), changes to the proposed articles? firm provides that “The directors shall be the general public in order to augment its all of SUGGESTED legal3)from age and majority of whom relieved all liability for any contract funds? OneANSWER: of the aoriginal trustees died are a) Onby the First Article, I would suggest residents of the Philippines, may form entered into the corporation with any firm a and the other two resigned because they that the corporate indicate the fact of SUGGESTED ANSWER: private corporation for any lawful purpose. in which the directors may be interested.” immigrated to the US.name How will the vacancies 1) Yes, Thisdirector (Sec is the 36(9) the minimum Corp Code) andasmaximum long incorporation byofusing either “Toho Thus, Asame acquired claims which in the BOT be filled? as the number amount of of directors donation required is reasonable. in a stock Marketing Corporation” or “Toh Marketing overlapped with X’s claims and were corporation under Section 14(6) of the Company, Incorporated.” necessary for the development and 2) If b) the purposes The Third ofArticle the corporation should indicate are the Corporation Code. operation of X’s mining properties. a) Is the Corporation; Incorporation; Residency Requirements limited City or to the Municipality establishment and and the Province his mining claims over above that ofin by-law provision valid? Why? (3%) b) What (2006) maintenance the Philippines, of the and library not merely and museum the region as or the corporation’s (2%) happens if director A claims? is able to consummate Must all incorporators and directors SUGGESTED ANSWER: stated as its inBOD the problem, may laterthe designate, foundation to be cannot its be a) No. It a is in violation of Section 32caters of the to Corp residents of the Philippines? (2.5%) operate place ofspecialty principal restaurant office. that ANSWER: c)general The Seventh Article must Code. theSUGGESTED public. In such case, theadditionally action of Not allout directors and incorporators ALTERNATIVE ANSWER: b) A should account toultra the for to be point thewill number of corporation shares which the foundation be vires. intoneed 2) If the actwhich of the corporation is justified by par residents ofstock the Philippines. Under 10 the profits he realized from the Section the capital is divided, as well as the the secondary purpose of the corporation of thethereof Corporation Code, only majority transaction. He grabbed the business value or a statement thata said stock of which the act of a value. the incorporators need to be residents of the opportunity from the corporation. (Section or aincludes portion thereof areoperating without par restaurant, the foundation will be within its Philippines. As provided in Section 23 of the 34,(Sec Corp14 Code) & 15 Corp Code) power to Code, do so. Corporation; Bulkonly SalesaLaw (2005) Existence Corporation; Commencement; Corporate same majority of the members 3) Since are onlyis2engaged of the members of (2003) Divine Corporation in of thethere Board of Directors need to the be residents the BOT remaining and there is no quorum, manufacture of garments for export. 1. of When does a corporation acquireIn the the Philippines. Incorporation; Requisites (2002) theCorporation; vacancies will have to filled uptoinobtain a corporate course of existence? its business, itbe was able You have been asked to incorporate special meeting of the members (sec 29 SUGGESTED ANSWER: loans from individuals and financing a new company be called Savings Corp) institutions.toHowever, due toFSB the drop in the& Corporation; Power to Invest Corporate Funds for other 2. CBY & Co., Inc., registered with the Mortgage Bank, Inc. List the documents demand for garments in the internationalthat Purpose (1995) Securities and Exchange its meet you must submit toCommission thecould Securities and market, Divine Corporation not its Stikki Cement Co was organized primarily for a articles of incorporation. Ittofailed, however, Exchange Commission (SEC) to equipment obtain obligations. It decided sell all its cement manufacturing. Anticipating for one reason another, to have its by-laws certificate oforincorporation for FSB Savings & such as sewing machines, perma-press SUGGESTED ANSWER: substantial profits, its President proposed that filed with, and registered by, the Mortgage Bank, Inc. (5%) machines, high speed sewers, cutting tables, Theinvest documents to be submitted to the Stikki in a) a power plant project, b) a and Commission. It nevertheless transacted and ironing tables, etc., as well as its supplies Securities and Exchange Commission (SEC) SUGGESTED ANSWER: concrete road project, and c) quarry did business as a corporation for sometime. A materials to Top Grade Fashion Corporation, to incorporate a new company to be called The transactions would constitute a sale of operations for limestone in the manufacture suit was commenced by its minority its competitor. (5%) 1) How would FSB Savings &all Mortgage Bank, Inc., toorobtain the proposed investments? Explain. 2)you "substantially of the the assets of Divine of cement. 1)assailing What corporate approvals stockholders continued classify the transaction? the certificate of incorporation for said Describe the procedure in securing these Corporation complying with the test votes are needed existence of CBY &for Co., Inc., because ofunder the SUGGESTED ANSWER: company, are: 1) Articles ofCode, Incorporation 2) approvals. Sec. 40 of the Corporation the non-adoption and registration of its by-laws. 1. Unless the power plant and theordinary concrete Treasurer’s Affidavit; 3) Certificate of transactions not being "in the course Would the action prosper? Why? (6%) to the road are and reasonable necessary Authority from theone Monetary Board of project business," "thereby the of Corporation; of be Stock Corporation (2001) the Conversion BSP; manufacture ofwould cement by Stikki (and they of corporation rendered incapable 4) Verification slip from the records of X company is a stock corporation composed do not appear to be so), then the approval ofthe continuing the business or accomplishing the ALTERNATIVE SEC whether ANSWER: or not the proposed name of the Reyes family engaged in the real said projects by a majority of the BOD and purpose for which it was incorporated." Itratification is business. a already sale and transfer in the bulkregional inthe beenapproval adopted by another estate of thehas ofBecause such by contemplation of the Bulk Sales Law. corporation, partnership or association; crisis, the stockholders decided to convert stockholders representing at least 2/3 ofUnder the 5) Letter undertaking to change Sec. 2 of the Bulk Sales Law, a sale their stock corporation into a charitable non- the outstanding capital stock would bebulk As for and the non-profit quarry operations formortgage, limestone, proposed name if already includes any sale, transfer, or by stock association by adopted amending necessary. the same is of anincorporation. indispensable ingredient in corporation, partnership assignment of all, or substantially ofbe theor theanother articles a) Couldall, this 6) Bank certificate deposit concerning the manufacture of cement and may, association; business orWhy? trade theretofore conducted by legally done? (3%) b)ofWould your X Company is a non-stock corporation? Why? the paid-up capital; therefore, vendor, mortgagor, transferor, or answer be be theconsidered same if at reasonably the inception, SUGGESTED ANSWER: 7) the SEC in or (2%) Letter necessary toThis accomplish the primary assignor. isauthorizing exactly what happened a) Yes, itof can legally converting 2) Can Divine Corporation sellthe the Monetary Board ordone. its Induly authorized purpose Stikki. In such case, only the case atbe bar. theaforesaid ALTERNATIVE stock of corporation ANSWER: to a non-stock items towould its competitor, Top records Grade representative to examine the bank approval the BOD be necessary 1. The majority vote of the BOD is necessary. corporation by a mere amendment of the 8) Registration Fashion Corporation? What are the regarding the deposit of the paid-up capital; (Sec 42 BP 68) The investment in a power plant project, articles of incorporation, the stock Sheet; requirements toa) validly sell the items? SUGGESTED ANSWER: b) a concrete road project, andany c) quarry Corporation; BOD & Stockholders (1993) corporation isMeetings; not distributing of its Explain. For such a transaction to be valid, it requires only the operations of stockholders. limestone used inthe thenot assets Under to the Articles of Incorporation On contrary, of Manila favorable resolution of the Board of Directors of Divine manufacture ofCorp, cement, the express theCorporation, stockholders are deemed to ofhave waived Industrial itsis within principal place of but also the ratificatory vote or implied power of the corporation, or at their business right to shall share bein inthe Pasig, profits MM. of The the principal least the same is corporation is are a gain notOrtigas a loss to the corporatewhich offices at the corporation.

thestockholders factory existence processing of representing the corporation. leather at products, is in least two-thirds b) (2/3) No, my answer will not holds be theitsstock, same. In a Manila. corporation annual of The the outstanding capital as non-stock corporation, are notin stockholders’ meeting at members thethe Manila Hotel mandated under Sec.the 40 of Corporation SUGGESTED ANSWER: entitled to share inmeeting thevoid profits of ofin the ManilaThe and its BOD atinacase hotel Code. sale would be 2.a) The procedure in twin securing theand approval corporation because all present future Makati MM. Thethe by-laws are silent as to the failure to meet approvals. (Islamic ALTERNATIVE ANSWER: of the BOD is of as follows: Directorate the Philippines v. Court of Appeals, profits belong to corporation. In place of meetings ofthe the stockholders and Divine Corporation can1997) sell thebe items its 1 a notice ofnon-stock the BOD should sent G.R. No. 117897, May 14, converting the corporation to toa directors. 1) Who shall preside at the competitor, Top Grade Fashion Corporation. all the directors. The notice should state the stock corporation by a mere2)amendment meeting of the directors? Can Ting, a of However, Divine Corporation must comply purpose of the stockholders’ meeting in Manila, thestockholder, Articles of meeting. Incorporation, the non-stock who didannual not attend the withvalidity Sections 3, 4 corporate and 5ofof the Bulk Sales 2 At the meeting, each the project of the resolutions question the corporation is deemed to have distributed anpassed at Law, namely: (1)the deliver swornofstatement should be approved by asame majority BOD of meeting? 3)corporation Can such asset of the – stockholder i.e. itsthe profits, the names and addresses of all the at creditors (not merely a majority of those present question the validity of the resolutions among its members, without a prior (Observation: The question is rather held vague to whom the vendor mayin be the meeting) adopted by the ator themortgagor meeting dissolution of theBOD corporation. Under Sec more particularly question 1b. The question 2.b) The procedure in securing the approval indebted together with the amount of Makati? 122, the non-stock corporation must be does not specify that the conversion is from a of the stockholders is as follows: SUGGESTED ANSWER: indebtedness due or owing to each of the non-stock corporation to a stock corporation. dissolved first. 1) The President presides over the meeting 1 said Written notice of apply the proposed creditors; the purchase or The candidate is(2) likely to be confused because investment of the directors, and the“iftime if there and place is noof position the of the words at the the inception, Xpayment Co is a of mortgage money to pro-rata of corporation.” any to answer Chairman in theHence, By-Laws. If there(3) is stockholders’ meeting should be sent each bonanonstock fide provided claims of the creditors; and along the same lineof should be treated with ByCorporation; De Facto Corporation (1994) stockholder the position at his of place Chairman residence provided as in the make a full detailed inventory of the stock of liberality) A corporation was created by a special law.the Laws, the Chairman presides over shown on the books of the corporation and goods, wares, merchandise, provisions or 3) How would you protect the interests Later, the law creating it was declared deposited meeting to of the the addressee Directors (Sec in the 54 post Corp office Code)at materials, in bulk, and notify every creditor of the creditors of Divine Corporation? 2) No. The law provides that the annual invalid. May such corporation claim to be a with postage prepaid, or served personally. least ten (10) days before transferring SUGGESTED ANSWER: SUGGESTED ANSWER: stockholders’ meeting shall beprojects held in the de possession. factoAtcorporation? 2 the meeting, each of the that Divinemay Corporation has No.Considering A or private corporation be created city the principal office should be municipality approved bywhere the stockholders entered a de facto stage of dissolution with only Corporation Code. Only public of under the the Corporation is the located. For this representing at least 2/3 of outstanding the ceasing oflaw its I would invoke corporations may beoperations, created under special purpose, the also provides that Metro capital stock. (Sec 42 BP 68) on behalf of the creditors the protection law. Corporation: Proprietorshipa(2004) Manila Sole is considered city or municipality. Where a the private corporation is business created under Sec.principal 122 of Corporation Code, that YKSunder Trading filed a the complaint for specific Since place of of MIC is a special law, there is no attempt at a valid the proceeds of the sale should first be performance with damages against PWC Pasig, MM, the holding of the annual incorporation. Such corporation cannot applied towards theto of the Corporation for failure deliver cement stockholders meeting insettlement Manila is claim proper. ALTERNATIVE ANSWER: a de facto status. obligations of the corporation, before any 3) No. The law allows the BOD to hold its ordered by plaintiff. In its answer, PWC (Sec 51the Corp) Under Bulk Sales Law, if the proceeds are Corporation; Dissolution; Methods of Liquidation (2001) amount can be paid to stockholders. meeting anywhere in the the Philippines. The denied liability on the ground, inter alia, that not; applied proportionately towards the X Corporation shortened its life bywas holding of personality the BOD meeting innot Makati YKS has no to corporate sue, being settlement of the accounts of the corporate amending ofthe Incorporation. has proper its andArticles thethat validity of the resolutions incorporated, and ofItPWC debts, to have the sale ofPresident the subject matters no debts but owns a prime property located adopted by the Board in that meeting cannot was authorized to enter into a contract to not Top Grade Fashion as being in Quezon City. How would theCorp., said property beplaintiff questioned. (Sec 53 Board Corp code) with by the PWC of Directors, "fraudulent and void" and obtain satisfaction Corporation; Nationality of Corporation (1998)Trading be liquidated among five stockholders of hence the contract is the ultra vires. YKS from the properties which are deemed to said What corporation? is the nationality Discuss two of methods a corporation of still replied that it by is aDivine sole proprietorship owned SUGGESTED ANSWER: be owned Corporation in spite of liquidation. (5%) organized and the incorporated under the laws by delivery YKS, and ofcreditors PWC had The prime property ofbuyer. XPresident Corporation can be tothat the The can of a foreign country, but owned 100% by made it appear in several letters presented liquidated among the five stockholders after collect on the credit against Divine SUGGESTED ANSWER: SUGGESTED ANSWER: Filipinos? (2%) in Corporation, evidence thatwill he had to sign the property has been conveyed by Under the control test ofthe corporate Yes the suit prosper. As apay, solethe and if itauthority cannot contracts onto behalf offoreign the of Directors corporation the five stockholders, by nationality, this corporation of proprietorship, the proprietor of YKS Trading creditors can apply forBoard attachment onis the 4) In case Divine Corporation violated the law, of PWC. Will the suit prosper or not? Reason dividing or Nationality. partitioning it among themselves Filipino are grounds hasproperty the capacity to act Where and thethere personality to v. fraudulently sold. (See People remedies are available to Top Grade Fashion what briefly. (5%) in any two ofisthe following by for piercing the veil of ways: corporate entity, that sue Mapoy, PWC. ItG.R. not No. necessary 48836, September for 1) YKS Trading 21, 1942) Corporation against Divine PHYSICAL DIVISION before or PARTITION based onthe is, disregarding the fiction, the corporation to be incorporated it can sue. On SUGGESTED ANSWER: Corporation? the proportion of valuesCorporation of of their will follow the theasserting controlling other hand, PWC isnationality estopped from If the sale bythe Divine did not 2) SELLING THE to a thirdto person stockholdings; or members orPROPERTY stockholders, since the that its President had no authority enter obtain the required two-thirds (2/3) vote of and dividing the proceeds five willconsidering then be among considered as the one intocorporation the contract, that, inthe several the outstanding capital stock, then stockholders init had proportion their Corporation; Non-Stock Corporation (1993) and theletters, same. of PWC's clothedDirectorate itsto President transaction is void . (Islamic of the stockholdings; or The AB Memorial Foundation Topapparent Gradev.Fashion Corporation can have the with authority to deal with YKSwas Philippines Court of Appeals, G.R. No, 117897, 3) after the determination of the valuenon-stock of the Corporation; Articles ofas Incorporation (1990) incorporated a void non-profit, purchase declared and recover the Trading. May 14, 1997) property, byof ASSIGNING orto Thecorporation articles incorporation beestablish registered in paid, order as toTRANSFERRING and purchase price well as damages THE PROPERTY to one stockholder with the of in the SEC contained the following maintain a library and museum in honor against the directors and provisions officers who obligation on the part of said stockholder to -- a) “First Article. The name the deceased parents of of the incorporators. ALTERNATIVE ANSWER: undertook the transaction inthe violation of the pay the other four stockholders the amount/s For violation of the Bulk Sales Law, thea corporation shall be Toho Marketing Its Articles of Incorporation provided for law. in proportion to the value of composed the stockholding principal of officers of the Divine Corporation Company.” board trustees of 5 of b) each. “Third The principal of such can be Article. held criminally liable. office In addition, Top incorporators, which authorized to admit new Corporation; Incorporation; Requirements (2006) corporation shall be located Region III, in Grade can Divine Corporation for members. Thesue Articles of in Incorporation also What is the minimum and maximum number such municipality therein as its Board of damages. thereceive Bulk Sales Law allow the Violation foundationof to donations of incorporators required to incorporate a Directors may designate.” would render such from members. As aofsale Jan fraudulent 30, 1993,and 60 stock corporation? void. Since Top Grade wouldbybethe compelled members had been admitted BOT. to return the goods to Divine Corporation,

Mercantile Law Bar Examination Q & A (1990-2006) Page Page 32 31 ofPage 103 of 103 34 Philippines of stopping 103 (BP payment Page 68). 33 of thereof, 103 Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) SUGGESTED Incorporator Seldon was SANSWER: acting was elected inofhis director capacity and asthe an b) are Yes.silent, Assuming Whenthe a corporation juridical that person the is deemed corporation has a to good have committed the breach trust against Valid NOTE: (per Dondee) The law that aSec in president officer of of – general Turtle. He manager. was not Part acting of his in his continues reputation the power to tothat operate declare is simply dividends debased, evenprovides with under resulting depleted interests the corporation would be to voting trust agreement is anmoral agreementin writing emolument personal is capacity. a Ford Furthermore, no facts the capital, social 43. Since would humiliation, it hasthe the power stockholders to damages declare ormay thebe emasculate the right Expedition, of minority which whereby one or more stockholders of a corporation 3) XLowns. Foods Corporation guaranteed corporation have been provided After which a few would years, indicate S lost histhe managers awarded. dividends, be XY Moreover, is solidarily a stock corporation. goodwill liable for can the be stockholders to seek redress for the consentto transfer his or theirshares to a trustee in loan of its sister company XL Meat Products, The provision of the Articles of Incorporation corporate that thepositions action but Seldon he refused was by an obligations considered incurred an asset of by the corporation. corporation? corporation. Filing of such action asdictated a to return orderto vestin the lattervoting orthe other rights pertaining SUGGESTED ANSWER: Inc. SUGGESTED ANSWER: TAKE NOTE: the not case of FBN Inc. vsupon mentofst that at dissolution the assets of the to said shares for a In period exceeding five years the intent motortovehicle defraud claiming Shamron that by as himself a orisin Explain. (3%) derivative suit even by a lone stockholder Void – This is an ultra vires act on part of XL a) In of the of atutoryto the AMEC, fulfithe face January 17, 2005, the SCcreditorruled that; corporation shall berefusal given athe charitable stockholder with Turtle. a substantial Havingequity acted share, into what he onecollusion of the protections extended by law conditions FoodsSuit: Corporation, and is not one of the banks to grant more loans, the following are Derivative Watered Stock (1993) FBNI contends that AMEC is not entitled to corporation does not prohibit the corporation he considered owns that portion as his duty of the as corporate an officer assets of the minority stockholders against abuses of the and such powers ANSWER: for ofinPrime Sec.Real 36 Estate of the tools to the stockholders to SUGGESTED A became aprovided stockholder moral damagesdividends because is a corporation. fromavailable declaring before dissolution. now corporation, in his possession. Seldon Is should the contention not be held of S majority. otherit Corporation Code. 1) additional subscription to shares of stockNo. The contention ofJuridical SJuly is not valid. Ford replenish capital, toofwit: Corporation; Validity Corporate Acts (1998) Corporation; Separate Personality (1996) Corporation (PREC) 10, 1991,The when he terms and valid? personally Explain liable. (5%) on Corporation; Voluntary Dissolution (2002)several corporation byPeople stockholders or approved by Expedition ofjuridical the is owned by the corporation. The conditions A personofis generally notInc entitled to The stockholders Power (PPI) PRgiven Co owns ashare beach resort with was one by another stockholder Name three (3)legal methods by of which a stock Undersection 59 ofthe Cinorporation C ode, specified in supra,aa to 2) resolutions advances by the stockholders the investors; corporation has a personality separate two a special stockholders’ moral damages because, unlike natural Jaime, the President PR,not to cottages. qualify him as a director. A was revoting trust agreem ent may confer the upon a trustee not corporation may be voluntarily dissolved. corporation; and distinct from that ofcottages its stockholder. meeting: a) Resolution increasing the person, it cannot experience physical occupied one of the for residential elected director in the July 1, 1992 annual only the stockholder's voting rights butalso otherrights agreem SUGGESTED ANSWER: Explain each method. (5%) 3) payment oflong unpaid subscription by the What thebut corporation owns is its own authorized capital and suffering such sentiments as b) wounded purposes. After Jaime’s term expired, PR meeting he methods continued to be a aregistered pertaining to his or shares as stock asof thePPI; voting ent. The The three (3) by which stock stockholders. property and not the property of any trustagreem entis notentered "for the purpose of circum five yearResolution authorizing the BOD to issue, foror shareholder feelings, serious anxiety, mental anguish wanted to recover possession of the cottage. of PREC. corporation may be voluntarily dissolved are: SUGGESTED ANSWER: venting law againstmonopolies and period mof from stockholder When herefused was even still how a director, substantial A cottage, the discovered equity cashthe payment, the shares the cites moral shock. The new Court Appeals Jaime to surrender the 1) Voluntary Dissolution where no creditors b) No. As a general rule, or illegalcombinations in restraintoftrade ay the be stockholders orused Corporation; Set-Off; Unpaid Subscription (1994) that on Jan 5, 1991, PREC issued free ofvote share that stockholder owns. proposed capital stock increase in favor Mambulao Lumber Co. v. PNB, et al.of to contending that a done stockholder and former affected. Thisasis by a majority are was forpurposes offraud." (section 59, 5th paragraph the managers cannot beextended held solidarilyofthe liable Victor employed in MAIA Corporation. He charge 10,000 shares to X a lawyer who outside investors who are non-stockholders. justify the award of moral damages. President, he has a right to possess of and in incurred cases concept Corporation Thus, the traditional of thetodirectors, and of resolution at least for the Code). obligations byof a the subscribed 1,500case shares the PREC. corporation SUGGESTED ANSWER: assisted in a properties court involving where the voting trust agreem primarily intended toinsingle out However, the ent Court's statement Mambulao enjoy the of the corporation. Is 2/3 vote of stockholders, submitted to the corporation. Theto corporation has approved a separate Jaime’s contention not correct. JaimeHe may at per share oran ais total ofinP150,000. The foregoing resolutions by voting trust a stockholder's vote from hiswere other rights as 1) P100 Can A now bring action the name of the that "a right corporation may have a good Jaime’s contention correct? Explain. Securities and Exchange Commission. and distinct personality from that ofm the ownan shares of stock in PRissuance Corp butofsuch such and m ade irrevocable forisaexecuted lim ited duration ay made initial down payment of P37,500.00. stockholders representing 99% ofmay the total corporation to question the the shares reputation which, if besmirched, also be 2) Voluntary dissolution where creditors to pursuant to alatter in practice becomor ecapital a legal device whereby transfer of stockholders managers. The are ownership doesPresident not entitle himGeneral to the He was appointed and Nevertheless, AMEC's claim for moral outstanding stock. The sole dissenter X without receiving any payment? 2) Can X question a ground for the award of moral damages" is are affected. This is done by a petition a loan the stockholders shares is effected subjectto the specific presumed to beunder acting in good faith in of Manager. of sue any specific property ofwith the for Because ofhim his in disagreement falls item 7 of Article 2219 was Jimmy who owned 1% of the Thedamages execution aMorato voting trust agreem therefore, m thepossession right of A to behalf of the corporation agreement an obiter dictum. provision oftheof voting trustagreem ent. ent, dissolution which must be filed with the continuing the operation ofprovision the on corporation. or a A definite portion thereof. ay create 1. AreaCivil the dichotom resolutions y between binding the equitable the or expressly the BOD, he resigned andonly demanded the Code. This stock. whereby on corporation the ground that has one share insigned his Securities and Exchange Commission, beneficial ownership ofa The obligations incurred by the corporation Neither ishis heunpaid a the co-owner ofissued corporate the period corporation andcorporate its stockholders including of salaries, his cost of authorizes theofthe recovery of shares moral damages in payment name? Cannot shares to X be by a3) majority the members of the board of stockholder, on the onecorporation hand, is and the which legaltitlealone thereto is Corporation; Power toof Invest Corporate Funds in another made are those of the property. Properties registered in the name Jimmy Morato, the dissenting living allowance, his bonus, and cases of libel, slander or any other form of considered as watered stock? on the other hand. (Lee vs. CA, contingent Feb. 4, 1992) directors, verified by the president or Corporation (1996) of hisare liable therefor. However, when the 2. What remedies, if 2219(7) any, are does available to of the corporation ownedand by it as an stockholder? (3%) reimbursement gasoline defamation. Article not qualify upon full secretary, and upon affirmative vote MAIA Stockholders Corporation like admits Jaime that only it own owed shares Victor of When may a corporation invest its its funds in of SUGGESTED ANSWER: corporation is already insolvent, the directors Morato? (2%) entity separate and distinct from expenses. whether plaintiff is a natural or juridical representation Derivative Suit: the Requisites (2004) paym stockholders representing at least 2/3 of the 1. No. The resolutions are not binding on the stock in the corporation. Such shares ofany stock P40,000. but told him that this will be applied another corporation or business or for and become trustees of athe stockholders. Therefore, a entofthe juridical person such as AA,person. aofficers minority stockholder, filed suitbusiness 3) Dissolution byhis shortening of the SUGGESTED ANSWER: outstanding capital stock. corporation and its stockholders including to the do not unpaid represent balance specific of corporate subscription property. in other purposes? loan. and assets of the corporation for the benefit

a corporation can validly complain or A corporation against BB,Separate CC, DD, and EE, the holders corporate This is done by amendment Corporation; Juridical Personality (2000)foroflibelwere may invest in no another Jimmy Morato. While these resolutions v CAits GRfunds 100866 Jul 14, the(Rebecca amount Boyer-Roxas ofterm. P100,000.00 There was call92 of the creditors and are liable for negligence any other form of defamation and claim for majority shares of MOP Corporation, for an eof the articles of incorporation. Marulas Creative Technology Inc., corporation or business or for any other 211s470) approved by the stockholders, the directors’ or notice for the payment of the unpaid Moreover, where the broadcast is libelous per or mismanagement. moralmisappropriation damages. alleged of corporate in funds. business enterprise engaged the Corporation; Separate Juridical Personality (1996) purpose other than the primary purpose which damages. is requiredIn bysuch law in such subscription. VictorTrust questioned the set-off. 1)for se, approval, the law implies a case, Corporation; Voting Agreement (1992) The complaintofaverred, inter alia, that MOP manufacture computer media accessories; Richard owns 90% of the shares of the the said which it was organized when case, does exist. set-off the unpaid executed subscription evidence of annot honest mistake or the want of May A MAIA distressed company a ofvoting Corporation is the corporation in space whose at a rents an office and store capital stock of GOM Co. On one occasion, investment is approved by a majority the 2. Jimmy or Morato can petition SEC libeled (Now RTC) with victor’s claim forfor salaries? 2) of Would your character reputation of thethe party trust agreement a period three years behalf and for whose benefit the derivative commercial building owned by X. Being a GOM represented by Richard as President BOD and such approval is ratified by the toonly declare the 2 resolutions, as wellNeither as any and answer be the same if indeed there been in goes in mitigation of damages. overGeneral 60% of its outstanding paidahad up shares suit is brought. In their capacityenjoyed as members SUGGESTED ANSWER: start-up company, some tonull stockholders and Manager executed contract to representing at least 2/3 of the all actions taken by the BOD thereunder, a call for the unpaid subscription? in such a case isMarulas the plaintiff required favor of acannot bank tosetoff whom it was indebted, with of the Board of rent Directors, the majority 1) No. MAIA the unpaid leniency in its payments; but after three sell a subdivision lot in favor of Tomas. For outstanding capital stock. Written notice of the and void. introduce evidence of actual damages as a the Bank named asand trustee. Additionally, the stockholders adopted a resolution subscription with Victor’s claim salaries. years, Corporation; X put precedent Validity a stopof to Corporate it and asked (2002) Marulas failure of GOM to develop thefor subdivision, investment the date, time and condition to theActs recovery of some proposed Company mortgaged all its properties to the authorizing MOP Corporation to withdraw the The unpaid subscription is not yet due as president and manager, Y,acts whoare is aare place Which of the following corporate Tomas filedstockholders’ an action for rescission andwhich of the meeting at damages. Ingeneral this case, the broadcasts SUGGESTED ANSWER:of Bank. the insolvency ofthe the suit. Pursuant to said resolution, theyourrentals there is noBecause call. stockholder, tose. pay back valid, void, voidable? Indicate answer damages against and Richard. proposal will beGOM taken up must beWill sent to SUGGESTED ANSWER: libelous peror Thus,the AMEC is entitled to such The action may prosper against GOM butto the Corporation; Recovery of Damages (1998) 2) Yes. The reason isMoral that Victor is entitled Company, the Bank foreclosed corporate counsel filed a Motion to Dismiss in Corporation; Separate Juridical Personality (1995) amounting to a hundred thousand pesos or to by writing the paragraph number of the action prosper? Explain. each stockholder. (Sec 42 Corp Code) No.moral All the requisites for a valid derivative damages. not against Richard. Richard has a payment offiled his salaries which MAIA In adefinitely complaint against XYZ as Corporation, mortgaged properties, and thehas highest theRonald name of the case. MOP Corporation. Should Sham doing business under thethe name the vacate the premises thecorresponding endwas of the month. query, followed byat your suit exist in this First, AA exempt legal personality separate and distinct from no right to withhold in payment of unpaid Luzon Trading Corporation alleged that its of bidder, acquired said properties and assets motion be granted orremedies denied? Reason briefly. of SHAMRON Machineries (Shamron) sold Marulas neither paid its debt or nor vacated the answer as “Valid,” “Void,” “Voidable,” as to from exhausting his within the The three-year period prescribed insell, that of GOM. If he singed the contract to subscription. To do so would violate Labor President & General Manager, who is also a the the Company. (5%) Turtle Mercantile (Turtle) aforisdiesel farm premises. sued Marulas and collection the caseX may If your answer “Void,” corporation, and be. did not have toY make a Voting Trust Agreement having expired, SUGGESTED ANSWER: he (Apodaco did so as President and General Laws vthe NLRC 172 S 442) stockholder, suffered mental anguish, fright, the tractor. In payment, Turtle’s of the unpaid rentals, plus interest and explain your answer. In case of President a “Voidable” demand on the Board of Directors for thecosts Yes, the suit will prosper against Marulas. Itand Corporation; company demanded the turn-over Stock Corporation (2001) Manager of GOMand and serious not in his personal social humiliation anxiety as aand Manager Dick Seldon issued a check of litigation. Will suit prosper against answer, specify what conditions must be latter to sue. Here,the such a demand would beX?for “XY” is the one renting the office and store space, transfer of all its assets and properties, is a recreational club which was capacity. Richard 90% of Mere the ownership tortuous by acts of ofXYZ favor Shamron. A week later, result Against Y?in (5%) present or complied with make thethe X, futile, since the directors who comprise as P50th lessee, from the of owner oftointo the building, including management and operation of In its counterclaim, XYZ Co claimed to have organized to the operate aof golf course for its of the capital stock GOM is not of itself Corporation. food business, entered a contract with soldactthe tractor to Briccio Industries corporate valid. (5%) 1)and XL Foods majority (namely, BB, CC, DD EE) are the as Turtle lessor. the Company, claiming that under the Voting suffered moral damages due to besmirched members with an original authorized capital sufficient ground to disregard his separate its President Jose Cruz, whereby the latter for P60th. Briccio discovered Corporation, which engaged in the But(Briccio) ones the guilty suitof against the wrong Yiswill complained not prosper. of. fastY, asthat stock Trust Agreement, the was constituted or goodwill as aBank result of Luzon of personality P100M. Theabsent articles incorporation legal aof showing, for would supply the corporation with its meat reputation Second, AA appears to be stockholder at the engine of the tractor was reconditioned president and general manager, and the also as trustee of the management and operations Trading Co’s complaint. 1) May Luzon nor the by-laws did not provide for example that he acted maliciously or in bad and poultrymisappropriation requirements. time alleged of sothe he refused to pay Creative Turtle. As a result, Dick theCorporation; Separate Juridical Personality (1999) Does the demand of the Company tally stockholder Marulas Technology, of the complaint? ofallegations the(EPG Company. Trading Co recover damages based on distribution of dividends although there is a with SUGGESTEDof ANSWER: faith Const Co v CA GR 103372 Jn 22,92 corporate funds. Seldon ordered “Stop Payment” of theand check As a result of perennial business losses, a the concept of a Voting Trust Agreement? Inc., has a legal personality separate (2%) 2) May XYZ Co recover moral Voidable – A contract of the corporation with provision that after its dissolution, the assets 210s230) Shamron sued Turtle and Dick Seldon. Third, thefrom suit is brought on behalf and forThe SUGGESTED ANSWER: issued to Shamron. corporation’s net worth has been wiped out. Explain briefly. SUGGESTED ANSWER: distinct that of the corporation. damages? (3%) one or more of its directors or trustees or shall bedemand given to of a charitable corporation. Is tally Shamron obtained a favorableInjudgment the benefit of MOP Corporation. this of the The the company doesperson not No. corporation, being an artificial InAa fact, it iscorporation? now in negative territory. SUGGESTED ANSWER: liability of is the corporation is and that officers voidable, at the option of such “XY” stock Give reasons for holding co-defendants Turtle Dick Seldon Conmart (Phils.) Inc. held v. Securities and Exchange connection, it was in with the concept of a did Voting Trust XY is a has stock because it which nocorporation feelings, emotions orisnot senses, Nonetheless, the stockholders like to corporation and not32, that of its officers and corporation (Sec Corporation Code). your answer? (5%) Commission, 198 SCRA 73liable. (1991)Comment that to grant jointly and severally on the Agreement. The Voting Trust Agreement organized as a stock corporation and there is and which cannot experience physical give up. Creditor-banks, however, do not stockholders who are not liable corporate SUGGESTED to the corporation concerned thefor right of decision ofANSWER: the Juridical trial court. Discuss fully. merely to the trustee the right to Corporation; Separate Personality (2000) no prohibition in its Articles of suffering orconveys mental anguish, isIncorporation not entitled to share the confidence of the stockholders and liabilities. 2) The Board of Directors of XL Foods The trial court erred in holding Dick Seldon, withdrawing or dismissing the suit,corporation at the ALTERNATIVE ANSWER: vote the shares of grantor/s. The Nine individuals formed a private or its by-laws for itmore to declare moral damages. refuse to grant loans.dividends. a) What tools are Corporation declared andTurtle, paid cash President and GM stockholders of jointly instance of majority and and consequence of stockholders foreclosure the replenish capital? (3%) ofto pursuant tothe the provisions of the Corporation When a corporation is organized as a mortgaged stock available to the dividends without approval of the severally liable with Turtle. In issuing the directors who themselves are the persons properties would be alien to the Voting Trust Code of the corporation and its articles of Incorporation stockholders. check issued to Shamron and, thereafter, alleged to have Agreement and its effects. or By-Laws

Mercantile Examination Q & A (1990-2006) Page Page 38 37 of 103 of 103 Code. acquires, Page As35 shortened, Page ofin 103 36 violation of 103 the of Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q ALaw & (1990-2006) A Bar (1990-2006)

his corporation duty, interest continued adverse its investments. business to the operations corporation No.PRIVATE A from 2. There retaining Opening CORPORATION is no surplus offices need by for profits is one the in formed absorbed excess for of nullifyan the questioned Would Dividends; Declaration of the Dividends (1990)ofhas Sometime 3. Participating in April 2004, in theMalyn management, learned about until in May respect 30, of 1997, any matter last which day its been some corporation 100% whatever private of their name to purpose, paid-in undertake benefit capital. dissolution or end, while and a her action prosper? Why? At SUGGESTED least 2/3 of the stockholders of there Solar Fort Patio supervision Cafe or control located of in domestic City entity reposed existence. inANSWER: him in confidence, Prior to saidhe date, shall be PUBLIC winding CORPORATION up procedure. As is any formed a Taguig result for of theand corporate Yes, she already a the stockholder time b) 4. there into when a corporation Corporation, upon at the the thatAre itsEntering development was undertaken by liable a number as aistrustee of meeting pending for civil corporation actions, of and government merger, the of ainstances absorbed portion of the corporation State for the is a were the alleged misappropriation of corporate 5. Appointing representatives or shall service not contracts be held liable for not declaring recommendation of the BOD, declared a 50% new corporation known Patio, Inc., varying must nature account but formostly profits money which claims otherwise filed general automatically good or dissolved welfare. and Theastrue itsFort assets test is and the funds. And that filing such action SUGGESTED ANSWER: distributors, operating under the control of dividends? (3%) stock dividend during their annual meeting. whereofare both Schiera and and Jaz are directors. by would creditors, have none accrued of which to the was corporation. expected toas a purpose liabilities the acquired corporation. Ifassumed the corporation by the instances when a is corporation shall derivative suit even bywithin a lone stockholder 2) Pending approval of the merger bynot the foreign who domiciled in the TheEquity notice of the annual stockholders’ Malyn also found that Schiera and Jaz, on be completed imposes or resolved liability upon him five not years to dealis is The surviving created corporation. forentity, political or public purpose be heldofmay liable for not administration declaring dividends one ofdid thenot protections extended by lawa to the SEC, the surviving corporation Philippines or who stays in thehad country forofa a from meeting mention about behalf Patio Investments, obtained for May his own 30, 1997. benefit. (Sec.anything 31, Corporation connected with the are: minority stockholders against abuses of the If the Under creditors Sec. 34 had of sought the Corporation your Code was where already institute suits to collect allIf for period periods at PBCom least 180 days in stock dividend declaration. Theprofessional matter loan ofor P500,000.00 from Bank, Code) government, then it totaling is a public corporation. majority. Nevertheless, Gina must first help a director, at that time by virtue about of whether his office, or not acquires their for 1) when justified by definite corporate expansion receivables to opening the absorbed corporation any calendar year. the of Fort although Patio Cafe. This taken up only under the item “other not, it purpose is a due private corporation the SUGGESTED ANSWER: exhaust any administrative remedies before projects or programs approved by the BOD; or 2) cases himself could a be business pursued opportunity beyond May which 30, should from its customers? your answer. business” in the agenda of the meeting. C.K. loan secured Explain by assets of Patio whole orwas substantially the the whole interest in Distinction: De facto Corporation vs. Corporation by No. The the merger does not become effective her what suit be consider in court. 1997, belong to would the corporation, have been your thereby advice? obtaining corporation is prohibited under any (3%) Senwa, a stockholder, who received his copy Investments and personally guaranteed byloan thewhen corporation belongs to the State. A public Estoppel (2004) until and unless approved by the SEC. Before SUGGESTED ANSWER: Malyn filed a corporate derivative action agreement financial institution or creditor, (2%) profits to the of suchthe corporation, of the notice butprejudice did not attend meeting, Schierathen and Jaz. any corporation is with created by special legislation The cases can pursued even beyond May Is there a be difference between a de facto approval by theor SEC of from the merger, the before the Regional Trial Court of Makati City he must account to the latter for all such whether local foreign, declaring dividends subsequently learned about the 50% stock or act of Congress. A private corporation 30, 1997, the last day of the corporate corporation and a corporation by estoppel? surviving corporation has no legal personality Distinction; Stock vs. Non-Stock Corporation (2004) against Schiera Jaz, alleging that the twohas not without its or hisand consent, and consent profits declaration. by refundingHe thedesires same, unless his act dividend to haveis the must be organized under the such Corporation SUGGESTED ANSWER: existence of GHQ Corp. The Corporation SUGGESTED ANSWER: Explain briefly. (2%) with respect tobreached receivables due to the Distinguish clearly a or stock corporation from directors had their fiduciary duties has been ratified by a vote of the yet been secured; 3) when it can be clearly shown stock dividend declaration cancelled andCorp set Code. Aactually DE FACTO CORPORATION is the one which I will not accept the case. Sec of not dissolved upon the43 expiration of absorbed corporation. a non-stock corporation. by misappropriating and assets of that such retention ismoney necessary under special stockholders owning or representing atas least aside, and wishes to retain your services a a actually exists for all practical purposes as 3) A case was filed against a customer to Code states that no stock dividend shall be SUGGESTED ANSWER: corporate term. There is still the period for Patio Investments in the operation of Fort suchits (2/8) of the outstanding capital circumstances obtaining in the corporation, astwo-thirds lawyer for the purpose. Will you accept the corporation but which has legal A stock corporation one thatissued has Jaz capital collect the promissory note byviolate him issued without the of right the to Effect: Expiration of Corporate Term no (2004) liquidation or winding up. approval Patioon Cafe. 1)isDid Schiera and when there (5%) is need for special reserve for probable stock. case? Discuss with reasons. NOTE: Under Section 122 of the orporation Cthan ode, a2/3 corporate existence as Cagainst the State. stock divided into shares and is authorized to after the date of the merger agreement. The stockholders representing not less corporate opportunity? Explain. XYZ Corporation entered into a contract ofIt is the principle of contingencies. corporation whose corporate existence is of terminated essential to the existence a de infacto SUGGESTED distribute toANSWER: thethe holders of that suchwhile shares customer raised defense the of the outstanding capital stock at a regular lease with ABC, Inc., over a piece of real any manner continues to be a body corporate for three Yes. Although refused the profits business or corporation that of there be (1) aforvalid law dividends or as allotments the of surplus receivables of Malyn the of date the merger special duly called that estate for meeting adissolution term 20 years, renewable for (3) years afterits forpurposes ofprosecuting Dividends; Right; Corporation (1991) nevertheless, using thethe resources under which a provided corporation might on before, the basis of Managing the shares held. All otherand purpose. agreement was transferred to surviving and andanother defending Conformably suits by and againstitand with Sec to le enable 50 ofittothe se be 20 years, that XYZ's (3) actuala written use or notice exercise in good ABC Management Inc. company, presented to the DEF close its faith credit standing of receivables the Schiera and Corp incorporated, a bona fide attempt to corporations are non-stock corporations. corporation, those which were Code, of in the holding of of corporate term(2) is extended accordance affairs, corporate powers conferred upon it by law. ALTERNATIVE ANSWER: Dividends: Declaration of Dividends (2005) Mining Co, the draft of its proposed Jaz clearly demonstrated that the business organize as a corporation under such law, created after the merger agreement remained thewith regular sent to the shareholders law. meeting Four years after the culminating term of XYZ Yes, I will accept the case. The problem does Under circumstances may corporation Management As ana pursued incentive, have been successfully inABC the will and to could be what owned byContract. the absorbed corporation. suffice. The noticebut itself specified Corporation expired, still within the the period in theexists A CORPORATION BY ESTOPPEL when not indicate that there is action by the BOD declare dividends? (2%)' included terms of distributed compensation that name ofin the the would closebe corporation. More Theallowed termination ofthe life of a contract corporate disposition entity does These receivables to the said subjectby matter. the lease for the persons assume to act as a corporation which is also necessary for the declaration of SUGGESTED ANSWER: itself cause the extinction or dim inution of the and ABC wouldconformably beSchiera entitledand to 10% of any stock importantly, Jaz guilty of notby stockholders with theare dissolution extension period, XYZ to Corp. No diverting form of which dividends can declared and knowing itof tothe be lease without authority 50% stock dividend. rights and liabilities ofsuch entity. 27 If the three- do so. In distribution SUGGESTED ANSWER: DEF may be declare during the theprocedures resources of the close anddividend liquidation under New notified ABC, Inc., that it is exercising the as yearextended life has expired without awill trustee orliable Dividends; Declaration ofrule, Dividends of itsbe rem paid by ANSWER: the except from to 1) SUGGESTED this those persons As acase, general A (1991) cannot bring a lifetime of the Management Contract. corporation to corporation another entity, equivalent Corporation Code? Discuss the merits of Would this option to extend the lease. ABC, Inc., receiver having been expressly designated by the aining Whether the receivable was incurred by the During the annual stockholders meeting, unrestricted retained earnings appearing on 2) Was it proper for Malyn to file a general partners for all debts, liabilities and derivative suit in the name of the you approve such provision? If not, what fraud and badof faith. ed to so arguing argument. (3%) corporation, within thatperiod, the board assets. of directors (or objected toincurred the proposed extension, absorbed corporation before orfor after the Riza, a stockholder proposed to the body that SUGGESTED ANSWER: its derivative books. Dividends must be paid in amounts suit with a prayer injunctive damages or arising as a result of corporation concerning an act that took continue as Itmay, trustees) itself, m ay be permi would you suggest as an alternative? that since the corporate unreserved life of XYZ Corp. had Irelief? would notto approve proposed merger SUGGESTED agreement, ANSWER: ora before or after the in a part the corporation’s earned proportional all stockholders onstipulation the basis Explain. theirof actions. during the place before he became a"trustees" stockholder. expired, itDividends could no opt to renew Although itstock is a close corporation, Distinction: vs.longer Profit: Cash Dividend vs.the bythreelegal im is management contract that the managing approval thereof by theby SEC, the said surplus be if capitalized and stock dividends be of the outstanding held them. Cash or However, the act complained of a plication to lease. XYZ Corp. countered that withstanding yearterm , nevertheless the principles of separate Stock Dividend (2005) corporation, ancan additional compensation receivable wouldasstill belong the surviving distributed to the stockholders, arguing that 2) No. In a derivative suit, the action is property dividends, be todeclared from continuing one, A may do so. com plete appointa lapseofbrought ofthe its corporate term itprofit; still has the juridical personality stillof apply. The business Distinguish dividend from cash to it, should be Sec entitled to 10%Corp. of any stock corporation under 80 the Code as the owners company, the stockholders, instituted/ in the name of a such unrestricted retained earnings by a the Foreign Corporation; “Doing Business” intrustee the noora to renew the lease because quo As of the corporation separate andasdistinct dividend from stock dividend. (2%) dividend that bestill declared. which does not may make any distinction to by right a majority vote, can docorporate anything. corporation and reliefs are prayed for therein proper resolution of is the Board of Stockholders Directors. receiverwh Philippines (1998) SUGGESTED ANSWER: warranto for involuntary from ofstock its for liquidation. are thethe only ones entitled to be receive the assets and proprietary liabilities of interests the absorbed o stockholder. m ayyou rule SUGGESTED ANSWER: chairman of proceedings the meeting, how would theiscorporation, by a minority Stock dividends, however, must declared When a foreign corporation deemed to be PROFITS are residual amounts representing SUGGESTED ANSWER: (PEPSIdissolution of XYZ Corp. has been instituted actbeyond stockholders and directors. Consequently, XYZ Corporation's contention is not dividends (Nielsen & Co v Lepanto Mining 26 s corporation the surviving on the motion to declare stock dividends? The law does not qualify the term “minority” by a properthat resolution of thecorporation Board of “doing business in the Philippines?” (3%) COLA As the chairman of the meeting, I would thatperiod. return of capital after deducting all corporate Effects; Winding Up business Period of athat Corporation by theof Office of the on Solicitor General. the since the opportunity and the in terms meritorious. ruling of theIsrule 569) I from would add the (1997) unsubscribed would inherit. the Based number ofthe shares owned by a Directors existing unrestricted retained PHILIPPINE SUGGESTED ANSWER: against the motion considering that aThe costs and expenses from revenues. The corporation, once dissolved, thereafter contention of XYZ Corp. meritorious? Explain resource's used pertain to the close Supreme Court in Philippine National Bank vs. capital stock of a corporation may only be stockholder bringing is the action inbe behalf of S, INC., vs. earnings and ratified by stockholders A foreign corporation deemed to “doing declaration of 209 stock dividends should initially accumulated profits, fromXYZ year towas year, continues to at be a body corporate for three briefly. (5%) THE COURT corporation, the to sue and of Rizal, SCRA Corp. issued for cash orstanding property or for of services theCFI corporation. (SMC v (1992). Khanif176 448) representing least two-thirds (2/8) the to business inby the Philippines” it isSCRA continuing be taken the BOD and thereafter to be represent corporate retained earnings OF years for purposes of prosecuting and 3) dissolved No. WATERED SHARES are those sold by recover rendered remains with the close corporation the ipso facto upon the expiration of its already constituting a demandable outstanding capital stock of the corporation, body or substance the business or the APPEALS, concurred in the by aof 2/3 vote of Dividends: Sources ofCorp Dividends; Trust Fund Doctrine from which dividends can be declared. defending by and against and of still the corporation for less than the par/book and (Sec not with Malyn. Therefore, it is original term. It ceased to be a body debt 62 Code). Ascalled an it alternative, I obtained insuits a meeting duly for the enterprise for which itCorp was Code). organized. It is [G.R.There No.an CASH DIVIDENDS (Sec 43purpose isactual no (2005) enabling it to settle andmanaging close itson affairs, value. In the instant case,represent it continue will depend upon necessary to43, file a derivative suit behalf of stockholders corporate for the of145855. continuing the would suggest that the corporation purpose. (Sec. Corporation Code) the intention of an entity to the distribution of accumulated profits to prohibition, however, against the From what funds are cash and stock culminating in the final disposition and the value of services rendered in relation tothe November except the close the body business for whichinitthe was organized, should insteadcorporation, be given although a net profit of its business country. The grant stockholders as a return on their 3) Assuming that a derivative suit is proper; resolving recommend to the dividends sourced? Explain why. (2%)Ifunder 24, 2004.]) distribution of its remaining assets. the 3 the stockholders’ theonly total par value ofconnected theto shares. proceedings would governed for purposes with its winding participation and, if itbe later so desires, to then and extension of 90day credit terms of a SUGGESTED ANSWER: Doctrine of Corporate Opportunity (2005) action continue if the corporation is dissolved investments. Declaration of cash dividends may the BOD it Close consider a declaration of stock Derivative Suit; Corporation; Corporate year extended life expires a trustee Interim Rules of dividends Procedure for be Intra-Corporate up that orcorporation liquidation. Extending the lease is not convert the amount that without may due thereby Dividends; foreign Declaration of to Dividends a domestic (2001) All cash and stock are always paid the pendency of the suit? Explain. Briefly during discuss the doctrine of by corporate requires only the approval of the majority dividends for concurrence thereafter by the of Opportunity (2005) or Disputes. receiver being designated the an act to wind up or liquidate XYZ Corp.'s to equity or shares of stock at no less than corporation for every purchase shows an For the past three years of its commercial SUGGESTED ANSWER: out of the within unrestricted retained the Board ofofDirectors in (1999) a proper resolution. opportunity. (2%)that period Effects; Merger Corporations stockholders. Malyn, Schiera and Jaz the directors of corporation and earnings by that Foreign Corporation; “Doing Business” in the affairs. ItX, isan contrary toare the idea of winding the par thereof. Yes, forvalue inANSWER: spite of theof dissolution of any intention STOCK to DIVIDENDS continue transacting are simply with transfers the of operation, oil company, has been SUGGESTED (also called surplus profit) the corporation. Two corporations agreed to merge. They then Patio Investments, a close corporation formed time (expiry of the 3 year extended term), Philippines; Acts or Activities (2002) up the affairs of theto corporation. corporation, remains a no juridical person for In brief, the itdoctrine disqualifies a director, SUGGESTED ANSWER: latter. retained earnings capital stock, thereby earning tremendously in excess of 100% of If the corporation has unrestricted executed an agreement the to run Patio Cafe, al specifying fresco coffee shop the corporate liquidation is not with yet over, atthe least three (3) an examples of the acts or of The liquidation can continue the purpose trustee or of officer dissolution from for appropriating three years for from his Give increasing the In number ofPatio shares of the stocks the corporation’s paid-in capital. All of retained earnings, the dividends would have surviving corporation and the absorbed in Makati City. 2000, Cafe began how, if at all, can a final settlement of the activities that are specifically identified under winding up. benefit The members of the can the date of dissolution, precisely one of isthe personal athe transaction orBOD opportunity each stockholder with no required cash stockholders have been claiming thatreverses, they to be sourced from capital stock. This corporation. Under the agreement of merger experiencing financial corporate affairs be made? our foreign investment laws as constituting continue the the corporate purposes that pertains totowinding allow thethe corporation, theof"TRUST winding-up and of which its contribution. A two-thirds vote of the share in the profits of the corporation by way illegal. Itwithis violates FUND dated November 5, the surviving consequently, some of1998, the checks it issued to business” in the Philippines (3%) affairs until final They canofact as affairs, including termination pending under the dutyliquidation. ofthe loyalty he should first bring “doing stockholders, coupled with a majority vote of of dividends but the Board of Directors failed DOCTRINE" that provides that the capital acquired all theand rights, properties its corporation beverage distributors employees SUGGESTED ANSWER: Derivative Suit; Minorityfor Stockholder (2003) trustees receivers this purpose. suits. to the corporation for its or exploitation. the Board of Directors, is needed to declare to lift its finger. a) Is Corporation X guilty of stock of or the corporation is ause trust fund to be In October 2003, Schiera informed Malyn Any three (3) of the following actscorporation. or(2004) and liabilities ofvs. the absorbed 1) bounced. SUGGESTED ANSWER: Effects; Winding Up a Period of life a Corporation (2000)of Bayan Gina Sevilla, minority stockholder Distinction; Private Public Corporation stock dividends. violating aconstitute law? Iflocation in “doing the affirmative, state kept intact during the of the corporation Must the corporation undertake that she found aabsorbed for aabsorbed second cafe in activities What would happen to the business” in the Corporation X is guilty of violating Section 43 The The SEC doctrine approved of of corporate the amendment opportunity of the is of an Corporation, felt that various investments Distinguish clearly athe private corporation from the basis (2%) dissolution and winding up procedures? for the benefit the creditors of the Taguig City. Malyn objected because of the Philippines under our foreign investment corporation? G.R. No. 77860, November 22, 1988; and of the Corp Code. This provision prohibits Articles enforcement of Incorporation of the duty of of GHQ loyalty Corp of the company’s capital were ultra vires if not, a public corporation your answer. (3%) Explain corporation. (Commissioner of Internal- Revenue dire financial condition of the corporation. 1. Soliciting orders laws: Steinberg v.made G.R. 30460, stock corporations SUGGESTED ANSWER: shortening corporate itsVelasco, directors corporate and lifeNo. to only 25 March When years indeed, in G.R. violation ofofficers. law. She filed aa SUGGESTED ANSWER: v. Court of Appeal®, No. 108576, January 20, 12,1929) in accordance director, with Secor120 officer of the Corp attempts derivative suit seeking to 1999; Boman trustee Environmental Development Corp. to acquire or v. Court of Appeals,

Page 43 They then brought 39 of 103 103 children. 5) When Page he Page 40 42 44 is 41 made, of 103 of 103 by a the SUGGESTED ANSWER:of to of provision assignment the corporate specific law, toproper OnNo. substantial c) the December 2) The number toperiod have amount 6,of1988, more of shares 30 ofshares A, days damages. an he incorporator within holds with which on which It would record to and the pay infor the What thedeed majority is the doctrine stockholders "piercing can always the veil muster of d. No, the stockholder may Chattel officers Mortgage for vs. registration After-Incurred with Obligations the request (1999) for action. acquisition more assets like acquisitiona of2/3 personally answer for theexercise corporate thus stockholder the the General be corporation. difficult Manager can pay for of of the Pablo the unpaid Paje to convincingly Multi subscription Farms corporate vote, entity?" would you Explain. allow thenot majority right because the matter that he SUGGESTED ANSWER: Mercantile Inc vcorporation's CA GR 111008, Novand 7, (Tramat the transfer in the stock company car, house, machinery orstockholders Onappraisal December 1996, Borrower executed a 94 assert had Co, resigned notthat yet expired. the as GM incorporation and stocks, sold to of the the family to1, remove the one director The doctrine of "piercing the veil of corporate 238s14) dissented from is not one of those where SUGGESTED ANSWER: b) Pre-emptive business; right and must be exercised in transfer books of the assigned shares, chattel mortgage in favor of the Bank to the corporation his wasshares intended of stocks merely in the as a case representing the minority? I will allow the majority stockholders entity," the doctrine that the(1997) courts Liabilities; Stockholders, Directors, Officers right ofnot appraisal isstock available under the Stockholders: Right (2004) 3) to Preemptive have extra share with which to cover or No. the Articles of Incorporation cancellation ofP3M. the certificates in PX's secure ais loan of In dueallows time the loan of accordance corporation “estate tax for with P300th, planning.” the book (Tan value Boon Bee v to remove the director. While the look behind the separate juridical A, B, and C are shareholders of XYZ Co. A corporation code. Piercing the Corporate Veil (1996) the requirement for declaration of stock The Board of Directors of ABC, Inc., a meet or the By-Laws. When the Articles of name, and the issuance of new stock was paid. On December 1, 1997, Borrower Jarencio 30June88) thereof,41337 payable as follows: a) P100th as SEC; Transferred Jurisdiction (1996) stockholders by afor 2/3P2M vote, remove a hisB’s personality ofmay, aincorporation and treat the has Jurisdiction; ananother unpaid subscription of P100th, dividend. E Co sold its assets tothe M passed Inc domestic corporation, acomplying resolution Incorporation and By-Laws are silent, the certificates the names of his wife and obtained loan which the down payment; b) P100th onafter or before 31 What is the original and exclusive jurisdiction director, the law provides, however, corporation as analso association of persons shares are fully paid up, while C owns only with themay requirements of the Bulk Law. authorizing additional issuance ofSales shares of BOD fix reasonable time within which children as the new owners. The officers Bank granted under the same security asandof July1989; and c) athe remaining balance of of the SEC? that his right may not, without just cause, beis a Stocks; Sale, Transfer of Certificates of Stock (1996) thereby make the individual actors personally nominal but fully up shares on and Subsequently, one of the creditors Co the stocks without notice nor approval of the stockholders may exercise the the Corporation denied request the that which secured thepaid firstthe loan. P100th on or before 30 Sep 1989. Aof Eright. SUGGESTED ANSWER: Pre-Emptive Right vs. Appraisal Rightit,shares (1999) exercised so as to deprive the minority ofof Arnold has in his name 1,000 of the For the second loan, Borrower merely liable for corporate liabilities. The fiction director and officer. XYZ becomes insolvent, tried to collect the amount due but found stockholders. DX, a stockholder, objected to ground that another heir is contesting the promissory note, with an acceleration clause, The SEC has original and exclusive Foreign Corporation; “Doing Business” in the The corporation failed to pay the first ABC Corporation has an authorized capital representation in the BOD (Sec 28 Corp code; capital stock of ABC Co as evidenced by a delivered a promissory note; no new chattel corporate identity is disregarded and the and it is established that the insolvency out that E Co had no more assets left. The his the issuance, contending that it for violated validity of the deed of assignment. May the is was executed by the corporation the Stockholders; jurisdiction Rights over (1996) cases involving: a) Devices Philippines; Test (2002) installment on due date. A then sued Paje on Gov’t vs Agoncillo 50p348) of P1M divided into 50,000 common stock certificate. Arnold delivered the stock mortgage agreement was executed as the individuals comprising it can be treated the result of fraudulent practices within the creditor then sued M Inc on the theory that right of balance. preemption to the unissued shares. Is Corporation be compelled by mandamus to unpaid or schemes amounting to in fraud and What are the rights of a counsel SUGGESTED ANSWER: SUGGESTED ANSWER: What theto legal test for determining if its an the promissory note in the a) Does the shares and 50,000 preferred shares. At certificate Steven who now claims to be parties relied on a provision the 1996 identically. The stockholders can be held company. If you were for a creditor M Inc is aismere alter ego ofRTC. E Co. Will the his contention tenable? Explain briefly. (5%) register the shares of stock in the names of SUGGESTED ANSWER: misrepresentation; b) Controversies arising stockholder? G.R. SUGGESTED Yes. No. The 108734, corporation ANSWER: May 29, may 1996). be compelled by Yes. DX's contention is the tenable. SUGGESTED unlicensed foreign corporation is doing court have jurisdiction over case? b)Under inception, the Corporation offered for realANSWER: owner of the shares, having paid for chattel mortgage agreement which included directly liable for corporate obligations, even of XYZ, would you advise legal action against suitthe prosper? Explain. the assignees? Explain briefly. (5%) The rights of a stockholder are as follows: 1) out of intra-corporate or partnership a) As to A—an action can be brought against The suit will not prosper. The sale E Coall of mandamus register shares of stock in Section 39subscription. ofthe the Code, business in Philippines? (2%) Would your answer beCorporation the same if Aby instead subscription all the common shares. Arnold’s ABC refused to future debts as thethe obligations to the oftoamong their personal assets A,right B,extent and C? The to vote, including the right tolegal relations; c) Controversies in the election or A for P100th which is the amount of unpaid its assets to M Inc does not result in the the name of the assignee. The only stockholders of ABC, Inc. enjoy preemptive SUGGESTED ANSWER: To what circumstances will the doctrine “In case the Mortgagor executes sold his shares to register his friend Mabel and the However, only 40,000 shares were recognize and Steven’s ownership. Is secured the mortgage. The (Conceptaby Builders NLRC, Marabe, etin al,the appoint proxy; 2)v. The toprovision appointment of directors, officers, d) subscription. Since the corporation is The test iscase whether or not the unlicensed transfer SUGGESTED of athe ANSWER: liabilities of the latter to, limitation imposed byright Section 63 ofetc; the right to subscribe to all issues of shares of apply? (2.5%) subsequent promissory note orshare notes either latter filed with the RTC against thenor subscribed. Recently, the directors thought the refusal justified? Explain. reads: profits of the corporation, including the right Petitions to be declared in a state of The doctrine is applicable when the notion ABC’s refusal to recognize and register insolvent, the limit of the stockholder’s foreign corporation has performed an act or in the assumption thereof by, the The Corporation when the or Corporation any class, including the reissuance of as a renewal, Code as anisextension, as a new corporation to compel itcapital to register the sale of raising additional andformer. decided to to declare stock dividends; 3) The to to a the suspension of payments (Sec 5 right PDpublic 902-A) ofloan, legal entity is used to —against 1) Steven’s ownership justified. The facts liability to the creditor isDefeat only up acts that imply aindicate continuity commercial facts do notcertificates that such transfer holds any unpaid claim the shares treasury in toin their this mortgage shall also stand as and togiven issue new ofof stock her offer to shares the public allisproportion the authorized shares proportionate share of the assets of convenience. 2) Justify wrong. 3) Protect SUGGESTED ANSWER: Stockholders; indicate Appraisal that the Right stock (2003) certificate for the extent of his unpaid subscription. dealings or arrangements, and contemplate or assumption took place or was stipulated have pre-emptive rights to the remaining intended to be transferred. The alleged claim respective shareholdings. security for theupon payment of said4) promissory name? of the Corporation at their market value. a) the corporation liquidation; Theof action b) As to heir B—there is not no cause a) The RTC has jurisdiction over the case. fraud. 4) Defend crime (PNB v. Andrada 1,000 shares in question is in the name of In what instances may the right of appraisal to that extent the performance of acts or upon 10,000 by shares? the parties (2%) b) in Would their Mr. agreement. X have of another of PX is sufficient to deny noteofor notes without necessity of executing Would Mr. X, a stockholder holding 4,000 right appraisal; 5) The pre-emptive right TAKE NOTE: The RTC has jurisdiction over against BNo. because he has already fullythe paid The SC said asale corporation may only buyis Electric, G.R. Arnold. Although the certificate was delivered be availed ofthat under the Corporation Code? works, or the exercise of some of the Furthermore, the by E Co of its assets pre-emptive rights to the 50,000 preferred the issuance ofand new certificates ofshall stock to his a new contract this mortgage have shares, to shares; 6) The right to inspect corporate cases which involves intra-corporate for his subscription. As stated earlier, the SUGGESTED ANSWER: its own shares stockincident it has enough by Arnold toof Steven, facts do not functions normally to, and in indicate a sale shares? of its(2%) property. Itifthe does not involve the wife and children. It would be otherwise if the the same force and effect as ifto the said books and 7)2002) The .right elect controversy. Asstockholder’s of 2006, the applicable is SECTION 81. Instances of Appraisal Right. — 142936, April 17, limit ofrecords; the liability torule the surplus profits therefore. c)of the Assuming that the existing that certificate was duly endorsed bygain progressive prosecution of, commercial sale shares of stock of the corporation transferee's title tonotes the shares has no prima promissory note or were existing on directors; 8) Such other rights as may that there is a TRANSFERRED JURISDICTION Trust Fund Doctrine (1992) Any b) My stockholder answer would of a be corporation the same. An shall action have 5) Shield a violation of the proscription creditor of the corporation, when the latter Asdate Borrower failed to uncertain. pay the second loan, stockholders are and to the pre-emptive Arnold atpurpose the its time itentitled was delivered to Steven or of the object of business belonging to stockholders. There is facie validity or is hereof.” contractually be granted toa the under Sec. 5.2 of the SRC, the the Commission’s Joint Venture; Corporation (1996) A Corporation executed promissory note the to compel right to a corporation and to demand register payment a shares sale that ofbe against forum shopping (First Philippine becomes insolvent, is extent of his the Bank proceeded to foreclose Chattel rights, atdissent what price will the or that the procedure for the effective corporation. therefore no merger or consolidation the stockholders bycases the corporation orunder by C, c) As to C—an action can be filed against Piercing the Corporate Veil (2001) jurisdiction over all enumerated International Bank v. Court of Appeals, G.R. No. May a corporation enter into a joint binding itself to pay its President/Director, the and fair to issue value new of certificates his shares of in stock the following is itself subscription. d) Assuming a stockholder disagrees Mortgage.Borrower sued the Bank claiming offered? (2%) transfer of stock settooutexist in theand bytook place.of Eshares Co continues special law. 6) Work inequities among members of SUGGESTED ANSWER: not as stockholder because he has already 1 In case any amendment to the articles of 137537, January 24, 1996). Plaintiffs filed a the collection action against Xthe PDthe 902-A sec. 5 was has been transferred to the venture? who had tendered his a certain instances: an intra-corporate matter that exclusively with the issuance of was new shares and that mortgage noresignation, longer in force. laws of ABC Co, if any, observed. Since remains liable to creditor. A corporation enter into a joint venture. the corporation internally, involving no rights paid up the shares, but in his capacity incorporation has the effect of changing or of Corporation. Upon execution ofthe the court’s Courts of general or the sum in payment ofjurisdiction the latter’s shares and as lies with the pricing forRTC. themay shares, may stockholder Borrower claimed that a fresh chattel the certificate was not endorsed in favor Stockholders; Voting Power of Stockholders (1990) However, inasmuch as the term ‘joint of the public or third persons (Secosa v. Heirs TAKE NOTE: The RTC has jurisdiction over the director and officer because of the restricting the rights of any stockholders or class decision, X Corporation was found to be appropriate Regional Trial Court. interests in the company. The corporation invoke (or hisanybody appraisal demand mortgage should have been executed when Steven elserights for thatand matter), the Mercy subscribed to 1,000 shares ofthe stock of of Stockholder; Delinquent; Unpaid Subscription (1997) venture’ has no precise legal definition, it ofErwin Suarez Francisco, G.R. No. 156104, June cases which involves intra-corporate corporation’s insolvency being result of shares, or of authorizing preferences in any SUGGESTED ANSWER: without assets. Thereafter plaintiffs filed an defaulted in paying the full amount so that payment for his could shareholdings? (2%) the second loan was granted. a) the only conclusion be no other than that Rosario Corporation. Sheobligations paid 25% of said Evade lawful ofcollection the The BOD ofthe a corporation, by aDecide vote of ten in Stocks; Sale, Transfer of Certificates of Stock (2001) 29,said 2004). may take various forms. could take the a. Yes. Mr. X, aits stockholder holding 4,000 controversy. As of the applicable rule is of 7) fraudulent practices within the company. respect superior to2006, those of Itoutstanding shares action against present and past former President filed suit for case and ratiocinate. (4%) b) Suppose the the shares in question still belong to Arnold. subscription. During the stockholders’ corporation like a judgment credit (Sibagat favor of one against, declared due and A is the registered owner of Stock Certificate form of or a simple poolingorofshortening resources (notterm shares, has pre-emptive right owned to the that there is aof JURISDICTION Directors liable jointly anda)severally for any class, extending the would its are validity and effectiveness be what stockholder YTRANSFERRED Corporation which of the balance before the SEC. Under chattel mortgage was not registered, (Razon v IAC GR 74306 Mar 16,92 207s234) G.R. No.Corp. 112546, December 11, 1992). 8)the capital Timber v.Mercy Garcia, meeting, can vote all subscribed payable all unpaid subscription to No. Sec. 000011. Hethe entrusted the possession involving incorporation) between twoofor more remaining 10,000 shares. All stockholders under 5.2 of the Commission’s damages sustained byher the corporation, of corporate existence; impaired? Explain. (4%) substantially all ofSRC, the stocks Xofof conditions is a stock corporation empowered SUGGESTED ANSWER: Escape liability arising from a director debtresulting (Arcilla v. to shares? Explain. stock. The lone dissenting said certificate toacases his best friend who corporations specific project, purpose SUGGESTED ANSWER: a stock corporation shall enjoy Bhave preemptive jurisdiction over all enumerated under stockholders or other persons from 2 In case offor sale, lease, exchange, transfer, Corporation. The two corporations the or to acquire its own shares? b)October Is the failed Yes, Mercy can vote all her subscribed Court of Appeals, G.R. No. 88113, 23, pay on due date, i.e., 19 Sept 1997, hisandthe 1 arrangement The foreclosure of the chattel borrowed the said endorsed certificate toor undertaking, for a limited time. right tosec. subscribe to alltransferred issues or It disposition PD 902-A has been to the gross negligence or bad faith in directing mortgage, pledge or other disposition ofmay all same board of5 or directors and Y Corporation between the corporation 9) Piercing Avoid inclusion ofOther corporate assets as its shares. Section 72 ofthe the Corporation 1992). the Corporate Veil (1994) SUGGESTED ANSWER: unpaid subscription. than the shares mortgage regarding second loan isCode notCode) support B’s application passport for a involve the creation of afor more formal(or of shares of any class, in proportion toand their Courts of general or affairs of the corporation. (Sec 31 Corp substantially all ofjurisdiction the corporate property financed the operations of X the Corporation. President covered by the trust fund doctrine? part ofthat the estate ofunable the decedent (Cease v.forties, states holders of subscribed shares not Yes, Y Corporation may be held liable forathe ALTERNATIVE ANSWER. SUGGESTED Mr. awas rich merchant in his early wherein heANSWER: to complete payment, valid. APablo, chattel mortgage cannot validly purpose other than transfer). But B for sold the structure and, hence, the formation of respective shareholdings. appropriate Regional Trial Court. assets asCorporation provided in be the Code; and May Y held liable the Explain your answers briefly. Court of stock Appeals, G.R. No.inL-35861, October 18, fully paid which are not delinquent shall have a. No, Mr X does not have pre-emptive right a) A corporation may only acquire its debts of X Corporation. The doctrine of was a defendant a lawsuit which could he did not own any share in unfair theThe corporation. secure after incurred certificate toof a bona fide purchaser corporation. IfX,merger the joint venture would who involve 3 or consolidation. (n) debts ofInthe Xcase Corporation? Why? (5%) 10)own To promote or obligations. to shield objectives 1979). all the rights of a stockholder. over remaining 10,000 shares because shares of stock if the trust fund doctrine piercing the veil of corporation fiction applies subject him to substantial damages. A year On (Villanueva 23of Sept he was informed by the27, affidavit good faith required relied on theof endorsed certificates and the creation a partnership, as the term is v. Adre, G.R. No.under 80863,the April Stocks; Increase of1997, Capital Stock (2001) Liabilities; BOD; Corporate Acts (1996) these shares have already been offered at is not impaired. This is to say, for instance, Stockholders; Removal of Officers & BOD (2001) to this case. The two corporations have the before the court rendered judgment, Pablo BOD that, unless due payment is meanwhile chattel mortgage law expressly provides that believed himunder to bethe theCivil owner thereof. understood Code, then a) a Can 1989). Suppose Corporation has an authorized corporation forthwith: may ashares corporate director, trustee, or incorporation and he chose not to subscribe that it X may purchase its own shares of as stock In When 1999, Corporation A passed a Explain board same board of directors and Y Corporation sought hishe: lawyer’s advice on how to plan received, a) could no longer serve a his “the foregoing mortgage is made for securing A claim the of stock from X? corporation cannot be a party to it. Pre-emptive Right (2001) capital stock ofmerely P1M divided intoto 100,000 Chattel Mortgage vs. After-Incurred Obligations (1991) SUGGESTED ANSWER: b) would not taxes. be the cash officer be held personally liable with the to them. He, therefore, waived his right by utilizing itsentitled surplus profits overand resolution removing X from his position owned substantially all ofhas the stocks of as XA estate to avoid Hisconditions lawyer suggested director of the the obligation specified in the (3%) b) Would your answer be the same if Suppose that X Corporation has already shares stock with par value of P10of each. To secure the payment of anshares earlier loan of them ALTERNATIVE ANSWER: a) No. Assuming that the were SUGGESTED ANSWER: stockof dividends which were declared anda)with corporation? thereto and the corporation may offer and above the subscribed the manager of said corporation. The by-laws of Corporation, which facts justify the conclusion that he for should form acapital corporation hereof, and no other purpose.” Theshares afterlost the stock certificate in question or if it issued a) (an the answer 1000 originally enumerating authorized the instances or Give two ways whereby said authorized A corporate director, trustee or officer may SUGGESTED ANSWER: P20,000 as wellprovides subsequent loans which already transferred tothat B, cannot claim the payable on Sep 1997; and to anyone. corporation. A corporation the officers that the latter isasmerely anAextension of are the himself, his 24 wife and his children (all incurred obligation not being specified in students thethe was stolen from him? (2%) b. Yes. Mr. X would have pre-emptive rights of the cases corporation under the so Corporation that its BOD Code and where capital stock may be increased to about be held personally liable with the corporation her friend Noreen, would extend to her, ofof stock from X. and The that certificate of c) could not vote in the theshares president, vice-president, treasurer and personality the former, the former and still unemployed) as stockholders stockholders and affidavit, is not secured bypractical mortgage. to the 50,000 preferred shares. All stockholders Corp allows wish the to acquisition increase X’s of shares authorized such as P1.5M. (3%) b) Give three reasons under the following circumstances: 1) duly When Karen executed in favor of Noreen abeen chattel stock covering said shares have meeting scheduled to take place onliabilities 26 Sept secretary. Upon complaint filed with the SEC, controls the policies of the latter. Added to then Yes. transfer all his mortgage assets and 2 The chattel is notstock valid to stockholders of a entrusted stock corporation shall capital in the stock. stockholder’s After complying exercise with of appraisal the for a corporation to increase its capital he assents to a patently unlawful act of the mortgage over her (Karen) car. Is the endorsed by A and by him to B. By 1997. it held thatANSWER: a manager could be removed by this is the fact that Y Corporation controls the this corporation. Mr Pablo followed the as against any except theeach mortgagor, SUGGESTED ANSWER: SUGGESTED corporation; 2) When he acts in bad faithtoorall enjoy pre-emptive right to subscribe requirements right, failure ofperson, of the bids in on the increase sale of delinquent ofof the (2%) Was the action of law the BOD on mortgage valid? his said acts, A isthe now estopped from mere resolution of board of directors. On finances of X Corporation which is merely an recommendation of his lawyer. 1 year later, a) Two ways of increasing the Authorized his executors and administrators. A chattel mortgage cannot effectively secure with gross negligence inshares issues or said disposition of of any class, in capital shares, stock, etc.) X issued an additional 1000 foregoing matters valid? claiming shares from X, a bona fide motion for reconsideration, Xthe alleged thatofhe adjunct, business conduit or alter ego Yor in Capital the court rendered judgment against Pablo Stock of X corporation to P1.5M are: ALTERNATIVE ANSWER: SUGGESTED after-incurred obligations. While a stipulation directing the affairs ofthe corporation, SUGGESTED ANSWER: Piercing the Corporate Veil (2004) proportion to their respective shareholdings. shares of the ANSWER: same value. a) Assume that the purchaser who relied onby endorsement by could only be removed the affirmative Corporation (CIR v Norton & Harrison Co 11 S and 1) the Increase plaintiff the sought number of to shares enforce this b. Yes, Mr. X has preemptive right over the b) The arrangement between the corporation to include after-incurred obligations a resulting a) No. TheA period of 30 days200 within with the thethe corporation in conflict b) Yes. In theinterest case where certificate of How does one pierce the veil of in corporate stockholder presently holds out which of the the A(1964)) of the certificate ofof stock. 714 vote of the stockholders representing 2/3 of judgment. The sheriff, however, could not from 100,000 to 150,000 shares with the 50,000 preferred shares because they were and its President to the extent that it calls for chattel mortgage isthe itself not the stockholder can pay the unpaid damages corporation, stockholders or SUGGESTED stock was losttoor stole frominvalid, A, A its has a right SUGGESTED ANSWER: fiction? 1000 original ANSWER: shares. Would A havesubscription a prethe outstanding capital stock. Is X’s locate same par any value property of P10.00 in the each. name of Pablo and not offered before by the corporation for the payment of the latter’s shares is covered b) When should stockholder A exercise the obligation however, be deemed Theto veil ofcannot, corporate fiction may be pierced other persons; 3) When consents to the had yetto expired. The not plaintiff can avail himself of the No. Stockholders’ approval is necessary only claim the certificate ofhe stock from the thief emptive right 200par of the new issue of doctrine 1000 2)piercing Increase of 100,000 contention legally Why? (5%) therefore returned the writ of execution subscription. by theWhy? trust fund doctrine. The only pre-emptive right? (2%) automatically by that mortgage until by proving in court that the notion of legal issuance of secured watered stocks of the veil ofvalue corporate fiction which for the has removal oftenable. the members of the BOD. who no right or title to the same. “One shares? (3%) SUGGESTED ANSWER: shares to P15.00 each. ANSWER: unsatisfied. What remedy, if any, isis available exceptions from the trust fund doctrine are b) No. delinquency not deprive the having knowledge thereof, does not SUGGESTED after aor new chattel mortgage or an addendum entity iswho, being used to or defeat public can beThe invoked when a did corporation formed Forwho the removal of a corporate officer or has lost any movable has been c. The shares will be offered tosecretary existing hisa) Yes, A would have a pre-emptive right to to the plaintiff? the redemption of redeemable shares and, stockholder of his right to receive dividends forthwith file with the corporate to the original chattel mortgage is executed convenience, justify wrong, protect fraud, or or used in avoiding a just obligation. Whilein it employee, the vote the BOD is unlawfully deprived thereof, may recover it stockholders, who of are entitled to sufficient preemptive b) Three practical reasons for a corporation 200 the new issue ofthe 1000 shares. ismay a the case of close corporation, whenA there objection thereto; 4) When he agrees to hold declared. However, cash dividend written to cover the obligation after it has been defend crime or the entity is just an isoftrue that a family corporation be for from the purpose. the person in possession of the same.” right, at a price fixed by the BOD, which to increase stock are: 1)shares toorders stockholder ofatocapital record holding 200 in the Stocks; Sale, Transfer ofand Certificates of(1991) Stock (2004) shall should beits deadlock andestate the SEC himself personally Stockholders; Removal; Minority declared may be applied by the corporation actually incurred. unless such instrument or alterAccordingly, ego orDirector adjunct of another organized pursue an tax; planning, (Art 559 NCC) not be less than the par value of such generate more working capital; X Corpo. According to the Corp Code, each Piercing the Corporate Veil (2006) solidarily liable with the corporation; payment of the appraised value of aCorp Fouror months before his PX assigned to the is unpaid subscription. (Sec 71 Assuming that the minority block of the XYZ supplements are made, thedeath, chattel mortgage entity person. which not per se illegal or unlawful (Delpher shares. Trust Fund Doctrine; Intra-Corporate (1991) stockholder has the pre-emptiveControversy right to all or stockholder’s 100problem sharesisof stock registered in 1hisdirector name in Code) Corporation able to elect in the given would be only deemed to Trades Corp v share. IAC 157 SCRA 349) the factual issues of shares made by the corporation in of a of his his andfavor therefore, secure only thewife loanand of P20,000 (Sec 5 Act settings, however, indicate the existence proportion to 1505; Belgian Catholic Missionaries v Magallanes lawsuit that could subject Pablo to a Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Credit Transactions

Press 49p647)

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

Five Would yearsthe later seller-mortgagee after completing be payment legally of thejustified purchase in foreclosing price, debtor on this obtained second title chattel to ANSWER: theSUGGESTED mortgage? lot. And even as the chattel mortgage on The twowas mortgages were executed to theNo.house still subsisting, debtor secure the payment of the unpaid mortgaged to a bank the lot and installmentsthereon for the purchase new This car. improvement to secureof a aloan. the mortgage on duly the old car was and realWhen estate mortgage was registered foreclosed, theback seller-mortgagee deemed Due to business reverses, to annotated at the of the debtor title. isfailed have renounced other rights. A was paytohis creditors. Theall chattel mortgage foreclosure of additional property, that is,tothe foreclosed when the debtor failed new car the covered bycompany the second reimburse surety formortgage payments Chattel Ownership of Thing Mortgagedsale, (1990) would be a nullity. made onMortgage; the bond. In the foreclosure Zonee, who lives in Bulacan, bought a 1988 the surety company was awarded the house Toyota Corolla sedan on July 1, 1989 as model the highest bidder. from Anadelaida, who lives Quezon City, Only after the foreclosure saleindid the surety for P300th, as downpayment company learnpaying of the P150th real estate mortgage in andofpromising to pay the balance 3 equal favor the lending investor on theinlot and installments beginning October 1, thequarterly improvement thereon. Immediately, it 1989. Anadelaida executed a deed of saleofof filed a complaint praying for the exclusion vehicle in favor of Zonee to secure thethe house from the real estateand, mortgage. It the unpaid balance thechattel purchase price, was submitted that asofthe mortgage had Zonee execute a deed ofahead, chattelit was was executed and registered Ten days after the execution of the mortgage on the vehicle in Anadelaida’s superior to the real estate mortgage. abovementioned documents, Zonee had on the Onfavor. the suggestion that a chattel mortgage car transferred and registered in her name. a house- a real property- was a nullity, the Contemporaneously, Anadelaida had thethe surety company countered that when chattel mortgage on executed, the car registered in the chattel mortgage was debtor was Mortgage Registry of on the which Office of notChattel yet the owner of the lot the the was Register Deeds of Quezon City.was a house built.ofAccordingly, the house In Sep 1989, the Zonee sold the sedan to Jimbo 1 Discuss validity of the position taken personal property and a proper subject of a without telling the latter that the car was by the surety company. (3%) chattel mortgage. to a Anadelaida. When Zonee failed 2 mortgaged Who has better claim to the house, the to pay the firstorinstallment OctoberExplain 1, surety company the lendingon investor? 1989, Anadelaida went to see Zonee and (3%) the latter thecompany car to 3 discovered Would that the position ofhad the sold surety a) Jimbo to it give up thetitle car on be Jimbo. bolstered by therefused fact that acquired in a the ground that the chattel foreclosure sale conducted by mortgage the Provincial executed by (3%) Zonee in favor of Anadelaida is Sheriff. Explain not valid because it was executed before the car was registered in Zonee’s name, i.e., before Zonee became the registered owner of the car. Is the said argument meritorious? b) Jimbo also argued that even if the chattel Explain your answer. mortgage is valid, it cannot affect him because it was not properly registered with the government offices where it should be registered. What government office is Jimbo SUGGESTEDto? ANSWER: referring a) Jimbo’s argument is not meritorious. Zonee became the owner of the property upon delivery; registration is not essential to vest that ownership in the buyer. The execution of the chattel mortgage by the buyer in favor of the seller, in fact, can demonstrate the vesting of such ownership b) Jimbo was referring to the Register of to the mortgagor. Deeds of Bulacan where Zonee was a resident. The Chattel Mortgage Law requires the registration to be made in the Office of the Register of Deeds of the province where the mortgagor resides and also in which the property is

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

prior purchasers of the individual lots, much less require them to pay for the said lots. The bank has to respect the rights of the prior purchasers of the individual lots. The purchasers have the option to pay the installments of the mortgagee. 2 The bank has to respect the rights of the buyers with remaining unpaid installments. The purchaser has the option to pay the installments to the mortgagee who Mortgage (1999) the payments to the mortgage should apply Debtor purchased a parcel of land from a indebtedness. Chattel Mortgage; Foreclosure (1997) realty company payable in five yearly Ritzinstallments. bought a new car on whichtitle Under theinstallments contract of sale, provided for would an acceleration clause in the to the lot be transferred upon full event of default. Topurchase secure payment payment of the price. of the But even before full unpaid installments, aspayment, and whendebtor due, he constructed house mortgages, on the lot. Sometime constituted twoachattel i.e., one thereafter, debtor mortgaged the house to over his very old car and the other covering secure his obligation arising from the the new car that he had just bought as issuance a bond needed in Ritz the conduct of aforesaid, onofinstallments. After his business. The mortgage was defaulted on three installments, theduly sellerregistered with the proper chattel mortgagee foreclosed on the old car. mortgage The registry. proceeds of the foreclosure were not enough to satisfy the due obligation; hence, he similarly sought to foreclose on the new car.

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

ToPage pay47 forPage ofher 103 48 loan of 103 obtained from Stela, constituted Stela’s Because of business reverses, neither the (5) b.Integrity The Liza lease Bank – rentals whichingranted belong favor Edzo to aathe LDC countered that it had chattel over anthe electric generator. Borrower nor Mr. Timbol wasbuilt ableon tothe pay the loan mortgagor. in mortgage 2001 inHowever, the amount ofmortgage P500,000. extends The mortgaged the extrajudicially prior Cecil, arentals creditor of Liza, levied on attachment loan. In June property 2001, thewith Bank loan to was not secured not yet by any received asset of when Edzo,the knowledge mortgagee which mortgages, had received theobligation generator. Stela filed a third claim. foreclosed theof two real estate but it was guaranteed becomes due unconditionally and party the mortgagee and formal lease. How would you Cecil opposed the claim. their with the notice Bank of asthe the onlya)bidder in the solidarily may ran by Edzo’s after President the Rule said on and rentals controlling for the SUGGESTED ANSWER: mortgagee and LDC? (3%) b)the Is the resolve the dispute between conflicting claims. foreclosure sale. On September 16, 2001, the stockholder, payment of the Eduardo mortgage Z. debt. Ong, as Mortgage; Foreclosure; Effect of mere taking by creditormortgagee thetwo lease rentals due certificates of entitled sale of to the properties in accommodation surety. Mortgage; Foreclose of property (1992) (2006) Themortgagor loanExtrajudicial due to Integrity Bank fell due on from lease agreement? favor ofLDC the under Bank the were registered with (3%) the A real estate mortgage may foreclosed Recommendation: Since the subject matter of Ten months later, both the Borrower and Mr. June X 15, & Co 2002. obtained Despite a loan pleas from forbe extension a local bank of in Register of Deeds of Quezon City. (2) able questions is not includedfunds withintothe these twoto raise judicially orbyextrajudicially. In what instance as Timbol were sufficient payment the amount Edzo, of P500th, the bank mortgaging demanded scope of the Bar properties Questions in Mercantile may a mortgagee extrajudicially foreclose redeem their respective from the immediate security payment. therefore Because its real the property. banka SUGGESTED it is within it is real estateANSWER: mortgage? (5%) Bank, butLaw, theas Bank refusedCivil to Law, permit threatened Subsequently, to proceed the company againstapplied the surety, with the When a sale is made under a special power suggested that whatever answer is given redemption on the ground that the period for Eduardo same Z. bank Ong,forEdzo a Letter decided of to Credit pay up (LC) all for by the examinee, or the lack of answer inserted or attached to any real-estate redemption had already expired, so that the its $200th obligations in favor to Integrity of a foreign Bank. bank On to June cover 20, the should be given full credit. If the mortgage, thereafter given as security for the Bank nowexaminee has absolute ownership of both 2002, importation Edzo paid of to machinery. Integrity Bank To the guarantee full SUGGESTED ANSWER: gives a good answer, he should payment of money or the fulfillment of any a. The be mortgagee has credit. aand better than principal properties. The Mr. right Timbol payment amount of theofobligation P500,000, under plus the accrued LC, the given Borrower additional other obligation, then the mortgagee may LDC. Thetoday, mortgage extends to tothe interests came to you September 15, 2002, company amounting and itstoPresident P55,000. and As a Treasurer result, extrajudicially foreclose the was realreleased estate to The machinery arrived and introduced on the land, with Edzo findimprovements out if the position of the Bank is correct. executed had hardly a surety any cash agreement left for operations in the local Mortgage; Foreclosure (2003) mortgage (Sec. 1, Act No. 3135, as amended). the company under a trust After receipt the would declarations, amplifications, What be your answer? State yourand and bank’s decided favor. close its business. May the sale atto public auction bydefaulted a bank ofinathe SUGGESTED ANSWER: agreement. As the company limitations established by law, whether the reasonsWith (5%). paying the unpaid salaries of its employees, property mortgaged to it bein nullified because 1 respect to the real estate mortgage would you, as obligations, judge thethe insolvency payment of its bank took estate remains in the possession of the How Edzo filed a petition for insolvency on July 1, the price was extremely low? Why? over the land and building owned by the Borrower, proceedings, rank the respective credits At orthe possession of the imported machinery. mortgagor or passes into the hands of a third 2002. SUGGESTED ANSWER: Primetime Corporation, a juridical body, the period claims the five creditors mentionedthe sameof time, it (5) sought to foreclose person (Art 2127 NCC). The notice given by of redemption is only three (3) months, which above in terms of preference or mortgaged property and to hold thepriority company Foreclosure (2003) LDC to the mortgagee was not enough to Mortgage; SUGGESTED ANSWER: period already expired. against each other? (5%) as well as its President and Treasurer, liable ofoffailure of Janette and to remove the building from coverage of the Because TheDid claim Handyman forJeanne P10,000 2 As to the real estate mortgage over the the takingAgreement. of Garage possession of the under the Surety their loan to X Bank, the latter foreclosed mortgage considering that the building was pay a specific lien on the carresult repaired. residential house and lot owned by Mr. Timbol, the hasmachinery by the bank in the 1) full built after the mortgage was constituted and on the mortgage constituted on their period of redemption is one (1) year from the date payment of the obligations of the company property which was put(4)up claims by them as the notice was only as regards the lease and The of registration of the certificate of sale, which andremaining its officers,four and 2) foreclosurehave of the security fororthe payment of each the loan. not as to the construction of the building. preference priority against otherThe in SUGGESTED ANSWER: period has not yet expired in this case. mortgage? paid for the at the foreclosure Since the mortgagee was informed of the price (1) No.taking 4 –order: claim of the BIR forthe unpaid The ofproperty possession of machinery the1) following wasbank not enough to inliquidate the of lease and did not object to it, the mortgagee sale value taxes by added the did not result full payment obligation. The bank sued for deficiency. became bound by the terms of the lease (2) No. 3 – claim of Joselyn Reyes for the obligations owing from the company In and their Janette and Jeanne did not deny when Remedies it acquired termination Mortgage; (2003)the property as the highest Unlawful itsanswer, officers. The taking of such possession No. – of claim Ace equipment themust existence the of loan nor the of their in bidder. Hence, intoonthe (3) Carmakers, Inc., the soldmortgagee a motor steps vehicle be1considered merely as fact a measure as an unpaid seller; and default. They, however, interposed shoes of basis the mortgagor acquires installment to Chari and Paredes. Thethe Supplies order to protect or further safeguardthethe No.that 5 – claim of SUGGESTED ANSWER: defenses the interest. price at Dacion the auction was rights of the lessor under 1768 of the (4) transaction was reflected on Art a promissory bank’s security en pago can a) The house is a favor real property even Bank. extremely low and thatastheir loan, despite NCC. This provision the the right Integrity note byalways Charigives in oflessor Carmakers. only be considered having taken place 1stexecuted Alternative Answer: SUGGESTED ANSWER: 197 s accepts 1)was a and though was constructed on a right land not loanv Pineda long-term loan appropriate the condominium building but the(PNB a.note Theitwas mortgagee has better the Theto secured by a amortgage overto the when adocuments, creditor appropriates belonging to the builder. However, the which not yetof If (1999) you were the paying the Art lessee half theNCC, value of Mortgage; building. Under 2127 of of the the car.after Contemporaneous with the execution of the had ownership the goods in payment of a Foreclosure of matured. Improvements 2) The mereyou taking possession of parties may it astotime. a all personal property judge, would rule onoftheagainst case? Why? building atmortgage that Should the lessor mortgage extends improvements on thethe note and treat the deed, Carmakers, due how obligation. Borrower obtained a loan the mortgaged assets does not amount to and constitute a chattel mortgage thereon. (6%) refuse to reimburse said amount, theoflessee theassigned mortgaged property regardless who Inc., the instruments sans recourse security of a mortgage on arequires parcel of foreclosure. Foreclosure a land. sale at Such mortgage valid and binding but remove the improvement even Chari though and when shall thebe improvements were to may Adelantado Finance Corporation. While the mortgage was subsisting, borrower public auction. The foreclosure, therefore, only on the parties. It will not bind or affect the land will suffer damage thereby. introduced. cannot complain otherwise, defaulted in LDCher obligations. Could leased for fifty years the mortgaged property b) The lending investor hasthe a better claimit towas SUGGESTED ANSWER: has not as yet been effected. third parties. because it knew that property Adelantado Finance corporation take action to Land Development Company (LDC). The Mortgage; Redemption Period; Foreclosed Property Preference of Credits (2002)real estate mortgage the house. The 2nd alternative Answer: leasing mortgaged when it built the against bothwas Carmakers Inc., and Chari? Why? mortgagee was duly advised of the lease. (2002) As June 1, the 2002, Systems a. of Assuming office condominium covering the that house and Edzo lot was dulywas condominium. (6%) Thereafter, LDC constructed on the Primetime Corporation (the Borrower) Corporation (Edzo) to third the duly constituted under the Condominium registered and bindswas the indebted parties and mortgaged property an office condominium. (1) Ace Equipment Supplies – for various obtained a P10 Million, five-year term loan following creditors: Law, before LDCother could hand, validly the constitute persons. On the chattelthe Borrower defaulted on his loan and personal and accessories sold to to from Universal Bank (the Bank) in 1996. As same computers asona the condominium, it should cause mortgage house securing the credit mortgagee foreclosed the mortgage. At the Edzo on credit amounting to P300,000. security for the loan and as required by the in the register of affect deeds the of the of be therecorded surety company did not foreclosure sale, the mortgagee was awarded (2) Handyman Garage – for mechanical Bank, the Borrower gave the following province or city where the land is situated an rights of third parties such as the lending the property as the highest bidder. The c) repairs No. The (parts chattel and service) mortgage performed over the on house collateral security in favor of the Bank: 1) a enabling or master deed showing, among investor despite registration of the chattel corresponding Certificate ofandSale was in owned by mortgage the Borrower which Edzo’s was company foreclosed car amounting didofnot to P10,000. the rights real estate over the landlocated and others, a certificate theaffect registered owner mortgage. executed and after the lapse of one year, title (3) Joselyn Reyes – former employee of Quezon City; 2) the joint and several of and thirdofparties like theholders lending building all registered of investor. any lien or wasTimbol, consolidated in of the mortgagee. the note President of theof Borrower; and Edzo who unlawful termination promissory Pr.name Primo Since the sued third Edzo parties are not bound by the encumbrance on for the property that they Mortgagee then applied with the RTC for the 3) a real estate mortgage over the of employment and was able to obtain a chattel mortgage, they are not also bound by consent to the registration of the deed. (Sec issuance a writby of possession not only over lot of owned residential houseMr. andTimbol, also located in Quezon final against Edzo for P100,000. any4. judgment enforcement itsmortgagee provisions. The its RA 4726). If ofthe gave the land but also the condominium building. (4) Bureau of Internal Revenue – for not City. foreclosure of such chattel mortgage consent thereto, then LDC should did prevail. If The mortgagee contended that the SUGGESTED unpaid value-added taxes amounting bolster or addANSWER: anything tothe thecondominium positiontoof thewas no consent was given, mortgage included all accessions, Mortgage vs. Levy (2003) P30,000. surety company. included in the mortgage. improvements and accessories found on the mortgaged property.

Page 49 of 103 Upon his failure toof pay the loan Page 50 53 52 54 of 103 103 relation, Moreover, Yes, Onwhen March Purita in insured Page 19, the cannot 51 1993, problem and 103 be insurer a fire at a razed on due date, the bank foreclosed the donee hand, have theagreed there building of the isto deceased. no to the double the payment ground. Hence, insurance ofGarapal she premium because cannot Insurance by 1989, citing Gcrcio v.favor Sun Life, G.R. No. reinsurance the over Will no After continuing Petra’s evidence the his vehicle building is an suit crisis insurance prosper? of inburned involving suicide of against down, Explain. IOU. the or banking Robin When liability arson filed Anjo his or ANSWER: mortgage on the 3First lots, which were Concealment; Material Concealment; Incontestability 23703, September 28, 1925; and Go v.28, also the installments refused insured be his to beneficiary. with and make the partial good payment its Insurance obligation has is been to Benjie andSUGGESTED which defaulted, involvement claim financial thefor original fire sector IOU loss of foreclosed insurer in with BX the in EFG. may Asian the these On incur region. chattel Feb events. in favor 1994, BX No, Petra’s suit will not prosper (assuming subsequently Clause forcontract. only atGarapal the Redfern, G.R. No. 47705, April 25, 1841); different made under at (1991) the from the time insurance thesold of insured loss, then withP99th the the 1)insurer Second Is Does of the mortgage, demanded EFG BD original denied have and insured. an Robin’s payment insurable sought claim. to interest of recover On the April within the 3, insurance 1994, (2) Neither can the Insured take the cash the policy of life insurance has been Insurance; Double Insurance (2005) Material Concealment (2001) foreclosure sale. Thereafter, the bank filed an Atty Roberto took out acar life insurance policy Insurance becomes Insurance liable. Company. legally When justified The thesame inloss refusing is true happened with thethat deficiency. proceeds Robin meaning sought offrom May the reconsideration IOU Insurance the still two recover Code ofpolicies, the of the the denial, thein Concealment; SUGGESTED ANSWER: surrender value, assign or even borrow on force for a period of less than 2 years from SUGGESTED ANSWER: When does double insurance exist? A applied for a non-medical insurance. ordinary action for the collection of Sep the from the Dana Ins Co (DIC) onagreed 1 respect on payment the 5th to the month, to interests Benjie? the six 2)insured Is months Natlife entitled in the two to 1989. Philippines deficiency? premiums but EFG (PD1460)? reiterated for Explain. which its (2%) position. IS had been On March faithfully 20, Yes. IOU BDdate may has insurable noits longer recover in his the bank deficiency. SUGGESTED ANSWER: said policy without theinterest beneficiary's consent the of issue). The matters which Juan period (2%) TheOn insured did not inform the insurer that deficiency. A1990, contended that the mortgage 31 Augthe Roberto died. DIC(UCPB refused policies. collect of payment on insurance had not yet policy? elapsed paying 1995, Robin during commenced all the time judicial he action was alive. (Nario v. Philamlife, G.R. No. 22796, June SUGGESTED ANSWER: Under Section 93 the Insurance Code, deposit. Under In Art case 1484 ofof loss of the of said NCC, deposit, in a 26, contract more of failed to disclose was material and relevant to General c) As Judge, Iprior would allow the businessman one week to his application forto contract he executed was indivisible and to pay his beneficiaries because it discovered Insurance v. Masagana Telamart, G.R. No. Starbrite against EFG. refused Should payment, Robin’s action contending be given that 1967); 1)Yes. Athe the time ofmisrepresented the loss, Benjie was no SUGGESTED ANSWER: there double insurance when there overparticularly sale of personal to the extent property of the the amount price of in which the approval and issuance of theistherefore insurance recover his total loss of P5M representing the insurance, was examined and confined atto consequently, the had norecover legal right that Robert had certain 137172, April 4, 2001) . bank Francis can BX ishad due course? no insurable Explain. interest and (3)No, The Insured cannot add another Robin’s action should not be given due longer the owner of the property insured as insurance with two or more companies, excess is payable of the limit in installments, covered by the the PDIC vendor Act, may, policy. They would to have affected Life’s from full value ofHospital his goods which lost through St. material Luke’s hewere was diagnosed foreclose only thewhere real estate mortgage facts in his application. The Peninsula Insurance Company, but theand was not entitled receive the Good proceeds beneficiary because that would reduce the SUGGESTED ANSWER: course. Is filing of the request for latter he failed to redeem the property. The law covering the same property, the same PBD among will be several damnified. options, He will foreclose suffer the chattel action on his application, either by approving fire. As to the creditor, Ithe would allow him for beneficiaries lung cancer. The soon thereafter leave out the chattel and sue sued onmortgage, basis thatthen DIC can has the right to insured deduct the amount of to from IS’s insurance coverage on his life and amount which first beneficiary may Starbrite isthe correct respect to been thea recover reconsideration did notwith suspend the running requires in property insurance that aliable insurable interest and the same risk. Double pecuniary mortgage loss of the P300,000.00, thing sold, that if one is, his has it with theon corresponding adjustment for amount to extent ofperson or died infor athe plane crash. Isinsurance the insurer him a supposed deficiency judgment. If contest the validity of insurance policy unpaid premium from the also on his property. Is Starbrite’s contention recover and therefore adversely affect his insurance coverage onperiod the property IS. of the prescriptive ofminus one year can recover proceeds of the policy if Insurance; Life Insurance; Assignment ofthe Policy (1991) insurance exists where the same person is of bank constituted, deposit of half should a million the vendee’s pesos failure to higher premium or rejecting the same. equivalent to the value of you credit hehe considering that the fact concealed had no you were the2the Judge, would sustain only within years from the date ofthe issue proceeds. valid? Explain? (5%) vested right (Go v. Redfem, G.R. No. 47705, April SUGGESTED ANSWER: SUGGESTED ANSWER: The beneficiary in the property insurance SUGGESTED ANSWER: stipulated in theor insurance policy. Thus, has insurable interest at the time of policy of insurance upon his life, with a insured by several insurers separately in In when P200,000.00 pay cover which two is more the maximum installments. sucha The Moreover, a disclosure may have amount warranted extended to the businessman for the stocksbearing with of the cause ofofthe death of Decide thethe contention A?lifetime and during the insured. Insurable Interest: Public Enemy (2000) 25, 1941); Ivalue were the Judge, Ifavor would dismiss the action No.IIf The concealed fact isand material tothe the would rule inpolicy of the insurance policy or the assignee thereof must have robin commenced judicial action against EFG issuance of the also at face of P100th was assigned by Jose, atime respect of the same subject matter and recoverable case, however, from the the PDIC. vendor shall have no medical examination of Juan by Good Life in in-trade which were mortgaged by the insured? Why? (5%) the case. (4)Assurance Unless the policy allows, the May a member ofto the MILF its Insured breakaway as being premature since the proper approval and issuance ofAt the insurance company. The incontestability clause, insurable interest in the property insured. Interest; Equitable Interest (1991) on March 20,or his ability to Insurable when the loss the timeremedy of fire, married man with 2occurs. legitimate children, to interests. (Geagonia v. Court of1995, Appeals, G.R. No.BX, further action against the purchaser order for it reasonably assess the risk businessman. cannot even designate another beneficiary Insurance; Double Insurance; effect (1993) group, the Abu Sayyaf, bethe insured aone-year would be the ofeffect the policy. It is well settled that insured need applies only ifsecurity the policy had been in a mere friend-companion of with IS, price has no A piece of machinery was shipped to Mr do so had already prescribed. The Benjie no longer had insurable interest in the his nephew Yto ascomplete for the aforeclosure loan of P50th. 114427, February 6, 1995) recover any unpaid balance of the involved in accepting application. In and any should the original beneficiary predecease Julie and Alma formed a business 2) No. While at the time of the loss he had company licensed to do under the mortgages and only thereafter can there by not die of the disease he failed to disclose to for at least 2 years. The 2 year period is insurable interest in the residential house of Pablo on the basis of C&F Manila. Pablo period is counted from Feb 28, 1994 when property insured. He did not give the insurer any written notice any agreement to the contrary void. While case, goodacquires faith is beneficiary's no isdefense in him. His estate the partnership. Under thePhils business name Pino insurable interest in sufficient the building, as he was Insurance Code of the (PD 1460)? an action for collection of any deficiency. In the insurer. It is that his counted from the time the insurance IS. BX is not entitled to receive the proceeds insured said machinery with the Talaga EFG denied Robin’s claim, not from the date of such assignment despite the explicit the given facts did not explicitly state that concealment. Thedeath; waiver of a medical SUGGESTED ANSWER: vested right upon his and As to the insurance coverage theoflifeEFG of Shop, the partnership engaged in aon sale the owner thereof, Nat did not have Explain. (3%) Caltex vto IAC (GR 74730, 25 Aug 89) , the nondisclosure misled the insurer in forming becomes effective until the death of any the from IS’s insurance on his property. Merchants Ins Co (Tamic) for loss or damage (presumably after April 3, 1994) that effect in the policy. Jose Anjo’s failure tocannot pay covered 2 when ormay more examination in the ‘non-medical’ life provision ALTERNATIVE ANSWER: (5) The Insured allow his creditors A member of the MILF or the Abu Sayyaf IS, BX is entitled to receive the proceeds. construction materials. Julie insured the interest in the policy. There was no remedies on a secured debt, said the court, his estimate of the risks of the proposed insured and not thereafter (Tan v CA GR 48044 during the voyage. The vessel sank en route reiterated its position denying Robin’s claim. died. Upon the claim on the policy by the installments, this may safely be presumed insurance from Good Lifelicensed makes(Philamlife it more Concealment; Iautomatic wouldMaterial rule in clause favor Incontestability of the thepolicy insurance to attach orwith execute onShop the policy. be insured a company toeven do have Concealment: There is no requirement that BX should stocks in trade of Pino with WGC transfer in that are either an action to collect or to foreclose insurance policy or in making inquiries. 29Jun1989) to company. Manila.the Pablo then filed apay claim with not The reason for this rule is1989) insure that assignee, insurer refused on the because the right ofJuan IOU Co totoforeclose the necessary that supply complete v. Pineda, G.R. No. 54216, 19, Although an to insurer may business under the Insurance Code of the Clause (1994) insurable interest in July the life of IS. Itshe was are IS Insurance Co for P350th. Subsequently, would give him such interest inthe the policy. a contract of real security. These remedies Tamic which was denied for the reason that of claims against insurance companies ground that it was not notified of chattel mortgage under the circumstances is information about his previous hospitalization rescind the 23, contract on ground Phils. What isinsurance prohibited toinsurance be insured ishis afor own Interest; Property Insurance (2001) SUGGESTED ANSWER: OnInsurable September 1990, Tan took a life himself who tookand the again got an contract with on RSI are alternative remedies, although an action prior to deliver, Pablo had no insurable promptly settled that insurance suits are assignment. Upon the other hand, the heirs premised on Anjo’s failure to pay 2 or more Beneficiary: Rights; Irrevocable Beneficiary (2005) for such information constitutes an important misrepresentation after The an action is If and the policy of life insurance has been Insurable Interest; LifeEIC vs. enemy Property Insurance (2002) public enemy. A public is a citizen or in Pablo JQ, owner had deficiency anofexisting a condominium insurable unit, interest insured on the insurance policy from Philam. policy was life. P1m then from for P200th. A fire of for any is not precluded, subject to interest. Decidefor the case. brought by the insured while the evidence as of Jose contended that Y is not entitled to installments. The foreclosure would not have Jacob obtained a life insurance policy for P1from factor which Good Life takes into Insurance; Return of Premiums (2000) commenced recovery under the policy, the force for a period of 2 years or more national of a country with which the Distinguish insurable interest in property SUGGESTED ANSWER: the piece of machinery he bought. The same against fire with the XYZ Insurance issued on November 6, 1990. He died on April unknown origin and gutted the of store of the certain exceptions asbecause those stated to origin cause the destruction has amount under thesuch policy the in Art been valid if it notmember so. (The Million designating irrevocably Diwata, aissue consideration inwere deciding whether to the any Name at least three instances when an insurer is not precluded from invoking the thethe date of its issue (on which point the A life insurance is hepatoma. assignable. provision, Philippines isJulie at war. Such ofgiven the insurance from insurable interest in facts life purchase Co., and ofof made goods theunder lossaA payable a perfected toonhis 26, 1992 The insurance partnership. filed her(See claims with the 1484 of the Civil Code, by foreclosure not yet disappeared. Sun Ins Office Ltd v without due noticethat toas the insurer did not also state whether Anjo’s friend, as his Jacob, however, policy orANSWER: not. (Seeexplicitly Assurance Co SUGGESTED insured isbeneficiary. entitled to aa Good return the groundin of misrepresentation aclaim defense in given facts are vague) then Life can noof assignment however, the policy stating written MILF or the Abu Sayyaf isSunlife not citizen orof insurance. (5%) contract of sale already vests equitable brother, MLQ. In case of loss by fire of the company denied the beneficiaries’ and three insurance companies. However, her the mortgages. While the factual settings in CA gr 89741, Mar 13 insurance, 91 195s193) was void. Resolve the issues. default SUGGESTED ANSWER: athat payment default or aabdefault changed his mind and wants Yob and Jojo, his Canada a) In vwas CA property GR 105135, June 22, the 1995 expectation 245 sinitio 268) premium paid. the action for recovery. This isthe alright since longer prove the policy is void notice of such an assignment should be given national of another country, but of the interest said condominium on property unit, in favor who may of recover buyer on rescinded the policy by reason of alleged claims were denied separately for breach of the case of Suria v IAC (30 June 87) are not Three instances when insured is entitled arising fromto abe breach ofan negative pledge or Insurable Interest: Separate Insurable Interest (1999) other friends, included beneficiaries of benefit must have aaas legal basis. In life the while bar insurance problem is not delivery covered yet by ofthe or is rescindible by reason of the fraudulent to the insurer valid (Secs Ins Philippines. even itis is pending (Filipino fire policy? State the reason(s) misrepresentation and concealment policy condition which required the insured to similar toANSWER: the facts given 181-182 in the problem, the Concealment; Material Concealment; Incontestability to a return of premium paid are: breach ofthat athe warranty. In such case, however, SUGGESTED A businessman inthe the grocery business considering proceeds ofofthe policy ALTERNATIVE ANSWER: insurance, expectation benefit to be Merchants incontestability clause. concealment or misrepresentation of Juan Code). The failure of the notice of assignment Ins Co v CA GR for your answer. (5%) material facts made by 85144 Tan in28Nov1989) his application. give noticeToofthe anyWHOLE insurance effected SC implied that foreclosure as a remedy in 1 PREMIUM, if no part of his Clause (1998) The indivisibility of a contract of real security, JQ can recover on the fire insurance policy for IOU Company would not have been able to Concealment; Material Concealment: Incontestability Insurablethus Interest; Life vs. Property Insurance (1997) obtained from First an insurance arederived for theInsurance three friends. Can Jacob from the continued existence of a life ( sufficient Sec 48 Ins Code) preclude the assignee from It returned the premiums paid. covering the stocks in trade. Julie went to to any ofwould SUGGESTED ANSWER: secured obligations must first be availed of interest in thing insured be exposed Renato was issued a life insurance policy on such as a real estate mortgage or a chattel the loss of said condominium unit. He has the foreclose the chattel mortgage validly as Clause (1997) policy for P5M to fully cover his stocks-ina) A obtains a fire insurance on his house and as a stillRemedies; add not YobAvailable and Jojo as his basis. beneficiaries? to Mortgagee-Creditor (2001) need have any legal The beneficiaries contend that the company claiming rights under the policy. The failure court and contended that sheYob should not be No,such Jacob can no longer add and Jojo as in by a creditor in preference to other remedies the perils insured against. January 2, 1990. He concealed the fact that mortgage, only means that a division or a insurable interest as owner-insured. As foreclosure, under the circumstances The assured answers “No” to the question generous gesture names his neighbor as the trade from the risk of fire. Explain. (2%) Debtor “A” issued a promissory note in the had no right rescind the contract of notice did to not, however, avoid theas policy; blamed forWhere theproperty omission, alleging that the hiscontemplated beneficiaries in addition to Diwata. As the that might also be invoked him. b) Inof insurance, the actual 2 the is made for abank definite Three months thereafter, a policy: fire ofcould accidental 3 years prior to the issuance of his life can partial payment of house afire secured obligation beneficiary beneficiary. inIf A’s the insurance is by destroyed policy, bydoes fire, MLQ by law, only be the application for athe life “Are you amount P10M ininsurance favor of commercial rescission must be done “during the lifetime” hence, upon the death of Jose, the proceeds insurance agents for completely WGC, RSI and EIC knew irrevocable beneficiary, Diwata has acquired value of the interest therein is the limitIn of period of time and the insured surrenders his origin broke outby insurance policy, he had been seeing a successfully claim against the policy? b) A not warrant a corresponding division or B cannot recover on the fire insurance policy. effected for aand payment default covering two suffering from any form of heart illness?” Y secured mortgage of destroyed his properties of the insured within two and prior to would, in the absence of ayears designated of the existence ofportion the additional insurance a-vested right over Jacob's lifevalidly the insurance that can be placed policy, to such of premium as for the grocery including his stocks-in-trade. This doctor about his heart ailment. insurance over his life and names his proportionate reduction of the security given. For the beneficiary to recover on the fire or or more installments) (Luis Ridad v Filipinas fact, the assured has been ainsurance heart patient worth P30M. When A the failed to pay his obtains the commencement of the action. Is the beneficiary, go1, to 1992, the estate of thedied insured. coverages and that she was not informed policy. Any additional beneficiaries will SUGGESTED ANSWER: On March Renato of heart SUGGESTED ANSWER: thereon. In businessman life insurance, there is no limit to neighbor B the beneficiary because of A’s secret corresponds with unexpired time at a is pro prompted the to file First A creditor in such secured debts may pursue property insurance policy, it is required that Investment and Finance Co GR L-39806 many years. On 7the Sep 1991, thewith assured indebtedness, despite demands made by rata contention of the beneficiaries tenable? Thefailure. estate,May in turn, would be liable for theon the about the requirement that such other orthe reduce the amount which Diwata, as the first 1) No. An is required to disclose the heirs file apart claim The clause does not for B. Ifincontestability A dies, can B successfully the amount insurance that may be taken love rate, unless aof short period rate has been agreed Insurance; Perfection of Insurance Contracts (2003) Insurance aa claim for five million the remedy ofowing foreclosure, inof orclaim in full, or he must have insurable interest in against the Jan27,83 120s246) killed ininsured plane crash. The insurance bank Y, the latter instituted apesos collection suit No. loan of P50,000 in favor Y. additional insurance should be stated in the beneficiary, may recover, which will other insurances covering the subject matter proceeds of the life insurance policy apply. The insured dies within less than two policy? the life. upon and appears on the face of the policy, after representing the full value of his goods. Josie Gatbonton obtained from Warranty file an ordinary action for collection any of property insured. In this case, MLQondoes not company denies the claim for insurance to enforce payment of the P10M account. SUGGESTED ANSWER: policy. Is the contention of claim Julie tenable? adversely affect her vested right. (Go v. SUGGESTED ANSWER: of the insurance being applied for. (New Life c) In property insurance, an interest First Insurance denied the because it claim Renato? (5%) the of Promissory Note: Liability (2001) deducting from the whole premium any Insurance Corporation a comprehensive amount due. A issuance favorable judgment can on havefrom insurable interest in the the policy condominium proceeds and returns premiums paid. Is foryears Subsequently, bank Ythe also filed foreclosure Yes. The life insurance policy inbeneficiary question Explain. May she recover on her fire SUGGESTED ANSWER: a) No. In property insurance, the Redfern, G.R. No. 47705, April 25, 1941) Insurance; Cash & Carry Basis (2003) Ent v CA 207 s 669) insured must exist when the insurance takes discovered that at the time of the loss, the September 23, 1990. The insured died onwas X, Y and Z signed a promissory note in favor loss or damage under the policy which has motor vehicle insurance to cover her brand warrant an issuance of a writ of execution on unit. the decision of the Prohibited insurance company proceedings against Aincontestability for security given for Beneficiary; Life Insurance; Beneficiaries issued on January 9, 1990. More than 2 years 2) No, Assuming because that she is the guilty of violation of clause a insurance policies? Explain. must have insurable interest in the property What is meant by “cash and carry” in the effect and when the loss occurs but need not SUGGESTED ANSWER: stocks-in-trade were mortgaged to a creditor April 26, 1992, or less than 2 years from of A stating: “We promise to pay A on previously accrued. new automobile. She paid, and the insurer any property, not exempt from execution, justified? the account. If because you were the judge, how (1998) had elapsed when Renato, the insured, died warranty/ does not condition. apply the policy hasaccount insured. (Sec 18 Ins Code). B does not have The case for collection will beInsurance allowed business ofto insurance? exist in the meantime. InSecond life insurance, itnot isto September who obtained from 23, 1990. December 31, 2001 the sum of P5,000.00” 3 likewise When the contract is voidable on accepted payment in check. Before the check belonging the judgment debtor. There would you resolve the two cases? (5%) Juan de la Cruz was issued Policy No. 8888 of SUGGESTED ANSWER: on March 1, 1992. The incontestability clause been in force for 2 years, from the date of insurable interest in the house insured. proceed. But the foreclosure proceedings The right of the insurer to rescind is only lost enough that insurable interest exists at the Company fire insurance coverage for the When theencashed, note due, Awas sued Y who ofMidland the fraud orInsurance misrepresentation of thelife insurer or could be Josie involved in a to should be no fell legal obstacle forX aand creditor thehave onthe aIn whole Insurance; Effects; Payment of Premiums by Installment applies. issue, during the lifetime insured, the toLife be dismissed. instituting if the beneficiary has commenced an action time the contract isof made but itexistence need Z. Is the defense valid? Why? stocks atwhen their full value of Co P5M. a) May the put up the defense that A(5%) should have of his agent or on account of facts the motor vehicle accident where her car waive, in full or in part, his right to plan forexist P20,000 on August 19, 1989. Juan is Insurance; Co-Insurance INCONTESTABILITY CLAUSE (2006) b) Yes. InANSWER: life insurance, it is action not (1994) required separate insurance coverages over the same decision of the insurance company not to pay SUGGESTED foreclosure proceedings, after filing the policy. isvs. noRe-Insurance such in this not at the time of loss. businessman and the creditor obtain impleaded of which the insured was ignorant without hisa on became a totalThere wreck. She sought payment foreclosure on contracts of have real security. The insurer has two years from the date married to Cynthia with whom he has three Distinguish co-insurance from re-Y, of that the beneficiary must insurable The Peninsula Insurance Company offered to Insurable Interest; Property Insurance (1994) The defense is not valid. The liability of X, in-trade? Explain (3%) b) First Insurance SUGGESTED ANSWER: stocksis justified. There was fraudulent collection case involving the same account or case. (Tan v CA 174 s 143) fault; or when, by any default of the insured other from the insurer. Could the insurer be made SUGGESTED ANSWER: issuance of the insurance contract or of its legitimate designated insurance. insure new car against all risks interest in the lifeConcealment: of the insured. It was the Concealment; Material Incontestability (per Dondee) Yes, because there was a joint. In a Francis' civil suit,brand the Court ordered Benjie to pay and Z under the promissory note is refused to children. pay claiming that double concealment. It He, is not material that thea transaction, bank Y however, is guilty of splitting than actual fraud, the insurer never incurred any liable under the insurance coverage? (6%) Beneficiary: Effects: Irrevocable Beneficiary (2005) CO-INSURANCE is the percentage in last reinstatement within which to contest Purita, his common-law wife, as the revocable insurance is Million contrary to1loan law. Is this contention insured himself who took the policy on his in the sum of PI for year. The policy Clause (1996) Nat P500,000.00. To execute judgment, perfected contract of case, insurance being the Z the is moment not anthe insured died of apolicy. different cause than cause of action. The ofthe P10M is the the Such liability under the What value are of the the effects insured of an property irrevocable which the the policy, whether or not, the insured beneficiary. Juan referred to Purita in tenable? (3%) c) Suppose you are the the Judge, was issued with the premium fixed at his own Juan life. procured a “non-medical” life A insurance there is a meeting of the with respect the sheriff levied upon Benjie’s registered indispensable party. The minds fact that did notstill fact concealed. The fact concealed, that is principal obligation while mortgage designation insured himself of a assumes beneficiary or undertakes under the to lives within such period. After two years, the Insurable Interest; Life vs. Property Insurance (2000) application and policy the legal wife. 3building how much would youin as 160,000.00 payable 6 Francis onlythe from Good Life Insurance. designated hisact property (a parcel of land and the to the object and the cause He of payment. The Z will not prevent A from collecting heart ailment, is months. material to securing the same is merely an accessory to implead SUGGESTED ANSWER: Insurance as insurer Code? to the Explain. extent (2%) of the deficiency in defenses of concealment IS, an elderly bachelor with no known years later, Juan died. Purita filed her claim allow theobligation. businessman and the creditor toloan the paid theloan first twosold months installments. wife, Petra, as theis beneficiary. Earlier, his or payment of check a valid unless thereon),and same at public auction proportionate share ofpayment X gives and Y inin the determination by the the insurance company said The collection of the The irrevocable designation the the insurance of the insured property. In case misrepresentation, no matter how patent or However, if the incontestability clause which relatives, obtained life insurance coverage for (Observation: Even if the liability of from their respective insurers. Explain for the proceeds of the policy as the recover Despite demands, he tothe payThe the latter, application in to the question as to to Nat, the highest on upon encashment theDeposit check bounced. payment ofInterest: theresponse loan. whether or not to failed accept application for and the foreclosure ofbidder. the mortgage securing beneficiary a Insurance; vested right over Life Insurable Bank (2000) SUGGESTED ANSWER: of loss or damage, the insurer be liable well founded, no lie. applies to the policy covering the Insurance; Property Prescription ofwill Claims P250,000.00 from Starbrite Insurance X, Y, and Z longer ishe solidary, the defense (3%)loan designated beneficiary The widow, subsequent installments. Five months after whether or not had ever been March 18, 1992, registered with the Register insurance andinsurance to therein. require the medical said constitute one and the same cause Insurance. The deposit Insured cannot act to divest BD has a bank of halfof a million pesos. a) Yes. The businessman, as owner, and the only for such proportion the loss Remedies; Secured Debt (1991) life of the insured had been in force for 2 (1996) Corporation, an entity licensed to engage in or would still not be valid) Cynthia, also filed a claim as the legal wife. the of the policy, the vehicle was he answered in the He Deeds the certificate of collection sale issued to him examination of the insured. ofissuance action. The filing ofhave the case bars hospitalized, SUGGESTED ANSWER: the insured irrevocable beneficiary, in negative. whole or in Since theaslimit of the under insurance coverage of creditor, as mortgagee, separate damage the amount of insurance bears To years secure from the issuance payment thereof, of his loan the of insurance P200th, Robin his building against fire with the insurable business the Insurance To whom should the proceeds of the carnapped. Francis filed with the insurance forgot to mention his confinement at To the to byproceeds the sheriff. Meanwhile, on the subsequent filing of policy the January foreclosure The of thein insurance shall be 27, part, without the beneficiary's consent. the Philippine Deposit Insurance Corp (PDIC) insurable interests the same stocks-inthe designated percentage of the full value Remedies; Available to Mortgagee-Creditor (1996) A company executed would ininsured favor not of bethe justified Angeles inInsurance Banking denying After Juan diedbeneficiary in a plane crash, Petrain filed a of EFG Assurance. The insurance policy Code of the Philippines (PD1460). He also insurance be awarded? (5%) company apolicy claim for its of value. However, the Kidney Hospital. 1993, Benjie with Garapal proceedings. (1) The designated a life awarded to the ESTATE Juan de la Cruz. REINSURANCE is where the insurer procures be specific: (RA 3591) is only one tenth of BD’s deposit, trade. Each may insure such interest to the property insured. Finding a 24-month payment plan attractive, Co the claim 1denied document, for proceeds a real of the estate insurance mortgage and contained claim with Good Discovering usual Life. stipulation anyJuan’s insured histhe residential house for twice that company his claim on ground that for in P1,000,000.00 the same building that insurance contract cannot bethat changed Purita, the commonlaw-wife, isthe disqualified a party, called the reinsurer, toexcess insure hethird would like some protection for the protect his own separate interest. The Anjo purchased athe Tamaraw FX from Toyota over in returning 3tolots the registered premium in resulting paid. histob) name InNat. that and case, a previous hospitalization, Good Life rejected action or suit must be filed within one year amount within same corporation. He he failed pay the premium in the was sold at public auction Benjie without the consent of the beneficiary as the beneficiary of the deceased because him against liability by reason of such original byHe taking an insurance against alland risks contention ofredeem First Insurance that double paid aout down-payment of P100th chattel the insurer mortgage cannot over prove his 3the cars policy and 1 void Isuzu ab QC. Petra’s claim on the ground of concealment after the rejection of the claim. immediately assigned all his rights to the cancellation of the policy. Can Francis failed to the property by March 18, because heBasically, has a vested interest in from the policy of illicit relation between theisdeceased and insurance. a SUGGESTED ANSWER: ormisrepresentation. contingencies ofBX, loss arising any insurance is contrary to law untenable. obtained financing for the balance from IOU cargo initio or truck. rescindible by reason of fraudulent and Petra sued Good Life, insurance proceeds to a friend-companion recover from the Peninsula Insurance 1993. (Philamlife v.or Pineda, G.R. No. 54216, July 19, Purita, the designated beneficiary. Due to unsound unsafe banking practices There is no law providing that double Co. He executed a chattel mortgage concealment or misrepresentation of the invoking good faith on part of Juan. living with him. Three years later, IS died in a Company? such illicit (5%) unforeseen adverse effects insurance insured.is illegal per se. fireincluding that gutted his insured house twoofdays after he had sold it. There is Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Insurance Law

Mercantile Law Examination Q & A (1990-2006) Page Page 58 59 55 57 of 103 of 103 Page unpaid son, hired Luz 56 P4,500 of balance BOY, professionals 103 injured for onthe the 3damage to children afloatto of Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) ABar (1990-2006) or willful exposure tonote needless peril whichbe are excepted risks. The insured’s promissory POS, the vessel car a neighbor, as evidenced forto should P900,000.00. who by sued paid a release SAM When and for not of re-floated, damages. claim only figured garden stated Having in stones in an already the accident covered insurance obtained resulting by policy, the full in single payment the the death principles policy on the a. Page 60 of 103 print, reprint, publish, copy, act was purely anlawyer act of negligence which is payable covered by thebefore policy andat for Insured; Accident vs. Suicide (1993) the SAM's the executed installments vessel by needed Luz was duedischarging and ATT, repairs who estimated was Raul. paid for thehis of coverage ainsurance underlying passenger. (seepolicies Oriental solidary At theissued Assurance time obligations of bythe YCoand accident, v CA would Z,200 Fortune s be distribute, multiply, make which the insured got the insurancesell for hisand protection. In fact,photographs, he removed the S Insurance Co issued a personal accident loss services P2,000,000.00. offrom the byand the insurer insurance forgunreporting 459) Jay violated may Cruz no was . (Malayan longer licensed recover Ins to Co drive v from CA butGR it Xwas L-36413 insurance Sep photo engravings, and pictorial magazine the car. gun whenThe he pointed the toillustrations hiscompany temple he did soof the Marine Warranties (2000) SoheCala reimbursement from Luz, or policy to 165s536; Bob with face periodically refused to pay case to of the ship In one owner, report, 26,Insurance; 88 Figuracion vda devalue Maglana confiscated policy. byImplied anTan LTO agentawho issued himof v because thought that iton was the safe forclaim him to do so.CNI. He didor so to assure his works; b. todemanded make any translation other version What warranties are implied in marine sister that the gun was harmless. There is none in the policy that would Insurer; Group Insurance; Employer-Policy Holder (2000) who refused to pay, saying that the total P500th. In the evening of Sep 5, 1992, after Consolacion GR 60506 Aug 6, 92just 212s268) ATT disclosed stating there to CNI was that “no after constructive his total to Open Policy a Traffic Violation Report (TVR) minutes extracts orthat arrangements orinsured adaptation thereof; SUGGESTED ANSWER: the insurer ofto liability for car the death of the since theSince death was Insurer; 3rdaccident. Party Liability (2000) insurance? c) If the each of the policies obtained bymood Fortune relieve X company procured awas group accident damage the P9,500.00 Cala his birthday party, Tan wasAsiatic in a happy investigations, loss.” a) Was there he found “constructive the injuries total to the loss” 3 before Could Insurers, dramatize if it be a non-dramatic work; to convert it an accident. The following warranties are implied in X was riding a suburban utility vehicle (SUV) SUGGESTED ANSWER:

owner to only, recover from company? the problem (a) above iswith an open policy insurance policy for its construction paid P5,000 Luz contends that shetowas butinnot drunk. He was playing his hand children to not the accidental ship intentional. Inc., be made liable under its policy? Why? aentitle non-dramatic work ifbut it the be ainsurance drama; marine 1) That the ship isthe into Asiatic Insurers, should be made liable covered byimmediately aInc., comprehensive motor vehicle Explain. b) Was it proper for the ship owner and it insurance: was determined after employees variously assigned to its entitled to go after Raul to claim the gun, from which he previously removed the (6%) complete or execute it if it be a model or design; c. and/or to take in certain cargoes 2)driver That the seaworthy to make the voyage under policy. The fact that the waswas liability insurance (CMVLI) underwritten by provincial SAM lost caseof in court, and was to send athe notice fire the that the value of Fortune’s house infrastructure projects. YPOS Insurance additional P4,500.00 1) Is Cala, as subrogee magazine. As his secretary was watching to exhibit, perform, represent, produce or reproduce ship shall not deviate from the voyage merely holding a TVR does not violate the FastPay Insurance Company when it collided abandonment to the insurance company? awarded one million pesos in damages which P2.4m, how much may he collect underwrote the coverage, the ofwork Luz,in entitled to reimbursement from Raul? television, he stood in front of herfrom andX,Y Company the any manner or by any method whatever insured; 3) That the ship shall carry the SUGGESTED ANSWER: condition that the driver should have a valid with a speeding bus owned by RM Travel Inc. (5%) Explain. he sought to collect from the insurer. But CNI for and Z? premiums ofotherwise; which were paidreproduced entirely bycopies 2) Mayor Cala recover what itfor has paid Luz? pointed the gun at her. She pushed it aside for profit if not in necessary documents to In an open policy, the insured may recover SUGGESTED ANSWER: and existing driver’s license. Insurer: Effects: Several Insurers (2005) The collision resulted in serious injuries to X; used ATTs report to deny the claim on the X Company without any employee andshow said nationality that it mayorbe loaded. and He assured to sell any manuscripts or any record Besides, suchloss a condition should be 1) No, No. there Luz was executed noinjuries "constructive release intotal favor loss" of hisa passenger total tobus; theand amount ofit will the notsale, What is the nature ofapolicy the liability of the ofup theneutrality Z, a that pedestrian ground that the to POS's 3other children contributions. While the was in effect, herY, that it was not and then pointed it at his whatsoever thereof; d. to make any use or carry any document which will cast reasonable disregarded because what is involved is a Raul because (Manila the Mahogany vessel was Mfg refloated Corp v CA and GR the insurance cover. Thus, the extent of recovery several insurers in double insurance? waiting for a ride at the scene of the collision. were intentional, hence excluded from the five of the covered employees perished at temple. The next moment, there was an disposition of the work consistent with the laws of suspicion thereon; 4)and That the shall SUGGESTED ANSWER: 52756, Oct 1987)plus passenger jeepney, what isship involved costs of12 refloating the neededthat repairs would be P400th from X, P200th fromnot Y,onand The wifepolice of the deceased sought payment Explain. (2%) The report established that the bus sea policy's coverage. POSprovincial countered CNI (P on their way to their explosion and Tan slumped to the floor the land 2) Yes. Cala lost its right against Raul carry especially ifThe nature ofwillthe of the several here iscontraband, not own damage insurance buthad third 2.9 Million) not liability be more than threeP600th the policy but Z. her claim was rejected. The was thefrom offending vehicle. bus CMVLI The was estopped from using ATTs report Their wives sued Y Insurance lifeless. it In is problem making a through belligerent because ofdouble thevalue release executed by Luz. d) (a),voyage what is the extent theZ assignments. insurers in insurance is that each party liability where the injured party is a ofand fourths of the of the vessel. A insurance company agreed that there was no policy issued by Dragon Ins Co. X, Y, because it payment was unethical for ATT to provide Company for of made death benefits waters. Since the release was without the to a liability of insurance companies is bound to the contribute ratably third party notthe privy the the contract of among constructive total loss is one which gives suicide. However, itto was submission of for insurer jointly sued RM Travel and Dragon Ins prejudicial information hispending, client to under the policy. While theagainst suit was SUGGESTED ANSWER: Marine Insurance; Peril of the Shipvehicle vs. Perilisof the Sea Insurer; Authorized Driver Clause; stolen consent of Cala, recover the loss ininsured proportion to may the amount for which insurance. person aCala right to abandon. (Sec, 131, thethemselves? insurance company that there was of no the the indemnity under the Insurance Code the insurer, CNI. Who should prevail: the the wives signed a power of attorney In problem (a), the insurance companies (1998) (1993) SUGGESTED ANSWER: amount of P5,000 form Luz (Manila Mahogany he is liable under his contract as provided for Insurance Code) There would have been a accident. In supportThe thereof, itcourt contended a) the designating Phils (PD1460). lower applied claimant, POS; or the insurer, CNI? Company executive, PJ, Decide asreport, among themselves would be X– A marine insurance policy on aliable, cargo states CNI is not from using ATT's HL insured his brand new car with Insviz: Co vXestopped CA GR 52756, 12 Oct by Mfg SecCorp 94 of ICPtotal par. The ratable contribution constructive loss had the1987). vessel MN that there was no accident when aPdeliberate “no fault” indemnity policy of the statute, with reasons briefly. (5%) their authorized representative to enter into Insurer; Authorized Clause (1991) 4/12 of P600th P200th – 2/12 for ofthe P600th that “the insurer=coverage shall be Ywherein liable losses = because CNI, inDriver the loss first place, for comprehensive each of each insurer will be determined Pearly Shells suffer or needed refloating actdismissed was performed unless some the suit against RMadditional, Travel, and of a settlement with the insurance company. SUGGESTED ANSWER: Sheryl insured her newly acquired car, athe P100th Z – 6/12 of P600th = P300th incident to perils of the sea.” During the commissioned it and paid ATT for it. On insurance company undertook to indemnify based on the following formula: AMOUNT OF and repairs of more than the required threeunexpected, independent and unforeseen ordered Dragon Ins to pay indemnity tothe all When a settlement was reached, PJ No. The cause of action of Y is based on Nissan Maxima against any loss or damage voyage, seawater entered the compartment other hand, ATT has no conflict of interest him against loss or damage to the car a) by POLICY divided by TOTAL INSURANCE TAKEN fourths of its value, i.e., more than P30.0 happening occur which produces brings three plaintiffs. Do you agree with court’s instructed ALTERNATIVE ANSWER: the insurance company to issueside contract ofcargo carriage, that oforXthe and Z is for P50th and against party liability for SUGGESTED ANSWER: where thecollision was stored due to the because SAM and CNI are on thecited same accidental b) while by fire, external multiplied by LOSS =3rd LIABILITY OF THE Million (Sec. 139, Insurance Code, in pay about theon injury or... death; and b) that the judgment? Explain (2%) However, the insurance company shall e) Supposing in problem (a) above, Fortune Each insurer is bound, as between himself the settlement check to the order of X based torts. The court should not have P20th with the XYZ Ins Co. Under the policy, Yes. The suit will prosper. Y Ins Co is liable. X defective drainpipe of theft, the ship. The insured — their interests being congruent with each explosion, burglary, or and c) malicious INSURER. Assurance v. of Appeals and insured willfully exposed himself to needless for the total costs ofCourt refloating and needed was able tothe collect from both Yrecovery and Z, may andOriental other insurers, to contribute ratably to Company, which will undertake the payment dismissed against RM Travel. The the carnamely, must be driven only by an authorized After a month, the car carnapped while Co, through its executive, PJ, acted as agent filed an action onsuit thewas policy for of other, to oppose POS's claim. It act. Panama Saw Mill, G.R. No. 94052, August 9, peril and thus removed himself from thepay SUGGESTED repairs (P2.9 Million). he keep the entire amount he was able theY loss in proportion to the amount to the individual claimants of their respective court should have ordered Ins to driver who is latter either: 1) the insured, or 2)for any SUGGESTED ANSWER: parked inANSWER: the parking space front ofMay the of Ins Co. The thus bound by the the damages caused to theinDragon cargo. theto cannot be said thatisATT has used the 1991) coverage of the insurance policy. Are the two No. The proximate cause of the damage to c) Was it proper for the ship owner to collect from the said 2 insurance companies? which he is liable under his contract. (Sec. shares. PJ misappropriated the settlement each of X, Y , and Z to the extent of the However, in Finman General Assurance Corp. v. No. These two contentions are not tenable. person driving on the insured’s order or with Intercontinental Hotel in Makati. misconduct of its agent. It is the usual insured recover damages? (5%) HL’s wife information to the disadvantage or prejudice ANSWER: contentions of thefor insurance company the cargo insured the defective send a notice ofprovided abandonment to person the 94,Court Insurance Code) amount and the wives pursued their case insurance but whatever amount of Appeals, 213 SCRA 493 (1992), it was TheSUGGESTED insurer iscoverage, liable injury orit death even is his permission: that the who was driving said carwas before was practice in the group insurance business that of SAM. ANSWER: No, heExplain. can beThis indemnified his loss, SUGGESTED tenable? Insurer; 3rd Liability (1996) drainpipe of theonly ship. is policy peril of for the ship, insurance company? Explain. against Y Party Insurance Co. Will the suit prosper? upon in the should explained that there is no "accident" in the dueagreed to the insured’s gross negligence. The be driving is permitted in accordance with carnapped reported immediately the the employer-policy holder is the agent of No, it was not proper forEDSA, the ship owner to not profit thereby; hence he must return While driving his car along and not peril of the sea. The defect in the Insurer; Liability of theaccident Insurers Explain (3%) first government by RM Travel and context ofor an policy, ifCesar it is the factanswered thatto the insured removed the magazine licensing other laws(1990) or regulations to drive incident various agencies in the the insurer. send a notice of abandonment to the P200th of the P800th he was able to collect. sideswiped Roberto, causing injuries to the drainpipe was the result of the ordinary use a) Suppose that Fortune owns house succeeding amount should be insured paid by natural result of the insured's voluntary act, from the hand means that the the motor vehicle and is notadisqualified from compliance withgun the insurance requirements. insurance company because abandonment During the effectivity of and theby policy, the car, latter, Roberto sued Cesar the third party of the ship. Tocould recover under aneedless marine Because the car nothimself be recovered, HL valued at P600th and insured the same Insurance up to the amount of the unaccompanied by anything unforeseen didDragon not willfully expose to driving such motor vehicle order of a Loss: Actual Total Loss (1996) can only be by availed of herself, when, inwho ainsurance marine then driven had no liability insurer for damages insurance policy, theloss proximate cause of the filed aAt claim for the of the with theclaims against fire with 3Sheryl insurance companies aswhen insurance coverage. The excess ofguilty the except the injury. There isand/or no accident a peril. most, insured is car only of court. RC Corporation purchased rice from insurance contract, the amount to be was driver’s license, met an accident and proceeds. The insurance company moved to loss or damage must be peril of the sea. insurance company but it was denied on the follows: X – P400th Y – P200th Z – P600th of X, Y, and and above such deliberate act is performed, unless some negligence (Sun Ins vZ,CA over 211 s 554) Thailand, which it Nature intended to sell locally. Mutual Insurance Company; & Definition (2006) Insurer; 3rd Party Liability; Nowas Fault Indemnity (1994) expended todamaged. recovercontending the vessel would have Insured; Accident vs. Suicide (1995) extensively The estimated cost of dismiss the complaint, that the ground that his wife who driving the car be insurance coverage, iftheany, should additional and unforeseen happening occurs Due is toisstormy weather, ship carrying the What a mutual insurance company or been more than three-fourths of its value. What your understanding of a “no fault Sun-Moon Insurance issued a Personal repair was P40th. Sheryl immediately liability of Cesar has the not injury. yet been determined when it was carnapped was in the possession answered or paid by RM Travel. that brings about This element of SUGGESTED ANSWER: rice became ininsea water, and association? Vessel MN Pearly Shells needed P2.9 indemnity” clause found insurance Accident Policy tosubmerged Henry Dy with aan face value notified XYZ, latter paythe on with finality. a) Isbut the contention of only theto of an expired driver’s license, a violation of a deliberateness is the not clearlyrefused shown from A mutual life insurance corporation is SUGGESTED ANSWER: with it the rice cargo. When the cargostates arrived Million, which does not meet the required policy? of P500th. A provision in the policy the policy alleging that Sheryl violated the In the absence of any stipulation in the insurer correct? Explain. b) Mayconsidering the insurer the the “authorized driver” clause ofwelfare the facts of the case, especially SUGGESTED ANSWER: cooperative Under that “NO promotes FAULT the ofclause, its SUGGESTED ANSWER: in Manila, RC filed a claim total loss with three-fourths of its value tocompany merit that indemnify “the the company HL for the shall lossINDEMNITY” not offor the be insured liable vehicle? in policies from thereof which when insurance she drove it without or a be terms heldthat liable with Cesar? insurance company. 1) May the insurance fact BOY is a minor, and the injured The insurer was(Section notof correct in denying the No, the contention the insurer isfire not own with the money collected any claim for death or injury any themembers, insurer, because the rice was noof longer abandonment. 139, Insurance Code, Explain. 2) Supposing that the car was respect of “bodily injury’ consequent upon driver’s license. Is the insurer correct? companies may Fortune recover in case company be held liable toand parties are also children. Accordingly, it is Loss: Total Loss Only (1992) claim since the proviso “that the person correct. There is no need to wait for the from passenger among themselves or third party solely shall for be their paid SUGGESTED ANSWER: fit for human consumption. Admittedly, the Insured; Accident vs. Suicide (1990) citeddestroy in Oriental Assurance v. Court of Appeals brought by ANSWER: HLperson on theSUGGESTED insured attempting to commit should his house completely? possible CNI may not prosper. ATT's An insurance company issued a marine driving isthat permitted in accordance with decision of the court determining Cesar’s own protection and not forofas profit. Members without the necessity proving fault or Fortune may recover from the insurers in the rice could still beand used animal feed. Is Luis was the holder of an accident and Panama Saiv Mill, G.R. No. 94052, insurance August 9, installment basis there were installments suicide or willfully exposing himself to Yes, RC’s claim for total loss is justified. The report is not conclusive on POS or the court. insurance policy covering a shipment by sea licensing, etc.” qualified only a person liability with finality before the third party are negligence both the insurer of any and kind. insured. The indemnity A mutual in such order as he may select up to their RC’s claim for total loss justified? Explain. 1991) and payable before the loss of the car as well as policy effective Nov 1, 1988 to Oct 31, 1989. due needless peril was except in an attempt to savefor rice, which imported from Thailand from Mindoro to (Sec Batangas ofCode) 1,000 pieces at of driving the vehicle other than the insured liability insurer could be sued. The occurrence life insurance company has no capital stock respect of Six any one shall not exceed concurrent liability 94 Ins installments not yetperson payable. Because of the loss At a boxing contest held on Jan 1, 1989 and human life.” months later Henry Dy died sale locally, is obviously intended for of the Mindoro garden stones against “total loss 1. police report of the the time of the accident (Palermo v Pyramid injury to Roberto immediately gave rise and P5,000.00, relies solely provided upon they its are contributions under oath, or the the car, the vendor demanded from HL the sponsoredANSWER: by his employer, he slipped andIns of consumption aof bullet wound inthe his head. Investigation ALTERNATIVE byshall public. The losses, complete to 2. death certificate and evidence only.” The stones were loaded in two lighters, accident; and Co GR 36480 31 fact May 88)his the liability of the insurer under itssopolicy. premiums to meet unexpected following proofs be sufficient: Policy balance of one the promissory note. HL resisted unpaid was insurer hit on the by opponent he fell showed that evening Henry was in anotthe Valued The is600 correct. The clause “authorized physical destruction of the rice is sufficient to establish the proper payee; or the first with pieces and the second with b) If each of the fire insurance policies In other words, where an insurance policy contingencies and expenses (Republic v. demand and claimed that henot wasdrunk. only liable for and his head hit one of the posts of the happy mood although he was He driver” in the policy evidently applies to both essential to constitute an actual total loss. 3. medical report and evidence of 400 pieces. Because of rough seas, damage obtained by Fortune in the problem (a) is a insures directly against liability, the insurer’s Sunlife, G.R. No 158085, October 14, 2005). installments due and payable before the loss of the boxing ring. and He was unconscious was playing his handgun from which the any rendered other person drivinginthe Such a loss exists in thisfor case since the he rice, medical orwith hospital disbursement in respect wasinsured caused thethe second valued policy and valuelighter ofthe his resulting house liability accrues immediately upon was the car but no longer liable other installments the and was dead on arrival at hospital due hadhaving previously removed its magazine. He vehicle at the time of the accident. The term ALTERNATIVE INSTANCE: 4. Claim may be made against one been soaked in sea water and thereby of which refund isofclaimed. theinloss of 325 out of the 400 pieces. The fixed each of the policies at P1m, how occurrence of the injury or event upon which due at the time the loss of the car. not yet to “intra-cranial hemorrhage.” pointed the gun at hishuman sister who gotbyscared. “authorized driver” should be construed as a In case of an over insurance several motor vehicle only. rendered unfit for consumption, has the shipment claims SUGGESTED ANSWER: much would Fortune from X if against he has Can hisoffather whorecover is a filed beneficiary under theowner liability depends (Sherman Shafer v Judge Decide. Copyright (1995) He assured her it was not loaded. He then person who is authorized by law to driver the The insurer cannot be held solidarily liable insurers, the insured is entitled to a ratable Insurer; 3rd Party Liability; Quitclaim (1994) become totally the purpose for RTC 1) Yes. The was useless lost to theft. What the insurance ground of 14 Henry’s wifecar Beverly, as due the for designated already obtained full payment on the said insurance policy successfully claim Olongapo Citycompany Branch 75on GRthe l-78848, Nov Loss: Constructive Total Loss (2005) What intellectual property rights are pointed the gun at his temple and pulled the vehicle (Peza v Alikpala 160s31) with Cesar. The liability of the insurer is return of the premium, proportioned to the Raul’s truck bumped the car owned by Luz. SUGGESTED ANSWER: whichinitthis was imported (Pan Malayan Insand Co v CA applies case is “theft” clause, constructive total loss inasmuch as more beneficiary, sought to the collect under the insurance policies issued by Y(2003) and Z? 88 167s386) indemnity from the insurance company? Insurer; Authorized Driver Clause SUGGESTED ANSWER: protected by copyright? M/V Pearly Shells, a aggregate passenger andinsured cargo trigger. The gun fired and Henry slumped onFor based on contract while that Cesar amount by which the sum Fortune may still value recover only theofbalance ofis The car was insured by Cala Insurance. gr 95070 Sep 5, 1991) SUGGESTED ANSWER: not the “authorized driver” clause. It is than ¾ of the of the stones hadunder been policy. Sun-Moon Insurance rejected her Explain. SUGGESTED ANSWER: The insurance company is not liable its Rick defrom la Cruz insured his passenger vessel, was insured for P40,000,000.00 the floor. based on tort. If the insurer were solidarily in all the policies exceeds the insurable value P200,000 X insurance company since the damage caused, Cala paid Luz P5,000.00 Yes, in the father who is a beneficiary under immaterial HL’s that wife that wasdeath driving car lost one of Asiatic the lighters. Is the insurance claim on thethat ground the of the Henry Sec 5 of PD 49 provides Copyright shall policy covering against “total loss only” the jeepney with Insurers, Inc. The policy against “constructive total Luz loss.” Due itto a a liable with Cesar, it could beupmade of the thing atdriver’s risk. the insured may only recover to Why? theto pay in amicable settlement. executed the accidental insurance successfully with an expired license at the time company liable under its can policy? was not accidental. Beverly sued the consist in theit exclusive right: shipment of 1,000 pieces of Mindoro garden provided that the authorized driver of the ALTERNATIVE: typhoon, sank near Palawan. Luckily, there Insured; Accident Policy (2004) more than the amount stated in the policy. SUGGESTED ANSWER: extent of his loss. release of claim, subrogating Cala to all her claim indemnity for the death of the insured. was carnapped (Perla Compania de Seguros v insurer. Decide.and Discuss fully. stones. There is no constructive total loss vehicle should have a valid and existing Beverly can recover the proceeds of the policy from the insurer. The death of were no casualties, only injured passengers. CNI SAMRaul. under a homeowner's This would, contrary to was thethat 2) The rights promissory against note isWhen not affected Cala demanded by policy Clearly, thehowever, proximatebe cause of death CA 208 was sinsure 487) the insured not due to suicide can claimed since the ¾ rule is to be driver’s license. The passenger jeepney of The ship owner sent a notice of against claims for accidental injuries by principles underlying contracts. whatever reimbursement befalls the from subject Raul,matter the latter of the refused the boxing contest.insurance Death sustained in aOn computed on the total 1,000 pieces of Rick de la Cruz which was at the time driven abandonment of his interest over the vessel neighbors. SAM's minor theboxing other hand, the were accessory saying that contract. he had The already paid contestif is aninsurer accident . (Desolidarily la Cruz v Mindoro by Jay to the insurance company which then liable withCruz, Cesar andCo it 17s559) is made to pay only Capital Ins & Surety up to the amount

Intellectual Property

Page Page 62 63 66 61 of 103 of 103 invention An Liza deception insolvent cannot Page didPage debtor, could not 64 be65 of fall held 103 be ofafter within 103 rather liable for their lawful infringement remote. regular discharge Since of following itmeantime, copyright cannot What prevails an really since adjudication be under issaid the that the ofby bank formula be The 3) b) said demanded Victoria to E=mc2. There If beAaron similar Hotel is The immediate no is IPO chain to need declared such disapproved reproduces of payment. products exact an insolvent duplication as TV, by thepetition. law are Induties. the conferred by the the case fact filed of provision insolvency, Intellectual physicians ofproceeded is the can released Property Intellectual benot so from, Code, easily Property generally, one deceived ofinAlthough the Code by such Einstein's stereo Because videotapes, of the the court, and the patentee’s application radio bank what distributes sets threatened would existing on or cameras the be the the ground patent to copies effect, proceed or such betamax that thereof if his any, as toof registration Vicente and and by resulted use. a all ALTERNATIVE ANSWER: that debts, limitations trademark holds claims, that to as liabilities the the “Axilon,” invention copyright and it of may demands belongs is the be hard making to which the to of theory products against its hotels when such of the declaration the of relativity surety, Sony. and improvement makes is Eduardo on not his them patentable. creditors? made Z.available Ong, by another Edzo Explain. Is the to hotel is Shangrila judgment Corporation's award in favor parent Vicente. had used May the the There is infringement. If hotel the51p713) owner of be a It are SUGGESTED ANSWER: employee, quotations expect or have an ifbeen the opposition from inventive proved a published against activity work to his is succeed. estate. not for purpose a the IPO's decided guests merely action tofor minor pay correct? viewing up (Frank all (5%) its invthe obligations Benito, guest to . rooms. To tradename judgment obtained and logo bythereto Vicente long before, be enforced A declaration by thenominal court that the ANOTHER trademark which manufactures certain types SUGGESTED ANSWER: part ofof 5any obligations hisANSWER: judicial regular proceedings duties, ofthe the insolvent even orif for he debtor giving uses toofS Integrity charges independently Bank. a separate On patentable, June 20, 2002, an fee improvement Edzo for petitioner the paid use of of Give protection independently of the of laws insolvency will be forthe Yes, the IPO is correct because under the The application for registration of the Turbo SUGGESTED SUGGESTED ANSWER: ANSWER: is insolvent will have the following effects: of goods could reasonably be expected to time, survive. professorial facilities and advice materials by legal ofpractitioner, the it was to Integrity theexisting an videotape Bank patented player. the fullinvention 1) principal Can the must amount Victoria be of a Development proceedings? Corporation Explain. because 1) be The sheriff shallv take possession The The 5entity judgment obligations obtained of by insolvent Vicente can debtor be Intellectual Property Code, discoveries, Corporation bethe contested. The factual engage inplus the manufacture of another employer. provided that the source and name of the P500,000, Hotel major improvement enjoined accrued for(Aquas interests infringing deamounting Leon copyrights L-32160 first tomay register the intellectual allAs assets ofEdzo the debtor until that enforced survive independently are as follows: theaffiliation insolvency scientific theories and mathematical settings do not indicate that there had been product using the same trademark, another Patents: Infringement; Remedies & of Defenses (1993) How does the international ofof author are identified (See Section 184.1[k] 30Jan82) to P55,000. andof held liable a result, for damages? had 2)hardly Would any it the properties. 1 Taxes and assessments due the Patents; Rights over the Invention (1990) appointment of a receiver or assignee; proceedings. Under Sec 32 of the Insolvency methods, are classified to be as "nonprior use for at least 2 months the party who uses the trademark for that Ferdie is a patent owner of a certain Corporation affect the Intellectual Property Code of the ofthe cash make left any for operations difference and if Victoria decided Hotel to close does not Shangrila 2) can Payment toEintein's the debtor of any outcome SUGGESTED ANSWER: government, national or local; Cheche invented a device that can convert Law, the assignment to the assignee of all patentable inventions." theory of trademark “Axilon.” Copyright; Photocopy; when allowed (1998) product be held liable for using that invention. He discovered that his invention is of the dispute? Explain. (5%) Philippines). its charge business. any After fee paying for the use the unpaid of the videotape? salaries Trademark (1994)personal 1) Yes. Victoria Hotel has no right useto athe SUGGESTED debts due to him and the delivery 2 Obligations arising from rainwater into automobile She asked the infringed real and property, and relativity falls within the category oftofor being May aANSWER: person have photocopies of trademark. Using this standard, infringement being by Johann. 1) Whatestate aresome the of its employees, Edzo filed a fuel. petition The international affiliation ofthe Shangrila Laberge, Inc., manufactures and markets such video tapes in its hotel business debtor of "scientific any property belonging to him, embezzlement or fraud; Macon, a lawyer, to assist in getting her effects of the debtor made by clerk of the In the insolvency proceedings in court, the non-patentable theory." pages of the book of Professor Rosario made exists because Sony can be reasonably remedies available to Ferdie against Johann? insolvency onofJuly 1, 2002. Patents: Trademark; Gas-Saving Test Dominancy Device: (1996) toany filecreator/ rule (2005) Corporation may be critical inaside the event that after-shave lotion, shaving cream, without the consent of the of and the transfer of property by him 3 Obligation of any person liable with invention patented. Macon suggested that assignee in insolvency sought to invalidate court shall vacate and setJohann any without violating the copyright law? (3%) expected to use such first trademark on owner electric 2) If you were the lawyer of in deodorant, the 3) All civil proceedings pending its Cezar N Corporation works in amanufactures car manufacturing rubber shoes SUGGESTED ANSWER: affiliates or parent abroad hadthe talcum powder and toilet soap, using the copyright. are forbidden; the insolvent debtor for the same debt, either they form a corporation with othercompany friends judgment entered in company any action commenced the payment made by Edzo to Integrity Bank fans. infringement suit, what are the defenses that 2) No. The use of the videotapes is for Yes. The private reproduction of a published against the insolvent shall be stayed; and owned under the by Joab. trademark Cezar “Jordann” is quite innovative which hit and the registered in a foreign jurisdiction trademark “PRUT”, which is registered with as a solidary codebtor, surety, guarantor, have the corporation apply for the for and being a fraudulent transfer because it was with 30 days immediately prior to the the your client can assert? 4) Mortgages pledges are not SUGGESTED ANSWER: business and not merely for home work in a single copy, where the loves Phil market to tinker in 1985, with and things. registered With the its tradename and the logo. A well-known mark the Phil Patent Office. Laberge does partner, indorser or otherwise. patent, 80% thebefore sharesthe of stock commencement of insolvency proceedings.not made within 30 of days filing thereof of the to 1) The following remedies are available to affected by(Filipino order declaring aMacon. person consumption. Society of5% Composers, reproduction is made by a natural person materials trademark and with parts of the Bureau car, he of was Patents, able to and is subject to protection under manufacture briefs and underwear and these 4 Alimony or claim for support; and be subscribed bythe Cheche and by insolvency petition. In defense, Integrity Bank Intradename this case, however, the action filed byFerdie against 59, Insolvency Law) Authors Publishers v device Tan 148 sit461; pd exclusively for provable research and private study, invent Trademarks a that gas-saving and Technology that will in1988) enable 1990. Treaty of Paris for the Protection of isof items are not specified in commenced the certificate 5 Debts not against the estate Theinsolvent. corporation was formed and the patent Vicente against Carlito was by asserted the(Sec. payment to(BPTTT) was for a Copyright; Infringement (1997) JG who manufactures briefs and underwear, permitted, without the authorization ofnot the cars PK Company to consume also manufactures less gas. Francis, rubber shoes coJohann. seize andthan destroy b. injunction c. damages Intellectual Property to which the Philippines registration. (such as a. after-incurred obligations) of, or application was filed. Cheche died legitimate debt that was However, not covered bya the Vicente not later June 16, 1995 (the In an action for damages on account of anit c) Assuming that,“Javorski” Aaron has guarantors tothis know whether, under our laws, from he the Franco, the estranged husband ofwhich Cheche, Copyright; Commissioned Artist (1995) owner of the copyright in the work. worker, with the saw trademark how Cezar created the device is awants in member. such amount may been obtained included in the schedule submitted by, the 3 months later of a was heart facts on point are have not clear) when prohibition because it “aattack. valuable infringement ofapplication aup copyright, the corporation defendant Infringement vs. Unfair Competition (1996) for his with debts, are the guarantors released can use and register the trademark “PRUTE” contested the of the Solid Investment House commissioned Mon and registered likewise, came BPTTT in with 1978. a similar gadget, use of the inventiona ifwrit properly transacted which can insolvent debtor. pecuniary consideration made in good faith,” Vicente obtained of preliminary (the alleged pirate) raised the defense In 1992, PK adopted and copied the What ismerchandise. the between infringement from their obligations once Aaron for his What is your advice? and filed hisCo own patent application as that Blanco and his distinction son Steve, both noted artists, also using scrap materials and spare parts of is be more than what the infringer (Johann received. attachment against Carlito or more than )30 thus falling within the exception specified in SUGGESTED SUGGESTED ANSWER: Insolvency; Effect; Declaration of Attorney’s Insolvency (1991) he was that what he had filed copied design of unaware NANSWER: Corporation’s “Jordann” rubber and unfair competition? discharged from hisofdebts? Explain. sole surviving heir Cheche. Decide the to paint a mural for the Main Lobby of the the company. Thereafter, Francis an d. fees and cost theNo, Insolvency Law. As judge in the pending days before the petition for involuntary SUGGESTED ANSWER: precisely under the principle Yes. The trademark registered in the of SUGGESTED SUGGESTED ANSWER: What areANSWER: the effects of a judgment in name was aboth copyright this defense shoes, as tomaterial. shapeofWould and color, but of issue with reasons. new building of Solid for a contract price of application for registration his device with insolvency was filed against Carlito by his insolvency case, how would you decide the No. An intention to pirateof is not an cannot element excussion, the liability of the guarantors The distinction between infringement Laberge Inc covers only after-shave lotion, The estranged husband Checke SUGGESTED ANSWER: insolvency in Voluntary Insolvency cases? be valid? retained the trademark “Javorski” on its Insolvency vs. Suspension ofmural? Payment (1998)1995) P2m. a) who owns the Explain b) the Bureau of Patents. Eighteen months respective contentions of the assignee in other creditors. (i.e. on July of infringement. Hence, an honest SUGGESTED ANSWER: arises after the exhaustion of intention the assets (presumably trademark) and29, unfair shaving cream, deodorant, talcum powder successfully contest the application. The The contention of the assignee in insolvency 1) Is only the gas-saving device patentable? products. Distinguish insolvency from suspension of Who owns the copyright of the mural? later, Cezar filed his application for the (Radiola-Toshiba Phil vdeclaration IAC 75222 July18,91 insolvency and oftoIntegrity Bank? Explain is no defense an for infringement. The orfollows: ofasserted insolvency SUGGESTED ANSWER: of the principal obligor. The competition are as 1) Infringement of and adjudication toilet soap. It does not cover briefsinand right over inventions accrue from the May PK Company beaction held liable toeffect Co?of SUGGESTED 2) These ANSWER: are(3%) the defenses thatGR can be is correct. The payment made by Edzo toN of Explain. payments. Explain. registration of his device with the Bureau ALTERNATIVE ANSWER: 199s373) (5%) Yes, the gas-saving device is patentable SUGGESTED ANSWER: of a trademark, whereas unfair competition is by the court, after hearing or default, shall discharge merely confirms exhaustion of the trademark is the unauthorized use underwear. moment of creation and as a right it can a) Solid owns the mural. Solid was the one an infringement Explain. Bank was a fraudulent preference or Integrity SUGGESTED ANSWER:suit: Patents. Yes. The owner of aobligor the copyright must make ALTERNATIVE ANSWER: PK Co may be liable for unfairly competing The limit of the trademark is stated in the passing off of one’s goods as those of because it provides technical solution a the have the following effects: a) Forbid the assets of the available to his 1 Patent is invalid (Sec 45 RA 165, as who commissioned the artists to do the work lawfully be assigned. Once the title thereto is payment, being made within thirty (30) days a) In insolvency, the liabilities of the others that thethe material in question is Yes. Article 2076 of Civil Code provides: against Ninaware Co. By copying the design, certificate issued toinLaberge Inc. Itdue does another; problem athe field of human activity. Ithas isshape new payment the debtor of sum any debt toinnot creditors. amended) vested in transferee, the latter the and paid for to the work the of P2m before the filing of the insolvency petition. debtor are more than his assets, while under or covered byofa copyright. This is done The obligation the guarantor is him and the delivery to him of any property 2) Fraudulent intent is unnecessary inare andright color Nan Corporation’s “Jordann” rubber include briefs and underwear which involves inventive step, and certainly 2 Patent is not new or patentable toof apply for its registration. The suspension of payments, assets of the by the giving of such notice at a prominent extinguished at the same time as that of the belonging to him; b) Forbid the transfer of trademark, whereas fraudulent intent infringement of shoes and using the same in its rubber shoes different products protected by Larberge’s Insolvency; Jurisdiction; Soleof Proprietorship industrially applicable. It thereforeif(1990) fulfills the b)Unless there is than a stipulation to the does contrary 3 are Specification of the invention not is estranged husband Cheche, not debtor more his liabilities. portion of the copyright material. When the debtor, and for the same causes as all other Note: An examinee who answers on the unfair competition; any property by him; and c) Stay of all civil essential in trademarked “Javorski,” PK is obviously trying trademark. One requisites day Jerry mandated Haw, doingby business the would intellectual under the in the contract, the shall belong in comply with Sec 14copyright b) In insolvency, the assets of the debtor disqualified to inherit, merely succeed alleged pirate is thus made aware obligations. basis of the issue ofavalidity ofItthereof, the JG can register the trademark “PRUTE” proceedings against the insolvent but to pass off its shoes for those of N. is of no Property Code for what is patentable. name Starlight Enterprise, sole joint4to ownership Solid and Mon and Steve. Patenttowas issued not to the true and to are be converted into cash for distribution to the interest of Cheche. d) act What remedies are available to the transfer ofthat patent as a material valid consideration of pirating the it copy will 2) his Assuming isshort patentable, who isamong foreclosure may be allowed (Secs 18 Inc & 24 3) The prior registration of of the trademark cover its briefs and underwear (Faberge v moment that he trademark “Javorski” was proprietorship, finds himself on cash actual inventor, designer or author the utility his creditors, while in suspension of Copyright; Infringement (1998) guarantors in case they are made to pay the for subscription of the shares of stocks constitute infringement. patent? What, if any, is the remedy of the losingCopyright; entitled to the Insolvency Law) is IAC a 215 prerequisite s 316) to an action for infringement Commissioned Artist (2004) registered ahead of the trademark “Jordann.” and unable to pay his debts as they fall due model or the plaintiff did not derive his rights payments, the debtor is only asking for time SUGGESTED ANSWER: Juan Xavier wrote anddue published Trademark (1990) should be given credit. a story creditors? Explain. Trademark, Testand ofwhereas Dominancy (1996) party? of trademark, registration of the and CT are artists whose paintings Priority inhe registration is property not material inset anup BR although has sufficient tomay cover from the true actual inventor, designer or within which to noted convert his frozen assets into Under Article 2081, the guarantor similar to an unpublished copyrighted story In 1988, the Food and Drug Administration SUGGESTED ANSWER: Insolvency; Fraudulent Payment (2002) What is the “test of dominancy?” trademark is not necessary in unfair are highly prized by collectors. Dr. DL action for unfair competition as distinguished such debts. He asks you, as his retained author of the utility model (Sec 28 RA 165 as cash ANSWER: with which to pay his obligations against the creditor the defenses that liquid of Manoling Santiago. Itallwas, however, Cezar is entitled to the submitted patent because he was approved the labels by Turbo SUGGESTED As ofInfringement June 1,them 2002, Edzo Systems Patents; (1992) competition. (Del Monte Corp v mural CA 78325 Jan commissioned to paint a at the from an action for infringement of trademark. counsel, for advice on the following queries: amended) when the latter fall due. pertain to the principal debtor. Thefrom discharge The test of (Edzo) dominancy requires that if the conclusively proven thatdrug Juan Xavier wasthe not theCorporation real inventor. Francis, copying for its new brand name, Corporation was indebted to the the 25,90 181s410) In an lobby action offor patent, Insolvency: Voluntary Insolvency (2005) main offor hisinfringement new hospital children. The basis he ofby anAaron action for unfair a) Should file petition with thecompetition SEC to be obtained onof the principal obligation competing trademark contains the main or aware theaCo story Manoling Santiago work of that Cezar, cannot claim thewith essential Infringement vs. Unfair Competition (2003) “Axilon.” Turbo isv now applying the (Converse Rubber Jacinto Rubber & Plastics following creditors: a) Ace alleged defended himself by stating agreed to collaborate onEquipment the project for Aaron, ainfringer well-known architect, is suffering is can confusing andused similarity declared in a state ofmisleading suspension of now be aswho a Manoling defense by inthe Both essential features of another and confusion was protected by copyright. criteria of ofan inventor, must In what way is an infringement of a Bureau Patents, Trademarks and possess Co GR 27425 and 30505, Apr28,80 97s158) computers and accessories sold to Edzo Supplies – for various personal 1) that the of patent issuedHe by thefour Patent Office a total fee two million pesos to be equally from financial reverses. has creditors general appearance, not financial similarity of payments insued viewagainst of the said guarantors creditors. and deception isanlikely totowhich result, infringement Santiago Juan infringement of essential elements of Xavier novelty, originality and Technology Transfer for the thefor registration ofThe trademark similar toinvention that pertains to on credit amounting P300,000. was not really which was divided between them. It was also agreed with a total claim of P26 Million. Despite his trademarks condition heANSWER: faces? Explain your b) SUGGESTED SUGGESTED ANSWER: Tradename: International (2005)toanswer. guarantors are also to indemnity takes place. Duplication or imitation is copyright. Is Juan Xavier liable? (2%) precedence to beAffiliation protection. unfair competition? said brand name. Itentitled wasentitled subsequently b) Handyman Garage – for mechanical patentable; 2) these that he had no his intent tonot that Dr. DL had to provide all the materials intention to pay obligations, Yes. he Juan Xavier liable for infringement of Should Insolvency; sell Assets profit vs.isparticipation Liabilities (1998) certificates S Development Corporation Shangrila under Article 2066 of the"first Civil SUGGESTED ANSWER: necessary; not is it necessary that the Nevertheless, under the togeneric file rule," confirmed that “Accilonne” issued aCode. term repairs (parts and service) performed infringe so that there was no case for Infringement; the assets painting and pay foractionable wages current are insufficient tothe cover allon ofof copyright. It isusing not necessary that Juan to his 10 brothers and sisters in order to raise opened awould coffee shop using money Jurisdiction (2003) Corporation for the “S” logo and the a) IHoracio would counsel Jerry to file the Petition for infringing label should suggest an effort Francis application have to be given for a class of anti-fungal drugs and is used as Edzo’s company car amounting to P10,000. for K-9 infringement; and 3) that was no to technicians and laborers needed for him. the work them. His creditors are about tothere sue Xavier is of aware that the story of Manoling cash for his business? Explain. borrowed from financial institutions. After Corporation, a foreign corporation tradename “Shangrila”. The claims c) Joselyn Reyes – former employee of Suspension Payment with theformer ordinary imitate. Similarity in size, form and color, priority. Cezar, however, has within three 3 such by the medical profession and the Assume that the project is completed and exact of the patentee’s existing on the duplication project. Consequently, hetowas constrained to owner file a of Santiago was protected by copyright. Thethe months, Horacio left for the US with the alleging itself be the registered that it was the first to register the logo and Edzo who sued Edzo for unlawful termination courts, rather than the SEC. SEC’s jurisdiction while relevant, is not (Asia months from the decision, have it cancelled pharmaceutical industry,toand that it is used both BRbut and CT fully paid the amount of petition theare court toa)conclusive. declare him patent only a minor improvement. petition for insolvency. (5%) Since Aaron work ofof Manoling Santiago isand protected at Trademark; Infringement (1991) defrauding hisoronly creditors. While his trademark “K-9” and logo “K”, filed anWith Inter tradename in the Philippines that it year had SUGGESTED ANSWER: of employment and was able to obtain athe over such cases is confined petitions Brewery v CA GR 103543 Jul5,93 224s437) as intent the rightful inventor; one as a generic chemical namewithin intovarious P2M as artists' fee by DL. Under the law on insolvent, can the judge properly treat the those defenses, would you exempt merely forced by circumstances to for TV, the time ofare its creation. Sony is a with registered trademark liabilities P1.2m, assets, Partes case the Intellectual Property been using the same inpublications. its tohis restaurant Iwas would not exempt alleged violator final judgment against Edzo for P100,000. filed by corporations and partnerships under from publication, toworth file an action prove scientific and professional Ahis intellectual property, who will ownfrom the petition as one forliability? involuntary insolvency? Copyright; Infringement (2006) alleged violator from Why? SUGGESTED ANSWER: stereo, radio, cameras, betamax other however are worth P1.5m. May Horacio be Office against Kanin Corporation for the d) Bureau of Internal Revenue forthe business. Shangrila Corporation counters that liability for thewill following reasons: 1) A –and patent its regulatory powers. SUGGESTED ANSWER: priority to the invention, which has been taken competing drug manufacturer asks you to mural? Who own the copyright in SUGGESTED ANSWER: Explain. In a written legal opinion for a client on the The application for registration by Turbo 3) Supposing Joab got wind of the electronic products. A local company, declared insolvent? (2%) cancellation of the latter’s mark “K-9” and b) Instead of selling profit participation SUGGESTED ANSWER: unpaid value-added taxes amounting it iscontest anhim affiliate of an international organization once issued by the Patent Office raises a to Best No. This is aExplain. case for voluntary insolvency from and fraudulently by the registration theregistered brand name mural? Why? (5%) No. Horacio may not beofdeclared insolvent. difference between apprenticeship and Corporation may be contested. The inventions of his employees and also laid Manufacturing Inc produced electric fans logo “K.” During the pendency of the case Under presumption Section 178.4 that of the the article Intellectual is e) Integrity Bank – which granted Edzo a certificates, I would urge Jerry to enter into a P30,000. which hasby been using such logo and because this was filed by an insolvent debtor Francis. “Axilon” Turbo. What will you advice be? His assets worth P1.5m are more than hisa learnership, Liza quoted without permission Trademark Law would not allow the claim to the patents, asserting that Cezar which it sold under the trademark Sony before the IPO, Kanin Corporation brought Property loan patentable; in 2001 Code, in it in the can, case amount however of of commissioned P500,000. be shown The partnership or to incorporate in order to raise tradename “Shangrila” for over 20 years. owing debts exceeding the amount of worth labor expert's comment appearing his registration of aP1.2m. trademark whenin ALTERNATIVE ANSWER: andliabilities Francis were using his which, materials and without the consent Sony. Sony sued Best suit against Corporation before the RTC work, otherwise the creator (Sec (in the 45of absence RA 165). of aAof written mere loan was notK-9 secured by any asset Edzo, cash for law his business. However, Shangrila Corporation registered the P1,000.00 Insolvency; Assignees (1996) SUGGESTEDunder ANSWER:Section 14 of the Insolvency book may entitled "Annotations on thewith Labor applied to sell orinused inparticipation connection hishis b) Jerry profit company time making the devices, will Manufacturing for infringement. Decide the for infringement and damages. Could the stipulation but statement it was to guaranteed or the allegation contrary) unconditionally is not owns enough and the to tradename and logo in the Philippines only Law. Under Section 20 of theInInsolvency On June 16, 1995, Vicente obtained aLiza writ of There is no infringement. order thatLaw, a case Code." Can the labor lawof expert products, merely descriptive orhold deceptively Which of suit the two corporations has a better certificates toiswas his brothers and sisters claim prevail over those his employees? case. action before the RTC prosper? Why? copyright, destroy but that the presumption. work itself belongs ( Aquas to v the de solidarily by Edzo’s President and controlling after the filed. the petition must be filed by three or more preliminary attachment against Carlito. The Patent; Non-Patentableof Inventions (2006) can prosper, for infringement trademark SUGGESTED ANSWER: liable for ofConfusion copyright for result misdescriptive of them. can right to registering useinfringement the logo and the without the same withtradename? the SEC Explain. person stockholder, Leon 30 who Jan 82 commissioned Eduardo L32160 )Z. Ong, asalive creation. creditors. In the case at bar, it its is Aaron, the ALTERNATIVE ANSWER: levy on Carlito’s property occurred on June Supposing Albert Einstein were today No, Joab's claim cannot prevail over those of SUGGESTED ANSWER: the products on which the trademark isnot used quoting portion ofexempted his book without his from the of as the generic Explain. because hisause sale is “Axilon” an transaction 2) accommodation An intention to infringe is Accordingly, the mural belongs to DL. surety. debtor, who filed the insolvency proceedings. Medical drugs may be procured only upon SUGGESTED ANSWER: 25, 1995. On July 29, 1995, another creditor S Development Corporation has a better and he filed with the Intellectual Property his employees. In the first place, Joab did not must be of the same kind. The electric fans permission? (5%) product itself. being isolated and not a sale to the public. The loan due to Integrity Bank fellcase duesince on necessary nor an element in a for However, BR and CT own the copyright, prescription made by a duly licensed filed petition involuntary insolvency right to ause the logo and theemployees tradename, Office (IPO) an application for patent for his commission any of the two to produced by Best Manufacturing cannot Insolvency; obligations thatfor survive (1997) Copyright; Infringement (1994) June 2002. Despite pleas for extension of infringement of a patent. there is 15, no to the contrary. physician. The possibility of against Carlito. The court gave since the benefits of theory ofstipulation relativity expressed in the invent theprotective device, and itsinsolvency payment by Edzo, the due course to the Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Insolvency & Corporate Recovery

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

Corporate Recovery (2003) b) Law on Discuss the effects of the SEC order Corporation for itsforeclosure rehabilitation of Xsuspension on applied the judicial and submitted a by rehabilitation plan which proceedings initiated First Bank. (2%) c) called Would theentry orderbyofit suspension for the into a joint have venture anyagreement effect on with the foreclosure proceedings Y Corporation. Under the initiated by Second Bank? Explain agreement, Y Corporation was(2%) to lend to X d) Corporation Would the suspension its order creditoffacilities withhave certain anybanks effecttoon the suit filed Third Bank? X obtain funds notby only to operate e) What thealso legal a the Explain. (2%)arebut Corporation forconsequences a part thereofofin rehabilitation receivership? (2%) amount of P1 million as initial deposit in a f) sinking What measures may the receiver fund to be augmented annually in take to preserve the assets amounts equivalent to 10% of of Debtor the yearly Corporation? (2%) income from its operation of the business of X SUGGESTED ANSWER: Corporation. From this fund the creditors of a. The SEC order of suspension of payment is X Corporation weretotothe be paid annually, starting valid with respect debtor corporation, from the second year of operations, with but not with respect to the principalthe entire indebtedness be jurisdiction liquidated into 15 stockholders. The SEC tohas years.suspension The creditors of X Corporation objected declare of payments with respect to the plan because Y Corporation would to corporations, partnership or associations, be taking over the to business and assets of X but not with respect individuals. SUGGESTED ANSWER: Could the court approve the plan Corporation. b. SUGGESTED The SECthe order of suspension payment despite objections of the of creditors of X ANSWER: suspended the judicial proceedings initiated be Corporation and could the creditors by Rehabilitation; the First Bank. According Supreme compelled Stay to Order follow (2006)theto the plan? Could Y Court in a line of cases, the suspension order The Blue Star Corporation with theX Corporation, in managing thefiled business of applies to secured creditors and to the action Regional TrialinCourt a petition forberehabilitation Corporation the meantime, deemed to to on enforce thethat the thetaken-over ground it foresaw against the impossibility have X security Corporation itself? (6%) corporation of the stage thereof. of payingregardless its obligations as they fall due. SUGGESTED ANSWER:

the of petition sufficient in form and c. Finding The order suspension of payments substance, the court issued an Order suspended the foreclosure proceedings appointing a rehabilitation receiver and staying initiated by the Second Bank. While the the enforcement of all for claims against the What is is the rationale the Stay Order? foreclosure against the property of a third SUGGESTED ANSWER: corporation. (5%) party, is in reality action to is collect the to The itpurpose of theanstay order intended principal obligation owned by the or give the management committee corporation. During the time that rehabilitation receiver the leeway to the make payment of the principal obligation is to the business viable again, without having suspended, the and debtor corporation is in divert attention resources to litigation considered to be not inAirlines default and, various fora (Philippine v. Spouses ALTERNATIVE ANSWER: G.R. Nos.even 76879 77143, October 3, the 1990; therefore, the& right enforce Kurangking, et al, G.R. No. to 146698, September c. The suspension order does not apply to a Rubberworld [Phils.] Inc. v. NLRC, G.R. No. security, whether owned by the debtor24,party 2002;mortgage BF Homes,because Inc. v. Court of Appeals, third in such a case, 126773, April 14,a1999; ASB Dev. corporation or of thirdSobrejuanite party, has v. not yet theCorp., creditG.R. is not yet being enforced against No. 165675, September 30, 2005). It arisen. thealso corporation but against from the third party an prevents a creditor obtaining mortgagor’s property. advantage or preference over another with SUGGESTED ANSWER:

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

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

Page Page 68 67 of 103 of 103

1 In suspension of payments,with the debtor rehabilitation in accordance a rehabilitation has sufficient plan property approved to cover by theall SEC. his debts but foresees the impossibility of meeting them SUGGESTED when ANSWER: they respectively fall due, whereas, in f. insolvency, To preserve assets Debtor thethe debtor doesofnotthe have Corporation, the receiver may take custody sufficient property to pay all his debts in full; of, 2and control over, allofthe existing the assets In suspension payments, andpurpose property the corporation; evaluate is toofsuspend or delay payment of existing and liabilities, earnings and debts assets which remain unaffected although a operations of the corporation; and determine postponement of payment is declared, thewhereas, best way to salvagethe and protect in insolvency, object is to the obtain Suspension ofthe Payments; Remedies (2003) interest of investors and creditors. discharge from all debts and liability; When is the remedy of declaration in a state 3 In suspension of payments, no limit for of suspension of payments available to a the amount SUGGESTED ANSWER: corporation? of indebtedness is required, whereas, insolvency, mustto a (per dondee)in This remedythe is debts available exceed P1,000 of voluntary corporation when in it case experiences inability to orand must notStay beOrder less than P1,000 payinsolvency, one's debts liabilities, and(2003) where the in Suspension of Payments vs. case of involuntary insolvency. 1 has sufficient property to cover all its petitioning corporation either: Distinguish the stay order in corporate debts but foresees theaimpossibility of a state of rehabilitation from declaration in meeting them when they fall due (solvent Insolvency; Voluntary Insolvency Proceeding (1991) suspension of payments? (4%) but illiquid) or Is SUGGESTED the issuance ANSWER: of an order, declaring a 2 has no sufficientInsolvency property (insolvent) petition in a Voluntary proceeding Suspension of Payments; Rehabilitation but is under the management a Receiver (1999) insolvent, mandatory upon theof court? SUGGESTED ANSWER: Debtor Corporation and its principal rehabilitation receiver or a management Assuming that petition was in due stockholders filed withlaw the Securities and committee, the the applicable is P.D. No. form and substance and that the assets of thefor Exchange Commission (SEC) a petition 902-A pursuant to Sec. 5 par. petitioner are less his liabilities, the of rehabilitation and than declaration of a state court must adjudicate the insolvency (Sec suspension of payments under PD 902-A.18 The Insolvency objectiveLaw) was for SEC to take control of the Insolvency; Voluntary vs. all Involuntary Solvency corporation and its assets and(1995) liabilities, Distinguish between voluntary insolvency and earnings and operations, and to determine involuntary insolvency. the feasibility of continuing operations and SUGGESTED ANSWER: rehabilitating the company the benefit of In Generally, voluntary insolvency, it for is creditors the debtorhad the unsecured investors and creditors. himself who files the petition insolvency, manifested willingness to for cooperate with while in involuntary insolvency, at least 3 Debtor Corporation. The secured creditors, creditors are the ones who file the petition for however, expressed serious objections and ALTERNATIVE ANSWER: insolvency against the insolvent debtor. reservations. The following are the distinctions: had insolvency, already initiated judicial 1 FirstIn Bank involuntary 3 or more foreclosure proceedings on the mortgage creditors are required, whereas in voluntary constituted on themay factory of Debtor insolvency, one creditor be sufficient; Corporation. 2 In involuntary insolvency, the creditors Second Bank had already initiated foreclosure must be residents of the Philippines, whose proceedings on a third-party mortgage credits or demand accrued in the Philippines, constituted on certain assets of the principal and none of the creditors has become a stockholders. creditor assignment within 30 days to Third by Bank had already filed a suitprior against thethe filingprincipal of the petition, whereas in voluntary stockholders who had held insolvency, these are not required. themselves liable jointly and severally for 3 the In involuntary insolvency, the debtor loans of Debtor Corporation with said must have done any of the acts of insolvency Bank. as After enumerated Sec 20,directed whereasthe in hearing,bythe SEC voluntary insolvency, the debtor must not and appointment of a rehabilitation receiver have done any of said acts. ordered the suspension of all actions and 4 claims In involuntary the amount against the insolvency, Debtor corporation as well of indebtedness not be less than P1,000 as against themust principal stockholders. a) (2%) whereas in the voluntary mustor Discuss validityinsolvency, of the SEC itorder exceed P1,000. suspension? 5 In involuntary insolvency, the petition must be accompanied by a bond, whereas such is not required in voluntary insolvency.

Mercantile Law Examination Q & A (1990-2006) Page Page 70 71 of 103 of 103 Page TheAA 72 insurance entered of 103Page into company 69aofcontract 103should with Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) ABar (1990-2006) SUGGESTED ANSWER: bear BBthe thru loss CC to tothe transport cargo because ladies' wear the from M/VThe BV Ilog agreed Saad de Manila Dev to sell Co with to enters AC, a cargo ainto Ship of a voyage and 500 tons

COGSA; Prescription of Port Claims (2000) of iron Merchandise charter ore with left the XYZ Broker, over of 2,500 the Zamboanga latter’s cubic meters vessel, City of the RC imported computer motherboards fromit, bound logs MV LadyLove. for at $27 Manila. perBefore For cubic one meter the reason Saad FOB. or could another, After load the United States andato had them M/VXYZ inspecting Ilogsold de Manila Lady the Love logs, hit CD submerged Oslob issued Maritime ashipped purchase obstacle Coto On the arrangements made upon instruction Manila aboard oceangoing cargo causing order. which itdecided to sinkan along to load with it for itsits cargo. own account. A ship of Corporation of owned byconsignee, BC Shipping Company. When the salvor, a) the May Salvador, XYZ Inc.,H&T was Co contracted validly ask to forLA, the California, the SP Bank ofparty? LA issued an cargo arrived atthe Manila and refloat rescission the vessel of forcharter P1seaport Million. What If delivered so, kind canof irrevocable letter of credit available atupon sight to RC, the appeared intact; but average Saad recover wascrate the damages? refloating fee To what of P1extent? million, b) If SUGGESTED ANSWER: infor favor of BV for contents, the total priceisofit inspection ofnot the RCbe? discovered andOslob whose did account load it should for its purchase own it account, Why? Particular Average. The owner of themailed vesselto FE thethe logs. The creditall was that items insideof party? had badly (4%) bound by the letter charter c) been Explain the shall shoulder the average. Generally Bank with instruction “toany forward damaged. He did not notice meaning ofthe “owner profile hac vice of theit toofthe speaking, simpleThe or particular averages beneficiary.” letter of credit provided damage or In anything with least of all vessel.” what kind ofanyone, charter party does include all expenses and damages caused to that the draft toCompany. be drawnWhat is on he SP Bank and with BC Shipping did was this obtain? ANSWER: theSUGGESTED vessel or cargo which have not inured to that it be accompanied by, among other to a) proceed directly to your office to consult XYZ may ask for(Art. the 809, rescission of the thethings, common benefit andstating are, certification from AC, that youcharter aboutaparty whether should have given a if, ashe in thisby case, it sold the therefore, to be borne only the owner of the logs have been approved prior shipment notice of damage and how long a time he SUGGESTED ANSWER: vessel before the charterer begun to Before loading ongave the vessel chartered by AC, the which rise tohas the same inproperty accordance with the terms and conditions had to initiate a suit the provisions Myload advice would beunder that RC should give thewhile vessel and the purchaser loads itof the logs were inspected by custom inspectors (Art. 810) general or gross averages of the purchase order. the Carriage of Goods by Sea Act (CA 65). notice of the damage sustained byrecover the for own account. Saad andhis representatives of themay Bureau of cargo Forestry, include "all the damages and expenses which What would your advice be? (2%) within 3 days and that he has to file the suit damages to the extent of its losses (Art 689 certified caused to the good condition and arewho deliberately in order to save the b) If Oslob did not load Lady Love for its to recover the damage sustained by the Code of Commerce) exportability logs. After the loading was vessel, its cargo,oforthe both at the same time, own account, it would be bound by the charter cargo within one year from the date of the completed, Chiefrisk" Mate of the vessel from a real andthe known (Art. 811). Being party, but XYZ would have indemnify delivery of cargo to him. issued a the mate receipt of theto cargo which for the common benefit, gross averages are COGSA; Prescriptive Period (1995) Oslob if it was not informed of the Charter stated that the logs are in good condition. to be borne by the owners of the articles Bottomry What is(1994) the prescriptive forrequired actions Party at the time of sale. (Art case 689 Code However, AC refused to period issue the saved (Art. 812). In the present there of is Gigi obtained aorloan from Jojo Corporation, involving lost damaged cargo under the of Commerce) certification in vessel the letter oftocredit. Because no c) proof that the had be put afloat The “Owner Pro Hac Vice ofathe payable in installments. Gigi executed Carriage ofterm Goods by Sea Act? the absence of certification, FE Bank refused to save itANSWER: from an imminent danger. SUGGESTED Vessel,” is generally understood to be the chattel mortgage in favor of Jojo whereby she to YEAR advance payment on theofletter of credit. ONE after the delivery the goods or 1) charterer of the vessel in the case of transferred “in favor of Jojo, its successors May Fe Bank be held liable under the letter thebareboat date when the goods should have been of or charter (Litonjua Shipping and assigns, alldemise her title, rights ... to a vessel credit? Explain. 2) Under the facts above, the delivered (Secis3(6), COGSA) Co v National Seamen’s Board GR 51910 of which Gigi the absolute owner.” The seller, BV, argued that FE Bank, by accepting Charter Party (2004) 10Aug1989) chattel mortgage was registered with the the obligation to notify him that the Company Under aCoast charter party, XXO Trading Doctrine of Inscrutable Fault (1995) Philippine Guard pursuant to PD 1521. irrevocable letter offrom credit has been directions shipped sugar to Coca-Cola Company through 1. 2 vessels coming the opposite Gigi defaulted and had a total accountability transmitted toeach it onother his behalf, has confirmed SS Negros Shipping Corp., insured by Capitol SUGGESTED ANSWER: collided with due to fault imputable of P3M. But Jojo could not foreclose the the letter of credit. Consequently, FE 1) The letter ofthe credit provides as Bank atwo Insurance Company. The cargo but is toNo. both. are liabilities of the mortgage onWhat the vessel because itarrived sank liable under the letter of credit. Is the condition a certification AC. Without such to with Coca-Cola from vessels with respect to of thedemanded damage caused during ashortages. typhoon. Meanwhile, Lutang argument tenable? Explain. certification, there is no obligation on the Capitol Insurance Co. P500.000 in settlement them and their cargoes? Explain. Corporation which rendered salvage services SUGGESTED ANSWER: part of FE Bank toThe advance payment of the XXO Trading. MM Regional Trial Court, 2. for If it cannot bevessel determined which of the two for refloating the sued Gigi. Whose Lutang Corporation’s lien should be given letter of credit. (Feati Bank v CA 196 S 576) where the civil suit was filed, "absolved the vessels was at fault resulting in the collision, lien should be given preference, that of of aJojo preference. The lien of Jojo by virtue 2) No. FE Bank may have confirmed the letter insurance company, declaring that under the which party should bear the damage caused or Lutang? loan of bottomry was extinguished when the of credit when it notified BV, that an Code of Commerce, the shipping agent is to the vessels and the cargoes? Explain. vessel sank. Under such loaninthe on bottomry irrevocable letter of credit has been liable forshould damages favor of third 3. civilly Which party bear damage to the Jojopersons acted not only as creditor but also asof the transmitted itthe on its behalf. the to conduct of But the carrier's vessels due andto the cargoes if the cause insurer. Jojo’s right to recover the amount of be conditions in the letter of credit must first captain, and the stipulation in the charter collision was a fortuitous event? Explain. theparty loan is predicated on the safe arrival of complied with, namely that from the draft be is exempting the owner liability ANSWER: theSUGGESTED vessel at the port of destination. The accompanied by a policy. certification from AC. not against public Coca-Cola No.was The appeal of Coca-Cola will not prosper. SUGGESTED ANSWER: right lost when vessel sank 17 Further, confirmation of aprosper? letter of(Sec credit appealed. Will its the appeal Reason Under Article 587 of the Code of Commerce, 1. Carriage Each of Goods: vessel Deviation: must bear Liability its (2005) own damage. Both Letters of Credit; Liability of a confirming and notifying PD must 1521) be expressed. (Feati Bank v CA 196 s 576) briefly. (5%) shipping agent is civilly liable for of ofclear them were at fault. (Art 827, Code Onthe a weather, M/V Sundo, carrying bank (1994) damages in left favor of third due to the Commerce) insured cargo, the ofpersons Manila bound In letters of credit inport banking transactions, of the captain, and the 2. Each of them should bear respective for conduct Cebu. While atcarrier's sea, the vessel distinguish the liability of a their confirming bank SUGGESTED ANSWER: shipping agent can exemptbe himself damages. it cannot determined as to encountered aSince strong typhoon forcing the from a notifying bank. In case anything wrong tovessel the letterof therefrom only abandoning the which isby at fault.happens This the doctrine captain tovessel steer the vessel to theisnearest of credit, aitequipment confirming incurs liability with all his and the freight he “inscrutable fault.” for bank island where stayed seven days. The for amount of the letter credit, while may have theof voyage. Oncause thea 3. Nothe party shall beduring held liable since the vessel ran outearned of provisions for its notifying bank does not incur any liability. other assuming there is bareboat of thehand, collision is fortuitous The carrier passengers. Consequently, the event. vessel Assuming that the cargo was damaged charter, the stipulation in the charter party is not an insurer. proceeded to Leyte to replenish its supplies. Letters of Credit; Liability of a Notifying Bank is (2003) because of such deviation, who between the exempting the owner from liability not a) What liability, if any is incurred byatan insurance company and the owner of the against public policy because the public COGSA: Prescription of Claims/Actions (2004) SUGGESTED ANSWER: advising or notifying bank in a letter of cargo bears the loss? Explain. large is not involved (Home Insurance Co.credit v. transaction? American Steamship Agencies, Inc., 23 SCRA25 (1968).

It incurs liability unless it is also the deviation Manila of tono the France vessel with was transhipment proper in order at negotiating bank to avoid Taiwan. a peril, Somehow whichthe was goods the strong were not loaded b) Taiwan Bravo Bank out received fromthe Cisco Bank typhoon. at The on running time. Hence, of provisions when was goods by registered mail an irrevocable letter a direct arrived consequence in France, they of the arrived proper "off-season" deviation of ALTERNATIVE ANSWER: credit issued by Delta Bank thethe account in order and AA to was avoid paid the only perilfor of one-half thefor typhoon. value of Theby of the cargo bearsdamages the loss from the Y owner Company inAA theclaimed amount of US$10,000,000 the buyer. because in the bar, stayed too The to cover thecase saleat of canned fruit juices. shipping company and itsthey agent. The long at the island, making it an improper beneficiary of the letter of credit was X defense of the respondents was prescription. deviation. Every deviation not specified in Corporation which later on partially availed Considering that the ladies' wear suffered Sec. 124of isvalue," improper. (Sec. 125, Insurance itself of the letter of credit submitting "loss as claimed byby AA, should theto Code) Bravo Bank all documents relative to the prescriptive period be oneProper year(2005) under the Carriage of Goods; Deviation; When SUGGESTED ANSWER: shipment of the cans of fruit juices. Bravo Carriage of Goods by Sea Act, or ten years The applicable prescriptive period is ten Under what circumstances can a for vessel Bank paid X Corporation its partial under the Civil Code? Explain briefly. years under theto Civil Code. The one-year properly proceed ahowever, port other its(5%) availment. Later, it than refused further SUGGESTED ANSWER: prescriptive period under the Carriage offraud port of destination? Explain. (4%) availment because of suspicions of Deviation is proper: Goods by Sea Act applies in cases of loss or X being caused practiced upon it and, instead , sued a) when by cargo. circumstances over which damages to the The term "loss" as Corporation to recover what it had paid the SUGGESTED ANSWER: the master nor theSupreme owner ofCourt the shipMitsui has any neither interpreted by the latter.b)How would you rule if youin were the control; when necessary to comply with a O.S.K. Lines Ltd. v.the Court of Appeals, 287 judge to decide controversy? (6%)SCRA Letters of Three Contract Relationships warranty orCredit; avoid a Distinct 366 (1998) , contemplates a situation where (2002) peril, the made peril isby insured no whether delivery or at not all was the carrier of Explain three (3) distinct but perished intertwined against; c)the when made in good faith, and the goods because the same had or grounds of belief in its necessity toindispensable avoid a contract relationships that are upon reasonable gone out of commerce deteriorated or peril; d) when in good faith, for the in aorletter of credit transaction. decayed while in transit. In the present case, SUGGESTED ANSWER: life, or another vessel in distress. (Sec. purpose ofrelieving saving human the shipment of ladies' wear was actually The three (3) distinct but(1992) intertwined contract Insurance Code) 124, COGSA; Prescription of Claims delivered. Thethat "lossare of value" is not theintotal relationships indispensable a letter of A local consignee sought to enforce judicially loss contemplated by the Carriage of Goods transaction are: credit Carriage of Goods; Exercise Diligence a claim against the Extraordinary carrier for loss of a by Act. 1) Sea Between the applicant/buyer/importer and (2005) shipment of drums of lubricating oil from Letter of Credit:beneficiary/seller/exporter Mortgage (2005) the – Star Shipping Lines accepted 100 cartons of Japan under the Carriage of Goods by Sea Act The Ricardo mortgaged his to one AC Bank applicant/buyer/importer is the who sardines from Master to fishpond be delivered to 555 (COGSA) after the carrier had rejected its procures to the secure a Manila. P1credit Million loan. In ahimself separate letter of and obliges to reimburse Company in Only 88 cartons were demand. The carrier pleaded in its Answer transaction, hebank opened a letter of credit with the issuing upon receipt of the documents of delivered, however, these were in bad the affirmative defense of prescription under the same bank for $500,000.00 in favor ofis the one title, while the beneficiary/seller/exporter condition. 555 Company claimed from Star the provisions of said Act inasmuch as the HS Bank, a the foreign bank, to purchase who inLines compliance with themissing contract sale ships Shipping value of consignee the suit was brought by the afterofone outboard motors. Likewise, Ricardo executed the goods to the buyer and delivers the documents goods, as well as the damaged goods. Star (1) year from the delivery of the goods. In a Surety Agreement favor AC Bank. of title and draftinto the ofissuing bank Shipping Lines refused because the former the consignee contended that the to recover Theturn, outboard motors arrived andTheir were SUGGESTED ANSWER: payment for the goods. is failed to present a bill of was lading. Resolverelationship period suspended The claim of of prescription 555 Company meritorious, delivered to Ricardo, but heiswas not ableby to the governed by the contract of sale. with reasons the claim of 555 Company. extrajudicial itlading. had even if itpurchase fails to present a bill ofa) paywritten the price demand thereof. Canmade AC (4%) against the carrier within the one-year period, 2) takeaBetween the issuing and the Although bill of lading the best bank evidence Bank possession of is the outboard pursuant to Article 1155 of the Civil Code beneficiary/seller/exporter The foreclose issuing bank is of the contract of Can carriage for –cargo, motors? Why? b) AC Bank also that the prescription of actions is and the one that issues the letter of credit nevertheless such contract can exist even theproviding mortgage over the fishpond? Explain. interrupted when there is a written undertakes pay the seller without a bill oftolading. Like anyupon otherreceipt of the (5%) SUGGESTED extrajudicial demand by the creditors. Has to draft ANSWER: and proper titlea)and contract, a contract of documents carriage is aof meeting a) SUGGESTED No, for AC Bank has no to legal standing, the action in fact prescribed? Why? b) If the ANSWER: surrender the documents the buyer of minds that gives rise to an obligation on upon much lessaction a lien, onwere the outboard motors. consignee’s action predicated ongoverned The taken by the local the consignee reimbursement. Their relationship is thea) part of the carrier to transport goods. Insofar as AC Bank is concerned, it has misdelivery or conversion of of the goods, wouldby has, in fact, prescribed. The period ofprivity one by the terms of thethat letter credit issued Jurisprudence has held the moment the with the person ofCarriage Ricardo under the Surety G.R. No. L-18965, October 30,for 1964; Negre v. your answer be the same? Explain briefly. year under the of Goods by Sea the bank. carrier receives the cargo transport, thenAct Agreement, and ainterrupted lien onissuing the fishpond based 3) Between the bank and the Cabahug Shipping Co., G.R. No.by L-19609, April (COGSA) is not& adiligence written its duty to exercise extraordinary ALTERNATIVE on the ANSWER: real estate mortgage constituted 29,extrajudicial 1966) applicant/buyer/importer – Their relationship is demand. The provisions of Art arises . (Cia. Maritima v. Insurance Co. of North Star Shipping Lines can refuse to honor 555 therein. governed by the terms of the application and 1155 of the NCC merely apply and to prescriptive America, Company's for the missing b) Yes, claim butfor only to issuance enforce payment of agreement the of and the not letter periods provided for in said Code to of damaged goods. The Bill of Lading is the the principal loan of P1million secured by the credit by the bank. special laws such aslegally COGSA except when document title that establishes the real estateof mortgage on the fishpond otherwise provided. (Doleover v Maritime Co 148 s ownership of 555 Company said goods. b) If the consignee’s action were predicated (National Union Fire Insurance ofof Pittsburg v. 555118). to present the Bill Lading to the onneeds misdelivery or conversion of goods, Stolt-Nielaen, G.R. No. 87958, April 26, 1990) Letter of Credit; Certification from Consignee (1993) legally claim said goods. provisions of the COGSA would be Average; Particular Average vs. General Average (2003) inapplicable. Charter Party (1991) In these cases, the NCC prescriptive periods, including Art 1155 of the NCC will apply (Ang v Compania Maritama

Letters of Credit

Maritime Commerce

133 s 600)

Mercantile Law Bar Examination Q & A (1990-2006) SUGGESTED ANSWER: owner and the captain as the typhoon came Under the “doctrine of inscrutable fault,” earlier and overtook the vessel. The vessel where fault is established but it cannot be sank and a number of passengers determined which of the two vessels were at disappeared with it. fault, both shall be deemed to have been at Relatives of the missing passengers claimed fault. damages against the shipowner. The Doctrine of Inscrutable Fault (1998) shipowner set up the defense that under the A severe typhoon was raging when the doctrine of limited liability, his liability was vessel SS Masdaam collided with MV Princes. co-extensive with his interest in the vessel. It is conceded that the typhoon was the .1 How will you advice the claimants? As the vessel was totally lost, his liability had major cause of the collision, although there Discuss the doctrine of limited liability in maritime also been extinguished. was a very strong possibility that it could law. (3%) .2 Assuming that the vessel was insured, have been avoided if the captain of SS SUGGESTED Masdaam was not drunk and the captain of may the ANSWER: claimants go after the insurance .1 Under the doctrine of limited liability in the MV Princes was not asleep at the time of proceeds? (3%) maritime law, the liability of the shipowner arising collisions. Who should bear the damages to ANSWER: from the operation of a ship is confined to the SUGGESTED the vessels and their cargoes? (5%) The shipowners of SS Masdaam and MV vessel, equipment, and freight, or insurance, if any, so that if the shipowner abandoned the ship,Princess shall each bear their respective loss of vessels. For the losses and damages equipment, and freight, his liability is extinguished. However, the doctrine of limited suffered by their cargoes both shipowners liability does not apply when the shipowner or are solidarily liable. Limited Liability Rule (1994) captain is guilty of negligence. Toni, a copra dealer, loaded 1000 sacks of .2 Yes. In case of a lost vessel, the claimants copra on board the vessel MV Tonichi (a may go after the proceeds of the insurance common carrier engaged in coastwise trade covering the vessel. owned by Ichi) for shipment from Puerto Galera to Manila. The cargo did not reach Manila because the vessel capsized and When Toniall sued Ichi for damages based on sank with its cargo. breach of contract, the latter invoked the “limited liability rule.” 1) What do you understand of the “rule” invoked by Ichi? 2) Are there exceptions to the “limited liability SUGGESTED ANSWER: rule”? 1) By “limited liability rule” is meant that the liability of a shipowner for damages in case of loss is limited to the value of the vessel involved. His other properties cannot be reached by the parties entitled to damages. 2) Yes. When the ship owner of the vessel involved is guilty of negligence, the “limited liability rule” does not apply. In such case, the ship owner is liable to the full extent of (Mecenas v CA sustained 180 s 83) by the aggrieved the damages parties Limited Liability Rule (1997) Explain the doctrine in Maritime accidents – The Doctrine of Limited Liability SUGGESTED ANSWER:

Doctrine of Inscrutable Fault (1997) Explain the doctrine in Maritime accidents – Doctrine of Inscrutable Fault

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

Page Page 74 73 of 103 of 103 andClaro also already the fact sighted that A does Manila noton have its radar the means screen. and Manila resources had no to radar invest MVengage SuperFast, in retail a passenger-cargo trade. Besides, vessel Matilde’s sale P500th equipment. in the security As for speed, agency. Don Claro was owned of the byasbestos SF Shipping products Company to Celeste, plying the being ALTERNATIVE ANSWER: twice as fast as Manila. inter-island wholesale, routes, the transaction was on its is way nottocovered by 1) The prosecutor may establish the fact that (Asbestos vthe Peralta 155port S when it Zamboanga the RetailIntegrated City Trade from Law Manila 213) theAt P500th would constitute a Manila major failed to the time of the collision, accidentally, and without fault or negligence Nationalized Activities or Undertakings (1995) investment and yet A is not even elected follow Rule 19 of the International Rules of of anyone on the ship, hit a huge floating Global KLaccident Malaysia, a 100% Malaysian owned member of the BOD or one of the officers. the Road which requires 2 vessels meeting object. The caused damage to the corporation, to build a hotel beach Furthermore, may also becourse shownby that A head on to itchange their each vessel and loss desires of an accompanying crated resort in Samal Island, City, to take does not even have means (right) to raisesothe vessel steering tothe starboard that cargo of passenger PR. In Davao order to lighten the advantage of it the increased tourists amount of P500th that or (left) each vessel mayand pass onthe theofficers port side vessel and save from sinkingtraffic and inoforder SUGGESTED ANSWER: and boost the tourismtoindustry of the the rest majority of the directors are foreigners. of the other. that it would to avoid risk of damage or loss of The mereManila fact ofsignaled being a common law 1. Assuming that Global has US$100M to invest2) No. Philippines. turn to the port side and steered of the shipped items (none of which was wife of a foreigner does not bring her within in a hotel beach resort in the Philippines, may accordingly, thus resulting in the collision. located on the deck), some had to be ambit of the Anti-Dummy Law. it be allowed to acquire the land on which to theDon Claro’s ALTERNATIVE ANSWER:captain was off-duty and was jettisoned. SF Shipping had the vessel build the resort? If so, under what terms and 2) Yes. having a drink at the ship’s bar itatcan thebe time of Being a common law wife, repaired at its port of destination. SF passengers who died and the owners offor the conditions may Global acquire the land? the collision. a) Who would you hold liable presumed that she is the one running the Shipping thereafter filed a complaint recover damages from the owner of said cargoes Discuss fully. the collision? b) If Don Claro facie was at fault, business, which raises a prima demanding all the other cargo owners to SUGGESTED ANSWER: vessel? 2. May Global be allowed to manage the hotel presumption may the heirs of the of violation of the Anti-dummy share in the total repair costs incurred by the I can hold the 2 vessels liable. In the problem beach resort? Explain. Law, (RA 6084). company and in the value of the lost and given, whether on the basis of the factual 3. May Global be allowed to operate restaurants Nationalized Activities or Undertakings (1994) jettisoned cargoes. In answer to the SUGGESTED ANSWER: settings or under the doctrine of inscrutable within the hotel beach resort? Explain. Celeste, a domestic corporation wholly complaint, the shippers’ sole contention was 1. Global can secure a lease on the land. As a SUGGESTED ANSWER: fault, both vessels can be said to have been owned by Filipino citizens, is engaged in that,The under the Code of aCommerce, each The corporation with Malaysian nationality, No. shippers’ contention is not valid. guilty of negligence. The liability of the 2 trading and operates as general contractor. damaged should bear or own Global own theits land. owners of party thecannot cargo jettisoned, to his save the carriers for the death or injury of passengers It buys and resells the products of Matilde, a damage andGlobal those can that did not suffer any 2. from Yes, the beach vessel sinking andmanage to save the hotel rest of and for the loss of or damage to the goods domestic corporation, 90% of whose capital losscargoes, orresort. damage were obligated to make There isnot no to law prohibiting itThe from the are entitled contribution. arising from the collision is solidary. Neither stock is owned by aliens. All of Matilde’s Liability Rule (2000) anyLimited contribution in favor ofconstitute those whogeneral did. Is managing the resort. jettisoning of said cargoes carrier may invoke the doctrine of last clear are made in the Philippines from Mariposa, ofvalid? five passenger ships goods theMV contention Explain (2%) 3.shippers’ Global may one be allowed operate restaurants average loss which entitles theto owners chance which can only be relevant, if at all, materials found or produced in the owned by Marina Navigation Co, sank off the the beach from resort. is part of the thereofwithin to contribution theThis owner of the between the two vessels but not on the SUGGESTED ANSWER: Philippines. On the other hand, ECQ coast of Mindoro while en route to Iloilo City. of the resort. vessel operation and also from the owners of the claims made by passengers or shippers Yes, but is subject toFilipino the doctrine of limited a 100% owned SF Shipping is not to contribution/ More than 200entitled passengers perished in the Integrated cargoes saved. (Litonjua Shipping v National Seamen Board liability. The doctrine is to the effect thatGR the and manufacturer of asbestos reimbursement for the costs of repairs disaster. Evidence showed that on thetheship corporation 51910 10Aug1989) liability of the shipowners would only be to vessel fromignored the shippers. captain typhoon bulletins issued by products. Celeste and ECQ took part in a the bidding extent of any remaining value the conducted by MWSS forofits Pag-asa during the 24-hour period public vessel, proceeds of insurance, if any, and asbestos pipe requirements. Celeste won the immediately prior to the vessel’s departure earned freightage. Given the factual settings, bid, having offered 13% lower than that from Manila. The bulletins warned all types of the shipowner himself was not guilty by ECQ; and MWSS awarded theof sea crafts to avoid the typhoon’s expected offered negligence and, therefore, the doctrine can contract to supply its asbestos pipes to from path near Mindoro. To make matters worse, 1) Is Celeste barred under the Flag Law well apply (Amparo de los Santos v CA 186 ECQ to to nullify thethe award in s 69) he took more load than was allowed for the Celeste. Limited Liability Rule; General Average Loss (2000) taking part in sought biddings supply of Celeste. Nationalized Activities or Undertakings ship’s rated capacity. Sued(1993) for damages by favor X Shipping Company spent almost a fortune government? 2) Did Celeste and Matilde 1) A invested P500th in a security agency on Nav violate the victim’s surviving relatives, Marina in refitting and repairing its3) luxury passenger the Anti-Dummy Law? Did Celeste October 30, 1990.1) Hethat wasits charged with Co contended liability, if any, had andvessel, the MV Marina, which plied the interMatilde violate the Retail Trade being a dummy of his friend, a foreigner. been extinguished with the sinking Ifof MV Nationalization island routesLaw? of theExplain. company from La Union youMariposa; were the prosecutor, evidence can not and 2) thatwhat assuming it had in the north to Davao City in the south. The SUGGESTED ANSWER: ANSWER: youbeen present to prove violation of the Antiso extinguished, such liability should be SUGGESTED MV Marina met an untimely fate during its Yes. The contentions of Marina Nav Co are 1) No. The materials offered thethe bids Dummy Law? Juana de Cruz, a common limited to 2) the loss of lathe Are these post-repair voyage. It sankinoff coast of meritorious. The captain of cargo. MV Mariposa is submitted are made in the Philippines lawguilty wife of foreigner wrested of of contentions meritorious in the thecontrol context Zambales while en route to La Unionfrom from ofanegligence in ignoring the typhoon produced or grown inshowed the Philippines, a television At the by instance of applicablefirm. provisions of thethe Code Manila. The investigation that the bulletins issued PAGASA and inof articles andcaptain the bidder, is a domestic minority group of firm, she Commerce? (3%) aloneCeleste, was negligent. There entity. were no overloading thethe vessel. But was onlycharged the captain The Flag Law does not apply. It can with violation of the Anti-Dummy Law. May casualties in that disaster. Faced be with a of the vessel MV Mariposa is guilty of invoked against a bidder who is not and a shenegligence. be convicted by the mere fact that she is claim only for the payment of the refitting SUGGESTED ANSWER: The ship owner is not. Therefore, domestic entity, or against a domestic entity a common law wife of a foreigner? Explain. repair, X Shipping company the ship orowner can invoke doctrine of 1) A allows permits the use orthe exploitation 2) No, since Celeste is merely aasserted dealer of who offers imported materials. Limited Rule; Doctrine of Inscrutable Fault exemption from liability onofthe basis of the limitedLiability liability. or enjoyment of a right, privilege or business, SUGGESTED ANSWER: Matilde and not an alter ego the latter. (1991) hypothecary or limited liability rule under the exercise or enjoyment of which is No. The assertion ofon X Shipping Company is Celeste buys and sells its own account In a collision between M/T Manila, a tanker, Article 587The ofMatilde. the Code of Commerce. Is X expressly reserved by the Constitution or the not valid. total destruction of the vessel the products of and M/V Don Claro, an inter-island vessel, Shipping Company’s assertion valid? Explain laws to citizens of the Philippines, by the 3) Matilde did not violate the Retail Trade does not affect the liability of the ship owner Don Claro sank and many of its passengers (3%). foreigner not possessing the requisites Law since it does notvessel sell itscompleted products to for repairs on the before its drowned and died. All its cargoes were lost. prescribed by the Constitution or the laws of consumers, but to dealers who resell them. loss. The collision occurred at nighttime but the Limiteddid Liability Rule;violate General Average LossTrade (2000) the Philippines. The prosecutor should prove Neither Celeste the Retail sea was calm, the weather fair and visibility the above elements of the crime Law since, in the first place, it is not was good. Prior to the collision and while still prohibited to 4 nautical miles apart, Don Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Nationalized Activities or Undertakings

Page Page 76 77 75 of 103 of 103 backup requires Civil Code in the 60% and processing Filipino other laws holding of of in goods, land c) general corporate factories, application ownership. andcan d) its stillown apply in A course, SURETY is habitually issued byengaged a surety or employees. suppletorily. Is EL engaged in retail trade? does due it appear asBOND that suchZfailure is or refusal ALTERNATIVE ANSWER: insurance company in favor of a Explain. in selling to bad constituted the general faith. public that designated The dismissal by theLaw court was board correct. A SUGGESTED ANSWER: beneficiary, to which such 3) Yes. Not being athere holder course, c) The Anti-dummy allows commodity. Sincepursuant is in nodue violation of the The sale by EL of generators to government check whether or not post-dated or crossed, company acts as a surety to the debtor or Excel is subject to the personal defense representation to the extent of actual and Retail Trade Law, there would likewise by no offices, agricultural enterprises and factories is still a negotiable instrument and unless obligor of such beneficiary. A CASH BOND is which Po Press can set up against Jose (State permissible foreign investments in violation of the Anti-Dummy Law. arePablo outside theAccordingly, scope of the term “retail is a general indorser, which is not Retail Trade Law (1993) a security in the form cash established by Investment House v IAC 175of S 310) corporations. the President of business” andin by expressed the settings, he cannot Checks; Crossed (1995)surety A foreign firm Check is engaged in theto business of the a guarantor or secure Acme may nomay, sit factual intherefore, the BOD ofbe themade Checks: Crossed Checks (2005) the said corporation. However, sales be held liable for the dishonor of the On Oct 12, 1993, Chelsea a corp to manufacturing selling Straights, rubber products obligation ofand another. department store corporation but can do of so What is a crossed check? What are the generators byIn EL its may own House employees d) Therealty Treasurer oftoAcme not hold that instrument. State Investment v IAC (GR engaged in the manufacture of cigarettes, dealers who in turn sell them to others. It also in the corporation. effects of crossing a check? Explain. constitute retail in sales and did are not proscribed. position either the court department store 72764 13Jul1989) , the go so far ordered from Moises 2,000 bales of tobacco. sells directly to agricultural enterprises, ALTERNATIVE ANSWER: SUGGESTED ANSWER: Under to Retail Trade corporation or in the realty corporation since as tothe holdamendment that the fact of the crossing would Chelsea issued to Moises two public crossed checks automotive assembly plants, utilities In State Investment House v IAC (GR 72764 A Crossed Check under accepted banking Law introduced by Law PD 714, the the term “retail the Anti-Dummy prohibits render the instrument non-negotiable. postdated Marin94 andbulk, 15 Apr full which buy 15 them large and94toinits 13Jul1989), the SC considered a crossed check practice, crossing a check is done by writing business” shall of not include a manufacturer employment aliens in such nationalized payment therefor. On 191) Jan Moises sold officers and employees. Is 94 there violation as subjecting a subsequent holder thereof to two parallel lines diagonally on the left top (such EL) selling tothose industrial areasasof business except that calland for to Dragon Investment House at a 2) discount of the Retail Trade Law? Explain. May said the contractual covenants of the payor and portion of the checks. The crossing is special commercial users or consumers who use the highly technical qualifications. the checks drawn by Chelsea in his firmtwo operate a canteen inside the premises of the payee. If such were the case, then the where the name of the bank or a business products bought by them to render service to favor. Moises failed to the bales its plant exclusively fordeliver its officials and of instrument is (1991) not one which can still be said institution is written between the two parallel SUGGESTED ANSWER: Trade Law theRetail general public (eg government offices) tobacco as agreed Chelsea’s employees without despite violating the Retail Trade 1) On thewhich assumption the foreign firmshould is to contain an unconditional promise pay or lines, meansthat that the drawee Is theto Filipino common-law wife of a to and/or produce or (1991) manufacture goods demand. Consequently, on 1 Mar 94 Chelsea Act? Explain. Retail Trade Law; Consignment doing in thethe Philippines, the sale order a sum certain in money. In the transfer paybusiness only with intervention ofto that foreigner fromsold engaging the retail which are barred in turn by in them (eg issued a “stop payment”Checks order on the 2 ABC Manufacturing Inc, a by company wholly SUGGESTED ANSWER: theEffects dealersof of Crossed agricultural enterprises, of non-negotiable credits assignment, the company. business? agricultural enterprises and factories). checks issued to Moises. Dragon, claiming to 1) The check may not bepublic encashed but only owned by foreign nationals, manufactures A Filipino common-law wife of a foreigner automotive assembly plants, and transferor does not assume liability for theis (Goodyear Tires v Reyes Srdistributes Gr 30063, Jly 83 ALTERNATIVE ANSWER: be a holder in due course, filed a complaint in theisANSWER: bank. 2) The check may benot negotiated deposited typewriters ABC to 2,the SUGGESTED not from engaging in retail business. utilities wholesale and, therefore, in faultbarred of thewhich debtor or obligor. Accordingly the 123s273). Yes. The check is crossed. It should have for collection against Chelsea for the value of only once—to one Trade 1 ABC consigns its typewriters to and in Dragon cannot from Chelsea. The general public in 2 ways: On the assumption that she acts for violation of the collect Retail Act (BF Goodrich v court’s decision was correct. forewarned Mr. Noble that it was for a the checks. Rule on thewith complaint of Dragon. who has an a bank. 3)were The act independent dealers who in turn sellissued themofto instruments areaccount crossed checks which her own behalf, and absent a violation the Reyes 121 s 363) specific purpose. Hence, Mr Noble could not Give your legal basis. of crossing the check serves as a warning to 2) Yes. The of2,000 the canteen theAnti-Dummy public; and, Law which prohibits a foreigner intended to operation pay for the bales ofinside a holder inindividuals, due course. He are is subject to the that the check hasIt been issued for2a be the premises its officers and notor an tobacco toholder beexclusively delivered tofor Moises. was fromThrough being either the realwho proprietor the personal defense of breach of trust/ definite purpose, so that he must inquire if he employees, would amount to an input in the employees ofof ABC, and who are paid strictly therefore the obligation of Dragon to inquire employee a person engaged in the retail agreement by basis Mr. Pablo. Suchsale. defense received theofcheck pursuant that ANSWER: has arrangements violate the RetailisTrade manufacturing process therefore, does on ALTERNATIVE athese commission each as to the purpose theand, issuance ofto the 2 purpose;Do trade, she would be for violating the Retail otherwise, he Trade iscausing notAct. a them holder in due An engagement wife (including available in favorby ofaMr Carlos against Mr Law? not violate the Retail crossed checks before to be Trade Act. Checks;ANSWER: Crossed relationships) Check (1994) SUGGESTED course. common-law of a foreigner in Noble. Retail Trade Law (1996) discounted. Failure on its part to make such Press in favor ofwould Jose athe postdated a) Po The firstissued arrangement not be in Checks: Crossed Checks vs. Cancelled Checks (2004) Retail Trade Law (1990) the retail trade business, raises With a capital of P2th Maria operates a stall inquiry, which resulted in its bad faith, crossed in payment ofLaw. newsprint violation ofcheck, thethat Retail Trade The law Distinguish clearly (1) crossedcompany checks from Acme Trading Co Inc, a trading presumption she has violated the Antiat a public market. She manufactures soap Dragon cannot claim to be a holder in due which Jose promised deliver. Jose sold and applies only when the to sale is direct to the cancelled checks; wholly owned by foreign stockholders, was Dummy Law. Hence, the wife is barred from that she sells to the general public. Her course. Moreover, the checks were sold, not SUGGESTED ANSWER: negotiated the to Excel Inc. sells at a for general public. A check dealer buys and persuaded by Paulo Alva, a Filipino, to invest engaging in the retail trade business. common law husband, MaLee, who has a endorsed, by check him toisDragon which not lines A one with two did parallel Retail Trade Excel Lawbehalf (1992) did and, not ask Jose thethe purpose anddiscount. in his own therefore, sale in crossed 20% of the outstanding shares of stock pending petition for naturalization, become a holder in due course. Not being a of aa drawn diagonally across its face or across of crossing the check. Since Jose failed to A Cooperative purchased from Y Co on to the general public is made by the dealer corporation he is forming which will engage in occasionally finances the purchase of goods holder in due course, On Dragon is subject to the a corner thereof. the other hand, deliver the newsprint, Po ordered the drawee installments a rice mill and made a down and not by the manufacturer (Marsman & Co v the department store business (the for resale, and assists in part the management of ALTERNATIVE ANSWER: personal defense on the of Chelsea SUGGESTED ANSWER: cancelled check is one marked or stamped bank to stop payment on the check. Efforts payment therefore. As security for the First Coconut Control Co GR39841 20June1988) “department store corporation”). Paulo also the business. Is breach there a violation ofthe the Retail a) The first arrangement violates the Retail concerning trust on part ofof a No, there is the noCheck violation the Trade "paid" and/or "cancelled" byRetail or on behalf of Excel toofcollect from Pothe failed. Excel wants payment the balance, Cooperative Checks; Crossed (1996)ofof urged Acme to invest in 40% of the Trade Law? Explain. Trade Law because when ABC “consigned” Moises Lim in not complying with his Law. Maria is a manufacturer who sells to the drawee bank to indicate payment thereof. to know from you as counsel: 1) What are executed a chattel mortgage in favor of Y the What are the effects of crossing a outstanding shares of2000 stockbales of theofrealty the typewriters, the transaction was one of obligation to deliver Checks; Crossed Checkthe (1991) general public, through her stall in the public SUGGESTED ANSWER: effects of crossing a check? 2) Whether as Corporation. Y Co in turn assigned its rights check? corporation he is putting up to own the landMr consignment sale.is In sale, an crossed check, it aconsignment holder in due course? tobacco. Mr Pablo sought to aborrow P200th The effects crossing check are as befrom market, the of soap which she manufactures. second indorser and holder the to the chattel mortgage to Zof Co a 5% foreign on which the department store will built agency relationship is created so it is as if 3) Whether Po’s defense of lack of Carlos agreed tobeloan the b) amount in 1 Carlos. Theas check may not encashed but only follows: Inasmuch her capital does not exceed corporation? Explain your answer. May owned company doing business in the (the “realty corporation”). a) May Acme invest ABC sells directly to the public through its against Jose is also available as against consideration as the form a the postdated check which was deposited in aofbank; P5th (it only P2th) then she is considered Acme in realty corporation? SUGGESTED ANSWER: The cooperative thereafter made Philippines. in theisinvest said department store Excel? (i.e. 2the parallel diagonally drawn thepayments Cooperative 2 crossed The4a check may be lines negotiated only once to agents. under Sec Retail Trade Law as not Discuss. c) of May the President of Acme, a b) Because The second arrangement wouldto meet be installment to Zwas Co.unable SUGGESTED ANSWER: the left portion of the check). Before its obligations in full, Trade Z Co filed against it a BOD of the said department store corporation? oneon who has an account with a bank; engaged intop the “retail business.” Inasmuch foreigner, sit in the violative of the Retail Law, since the 1) The effects of crossing a check due dateofof the check, Pablo discounted court suit for collection. The Coop resisted he be a business director of realty corporation? May as Maria’s is the not aa“retail business,” sale is done through individuals being paid 3 the The act crossing check serves as a The check is for deposit only in the are:1 it withto Noble Onthe due date, deposited contending Z Co was illegally engaged in Discuss. d) May Treasurer ofthe Acme, then the requirement in Sec 1that ofNoble the Retail strictly on a that commission warning the holder thereof check has account of the payee basis. The said the occupy check the with same his position bank. The in the check said department was the retail trade business having sold aas another foreigner, Trade Law that Philippine nationals shall individuals would then may be for acting merely been issued for only a definite purpose so that the 2 The check be indorsed only store corporation? May he be the treasurer of dishonored. Noble sued Pablo. The court consumer good as opposed to a producer engage, directly, or indirectly, in the retail agentsonce of the manufacturer. Sales, therefore, holder mustANSWER: inquire if he has received the check SUGGESTED in favor of a person who has an ALTERNATIVE ANSWER: said corporation? Explain. the dismissed Noble’s complaint. Was the court’s item.by The Coopagents also allegeddeemed that Z had business is inapplicable. For this reason, made such direct pursuant torealty that purpose, otherwise he isthe notand a The court’s decision was incorrect. Pablo account with a bankare SUGGESTED ANSWER: b) The 2nd arrangement is not violative decision correct? violated the Anti-Dummy Law. Is Z guilty of of participation of Ma Lee, Maria’s common Law sales by the manufacturer. holder in due course (See Bataan Cigar and Carlos, being immediate parties to the 3 Trade TheLaw check is issued for a specific a) Acme may not invest in the department theviolating Retail because typewriters are the Retail Trade Law and the Antihusband, in the management of the business Cigarette Factory, Inc. v CA GR 93048, Mar 3, 1994; instrument, are governed by the rules purpose ANSWER: and the personorwhogoods takes itfor not Retail Tradecorporation Law (1996) store since the Retail Trade Actof notSUGGESTED consumption goods Dummy Law? Why? 230privity. s 643) would not be a violation of the circumstances Retail Trade Given the factual of Z Co is not guilty of violating the Retail Trade in accordance with said purpose does not EL allows, Inc, a domestic corporation with foreign in the case of corporations, only 100% personal, household and family use. Law in problem, relation toPablo the Anti-Dummy Law. the has no valid excuse from Law and the Anti-Dummy Law. The term become a holder in due course and is not equity, manufactures electric generators, Filipino owned companies to engage in retail denying liability, investment House a) v IAC RETAIL under Retail thereunder. Trade Act requires entitled to the payment andtrade. sells them to the(State following customers: 2) No. It seller is a crossed check and Excel did not GRAcme 72764may 13July1989). undoubtedly b) invest inPablo the that the must be habitually engaged in government offices which userealty the generatorshad take it in accordance with the purpose for Bond: Cash Bond vs. Surety Bond (2004) benefited in the transaction. hold corporation, on to the assumption that To the b) selling to the general public consumption during brownouts render public service, which the check was on its Distinguish cashissued. bond from surety otherwise would contravene the basic balance of 60% of also ownership of the latter goods. Byclearly consumption goodsFailure are meant agricultural enterprises which utilize the part to inquire as to said purpose, bond. rules ofas unjust Even corporation, is Filipinoenrichment. owned since the law in “personal, family and household” purposes. A generators negotiable instruments, the merely Rice Mill Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006) SUGGESTED ANSWER: does prevented not fall Excel under from thebecoming category.aNeither holder

Negotiable Instruments Law

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

payment therefor through (Traders the Royal Clearing Bank v. House, RPN, G.R.XM 138510,it.October 10, 2002). BankNo. honored Thereafter, Albert withdrew • P210,000 Drawee-bank canhis recover from the the and closed account. collecting bank (Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank, G.R. No. after a When the check was returned to him because even if the indorsement on XM 18657, August 23,1922) month, William discovered the alteration. check deposited bank's Bankthe recredited P210,000bytothe William’s client is forged, bank is current account, andcollecting sought reimbursement bound by its warranties as anclaiming indorser from ND Bank. ND Bank refused, and cannot set up defense of forgery that XM Bank failed to return the altered asto against drawee bank (Associated check it within 24 hour clearing period. Bank v. Court of Appeals, G.R. Who, as between, XM Bank and No. ND 107382, Bank, SUGGESTED ANSWER: Checks; Liability; January 31, Bank (1995) should bearDrawee the1996). loss? Explain. ND Guzman Bank should the loss if XM Mario issuedbear to Honesto Santos a Bank returned the altered check check for P50th as payment fortoaND 2ndBank handwithin four after of its Mario, discovery of the car.twenty Without thehours knowledge alteration. Under the given facts, William Honesto changed the amount to P150th discovered the alteration when thebyaltered which alteration could not be detected the check was returned to him the after a month. It naked eye. Honesto deposited altered maywithsafely be assumed that the William check Shure Bank which forwarded immediately advised XM Bank of such fact same to Progressive Bank for payment. and that the latter promptly notified ND Bank Progressive Bank without noticing the thereafter. Bank Circular No. 9, as alteration paid Central the check, debiting P150th amended, on which the decisions of the from the account of Mario. Honesto withdrew Supreme Court in Hongkong & Shanghai the amount of P15th from Shure Bank and Banking Corp v People’s & Trust Co and disappeared. After receivingBank his bank Republic Mario Bankdiscovered vs CA the were based was statement, alteration SUGGESTED ANSWER: expressly cancelled and superseded by CB and demanded restitution from Progressive The demand of Mario for restitution of the No Discuss 317 dated Dec 23 1970. The latter was in Bank. fully the rights and the amount of P150,000 to his account is tenable. turn amended by CBconcerned. Circular No 580, dated liabilities of the parties Progressive Bank has no right to deduct said Sept 19, 1977. As to altered checks, the new amount from Mario’s account since the order rules provide that the drawee bank can still of Mario is different. Moreover, Progressive return them even after 4:00 pm of the next Bank is liable for the negligence of its day provided it does so within 24 hours from employees in not noticing the alteration discovery of the alteration but in no event which, though it cannot be detected by the beyond the period fixed or provided by law ALTERNATIVE ANSWER: naked eye, could be detected by a XM BankProgressive bear theand loss. the for filing ofshould a legal action by theWhen returning As between Bank Shure magnifying instrument used by tellers. bank drawee bank (XM the that Bank) bankshould failed sending to the return the Bank, it isagainst the former bear the same. altered check to the collecting bank (ND Assuming thatBank the relationship between the loss. Progressive failed to notify Shure drawee Bank) bankwas the and 24thehour collecting clearing bank period is Bank that within there something wrong with inby Sec 4c ofwritten CBhour Circular 9, 24 dated evidenced some document, the theprovided check within the clearing rule of Checks; Material Alterations; (1999) prescriptive Feb 17, 1949, period the Liability latter would is be absolved 10 years. from hours. A check for (See P50,000.00 liability. PB&Tdrawn Co GRagainst L-28226 Sep (Campos, NIL HSBC 5th edv was 454-455) drawee 30 1970; bank 35and s 140; made alsopayable Rep Bank tovXYZ CA GR 42725 Checks; Forged Check; Effects (2006) Apr 22, 1991 196 sThe 100)check was deposited Marketing or order. Discuss the legal consequences when a bank with payee’s account at ABC Bank which honors a forged check. (5%) then sent the check for clearing to drawee SUGGESTED ANSWER: bank. bank refused when to honor the honors TheDrawee legal consequences a bank check on ground that the serial number a forged check are as follows: 1 Ishad it proper for theSignature drawee bank thereof been altered. XYZ marketing (a) When Drawer's is to Forged: dishonor the check for the reason that it had been sued drawee bank. Drawee-bank by accepting the check cannot altered? (2%) of forgery, because by set upExplain the defense 2 In instant suit, drawee bank contended accepting the instrument, the drawee bank that XYZ Marketing as payee could not sue theof admits the genuineness of signature Checks; Crossed Check (1996) drawee bank as there was no privity between (BPI Family Bank vs. Buenaventura G.R. Ondrawer March 1, 1996, Pentium Company ordered then. Drawee theorized that there was no basis to No. 148196, September 30, 2005; Section 23, a computer from CD Bytes, and issued a Unless a forgery is attributable to the fault make it liable for the check. Is this contention Negotiable Instruments Law). of P30,000 postcrossed check in the SUGGESTED ANSWER: or negligence of amount the drawer himself, the correct? Explain. (3%) dated Mar 31, 1996. Upon the a. No. The serial number isreceipt not a material remedy of the drawee-bank isofagainst the check, CD Bytes discounted the check with particular of the check. Its alteration does party responsible for the forgery. Otherwise, Fund House. material not constitute

80 of 103 alterationPage of Page the 78 79 instrument. of 103 of 103 Thedrawee-bank serial numberbears is not the material the Family Bank v. loss to(BPI Buenaventura, OnG.R. April No. 1, 1996, 148196, Pentium September stopped 30, payment 2005). A negotiability of the instrument. of the drawee-bank check for failure payingofonCD a Bytes forgedtocheck deliver must b. As a general the drawee not and theYes. be computer. considered Thus, as rule, when paying Fund out House of itsisfunds (Samsung Construction Co. to Phils, v.is no Far East liable under the check because there deposited cannot charge the check, the the amount drawee the bank drawer Bank, August 13, 2004). If the privity ofG.R. contract between XYZ Marketing, dishonored it.No. 129015, If Fund House aBank complaint against drawee-bank has charged as payee, and files ABC as thedrawer's drawee account, bank. Pentium and CDaction Bytes forsuch theby payment ofisthethe the latter can recover amount from However, if the taken the bank G.R. No.of107382, January 31, Bank 1996; Bank of P. I. dishonored check, will the complaint prosper? drawee-bank (Associated v. Court of an abuse right which caused damage not v. Case Montessori Internationale, G.R. Explain. SUGGESTED The complaint filed Appeals, only to the issuerANSWER: of the: check but also to theNo. May 28, 2004). by 149454, Fundthe House against not payee, payee has a Pentium cause ofwill action However, the (1994) drawer may be precluded or Checks; Presentment prosper but the one under quasi-delict. against CD Bytes will. estopped setting up the 13, defense of Gemma drewisfrom anot check on September Fund House a holder in due course and, forgery as against the drawee-bank, it 1990. The Pentium holder presented to when the therefore, can raisethe thecheck defense of is shown that the drawer himself had been drawee only on March 5, 1994. failure ofbank consideration against it. TheThe check guilty of gross negligence as to have bank dishonored the check on the same in question was issued by Pentium to pay for facilitated the by the forgery (Metropolitan date. After dishonor drawee the a computer that itBENE: ordered from CD bank, Bytes. (NOTA The question does not Waterworks v. Courtnotice of Appeals, G.R. No. L62943, holder gave a formal of dishonor to The computer not the having been delivered, qualify term "forged check". An 143 SCRA 20, July 14, 1986 ). Gemma through aaddressing letter datedthe April 27, there was a failure of consideration. The answer liabilities of a 1994. 1) What is meant by “unreasonable check discounted Fund by CD drawer with should be House deemed sufficient. time” as applied presentment? 2) Is of have Answers addressing liabilities parties Bytes is a crossedtocheck and this should SUGGESTED ANSWER: Drawee Bank versus Collecting Bank — Gemma liable to the holder? should likewise be given full credit) put Fund House on inquiry. It should have 1) As applied to presentment for payment, When the signature of the drawer ischeck forged, ascertained title of CD Bytes to the “reasonable the time: is meant not more than 6 as between the drawee-bank and collecting or the nature of the latter’s possession. months from the date of issue. Beyond said bank, this the respect, drawee-bank sustains the loss, Failing Fundtime” House is deemed period, in it is “unreasonable and the since the collecting bank does not to guarantee guilty of gross negligence amounting legal check becomes stale. the Aside signature ofthe the drawer. The payment absence of good and, thus, not a holder of 2) No. formfaith check being already theGemma check by theHouse drawee constitutes in due course. Fund can bank collect from stale, is also discharged formof (Philippine National Bank v. Court the proximate negligence since it Appeals, has CD Bytes as Acceptance the latter was the immediate Checks; Effect; by the drawee bank (1998) liability under the check, being a drawer and the G.R. No. L-26001, October 29, 1968). duty to know the signature of its indorser the check. (See Bataan Cigar andclientX person draws aof check against current account a whose liability ishis secondary, this is drawer. Cigarette Factory CAthe et alnotice s of 643dishonor GR 93048 with to the Ortigas of230 Bonifacio Bank in due the givingvbranch of Mar 3, of 94) favor B. Although X does notlaw. have beyond the period allowed by The giving (b) Forged Payee's Signature: When sufficient funds, the bank honors the check of notice of dishonor on 27, check, 1994 isit must drawee-bank pays theApril forged when it is presented for payment. more one (1)as month from 5, be than considered paying out March of its funds and Apparently, X has conspired with the bank’s 1994 whencharge the check was dishonored. cannot the amount so paid toSince the bookkeeper his ledger it isaccount not shown that Gemma and thewould holderthe ofsothe depositor. Incard such case, show that he still has sufficient funds. resided in the same place, theits period within bank becomes liable since primary duty is Thetobank files an action for recovery ofbethe which to give notice of dishonor must the verify the authenticity of the payee's ALTERNATIVE ANSWER: amount paid to the B because the check same time that notice would reach signature (Traders Royal Bank v. Radio 2) Gemma can no stillsufficient be liablefunds. under Decide the (c) if Forged presented has Philippines Network, G.R. No.Sec 138510, October Gemma sent byfor mail. 103 & original contract the (NIL consideration of104; be SUGGESTED ANSWER: Indorsement: • Drawer's account cannot the case (5%) 10, 2002; Westmont Bank v.Inc Ong, G.R. No.S Far East Realty Investment v CA 166 which the check was The132560, bank cannot recover the amount paid to charged, and charged, he can recover January 30,ifissued. 2002). 256) Checks; Presentment (2003) B for the check. When the bank honored the (Associated Bank v. Court of Appeals, from the drawee-bank A bank itissues check. May the holder check, became an acceptor. As31,1996). acceptor, G.R. its No.own 107382 January hold the liable thereunder if he fails the bank became primarily and cause directly • bank Drawer has no of to action –•liable to prove presentment for payment, the payee/holder B. against collecting bank, since theor duty of The recourse ofthe the bank should against collecting bank is the onlydrawee tobethe • present bill to forpayee. A X and its bookkeeper who conspired to make collecting bankyour is not guilty of negligence acceptance? Explain answers. (4%) X’s ledger show that he has sufficient funds. over a forged indorsement on checks for ALTERNATIVE ANSWER: it has no way of ascertaining the The bank can recover from B. This is solutio authority of the endorsement and when it indebiti because there is payment by the caused the checks to pass through the bank to B (Manila when such payment is not due. Lighter Transportation, Inc. v. Court of clearing house before allowing withdrawal The checkAppeals, issued X to February B as payee no On the G.R. No. by 50373, 15, had 1990). of the proceeds thereof sufficient funds. other hand, a collecting bank which Checks; Effects; Alterations; Period (1996) endorses a Prescriptive check bearing a forged William issued to Albert a check for P10,000 endorsement and presents it to the drawn on XM Bank. Albert the drawee bank altered guarantees all prior amount ofendorsements the check to P210,000 and including the forged deposited endorsement the check to his account NDbe held itself and with should Bank. When ND Bank presented the check liable for Page

Page Page 82 83 84 of 103 of 103 delivered Negotiable b) Paragraph Instrument: it to Page Marie. 2 81Definition – of negotiability She 103 & accepted is “NOT AFFECTED” check in good faitheither as payment Characteristics (2005) What is afrom negotiable a) P2,500.00 2. liability MP Celso bought has in the I the promise a event used rightcell that totopay phone collect it should Pedro from from San payJR. Juan Alex YuJR or e) Maythe Pablo recover Mario or Theshe interest is to be computed ataa particular for instrument? goods Give delivered the characteristics to Ruth. Eventually, of andorder preferred through Benito. the cash oversight sum Celso but ofisP2,500. or MP a inadvertence. party is asubsequent friendDespite so to JR Jose? SUGGESTED ANSWER: and is determinable. does not make the sum time Ruth regretted what she didItand apologized negotiable instrument. (2%) thethe accepted two. stop However, MR’s order promissory by Celso Lim,has BPInote no nevertheless right for P10,000. to claim paid a) Camilo enforce saiddrawee promissory uncertain ormay the not promise conditional. c) to Jun. Immediately he directed the against JR Yu thought upon Felix presentation of who converting is a party ofthe the note subsequent check. into Limcash sued to note against Mario and Jose. The promissory SUGGESTED ANSWER: (Sgd.) Noel Castro Paragraph 3 – negotiability is “AFFECTED.” bank to dishonor the check. When Marie Celso by BPI endorsing (Sec for paying 60 and itagainst 66 to NIL) hishisbrother order. Decide KR. The the SUGGESTED ANSWER: Negotiable Instrument a written contract noteGiving atthe the time of forgery being payable Incomplete the maker the option renders the to promise encashed check, it is was dishonored. promissory case. & Delivered note is(2004) a piece of paper with the event that Lim, in fact,“MP hadfor for the payment of money which is intended order, the signature of (5%) Pablo was essentialisfor 2)athe Manila, June 3,Mr. 1993 1. conditional Is Jun liable d)to Paragraph Marie? 4 – negotiability AX,In businessman, was preparing a following hand-printed notation: WILL sufficient reasons tousually issue stop SUGGESTED ANSWER: as a substitute for money and passes from the instrument to pass title to subsequent “NOT AFFECTED.” business triplegal abroad. As he did in the PAY JR TEN THOUSAND PESOS INthe PAYMENT Yes. This covers the delivery of a not an make payment order, he may sue BPI for paying one person to another as money, in such parties. A forged signature was inoperative P10,000.00 For value received, I promise to Giving the option to the holder does past,HIS he CELLPHONE signed several checks in blank and FOR 1 WEEK FROM TODAY.” incomplete instrument, under Section 14 of against his order. The waiver executed by Mr manner promise as to give conditional. a holder in due course the (Sec 23 NIL). Accordingly, the parties before pay Sergio Dee or order the sum of the entrusted to MP’s his secretary Below this them notation signature with with the Negotiable Instruments Law, which Lim did not mean that it need not exercise right to hold the instrument free from the forgery are not juridically related to P10,000.00 in five (5) installments, with the instruction to to safeguard themthe and fill of them “8/1/00” next it, indicating date the provides that therethe was prima facie authority Negotiability; Holder in Due Course (1992) due diligence to protect the interest of its defenses available to prior parties. Such parties after forgery to allow such first installment payable on October 5, 1993 out only when required to pay accounts promissory note. When JR presented MP’s may not togo against Pablo, the on b) theCamilo part of Ruth fill-up of Perla brought a motor car payable on account holder. It is nothis amiss to state that instrument must comply with Sec.any 1 of thethe enforcement. and other onit or before the during hisKR, absence. OB, secretary, filled note tothe theinstallments latter said was not a latter not having indorsed the instrument. material particulars done so, the drawee, unless the has earlier installments from thereof. Automotive for Negotiable Instrument Law toHaving be Company considered fifth day of succeeding month or out one of instrument thethe checks byinstrument placing her name negotiable under the law and so The characteristics of acompleted a down negotiable instrument andP250th. when She it ismade first before it is payment of P50th been accepted by it, is not bound to honor negotiable. thereafter. as the payee. She filled out the amount, could not be a valid substitute for cash. JR c) Camilo may enforce the instrument are; (Sgd.) Lito Villa negotiated to a holder in due course like payment todelivered the holder of check the check that and executed a promissory note for the endorsed the to KC, who took the and opposite view, insisting on the ALTERNATIVE ANSWER: against Julian his Marie special b) TH is anitexcludes indorsee of a promissory note that 1) Negotiability -company That quality orof attribute whereby a Marie, it is The valid for because all purposes, and balance. subsequently thereby it from any liability if it accepted in good faith for payment of note’s negotiability. You are to 1991 6b)ANSWER: BPI“PAY would not beasked liable toreferee. Mr Lim. SUGGESTED indorsement topasses Camilo, thereby making simply states: TO JUAN TAN OR ORDER bill, note or check or may pass from hand may enforce it within a reasonable time, as ifhim to were to comply with its stop payment order indorsed the note to Reliable Finance gems that KCopposing sold to OB. Later, OB told AX of Which of the views is correct? Mr Lim and BPI are governed by their own The promissory note is negotiable as it 2. Supposing the check was stolen while in SUGGESTED ANSWER: secondarily liable, both being parties after 400 PESOS.” The note hasAX notimely date, directed no place hand, similar towhich money, so as to the holder in it had been filled upfinanced strictly ingive accordance Corporation the purchase. (Sec 61did NIL) what she with regrets. agreement. The waiver executed by MrisLim, Yes. AX could be held to KC. This a complies with Sec 1, liable NIL. Ruth's possession and ahold thief filled the blank the forgery. of payment and no consideration mentioned. due course the right to the instrument and with the authority given. The promissory note read: “For value the bank dishonor the check. Could AX be neither being one future fraud or gross d) the Julian, inandturn, may the case anto incomplete which has been check, endorsed delivered it enforce tofree Marie in • of signed Firstly, it MK is of incheck, writing and signed by the collect It was by and written under his sum payable for himself from received, I promised to pay Automotive held liable Under to KC? Answer and reason briefly. negligence, would be valid. The problem instrument against Bert who, by his forgery, delivered. Section 14 of the Negotiable payment for the goods he purchased from maker, Noel Castro. letterhead specifying the address, which defenses. 2) Accumulation Secondary Contracts as Company or order at its of office in Legaspi (5%) does not indicate the promise existence fraud or has himself primarily liable. Instruments Law, KC, as a TH holder in due her, is rendered Jun liable tofrom Marie the check is at • Secondly, the is of unconditional to they happens to be his residence. accepted the are transferred oneifperson to another. City, the sum of P200,000.00 with interest e) Pablo preserves his right to recover from gross negligence on the part of BPI so asas to course, can enforce payment ofthat the check dishonored? (5%) pay a sum certain in money, is, P2,500.00 promissory note as payment for services twelve (12%) percent per annum, payable in Forgery (2004) SUGGESTED ANSWER: either Mario or Jose who remain parties warrant liability on part. if itDefenses; had been up strictly in demand accordance Manila September 21, 1991. rendered to SH,filled who inits turn received the note •CX Thirdly, it is payable on as no date equal installments of P20,000.00 monthly for No. Even though Marie is a holder in due maintained a checking account with juridically related to him. Mario is still with the given by to OB and from Juan authority Tan payment forAX a his prepaid cell of maturity isasspecified. ten (10) months starting October 21, 1991. course, this is an incomplete and UBANK, Makati Branch. One of checks in considered primarily liable toundelivered Pablo. Pablo (sgd) Perla within a reasonable time. it fifty isworth payable to pesos. phone card 450 The •Fourth, instrument, covered by Section 15 of the a stub of was(2005) missing. Later, he payee Incomplete and Delivered may, in case of dishonor, go after Jose who, order. acknowledged having received the note on Negotiable Instruments Law. Where an discovered that Ms. DY forged his signature Note: It indorsement, is possible that an answer Brad was in desperate need of money to pay by his special is secondarily Pay to the order of Reliable Finance The promissory note is negotiable. All the August 1, 2000. A to Bar reviewee had from told TH, incomplete instrument notblank been succeeded P15,000 distinguish between and hisand debt to Pete, encash a loan shark. Pete liable. might Corporation. Automotivehas Company requirements of Sec 1 friend, NIL arethat complied with. who happens to be your TH is delivered, special it willindorsements not, if completed and another branch the bank. DYhe was ablenot to of prior parties threatened to takeofBrad’s life if failed to The sum to be paid is still certain despite a holder in due course under Article 52 of the negotiatedBy: without authority, be a valid encash friend, which can thereby alter pay. Brad the andcheck Petewhen wentET, toa see Señorita (Sgd) Managermaterially that the sum is to be paid by installments Negotiable Instruments Law (Act 2031) and contract in hands of any answers. holder, as guaranteed saying that the the above suggested The Isobel, Brad’s due rich execution, cousin, and asked hershe if (Sec 2b NIL) therefore does innot enjoy the rights and against any person, including Jun, whose a holder due course. Can CX recover problem did not clearly indicate the Because Perla defaulted in the payment of shewas could sign a promissory note in his favor Negotiability (2002)the statute. TH asks for our SUGGESTED ANSWER: protection under Forgery; Liabilities; Prior & Subsequent Parties (1995) signature was placed thereon before the money from the bank? Reason briefly. kind of indorsements made. her installments, Reliable Finance Corporation in Yes, amount of P10,000.00 to pay Pete. Which ofcan therecover following stipulations or features CX the bank. Under advice specifically in from connection with the SUGGESTED ANSWER: Alex issued a against negotiable PN (promissory delivery. Such defense is aher realfor defense even (5%) initiated a case a sum of Fearing that Pete would killaffect Brad, Señorita of a promissory note (PN) or do not Section 23 of the Negotiable Instruments Indorser: Irregular Indorser vs. course, General Indorser (2005) note being undated and not mentioning a a) KR is right. The promissory note is not note) payable to Benito or order in payment against a holder in due available to note a money. Perla argued that the promissory Isobel acceded toa the request. She affixed affect its negotiability, assuming that the PN Law, is real The forged Distinguish an irregular indorser from a to place offorgery payment anddefense. any consideration. negotiable. It is not issued to order or bearer. of certain goods. Benito indorsed the PN party like Jun whose signature appeared prior is merely an assignment of credit, a nonhercheck on a piece of paper withto the issignature otherwise negotiable? your answer wholly inoperative in relation CX. general (3%)of an existing obligation. What would your advice be?Indicate (2%). There is is noof word of negotiability containing Celsoindorser. in payment to delivery. negotiable assurance Brad that he will just fill it up SUGGESTED ANSWER:instrument open to all defenses by writing the paragraph number of the CX cannot be held liable thereon by anyone, therein. It is not issued in accordance with Later Alextofound the goods to be defective. available the assignor therefore, later. Brad then filled in up thePN blank paper,a Irregular Indorser is not and, a party to the stipulation oraNegotiable feature of due the as shown not even by holder course. Under Section 1 of the Instruments Lawof While inFinance Celso’sCorporation possession thea PN was Reliable is not holder making a promissory note for the amount instrument but he places his signature in in below and your corresponding answer, either forged signature of the drawer, there is no What defense or defenses can Señorita stolen by a)Dennis who forged Celso’s due course. Is the promissory note a mere P100,000.00. He then indorsed and delivered blank before delivery. He is not a party but “Affected” or “Not affected.” Explain (5%). instrument that would give to a b) valid Theset fact the instrument is rise undated Isobel up that against Pete? Explain. (3%) signature and discounted it with Edgar, a a)sameANSWER: The datecan of the PN is “February of credit or aofnegotiable the towhich Pete, who accepted the source note30, asof he assignment becomes one because his signature in SUGGESTED be the basis andcontract does not mention the place oforpayment money lender who did not make inquiries b) defense The PN bears payable on the instrument? Why? b) Is his Reliable Finance payment 2002.” of the debt. theSUGGESTED instrument. Because signature he Corp is Theliability (personal which the part ofinterest the defense) drawer. ANSWER: does noton militate against its The being about the PN. Edgar indorsed the PN to Felix, last day of each calendar quarter at a rate a holder in due course? Explain briefly. considered an indorser andinhe is problem liable to is the Señorita can set up against Pete draweeIsobel bank right or authority to is a) The promissory note the a negotiable. The has dateno and place of payment a holder in Indorser due course. When Felix equal to five percent (5%)deposited above thenot then While, ain General warrants that the parties theare instrument. that thematerial amount of funds P100,000.00 in 1. What the rights of Felix, if any, touch the drawer's the negotiable instrument, being in compliance are not particulars requiredistowith make demanded of thehe PN has froma Alex the Forgery; Liabilities; Prior & Subsequent Parties (1990) prevailing 91-day Treasury Bill rate instrument is payment genuine, good accordance with the authority given toas her to against Alex, Benito, Celso and Edgar? drawee bank. with the provisions of that Sec 1 NIL. Neither the an instrument negotiable. latter refused to pay. Dennis could no longer Jose published atMario themention beginning some money such and, calendar title toExplain it, that prior parties capacity to Brad (inloaned the presence of Pete) and that The fact that no is ofmade oftoPete any fact that theall payable sum ishad to be paid with be located. c) The gives the maker theexecuted option to evidence quarter. hisPN Mario contract; that the instrument at the time of SUGGESTED ANSWER: was consideration not a holder isindebtedness, not in due material. course Consideration for acting in 2. Doesnor Celso any right against Alex, interest thathave the maturities are in stated make paymenttoeither money or in quantity and delivered ainpromissory note theSUGGESTED indorsement is valid and subsisting; and ANSWER: bad faith when Jose accepted the note as is presumed. Benito and Felix? uncertain Explain. the amount installments renders of palay or his equivalent value. payable to order. that 1. on Felix due(Sec has presentment, no right tothe claim instrument against will Alex, Negotiable Instrument: Ambiguous Instruments (1998) payment despite his knowledge that it was payable 2 NIL) d) The PN gives the holder the option Jose endorsed the note to Pablo. Bert be Benito accepted and or Celso paid who or are both parties accepted prior and to How do you treat awas negotiable instrument b) Yes, Reliable Finance Corporation is a the only 10,000.00 thatpayment allowed by Señorita either to require in money or to fraudulently obtained the note from Pablo Incomplete Instruments; Incomplete Delivered paid forgery according Celso’s to its tenor, signature and that by ifDennis. it is that isduring so ambiguous thatwith there is doubt holder in of due course given thefor factual Isobel their meeting Brad. Checks; Validity; Waiver of Bank’s liability require the maker to serve as the bodyguard and endorsed it to Julian by forging Pablo’s Instruments vs. Incomplete Undelivered Instrument dishonored, Parties to he an instrument will pay if who the are necessary such prior whether it is a bill or a note? (5%) settings. Said corporation apparently took the negligence (1991) Negotiability (1993) or escort ofJulian the holder for 30 signature. endorsed thedays. note to SUGGESTED ANSWER: (2006) proceedings to the forgery for dishonor cannot are be made. held liable by any promissory note for value, and there are no Mr. Lim issued a check drawn against BPI SUGGESTED ANSWER: Discuss the or at non-negotiability Camilo enforce the said 1. Where a) a May negotiable instrument is so JunCamilo. to leave a business As party whonegotiability became such to indications that acquired itorinsubsequent bad faith (Sec Bank in favor of MritYu as payment of certain a)was about Paragraph 1 – for negotiability is trip. “NOT of the following notes promissory note against Mario and Jose? b) ambiguous that there is doubt whether it is a hisAFFECTED.” usual practice, he signed several blank the forgery. However, Edgar, who became a 52 NIL see Salas v CA 181 s 296) shares of stock which he purchased. On the The date is not one of the May go against Pablo? c) May bill or aCamilo note, the holder may treat it eitherto checks. He instructed Ruth, his secretary, party to the instrument subsequent to the Negotiability; Requisites (2000) same day that he issued the check to Yu, requirements for negotiability. 1) Manila, September 1, 1993 enforce said note against Julian? d) as a bill of exchange or a his promissory noteRuth at fill Camilo them as payment for obligations. and indorsed the same Limforgery ordered BPIwho to stop payment. Per to Felix, Against theasright of his election. filled one whom check can withJulian her have name payee, can be held liable by the latter. standard banking practice, Lim was made to recourse? placed P30,000.00 thereon, endorsed and sign a waiver of BPI’s Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

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

Instrument: vs. be Negotiable duly taken, he Negotiable will payDocument the amount Negotiable Instrument (2005) thereof to the holder, or to any subsequent Distinguish a negotiable document indorser who may be compelled to pay. from a negotiable instrument. (2%) SUGGESTED ANSWER: C is not liable to F since the latter cannot Negotiable Instrument have requisites of of Sec. trace his title to the former. The signature 1 of NIL, a holder of this instrument C in thethe supposed indorsement by him to have D right of recourse intermediate parties was forged by X. C against can raise the defense of who are secondarily liable, Holder in due forgery since it was his signature that was ALTERNATIVE ANSWER: course may have rights better than forged. As transferor, a general endorser, B is is secondarily liablethe its subject money and to Instrument F. C is liable to isF property since it of is value. due to the itself On the of other negotiable negligence C inhand, placing the notedocument in his does that not contain Sec. 1 ofand NIL, it drawer enabledrequisites X to stealofthe same has the no signature secondary of liability of intermediate forge C relative to the parties, transferee steps into indorsement in favor of merely D. As between C andthe shoes the innocent transferor, its subject goods F who areofboth parties, it is Care whose and the is instrument is merely evidence negligence the proximate cause of the of title; thing of valuesuffer are the loss. Hence C should the goods loss. mentioned Negotiable incomplete and(1997) undelivered Negotiable Instrument; Negotiability in the Instruments; document. instruments; holder due course or (2000) Can a bill of in exchange a promissory note PN qualify makesas a apromissory for P5,000.00, negotiable note instrument if – is not buta.leavesit the name of the payee in blank b. the and the the dated; or because he day wanted to month, verify but its not correct year of its maturity, is given; spelling first. He mindlessly leftorthe note on is payable topc.of hisitdesk at thetoend of the workday. d. itornames the two following morning, the “cash”’ When he returned alternative drawees note was missing. It turned up later when X SUGGESTED ANSWER: presented it to PN for payment. Before X, T, a)turned Yes. Date not filched a material particular who out toishave the note from required by Sec 1 NIL for the negotiability PN’s office, had endorsed the note afterof an instrument. inserting his own name in the blank space as b) No. The time for payment is not the payee. PN dishonored the note, determinable in this case. The year is not contending that he did not authorize its stated. completion and 9d delivery. But X the saidinstrument he had c) Yes. Sec NIL makes no payable participation in, or knowledge about, thethe to bearer because the name of pilferage and alteration of the note and notinpurport to be the b) payee Can thedoes payee a promissory notename be a of therefore he enjoys the rights of a holder in any person. “holder in due course” within the meaning of dued)course the Negotiable Instruments A bill under may not be addressed two or the Negotiable Instruments Law (Actto2031)? Law. Who is correct and why? (3%) moreyour drawees the alternative or in Explain answer.in(2%) SUGGESTED ANSWER: to be negotiable (Sec 128 NIL). succession, a) To PN do is so right. Thethe instrument is incomplete makes order conditional. Instruments; (1998) any andNegotiable undelivered. It Bearer did Instrument not create Richard Clinton note contract that would makes bind PNatopromissory an obligation payable to bearer and delivers the same to to pay the amount thereof. b) A payee in a promissory cannot be a Aurora Page. Aurora note Page, however, “holder in due course” within the meaning of “Payable to X. Signed: Aurora endorses it to X in this manner: the Negotiable Instruments Law, because a Page.” Later, endorsing promissory payee is X, an without immediate party inthe relation to transfers andis delivers same to thenote, maker. The payee subject tothe whatever Napoleon. The note available is subsequently defenses, real of personal, to the ALTERNATIVE dishonored by Richardnote. Clinton. May Napoleon maker of ANSWER: the promissory b) A payee against can be a “holder in due for course.” proceed Richard Clinton the note? A holder is defined as the payee or indorsee SUGGESTED ANSWER: (5%) Yes.instrument Richard Clinton liable to Napoleon of the who is is in possession of it. under the is promissory note. facie The note Every holder deemed prima to be made a by Richard Clinton is a bearer instrument. holder in due course. Negotiable Instruments; Incomplete Despite special indorsement made by Aurora DeliveredInstruments; Comparative Page thereon, the note remained a bearer Negligence (1997) and can be negotiated by mere instrument delivery. When X delivered and transferred the note to Napoleon, the

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

business thereof. concern, As suchisholder, about to Napoleon leave for can a business proceed trip against and, as Richard he so often Clinton. does on these occasions, signs several checks in Negotiable Instruments; Bearer Instrumentsto(1997) blank. He instructs B, his secretary, A delivers a bearer instrument B then safekeep the checks and fill them to outB.when indorses it to C and Cduring later indorses andspecially as required to pay accounts his it in blank to out D. Eone steals thechecks instrument absence. B fills of the by from D and, forging signature placing her name the as payee, fillsof in D, thesucceeds in “negotiating” it todelivers F who acquires theto amount, endorses and the check instrument faith and value. a) C who acceptsin it good in good faith asfor payment forIf, for any drawee bank refuses to goods soldreason, to B. B the regrets her action and honor theshe check, F enforce the in tells A what did. can A directs the Bank SUGGESTED ANSWER: instrument against the drawer? of time dishonor the check. When Cb) In case Yes, Atocan be held liable to C, assuming that the dishonor of theit check by both the drawee encashes the check, is dishonored. Can A the latter gave notice of dishonor to A. This is and the drawer, hold any of B, C and D be heldof liable to C? can Finstrument SUGGESTED a case anANSWER: incomplete but liable secondarily on the instrument? a) Yes. as The was delivered it instrument was entrusted topayable B, the to bearer as it was instrument. It could be secretary of aA.bearer Moreover, under the doctrine negotiated by mere delivery despite the of comparative negligence, as between A of specialparties, indorsements. The forged andpresence C, both innocent it was the signatureofisAunnecessary presume the negligence in entrustingtothe check to B Negotiable Instruments; kinds of negotiable instrument; juridical relation between or the which is the proximate cause ofamong the loss. words of negotiability parties prior to(2002) the forgery and the parties A. Define the following: a negotiable after the forgery. The(1) only party who can promissory note, (2) a bill of exchange and raise the defense of forgery against a holder Negotiable Instrument: Identification (2005) (3) a check. (3%) in due course is the person whose signature b) Only and C canwhether be held F. The B. You are Pedro Cruz. Draft theliable appropriate State andB explain the by following are is forged. instruments instrument under at the the time Negotiable of the forgery Instruments was Law: contract language for (1) your negotiable negotiable 1) Postal Money payable to bearer, being a check, bearer each instrument. (5%) promissory note and Order; (2) your 2) Moreover, A certificate of elements timewas deposit instrument indorsed in containing thethe essential of a which states is D. to D, certify bearer has blank“This byinstrument C to whose signature was negotiable (2%) that SUGGESTED deposited inE this bank the liable sum of FOUR forgedANSWER: by cannot be held by F. A. (1) A negotiable promissory note is liabilities anonly,of Negotiable Instruments; bearer instruments; THOUSAND PESOS (P4,000.00) unconditional promise in writing makerLetters and to indorsers (2001) 3) of credit; repayable the depositor 200made daysbyafter one person to another, signed by the maker, 4) A issued Warehouse a promissory note payable to B or date.” engaging to onwarrants demand or at or 5) bearer. Treasury payable from a A pay delivered the note to a B.fixed B indorsed receipts; determinable time, a sum certain specific fund. the note to future C. C placed the note in hisin SUGGESTED money toANSWER: order bearer. drawer, whichorwas stolen by the janitor X. X 1) indorsed Postal Money Order Non-Negotiable the note to D by–forging C’s (2) Aitbillisof governed exchange is an unconditional as signature. by postal rules D indorsed the note to E whoand in order writing addressed by one personinwith todue regulation which may beto inconsistent turnindelivered the note F, a holder another, signed byonly the be person giving it, thecourse, NIL and it can negotiated once. without indorsement. Discuss the SUGGESTED ANSWER: requiring the person to whom it is addressed individual liabilities to F of A, B and C. (5%) 2) pay A is on liable A certificate to F. As of atime maker of the which to demand or the at fixeddeposit or (3) A check a bill exchange on a states promissory “Thisis future is note, to of A certify is directly thatdrawn orbearer primarily determinable time a sum certain in has bank payable on deposited liable in F, who this is abearer. holder the insum due course. of FOUR money totoorder ordemand. tobank THOUSAND Despite the presence PESOS of (P4,000.00) the special only, B. (1) Negotiable repayable indorsements to theondepositor the note, 200 thesedays do not after promissory notethe - fact thatas date.” detract – from Non-Negotiable a bearer it does not comply instrument, with thelike requisites the promissory of Sec. 1note of NIL in 3) question, Letters of credit - by Nonis always negotiable mere B, as a general is liable to F Negotiable delivery, until itindorser, is indorsed restrictively “For 4) secondarily, Warehouse Non-Negotiable and receipts warrants- that the Deposit Only.” for instrument the sameisas Bill ofand Lading it merely genuine in all respects represents good, not what it purports tomoney. be; that he has good title to it; that all prior parties had capacity to 5) contract; Treasury warrants payable from that he has no knowledge of anya specific fund -would Non-Negotiable being payable fact which impair the validity of the outinstrument of a particular fund. it valueless; that at the or render time of his indorsement, the instrument is valid and subsisting; and that on due presentment, it shall be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor

Mercantile Law Bar Examination Q & A (1990-2006) Page 88 of 103 Mercantile Law Bar Examination Q & A (1990-2006)

YES! Page Dagul 87 of is 103 an accommodation party because therequires case at 2. If Pedro pays the said P20,000 to Y, Pedro Commercial Banking Co. The By-laws ofinSaad that Requisites (1996) bar, he isissued essentially, a signed person who signsand as the checks by it must be by the President canNegotiable recoverInstruments; the amount from X. X is the What are the party requisites of party a negotiable maker Treasurer without or the Vice-President. receiving any Since consideration, the Treasurer was accommodated or the ultimately SUGGESTED ANSWER: instrument? absent, the Vice-President to co-sign the for check, signs as C anrequested accommodation party merely liable for the instrument. Pedro is only an The requisitesparty. of a negotiable the latter Thecredit check was delivered to B. thewhich purpose ofreluctantly lendingdid. the of his name. accommodation Otherwise,instrument it would beare as follows: a) It must be in writing and The check was dishonored upon presentment on due date for And as an accommodation party he cannot unjust enrichment on the part of X if he is b)the It must contain signed maker or Parties; Party (2003) an unconditional of funds. a) Is Saad liable on the check setinsufficiency up lack of consideration against any as an notdrawer; to Accommodation payby Pedro. promise or order Susan Kawada borrowed P500,000 from XYZ accommodation b) If who it is not, under theinabove holder, even asparty? to one iswho notthen, a holder to pay a certain in together money; c)with It must Parties; Holder in Due Course (1993) Bank whichsum required her, Rosebe is/are the accommodation party? duefacts, course. payable or to bearer; and d) Where Larry issued a negotiable promissory note to Reyes who to didorder not receive any amount from instrument is addressed to a drawee, he Evelyn and authorized the latter to fill up the thethe bank, to execute a promissory note SUGGESTED ANSWER: must be named amount in blank with his loan account in the payable to the bank, or or otherwise its order indicated on statedtherein a.) Saad is not liable on the check as an reasonable certainty. (Sec 1 NIL) with sum of P1,000. However, Evelyn inserted maturities. The note was executed as so accommodation party. The act of the P5,000 in violation of the instruction. She agreed. What kind of liability was incurred by Notice Dishonor (1996) corporation accommodating a friend of the negotiated the in note to Julie who had Rose, that of an accommodation party or that SUGGESTED ANSWER: When is notice of dishonor not required to President, is ultra vires (Crisologo-Jose knowledge of the infirmity. Julie in turn v CA GR of a solidary debtor? Explain. (4%) (per may be held liable. Rose is beDondee) given toRose the drawer? 80599, 15Sep1989). While may be legally negotiated said note to Deviitfor value and ANSWER: an SUGGESTED accommodation party. Absence of possible for the corporation, whose business who had no knowledge of the infirmity. 1) Notice of dishonor consideration is inis not therequired natureto be of an is to provide financial accommodations in the Can Devi enforce the note against Larry and given to the drawer in any of of the followingof accommodation. Defense absence ordinary course of business, such as one if she can, for how much? Explain. 2) cases: a) Where thebe drawer drawee are consideration cannot validlyand interposed by given byDevi a financing company an Supposing endorses the notetotobe Baby the same person; b) When the drawee a SUGGESTED ANSWER: accommodation party against a holder inisdue accommodation party, this situation, for value but who has knowledge of the not having capacity contract; c) When the Parties; Accommodation Party (2003) fictitious person or ato person b) Considering that both President and 1) Yes, Devi can enforce thethe course. however, isthe not the case innegotiable the bar problem. infirmity, can latter enforce note drawer is the person whom the Center Vice-President were signatories to the Juan Sy purchased from to “A” Appliance promissory note against Larry inthe the amount against Larry? presented for payment; d) oneinstrument generator is set on installment with chattel accommodation, they themselves can and be of P5,000. Devi is a holder in due course Where the drawer has no right to expect or liabilities of accommodation mortgage in favor of the vendor. After thesubject breachto ofthe trust committed by Evelyn that theofdrawee or acceptor willJuan honor require getting hold the generator set, Sythe parties in their personal cannot be to setthe up instrument by Larry against Devi instrument; e) Where the drawer has capacity v CA 15Sep1989) immediately sold it without consent of the because it is(Crisologo-Jose a personal defense. As a holder countermanded payment (Seccharged with Parties; Accommodation Partysubject (1996) to such vendor. Juan Sy was criminally in due course, Devi is not 114 NIL) 2) Yes. Nora Baby applied is not for a a holder loan of inP100th due course with BUR To settle the case extra judicially, Juan Sy estafa. personal defense. because Bank. she By way has of knowledge accommodation, of the breach Nora’sof paid the sum of P20,000 and for the balance Parties; Accommodation Partya(1990) trust sister, committed Vilma, executed by Evelynaagainst promissory Larrynote in of P5,000.00 he executed promissory note accommodate maker which favor is of just BUR a personal Bank. When defense. NoraBut defaulted, having for To said amount with Carmen, Ben Lopez as anof a promissory note, Jorge signed as indorser taken BURthe Bank instrument sued Vilma, fromdespite Devi, aits holder knowledge in accommodation party. Juan Sy failed to pay the instrument wasof negotiated duethat course, VilmaBaby received has all nothe part rights of the ofloan. a May thethereon, balance.and 1) What is the liability Ben SUGGESTED ANSWER: to Raffy, holder for value. At theExplain. time Raffy holder Vilma in be dueheld course. liable? Baby Explain. did not participate Lopez as an aaccommodation party? Yes,breach Vilma of may be committed held liable. by Vilma is an SUGGESTED ANSWER: took the instrument, knew in the trust Evelyn 2) What is the liability ofhe Juan Sy?Jorge to be an 1) Ben Lopez, as an accommodation party, is accommodation party. As such, she is liable accomodation party only. When the who filled the blank but filled up the liable as maker to the holder up to the sum on the instrument to a holder for value such promissory note was not paid, and Raffy instrument with P5,000 instead of P1,000 as of discovered P5,000 even if he did not receive any as BUR Bank. This is true even if BUR Bank Parties; Holder in Due Course (1996) that Carmen had no funds, he instructed by Larry (Sec 58 NIL) consideration thepleads promissory note. the Thisfact is wasconstitutes aware at the time itintook What a holder due the instrument sued Jorge. for Jorge in defense SUGGESTED ANSWER: thethat nature of accommodation. But Ben Lopez that Vilma is merely an accommodation party course? he had endorsed the instrument without A holder in due course taken canreceiving ask for reimbursement Juan Sy, the and received no partisofone thewho loanhas (See Sec 29, value therefor, from and the further fact the instrument under the following accommodation party. NIL; Eulalio Prudencio v CA GR L-34539, Jul 14, 86 that Raffy knew that at the time he took the SUGGESTED ANSWER: Partyand (1998) 2) Juan Sy is liable to the extent of P5,000 in 1 Parties; it is complete regular upon conditions: 143 sThat 7)Accommodation instrument Jorge had not received any value Yes. Jorge is liable. Sec 29 of the NIL provides For the purpose of lending his name without the hands of a holder in due course (Sec 14 its face; or consideration of any kind forishis that liablenote, on the value therefore, Pedro makes it a NIL). If an Benaccommodation Lopez paid theparty promissory 2 receiving That he became holder of it before indorsement. Is Jorge liable? Discuss. instrument to a holder for value, note for P20,000 payable to the order of Juan Sy has the obligation to reimburse Ben was overdue and without notice that it had X notwithstanding the holder the time of who in turn negotiates it to thewas latter Lopez for the amount paid. IfatJuan Sy pays been previously dishonored, if Y, such the 1. May that Y recover Pedro if the takingtosaid knew him to benote, only knowing Pedrofrom is not a party forlatter value. directly the instrument holder of the promissory fact; interposes the15, consideration? “September an accommodation is the nature or he pays Ben Lopez party. for theThis reimbursement 3 That he took itabsence in2002 good of faith and for (3%) essenceby of the accommodation. of or thethe payment latter to the holder, value; Parties; Accommodation Party (1991) Parties; Accommodation Party (2005) “For Supposing I hereby same promise facts, to Pedro pay the instrument is discharged. 4 2. value Thatreceived, at theunder time itthe was negotiated to On June 1, 1990, obtained a loan of P100th from B,with payable Dagul has a Abusiness arrangement Juan Santos or order the sum of TEN pays the said P20,000 may he recover him, he had no notice of any infirmity in the SUGGESTED ANSWER: not later than 20Dec1990. requiredlend A to issue him a check Facundo. The latter Bwould money to THOUSAND the same PESOS amount (P10,000) from thirty X?of(2%) (30) days instrument or defect in the title the person 1. Yes. Y can recover from Pedro. Pedro is an for that amount to be dated 20Dec1990. Since he does not another, through Dagul, whose name would from date hereof. negotiating it. (Sec party. 52, NIL) accommodation Absence of have any checking account, A, with the knowledge of B, appear in the promissory note as the lender. consideration is in the nature of an requested his friend, President of Saad Banking Corp (Signed) Pedro Cruz Dagul would thenC, immediately indorse the accommodation. Defense of absence of (Saad) to accommodate him. C agreed, he signed a check for note to Facundo. Is Dagul an SUGGESTED ANSWER: consideration cannot be validly interposed by the aforesaid amount dated 20Dec 1990, drawn against Saad’s to: Philippine National accommodation party? Explain. (2%) accommodation party against a holder in due account with the ABC Bank Escolta, Manila course. Branch”

Page Page 90 93 92 89 91 of 103 of 103 A who connives gave course passenger, hadhim aof certificate with her the Pietro. B work note by which The of in the public payment heirs plans A of of will convenience for WIC. Pietro offer two By for sued cavans herself sale toYellow operate some of and rice. Cab thru ofauto-trucks AB his Company associates, therefore securities with forpaid she and GH B Port legislative important her The number Area funds reorganized to franchise, ofunder Calamba, from demand the business the ifdrawee Laguna. itletters meets circumstances activity bank. sent To allcarry the to Thus, ofother Grace, WWW outwhen in all will fixed P1,00 purchased damages, buy routes them on the from but DOP atsame athe certain certain stocks latter date. towns available fixed refused On September price, in Bulacan to at with pay the stock the 15, requirements. determining faithfully MTthem Communications of Investment its unanswered, obligation his There course presented Inc. is Dizon nothing would ofEOL, action the subcontracted not through incheck the in bethe law considered for a light nor Makati the andexchange 2002, heirs, understanding Rizalinsisting EF to discovered Manila priced that that and at it P20 although that within is not per the Manila. liable share. note there because of When Firstly, would AB was thelaw of with payment, a Constitution, such public Enrico firm, factors utility Reyes the filed drawee which requiring the as a delivery complaint indicates the bank a franchise degree dishonored of that 400 for sacks aor collection of it.its he WIC's not Baldo an claimed apparent in tender is hisnot that possession its sale, offer the employee. ordinance A was will and announced, retain he Resolve was went the null toDOP with and AB. It legislative specificity, of the Later certificate against Soya on,franchise Grace the bean when or extent any with meal. MTother isInvestment the necessary of Aside Regional form its from difference ofor sued authorization the Trial required driver, her, Court from Evaof be SUGGESTED ANSWER: beneficial void was stocks reasons. because, then jumped ownership (2%) that among EF to found P30 thereof. other per out things, share. a) that Is the AB itThus inhad effect OB for Makati. information three raised from an male entity the the Grace, employees government. to generally defense operate through of of as available absence It Reyes supplier owns her rode lawyer, the ofpreviously, offacilities, on electric the filed a Yellowhis Cab Company liable with arrangement amends already earned amade certificate sizable lawful? payment profit. (3%) ofshall public Is b) onOB Ifbe the the convenience, liable note. salefor Can breach EF power and truck consideration, but motion its with and does nature to the light not dismiss cargo. and operate tothe its reliability. While on check factory them. thethe having ground (Sec. and truck its 30c, been that was RSA) issued EOL on (a) Baldo, on a solidary basis, for the death Revocation ofsecurity Certificate (1993) 3c. Thedoing person may liable tosuddenly 1) a she fine of materializes, a thing still and claim misuse which payment what only of confidential the is itfrom Public called? AB? Service or (2%) Why? insider (3%) of employees its merely was way to Laguna as living business within twobe for strangers inthe the thecompound. ring Philippines that without could SUGGESTED ANSWER: SUGGESTED ANSWER: passenger Pietro. Baldo is an employee Certificate of Public inseparability ofof public B. As a sequel to under the same facts narrated 1) Robert isand aConvenience; holder oftherefore aa certificate not less than P5th nor more than P500th or Commission information can gained do from Sec her 16 employment? (m) of theof Is stopped not a license sell. the Does truck Eva and was have hijacked valid thedefense? cargo. barred from No. Eva does not have a valid defense. First, a) No. The arrangement is not lawful. It isor an Yellow Cab under the boundary system. As certificate and vessel (1992) above, out ofUnder pity for ABsection, who had already convenience a than taxicab service 2) imprisonment ofoperate not 7the years norin Public she Service alsoEF, liable Act.for damages said to sellers the Investigation Explain. suit bringing by to the and police (b)less violated disclosed that Securities one MT Investment is a holder in due course and, artificial manipulation of the price of such, the death of passenger Pietro is breach Antonio was granted a Certificate of Public paid P1,000.00 to GH, decided to forgive Manila and suburbs. evening, one and of more than 21 years, 3) One or both such fine Commission buyers with is empowered whom she traded? to amend, If so,modify, whatAB is of the Regulation hijackers Code was by armed selling with or a offering bladed tohis sell SUGGESTED ANSWER: as such, holds the postdated check free from securities. This is prohibited by the Securities of contract of carriage, making both the Convenience (CPC) in 1986 to operate a ferry and instead go after CD who indorsed the taxicab units was boarded by three robbers imprisonment in the discretion of the court. or revoke the measure a certificate of such of damages? public convenience Explain weapon securities while the within other the was Philippines unarmed. Forwithout (Hernandez v. Dolor, No. July 30, OB isin anblank insider defined in Subsection anythey defect of title of staging prior parties and from Regulation Code. b)(as If G.R, the sale materializes, If the person is the a corporation, partnership, common carrier Yellow Cab and its between and Batangas using the note to him. IsSecondly, CD 160286, still liable as escaped after a hold-up. after briefly. notice (5%) and hearing. he to EF by failure registering to Mindoro deliver the securities 400 sacks, with Fairgoods the Philippine 2004) 3.8(3) of the Securities Regulation Code) defenses available to prior parties among it isvirtue calledofathat wash sale sale. association or other juridical entity, the employee, Baldo, solidarily motor vessel “MV Lotus.” He stopped the indorsement inliable. blank? Why? Because of said incident, the LTFRB revoked contended even if or thesimulated ordinance sued SEC Dizon andfor thus damages. came to Dizon court in turn “withset unclean up Carriage; Breach of employee Contract; Presumption ofwasthe SUGGESTED ANSWER: since she is an of the Bank, themselves. Eva cantoinvoke theofficers defense of penalty shall be imposed upon the of operations in 1988 due unserviceability of (2%) the certificate of public convenience of valid, it is only the Commission which canAB. EF a 3rd hands.” party EOL complaint opposed against the motion Reyes which to dismiss, Negligence (1990) Securities Regulation Code; Purpose (1998) A. No. EF cannot claim payment financial adviser of DOP, and thisfrom relationship absence of ground consideration against the corporation, etc. responsible forthe vessel. Inthe 1989, Basilio was granted a the MT Robert on that said operator require compliance with its provisions under the contending latter registered that it on had the ground never established that a Peter so hailed a taxicab owned and SUGGESTED ANSWER: What is the principal purpose ofinformation lawsnote. and is not a holder of to the promissory To gives her access material Investment if an theproper latter was privy to the violation. And ifonly such officer is an alien, CPC for the same route. After aDid few months, to render safe, and adequate Sec 17 (j) of said Act and since the lossfailed physical was due presence to force in majeure. the Philippines, the andhethat operated by Jimmy Cheng and driven by No. The hijacking in this case cannot be regulations governing securities in the make the presentment for payment, it is about the issuer (DOP) and the latter's purpose for which the checks were issued shall, in addition to the penalties prescribed, he discovered that Carlos was on service asactivities required under Sec 19a the implementation of Peter the ordinance was without hijacking all of the constitute force related majeure tooperating plaintiffs toofofthe trading SUGGESTED ANSWER: Hermie Cortez. asked Cortez towhich take considered force majeure. Only one Philippines? (2%) necessary to exhibit the instrument, securities (shares), which information is not and, therefore, not a holder in due course. be deported without further proceedings hisin route Antonio’s CPC. Because Public Service Act. all a) Was the revocation sanction the Commission, exculpate U.S.under Reyes securities from any transpired liability to outside Dizon? of the The principal purpose of laws and regulations SUGGESTED ANSWER: him toor hisapproval office inof Malate. On the wayits to two hijackers was armed with afor bladed EF cannot do because he is not in possession generally available to the public. Accordingly, Second, it is not a ground the discharge after service of sentence. (Sec 56 RSA) Basilio filed a complaint forthe illegal operations the certificate of public convenience of enforcement unauthorized and illegal. Discuss Philippines. fully. If of you are judge, decide governing securities incollided the Philippines is to 1) The grounds the to dismiss are Malate, thewas taxicab a passenger weapon. As against the 4motion male employees of the Insider Trading; Manipulative Practices (1994) thereof. (j) of Public Service Act it iswith only the OBthe is guilty of insider trading under Section of the postdated check as against a holder in with the Maritime Industry Authority, Antonio Robert justified? Explain. b) When can the May the reliance of X on Section 16 (m) of motion to dismiss by ruling on the respective protect the public against the nefarious B. because CDcan negotiated the instrument SUGGESTED ANSWER: both untenable. EOL is not doing business in Commissioner jeepney, as a result of require which Peter was Reyes, 2acourse hijackers, with only one of is them 1) Give case where a person who notsale an as which compliance 27 No, of the Securities Regulation Code, which due that itan was issued merely and Carlos jointly filed application for Commission (Board) exercise its to the Public Service Act be sustained? Explain. contentions of the parties onofficer thepower basis of the practices of unscrupulous brokers and OB is also liable for damages to sellers or 1a) No. A single hold-up incident which does by delivery. the Philippines, and it did not violate the injured, i.e., he fractured his left leg. being armed with a bladed weapon, cannot issuing corporation, director or with the provisions of the ordinance? requires disclosure when trading in Peter security. The only certificate grounds for the discharge andsuspend transfer of Antonio’s CPC and or revoke of public 2) Was XJimmy correct indamages, hisshe contention that under facts presented above. (10%) salesmen in selling securities. SUGGESTED ANSWER: buyers with whom traded. Under not link Robert’s taxicab cannot be Securites Act, because it was not selling sued for based upon a be considered force majeure. The hijackers thereof, or a person controlling, controlled by Explain. securities. of negotiable instruments those set forth substitution ofthat the vessel “MVare Lotus” with convenience? Securities; Definition (1996) Section 17 PlaceThe of Payment (2000) 1) No. power vested inSecurities the Public Service Subsection 63.1 of the Regulation construed he rendered a service that is securities in the country. contract of carriage, and Peter won. Jimmy didunder notSec act with grave orNIL irresistible threat, or common control with the issuing in 119 of the and none of those another owned by Carlos. Should Antonio’s Define securities Carriage; Liability; Lost Baggage or Acts of Passengers The contention of EOL is correct, because it PN is the holder of a negotiable promissory Commission under Sec 16m is subordinate SUGGESTED ANSWER: Code, the damages awarded could be anto unsafe, inadequate and improper (Manzanal wanted to challenge the decision before the violence or force. corporation, is also considered an “insider.” grounds are available to Eva. The latter may SUGGESTED ANSWER: and Carlos’ approved? (1997) never didjoint any business inbe the Philippines. All The joint application of Antonio and Carlos note within oftrial the Negotiable theSC authority ofthe themeaning City ofthe Manila under Secofin amount not exceeding triple the amount v Ausejo 164 sapplication 36) on the ground that court erred 2) In Securities Law, what is a “shortswing” not unilaterally discharge herself from her Stocks, bonds notes, convertible debentures, Giver your reasons. Parties; Holder intransfer Due (1998) 1b) Under Sec 19a of the Public Service 1997 Antonio, aCourse paying passenger, for its the(15) sale transactions and of in Antonio’s question CPCis Act, were Instruments Law (Act 2031). The note was 18 not (hh)making of its revised charter to superintend, the transaction plus actual damages. an express finding as to whether transaction. 3) In “insider trading,” what a liability by the mere expediency of warrants or other documents that represent SUGGESTED ANSWER: SUGGESTED X makes ANSWER: a promissory note for P10,000 the Commission (Board) can suspend or boarded a bus bound for Batangas City. He consummated outside the Philippines. and substitution of the vessel MV Lotus with originally issued by RP to XL as payee. XL in regulate or control the streets of the city of Exemplary damages may also be awarded or not Jimmy was responsible for the collision “fact of special significance”? withdrawing her fromto the drawee bank. a share in note athe company or adesist debt owned by a2)by IXL. willThe counsel Jimmy to from Tender Offer (2002) 1) It may aowned case where person, whose mentions the place payment payable to A, afunds minor, help him buy revoke abecertificate of row, public convenience chose a seat at the front near the bus another vessel by theatransferee indorsed note to PN for goods bought Manila. (Lagman v City of Manila 17 of sHe 579) case of bad faith, fraud, malevolence or to and, hence, civilly liable to Peter. went (State Investments vdriver CA 101163, company or government entity. Evidences of challenging the decision. The action ofoffice Peter 2002 (6) relationship or former relationship to the on the specified maturity date as tell the school books. A bus endorses the note toJan B 11, for when the operator fails toGR provide service driver, and told the that heahad should not be approved. The certificate of No.see The powers conferred bywill law upon the wantonness in the violation ofyou the Securities you for advice. What him? 93 217s32). obligations to pay money or of rights to being based on culpa contractual, the A. What is or ain tender offer? issuer gives gave him access to a which fact of the corporate secretary of PX during value, who turn endorses the note to of C. C that isitems safe, proper or adequate, and refuses valuable in hisand hand carried bag public convenience MV Lotus are Public Service Commission were notBank designed Regulation Code or its implementing rules. Explain. participate in earnings and distribution of carrier’s negligence is presumed upon the B. In what instances is adriver’s tender offer required special significance about the issuer or the banking hours. ON maturity date, RP was knows A isany abeside minor. Ifwhich C sues X on note, to render service can be he then placed the Not inseparable. The unserviceability ofseat. thethe to deny or supersede the regulatory power ofat The court is also authorized to award corporate assets. Instruments giving to their breach of contract. The burden of proof to security that is not generally available, or and a the aforesaid office ready to pay the note canbe Xmade? setfor up the defenses ofhad minority reasonably demanded and furnished. having slept 24 hours, he requested the vessel covered by the certificate local governments over motor traffic in the attorney's fees not exceeding 30% of the SUGGESTED ANSWER: legal rights to instead would onmoney Jimmy to other establish that Insider Trading (1995) Revocation oflearns Certificate (1993) (Lagman vdid City oflie Manila 17What s or person, such a fact from any butholders PN not show up. PN later did lacktoofwho consideration? (3%) driver keep an eye on the bag should he of likewise rendered ineffective the certificate streets subject to their control. award. Yes. A. Tender C is not offer a holder is a publicly in due course. announced The property; they are therefore instruments despite an exercise of utmost diligence the Under the Revised Securities Act, it is 579) Pepay, a holder of a certificate of public the insiders, that thelegally person was (Note: to sueSec XL 2a forofthe value of the note, doze off during theknowledge trip. Whilemay Antonio was itself, and thewith holder thereof not theface Revised Securities SUGGESTED ANSWER: promissory intention of note a person is not acting a alone negotiable or in Public utilities (2000) which have intrinsic value and are Certificate of Public Convenience; Requirements (1995) collision could not have been avoided. unlawful for an insider to sell or buy a convenience, failed to register to the from whom he passenger learns thetook fact, such plus Act interest andreally costs. Will the theterm suit prosper? asleep, another theisbag transfer the same to another. (Cohon v CA an does not define Carriage; ofissuer Contract; ofthe Yes. TheBreach suit will prosper as far as SUGGESTED ANSWER: instrument concert with aspar other it is does persons not contain to before acquire any equity word 2) As “shortswing” aRev transaction where a WWW Communications an e-commerce recognized and used as Inc. such in the regular What requirements must be met aher security of the if Presumption heis knows a factface of complete number of units required by insider (Sec 30, (b) Securities Act) Explain. (5%) away and alighted at Calamba, Laguna. 188 719). ‘securities.’) Negligence (1997) Yes. Ordinarily, the common carrier is not value of the note is concerned, but not with of securities negotiability, of a public that is, company. order or It bear, may also or person buys securities and sells or disposes channels company of whose commerce. present business activity is certificate of public convenience may be special significance with respect to the issuer certificate. However, she tried to justify such Could the common carrier be held liable by Securities; Selling of Securities; Meaning (2002) damages In court involving claims liable acts of other passengers. But the respect to case the interest due subsequent toof the words be defined of the similar as a method meaning or taking import. over a of thefor same within a Service period of six (6)Not limited tosecurity providing its is clients with for all(EOL), types granted under the Public Act? or a the that not generally available, failure by accidents thatofallegedly befell Antonio for the loss? 2002 (18) Equity Online Corporation a arising from death and injury of bus ALTERNATIVE ANSWER: SUGGESTED ANSWER: common carrier cannot relieve itself from maturity of the note and the costs of being company a holder by asking in due stockholders course, C is to to sell subject their months. information technology hardware. It plans without disclosing such fact to the otherto her, claiming that she was so shocked and New York corporation, has athe securities 2) Itfollowing is ifpersonal athe purchase by any for the passengers, counsel for bus operator Theshares are the requirements for the liability common carrier’s employees collection. RP was ready and willing to payfiles such at a the price defenses higher of person minority than the and current lack re-focus its corporate direction of gradually party. 3.a) What does the term “insider” burdened by successive accidents and brokerage service on the Internet after ALTERNATIVE ANSWER: B. Instances where tender offer is required to be issuer or any person controlling, controlled a demurrer to evidence arguing that theact? granting of a certificate of public could have prevented the act or omission by the note at the specified place of payment of market consideration. price and C on is a a particular mere assignee date. who is converting itself into a full convergence mean as used in theU.S. Revised Securities misfortunes that she did not know what she obtaining all requisite licenses and X cannot set up the defense of the minority a) The person intends to acquire 15% or made: by, or under common control with the issuer, complaint should be dismissed because the convenience, to wit: a) The applicant must exercising due diligence. In this case, the on the specified maturity date, to but PN subject to all defenses. organization. Towards this objective, the 3.b) When is a EOL’s fact considered be “ofdid was doing, she was confused and thrown off permits to do so. website of A. Defense of minority is available to the the equity share of a public company more a corporation, co-partnership or or a purchase subject to the control of the plaintiffs did not submit any evidence that be a citizen of the Philippines, or passenger asked the driver to keepshe an always eye not show up. PN aggressively lost his right recover the company has been acquiring special significance” under theto same Act? tangent momentarily, although (www.eonline..com), which is hosted bynegligent. a defense is the not available to among towhich anSuch agreement made between pursuant association organized under laws of inor issuer oronly. any such person, resulting the operator orthe itsbusinesses employees were on minor the bag was placed beside the interest due subsequent to of the maturity of telecommunications and broadcast 3.c) What are liabilities a person who had the money and financial ability to buy SUGGESTED ANSWER:enables Internet users to server in were Florida, X. person and one or more sellers. the the Philippines and at more least 60% of10% the of beneficial ownership of than If you the judge, would you of dismiss the driver’s seat. Ifand the driver exercised due the note and the costs of collection. media enterprises, and consolidating their violates the pertinent provisions the new trucks repair the destroyed one. Are No.on-line In the carriage of passengers, failure Xstock cannot set the defense against C. Lack in securities listed in thethe various Carriage; &up Valid Stipulations (2002) b)Prohibited The person intends to acquire 30%trade or SUGGESTED ANSWER: ANSWER: of paid-up capital of which must anySUGGESTED class of shares (Sec 32 R Sec Act) complaint? diligence, he could have prevented the loss corporate structures. The ultimate plan is to Revised Securities Act regarding the unfair the reasons given by Pepay sufficient of the common to bring the of consideration isshares athe personal defense which within stock exchanges incarrier the U.S. EOL buys 3) In “insider the equity trading,” afollowing of “fact a public of company 3a. “Insider” means 1) the issuer, 2)and a No. The reasons by Pepay are special not more ofcitizens Discuss whether or given not belong to of the Philippines. (Sec of the bag. have only two organizations: one to own the use of inside information? grounds to excuse her from completing Certificate of public Convenience (1998) passengers safely to or their destination is16a, only available between immediate U.S. listed securities for the accounts of period of 12 significance” is, in to being material, director or officer of, a person controlling, b) sufficient The a applicant must public grounds tomonths. excuse her from stipulations in a contract ofprove carriage of a parties sells CA 146, asaddition amended) facilities ofallthe combined and tothe Explain. The Batong Bakal Corporation with immediately raises the businesses presumption that or against parties who are not holders in due c) The person intends to acquire clients over the world, who filed convey their c) units? 1 The a stipulation applicant limiting must prove the sum that that the may be its necessity. such fact as would likely, on being made controlled by, or under common control with, completing her units. The same could be common carrier are valid: develop and produce materials, Board of Energy ancontent application forcarrier’s a and such failure to the course. C’s knowledge that A market is aother minor does equity shares a or public company and sell instructions to EOL through the or operation recovered of by the the shipper service owner proposed to 90% and ofthat the buy generally available, toof affect the price the issuer, 3)isaattributable person whose relationship undertaken bypublic her children or by another to operate facilities and provide Certificate of Public Convenience for the fault or negligence. In the employees case atgives bar, the not prevent Cto from being awill holder inthan due Internet. would result ownership of more EOL has nothe offices, oror thea value authorization of the goods inin do case business of extent, loss due promote toPub theft. of security to a significant or which former relationship to the issuer authorized representatives (Sec 16n mass media and commercial purpose of supplying electric power and fact of death and injury of the bus course. C took the promissory note from a 50% ofHalili the said representatives outside The website theServ 2 public aAct; stipulation interest that a shares. proper in thesand event suitable of loss,as a reasonable person would consider gave him access to a the factU.S. of special vinHerras 10 769) telecommunications services. WWW lights to the factory and its including employees living Parties; Holder inmany Due Course (1996) passengers raises the presumption fault or d) The applicant must be financially holder for B.under has icons for countries, an manner. destruction (Sec orvalue, 16a deterioration CA 146 as of amended) goods on account especially important the circumstances significance about the issuer or the of security Parties; Holder incondition Due Course; Indorsement in blank Communications will be the flagship entity within the compound. The application was 1996 2.2) Eva issued to Imelda a check in negligence on the part of the carrier. The capable of undertaking the proposed service icon “For Filipino Traders” containing the of the defective of the vehicle used in in determining his course of action in the that is not generally available, or 4) a person which will must own the facilities of the by Bulacan Electric Corporation theopposed amount of P50th post-dated Sepof 30, carrier rebut suchsecurities presumption. and(2002) meeting the responsibilities incident to itsis day’s prices ofsuch U.S. listed expressed the contract of carriage, the carrier’s liability light of such factors as the degree of who learns a fact from any the Insider (2004) A. AB issued a promissory note for P1,000 conglomerate and provide content toproperly the contending that the Batong Bakal 1995, as security awith diamond ring to beother Otherwise, the conclusion can be its operation. U.S. dollars andfor their Philippine peso limited to the value of the goods appearing in the in specificity, the extent of its difference from foregoing insiders knowledge that the Ms.ofOB was employed in MAS Investment Carriage; Fortuitous Event (1995) Boundary System (2005) payable to CD or his order on September 15, new corporation which, in turn, will operate 3b. It is one which, in addition to being Powers the Public Service Commission (1993) Corporation has not secured a franchise to sold on commission. On Sep 15, 1995, made that the carrier failed to exercise equivalent. Grace Gonzales, a resident of bill of lading unless the shipper or owner declares information generally available previously, person from whom he learns the fact is such SUGGESTED ANSWER: Bank. WIC, a driver medical drug company, M. Dizon Trucking entered into a hauling Baldo is aindorsed ofthe Yellow Cab Company 2002. CD note in blank and those facilities and provide the services. WWW Manipulative Practices (2001) material, would be likely to affect the market operate and maintain an electric plant. Is the The City of Manila passed an ordinance Imelda the check to extraordinary diligence asconvenience required by law. Makati, iscertificate a regular customer of MT the website a higher value (5%) and its nature and reliability (Sec 30 it par c an (Sec 30b, RSA) No.insider Anegotiated of public may retained the Bank toto assess whether isnote contract with Fairgoods Co whereby the under the boundary system. While cruising delivered the same EF.several GH stole the Communications seeks your professional Suppose A is the owner of inactive price of a security to a significant extent on opposition’s contention correct? (5%) banning provincial buses from the city. The investment which paid the amount of P40th and been purchasing and selling RSecAct) behas granted to Batong Bakal Corporation, desirable makeon aExpressway, tender offer for DOP2002 former bound itself tothe haul the latter’s 2000 along the South Baldo’s cab SUGGESTED from EF and September 14, advice on ANSWER: whether orsell not its the reorganized securities. Totocreate an appearance of active being made generally available, or one ordinance was challenged as invalid under to her. Eva failed toEOL ring, so she securities through with use of her though not possessing a company, a drug manufacturer. OB sacks of Soya bean meal from Manila figured in a collision, killing his it to AB for payment. When asked business activity would be considered a public trading forService such securities, which it a reasonable would consider thepresented Public Act by X returned to Imelda onperson Sep 19, 1995. American Express credit card. Grace has overheard in the by AB, GH said CD utility requiring a franchise or certificate or any especially Unable to retrieve her check, Eva withdrew never traveled outside the Philippines. After a other form of authorization from the series of erroneous stock picks, she had government. will be your advice? Explain incurred a netWhat indebtedness of US$30,000. (5%) with EOL, at which time she cancelled her Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Public Service Law

Transportation Law Securities Regulation

American Express credit card. After a

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1 The stipulation is considered unreasonable, unjust and contrary to public policy under Article 1745 of the Civil Code. 2 The stipulation limiting the carrier’s liability to the value of the goods appearing in the bill of lading unless the shipper or owner declares a higher value, is expressly recognized in Article 1749 of the Civil Code.

SUGGESTED ANSWER:

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

person turned who out wants that the to ride ticket thewas same inadvertently to signal hiscut intention and wrongly to board. worded. A public PALutility employees bus, once manning it stops, the is airport’s in effect making ground services a continuous nevertheless offer scheduled to bus riders. her to It is flythe twoduty hours of common later aboard carriers theirofplane. passengers She agreed to stop and their arrived conveyances in Hongkong for a safely. reasonable The aircraft length of used time byin Far order EasttoAirlines afford developed passengersengine an opportunity trouble, and to board did not and make enter, it to and Hongkong they arebut liable returned for injuries to Manila. suffered Vivian by boarding sued both airlines, passengers PAL and Far resulting East, for from damages the sudden because of SUGGESTED ANSWER: starting her having up or jerking unable to of their take the conveyances Far East flight. (per dondee) No, there was breach of while Could they either are doing or both so.airlines Santiago, be held by liable to contract and Co that she95582 was accommodated (Dangwa Trans v CA Oct 7,91of the stepping Vivian?and Why? standing (6%) on the platform well with the assistance of PAL employees to 202s574) bus, is already considered a passenger and is take Carrier; the flight undue delay. Common Dutywithout to Examine Baggages; Railway entitled to Carrier; all theDefenses rights and (2002)protection andCommon Airline (1992) pertaining to adefense contractofofdue carriage. Why was is the in the Marino a passenger on a diligence train. Another selection and supervision of an employee passenger, Juancho, had taken a gallon of not available to aa plastic common carrier? (2%) gasoline placed in bag into the same SUGGESTED ANSWER: coach where Marino was riding. The gasoline The defense of due diligence in the selection ignited and exploded causing injury to Marino and supervision of an employee is not who filed a civil suit for damages against the available to a common carrier because the railway company claiming that Juancho degree of diligence required of a common should have been subjected to inspection by carrier is not the diligence of a good father of its conductor. The railway company a family but extraordinary diligence, i.e., disclaimed liability resulting from the diligence of the greatest skill and utmost explosion contending thatFortuitous it was unaware of Common Carrier; Defenses; Events (1994) foresight. theMarites, contents of the plastic bag and invoking a paying bus passenger, was hit theabove right of Juancho privacy. Should her left eyetoby a stonea)hurled atthe the railway company be held liable for damages? bus by an unidentified bystander as the bus b) If it were an airline company involved, was speeding through the National Highway. SUGGESTED ANSWER: would your answer be the same? The bus owner’s personnel lost no time a) No. The railway company is notExplain liable forin briefly. bringingInMarites to transportation, the provincial hospital damages. overland the where carrier she was and Marites common is confined not bound nortreated. empowered wantsan to examination sue the bus company for damages to make on the contents of and seeks your advice whether she can packages or bags, particularly those SUGGESTED ANSWER: legally hold bus company liable. What handcarried bythe passengers. Marites can legally hold the bus company b) If it were an not airline will you advise her?company, the common liable. There is no showing anyof such carrier should be made liable. that In case air incident previously happened so as to carriers, it is not lawful to carry flammable imposein anpassenger obligationaircrafts, on part of theairline materials and personnel of the bus company to companies may open and investigatewarn the passengers and toand takecargoes the necessary suspicious packages (RA 6235) precaution. Such hurling of a stone Common Carrier; Test (1996) constitutes fortuitous event inwhether this case. What is the test for determining or The Common Carrier; Defenses; Liability v (1998) is notcarrier? anLimitation insurer.of(Pilapil CA notbus onecompany is a common X took a plane from Manila bound for Davao SUGGESTED ANSWER: 180 s 346) Cebu where there whether was a change Thevia test for determining or notofone X arrived Davao safely but to his is aplanes. common carrier in is whether the person or dismay, his two suitcases were left entity, for some business purpose and behind with in Cebu.orThe airline company assured X that the general limited clientele, offers the service suitcases would come in the next flight of carrying or transporting passengers or but theyornever X claimed P2,000 for the loss goods both did. for compensation. Common Carriers; Defensesbut (1996) of both suitcases, the airline was willing 1) AM Trucking, a small company, operates to pay only P500 because the airline ticket twostipulated trucks forthat hireunless on selective basis. It was a higher value caters only toany a few customers, and itsexceed trucks declared, claim for loss cannot do P250 not make regular or of scheduled It for each piece luggage.trips. X reasoned does even have a certificate of public and in outnot that he did not sign the stipulation convenience. fact had not even read it.

Page Page 96 95 of 103 of 103 OnXone didoccasion, not declare Reynaldo a greater

contracted value despite AM tothe transport fact that forthe a fee, clerk 100 had sacks called of rice his attention from Manila to the to Tarlac. stipulation However, in the AMticket. failed Decide to deliver thethe case cargo, (5%)because its SUGGESTED ANSWER: when the driver stopped truck was hijacked Even if he the ticket, X is bound in Bulacan to did visitnot hissign girlfriend. by that anyhold claimAM for loss a) the stipulation May Reynaldo liable as a cannot exceed P250 for each luggage. He carrier? common did higher value. X is entitled b) not declare May AMaset up the hijacking as a defense to P500 for the two luggages lost. defeat Reynaldo’s claim? to Common Carrier;ofDefenses; of Liability (2001) SUGGESTED ANSWER: Carriage; Valuation Damaged Limitation Cargo (1993) a) Reynaldo AM Trucking liable Supposethirteen Amay was hold riding onof an airplane of aas A shipped pieces luggage through a common carrier. The that AM the facts accident happened LG common Airlines carrier from when Teheran to Manila as Trucking operates only two trucks for hire on and A suffered serious injuries. In an action evidenced by LG Air Waybill which disclosed a selective caters only tothe a latter few by A against the common that the actualbasis, gross weightcarrier, of the luggage customers, does not make regular or claimed that 1) there was a stipulation was 180 kg. Z did not declare an inventoryin ofthe scheduled trips, and does not have a ticket issued to A absolutely exempting the the contents or the value of the 13 pieces of •certificate thefrom law does distinguish between of public convenience are of no carrier liability from the passenger’s luggage. After the not said pieces of luggage one whose principal business activity is the by moment as death or injuries ad notices were posted arrived in Manila, the consignee was able to carrying of persons or goods oronly both the from common dispensing with the claim the carrier cargo broker 12and pieces, anyone who weight doesdiligence such carrying as an extraordinary ofkg. theXonly carrier, and with a total of 174 advised the2) ancillary A was given a discount on the his plane fare of airline of activity, the loss of one of 13 pieces thereby reducing liability of distinction the common •luggage the law making any and ofavoids the the contents thereof. Efforts respect tothe A inmissing particular. a) Are between awith person or enterprise offering of carrier the airline to trace luggage those valid defenses? (1%) b) What are the transportation service a regular orfailed were fruitless. Since on the airline to defenses available to any common carrier scheduled basis one offering service comply with the and demand of X to such produce theto SUGGESTED ANSWER: limit or exempt from liability? (4%) on anNo. occasional, episodic oraction unscheduled missing luggage, Xitnot filed an for because breach a) These are valid defenses basis, and of contract damages they are with contrary to lawagainst as theyLG areAirlines. in •In violation the law refrains from making athat the its answer, LGextraordinary Airlines alleged of the diligence distinction between awhich carrier offering Warsaw Convention limits theits liability required of common carriers. (Article 1757, services to the general public and who to of the carrier, if any, with respect one to cargo 1758 New Civil Code) b) The available to anyonly common offers services solicits business from a a sum of defenses $20 or per kilo or $9.07 per pound, carrier to limitvalue orthe exempt it from are: narrow of general population unless asegment higher is declared inliability advance 1 ANSWER: observance extraordinary and additional charges ofare paid by the SUGGESTED diligence, Yes. Unless the of ofa the cargo are passenger and thecontents conditions contract orinthe proximate of the declared or the contents acause lost expressly luggage as set2 forth the air of waybill, incident is athe fortuitous event or force are proved by evidence subject the contract ofsatisfactory the carriage of cargo majeure, other than the self-serving declaration to the Warsaw Convention. Mayof one the 3the contract or omission thesustained? shipper or party, should enforced as it allegation ofactLG Airlinesbeofbe owner of the goods, is the only reasonable basis to arrive at a Explain. 4 the of the or is just award. The character passenger or goods shipper defects in the packing or in the bound by the terms of the passenger ticket Common Carrier (1996) and v Rapadas 209 s 67) or the containers, waybill. (Panama Define5a common ordercarrier? or act of competent public Common Carrier; Duration Liability (1996) carrier SUGGESTED ANSWER: authority, withoutofthe common A common carrier is a person, corporation, A bus of GL Transit on its way Davao being guilty of even simpleto negligence firm stopped or(Article association to enable engaged a passenger in the to alight. business At 1734, NCC). of that carrying or transporting moment, Santiago, whopassengers had been or goods waiting or for both, a ride, by boarded land, water the bus. or However, air for compensation, services to who the the bus driveroffering failed toits notice Santiago public was(Art still 1732, standing Civilon Code) the bus platform, and Common Carrier; of Contract; Damages (2003) stepped onBreach the accelerator. Because of the Vivian Martin was booked by PAL, sudden motion, Santiago slipped andwhich fell acted a ticketing of May Far Santiago East downassuffering seriousagent injuries. SUGGESTED ANSWER: Airlines, for a round trip flight on the latter’s hold GL Transit liable for breach of contract Santiago may hold GL Transit liable forThe aircraft, from Manila-Hongkong-Manila. of carriage? Explain. breach of contract carriage. of It was ticket was cut by an of employee PAL.the The duty of the driver, when he stopped the bus, p.m. on 05 January 2002 aboard Far East’s ticket showed that Vivian was scheduled to to do no act that haveatthethe effect of Flight F007. arrived Ninoy leave Manila atVivian 5:30would increasing the perilAirport to a passenger as Aquino International an hour such before while he was attempting to board theSantiago time scheduled in her ticket, but was same. bus is F007 not in had motion toldthe that Far When East’sa Flight leftthere at is no necessity for a 12:10 p.m. It

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

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

Page Page 98 97 of 103 of 103 “received policy and for shipment” therefore void and and contained inexistent. an entry (Art. 1409[1], indicating Civil transshipment Code) seemingly inadequate despite its efforts of Trust Receipts Law; Liability for Transportation, estafa (1991) in Hongkong. The President of JRT personally improving the same. Pasok Mr. Noble, as for thethe President received and signed the bill of lading and Inc., now applies issuanceoftoABC it by Trading the Kabit System; Agent ofhe thedelivered Registered Owner IncTransportation executed a trust receipt and in favor of BPI despite the entries, the (2005) Land Franchising Procopio purchased an Isuzu Bank to secure the importation by his corresponding check in payment of thepassenger Regulatory Board of a certificate of public jeepney Enteng, holder of at a certificate company of certain goods. After release and freight. Thefrom shipment wasa delivered the convenience for the same Manila-Tarlacofofpublic convenience for the operation of sale route. of the imported theInc., proceeds port discharge but the buyer refused to Manila Could Bayan goods, Bus Lines, SUGGESTED ANSWER: public vehicle plying the Calamba-Los fromthe the“prior sale operator” were not rules turned over to BPI. accept theutility anahaw fans because there was invoke against (per Dondee) No, BusinLines, Inc., SUGGESTED ANSWER: While and Procopio continued Would BPI be Bayan justified filing a case for no Baños on-boardroute. bill of lading, there was Pasok Transportation, Inc.? Why? (6%) BPI would be justified in filing a case for cannot invoke the “prior operator” rules offering thesince jeepney for were public transport estafa against Noble? transshipment the goods estafa under PD 115 against Noble. The fact against Pasok Transportation, Inc. because services, inheHongkong did not have registration transferred from the MV Pacific, the of that the trust wasRule” issued in favor such “Prior or Oldreceipt Operator under the of a the vessel, vehicle to transferred in a his name. Neither feeder MV Oriental, mother bank, instead of aapplies seller,asto secureof the Public Service Act only a policy did he secure that for the himself certificate of vessel. JRT argued sameacannot be of the goodsCommission did not preclude theimportation law of the Public Service to public convenience forbecause its operation. Thus, considered transshipment both theaapplication of public the Trust Receipt Law. issue certificate of convenience to a(PD per the records the shipping Land Transportation vessels belong to theofsame 115) operator Under the law,prior any operator officer orisemployee second when Franchising and Regulatory Board, Enteng company. 1) Was there transshipment? of a corporation for the violation rendering sufficient,responsible adequate and remained its registered owner and operator. Explain 2) JRT further argued that assuming ALTERNATIVE ANSWER: of a trust receipt is who subject the penal satisfactory service, and in allto things One day, while the jeepney was traveling that there was transshipment, it cannot be The filing of a case for estafa under the penal thereunder (Sia with v People 166s655) andliability respects is complying the rule and southbound, it collided with a ten-wheeler deemed to have agreed thereto even if it provisions of the RPC would not be justified. regulation of the Commission. In the facts of truckthe ownedofby Emmanuel. Thesuch driver of the containing entry It has been held in Sia v People (161 s 655) signed Procopiobill sued lading Emmanuel for damages, but the case at bar, Bayan Bus Lines service truck admitted responsibility for shipping the accident, it was made known to the that corporate officers and directors are not because the latter moved to dismiss the case on the became seemingly inadequate despite its explaining that the truck lost its brakes. from the that transshipment was in criminally liable for a violation of said Code. 2 lines SUGGESTED ANSWER: ground thatstart Procopio is not the real party efforts of improving the same. Hence, in the under the letter of credit and Registered Owner;are Conclusive Presumption 1) Yes. Transshipment is the act of taking conditions required before(1990) a corporate prohibited interest since he is not the registered that, owner interest of providing efficient public transport it had intention tomotion allow Johnny owns a be Sarao jeepney. He asked cargo outjeepney. of one no ship and loading it in with officer may criminally liable for anhis offense therefore, of the Resolve the services, use of must the 'prior and 1 the be aoperator' specific provision of transshipment of the subject cargo. Is the SUGGESTED ANSWER: neighbor Van There ifbyhethe could operate the another. It is immaterial whether or not the committed corporation; viz:said reasons. (3%) the 'priority of filing' rules shall is untenable law mandating a corporation to act or not to argument Theperson, motion to or dismiss should tenable? Reason. jeepney under Van’s certificate of public same firm, entity owns the be two denied n this case. act; andVan agreed and, accordingly, because Procopio, thes 102) real owner of the convenience. vessels. (Magellan v CAas201 There must be anunder explicit JRT is is bound by the terms of the bill of jeepney, the real party in interest. Procopio Johnny2registered his jeepney Vanstatement in2) No. the law itself that, in case of such violation by lading when it accepted the bill of lading falls under the Kabit system. However, the name. On June 10, 1990, one of the a corporation, the officers with full knowledge of its contents legal restriction as regards the which Kabit system passenger jeepneys operated by and Van directors thereof areTomas to be personally included Hongkong. does transshipment not apply in in this case because the bumped Tomas. was injuredand andcriminally in liable Acceptance public at under large such is notcircumstances deceived nor involved. due time, hetherefore. filed a complaint for damages makes of lading a binding (Limthe v. bill Court of Appeals, G.R.contract. No. 125817, against Van and his driver for the injuries he (Magellan Ca 201 s 102) Januaryv16, 2002, citing Baliwag Transit v. suffered. The court rendered judgment in In any of event, Procoprio is deemed be "the Court Appeals, G.R. No. 57493, to January 7, favor of Tomas and ordered Van and his agent" of the registered owner. 1987) driver, jointly and severally, to pay Tomas Trust Receipts Law; Acts & Omissions; Covered (2006) (First The Sheriff levied on the jeepney belonging Malayan Leasing v. Court of Appeals, G.R. actual and moral damages, attorney’s fees, What acts or omissions are penalized to Johnny but registered in the name of Van. No. 91378, June 9,1992; and "F" Transit Co., and costs. under the Trust Receipts Law? (2.5%) Johnny filed a 3rd party claim with the Sheriff Inc. v. ANSWER: NLRC, G.R. Nos, 88195-96, January SUGGESTED Commerce; Bareboat (2003) alleging ownership of the jeepney levied 27, 1994) TheMaritime Trust Receipts Law (P.D. No. 115) For the transportation itsgoods cargoorfrom the upon and stating that the jeepney was declares the failure to turn of over Port of Manila to the Port of registered in the name of Van merely to proceeds realized from sale thereof, Kobe, as a Japan, Osawa & Co., chartered “bareboat” enable Johnny to make use of Van’s criminal offense under Art. 315(l)(b) of M/V Ilog of Kabit System (2005) Karagatan Ilog met a sea certificate of public convenience. May the Revised Penal Corporation. Code. The lawM/V is violated Discuss the “kabit system” in land SUGGESTED ANSWER: accident resulting in the loss of the cargo and Sheriff proceed with the public auction of whenever the entrustee or person to whom transportation and its legal Yes, the Sheriff may proceed withconsequences. the thereceipts death of some of the seamen manning the Johnny’s jeepney. Discuss with reasons. trust were issued fails to: (a) return SUGGESTED ANSWER: (2%) sale of Johnny’s jeepney. In auction vessel. Who should bear the loss of the cargo (Metropolitan Bank v. Tonda, G.R. No. 134436, August The kabit system arrangement where a theSUGGESTED goods covered ANSWER: by the trust receipts; or contemplation of lawisasan regards the public 16,and 2000). thethe death of the seamen? (4%) person granted a certificate of public (b) return proceeds the Co. saleWhy? of said (per Dondee) Osawaofand shall bear the and third persons, the vehicle is considered Is lack of intent to defraud a bar to the allows other persons to operate goods loss because under a demise or bareboat theconvenience property of the registered operator prosecution of these acts or omissions? theirvmotor vehicles his license, Trans-Shipment; of Lading; binding contract (1993) for a charter,ANSWER: the charterer (Osawa & Co.) mans (Santos SibugBill 104 S 520)under SUGGESTED (2.5%) percentage of theirwith earnings (Lim v. JRTfee Inc or entered into a contract C Co of his own and becomes, No.the Thevessel Trust with Receipts Lawpeople is violated Court Appeals and Gonzalez, G.R, at No. 125817, Japan to of export anahaw fans valued in effect, the owner for theto: voyage orover service whenever the entrustee fails (1) turn JanuaryAs 16,payment 2002, citing Baliwag Trannit $23,000. thereof, a letter of v. Court for or damages thestipulated, proceeds ofsubject the saletoofliability the goods, (2) of Appeals, G.R. to No.JRT 57493, January 7, The 1987) The credit was issued by the buyer. caused negligence. return the by goods covered by the trust law enjoining the kabit system aims to Prior Operator Rule (2003) letter of credit required the issuance of an receipts if the goods are not sold. The mere identifybill the person responsible Bayan Bus Lines had been on-board of lading and prohibited thefor an failure to account or return gives rise tooperating the accident in order to protect the riding public. satisfactorily a bus service over theis route transshipment. The President of JRT then crime which is malum prohibitum. There The law does not penalize the parties to a The policy has no agent force when the public at Manila to Tarlac and vice versa via the contracted a shipping to ship kabit agreement. But the kabitthesystem is no requirement to prove intent to defraud large is neither deceived nor involved. McArthur Highway. With G.R. the No. upgrading anahaw fanstothrough (Ching v. Secretary of Justice, 164317, of the contrary public O Containers Lines, new North Expressway, Bayan Bus Lines specifying the requirements of the letter of February 6, 2006; Colinares v. Court of Appeals, service became credit. However, the bill of lading issued by G.R. No. 90828, September 5, 2000; Ong v. Court the shipping lines bore the notation of Appeals, G.R. No. 119858, April 29, 2003). Mercantile Mercantile LawLaw Bar Bar Examination Examination Q &Q A& (1990-2006) A (1990-2006)

Trust Receipts Law

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

b. The interest cannot be considered usurious. The Usury Law has been suspended in its application, and the interest rates are made “floating.”

Warehouse Receipts Law Bill of Lading (1998) 1. What do you understand by a “bill of 2. Explain(2%) the two-fold character of a “bill of lading?” lading.” (3%) SUGGESTED ANSWER:

1.

A bill of lading may be defined as a written acknowledgement of the receipt of goods and an agreement to transport and to deliver them at a specified place to a person named therein or on his order. 2. A bill of lading has a two-fold character, namely, a) it is a receipt of the goods to be transported; and b) it constitutes a contract of carriage of the goods.

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Trusts Receipt Law (2003) PB & Co., Inc., a manufacturer of steel and steel products, imported certain raw materials for use by it in the manufacture of its products. The importation was effected through a trust receipt arrangement with AB Banking corporation. When it applied for the issuance by AB Banking Corporation of a letter of credit, PB & Co., Inc., did not make any representation to the bank that it would be selling what it had imported. It failed to pay the bank. When demand was made upon it to account for the importation, to return the articles, or to turn-over the proceeds of the sale thereof to the bank, PB & Co., Inc., also failed. The bank sued PB & Co.’s President who was the signatory of the trust receipt for estafa. The President put up the defense that he could not be made liable because there was no deceit resulting in the violation of the trust receipt. He also SUGGESTED ANSWER: submitted that there violation of The the No, the defenses arewas notnosustainable. trust because the raw were lack receipt of deceit should not materials be sustained not sold the but mere used by the to corporation in the because failure account for manufacture its products. Would those importation, orofreturn the articles constitutes defenses be of sustainable? Why? (6%)crime of the abuse confidence in the estafa. The fact that the goods aren’t sold but are used in the manufacture of its products is immaterial because a violation of the trust receipts law happened when it failed to account for the goods or return them to the Bank upon demand. Usury Law (199) Borrower obtained a loan from a money lending enterprise for which he issued a promissory note undertaking to pay at the end of a period of 30 days the principal plus interest at the rate 5.5% per month plus 2% per annum as service charge. On maturity of the loan, borrower failed to pay the principal debt as well as the stipulated interest and service charge. 1 he was How sued. would you dispose of the Hence, issues raised by the borrower? 2 That the stipulated interest rate is excessive and unconscionable? (3%) 3 Is the interest rate usurious? (3%)

Usury Law

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

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

excessive and unconscionable.

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3. and readiness and willingness to sign when the goods are delivered if so requested by the warehouseman (Sec 8 Warehouse Receipts Law). Garnishment or Attachment of Goods (1999) A Warehouse Company received for safekeeping 1000 bags of rice from a merchant. To evidence the transaction, the Warehouse Company issued a receipt expressly providing that the goods be delivered to the order of said merchant. A month after, a creditor obtained judgment against the said merchant for a sum of money. The sheriff proceeded to levy on the rice and directed the Warehouse Company to 1 will you give deliver What to himadvice the deposited rice. the Warehouse Company? Explain (2%) 2 Assuming that a week prior to the levy, the receipt was sold to a rice mill on the basis of which it filed a claim with the sheriff. Would the rice mill have better rights SUGGESTED ANSWER: to the rice than the creditor? Explain your Delivery of Goods; Requisites (1998) 1 1000 bags of rice were delivered answer.The (2%) Luzon Warehousing Co received from Pedro to the Warehouse Company by a merchant, 200 cavans of rice for deposit in its and a negotiable receipt was issued therefor. warehouse for which a negotiable receipt was The rice cannot thereafter, while in the issued. While the goods were stored in said possession of the Warehouse Company, be warehouse, Cicero obtained a judgment attached by garnishment or otherwise, or be against Pedro for the recover of a sum of levied upon under an execution unless the money. The sheriff proceeded to levy upon receipt be first surrendered to the the goods on a writ of execution and directed warehouseman, or its negotiation enjoined. the warehouseman to deliver the goods. Is The Warehouse Company cannot be SUGGESTED ANSWER: the warehouseman under obligation to compelled to deliver the actual possession of No. There was a valid negotiable receipt as comply with the sheriffs order? (5%) the rice until the receipt is surrendered to it or there was a valid delivery of 200 cavans of impounded by the court. rice for deposit. In such case, the 2 Yes. The rice mill, as a holder for warehouseman (LWC) is not obliged to value of the receipt, has a better right to the deliver the 200 cavans of rice deposited to rice than the creditor. It is the rice mill that any person, except to the one who can 1 surrender the receipt of which he is a can surrender the receipt which is in its comply with sec 8 of the Warehouse holder; possession and can comply with the other Receipts Law, namely: 2 willing to sign a receipt for the delivery requirements which will oblige the of the goods; and warehouseman to deliver the rice, namely, to 3 pays the warehouseman’s liens that is, sign a receipt for the delivery of the rice, and his fees and advances, if any. to pay the warehouseman’s liens and fees The sheriff cannot comply with these and other charges. requisites especially the first, as he is not the holder of the receipt. Delivery of the Goods (1991) When is a warehouseman bound to deliver the goods, upon a demand made either by the holder of a receipt for the goods or by SUGGESTED ANSWER: the depositor? The warehouseman is bound to deliver the goods upon demand made either by the holder of the receipt for the goods or by the depositor if the demand is accompanied by 1 an offer to satisfy the warehouseman’s lien, 2 an offer to surrender the receipt, if negotiable, with such indorsements as would be necessary for the negotiation thereof,

101 of Page 103 103 102 SN Warehouse equal of 103 protection can of file law an clause INTERPLEADER the Chief Constitution. to compel Fourth, and Melchor is no the to 2. of The Justice also EJthere said that litigate must impairment against of"safeguard due each process otherthe for here thebecause ownership judiciary liberty" and of the goods. violators of the Sec. law17 will ofbe the punished Warehouse only "nurture the prosperity" of our people. Receipts after "proper Law trial." states,Fifth, "If more the issue than one ofof "just Explain this philosophy. Cite Decisions the person Court compensation" claimsimplementing the does title not orarise, possession because the the Supreme each of of these SUGGESTED ANSWER: goods, property the ofof warehouse Mrs. is not may, being either expropriated. as a twin beacons theBC Chief Justice. (2.5%) TheOn Chief Justice's philosophy "Safeguarding defense the contrary, to an action as abrought citizen of against LVM, Mrs. him BC for Liberty, Nurturing Prosperity" embodies the non-delivery is freely allowed of the to engage goods orinas domestic an original Supreme Court's in decision-making suit, whichever timber trade inapproach LVM. is appropriate, require all in Tariff the exercise of its constitutional power and Customs Code: Violation of Customs Laws of known claimants to interplead." judicial review whichof the provides: In cases Unpaid Seller; Negotiation Receipt (1993) (2004) involving liberty, of justice should A purchased from Sscales 150 cavans ofthe palay on The Collector ofthe Customs ordered seizure weight heavily against government and in credit. A deposited the palay in W’s and forfeiture of new electronic appliances favor of by theTON the warehouse. W poor, issued A aoppressed, negotiableforthe shipped Corp.to from Hongkong marginalized, dispossessed and weak; warehouse receipt inlaws the name of the A. violation of the customs because they were andfalsely thatdeclared laws and action that restrict Thereafter, A negotiated the receipt to B who as used office equipment and fundamental rights come to the court "withina purchased the said receipt for value and then undervalued for purposes of customs heavy presumption against theirbefore constitutional good faith. Who has a better right the to the duties. TON1) filed a complaint MM validity. OnS, the hand, as aorgeneral deposit, theother unpaid b, the rule, Regional Trial Court forvendor replevin, alleging that thethe Supreme Court must adopt a deferential purchaser of the receipt forin value and in good Customs officials erred the or respectful attitude towards actions taken by faith? Why? 2)and When can the classification valuation ofwarehouseman its shipment, SUGGESTED ANSWER: theas governmental agencies that have be obliged tothe deliver the palay towarrant A? primary well as in issuance of the of 1) B has a better right than S. The right of responsibility for the economic development seizure. The Collector moved to dismiss the the unpaid seller, S, to the goods was of the country; and only when anthe actpart hasofbeen suit for implementing lack jurisdiction on the Decisions SUGGESTED ANSWER: defeated by of the act ofthe A in"safeguarding endorsing theof clearly made or executed with grave abuse of trial court. Should the Collector's motion be liberty" The Collector's include motion thoseshould involving be granted. the receipt to B. discretion does the Court get involved granted or denied? Reason briefly. (5%) 2) The Section warehouseman obliged Under 602(g) ofcan thebe Tariff and to in constitutionality of Presidential Proclamation policy issues. deliver the palay to Bureau A if BG.R. negotiates back No.Customs 1017 (David Code, v.the Arroyo, of Customs No. 171390, has

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

this additional There was noduty, misdelivery the current bylow theprice carrier of since the sugar in the cargo world was market considered will surely consigned pull the to the Sugarprice domestic central to levels per the lower “Shipper’s than theOrder” cost (Eastern to producer Shipping domestic Lines sugar v CA– 190 a situation s 512) that ALTERNATIVE ANSWER: could spell the demise of the Phil sugar Energy Regulatory Commission: &B/L Powerwas a There was misdelivery. The of industry. a) Discuss theJurisdiction validity this (2004) negotiable document of title because proposal to impose an additional levy onit was CG,to acustomer, MERALCO inthe thecommon MM the “Shipper’s Order.” Hence, imported sugarsued (3%) b) Would the proposal Regional Trial Court todelivered disclose the the cargo basis to of carrier should have be consistent with the tenets of the World the theCentral computation of the purchased power only upon surrender of the B/L. The Trade Organization (WTO)? (3%) adjustment (PPA).ofThe ruled had to Recommendation: Since theititliable subject non-surrender thetrial B/L court will make matter of these (2) because, questions is no holders jurisdiction the two case asnot in dueover course. Ownership of Stored (1992) included the scope of the Bar contended byGoods the within defendant, the customer guarantee Questions the payment in Mercantile of a loan Law, obtained itof is notTo only demanded a breakdown suggested that whatever answer isbut given from a bank, pledged 500to bales MERALCO's bill Raul with respect PPAof examinee, or the lack answer tobaccobydeposited a warehouse toofsaid questioned asthe well theinimposition of the PPA, should be given full credit. bank and in blank a matter toendorsed be decided by the the warehouse BoardIf ofthe examinee gives a good answer, heloan, should receipt. Raul could paywhich for the SUGGESTED ANSWER: Energy, theBefore regulatory agency should SUGGESTED ANSWER: be given additional credit. the tobacco disappeared from the suit. Is a) The proposal to over impose an additional duty also have jurisdiction the instant Thewarehouse. trial court's ruling is correct. As held in Who should bear the loss – the on imported sugar on top oforthe current tariff the trial court's ruling correct not? Reason Manila SUGGESTED Electric ANSWER: Company v. Court of Appeals, pledgor the bank? Why? prohibited by the rate (5%) is or valid, not being briefly. The pledgor should the bearBoard the loss. In the 271SCRA 417 (1997), of Energy Constitution. It would enable producers to of a warehouse ownership hadpledge the power to regulate receipt and fix the power rates realize reasonable profits, and would allow goodsbyremain with electric depositor or his to of be the charged franchised utilities the sugar industry of the country to survive. Any contract or real security, liketransferee. MERALCO. In fact pursuant to Executive b) No. The proposal would not be consistent among them a of pledge, does notpower amount to Order (April 17, this has withNo. the478 tenets the1998), WTO which call for the or result in an assumption of risk of loss by been transferred to the Energy Regulatory liberalization of trade. However, such the creditor. Board (nowmayThe the Energy Receipts Regulatory proposal beWarehouse acceptable within Law the did not deviate fromSection this rule.the Commission). Under 43(u) WTO of thefor allowable period under Right to the Goods (2005) Electric Power of Industry Reform Act of 2001, adjustment the local industry deposited several cartons of goods with theJojo Energy Regulatory Commission hasSN Power of the State: Regulating of Domestic Trade (2004) Warehouse Corporation. The corresponding original and exclusive jurisdiction all its Problems exercise police power (2006) andover business FourIn ACID of of Philippine warehouse receipt was Judiciary issued to the order of cases contesting power rates. regulation, the legislature of LVM State In several addresses extensively Jojo. Hepolicy endorsed the warehouse receipt to EJ passed a law prohibiting aliens from who paid the value goods deposited. covered by media since of his the appointment on engaging in domestic timber trade. Violators Before EJ the goods, December 21,could 2005,withdraw Chief Justice ArtemioMelchor V. including dummies would, after proper trial, informed vowed SN Warehouse Corporation Panganiban to leave a judiciary that the be fined and imprisoned or deported. Mrs. goods belonged to him taken characterized by "four Ins"and andwere to focus in by Jojo BC, a citizen of LVM but married to ZC, an without consent. Melchor wants solving thehis "four ACID" problems that to get the alien merchant of PNG, filed suit to invalidate goods,the but EJhas alsoa wants withdraw same. • Who betterto to the goods? corrode administration ofright justice in the our the or exempt from its coverage their SUGGESTED ANSWER: SUGGESTED ANSWER: (5%)law Why? country. Explain this "four Ins" and "four She contended that office, the lawChief is, inter alia, Upon timber assuming business. Justice EJ has a betterhis right to the goods, being ACID" problems. gravely oppressive and discriminatory. It Panganiban to lead a judiciary covered byvowed a negotiable document of title, violated the Universal Declaration of Human characterized by the "four Ins:"issued Integrity, namely the warehouse receipts to the Rights (UDHR) passedand in 1948 by the United Independence, Industry one of "order of Jojo." Under the Intelligence; Sales provisions Nations, of which LVM is to a member, she said, that is morally courageous resist influence, the Civil Code on negotiable documents of as well as indifference the reciprocity provisions of the interference, insolence. title, and under the and provisions of He the World Trade Organization (WTO) Agreement envisions a judiciary that isLaw, impervious the Warehouse Receipts when to goods of 1994, of which PNG and LVM are parties. plague of undue influence brought about deposited with the bailee are covered by a Aside from denying them equal protection, kinship, relationship, negotiable document friendship of title, and the according to BC, the law will also deprive her fellowship. He calls the judiciary battle endorsement andon delivery of the to document family their livelihood without due process thetransfers "Four ACID" problems ownership of thecorroding goods toour the nor just ANSWER: compensation. Assuming that the justice system: (1) access to justice SUGGESTED transferee. By limited operation of law, by the system of LVM is similar to ours, would thelegal poor; (2)contention corruption; (3) tenable. incompetence; Mrs. BC's not First, the transferee obtains theisdirect obligation of the contention beto tenable orright not? andMrs. (4) BC's delay in the delivery of quality UDHR does not purport limit the bailee to hold the goods in his name." (Art. (NOTA BENE: It is of Reason briefly. (5%) judgments. The judicial department should states LVM) to regulate domestic trade. 1513, (like Civil Code; Section 41, Warehouse respectfully suggested discharge functions transparency, Second, the WTO Agreement involves Receipts its Law) Since is the holder of the thatEJwith all Bar Candidates • If SN Warehouse Corporation isor accountability and trade dignity. international between states warehouse receipt, receive he has a the 2.5% better bonus right for to uncertain as not to the who is entitled to theor above question governments, domestic trade in timber the goods. SN Warehouse is obliged to hold property, what is the properof recourse ofisthe regardless the answer) other commodities. Third, nationality an the goods in his name. SUGGESTED ANSWER: corporation? Explain. accepted norm for making classifications that do not run counter to the

Miscellaneous

the to A. validity Injurisdiction that case, A becomes exclusive original over seizure May 3,receipt 2006); the of Calibrated Pre-a NOTE: (This question is outside the of holder again of the receipt, and A can emptive and forfeiture Response cases (CPR) under and B.P. the tariff Big. 880 andcoverage or Examinations. ItWarehouse is therefore recommended the comply with Sec 8 of the(Bayan laws. thecustoms PublicBar Assembly Act v. Ermita, whatever made by the candidate should that Validity stipulations excusing Receipts Law. answer G.R. No. of169848, April 25, warehouseman 2006); andfrom the given full credit.) be negligence (2000) legality of Executive Order No. 464 and the S stored hardware in thePrivilege bonded President's exercise materials of Executive On the other hand, cases that relate to warehouse of W, a licensed warehouseman (Senate of the Philippines v. Ermita, G.R. No. "nurturing the prosperity" of the people under the General Bonded Warehouse Law 169777, April 20, 2006). include the question the constitutionality of (Act 3893 as amended). W issued the thecorresponding Mining Law (La Bugal-B'Laan warehouse receiptv.inRamos, the form G.R. 127882, Dec. 2004) and the heNo. ordinarily uses for1,such purpose in WTO the Government vs. of an118295, Industry Agreement v. Privatization Angara, course Deregulation of(Tanada his business. All theG.R. essential terms (2004) May 2,1997). required under Section 2 of the Warehouse What is the Law difference between government Receipts (Act 2137 as amended) are Negotiable Documents of Title (1992) deregulation and the privatization of receipt an embodied in the form. In addition, the SUGGESTED ANSWER: Forissued a cargo of machinery shipped from industry? Explain briefly. (2%) to Sderegulation contains a stipulation that W or Government is the relaxation abroad to a be sugar central inthe Dumaguete, would not responsible for loss of allor or removal Oriental, of regulatory constraints on firms Negros the Bill of materials Lading (B/L) any portion of the hardware individuals,“to with a order,” view to promoting stipulated shipper’s notice of covered byand the market-oriented receipt even ifwith such loss is competition approaches arrival to be addressed to the Central. The causedpricing, by the negligenceentry, of W or his other toward cargo arrived at output, itsemployees. destinationS and and was representatives or endorsed related economic decisions. released to the Central without surrender of and negotiated theindustry warehouse receipt B, Privatization ofthe an refers to to the thewho B/L on basis of the latter’s demanded delivery of the goods. W transfer of ownership andcarrier controlfree by and the undertaking to hold the could notANSWER: deliver because the goods were SUGGESTED government of assets, firms and operations Subsequently, a Bank to whom the central harmless from anyfound liability. nowhere to to be in his warehouse. HeW. No. I do not agree with the contention of in an industry private investors. was indebted, claimed the cargo and claims he is not liable because of the freePolitical Law; WTO (1999) The stipulation that W would not be presented the original of the B/L stating that from-liability clause stipulated theportion receipt. Government plans toloss impose an additional for the of allits orin any theresponsible Central had failed to settle obligations Dothe you agree with W’soncontention? Explain. duty on imported sugar top of the by current of the hardware materials covered the with Bank. (5%) tariff rate.even The ifintent is the receipt such loss isensure caused by Was there misdelivery bytothe carrierthat tothe the landed cost ofconsidering not non-surrender be lower or than negligence ofsugar W or shall his representative sugar central the SUGGESTED ANSWER: P800 per bag. This The is the at that which employees is void. law price requires a of the B/L? Why? locally produced sugar would be sold in order warehouseman should exercise due diligence to inenable producers to realize the care sugar and custody of the things reasonable profits. Without deposited in his warehouse.