2011 commercial law bar questions and answers

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

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ANSWERS TO BAR EXAMINATION QUESTIONS IN

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of P5 million. This is Insurer: paying out or permitting the thParties; e“I,....................................................................................................................22 ordi or Andrew dina nary ry Lee, cour co urse hereby se of assign, busi bu sine ness ss, ,34 or has ha Chattel Insolvency; Retail Derivative Deriv Insured; Common Mortgage ative Accommodation Trade Accident Fraudulent vs. Suit: Private Law vs. Requisites Requ vs. After-Incurred (1993) Payment Carrier; Suicide Party isites (1998) Defenses (1993) (2004) (200 (2002) Retail Obligations 4)transfer Trade (2002) Insured; Parties; Insolvency; Deriva Derand Law ivative (1999) Accident Accommodation Kabit (1996) Jurisdiction; Suit: Sui System t:vs. Chattel Watere Wat Suicide Retail (2005) ered Mortgage; Sole Party d (1995) Trade Stock Sto Proprietorship (2003) ckKabit Law (1993) (19 Foreclosure 93) System; (1996) Parties; Effects: Agent Deriva Der (1997) ivative Accommodation Retail of tive Several the Insolvency; Suit; Sui Registered Chattel t;Insurers Close Clo Law; se 76 56 87 65 97stive 44 76 97 56 88 34(1990) 76 66 44Trade Law General Principles TABLE of OF CONTENTS Banking Law to be paid out funds of the bank after the insu inParty suff convey, ffic icie ient nt absolutely real re aliz izab able le and asse as unconditionally, sets ts to meet me et to its it s Banks; Classifications Banks (2002) Mortgage; Mortg obligations Consignment Owner (2005) Corporation; age; (2003) (2005) Ownership that Insurer; survive Corporate (1991) Parties; 3rd of (1997) Party Thing Opportunity Commerce; Liability Mortgaged Mortgage Insolvency; (2005) (1996) dParty Bareboat (1990) (199 Voluntary (2005) 0)Derivative Insurer; (2003) Insolvency Credit Cred 3rd Parties; itSuit; Party Prior Transaction Trans Proceeding Minority Holder Liability Operator actionssStockholder in(2000) (1999) (199 (1991) Due Rule9)Course (2003) (2003) Insolvency; Mortgage Mortg (1993) Registered 3rd 88 Distinction: Party (1999) (199 Voluntary Parties; 9)Liability; Owner; 56 88 97 Maritime 76Accommodation 66 34 56 45 88 97 57 45 66Insurer; 97 age 35 45 De Election of Aliens as members (2005) BOD; Capacity of Directors (1996) BOD; Compensation 22 22 latter became insolvent. This act is penalized liabil liaBOD: biliti Ready ities, es, Credit or cannot can Bank not (hereinafter contin con tinue ue in called busine bus the iness ss There are six (6) classes of banks identified Banks: Applicability: Foreign Currency Deposit Act & Mercantile Law General Principles of Mercantile Law ..............................................................................12 Mortgage vs. Conclusive Holder facto No Involuntary Fault in Corporation Due vs.Indemnity Levy Course Presumption Solvency (2003) vs. (1996) (1994) (1995) Corporation (1990) Mortgage; Parties; Insurer; Law by Trans-Shipment; on Estoppel Holder 3rd Extrajudicial Corporate Party in (2004) Due Liability; Recovery Foreclose Bill Course of Lading; Distinction: (1996) (2003) (2006) binding (1994) Parties; Dividends Rehabilitation; contract Mortgage; Holder (1993) vs. Foreclosure Profit: Authorized in Stay Due Cash Course (2003) Driver (2006) Dividend (1998) Clause 46 88 57 66 98 35Quitclaim 88 6746 57 Insurer; 98Order 46 vs. 67 by fine ofBank not(1995) lessBanking than P1,000.00 norDirectors more without with Bank) out 22 probable prob allBOD; ofable my right, losses to and its (1994) depositors deposit interest in and orInterlocking (1991) Conflict oftitle Interest BOD; Directors BOD; Interlocking 22ors 22(2005) Secrecy of Deposits in the General Law of 2000. Name at Mortgage; Suspension (1991) Parties; Dividend Foreclosure Holder ofhas Insurer; Payment in (2005) Due Authorized (2003) vs.Course; Insolvency Distinction; Driver Indorsement Mortgage; (1995) Clause Private Foreclosure in(2003) blank vs. Suspension Public (2002) Insurer; of Corporation of Improvements Payments Place (2004) vs. (1999) Driver Stay Order Distinction; (2000) Clause; Mortgage; (2003) vehicle Stock isSuspension vs. stolen Non-Stock (1993) 89 57 35 46from 67 57 89 46 89 67 Commercial Transaction (2003) Joint Account Joint Account vs. Partnership (2000) Theory ofe 12 12 12mpla than P10,000.00 and by for creditors; toStock my23 accounts or willfully receivable receiva ble final cease Hi lea le Yiel Yi a eldi sAuthorized tding ng fou foof u(1998) rPayment Corp Co (4) (4 rpor )35 orat of atio ion the th nimprisonment e m file fi led d aValidity; n a dForeclosure; comp co expl ex pla alain in int th (1996) By-Laws; By-La ws; Validity; Validiviolated ty; limiting limitin ga Home qualificatio qualifications ns (2000) of BOD members memb ers (199 8) By-Laws; By-La ws; Validit y; limiting limitin g tthe 23 Commercial Transaction (2003) Effect of Payments; Corporation of Insurer; mere Rehabilitation Group taking (2004) Insurance; by creditor-mortgagor Dividends: Receiver Employer-Policy (1999) Declaration of Suspension property Holder of Dividends (2000) (1992) of Payments; (2005) Insurer; Mortgage; Remedies Dividends: Liability Redemption (2003) of the Sources Insurers Period; of Dividends; (1990) Foreclosed Trust Loss: 58 36 67 58 47 36 68 58 not less than nor more than ten years. a nqualifications dBuilders desisDevelopment tisvs. o rInstruments dintended emembers r, of Manifestation in Corporation vo(2000) lvin gsale aor ctscommerce. agai agThis ainst distingu dist nstinguishi five fiv ishing e two of ng its characte char off acterist icers rs ristic ic or violat vio function func lation ion tion This work for work is freeware. It for may be Cognition Theory (1997) 12or Validity; ofnot BOD limiting qualifications ofoffice BOD members (2001) Negotiable 23 ..............................................................................................76 23of of W hnsa atActual dion o(2002) un dneting rng s36 taObligor) nd bLaw yfra th eBy-Laws; tfrom er48 maTotal SUGGESTED ANSWER: tra tra ns (hereinafter actio ct nTotal syouacalled mou mo u(1996) ti the toLoss: fra arising u d or Sect Sectio each ion one. 31 of (5%) the th e48Corp Co rpor orat atio ion n(1992) Code Coofde. . Marine The Thnds e Property Fund Doctrine Loss (2005) Mortgage; Dividends; Remedies Constructive Declaration (2003) Preference of Dividends Loss (2005) ofn(1990) Credits (2002) Dividends; Divide Total nds; Promissory Loss Declaration Decla Only ration Note: Liability Dividends Divide 47 59 59 Loss: 36 59 By-Laws; Validity; limiting qualifications of BOD members (2003) Close Corporations; Deadlocks (1995) 24 24 Any four (4) of the following six (6) classes of Banks; Insolvency; Requirements (1997) “commercial transaction”? Is it essential that dissipation delivery of the housing assets units of the with institution. a of total contract corpor cor porat ion claime cla imed d77 that tha the said sai d Checks office off rs Bond: Bond vs. Surety Bond (2004) Checks: Crossed Checks (2005) Checks: Crossed vs. 76The (2001) (1991) Insurance; Remedies; Implied Dividends; Warranties Available Declaration to (2000) Mortgagee-Creditor Dividends Marine Insurance; (2001) (1996) Dividends; Divide of Remedies; nds; the Ship Right; Right vs. Available ; Managing Mana Peril ging of tto the Mortgagee-Creditor Corporation Corpo Sea (1998) ration (1991) (199 Mutual 1)Law 48Cash 36 60 36Peril 48ation 60icers 37 banks identified in the General Banking a t l e a s t o n e p a r t y t o a c o n t r a c t b e a Give the basic requirements to be complied Closed Clo Corpor Cor n; Restri Res on; Tra shares sha res intended (1994) (19 94)re 24guil Controvers Cont roversy; y; Intra-Corpo Intra -Corporate rate (199 4) 25 freely copied and isrerCrossed primarily for those who desire have aal m aprice insed pof u rP4,000,000.00, pporatio osChecks eation; ofdistributed. thtricti ection; the ReChecks; description cTransf eIt ivnsfer e iof s and toCheck were we gu ilty tyall of adva advanc ncin ing g 37thei th eirto r (1994) pers pe rson onal Cancelled (2004) (1991) Checks; Crossed Check (1994) Checks; 77 77 77Merger (2001) Doctrine Insurance Remedies; ofCompany; Corporate Secured Nature Opportunity Debt &nDefinition (1991) (2005) (2006) of Corporate Term (2004) Effects; of 49 49 37 Effect: 60 Expiration 1 – These are those Universal Banks Banks; Diligence Required (1992) of 2002, to wit: mer me r c han ha n t in ord or d er to con co side si der r such su ch a with by the BSP before the Monetary Board Trust Receipts Law...............................................................................................................98 Controversy; Intra-Corporate (1996) (1996) Intra-Corporate 25 Controversy; 25 Controversy; recommend contract value the rehabilitation of...........................................................................................................................12 which are or attached liquidation hereto of Intra-Corporate interests to the prejudice of the corporation, Banking Law SUGGESTED ANSWER: Crossed Check (1995) Checks; Crossed Check Checks; Crossed (1996) Effect; 78 78 78 Checks; used to be called expanded “In the that I 37 shall be unable toUp pay my(1996) Corporations (1999) Effects; Winding Period of acan Corporation (1997) Effects; Winding Period of a 38Check Placido, a event bank depositor, left his checkbook commercial transaction? (4%) declare aey bank insolvent, itigen closed the as bank. Annex A (hereinafter called the and an dwhich that thatCorpor they th were we re gros grDefini ossl sly yorder negl neUp glig entt26in (2006) Controver Contr oversy; sy; Intra-corp Intra -corporate; orate; Jurisdictio Juris diction n (1997) (1997 ) Cor porati ation on Sole; Sol e; Def inition tion (2004) (20 04) 25 25 A “Commercial transaction” is defined as ...... deeper understanding ofUnknown issues touched by the Philippine Bar Examinations and itsins99 commercial banks and the operations of Trust Receipts Law; Acts &the Covered (2006) Trust Receipts Law; Liability for estafa (1991) outstanding indebtednes indebtedness sOmissions; owned toDeposit theChecks; 98 Acceptance by the drawee bank (1998) Alterations; Prescriptive Period (1996) Checks; 78 78 on Receivables).” his desk at his house. to him, a Act and forbid it from doing further business Corporation (2000) Foreign Corporation; “Doing Business” in of Philippines (1998) Foreign Corporation; 38 38from Banks: Applicability: Foreign Currency &Effects; Secrecy Deposits (2005) Banks: Collateral 12 handlin han dling gtheBank its affairs. affa irs. Aside documents document Corporation: Issuance of shares of stock toparty pay for the services (2005) Corporation: Right of Repurchase of It isBank, not essential that at least one to 26 SUGGESTED ANSWER: which are now primarily governed by the the Bank shall have the right, without visitor at the time, noticing the same, took a the Philippines. Philippines .the Trust Receipts Law; Liability for79 Estafa (1997) Receipt Law (2003) 99 Trusts 99 Forged Check; Effects (2006) Checks; Liability; Drawee Bank (1995) Checks; Material Alterations; Liability 80 “Doing Business” in the Philippines; Acts or Activities (2002) Foreign Forei gn Corporatio Corpo ration; n; “Doing “Doin g Business” Busin ess” in 38 and contracts, corporation also submitted Security (2002) Banks: Secrecy of Bank Deposits; Garnishment (2004) Banks; Classifications of Banks 12 13 the commercial transaction aits merchant. Befor BeProprietorship fore e theBanking Moneta Mon etary ry Boa rd can canThey decla dec lare re ofathe Public Service Law Shares; Trust Fund Doctrine (2005) Corporation: (2004) Corporation; Articles 26 26Board General Law ofValidity; 2002. can any further formality orupact on part, to check therefrom, filled it...............................................................................................................89 inbe the amount of Sole (1999) Checks; Presentment (1994) Checks; Presentment in evidence (2003) records Checks; of the officers’ Waiver U.S. of Dollar Bank’s 80 80 80 Philippine Philip s;Banks; Test (200 2) Venture; Ventu re;ctio Corporatio Corp (1996) (199 6)the Liabilities; BOD; Corporate Acts (1996) 39 39provinces Conservator vs. Receiver (2006) Banks; Diligence Required (1992) Banks; Insolvency; 13 13 nfrom 14 What Wh at(2002) is esse es sent ntia iall (2002) is that that the thencashing e tran trObligor ansa sact ion n oration bank insolvent, order itof(2001) closed and forbid it 39 trend. It pines; is specially intended for law students fr om who, very often, are exercise the powers an investment house collect the Receivables from the and P3,000.00 and succeeded inJoint the ....................................................................................................................68 Letters of Credit Incorporation (1990) Corporation; Bulk Sales Law (2005) Corporation; By-laws Corporation; 26 27 28 deposits in several banks overseas Boston Certificate of public Convenience (1998) Certificate Certif icate of Public Publi c Convenien Conv enience; ce; inseparabi insep arability lity of certificate certi ficate and 89 liability for (1991) Defenses; Forgery Forgery; Liabilities; Prior 81ing evince an intent to engage in80ors, commerce or 7) (2004) ro m dopart, ing(1997) fnon-allied urofficers th erVeil bfiled u s&iRestrictions nSubsequent e)scriminal s39 Piercing in They thLoan ethe Liabilities Liab ilities; ; negligence Stockholde Stock holders, rs, Directors, Direct Officers Office rsInsolvency; (1997) (199 Piercing Pierc the Corporate (1994) (1994 Pierci ng 39fFor Prohibited Transactions (2000) Requirements Banks; onParties 14 14 and invest in enterprises. tok apply the proceeds thereof toward check chec on the same day. Placido’s Placid o’sBanks; account their the a Commencem Comme ncement; ent; Corporate Corp orate Existence Existe nce (2003) (200 3) Corporation Corpo ration; ; Conversion Conv ersion of Stock Corporatio Corp oration n (2001) (2001 ) 28 28 Bank, Bank of Switzerland, and Bank of New trade. Philippines, Philippine s,against following basic requirements vessel Letter of(1992) Credit: Mortgage Certificate (2005) of Public Letter Convenience; Credit; Certification Requirements from (1995) Consignee Powers (1993) of&68 the Letters Public of Service Credit; 90 90 (1990) Forgery; Forge ry;in Liabilities Liabi lities; ;68Prior & ofSubsequent Subse quent Parties (1995 )the Incomplete Inco mplete Delivered Delive redDeposit (2004) (2004 )Box; 81 81the 82 Corporate Veil (1996) Piercing the Veil (2001) Piercing Corporate Veil (2004) Piercing 40 40(1995) 40 have the highest capitalization requirement. payment of my said indebtedness.” indebtedness. ”Corporate Accommodations (2002) Banks; Restrictions on Loan Accommodations (2006) Banks; Safety 14 15 was thereby debited the same amount. complaint the directors of Hi Yielding Usury Law ...............................................................................................................................99 York. Joint Account (2000) Corporatio Corp oration; n; De Facto Corporation Corporat ion (1994) (199 4) Corporation Corpo ration; ; Dissolution Disso lution; ; Methods Metho ds of Liquidatio Liqui dation n (2001) (200 1) 28 28 recipients of deliberately distorted notes from other unscrupulous law schools and 1 T h e r e m u s t b e a n e x a m i n a t i o n b y t h e must be complied with by the BSP, to wit: Andrew failed to pay the loan on its due date Discov Dis coveri ering ng the erron er roneou eous s debit, deb it, Placid Pla cido o Commission Liability of a15 confirming (1993) and Public notifying utilities bank (2000) (1994) Letters of Credit; Liability (1993) of 91 a Notifying Bank of (2003) Certificate 90 90 Revocation 69 69 Incomplete and Delivered (2005) Incomplete Instruments; 2of Certificate Incomplete Delivered Instruments – These vs. Incomplete are 82 Commercial Banks Corporation for violation of Republic Act No. the Corporate Veil (2006) Pre-emptive Right (2001) Pre-Emptive Right vs. Appraisal Right (1999) SEC; 40 40 41 Liability Banks; Secrecy of Bank Deposit; AMLC (2006) Banks; Secrecy ofRevocation Bank Deposit; Exceptions 15 What is a joint account? (2%) head of the Department of Supervision or his Corporatio Corp oration; n; Incorporat Incor poration; ion; Requiremen Requ irements ts (2006) (200 6) Corporation Corpo ration; ; Incorpora Inco rporation; tion; Requisites Requ isites (2002) (200 2) 28 29 on September 1, 2002. When the Bank demanded that the bank credit him with a Usury Law (199) 99 ordinary or regular commercial banks, as 6426, otherwise known as the Foreign (1993) Letters of Credit; Three Distinct Contract Relationships (2002) 91 69 Undelivered Instrument (2006) Indorser: Irregular Indorser vs. General Indorser (2005) Negotiability (1993) 82 82 SUGGESTED ANSWER: Jurisdictio Juris diction; Transferred Trans Juris diction (1996) (199the 6) Stock holder; r; Delinquen Delin quent; t; Bank Unpaid Unpa id the Subscription Subsc ription (199 7) 41 (2006) Banks; Secrecy of Bank Deposits (1990) Banks; Secrecy of Deposits (1991) (1997) Banks; 16 16 16 examiner sDeposit agents into condition of the to collect from the like ikCorp eattempted aoration; moun ou nt.n; The Th e ferred ban ba n k Jurisdiction ef u sObligor, edholders on th e41) Stockholde n; Meetings; Meeti ngs; BOD &refu Stockholde Stock rs the (1993) (1993 Corporation Corpo ration; ;orNationality Nation ality of Corporation Corpo ration (1998) (199 8) 29 examiners 29 distinguished distinguishe d from a universal bank. They Currency Act of the Philippines. Philippine s. The A Corporatio joint account is a transaction of merchants students. Share to others this work and you will be richly rewarded by God in heaven. Negotiability (2002) Negotiability; Holder in Duebank. Course (1992) Negotiability; Requisites (2000) 82 83Right 83(2003) 83 Stockholders: Preemptive (2004) Stockholders; Appraisal Right Stockholders; Removal of 42 42 Secrecy of Bank Deposits (1992) Banks; Secrecy of Bank Deposits (1994) Banks; Secrecy of Bank 17 17 Warehouse Receipts Law .................................................................................................100 Bank discovered that the latter had already ground that Placido was negligent in leaving havetoalleged aInvest lowerCorporate capitalization capitaliza tion requirement than that their bank deposits were Corporation; Non-Stock Corporation (1993) Power Funds for other Purpose 29 Corporation;officers where other merchants agree to contribute Negotiable Instrument: Ambiguous (1998) Negotiable Definition 284universal Tdisclosed hBanks; e (1991) ebanks xInstrument: aed m in aand tStockholders; iwant onof di dBank isof cloasDeposits e s& tCharacteristics haorder, t (2000) th th e Officers &(1995) BOD Stockholders; Removal; Minority Director Rights (1996) 42 42 42 operations liquidated all its Deposits Banks; Secrecy of Bank Deposits (1998) Secrecy hisclosed checkbook on (2001) his desk so thatInstruments he could 17and 17 18 cannot exercise the illegally disclos for court the th(1995) e Bill amou am ount nt capi ca pita l 100 agre ag upon up ,Goods; and ands; d Requis Corpo Corof porat ration ion; ;tal Power Pow erreed toedivery Invest Invry eston, Corpor Cor porate ate Funds Funuisites ds in anoth an other er Corpor Cor porati ation on (1996) (19 96) Corporation; 30 30 Bil l of Lading Lad ing (1998) (19 98) Delive Del of Goo Req ites (1998) (19 98) Delive Del ivery ry of the Goods Goo ds (1991) (19 91) 100 100 condition of the bank is one of insolvency, or (2005) Negotiable Nego tiable Instrumen Instr ument: t: Identificat Iden tification ion (2005) (2005 ) Negotiable Instrument: Negotiable Document vs. 84 84 assets. The Bank sued Andrew for collection, not put up the defense of forgery or want of Stockholders; Voting Power of Stockholders (1990) Stocks; Increase ofdeposits Stock (2001) Stocks; Sale, 4218 42 Banks; Secrecy of favorable Bank Deposits; Exceptions (2004) Banks; Secrecy ofCapital Bank Deposits; Garnishment (2001) powers of an investment house and invest in and that such were not even the It is also very good karma. .............................................................................................................69 Maritime Commerce participating in the or unfavorable ........................................................................................................................49 .............................................................................................................60 Insurance Intellectual Law Property Recovery ofdisclose Moral Damages (1998) Corporation; Separate Juridical Personality (1995) Corporation; 30 31 Garnishment or Attachment of 85 Goods (1999) Documents of Title (1992) Ownership of Goods The Facts that even toNegotiable the naked 100 Negotiable 100 that its continuance in business would but Andrew moved to dismiss the complaint authority under the NIL. Negotiable Instrument (2005) Instrument; Negotiability (1997) Negotiable Instruments; Bearer 85 non-allied enterprises. subject of Certificates thePDIC caseLaw against them.of43 a) WillDeposits the Transfer of Certificates of Stock (1996) Transfer of Stock (2001) Stocks; Sale, 43y Stocks; Receivership; Jurisdiction Tender (2000) vs.creditors Secrecy Bank 18 18 19 result res ults s BSP; thereo the reof f in the propor pro portio tion n (1992) they the may maLegal y Sale, Securities Regulation ..........................................................................................................91 eye, there were marked differences between involve probable loss toReceipt or Separate Juridical Personality (1996) Corporation; Separate Juridical Personality (1996) Corporation; 31 31 Yielding Corporation Corpor ation prosper? prosper ? Explain. onCopyright Stored the ground (1992) that Right the to debt the Goods had already (2005) Unpaid Seller; Negotiation of the (1993) Validity 101 101 101 Average; Particular Average vs. General Average (2003) Bottomry (1994) Carriage of Goods: Deviation: 69 70 3 – These banks (such asof Thrift Banks complaint filed against the directors of Hi Beneficiary: Effects: (1995) Irrevocable Copyright; Copy right; Beneficiary Commission Commi ssioned (2005) ed Artist Beneficiary: (1995) (199 5) Rights; Copyright; Copyr ight; Irrevocable Commissione Commis Beneficiary sioned d Artist (2005) (2004) (200 4) 60 49 60 50 60 Instrument (1998) Instruments; Bearer Instruments (1997) Instruments; bearer 85 Negotiable 85 Negotiable determine. Transfer of Certificates of Stock (2004) Trust Fund Doctrine (1992) Trust Fund Doctrine; Intra-Corporate 43 43 Act (1997) Responsibilities & Objectives of BSP (1998) Truth in Lending Act (1991) Truth in Lending 19 19 19 SUGGESTED ANSWER: Placido’s signature and the one in the check depositors. been paid by reason of his execution ofiation the Separate Juridical Personality (1999) Corporation; Separate Juridical Personality (2000) Corporation; 31 32stock stipulations excusing warehouseman from (2000) 101 savings mortgage banks, savings Joint Account vs. Partnership (2000) Insider Liability Liab ility(2000) (2004) (2005) (200 5) Insider Carria Car riage geProhibited of Goo (1995) ds; Deviat Dev Insider ion;; (1998) When Whe Trading; nNo, Prope Pro Manipulative r (2005) (20and Practices Carria Carright; riage ge (1994) of Goods; Goo ds; Manipulative Exe rcise se 91 70 91negligence 70 92 Beneficiary; Copyright; Copy Life Infringemen Infrin Insurance; gement tTrading (1994) (199 4)Goods; Beneficiaries Copyright; Copyr ight; Infringemen Infrin gement Concealment; tper (1997) (1997 )05) Material Copyright; Copy Concealment Infringemen Infrin gement tsExerci (199 60 50 61 50 instruments; liabilities maker and indorsers Negotiable Instruments; incomplete and undelivered 85 because the Foreign Currency Act61 Controversy (1991) 43 Act 19 forged byright; the visitor. Asof between Placido and(2001) 3 T h e h e a d o f s a i d D e p a r t m e nDeposit t(2001) h(1998) aStock ll 8) aforesaid Deed of Assignment which, being and loan associations, and private Separate Juridical Personality (2000) Corporation; Set-Off; Unpaid Subscription (1994) Corporation; Distingu Dist inguish ish joint account acco unt from partners part nership. hip. 32 32 Practices Extraordinary (2001) Diligence Securities (2005) Regulation Charter Code; Party Purpose (1991) (1998) Charter Securities; Party (2004) Definition COGSA: (1996) Prescription Securities; of 92 70 70 92 71 92 SUGGESTED ANSWER: Concealment; Copyright; Copy right; Infrin Material gement (2006) (200 Incontestability Copyright; Copyr ight;86Photocopy; Photo Clause copy; (1994) allowed allow Concealment; ed26) (1998) (1998 Material Infringement Concealment: Unfair 61 50 (inform R.A. .A .when No. 6426 64 ), Monetary i)nclu nc61 ludi ding ngBoard its its Instrument pvs. unit un iti ives; instru ins trumen ments; ts;Infringemen holder hol der Concealment: int due du e 6) course cou rse (2000) (20 00) Nego tiable Instruments Instru ments; ; the Incomplete Inco mplete Delivered Delive red Instr uments; the bank, who should bear the loss? Explain. in writing of such absolute and unconditional, was in essence aNegotiable SUGGESTED ANSWER: development banks) may exercise most of (3%) The Corporation bank should (2001) bear Corporation; the l loss. oss. A Validity drawee of Corporate bank ban k Acts (1998) Corporation; Validity of Corporate Acts 32 33 Claims/Actions Selling ofability Securities; (2004) COGSA; Prescription Tender Offer ofCompetition Claims (2002) (1992) provisions, COGSA; refers Prescription to foreign Claims (2000) deposits 92Negotiable 93 71 72 We would to Meaning seek the indulgence the reader for some Bar Questions which facts. Incontest Inco Competition ntestability (1996) Clause Claus e71 (199 Infringement 6)(2002) Concealme Conc vs. ealment; Unfair nt; Material Mater ial Concealme Conc (2003) ealment: Infringement; nt: Incontesta Inco ntestability Jurisdiction bility ofcurrency Clause Claus (2003) e of (1997) (199 7)are Patent; 61(1996) 50 61 61 51 Comparative Negligence (1997) Instruments; kinds of negotiable instrument; words negotiability 86 dacion enlike pago. The Bank opposed the of The following are the distinctions between the powers and functions of a commercial must mu st exer ex cis se the the Voluntary high highes estDissolution t dili dilige genc nce e in33 Corporation; (2002) Corporation; (2002) Voting (1992) 33erci 33 accounts constituted within the It 4 U p o(1995) n :by: fTrust infirst d i(1996) gtoDoctrine sa id nParties; fo rm aPhilippines. tamong iAccommodation on 62 or Fault COGSA; Prescriptive Period (1995) Doctrine of Inscrutable Inscrutable 72 72 motion, contending that the Deed of Paten joint account and a nd partnership: partner ship: Concealment; Non-Paten Non-P atentable table Material Inventions Inve Concealment; ntions (2006) (200 6) Incontestability Pat ents: ts: Gas Clause -Savin ving (1991) gFault Device Dev ice: Concealment; firs tnAgreement file rule rul eof (2005) (20 05) Concealment; Patents: 61 51 (2002) Negotiable Instruments; Requisites (1996) Notice Dishonor 86 87 87iMaterial bank except that they cannot, others, and Arranged SUGGESTED safe safegu guar ardi ding ng ANSWER: the the acco accoun unts ts of its its clie clEdited ient nt- Gas-Sa has has no applic app ation ion atthe all alLiability lMonetary to accoun acc ounts, ts, even statement tolicat be true, Board (1)(1997) AParty partnership has aies firm name while ascope Assignment Assignmen tt;Clause was only a security for aParty loan. loan . If Doctrine of Inscrutable Fault (1998) Liability Rule (1994) Limited (1997) 72 72 72 open current or check accounts without Incontestability Infringemen Infrin gement; Remedies Remed &also Defenses Defen Insurable ses (1993) (199 Interest: 3) Bank Patents; Paten ts; Infringeme Infrin (2000) gement nt (199 Insurable 2) improperly Interest: Patent Pat ents; s;Rule Public Rights Rig hts Enemy over ove72 rprior the 51 62 51(1992) 62 (Since the question is outside the of (1990) Parties; Accommodation (1991) Parties; Accommodation Party (1996) 87 87tDeposit 87 deposi dep ositor tors. s. The bank ban k(1998) is als o charg ch arged ed with wiLimited th improperly classified under a topic and for some topics which are or Silliman University College h o u g h t h e y a r e b a n k s , o p e n e dof the and shall appoint a receiver to take charge joint account has h as none and is conducted in you were the Judge, how would you resolve the Bar Examination, it is recommended Monetary Board approval, and they cannot Limited Liability Rule (1999) Limited Liability Rule (2000) Limited Liability Rule; Doctrine of Inscrutable 72 73 (2000) Invention (1990) Trademark Separate (1990) Insurable Interest (1999) (1994) Insurable Trademark, Interest; Test Equitable Dominancy Interest (1996) (1991) genuineness of theInterest: signatures of its current 52 Insurable 63 63 Trademark 52and 63 63 b) Was there a violation ofofthe Secrecy of Bank constituted abroad. assets liabilities of the bank. of Law Batch 2005 thethe name of the partner. motion to ostensible dismiss filed by Andrew? that the candidate be given full credit of issue letters of credit. Their operations are acco ac coun unt t hold ho lder ers. s. But Bu tLiability what wh at can ca nInsurance be more mo re (1991) Limited Rule; General Average Loss (2000) General Average 73 Deposits Law Explain. Trademark; Insurable Interest; Infringement Life vs. (1991) Property Trademark; (1997) Test of Interest; Tradename: vs. Property International Insurance Affiliation 52 63answer, 52Dominancy 64 5Insurable W73 i(1996) thLimited inprimarily 6 0Life dLiability a(Republic yys,by thRule; e MAct o n etNo. arBanks y1405)? B o(2000) ard Miscellaneous (2)Fault While a5%, partnership has juridical ......................................................................................................................102 Explain (5%) whatever may be his and he Bar governed primaril the Thrift Act of ignorantly phrased, for the authors are just Reviewees who have prepared this striking is that there were marked differences (5%) Loss (2000) 73 The motion tomay dismiss dis miss should be Insurance granted. The shall determine and confirm if the bank is 53 (2005) Insurable Interest; Life vs. Property Insurable Interest; Property Insurance (1994) personality and sue or be sued under 52 64 53 be given a bonus if he made an answer(2002) in 1995 (RA 7906). SUGGESTED ANSWER: between betw een Placido’s Placido ’s signatur sign ature e and the one in Energy Regulatory Commission: Jurisdiction & Power (2004) Four ACID Problems of Philippine 102 simple absolute and unconditional insolvent, and public interest requires, toJudiciary Updated by: the following manner:) itsInsurable firm name, a joint account has no juridical Interest; Property Insurance (2001) Insurance; & Rural Carry Basis (2003) Insurance; 53 53 4Cash –ve these are those which Banks No, becau bec ause se the puniti pun itive provi pr ovisio sions ns of Cothe102 Transportation Law ..............................................................................................................93 the check che ck forged for ged by the visito vis itor. r. Certa Ce rtainl inly, y, (2006) Government Deregulation vs. Privatization oforder an Industry (2004) 102 Political Law; WTO (1999) 102 conveyance embodied in the deed of 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 extend loans and Insurance vs. Re-Insurance (1994) Insurance; Double Insurance (2005) Insurance; Double Insurance; 53 54 Secr Se crec ecy y of Bank Ba nk Depo De posi sits ts Law La w (R.A (R .A. . No. No . Plac Pl acid ido o was wa s the no t negl nebe glig igen ent t common inof Domestic leav leand avin ing g Trade his his (2004) (3) While aof has a fund, assignment assignmen tnot would operative, the the name ostensible partner. Power ofpartnership the State: Regulating Tariff and Customs Code: Violation of Customs 103 Boundary System (2005) Carriage; Breach of Contract; Presumption of Negligence (1990) Carriage; 93 93 other credit facilities to farmers, fishermen 1405), 140 5), includ including ing the statut statutory oryLifeexempt exe mption ions s or effect (1993)in54 Insurance; Effects; Payment ofmpo Premiums by Installment (2006) Insurance; 54 Insurance; v Quimpo Qui checkbook his own desk ( PNB a joint account has none. assignment assignmen t would constitute essentially a Banks; Insolvency; Prohibited Transactions (2000) Laws 103 Presumption farm families, as well cooperatives, Breach Breac h of(2004) Contract; Cont ract; Presu mption of Negligence Negligence (1997) Carriage; Fortuitous Event (1995) 93 93 Carriage; provided therein, are notas to FCDU D’ BAR-Retake 2007 158 SCRA 582 )Policy Assignment (1991) Insurance; Perfection ofto Insurance Contracts (2003) Insurance; Property 54 54applicable (4) While in aofpartnership, all general mode of payment or en pago. limited knowledge ofdacion the law. We would like seek the reader’s indulgence for a lot The Monetary Board of the BSP closed Urban merchants, private and public employees accoun acc ounts, ts,Prohibited even eveand n & when whe n Stipulations consti con stitut tuted ed local locally. ly. Liability; Lost Baggage orof Acts ofGarnishment Passengers Carriage; Valid (2002) 94 94 partners have the right management, in(1997) a Banks: Secrecy of Bank Deposits; (2004) Insurance; Prescription of Claims (1996) Insurance; Return of Premiums (2000) Accident Policy 54 55 Insured; Bank after it encountered crippling financial and whose operations governed ( Intengan Inten gan v. Court of Appeals, Appeare als, primarily G.R. No. 128996, 128996 Carriage; Valuation of Damaged Cargo (1993) joint account, ostensible ostensibl e Suicide partner 94 Common Carrier (1996) 94 Common Carrier; Breach of , CDC maintained a savings account with (2004) Insured; Accident (1990) 55 difficulties thatthe resulted invs. a bank run. X, 55 one by the15, Rural Banks Act of 1992 (RA 7353). ) February 2002 (5) While liquidations liquidation s of aCommon partnership of typographical errors in this work. manages its business operations. CBank. On orders ofthe the MM Trial Contract; Damages (2003) Defenses (2002) Common Defenses; Fortuitous Banks: Collateral SecurityCarrier; (2002) 95Cooperative of the the memb me mber ers s of th e 94 BOD BO D Regional of the thCarrier; e bank ba nk, , 5 – these are those Banks may, by agreement, be entrusted to a partner Court, the Sheriff garnished P50,000 of his Aofndre dr e w i s enga en gag g ed i n the th e b usin us ines ess s of From the ANSWERS TO EXAMINATION QUESTIONS Events Common Carrier; Limitation Liability (1998) Common Carrier; Defenses; 95 attended atte nded(1994) and 95 stayed stay ed throughou thro ughouttDefenses; the entire enti re BAR which are organized primarily to provide or partners, in a joint account liquidation account, to satisfy the judgment in favor of b u ild il d ing in g lowlo w-co cost st h ous ou s i ng unit un its s und un dtoer meeting of the Board that was held well in Duration Limitation Liability (2001) Common Carrier; of Liability and (1996) Common Duty financial credit services Carrier; to cooperatives 95 The Authors bythe UP LAW COMPLEX & PHILIPPINE ASSOCIATIO ASSOCIATION N thereof canofonly be done by95the ostensible his creditor, MO. CDC complained that the contra conand tracts cts with withoperations real real estat estate e primarily develo developer pers. s. OF He advance of the bank run and before news whose are governed ......................................................................................................................20 Bulk Sales Law Examine Baggages; Railwaythe andLaw Airline (1992) Carrier; Test (1996) Carriers; Defenses 96 Commonapplied 96ofCommon partner. garnishment garnishm ent violated on the Secrecy July 26, 2005 for a loan P3 Million from Ready 2005 h ad of beCognition gun tovs. Theory trickleof Manifestation to the LAW b(1997) usineSCHOOLS ss by the Cooperative Code of the Philippines Theory (1996) Common Carriers; Liability for Loss (1991) 96 96 of Bank Deposits because the existence of Cred Cr edit it Bank BaCovered nk (the (the Bank Bank), ), (2000) whic which h 20requ re quir ired ed Bulk Sales Law; Covered Transactions (1994) Bulk Sales Law; Transactions Bulk Sales 20 commun com munity ity about abo ut the dire dir e finan fin ancia cial l pit the (RA 6938). Thehis Civil Code adopts the theory of savings account was disclosed to the Banks; Conservator vs. Receiver (2006) Andrew to provide collateral security for bank had fallen into. the Law; Bulkerce Sales (1993) Bulk Sales Law; Obligation 20after 20 Banks 6 – these are thoseofit.the Islamic SUGGESTED ANSWER: cogn cognit itio ion, n,Covered whil wh ile eTransactions the the Immediately Code Co de(2006) of meritorious Comm Co mmer ce Law; Exclusions Updated: June public. (5%) Is CDC's complaint Diew stingoffe ufere ish etw esign eprimarily ngn to thethe oBank le nkohis f s a Andr Andrew of red d bto assi as th erprovide Ba hi meet me etin g, X(1995) ca th enot pr epar arat atio ion an isSales meritorious. Itof was held which organized to Obligation the Vendor (1997) are Sales Law; Obligation of the Vendor 21 Bulk g eNationalized nNo. eVendor ring, aCDC's lly Reason rcomplaint ecaus coused g21 ned izBulk esthe tor hprep eLaw; th eo rn y and od f Activities Undertakings ........................................................................74 or not? briefly. recei receivab conservator vables les and amoun amand ountin that ting g of toa receiver P4inmillio mil lion of n afrom fro bank. m 27, 2007 issuance issu of a in manager man ager’s ’s check chec payable paya ble China inance Banking Corporation v.kof Ortega, 49to SCRA 355 financial credit services a manner or manifestation, the perfection contracts. (2001) 21 SUGGESTED ANSWER: (2.5%) Home Builders Development Corporation (the Insolvency Corporate Recovery that deposits the SUGGESTED ANSWER: hims hi msel elf f peso in Activities the stheories um of be 5 garnished mil mi llion li on pand esos es...................................................................................64 os (1973) transaction transacti onUndertakings consistent with the INationalized Islamic slamic Nationalized ormay Undertakings (1993) Nationalized Activities or (1994) 74 74for How do these two& differ? The Conservator Conserva tor is appointed appo inted aeperiod per iod 2007 Ob27, ligo gor) r). . The Th e Bank Ba nk acce ac cept pted ed the th offe of fer. r.not U nd er theto bank theamount ocan ry comply ofplaced cowith gnor itithe oinvested n, order theJune depositary of Obli equivalent the Shari’ah. At present, only the Al Amanah Activities or Undertakings (1995) Retail Trade Law (1990) Retail Trade Law (1991) Retail Trade Law 75 75 75 exceeding one (1) year, to take charge of Insolvency Suspension of Payment (1998) Insolvency: Voluntary Insolvency (2005) 64 64 Insolvency; Accordin Acco rdingly, gly, Andrew Andrew obtained obta ined thePhilippines loan Assets andthe acceptance isvs. considered to effectively bind garnishment garnishm violating the Law on the in the bank ent by awithout business acquaintance. He Islamic Investment Bank of the assets, liabilities, and the management a (1992) 75 of vs. Liabilities (1998) Insolvency; Assignees (1996) 65he Insolvency; executed Effect; a promissory Declaration ofnote Insolvency undertaking (1991)of65 the offeror only from the time itthe came tothe his Secrecy Bank Execution is now claims that heDeposits. is65 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 w grelitigation . the Uo nw das enrerit isatn hd e fruit. th eohre y haodf goal of its tk rnuos t lefdo tha tGarnishment SUGGESTED ANSWER: inability, to maintain a rest Consumer Protection Law ..................................................................................................21 Septembe Sept emberr or 1, unwillingness 2002, together with interest inte Credit Transactions ..............................................................................................................44 manifest mani ation, , the contract contr perfected perf ected atl isI festation part of agree the execution process. comm co mmit itte ted d no viol vi olat atio ion nact of the th eUpon Gene Genera ral No. do not that there isisno violation of condition of liquidity deemed adequate to thereon at the rate of 20% per annum. At the the moment when the acceptance is declared of the notice of garnishment on the Banking Act (RA 337, as amended) for which theservice statute (RA 337, as amended). X violated Metric System Lawvs.(1994) 21 Chattel Mortgage After-Incurred Obligations (1991) 44 protect the interest same same time time, , Andr An drew ew of exec exdepositors ecut uted ed a and Deed Deed of or bybe the offeree. bank where the defendant deposited he should sho punish pun ished. ed. the Do preparation you agree agreefunds, that tha Secmade 85 uld when he caused andt creditors. On the other hand, the Receiver Assignment in favor of the Bank assigning tois such funds become part of of thethe subject there has no violation statute? issuance ofbeen a manager’s check manage as bank quasi-bank theappointed Bank historeceivable receiv ables fromor the Obligor. Obligor. matter of litigation. (3%) that is unable to pay its liabilities liabilitie s in The deed of assignment read: read:

FOREWARD

MERCANTILE LAW

ARRANGED BY TOPIC (1990 – 2006)

Dondee

Banks; Restrictions on Loan Accommodations (2002)

As part of the safeguards against imprudent banking, banking, the General General Banking Law imposes imposes limi limits ts or rest restri rict ctio ions ns on loan loans s and and cred credit it accommodations which may be extended by banks. Identify at least two (2) of these limits or restr restrict iction ions s and and expla explain in the ratio rational nale e of SUGGESTED ANSWER: each of them. (5%) Any two two (2) (2) of the the fol follow lowing ing limit imits s or restrictions on loan and credit transactions which may be extended by banks, as part of the safegua safeguards rds against against impruden imprudentt banking, banking, 1 – (i.e., Single Borrower’s SBL Rules to wit: 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 accommodations and guarantees that may be extended by a bank to any person, partnership, 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 accommodations that a bank may extend to its

Mercantile Mercantile LawLaw Bar Examination Bar 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, houses creating and and Canlots theira arecommission the Bank inrelated possession justifiably interests to conduct invoke of (thus, theRA Luansing an DOSRI). 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’etat the the to 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 the obligation transaction to deliver is considered titles to a of attempts business to seize and on power terms is not a valid lessexercise favorable Rudy. sale or money As Luansing placement Realty, does Inc. not make is not the Banks; of Bank Deposits police to Secrecy the power. bank than those(1992) offered to non-a covered money “subject institution matter under of bank litigation” Section 3 within of the 3. DOSRI No commercial shall make any Socorro received $10,000 from a foreign bank borrowers. Anti-Money the meaning of Laundering Sec 2 entitled of RAsecurity Act, 1405 itwhich may notof loan or discount on the of shares although she was only to $1,000.00. invoke prohibits this the law disclosure to refuse or delivery inquiry of into the bank titles its own stock. plan to conceal the In an capital apparent Banks; Secrecy of Bank Deposit; Exceptions (2006) to Rudy. deposit except “in cases where moneya dollar erroneously sent amount, shethe opened Under Republic Act No.1405 (The Bank Banks; Restrictions on Loan Accommodations (2006) the deposited or invested is the subject matter account with her local bank, deposited Secrecy Law), bank deposits are considered Pio is the and president Bank. His of litigation” nor will 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 wife applied for a loan with the said bank to money was “swindled.” of $2,000 and 1 check for $1,000 each GP is a suspected jueteng lord who is examined, inquired or looked into by any finance an internet cafe. Theindividuals loan officer told payable to different who rumored to be enjoying police and military person, government official, bureau or office. her that her application will not be approved deposited the 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 of loans tobanks. related accounts withgrant different local The exceptions to the Bank Secrecy Law arethe hadbefore not escaped thedirectors, dragnet the law,and GP the RTC for theof recovery of interests of bank officers, the following: was summonedsent toprohibited aamount. hearing of erroneously In the of the stockholders is bythe the course General 1. Special or general examination of a SUGGESTED ANSWER: Committee on Racketeering and Other trial, the sender presented testimonies of Banking Law. Explain whetherSentral the loan bank, authorized byofGeneral the Bangko ngof Section 36 of the Banking Law Syndicated Crimes the House of bank to show the funds were, in officerofficials is correct. (5%) that Pilipinas' Monetary Board, inconducting connection with 2000 does not which entirely prohibit directors Representatives, was a fact, deposited in a bank by Socorro andor paid a bank fraud or serious irregularity. officers of the bank, directly or indirectly, congressional investigation “in aidparticipated of to several persons, who in 2. out Examination by an independent from borrowing from the bank. this case, legislation” on the involvement of In police and the concealment and dissipation of the Auditor, hired by the Bank and for Bank, the which Pio is personnel, the president of Western military and possibly evenerroneously of local amount that Socorro had 3. Disclosure with the Depositor's written Bank's exclusive use. makes Socorro him moved an officer, to strike director out said and 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 you cases ofthe Bribery or dereliction of out? restrictions would issue to an bank order before to strike it can them lend to officers of certain identified banks with a duty by a Public Officer, upon order of a SUGGESTED ANSWER: its directors or to officers. A written approval of Why? directive to them bring the records and competent court. Ithe willmajority not strike out the testimonies from the vote of all the directors of the documents of bank deposits of individuals record. 3 Inexcluding cases The oftestimonies money deposited/invested of bank officials bank, the director concerned, mentioned in the subpoenas, among them is which, in turn, is the subject of Litigation, indicating where the questioned dollar required. Furthermore, such dealings must GP. GP andANSWER: the banks opposed the production SUGGESTED accounts upon order were of anot competent opened Court. in to depositing be upon terms less favorable the bank of banks’ records of deposits on the Yes. The opposition isLoans valid. GP be istheir not a public 4. the DOSRI Loans: with Banks misappropriated 4 sums must considered as than that those to others ( Section 1326, ground nooffered such inquiry is allowed under of Bank official. The Directors, investigation Officers, does Stockholders not involve and one likewise involved in litigation – one which is Central "Manual ofDeposits Regulations the Law onBank's Secrecy of Bank (RA for related of the exceptions interests. to the prohibition against among the Other excepted casesIntermediaries, under the Secrecy Banks and Financial 1405 asLoans amended). Is the opposition of GP disclosure 5 Bank of any in excess information of(Melon 5% concerning of the Bank's bank of Deposits Act Bank v Magsino cited in Ranioso v. CA, G.R. No. 117416, and the banks valid? Explain. Banks; Secrecy of Bank Deposits (1994) deposits under the Law Secrecy of Bank Capital & 633) Surplus Safety Deposit Box;on Liability 190 SCRA ). A violation of this December 8, 2000customs Miguel, aBorrower special agent is charged Deposits. 6 and The The Committee waived conducting his right the as MN OP rented a safety deposit box at provision will cause his or her position to before the Ombudsman with having acquired investigation is Secrecy not a competent court or of thebe regards The the of Bank SIBANK. parties signed a Deposits contract declared and the erring director or 5. the Anti-Graft property out of proportion toand hisbank salary, Ombudsman 7 Violation authorized under the law to 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 of a bank record involving disclosure. and has neither possession nor control Banks; Secrecy of Bank Deposits; Exceptions (2004) 7. BIR Commissioner's authority to verify Octsubpoena 24,1990). to theno Banco de Cinco tecum the same; duces the bank assumed interest in The Law on Secrecy of Bank Deposits a decedent's Gross Estate and a taxpayer's commanding its representative to furnish said contents and 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. second Foreign Currency Deposits by foreign absolutely confidential in nature and may not subpoena was issued the which remained with the bank;expanding and the other lenders & investors under PDs 1034. be first examined, inquired or looked into by any by renters' including theThe production for the key. box can of berecords openedof 9. Violations of the Anti-Money person, government official, bureau or renters office. friends ofthe Miguel inboth saidkeys. bankThe and in all its only with use of 10. When the State exercises/invokes its Laundering Law. Miguel moved to quash the subpoenas arguing However, the law provides exceptions in branches and extension offices, specifically deposited certificates of title inthat theany box. But (NOTA BENE: It is suggested 6 of Police Power. that they violate the Secrecy of Bank Deposits certain instances. Which of the following may naming them. later, they discovered thatcredit) the certificates the above beexceptions: given full 1. cases of ANSWER: SUGGESTED Law. In addition, he contends that the notIn be among the were gone. MN and OP now claim for 2. The In cases bank involving is liable, based on 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 Agro-Industrial bribery the Supreme in CAwarrants” expedition” orCourt “general and are Explain briefly. (5%) Manosa, a newspaper columnist, while 4. In cases of anti-graft and 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 the money involved is the practices. 426 (1993) and Sia v. Court of Appeals, 222 SCRA private individuals who are not under pretty bank teller informing coemployee SUGGESTED ANSWER: subject of In 24 (1993). 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. has The ruled that the renting out of safety deposit illegally property justinquiry a few pesos in her bank boxes is ainto "hundred " wherein special kind ofacquired deposit account extends and to that cases her where next check such will property in all of is the bank is the depositary. In the absence probability concealed bounce. by being Manosa held by wrote recorded this in any stipulation prescribing theor degree of information the in his newspaper column. Thus, diligence required, that of a good father of a Gigifamily is to be

16 17 15 Page Page 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 your for 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 that Gigi is charged with and is under prosecution. the absolute All they control haveofto the do unlawfully under RA 1379 bank. beacquiring would to simply wealth place the property in the Secrecy of Bank Deposit; AMLC (2006) andBanks; that the fiscal issued a subpoena duces name of persons other than their spouses Rudy is the jobless but is toaccount be records ofreputed the bank of tecum (Banco Filipino Savings vs.a jueteng and for children operator. He has never been charged Gigi. May Gigi validly oppose the said Purisima 161 scra 576; Sec 8 Anti-Graft Law as or Banks; Secrecy of Bank Deposits (1995) convicted any crime. Hethat maintains several issuance on the ground the same amended byofBP 195) Michael withdrew without of SUGGESTED ANSWER: bank the accounts has purchased 5funds houses violates law onand secrecy of authority bank deposits? a) The Secrecy of Bank Deposits Act the the amounts P500th and and partnership lots hisinchildren from of the Luansing Explain yourfor answer. prohibits, subject to its exclusionary clauses, US$50th for services he claims he rendered Realty, Inc. Since he does not have any anyfor person fromtheexamining, inquiring the job, benefit of the partnership. He visible 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 thethe 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 inAMLC, court who merely overheard what appeared to be the bankMichael, disclosed to it Rudy's bank deposits against Prosperity, and Eastern to 1. Canremark Rudy move to dismiss thetocase a vague of a Bank employee a co-on amounting to P100 Million. Subsequently, he ALTERNATIVE ANSWER: compel Michael to thecriminal subjectin funds to the ground hereturn has no record? employee andthat the same his inwriting court for violation of thenot Antia) was The charged complaint against Manosalitigation will SUGGESTED ANSWER: the partnership and pending (2.5%) newspaper column is Law. neither the inquiry nor to Money Laundering prosper because merely writing vagueLaw, No. Under the Anti-Money order both banks to disallow any awithdrawal disclosure contemplated by law. Laundering remark of a Bank employee to a co-employee Rudy his would be guilty of a "money laundering from accounts. is not the disclosure contemplated bythe law. If an At the initial hearing of the court 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 disclosed the information. Michael’s peso current account, and Eastern are made to appear as 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 mayEastern not compel being a court jueteng operator, andand requires no validly oppose the issuance of a subpoena to disclose the bankfordeposits of Michael? previous conviction the unlawful activity for the bank records on her. duces tecum SUGGESTED ANSWER: Discuss fully. (See also ofSec. 3, Anti-Money Laundering Act Banks; Secrecy Bank Deposits (1991) Yes, as far as the peso account is concerned. 2. To raise funds for his defense, Rudy sold of 2001). TheSec law (RA 6832) creating a Commission to of 2 of RA 1405 the Can disclosure the houses and lots allows to a friend. Luansing conduct adeposits Thorough Investigation bank inFact-Finding case where the money Realty, Inc. be compelled to transfer to the of deposited the Failed Coup d’etat of Dec 1989, is the subject matter of litigation. buyer ownership of the houses and lots? Recommend Measures to Michael Preventis aimed the SUGGESTED ANSWER: Since filed against (2.5%)the case Occurrence of Similar Attempts At a Violent Luansing Realty, Inc. ishe awithdrew real estate at recovering the amount from Seizure of Power and for Other Purposes, company, hence it is not a covered institution the funds of the partnership, which amount provides that the Commission mayaccount, ask the a under Section 3deposited 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 the foreign currency and/or to grant authority examine anybrokers, bank companies, securitiestodealers and proper. account. Under Foreign Currency Law, deposits, orthe investment funds,entities or pre-needtrust companies and other the exemption to the prohibition against banking transactions the name dealing of and/or in administering or inotherwise disclosure of commodities information bank utilized by a person, natural or concerning juridical, under currency, or financial deposits writteninstitutions. consent of the investigation by thecovered Commission, in any bank derivativesis are Hence, Banks; Secrecy of Bank Deposits (1998) depositor. or banking institution in the Philippines, when Luansing Realty, Inc. may not use the Anti(20) An insurance is deluded the1998 Commission hasAct reasonable ground to to Money Laundering tocompany refuse to transfer 3. In disclosing Rudy's bank accounts to the into releasing a check to A for P35th pay believe that said deposits, trust or investment the buyer ownership of the houses and lots. AMLC, did the bank violate any law? (2.5%) for Treasury Bills (T-bills) which A claims funds, or ANSWER: banking transactions have beento SUGGESTED SUGGESTED ANSWER: be en route on board an armored truck from used in support orofnot in furtherance of the The Law on Secrecy Bank Deposits islaw. itself No, the bank did violate any The a government bank. The check is delivered to objectives of the said coup d’etat. Does the merely a statutory enactment, and it may, bank being specified as a "covered 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 by Law, providing further exceptions therefrom), report to 1405)? therealization, AMLC covered it is isaobliged scam. toUpon such the or even repealed, transactions, expressly or impliedly, by and suspicious 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 amount to a contract exceptions to of thepreliminary Secrecy ofattachment. Bank Deposit obtains a writ 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


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 “legaltender tender?” Explain (2%) legal in amounts not exceeding fifty

18 19 Page Page 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 the Revenue Peso. can inquire into the deposits of a decedent for in Lending Act (1991) theTruth purpose of determining the gross estate Danadecedent. Gianina Apart purchased on case, a 36a BIR month of such from this installment basis the latest model of inquiry into bank deposits cannot be made. the Nissan Sentra3Sedan caralways from the Thus, exception may not be Jobel Cars Turning to exception 4, an inquiry into bankprice, Inc. In addition 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 according to the a written not, Practices however,Act, submit to Dana Philippine Supreme Court in the cases of statement setting forth therein the National Bank v. required Gancayco,by 15 the SCRA 91 (1965) information Truth in Lending However, all other casesand of anti-graft and v. and Banco Mortgage Bank Act (RAFilipino 3765).Savings Nevertheless, the conditional corrupt practices will not warrant an inquiry 1 HasSCRA there been substantial Purisima, 576 (1988). deed 161 of sale which the parties executed intocompliance bank deposits. Thus, exception of the aforesaid Act? 4 may mentioned that the total amount indicated not2alwaysIfbe applicable. Like other your answer to theany foregoing therein included such finance charges. exception, benegative, interpreted strictly. questionitismust in the what is the effect Exceptions 1, 2 and 5, on the other of the violation on the contract? hand, are 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.bank. b) State which of the commercial a) State which ofabove the four process of execution. The moment a notice of accounts are are covered accounts deemed by 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; Jurisdiction (1992) Deposits. Bank a subject of the litigation. Family Bank was placed under statutory receivership and subsequently ordered Responsibilities & Objectives of BSP (1998) liquidated by the Central Bank (CB) due to What are the responsibilities and primary fraud and irregularities in its lending objectives of the BSP? (5%) SUGGESTED ANSWER: operations which rendered it insolvent. The BSP shall provide policy directions in 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 of the BSP is to institutions performing similar 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?


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

was facedaccepted, with thegoods, dismal choice new of business either Gregorio account of the is an entirely fixtures or when without 2) If there the more, sale is aproceeds bona and transfer fidetoand arrange just is made dispute the a) by as the suspending its operations or selling its 53820 subject matter ofSin theTrading bulk sale. (Yao Ka v CA GR delivery to the vendor, amount andmortgagor, installation due as herof transferor electric your new or home assignor transaction. business. It chose the latter. Having struck a June 15, 1992 209s763) theater consumption who produces system. rate. You and Is know Angelene’s delivers you will acontention written receivewaiver a SUGGESTED ANSWER: Bulk Sales Law; Obligation of the Vendor deal with Company Z, a more viable(2001) entity statement valid? of the provisions on your credit of the card Bulk purchases Sales Law from No. Angelene’s only legal recourse in this BOD; Compensation (1991) A is a merchant engaged in the sale of X a engaged in the same business, Company from histhe creditors bank containing as shown an by option verified tostatement; pay case was to pay the electric bill under After many difficult years, which called for variety of goods and merchandise. Because sold its entire business to the former without only and a minimum b) by a vendor, amount, mortgagor, which is usually transferor or protest. Her failure to do so justified MECO to sacrifices on the part of the company’s of the economic incurred In fact, much fanfare or anycrisis, form he of publicity. 1/36 assignor of the total who price is anyou executor, were charged administrator, for cut the electric service (Ceniza v CA 218 S 290) directors, ABC Manufacturing Inc was indebtedness to X, Y and Z. Thereafter, A evidence exists that the transaction wasfinally your receiver, purchase. assignee Did Embassy in insolvency, Appliancesor public SUGGESTED ANSWER: earning substantial profits. Thus, the sold toentered B all the stock of goods furtively into to avoid the and prying comply officer with acting the provisions under judicial of the process, Truth in the sale There is no need for Embassy Appliances to in bulk of his goods to B. (2%). President proposed to the BOD that merchandise. a) What steps should A the eyes of Company X’s creditors. The creditor Lending or transfer Act (RA is 3765)? not coveredLaw by the Bulk Sales Corporation comply with theObligation Truth in of Lending Act. The SUGGESTED ANSWER: Bulk Sales Law; the Vendor (1995) directors paid a bonus equivalent to 15% undertake to effect a valid sale banks andbe other financial institutions sued Law. Athemust prepare net an income affidavitbefore statingtaxthe transaction a sale on installment basis.and SUGGESTED ANSWER: House ofis not Pizza (Pizza) is the owner 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, Embassy Appliances is a seller onchain cash basis. operator a asnationwide of pizza during theX preceding The President’s Law. Decide. (5%) BOD: Election of of Aliens members (2005) it sold its entire business to Company Z and Z, their addresses, the amount of their It isoutlets. the credit card company which allows House joined of Liquor (Liquor) is which a retailer proposal was unanimously approved by the A Korean national a corporation SUGGESTED ANSWER: furtively toand avoid thematurity. prying of its give credits their A should the theofbuyer to enjoy the privilege of paying the all kinds of liquor. BOD. A stockholder of ABCeyes questioned the is engaged in the furniture manufacturing Yes, the stockholder as a valid and legal creditors. Its manufactured goods are sold affidavit to B who, in turn, should furnish a House of Foods (Foods) has offered to price on installment basis. bonus. Does he have grounds to object? business. He was elected to the Board of ground to object to the payment to the wholesale distributors and notify dealers. copy to to each creditor and theThe creditors purchase all of the outlets, equipment, Directors. To complement itsLaw furniture directors of a bonus equivalent to 15% of the Bulk Sales sale of all or substantially all of its stocks, not to that there is a proposed bulk sale in order fixtures and furniture of Pizza. Foods also manufacturing business, the corporation company’s net income. The law provides in the ordinary course business, enable the latter to of protect their interests. offered toCovered purchase from (1994) Liquor all of its Bulk Law; alsoSales engaged in the Transactions logging business. With b) Suppose A submitted a false statement that the total annual compensation of the constitutes bulk sale. The transaction being a on the moderately priced stock constituting 50% Stanrus Inc a department store withthe outlets in of directors, the additional logging activity, can schedule of his creditors. What is the effect of in the preceding year, cannot bulk sale, entering into such transaction its total inventory. and Quezon City, is SUGGESTED ANSWER: Makati, Mandaluyong, Korean national still be a member of the false as requirements to Vendee B. such SUGGESTED ANSWER: exceed 10%statement of the company’s net income Both and Liquor have creditors. What without complying with the of Yes, just Pizza as long as sixty percent (60%) ofitsthe contemplating to refurbish and renovate BOD; Conflict of Interest (1994) Board of Directors? Explain. (3%) SUGGESTED ANSWER: Bulk Sales Law; Covered Transactions (2006) a) There was no substantial compliance (2%) before income tax (Sec 30 Corp Code). legal requirements must Pizza and Liquor the Bulk Sales Law, Company X violated said Board Directors aretoFilipinos. Corporations Makatiof store in order introduce the most If the vendee does have knowledge Pigger is in raising and of Pursuant to aInc writ of engaged execution issued the with the Truth in not Lending Act.byThe law comply with in (60%) order for byFoods to ABC law. that are sixty percent owned modern and state of the art equipment in the falsity of the schedule, the sale is valid. selling hogs in the local market. Mr. De Dios, Regional Trial Court in "Express Bank v. Don provides that the creditor must make a full consummate the transactions? Discuss fully. Filipinos can engage in the business of merchandise display. To carry out its plan, it However, if the vendee has knowledge of one of its directors while traveling abroad, SUGGESTED ANSWER: Rubio," the sheriff levied andlost. sold The at public disclosure of the credit statement exploration, development and utilization of intends sell ALL of must the existing fixtures and such falsity, the sale is voiddue because is in Pizzatoand Liquor prepare an affidavit met a leather goods manufacturer who was auction 8 photocopying machines ofincludes Donhe that the total amount the natural resources. (Art. Sec. 2, 1987 equipment (display cases, bad faith. stating the names ofXII, allwall theirdecorations, creditors, their interested in buying pig skins from the Rubio. Is the and sheriff's covered by the without principal the sale financial charges, Constitution) The aliens c) WhatANSWER: is the right creditors X, Y, and Z if A SUGGESTED furniture, counters, etc.) toofCrossroads addresses, theelection amounts of theirascredits and Philippines. Mr De Dios ofset upona each separate Bulk Sales Law? (5%) specifying the amounts due portion members of the Board Of Directors engaging No. The to sale comply by sheriff with the at public procedure/steps sale is not a required by failed Department Store. Thereafter, will buy their respective maturities. itPizza andand Liquor company started exporting pig skins to and thereof and would be insufficient in partially-nationalized activities is and allowed under question letter (a) sale bylaw a merchant. Section 8 of the Bulk b) Acontact violation ofthe the Truth in hereof? Lending Act install new fixtures equipment must submit saidand affidavit to Foods which, in his foreign but pig skins exported unacceptable. SUGGESTED ANSWER: in proportion to their allowable participation (1%) Sales Law itself provides that it has no will not adversely affect the validity of the continue operations. Crossroads wants to turn, should notify the creditors about the were not sourced ABC. fellow The recourse of X, from Y, and Z is toHis question the or share in you theANSWER: capital of about such entities. (Sec. ALTERNATIVE application to executors, administrators, contract itself. know from as counsel: 1) Whether the transaction which is to be concluded directors in ABC complained that he should validity of the allow sale from A refuse toorBpublic so as to creditors Stanrus. SUGGESTED ANSWER: 2-A, As Anti-Dummy far asof Law) Nothing is concerned, in the facts it receivers, assignees in insolvency, c) given It would Dana to payment intended sale isLiquor “bulk sale.” 2) How can it must with Pizza and Liquor. have this business to ABC. How would SUGGESTED ANSWER: recover the goods and merchandise I would decide in favor of Mr De Dios. ABC is to shows that more than forty percent (40%) of prepare anfrom affidavit stating the of all officers, acting under process. Bulk Sales ofdecide financial charges or, if The already paid, to protect itself future claims of names you on this matter? BOD; Capacity of Directors (1996) 1) Yes. The sale involves all fixtures and satisfy their credits. in raising and selling hogs in the theits Board creditors, of Directors their addresses, are foreigners. the amounts of engaged Law only applies to the sale or may encumbrance recover the same. Dana also initiate Rodman, thenot President of TF Co,course wroteof a letter equipment, in the ordinary local market. The company that Mr De their credits and their respective maturities. of a merchant of goods, merchandise or Dios criminal charges against the creditor. to Gregorio, offering to sell to the latter 5,000 trade and the regular prosecution of business Consumer Protection Law had set up was to engage, as it did, inthe the It must submit said affidavit to its buyer, who commodity done "in bulk" as defined by bags of fertilizer at P100 per bag.as Gregorio of Stanrus, Inc. (Sec 2 Act 3 952, amended) Bulk Sales Law; Exclusions (1993) export of pigs ANSWER: skins. There is thus no conflict ALTERNATIVE in turn, should notify the creditors about the Law itself. signed his conformity to the letter-offer, and c) (Per Atty Jomby Paras if u In the annual meeting of XYZ of interest between Mr. De Corporation, Dios andread ABCthe transaction which is about to be concluded Metric System Law (1994) 2) Crossroads should require from Stanrus paid a down-payment of is P50th. A few days But as far as Pizza concerned, it is not the Truth in theprovisions stockholders unanimously adopted a Pigger Inc so asclosely) to makeUnder the case fall within with his seller. Angelene is a customer ofcharges Meralco Electric Inc.covered submission of aBulk written waiver the Bulkcan the later, the Corporate Secretary of TFof informed Observation: Thethe term “conflict of by the Sales Law. So Foods resolution Lending proposed Act, by financial BOD to sell are valid, conflict of said interest situation under the Company (MECO). Because ofequipment the abrupt rise Sales Lawofby the creditors shown by Gregorio the decision of as their BOD not to doing law interest” isCode) susceptible to varied views consummate the transaction without and Dana may not refuse payment thereof. substantially all the fixtures and (Sec 34 Corp in Angelene complained and interpretations. verified to comply withGregorio the ratify thestatements letter offer.orHowever, since anything. Only criminal charges may be initiated used inelectricity and about rates, its business. The President BOD; Interlocking Directors (1995) with MECO insisting that she should requirements ofObligation the Law,(1997) that had already paid theBulk down-payment, TF is, Bulk Sales Law; ofSales the Vendor against the creditor. of the Corporation approached you and askedbe Chito Santos is Act a director of rates. both Platinum the former the The seller must notify creditors of the delivered 500 bags of his fertilizer which Gregorio sole proprietor of a medium-size grocery Truth Lending (2000) for charged legalinassistance to effect the sale. 1)However, What Corporation and Kwik Silver Corporation. He Angelene did not tender any payment. terms andengaged conditions of thethat sale,the and also, accepted. TF madein it clear delivery valid? 2) What are the two instances when shop, both wholesale and retail Embassy Appliances sells theater steps should you take so that the home salethe may When MECO’s employees served first 48owns 1%transfer, of the outstanding stock of before receiving from an theentirely vendee any part “lock, of should be considered new the sale, transactions, sells entire business that are capital designed and be components hour notice of Kwik. disconnection, Angelene Platinum and 40T Platinum plans to for thestock purchase price, deliver to such vendee a to mortgage or assignment of stockcenters of goods, transaction. Gregorio sought andThereafter, barrel” because of his plan customized as entertainment protested. MECO, however, did not implement enter into a contract with that will make written swornof statement of the merchandise, provision, or materials otherwise wares, enforcement the letter-offer. Is family. thereand a Is he emigrate abroad with hisnames consumers within the Kwik medium-to-high price SUGGESTED ANSWER: the 48-hour notice of disconnection. Instead, both companies earn very substantial profits. in the ordinary course of trade and the regular addresses of all his creditors together with than binding contract for the 5,000 bags of covered the provisions offor the Bulk Sales bracket. Most, if not all, of these packages No, there is by no binding contract(2000) the 5,000 Bulk Sales Law; Covered Transactions employees examined electric Theits contract is of presented atAngelene’s the respective prosecution the business of the vendor are the amount of indebtedness due to each (Sec fertilizer? Explain. Law? In the affirmative, what must be done are sold that on installment basis, usually by bags of fertilizer. First,inthe facts do not Company X, engaged the business of 1. In order the contract will not be meter, changed the same, and installed SUGGESTED ANSWER: board meetings of Platinum and Kwik. deemed to be a sale or transfer in not 2 Act 3952, amended) by thethat parties so as the to comply with the law? means of credit cards allowing a maximum indicate Rodman, President TF goods, Co, manufacturing and accessories, voidable, whatAngelene, conditions will have be of Yes. This iscar a parts sale of the stockofof another. Still, made no to tender of SUGGESTED ANSWER: bulk? 36 equal monthly payments. Preferred credit was authorized the BOD to enter into operates a factory with equipment, complied with? Explain. 1) The requirements of the Bulk Sales Law fixtures andbyentire business, not the in the payment. cards ofserved this type are those issued by banks, said contract ortools thatof he was MECO a second 48-hour notice machinery and forbusiness this empowered purpose. Thetoofdothe 2. If be these conditions are not met, how must complied with. The seller delivers to of ordinary course or trade which regularly hold mall wide sales blitzes so under some provision of the by-laws of TF disconnection on June 22, 1984. It manufactured goodsreceiving are sold wholesale this contract the may purchaser a list ofbe hisratified? creditorsExplain. and the gave vendor. Before from the to vendee participated in by appliance like Co. Thepart factsand dothe notpurchase alsothroughout indicate that Angelene untilnotifies 5 pm ofsuch Junecreditors 25,retailers 1984 distributors dealers the purchaser in turn of within any of price, the vendor aretime a buyer of a Rodman been to clothed with the apparent which to Appliances. pay. atAs noYou payment had been Philippines. Company Xsuch was among the theEmbassy proposed sale a stipulated in must has deliver vendee a written home theater center at Embassy Appliances. power to entities execute thesworn, contract agreements made, MECO cut Angelene’s electric service business adversely hit by thenames 1997 and advance. statement, duly of or the The salesclerk who isAngelene attendingcontends to you simply similar to it. Second, Co hasdropped specifically on June 28, 1984. that Asian business crisis. Its sales with said addresses of all TF creditors to whom swipes your credit card on the electronic informed Gregorio that it has not ratified the the 48-hour written notice of disconnection thevendor declinemay in carbesales and itstogether operatingwith the indebted, approval machine (which prints contract for the sale of 5,000 bags of fertilizer rule cannot be invoked by momentarily MECO costs escalated, and amount of while its creditor banks out your charge slip since you have unlimited and the delivery to otherthat financial institutions tightened credit), tears the slip from the machine, hands the same over to you for your signature, and


24 23 Page Page of 103 of 103 which Theto BOD invest of Xthe Co,funds acting of on

a

thestanding corporation. authority Robert of wants the stockholders the deadlock to Is a a) by-law his provision 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 said and 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 harm and prejudice be ANSWER: At the meeting of the BOD ofthat Kwik may to approve theSUGGESTED petition the SECisfor a declaration of to breakwith the deadlock pending 1. nullity Robert can petition the SEC to arbitrate caused by its competitors. position contract, Chito would haveThe to make sure of that of 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 a rehabilitation director incircumstances. a corporation whose business is in such as the right to vote and be SUGGESTED receiver orANSWER: a committee. competition with or is antagonistic to X voted upon inmanagement 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 of BOD the contract must qualifications be ratified by 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 (1996)33, incorporation and by-laws to BP add68)certain reasonable. (Secs. 32 and 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. while Raphael is a Director of NT Corporation. laws declaring a person employed in the as members of its Board of Directors. When On one occasion, NT Co, represented by service of a rival company to be ineligible for presented for approval at a meeting of its 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 whereby NT Co appointed A Ent elected, subjects him to removal, if he is also Marlo Enriquez brought suits against Bayan SUGGESTED ANSWER: as exclusive distributor of its products in a director in a corporation whose business is Corporation to question the in amendments. SUGGESTED ANSWER: (perNorthern Dondee) The SCIsreiterated theagreement case of Luzon. the dealership in competition with or is antagonistic to the Would the action prosper? Why? (4%) The dealership agreement is voidable at the it SMC vs. SEC decided in April 11, 1979, that 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 NTits Cointernal before itgovernment, was signed or, by-laws 'for 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 BOD at which Thatinthe presence ofinthe Raphael, the owner of A among themselves reference 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 32of Corp Code) legislative provisions absence positive 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 of that such approval was made under the a nullification of the offending disqualification SUGGESTED ANSWER: any specific enabling provision in its charter following conditions: 1) That the presence of provision, GK consults about its validity Close Corporations; Deadlocks (1995) The provision in theyouamended by-laws or in general law, such power of selfin the meeting of the BOD at which the Raphael, of A Ent,a joint venture under the Corporation Code of the Phils. What Robert, Rey the andowner Ben executed disqualifying any stockholder who is also a government being essential to enable the agreement was approved was not would your legal advice be? (3%) agreement to form a close corporation under director or stockholder of a competing corporation to accomplish the apurposes of necessary to constitute quorum forits the Corp Code the outstanding capital stock business from being elected to the Board of 2) That the vote of Raphael was not creation." suchthe meeting; of which 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 agreement fairof corporate act would need the 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 Chito Corp Code. approve the contract, would have to By-Laws; Validity; limiting qualifications of BOD By-Laws; Validity; limiting qualifications of BOD implemented and the corresponding close make sure that members (1998) members (2001) corporation was incorporated. After 3 years, Robert, Rey and Ben could not agree on the business in


26 25 Page Page of 103 of 103 stock Jennifer may include and Gabriel laborowned

the

performed controlling for stocks or services in MFF actually Co andrendered CLO Inc, notHere, be located. limitingThe theformalities price to be prescribed paid, when by the to the both corporation. family corporations. Due to serious lawright for the of first replacement refusal isofexercised, the “lost”to not more disagreements, Jennifer assigned all her certificate than 25% were parcomplied value, without with. Eventually any qualification X Corporation: Right of to Repurchase Shares; Trust Fund shares in MFF Gabriel,ofwhile Gabriel Co whatsoever, issued in substitution is not in the of the articles. “lost”It is merely Doctrine (2005) all his shares in CLO to Jennifer. assigned certificate, stated Cert in the of Stock By-laws. No 2002. Therefore Juan such Under what conditions a stock Subsequently, Jennifer andmay CLO filed a forthwith limitation transferred shall not for valuable be binding on the own shares? (2%) complaintacquire againstits Gabriel and MFF in the consideration purchaser. the new certificate toGui Jose whoInc v corporation (GoSock & Sons & Sy Huat Controversy; Intra-Corporate (1994) SUGGESTED ANSWER: SEC seeking to recover the corporate records IAC 19 Feb 87 knew nothing ofMin theRes) previous sale to Pedro. 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 by claims the BOD her for refused to turn over, and which remained thethreat conflicting of Joseto andexpel Pedro. The SUGGESTED ANSWER: to MFF. return to the misconduct controversy and between inefficiency, Pedro and Carissa Jose, should offered the offices of Is thereassets an intra-corporate BOD of X Co invited you to enlighten them on thecorporation Yes, there is an intra-corporate controversy capital, a in matter betosubmitted the SEC the regularstockholders in writing resign President and member controversy inrepresenting this case? these questions; viz: a)as Ifto a suit wereor totobe this case.may The fact that,its when complaint acquire ownthe shares only courts? Between Jose Pedro, whom all her corporation of theb) BOD, and selland tothe the company initiated in order to to resolve against Gabriel and MFF was filed with the should the therein for P300,000.00 Her offer to when there exists in the books unrestricted shares SEC (per 2006, RTC’s Jurisdiction), Jennifer corporation so recognize theas rightful earnings to cover the repurchase of resign was “effective as as soon my shares retained Closed Corporation; Restriction; Transfer of shares 1 ELIMINATE fractional shares arising and CLO were no longer stockholders of MFF stockholder? are fully paid.” At its meeting, the BOD shares. The purpose of the repurchase of out of stock dividends; did notmust divest the SEC (per 2006, RTC’s How would respond to the above shares be a legitimate business acceptedyou Carissa’s resignation, approved her (1994) Rafael inherited from his uncle 10,000 SUGGESTED ANSWER: 2 COLLECT or COMPROMISE an Jurisdiction) of its jurisdiction over the case queries? offer to sell back her shares of stock to the purpose of the corporation, such as to: 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 shares have a par value of of unpaid subscription in a delinquency sale; stockholder of MFF and the controversy arose a staggered basis. Carissa was informed of Trial Court where the principal office of the P10.00 per share. Rafael Sta.sold Ana23 to PURCHASE delinquent shares out of this relation. (SEC vnotified CA GR 93832 Aug the BOD Resolution in a letter-agreement to 3 Controversy; Intra-Corporate (2006) at P70.00 per corporation is located. The controversy that he was selling his shares during the sale; and 91; 201s124) which she affixed her consent. The What is andissenting intra-corporate controversy? between Pedro and Jose is not an intrashare. There being no or takers among the 4 to PAY withdrawing Company’s new President singed the SUGGESTED ANSWER: (8%) Carissacontroversy. wants to sue the Company to collect corporate stockholders, Rafael sold the same to his stockholders entitled to such payment under promissory After payment P100,000 the An intra-corporate controversy is a conflict b) If there is nonote. over-issuance of shares the balance. If you were retained by Carissa cousin Vicente (who not a stockholder) for the Corporation Code.is(Sees. 41 andor 82, company defaulted in paying the balance of The between stockholders, members partners resulting thewhere two-transactions Juan, Corporate Secretary refused to transfer as her from lawyer, will you file of the suit? A) P700,000. Corporation Code) the corporation, association SUGGESTED ANSWER: theP200,000. corporation should recognize both Pedro theand shares in 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 2006, thetoapplicable ruleJuan is that there is a corporation claim against for the ground that the same violated therelations by-laws.of the parties; or between such corporation, TRANSFERRED under Sec. 5.2 value of the sharesJURISDICTION which Juan sold to Jose. Alberto offered to buy the 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 a corporation sole? insofar as it concerns their individual While the by-lawsonly. of Sta. Ana provides that over all cases enumerated under PD 902-A price of P125,000 SUGGESTED ANSWER: It is further required that the“at right of first refusal can be exercised sec. 5 has been transferred to the Courts of thefranchises. Section 110 of the Corporation Code defines dispute intrinsically connected with the a price notbeexceeding 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 ofofsuch shares, the Articles of Regional Trial Court. purpose of administering and managing, In 1970, Magno joined AMD Co as aasJunior Distributing Corp., etand al. provides v.Exchange Court of Appeals, et al, Incorporation simply that the Is the Securities trustee, the affairs, property and Accountant. He steadily rose from the ranks G.R. No. 149351, March 17, 2004; Intestate Estate stockholders 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 formed chief of his Is Subsequently, howeverby the because Rafael bound by the pricing proviso under 112872, April 19, 2001). SUGGESTED ANSWER: is silent (2%) as to pricing. archbishop, bishop, priest, minister, rabbi involvement in certain anomalies, theorAMD theNo, by-laws of Sta. Ana Corporation? pursuant to Subsection 5.2 of the ANSWER: other presiding elder ofhim suchresigned religious from the SUGGESTED BOD considered Securities Regulation Code, the quasi-judicial Corporation: Issuance of shares of stock to pay for the Yes. In a close corporation, theand restriction as denomination, sect or church. company due to loss of confidence. jurisdiction of the Securities Exchange services (2005) Magno filed a complaint in the to Commission the transfer to ofhear shares has tocases, be stated/ Aggrieved, corporate Janice rendered some consultancy work for annotated the Articles of Incorporation, SEC questioning the validity of his includingin intra-corporate controversies, under XYZ Corporation. Herseeking compensation included By-Laws and the certificate stock. This termination, and reinstatement to his theSection 5 of Pres. Decree No. of 902-A, has been shares of stock therein. XYZ Corporation serves as notice to the person dealing with former position, with Can backwages, vacation expressly transferred to 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 circular is bound by by the Christmas plus moral andyour exemplary issued thepricing Supreme No,memorandum Rafael is By-laws. not bound by the pricing proviso SUGGESTED ANSWER: answer. (2%) stated in the damages, attorney’s fees and costs. AMD Court, only particularly designated RTC Yes, provided the approval of stockholders under the By-laws of Sta Ana Corporation. filed a motion to dismiss, arguing that the special commercial courts in each judicial representing two-thirds (2/3) of the Under the corporation law, the restrictions on 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 Ty v. G.R. No. a TRANSFERRED consultancy work has JURISDICTION already been under Sec. laws aswas wellaT.stockholder as inCourt the of certificate ofowned stock, Juan ofAppeals, X Co. He a granted? Explain. 112872, April 19, 2001). 5.2 of the SRC, the Commission’s jurisdiction "rendered" constituting "previously contracted otherwise, the same shall not be binding on total of 500 shares evidenced by Cert of 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 theAfter Code, pre-emptive rights of existing restriction shall not be more onerous getting paid, Juan indorsed and than general jurisdiction or the "in appropriate stockholders need not be respected granting thesaid existing stockholders theto delivered Certificate of Stock Noor 1001 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 such of the corporation and claimed that Under Section 62 of the Corporation Code, reasonable term or stated his Certificate of period Stock No 1001therein. was lost and consideration for the issuance of that, despite diligent efforts, the certificate could

30 29 103 28necessary 103 Mercantile Bar Examination Q & A (1990-2006) Page Page of 103 of 103 Page 27 Page of or of incidental Center, to, Pasig, MM while for its Mercantile Mercantile LawLaw Bar Examination Bar Examination Q &Q ALaw & (1990-2006) A (1990-2006) Top 1) Can IsGrade this the Foundation can 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 damages. required 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 ofcomments natural persons not lesstothan Whatnumber your and suggested Suppose that the by-laws of X Corp, a mining operate aare specialty restaurant that caters (5) but notproposed more than fifteen changes to the firm provides that “The directors shall(15), be thefive general public in order toarticles? augment its all of SUGGESTED ANSWER: legal age and a majority of whom relieved3)from for any contract funds? Oneall of liability the original trustees died are a) On the First Article, I would suggest of the Philippines, may entered into by the corporation with any form firm a andresidents the other two resigned because they that the corporate name indicate the fact SUGGESTED ANSWER: private corporation for any lawful purpose. in which the to directors immigrated the US. may How be willinterested.” the vacanciesof 1) This Yes, (Sec is the 36(9) same of the minimum Corp Code) andasmaximum long incorporation by using either Thus, A acquired claims “Toho which in the director BOT be filled? as the number amount ofCorporation” ofdirectors donation is reasonable. in a stock Marketing or “Toh Marketing overlapped with X’s claimsrequired and were corporation under Section 14(6) of the Company, Incorporated.” necessary for the development and 2) If b) the purposes The Third of Article the corporation should indicate are the Corporation operation of X’sCode. 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 of in by-law provision valid? Why? (3%) b) What (2006) maintenance the of theand library not merely and museum the region as or thePhilippines, 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 is in violation of Section 32 of the Corp residents of the Philippines? (2.5%) operate placeaofspecialty principal restaurant office. that caters to SUGGESTED ANSWER: c)general The Seventh Article must Code. the public. In such case, theadditionally action of Not all directors and incorporators need ALTERNATIVE ANSWER: b) A should account to the corporation for to be point out the number of shares into which the foundation will be ultra vires. 2) If the act of the corporation is justified by par residents of the Philippines. Under Section 10 thethe profits which he is realized from the as the capital stock divided, as well the secondary purpose of the corporation of thethereof Corporation Code, only majority transaction. He grabbed the business value or a statement thata said stockof which includes the act of operating a the incorporators need to be residents of the opportunity from the corporation. or a portion thereof are without(Section par value. restaurant, the foundation within23 itsof the provided in be Section 34,Philippines. (Sec Corp14 Code) & 15As Corp Code)will power to Code, do so. Corporation; Bulk SalesaLaw (2005) of Corporation; Commencement; Corporate Existence same only majority 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 remaining therefor is no quorum, of garments export. In the 1. manufacture When does aand corporation acquire ofBOT the Philippines. Corporation; Incorporation; Requisites (2002) the vacancies will have to be filled up in a corporate course existence? of its business, it was able to obtain You have been asked to incorporate special of the members (sec 29 a new SUGGESTED ANSWER: loansmeeting from individuals and financing company to be called FSB Savings Corp) institutions. However, due to the drop in the& Corporation; Power to Invest Corporate Funds for other 2. Mortgage CBY for &Bank, Co., Inc., with the that Inc. registered List the international documents demand garments in the Purpose (1995) Securities and Exchange Commission its meet you must submit to the Securities and market, Divine Corporation could not its Stikki Cement Co was organized primarily for articles of incorporation. It failed, however, Exchange Commission (SEC) to obtain a obligations. It decided to sell all its equipment cement manufacturing. Anticipating for certificate one reason or another, to have its by-laws of incorporation for FSB Savings & such as sewing machines, perma-press SUGGESTED ANSWER: substantial profits, its President that filed with, and registered by, the Mortgage Bank, Inc. (5%) machines, high speed sewers,proposed cutting tables, The documents to be submitted to the Stikki invest 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 andFashion c) quarry didmaterials business asproject, a corporation for sometime. A to Top Grade Corporation, to incorporate a new company to be called The transactions would constitute a sale of operations for limestone in the manufacture suitits was commenced by1)itsHow minority competitor. (5%) would FSB Savings &all Mortgage Bank, Inc., toorobtain the proposed investments? Explain. 2)you "substantially of the the continued assets of Divine of cement. 1) What corporate approvals stockholders assailing classify the transaction? the certificate of incorporation said Describe the procedure in with securing these Corporation complying thefor test votes are needed for existence of CBY & Co., Inc., because ofunder the SUGGESTED ANSWER: company, are: 1) Articles of Incorporation 2) approvals. Sec. 40 of the Corporation Code, the non-adoption and registration of its by-laws. 1. Treasurer’s Unless the power plant and the concrete Affidavit; Certificate of course transactions not being3)"in the (6%) ordinary Would the action prosper? Why? road are reasonable necessary to the Authority from theone Monetary Board of project business," and "thereby the of Corporation; Conversion ofbe Stock Corporation (2001) the 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 continuing not appearthe to be so), then the approval of the business or accomplishing ALTERNATIVE ANSWER: the SEC for whether or notof the proposed of the Reyes family engaged in the realand name said projects by a majority the BOD purpose which it was incorporated." It is a sale and transfer in bulk in has already been adopted by another estate business. Because of the regional the ratification of such approval by the contemplation of thedecided Bulk Sales Law. corporation, partnership association; crisis, the stockholders to convert stockholders representing atorleast 2/3 ofUnder the 5) Letter undertaking to change Sec. 2 of the Bulk Sales Law, a bulk sale their stock corporation into a charitable non- the outstanding capital stock would be As for the quarry operations for limestone, proposed if already includes anyname sale,association transfer, mortgage, or by stock and non-profit by adopted amending necessary. the same is an indispensable ingredient in another corporation, partnership assignment of all, or substantially all, of theor the articles of incorporation. a) Could this be 6) Bank certificate of deposit concerning the manufacture of cement and may, association; business orWhy? trade theretofore conducted by legally done? (3%) b) Would your X Company is a non-stock corporation? Why? the paid-up capital; therefore, be considered reasonably vendor, mortgagor, transferor, or answer be the same if at the inception, SUGGESTED ANSWER: 7) the SEC in or (2%) Letter necessary toThis accomplish the primary assignor. is authorizing exactly what happened a) Yes, it can be legally done. In converting 2) Divine Corporation sell the Monetary or case, its duly authorized purpose ofCan Stikki. only the the case at Board bar.In such ALTERNATIVE ANSWER: the stock corporation to a non-stock aforesaid items to its competitor, Top Grade representative to examine the bank approval of the BOD would be necessaryrecords 1. The majority vote of the BOD is necessary. corporation by a mere amendment of the 8) Fashion Corporation? the capital; regarding the depositWhat of theare paid-up (Sec 42 BPRegistration 68) The investment in a power plant project, articles of incorporation, the stock Sheet; requirements toa) validly sell the items? SUGGESTED ANSWER: b) aCorporation; concrete road project, c) quarry BOD & and Stockholders (1993) corporation isMeetings; not distributing any of its Explain. For such a transaction to be valid, it requires not only operations of stockholders. limestone thecontrary, assets Under to the the Articles of used Incorporation Oninthe ofthe Manila favorable resolution of the Board of Directors of Divine manufacture of cement, is within the express theCorporation, stockholders deemed to of have waived Industrial its principal place of but Corp, alsoare the ratificatory vote or implied power of the corporation, or at their business right to shall share bein in the 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) No, my answer will not holds be theitsstock, same. In a Manila. corporation annual (2/3) of The the outstanding capital as non-stock corporation, are notin stockholders’ meeting at members the Manila Hotel mandated under Sec.the 40 of the Corporation SUGGESTED ANSWER: entitled to share inmeeting thevoid profits ofof ManilaThe and its BOD atinacase hotel inthe 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 (Islamic failure to meet approvals. ALTERNATIVE ANSWER: of the BOD is as follows: Directorate of the Philippines v. Court of Appeals, profits belong to the corporation. place of meetings of the stockholders andIn Divine Corporation can1997) sell thebe items to its 1 a notice ofnon-stock the BOD should sent G.R. No. 117897, May 14, converting the corporation to a directors. 1) Who shall preside at the competitor, Top Grade Fashion Corporation. all thecorporation directors. should stock bynotice a mere meeting of theThe directors? 2)amendment Canstate Ting,the a of Divine Corporation must comply purpose of the meeting. stockholders’ meeting in Manila, theHowever, Articles of Incorporation, the non-stock stockholder, who didannual not attend the withvalidity Sections 3, 4 and 5 of the Bulk Sales 2 At the meeting, each of the project of resolutions question thethe corporate corporation is deemed to have distributed anpassed at Law, namely: (1)the deliver sworn statement of should be approved by a majority of the BOD meeting? 3) Can same stockholder such asset of the corporation – i.e. its profits, the names and addresses of all the creditors (not merely a majority present question validityofofthose the resolutions among its the members, without a atprior (Observation: The question is rather held vague to whom the vendor or mortgagor may the meeting) adopted by the BOD at the meeting in be dissolution of the in corporation. Under Sec more particularly question 1b. The question 2.b) The procedure securing the approval indebted together with the amount of Makati? 122, the corporation does non-stock not specify that the conversionmust is frombe a of the stockholders is as follows: SUGGESTED ANSWER: indebtedness due or to owing tocorporation. each of the non-stock corporation a stock dissolved first. The President presides over the meeting 1 1) Written notice of the proposed said The creditors; (2) apply the purchase candidate is likely to be confused because or investment of the directors, and the time if there and place is no of position the of the words “if to at the the inception, Co is a of mortgage money pro-rata Xpayment of nonstock corporation.” Hence, any answer stockholders’ Chairman provided meeting should in the By-Laws. be sent to If each there is bona fide claims of the creditors; and (3) along the same lineof should be treated with ByCorporation; Facto Corporation (1994) stockholder the position at his of place Chairman residence provided asin stock the make aDe full detailed inventory of the of liberality) A corporation was created by a special law. Laws, the Chairman presides over the shown on the books of the corporation and goods, wares, merchandise, provisions or 3) would you protect the interests Later, theHow law creating it was declared deposited meeting toof the addressee Directors (Sec in the 54 post Corp office Code)at materials, inthe 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 ANSWER: (10) days before transferring SUGGESTED SUGGESTED ANSWER: stockholders’ meeting shall be held in de facto corporation? 2 possession. At the meeting, each of the projects the that Divinemay Corporation has No.Considering A private corporation be created city or the principal office should bemunicipality approved bywhere the stockholders entered aCorporation deCorporation facto stage of dissolution only Code. Only public ofunder the the isthe located. For with this representing at least 2/3 of outstanding the ceasing of its operations, I would invoke corporations may be created under special purpose, also capital stock.the (Seclaw 42 BP 68)provides that Metro on behalf of the creditors protection law. Corporation: Sole Proprietorship Manila is considered a(2004) city orthe municipality. Where a the private corporation is business created under under Sec.principal 122 of Corporation Code, that YKS 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 Pasig, MM,with the damages holding against of the PWC 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 3) No. The law allows the answer, BOD to hold its ordered by plaintiff. In its PWCany (Sec 51the Corp) Under Bulk Sales Law, if the proceeds are Corporation; Dissolution; Methods of Liquidation (2001) amount can be paid to the stockholders. meeting anywhere in the Philippines. The denied on proportionately the ground, intertowards alia, that the not; liability applied X Corporation shortened its corporate life bywas holding of personality the BOD meeting innot Makati YKS has no to sue, being settlement of the accounts of the corporate amending its Articles of Incorporation. It has proper andand thethat validity of the resolutions incorporated, theofPresident of PWC debts, to have the sale the subject matters no debts but owns a prime property located adopted by the Board in that meeting cannot was not authorized to enter into a contract to Top City. Grade Fashion Corp., as being in Quezon How would the said property be questioned. (Sec 53 Corp code) with plaintiff byand thevoid" PWC and Board of Directors, "fraudulent obtain satisfaction Corporation; Nationality of Corporation (1998) be liquidated among the five stockholders of hence the contract is ultra vires. YKS Trading from the properties which are deemed to said What corporation? is itthe nationality Discuss two of methods a corporation of still replied that is aDivine sole proprietorship owned SUGGESTED ANSWER: be owned by Corporation in spite of liquidation. organized (5%) and the incorporated under the laws by delivery YKS, and that President of PWC had The prime property of X Corporation can be to the buyer. The creditors of ait foreign country, but owned 100% can by made 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 thatbeen he had to sign the property has conveyed by Under the control test ofthe corporate Yes the suit will prosper. As apay, solethe and if itauthority cannot contracts on behalf of the Board of Directors corporation to the five stockholders, by nationality, this foreign corporation of proprietorship, proprietor of YKS Trading creditors canthe apply for 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 fraudulently to act Where and sold. thethere personality (See People to v. remedies are available to Top Grade Fashion what briefly. (5%) in any two ofisthe following ways: 1) by for piercing the veil of corporate entity, that sue Mapoy, PWC. ItG.R. not No. necessary 48836, September for 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 the valuesCorporation of from their will follow the of the controlling other hand, PWC isnationality estopped asserting If the sale by Divine did not 2) SELLING THE PROPERTY to a thirdto person stockholdings; or members or stockholders, since the that its President had no authority enter obtain the required two-thirds (2/3) vote of and dividing the proceeds among the five will then be considered as one intocorporation the contract, considering that, in several the outstanding capital stock, then stockholders init had proportion theirthe Corporation; Non-Stock Corporation (1993) and theletters, same. of PWC's clothedDirectorate its to President . (Islamic of the transaction is void stockholdings; orauthority The AB Fashion Memorial Foundation was Top Grade Corporation can have the with apparent to deal with YKS Philippines v. Court of Appeals, G.R. No,of 117897, 3) after the determination of the value the Corporation; Articles of Incorporation (1990) incorporated as a non-profit, non-stock purchase declared void and recover the Trading. May 14, 1997) property, ASSIGNING orto The articlesbyofprice incorporation beestablish registered corporation in paid, orderas toTRANSFERRING and purchase well as damages THE PROPERTY to one stockholder with the in the SEC contained the following maintain a library and museum in honor of against the directors and provisions officers who obligation on the part of said stockholder to -- a) “First Article. The name of the the deceased parents of the incorporators. ALTERNATIVE ANSWER: undertook the transaction in violation of the pay theviolation other four stockholders the amount/s For of the Marketing Bulk Sales Law,for thea corporation shall Toho Its ofbe Incorporation provided law.Articles 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 Article. The principal office of such can be held criminally liable. In addition, incorporators, which authorized to admit Top new Corporation; Requirements (2006) III, in corporation shall be located inCorporation Region Grade Incorporation; can Divine for members. Thesue Articles of Incorporation also What is the minimum and maximum number such municipality therein as its Board of damages. of to thereceive Bulk Sales Law allow the Violation foundation donations of incorporators required to incorporate aand Directors may designate.” would render such a sale fraudulent from members. As of Jan 30, 1993, 60 stock corporation? void. Since Top Grade wouldby bethe compelled members had been admitted BOT. to return the goods to Divine Corporation,

32 31 103 34 103 33 of thereof, 103 Mercantile Law Bar Examination Q & A (1990-2006) Page Page of Page of 103 of Page Philippines stopping (BP payment 68). Mercantile Mercantile LawLaw Bar Examination Bar Examination Q &Q A& (1990-2006) A (1990-2006) SUGGESTED ANSWER: Incorporator Seldon was S acting was elected inofhis director capacity and asthe an b) Yes. are silent, Assuming Whenthe a corporation juridical that person the is deemed corporation has to a 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 totothat operate declare is simply dividends debased, evenprovides with under resulting depleted interests the corporation would be to

voting trust agreement is anpower agreementin writing emolument personal capacity. is a right Ford Expedition, Furthermore, no facts the capital, social 43. Since would humiliation, it hasthe the moral stockholders to damages declare ormay thebe emasculate the 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 positions its sisterof company XL Meat Products, The provision of the of Articles of Incorporation corporate that the action but Seldon he refused was by an obligations considered incurred an asset by the corporation. corporation? corporation. Filing such action asdictated a to return orderto vestin the lattervoting orthe other rights pertaining SUGGESTED ANSWER: Inc. SUGGESTED ANSWER: TAKE NOTE: In the case of FBN Inc. vs mentofst that at dissolution the assets of the to said shares for a period not exceeding five years upon 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 atutory the AMEC, fulfithe face ,ofthe SCcreditorruled that; January 17, 2005 corporation shall berefusal given to athe charitable stockholder collusion with a Turtle. substantial Havingequity acted share, into what he one of the protections extended by law conditions FoodsSuit: Corporation, and is not one of the banks tocontends grant does more loans, the following are Derivative Watered (1993) FBNI that AMEC is not entitled to corporation not prohibit the corporation he considered owns that portion as hisStock duty ofagainst the ascorporate an officerof assets ofthe the minority stockholders abuses and such powers provided for in Sec.Real 36 Estate of the tools to the stockholders to SUGGESTED A became a stockholder of Prime moral damagesdividends because is a corporation. fromavailable declaring dissolution. now corporation, in his ANSWER: possession. Seldon Is should the contention not be held of S majority. otheritbefore 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) corporation byPeople stockholders or approved the is owned by the corporation. The conditions Aofjuridical personof is generally notInc entitled toby Expedition The stockholders Power (PPI) PR Co owns a beach resort with several was given one share by another stockholder Name three (3) 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 legal personality separate two a special stockholders’ moral damages because, unlike natural cottages. Jaime, the President PR,not to 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 of its stockholder. meeting: a) Resolution increasing the person, it cannot experience physical occupied one of the cottages 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) to his payment oflong unpaid subscription by the What the but corporation owns is its own authorized capital PPI; and suffering or such sentiments as b) wounded purposes. After Jaime’s term PR meeting he continued to beexpired, aa registered pertaining shares as stock asof the voting ent. The The three (3) methods 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 feelings, serious anxiety, mental anguish wanted toofrecover the cottage. shareholder PREC. corporation may bepossession voluntarilyofdissolved are: SUGGESTED ANSWER: venting the law againstmonopolies period and mof from stockholder When herefused was even still how a director, substantial A discovered the equity cash payment, the shares the cites moral shock. Thenew Court Appeals Jaime to surrender the cottage, 1) Voluntary Dissolution where no creditors b) No. As a general rule,aythe or illegalcombinations in r estraintoftrade be stockholders orused Corporation; Set-Off; Unpaid Subscription (1994)free of that on Jan 5,that 1991, PREC issued share that stockholder proposed capital stock increase in favor Mambulao Lumber Co. v. PNB, et al.of to contending asisaowns. stockholder and former affected. This done by a majority forpurposes offraud." (section 59, 5th paragraph are the managers cannot beextended held solidarilyofthe liable Victor was employed inright MAIA Corporation. Hevote 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 to possess and in cases Corporation Code). Thus, the traditional concept of a of the directors, and resolution of at least for the obligations incurred by the subscribed toproperties 1,500case shares of corporation. thePREC. corporation SUGGESTED ANSWER: assisted in a court involving where the toin voting trust agreem primarily intended single out However, theent Court's statement Mambulao enjoy the of the Is 2/3 vote of stockholders, submitted to the corporation. Theto corporation has approved a separate contention not of correct. JaimeHe may at P100 share oran ais total The resolutions by voting trust a stockholder's vote from hiswere other rights as 1) Jaime’s CanSecurities Aper now bring action inP150,000. the name of the that foregoing "a right corporation may have a good Jaime’s contention correct? Explain. and Exchange Commission. and distinct personality from that ofm the own shares of stock in PR Corp but such such and m ade irrevocable forisaexecuted lim ited duration ay made an initial down payment of P37,500.00. stockholders representing 99% of the total corporation to question the issuance of the shares to reputation which, ifdevice besmirched, may also be 2) Voluntary dissolution where creditors pursuant to alatter in practice becom or ecapital a legal 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. Thisspecific is done by a petition for a loan the stockholders shares is effected subjectto the specific presumed to beunder acting in good faith in of Manager. possession of any property of the Because of his disagreement with damages falls item 7 of Article 2219 was Jimmy Morato who owned 1% of the The execution of a voting trust agreem ent, therefore, m thedissolution right of A towhich sue him in behalf of thewith corporation agreement provision ofthe dictum. voting trustagreem ent. an obiter must be filed the continuing the operation ofprovision the corporation. or a A definite portion thereof. ay create dichotom y between the equitable or expressly 1. AreaCivil the resolutions binding on the 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 ofthe corporate shares ofa The obligations incurred by the corporation the period Neither is he a co-owner of corporate corporation and its stockholders including payment of his unpaid salaries, his cost of authorizes the recovery of moral damages in name? Cannot the shares issued to be by a3) majority the members of the board of stockholder, on the one hand, and the which legaltitlealone theretois Corporation; Power toof Invest Corporate Funds inXanother isdissenting made arecases those oflibel, the corporation property. Properties registered in the name Jimmy Morato, the living allowance, his bonus, and of 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 of the corporation ownedand by it as an stockholder? (3%) reimbursement gasoline defamation. Article not to qualify upon full secretary, and upon affirmative vote MAIA Stockholders Corporation like admits Jaime that only itfrom own owed Victor of When may a corporation invest itsshares funds in of SUGGESTED ANSWER: corporation is already insolvent, the directors Morato? (2%) entity separate and distinct its representation expenses. whether plaintiff is a natural or juridical Derivative Suit: the Requisites (2004) paym stockholders representing at least 2/3 of the 1.officers No. The resolutions areof not binding on the P40,000. stock in but the told corporation. himor that this Such will shares be for applied ofany stock another corporation business or and become trustees stockholders. Therefore, a entofthe juridical person such as AA,person. a minority stockholder, filed athe suitbusiness 3) Dissolution by shortening of the SUGGESTED ANSWER: outstanding capital stock. corporation and itsloan. stockholders including to the do not unpaid represent balance specific of his subscription corporate property. in other purposes? anda assets of the corporation for thefor benefit corporation can validly complain libel or

against BB,Separate CC, DD, and EE, the holders corporate is done by amendment Corporation; Juridical Personality (2000) of were A corporation may This invest in no another Jimmy Morato. While these resolutions (Rebecca v CAits GRfunds 100866 Jul 14, the 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 corporatein 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. Victor questioned the set-off. 1)for se, approval, the law implies a case, Corporation; Voting Trust Agreement (1992) The complaint averred, inter alia, that MOP manufacture computer media accessories; Richard owns of the shares the said it set-off was 90% organized whenof the case, does not exist. May the unpaid subscription evidence ofofan honest mistake or the want of which A MAIA distressed company executed 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 SEClibeled (Now RTC) with victor’s claim for salaries? 2) Would your character reputation of thethe party trust agreement for a period of three years behalf and for whose benefit the derivative commercial building by X. Being GOM represented byindeed Richard as President BOD and such approval is there ratified by the to only declare the 2 owned resolutions, as well as a any and answer be the same if been goes in mitigation of damages. Neither overGeneral 60% of its outstanding paidahad up shares suit is brought. In their capacityenjoyed as members SUGGESTED ANSWER: start-up company, Marulas some and Manager executed contract toin stockholders representing at least 2/3 of the all actions taken BOD thereunder, for the unpaid subscription? in such a case is by thethe plaintiff required tonull a call favor of acannot bank tosetoff whom it was indebted, with of the Board of rent Directors, the majority 1) No. MAIA unpaid leniency invoid. its payments; butdamages after three sell a subdivision lot in the favor of Tomas. For outstanding capital stock. Written notice of the and introduce evidence of actual as a the Bank named as trustee. Additionally, the stockholders adopted a resolution subscription with Victor’s claim salaries. Corporation; Validity Corporate (2002)Marulas years, X put precedent a stopofto it and asked failure of GOM to develop thefor subdivision, proposed investment and the date, time and condition to theActs recovery of some Company mortgaged allnot its properties to the authorizing MOP Corporation to withdraw the unpaid subscription yet dueat as which president manager, Y,acts whoare is aare The Which ofand the following corporate Tomas filed an action is for rescission and place of the stockholders’ meeting damages. Ingeneral this case, the broadcasts SUGGESTED ANSWER: Bank. oftaken the insolvency ofthe the suit. Pursuant to said resolution, theyourrentals there is noBecause call. stockholder, tose. pay back valid, void, or voidable? Indicate answer damages against and Richard. proposal will beGOM up must beWill sent to SUGGESTED ANSWER: libelous per Thus,the AMEC is entitled to such The action may prosper against GOM but Corporation; Recovery of Moral Damages (1998) 2) Yes. The reason is that Victor is entitled to Company, the Bank foreclosed the corporate counsel filed a Motion to Dismiss in Juridical Personality (1995) amounting toSeparate a hundred pesos by the paragraph number of theor to action prosper?(Sec Explain. each stockholder. 42 Corp Code) No.Corporation; Allwriting thedamages. requisites for athousand valid derivative moral definitely not against Richard. Richard has a the payment of his salaries which MAIA has In a complaint filed against XYZ Corporation, mortgaged properties, and as the highest the name of the case. MOP Corporation. Should Ronald Sham doing business under thethe name vacate the premises thecorresponding endwas of the month. query, followed byat your suit exist in this First, AA exempt legal personality separate andofdistinct from rightTrading to acquired withhold in payment unpaid Luzon Corporation alleged that its of bidder, said properties and assets motion be granted denied? Reason briefly. of SHAMRON Machineries (Shamron) sold Marulas neither paid its debt or nor vacated the answer as “Valid,” “Void,” “Voidable,” as to no from exhausting hisorremedies within the The three-year period prescribed in that of GOM. If he singed the contract to To do soManager, would violate President & General who Labor is also sell, a the the Company. (5%) Turtle Mercantile (Turtle) a farm subscription. premises. sued Marulas and Y make forisdiesel collection the caseX may If your answer “Void,” corporation, and be. did not have to a Voting Trust Agreement having expired, SUGGESTED ANSWER: he (Apodaco did so as President and General vthe NLRC 172 S 442) stockholder, Laws 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 demand on the Board of Directors for“Voidable” thecosts Yes, the suit will prosper against Marulas. Itand Corporation; company the turn-over Stock Corporation (2001) Manager of demanded GOM andserious not in his personal social humiliation and anxiety as a and 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 aofrecreational club which was of ofXYZ capacity. Mere by Richard 90% the ownership tortuous acts favor of Shamron. A week later, result Against Y?in (5%) present or complied with tothe make thetheX, futile, since the directors who comprise as P50th lessee, from the owner of building, including the management and operation In organized its counterclaim, to operate XYZ a golf Co claimed course for to its have of the capital stock of GOM is not of itself of foodsold business, entered a contract with Corporation. the tractor to Briccio Industries corporate act valid. (5%) 1)into XL Foods majority (namely, BB, CC, DD and EE) are the as Turtle lessor. the Company, claiming that the Voting suffered moral damages due to under besmirched members with an original authorized capital sufficient ground to disregard his separate its President Jose Cruz, whereby the latter P60th. Briccio discovered Corporation, which engaged in the But(Briccio) ones the guilty suitoffor against the wrong Yiswill complained not prosper. of. fastY, asthat stock Trust Agreement, the Bank was constituted reputation or goodwill as a result of Luzon of P100M. The articles of incorporation legal personality absent a showing, for supply corporation with meat Second, AAand appears totractor be stockholder at its the the would engine ofgeneral thethe was reconditioned president manager, and also as trustee of did the management andor operations Trading Co’sthat complaint. 1)maliciously May for Luzon nor the by-laws provide example he not acted in bad and poultry time alleged misappropriation of sothe he refused torequirements. payCreative Turtle. As a result, Dick Separate Juridical Personality (1999) Does the demand of the Company tally stockholder Marulas Technology, theCorporation; allegations of the complaint? of the Company. Trading Co recover damages based on SUGGESTEDof ANSWER: distribution of dividends although there is a with faith (EPG Const Co v CA GR 103372 Jn 22,92 corporate funds. Seldon ordered “Stop Payment” of the check As a concept result of perennial business losses, a the2) of Voting Trustthe Agreement? Inc., has a –sued legal personality separate and (2%) May XYZ Coa recover moral Voidable Aiscontract of the corporation with provision that after its dissolution, assets 210s230) Shamron Turtle and Dick Seldon. Third, the suit brought on behalf and for SUGGESTED ANSWER: issued to Shamron. corporation’s net worth has been wiped Explain briefly. SUGGESTED ANSWER: distinct that of corporation. The damages? (3%) one orfrom more of its directors orIntrustees or shall bedemand given to of a charitable corporation. Isout. Shamron obtained a the favorable judgment the benefit of MOP Corporation. this The the company does not tally No. corporation, being an artificial person SUGGESTED ANSWER: InAa fact, it iscorporation? now in negative territory. liability of co-defendants corporation is and that of Seldon the officers isthe voidable, at the option of such “XY” stock Give reasons for Trust holding Turtle Dick Conmart (Phils.) Inc. held v. Securities and Exchange connection, it was in with the concept of a Voting XY is a has stock because did itorisnot which nocorporation feelings, emotions senses, Nonetheless, the stockholders like to corporation and not32, that of its officers and corporation (Sec Corporation Code). your answer? (5%) that to grant Commission, 198 SCRA 73liable. (1991)Comment jointly and severally on the Agreement. The Voting Trust Agreement organized acannot stock corporation and do there andgivewhich experience physical up.as Creditor-banks, however, notis stockholders who are not liable corporate SUGGESTED to the decision corporation ofANSWER: the Juridical trial concerned court. Discuss thefor right fully. of merely conveys to the trustee the right to Corporation; Separate Personality (2000) no prohibition in its Articles of Incorporation suffering or mental anguish, is not entitled to share the confidence of the stockholders and liabilities. 2) trial The of Directors of at XLthe Foods The court erred in the holding Dick Seldon, withdrawing orBoard dismissing suit, ALTERNATIVE ANSWER: vote the shares of grantor/s. The Nine individuals formed a private corporation or its by-laws for itmore to declare moral damages. refuse to grant loans.dividends. a) What tools are Corporation declared and paid cash President and GM stockholders of Turtle, jointly instance of the majority and and consequence of foreclosure the replenish capital? (3%) pursuant to the provisions of the Corporation When a corporation is organized as a mortgaged stock available to the stockholdersofto dividends approval of the severally liable with Turtle. In issuing the directors whowithout themselves are the persons properties would be alien to the Voting Code of the corporation and its articles of Incorporation Trust stockholders. checktoissued alleged have to Shamron and, thereafter, Agreement and its effects. or By-Laws

38 37 36 Mercantile Bar Examination Q & A (1990-2006) Page Page of 103 of 103 Page Page of of 103 Code. acquires, As35 shortened, in103 violation the of Mercantile Mercantile LawLaw Bar Examination Bar Examination Q &Q ALaw & (1990-2006) A (1990-2006)

his corporation duty, interest continued adverse itsinvestments. business to the operations corporation A PRIVATE No. from 2. There retaining Opening CORPORATION is no surplus offices need by for profits is one theformed inabsorbed excess for of nullifyan the questioned Would Dividends; Declaration ofthe Dividends (1990) Sometime 3. Participating in April 2004, in theMalyn management, learned about until in May respect 30, of 1997, any matter last which day ofhas 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? Fort Patio supervision Cafe or control located of in domestic City entity At SUGGESTED least 2/3 of the stockholders ofthere Solar 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. Are there into when a corporation Corporation, upon at the the that 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 misappropriation of otherwise corporate 5. Appointing representatives or shall service not contracts be heldknown liable for not declaring recommendation ofmostly the BOD, declared a filed 50% new corporation Patio, mustalleged nature account but for profits money which claims general automatically good or dissolved welfare. and Theas true itsFort assets test is and theInc., varying funds. And that filing such action SUGGESTED ANSWER: distributors, operating under the control of dividends? (3%) stock dividend during their annual meeting. where both Schiera and Jaz are directors. by would creditors, have none accrued of which to the was corporation. expected toas a purpose ofare liabilities theacquired corporation. and If assumed the corporation by the The instances when a corporation shall not derivative suit even by a lone stockholder 2) Pending approval of the merger by foreign who domiciled in the notice of the annual stockholders’ Malyn also found thatis Jaz, on The be Equity completed imposes or resolved liability within upon him five not years to dealis is the surviving created corporation. forentity, political orSchiera public and purpose be held liable for not declaring dividends one ofdid thenot protections extended by lawa to the SEC, ofmay the surviving corporation Philippines or who stays in thehad country forof a a from meeting mention about behalf Patio Investments, obtained forMay his own 30, 1997. benefit. (Sec.anything 31, Corporation connected with the administration are: If the minority Under creditors Sec. stockholders 34 had of sought the Corporation against your professional abuses Code where of the already institute suits to collect allIf for period periods at PBCom least 180 days in loan ofor P500,000.00 from Bank, stock dividend declaration. The matter was Code) government, then it totaling is a public corporation. majority. Nevertheless, Gina must first a director, at that by virtue about of whether his office, or not acquires their for 1) by definite expansion receivables due of to opening the absorbed corporation any calendar year. taken up time only under the item “other the purpose Fortcorporate Patio Cafe. This help not, itwhen is a justified private corporation although 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 merger does not become effective her what suit be consider in court. when the corporation is prohibited under any loan belong to would the corporation, have been your thereby advice? obtaining (3%) Senwa, a stockholder, who received his copy and personally guaranteed theInvestments corporation belongs to the State. A public by 1997, 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 such de facto approval by the SEC of the merger, the before the Regional Trial Court of Makati City he must account to the latter for all whether local or foreign, from 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 legalsuch personality Distinction; Stock vs.his Non-Stock (2004) against Schiera and Jaz,Corporation alleging that the twohas not without its or consent, and consent profits declaration. by refunding thedesires same, unless his act dividend He to haveis the must be organized under the Corporation SUGGESTED ANSWER: existence of GHQ Corp. The Corporation SUGGESTED ANSWER: Explain briefly. (2%) with respect to receivables due to the Distinguish clearly a stock corporation from directors had breached their fiduciary duties has been ratified by a vote of the yet been secured; or 3) when it can be clearly shown stock dividend declaration cancelled and set Code. Aactually DE FACTO CORPORATION is the one which Inot will not accept the case. Sec of Corp dissolved upon the43 expiration of absorbed corporation. a non-stock corporation. by misappropriating and under assetsspecial of that such retention ismoney necessary stockholders owning or representing at least aside, and wishes to retain your services as a a actually exists for all practical purposes as 3) PatioAInvestments case was filed against a customer Code states that no stock shall be SUGGESTED ANSWER: corporate term. There is dividend still the period for in the operation of Fort to such its (2/8) of the outstanding capital circumstances obtaining in the corporation, as two-thirds lawyer for the purpose. Will you accept the corporation but which has legal A stock corporation one thatissued has 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 Jaz when there (5%) is need for special reserve for probable stock. case? Discuss with reasons. NOTE: Under Section 122 of the C orporation C ode, a corporate existence as against the State. It is stock after divided dateinto of the shares merger and is agreement. authorizedThe to stockholders representing than 2/3 corporate opportunity? Explain. XYZ Corporation entered not intoless a contract of thethe principle of contingencies. corporation whose corporate existence is terminated in essential to the existence of a regular de facto SUGGESTED distribute toANSWER: thethe holders of that suchwhile shares customer raised defense the of the outstanding capital stock at of with ABC, Inc., piece anylease manner continues to be aover body a corporate forreal three Yes. Although Malyn refused the business corporation that ofthere be (1) aforvalid law dividends or as allotments the of surplus receivables of the of date the profits merger or special duly called that estate for meeting adissolution term 20 years, renewable for (3) years afterits forpurposes ofprosecuting Dividends; Right; Managing Corporation (1991) before, nevertheless, using the resources and under which a corporation might on the basis agreement was of transferred the shares to held. the All surviving other andofittothe andanother defending suits by andprovided againstitand to le enable se be purpose. Conformably with Sec 50 20 years, that XYZ's (3) actual use or exercise in good faith close its ABC Management Inc. presented to the DEF credit standing of receivables the company, Schiera and incorporated, (2) a bona fide attempt to corporations are non-stock corporations. corporation, those which were Corp Code, aterm written notice of in the holding of of corporate 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 law. meeting Four years after the shareholders term of XYZ culminating I will accept the case. The problem does Under circumstances may corporation Management As ana pursued incentive, have been successfully inABC the Yes, to could be what owned byContract. the absorbed corporation. willand suffice. The notice itself specified Corporation expired, but 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 compensation that The name ofin the thewould closebe corporation.to the More termination ofthe life of a contract corporate disposition entity does These receivables distributed said subjectby matter. allowed the lease for the persons is also assume necessary tofor act declaration a corporation SUGGESTED ANSWER: notby itself cause the extinction orthe dimas inution of the of and ABC would beSchiera entitledand to 10% of any stock importantly, Jaz guilty of which stockholders conformably with theare dissolution extension of the lease period, XYZ to Corp. No diverting form of dividends can be declared and knowing it to be without authority do so. In rights and liabilities ofsuch entity. 27 If the three50% stock dividend. distribution SUGGESTED ANSWER: which DEF may 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 a trustee or Dividends; Declaration of Dividends (1991) of its rem paid by ANSWER: the corporation except from SUGGESTED this case, thoserule, persons will be liable 1) As a general A cannot bring a lifetime of the Management Contract. Would corporation to another entity, equivalent to Corporation Code? Discuss the meritsby of the this option to extend the lease. ABC, Inc., receiver having been expressly designated aining by the Whether the receivable was incurred During the annual stockholders meeting, unrestricted retained earnings appearing on 2) Was proper for MalynIf not, to file a general partners all debts, liabilities and derivative suitthatperiod, in forthe name the you approve such provision? what fraud and baditof faith. ed to of so arguing corporation, within the board assets. of directors (or argument. (3%) objected toincurred the proposed extension, absorbed corporation before or 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 for injunctive damages or arising as a result of corporation concerning an act that took continue as trustees) itself, m ay be permi Itmay, would you suggest as an alternative? that since the corporate life of XYZ Corp. had Irelief? would not approve a proposed stipulation in SUGGESTED ANSWER: merger agreement, or before or after the a part of the corporation’s unreserved earned proportional to all stockholders on the basis "trustees" Explain. theirbefore actions.he became a during the place stockholder. expired, itDividends could no opt to renew Although itstock is a close corporation, Distinction: vs.longer Profit: Cash bythreelegal Dividend im is vs.the the management contract that the managing approval thereof by theby SEC, the said surplus be if capitalized and stock dividends be of 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, as an additional compensation receivable would still belong to the surviving distributed to the stockholders, arguing that 2) No. In a derivative suit, the action is property dividends, can be declared from continuing one, A may do so. com plete appointa the lapse of its corporate term it still has the juridical personality still apply. The business Distinguish dividend from profit; cash to it, should be entitled to the 10% of any corporation under Sec 80 of Corp. Code as owners ofbrought the company, the stockholders, instituted/ in the name of a such unrestricted retained earnings bystock a the Foreign Corporation; “Doing Business” intrustee the no ora right to renew the lease because quo of the corporation is still separate and distinct dividend from stock dividend. (2%) dividend that may be declared. Stockholders which does not make any distinction as to by a majority vote, can do anything. As corporation and reliefs are prayed for therein proper resolution of the Board of Directors. corporate receiverwh Philippines (1998) SUGGESTED ANSWER: warranto proceedings for involuntary from the proprietary interests of its are the only entitled receive stock o stockholder. m ayyou rule the assets and ones liabilities of to the absorbed SUGGESTED ANSWER: chairman of the meeting, how liquidation. would for theiscorporation, by a minority Stock dividends, however, must be 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 (Nielsen & Co v Lepanto Mining 26 s dividends corporation that the surviving corporation on the motion to declare stock dividends? The law does not qualify the term “minority” by a proper resolution of the Board of “doing business in the Philippines?” (3%) COLA As the chairman of the meeting, I would thatperiod. return of capital after deducting allthe corporate Effects; Winding Upbusiness Period of athat Corporation by theof Office of the Solicitor General. Isrule the since the opportunity and the in meritorious. on ruling of I from would add the (1997) unsubscribed 569) would inherit. terms 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 isthe action inbe behalf of S, to INC., vs.“doing earnings and ratified by stockholders A foreign corporation deemed declaration of209 stock dividends should initially accumulated profits, fromXYZ year towas year, continues to be a body corporate for three briefly. (5%) THE COURT corporation, the to sueof and CFI of Rizal, SCRA (1992). Corp. issued for cash orstanding property or for services corporation. (SMC v Khan 176 SCRA 448) representing at least two-thirds (2/8) the to the business inby the Philippines” ifthereafter it is continuing be taken the BOD andare to be the corporate retained earnings OF years for rendered purposes of of prosecuting and 3) represent No. WATERED SHARES those sold by recover remains with the close corporation dissolved ipso facto upon the expiration of its already constituting a demandable outstanding capital stock the corporation, the body or substance of the business or APPEALS, concurred in by a 2/3 vote of the Dividends: Sources of Dividends; Trust Fund Doctrine from which the dividends can be declared. defending suits by and against it and of the corporation for less than the par/book and (Sec not with Malyn. Therefore, it is original for term. It ceased to be[G.R. a body debt Corp Code). Ascalled an alternative, I obtained in 62 a meeting duly for thestill enterprise which itCorp was organized. It is No.an CASH DIVIDENDS represent stockholders (Sec 43 Code). There is actual no (2005) enabling it to settle and close its affairs, value. In the instant case, it will depend upon necessary to file a derivative suit on behalf of corporate for the purpose of continuing the would (Sec. suggest the managing 145855. purpose. 43,that Corporation Code) corporation the intention of an entity to continue the distribution of accumulated profits to however, against the From funds are cash and stock culminating in the finalgiven disposition and thebusiness value of services rendered in relation to the November the what close corporation, although the prohibition, for which it was organized, except should instead be a net profit body of its business in the country. The grant as ashares. return on their 3) Assuming that awhy. derivative suit3 is proper; stockholders’ resolving recommend to the dividends sourced? Explain 24, 2004.]) distribution of its remaining assets. Ifunder the thestockholders total par value ofconnected theto proceedings would governed the only for purposes with its winding participation and, if itbe later so (2%) 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 theRuleslife BOD it Close consider a declaration of stock Derivative Suit; Corporation; Corporate year extended expires without adue trustee Interim of dividends Procedure forbe Intra-Corporate upthat orcorporation liquidation. Extending the lease is not convert the amount thatsuit? may thereby Dividends; Declaration of Dividends (2001) foreign to a domestic All cash and stock are always paid the pendency of the Explain. Briefly during discuss the doctrine of corporate requires only the approval of the majority dividends for concurrence thereafter by the of Opportunity (2005) or to receiver being designated by the Disputes. an act to for wind up or liquidate XYZ Corp.'s equity or shares of stock at noearnings less than corporation every purchase shows an For the past three years of its commercial SUGGESTED ANSWER: out of the unrestricted retained the Board ofof Directors in a proper resolution. opportunity. (2%)that period and by that Effects; Merger Corporations (1999) stockholders. Malyn, Schiera and Jaz the directors of corporation within Foreign Corporation; “Doing Business” in the affairs. ItX, isan contrary toare the idea oftransfers winding the par thereof. Yes, forvalue inANSWER: spite of the dissolution of any intention STOCK to DIVIDENDS continue transacting are simply with the of operation, oil company, has been SUGGESTED (also called surplus profit) of the corporation. Two corporations to merge. They then Patio Investments, a agreed close corporation formed time (expiry of the 3 year extended term), Philippines; Acts or Activities (2002) up the affairs of the corporation. corporation, remains a no juridical person for In brief, the itdoctrine a director, SUGGESTED ANSWER: earning latter. retained tremendously earnings to in excess capital of stock, 100% thereby of If corporation hasdisqualifies executed an agreement specifying the to run the Patio Cafe, an al fresco coffee shop the the corporate liquidation is notunrestricted yet over, Give at least three (3) examples of the acts or of The liquidation can continue with the purpose trustee or of officer dissolution from for appropriating three years for from his increasing theIn number ofPatio shares of the stocks the corporation’s paid-in capital. All of retained earnings, the dividends wouldofhave surviving corporation and the absorbed in Makati City. 2000, Cafe began how, if at all, can a final settlement the activities thathave are specifically identified under winding up.of The members of the can thesourced date dissolution, precisely one of is the personal benefit athe transaction orBOD opportunity each stockholder with no required cash stockholders been claiming thatreverses, they to be from capital stock. This corporation. Under the agreement of merger experiencing financial corporate affairs be made? our foreign investment laws as constituting continue with the winding of the corporate purposes that pertains is to to allow the corporation, the winding-up and of which its contribution. A of two-thirds vote the share in the profits the corporation by of way illegal. It violates the "TRUST FUND dated November 5, 1998, the surviving consequently, some of the checks it issued to “doing business” in the Philippines (3%) affairs until final liquidation. They can act as affairs, under the including duty of the loyalty termination he should of first pending bring 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; Minority Stockholder (2003) trustees or receivers for this purpose. suits. to the corporation for its or exploitation. the Board of Directors, is informed needed toMalyn declare to lift its finger. Isthe Corporation Xor guilty of 1) stock of the corporation is ause trust fund to be In October 2003, Schiera Any three (3) of a) the following acts and liabilities ofvs. absorbed corporation. bounced. SUGGESTED ANSWER: Effects; Winding Up Period of a Corporation (2000) Gina Sevilla, a minority stockholder of Bayan Distinction; Private Public Corporation (2004) violating stock dividends. a law? If in the affirmative, state kept intact during the life of the corporation Must the happen corporation undertake that she found aabsorbed location for aabsorbed second cafe in activities What would constitute “doing toviolating the business” in the43 Corporation X is guilty of Section 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 under ourThis foreign investment G.R. 77860, November 22, 1988; and of corporation? Corp Code. provision prohibits Articles enforcement of Incorporation of the were duty of of GHQ loyalty Corp of Philippines theNo. company’s capital if not, ultra vires athe public corporation your answer. (3%) Explain (Commissioner of InternalRevenue corporation. dire financial condition of the corporation. 1. Soliciting orders laws: Steinberg v. Velasco, G.R. No. 30460, March stock corporations SUGGESTED shortening corporate its directors corporate and life108576, toofficers. onlyJanuary 25 When years indeed, made in G.R. violation of law. She filed SUGGESTED ANSWER: ANSWER: v. Court of Appeal®, No. 20,a a 12,1929) in accordance director, trustee with Sec or 120 officer of the Corp attempts to derivative suit seeking to 1999; Boman Environmental Development Corp. acquire or v. Court of Appeals,

the SUGGESTED ANSWER: deed of assignment to the proper corporate specific to always substantial c) On No. 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 record would to and the pay infor the What majority is theprovision doctrine stockholders of law, "piercing can the veil muster of d. No, the stockholder may exercise Chattel Mortgage vs. After-Incurred Obligations (1999) for action. officers for registration with the request acquisition more assets like acquisition a of personally answer for the corporate thus stockholder the the General be corporation. difficult Manager can pay for of the Pablo the unpaid Paje to convincingly Multi subscription Farms corporate 2/3 vote, entity?" would you Explain. allow thenot majority right because the matter that he SUGGESTED ANSWER: Mercantile Inc vcorporation's CA GR 111008, Nov 7, 94 (Tramat the transfer in the stock and company car, sold stocks, house, machinery orstockholders Onappraisal December 1996, Borrower executed a assert had Co, resigned notthat yet expired. the as GM incorporation and to of the the family to1, remove the one director The doctrine of "piercing the veil of corporate 238s14) dissented from is the not assigned one of those where SUGGESTED ANSWER: b) Pre-emptive business; right andof stocks must be exercised transfer books of shares, chattel mortgage in favor of the Bank to the corporation corporation his was shares intended merely in the as a case in representing the minority? No. I will not allow the majority stockholders entity," is the doctrine that allows the courts Liabilities; Stockholders, Directors, Officers (1997) right of appraisal is available under the Stockholders: Preemptive Right (2004) 3) to have extra with which to cover or secure theshare Articles ofvalue Incorporation cancellation the stock in PX's a loan ofofP3M. In duecertificates time the loan (Tan Boon Bee v of accordance corporation “estate tax for with P300th, planning.” the book 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; Jurisdiction; Transferred Jurisdiction (1996) stockholders may, by a 2/3 vote, remove a personality of a corporation and treat the has an unpaid subscription of P100th, dividend. E Co sold its assets to M Inc after complying domestic corporation, aare resolution Incorporation and thepassed By-Laws silent, certificates in the names of his wifethe and hisB’s obtained another loan for P2M which down payment; b) P100th on or before 31 the 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 Sales Law. authorizing additional issuance of 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, be Stocks; Sale, Transfer of Certificates of Stock (1996) thereby make the individual actors personally nominal but fully paid up shares and Subsequently, one ofmay the creditors Co the stocks without notice nor approval of the stockholders exercise the right. the Corporation request on theis a that which secured denied the firstthe loan. P100th on or before 30 Sep 1989. Aof E SUGGESTED ANSWER: Pre-Emptive Right vs. Appraisal Rightit, (1999) exercised so asanother to deprive the minority of Arnold has in his name 1,000 shares of the For the loan, Borrower merely liable forsecond corporate liabilities. The fiction of director and officer. XYZ becomes insolvent, tried to collect the amount due but found stockholders. DX, a stockholder, objected to ground that 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 corporate delivered a identity promissory is disregarded note; no new and chattel the and it isofestablished that the insolvency out that E Co had no more assets left. The his the issuance, contending that it for violated validity the deed of assignment. May the is was executed by the corporation the jurisdiction over cases involving: a) Devices Stockholders; Rights (1996) 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 preemption to the unissued shares. Is Corporation be compelled by mandamus to unpaid balance. or schemes amounting to fraud and What are the rights of a SUGGESTED ANSWER: SUGGESTED ANSWER: What is the legal test for determining if an the promissory note in the RTC. a) Does the shares and 50,000 preferred shares. At its certificate totenable? Steven who claims to be parties relied on a provision in thethe 1996 identically. The stockholders can be held company. If shares you were counsel for a creditor M Inc is a mere alter ego of Enow Co. Will the his contention Explain briefly. (5%) register the of stock in names of SUGGESTED ANSWER: misrepresentation; b) Controversies arising stockholder? SUGGESTED ANSWER: Yes. The corporation may be .compelled by G.R. No. 108734, May 29, 1996) 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 the 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 suit prosper? Explain. assignees? Explainor briefly. (5%) Thethe rights of a to stockholder are as follows: 1) in out of to intra-corporate partnership a) As A—an action can be brought against The suit will not prosper. The sale E Coall of mandamus register the shares of stock 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 among the obligations to the extent of their personal assets A, B, and C? right to vote, including the right tolegal relations; c) Controversies in the election or A for P100th which isexecutes the amount of unpaid its assets toonly MtoABC, Inc does not result in the Is The the name ofMortgagor the assignee. The only stockholders of Inc.shares enjoy preemptive SUGGESTED ANSWER: To what circumstances will the doctrine “In case the sold his shares his friend Mabel and the However, 40,000 were recognize and register Steven’s ownership. secured by the mortgage. The provision (Concept Builders v. NLRC, Marabe, et al, appoint a proxy; 2)Since The toorshare in the appointment of directors, officers, d) subscription. the corporation is The test iscase whether orExplain. not the unlicensed SUGGESTED ANSWER: transfer ofathe liabilities ofRTC 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 notes either latter filed with the against thenor subscribed. Recently, the directors thought the refusal justified? reads: profits of the corporation, including the right Petitions toisthe be in the athe state of The doctrine applicable when the notion ABC’s refusal tothereof recognize and insolvent, limit of stockholder’s foreign corporation has performed act in the assumption by, the former. The Corporation Code is when Corporation any class, including the reissuance of as a renewal, asdeclared an extension, or as a new corporation to compel itcapital to register theansale of raising additional andregister decided toor to declare stock dividends; 3) The right to to a the suspension of payments (Sec 5 PD 902-A) of legal entity is used to — 1) Defeat public Steven’s ownership is justified. The facts liability to the creditor is only up acts that imply a continuity of commercial facts given do not indicate that such transfer holds any unpaid claim against the shares treasury shares in proportion to their loan, this mortgage shall also stand as andoffer to issue new certificates of stock inshares her to the public all the authorized proportionate share of the assets of convenience. 2)be Justify wrong. 3) Protect SUGGESTED ANSWER: Stockholders; Appraisal indicate that theRight stock certificate for the a) extent of his unpaid subscription. dealings or arrangements, and contemplate or have assumption took place rights to ormarket the wasremaining stipulated intended transferred. The alleged claim respective shareholdings. security forto the payment of said promissory name? of thepre-emptive Corporation at (2003) their value. the corporation upon liquidation; 4) Theof action b) As to B—there is no cause a) The RTC has jurisdiction over the case. (PNB v. Andrada fraud. 4) Defend crime 1,000 shares in question is in the name of In what instances may the right of to that extent performance ofappraisal acts or upon 10,000 by shares? theX, parties (2%) b) in Would their Mr. agreement. X4,000 have of another heir of PX necessity is not sufficient to deny note or notes without of executing Would Mr. athe stockholder holding right of NOTE: appraisal; 5) The pre-emptive right TAKE The has jurisdiction over RTC against BNo. because he has already fully the paid The SC said that asale corporation may only buyis Electric, G.R. Arnold. Although the certificate was delivered be availed of 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 of new certificates of stock to his ashares; new contract and this mortgage shall have shares, to 6) The right to inspect corporate cases which involves intra-corporate for his subscription. As stated earlier, the SUGGESTED ANSWER: its own shares of stock if it has enough by Arnold to Steven, facts not functions normally incident to,do and in indicate a sale shares? of its(2%) property. Itthe does not involve the wife and force children. Iteffect would otherwise the same and asbe ifto the said if the books and records; 7)2002) The .right elect controversy. As of 2006, the applicable is SECTION 81. Instances of Appraisal Right. — 142936, April 17, limit of the stockholder’s liability torule the surplus profits therefore. c) Assuming that the existing that the certificate was duly endorsed by progressive prosecution of, commercial gain sale of shares of stock of the corporation transferee's titleortonotes the shares has no prima promissory note were existing on directors; 8) Such other rights as may that there is aviolation JURISDICTION Trust Fund Doctrine (1992) Any b) My stockholder answer would of abe the same. shall action have 5) Shield athe the proscription creditor of corporation, when the latter Asdate Borrower failed to payof the second loan, stockholders are entitled toAn pre-emptive Arnold atpurpose the time itcorporation was delivered to Steven or of the and object of the business belonging to its stockholders. There is facie validity orTRANSFERRED is uncertain. hereof.” contractually be granted to under Sec. 5.2 of the SRC, the Commission’s Joint Venture; Corporation (1996) A Corporation executed a promissory note (First Philippine the to compel right to a dissent corporation and to demand register payment a sale of against forum shopping insolvent, is the the extent of his thebecomes Bank proceeded to foreclose Chattel rights, at procedure what price will the shares or that the the effective corporation. therefore no merger orforconsolidation thatbe the stockholders by the corporation or by c) As to C—an action can be filed against Piercing the Corporate Veil (2001) jurisdiction over all cases enumerated under 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 C, offered? (2%) transfer of stock settooutexist in theand bytook place.of Eshares Co continues special law. Work inequities among members of the 6) who SUGGESTED ANSWER: not as stockholder because he has already 1 In case any amendment to the articles of 137537, January 24,5 1996). Plaintiffs filed a collection action against Xthe PD 902-A sec. has been transferred to venture? had tendered his a certain instances: an intra-corporate matter that exclusively with the issuance of was new shares and that the mortgage was noresignation, longer in force. laws of ABC Co, if any, observed. Since remains liable to the creditor. A corporation may enter into a joint venture. the corporation internally, involving no rights paid in up the shares, but in his capacity incorporation has the effect of changing or of Corporation. Upon execution of court’s Courts of general or the sum payment ofjurisdiction the latter’s shares and as lies with the pricing forRTC. thewas shares, may thethe stockholder Borrower claimed that a Stockholders fresh chattel the certificate not endorsed in favor Stockholders; Voting Power of (1990) However, inasmuch as the term ‘joint of the public or third persons (Secosa v. Heirs TAKE NOTE: The RTC has jurisdiction over the restricting the rights of any stockholders or class director and officer because of the decision, X Corporation was found to be appropriate Regional Trial Court. interests in thehave company. The corporation invoke (or hisanybody appraisal demand mortgage should beenshares executed when Steven elserights for thatand matter), the Mercy subscribed to 1,000 of stock 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 thesoresult of shares, orfor of authorizing in that any SUGGESTED ANSWER: without assets. Thereafter plaintiffs filed an defaulted in paying the fullbeing amount that of payment his shareholdings? (2%) the second loan was granted. a) Decide the only conclusion could be preferences no other than Rosario Corporation. She paid 25% of said Evade the lawful obligations of the 7) The BOD of a corporation, by a vote of ten in Stocks; Sale, Transfer of Certificates of Stock (2001) 29, 2004). may take various forms. It could take the a. Yes. Mr. X, a stockholder holding 4,000 controversy. As of 2006, the applicable rule is fraudulent practices within the company. respect superior to those of outstanding shares of action against its present and past said former President filed suit for collection case and ratiocinate. (4%) b) Suppose the the shares in question still belong to Arnold. corporation subscription. like During aliable judgment the stockholders’ credit (Sibagat favor of one against, declared due and Aclass, is the owner Stock of or aregistered simple pooling resources (notterm shares, has pre-emptive rightCertificate to the that there is aofTRANSFERRED JURISDICTION anyform extending orofof shortening the Directors are jointly and severally for would its validity and effectiveness be what stockholder which owned of the balance before the SEC. a) Under chattel mortgage was not registered, (Razon v IACYGRCorporation 74306 Mar 16,92 207s234) G.R. No. 112546, December 11, 1992). 8) Timber Corp. v. Garcia, meeting, can Mercy vote all her subscribed payable all unpaid subscription to the capital No. 000011. He entrusted the possession of involving incorporation) between two or more remaining 10,000 shares. All stockholders of under Sec. 5.2 of the SRC, the Commission’s damages sustained by the corporation, of corporate existence; impaired? Explain. substantially all of the stocks of X conditions is a stock(4%) corporation empowered SUGGESTED ANSWER: (Arcilla v. to Escape liability arising from adirector debtresulting shares? Explain. stock. The lone dissenting failed said certificate to his best friend who corporations acases specific project, purpose SUGGESTED ANSWER: a stock corporation shall enjoyBhave 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 Yes, to acquire its own shares? b) Is the Mercy can vote all her subscribed Court ofon Appeals, G.R. i.e., No.of 88113, October 23, pay due date, 19 Sept 1997, his 1 The foreclosure the chattel borrowed the said endorsed certificate to undertaking, or for a limited time. It may right to subscribe to all issues or disposition PD 902-A sec. 5 has been transferred to the mortgage, pledge or otherand disposition of all or gross negligence bad faith in assets directing same board of directors Y Corporation between the corporation and its Avoid inclusion of corporate as the 9) arrangement shares. Section 72 ofor the Corporation Code 1992). Piercing the Corporate Veil (1994) SUGGESTED ANSWER: unpaid subscription. Other than the shares mortgage regarding the second loan is not 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 Code) substantially all ofjurisdiction the corporate property financed the operations of X the Corporation. President covered by the trust shares fund doctrine? part ofthat the estate ofunable the decedent (Cease v.forties, states holders of subscribed not Yes, Y Corporation may be held liable for the 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 athe respective shareholdings. appropriate Regional Court. assets asCorporation provided in Trial the Code; and May Y be held liable Explain your answers briefly. Court of stock Appeals, G.R. No.indelinquent L-35861, October 18, fully which areany not shall have a. No, does not have pre-emptive right a) A corporation may acquire its debts of MrX Xto Corporation. The doctrine of was a not defendant a lawsuit which could hepaid did own share inonly the corporation. secure after incurred obligations. The certificate a bona fide purchaser corporation. IfX,merger the joint venture would who involve 3 InXcase of or consolidation. (n) debts of Corporation? Why? (5%) 10) To promote or to shield unfair objectives 1979). all the rights of a stockholder. over the remaining 10,000 shares because own shares of stock if the trust fund doctrine piercing the veil of corporation fiction applies subject him to substantial damages. A27, year Credit Transactions On (Villanueva 23 Sept he was informed by the affidavit of good faith required the relied on theof endorsed certificates and the creation a partnership, as the term is v. Adre, G.R. No.under 80863, April Stocks; Increase of1997, Capital Stock (2001) 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 Liabilities; this case. The two corporations have the before the court rendered judgment, Pablo BOD mortgage that, unless payment is meanwhile chattel lawdue expressly provides that believed himunder to bethe theCivil owner thereof. understood Code, then a) a Can 1989). Suppose X Corporation has an authorized corporation forthwith: When may a corporate director, trustee, or incorporation and he chose not to subscribe that it may purchase its own shares of stock In 1999, Corporation A passed a board same board of directors and Y Corporation sought his lawyer’s advice on how to plan received, he: a) could no longer serve as a his “the foregoing mortgage is made for securing A claim the shares of stock from X? Explain corporation cannot be a party to it.(1991) Pre-emptive Right (2001) capital stock of P1M divided into 100,000 Chattel Mortgage vs. After-Incurred Obligations SUGGESTED ANSWER: b) would not be entitled to the cash and officer be held personally liable with the to them. He, therefore, has waived his right by utilizing merely its surplus profits over resolution removing X from his position as owned substantially all of the stocks of X estate to avoid taxes. His lawyer suggested director of X the the obligation specified the conditions (3%) Would your answer be the same if A Suppose that Corporation has already shares ofdividends stock with par in value of P10of each. To secure the payment of anshares earlier loan of them ALTERNATIVE ANSWER: a) No.b)Assuming that the were SUGGESTED ANSWER: stockabove which were declared anda) with corporation? thereto and the corporation may offer and 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.” The afterlost the stock certificate in question or if it issued a) (an theways answer 1000 originally enumerating authorized the instances shares or Give two whereby said authorized A corporate director, or officers officer SUGGESTED ANSWER: P20,000 as well subsequent loans which already transferred totrustee B, cannot claim the payable on Sep 1997; and to anyone. corporation. that A corporation the latter provides isasmerely that anAextension the ofmay the are himself, his 24 wife and his children (allinstudents incurred obligation not being specified 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 be held personally liable with the corporation capital stock may be increased to about her friend Noreen, would extend to her, shares ofofstock from X. and The that certificate of c) could not vote in the stockholders the president, vice-president, treasurer and personality the former, the former and still unemployed) as stockholders and is not secured bypractical mortgage. to the 50,000 preferred shares. All affidavit, 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 on 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 liabilities 2 The chattel is not valid to stockholders aentrusted stock corporation shall capital in the stock. stockholder’s After exercise with of appraisal the for a corporation to complying increase its capital stock he assents to patently unlawful act to of B. the mortgage over her (Karen) car. Isby the endorsed by Aaof and him By 1997. this it held is the that fact a manager that Y Corporation could be removed controls the by this corporation. Mr Pablo followed the as against any except theeach mortgagor, SUGGESTED ANSWER: SUGGESTED ANSWER: corporation; 2) he acts in bad faithtoorall enjoy pre-emptive right to subscribe requirements right, failure ofperson, of the bids in on the increase sale of of delinquent (2%) Was the action of law the BOD on of the mortgage valid? his said acts, AofWhen isthe now estopped from mere resolution board of directors. On finances of X Corporation which is merely an recommendation of histhe lawyer. 1 year later, a) Two ways of increasing 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,alleged a bona fide motion for reconsideration, X that he adjunct, business conduit or alter ego of Y the court rendered judgment against Pablo Stock of X corporation to P1.5M are: ALTERNATIVE ANSWER: SUGGESTED ANSWER: after-incurred obligations. While a stipulation by directing the affairs of theendorsement corporation, or in Capital SUGGESTED ANSWER: Piercing the Corporate Veil (2004) proportion to their respective shareholdings. shares of the same value. a) Assume that the purchaser who relied on the could onlyIn be removed by the affirmative (CIR v Norton & Harrison Co 11 the Corporation and 1)No. Increase plaintiff the sought number of to shares enforce this b. Yes. Yes, Mr. Xinterest has preemptive right b) Thethe arrangement between the corporation to include after-incurred obligations aover a) The of 30 days200 within which with the the corporation resulting in conflict b) the case where the certificate of S How does one pierce the veil of in corporate stockholder Aperiod presently holds out 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 its President toWould the that it calls for chattel mortgage isthe itself not invalid, the stockholder can pay theextent unpaid subscription damages corporation, stockholders or and stock was losttoor stole from A, A its has a right SUGGESTED ANSWER: SUGGESTED ANSWER: fiction? 1000 original shares. A have a prethe outstanding capital stock. Istoonly X’sfor locate same par any property of P10.00 inhimself the name of Pablo and not offered before byofhe the corporation the payment of the shares is covered b) When should stockholder Aeach. exercise The obligation veil of cannot, corporate however, fiction be may deemed be pierced other persons; 3) When consents The had not plaintiff yetvalue expired. can avail of the doctrine No.to Stockholders’ approval is necessary claim the certificate stock from thethe thief emptive right to 200 oflatter’s the new issue ofthe 1000 2) Increase par value of 100,000 contention legally tenable. Why? (5%) therefore returned writonly of execution subscription. by theWhy? trust fund doctrine. The pre-emptive right? (2%) automatically by that mortgage until by proving in court that the notion of legal issuance ofsecured watered stocks of piercing the veil of the corporate fiction which for who the removal of the members of the BOD. has no right or title to the same. “One shares? (3%) SUGGESTED ANSWER: shares to P15.00 each. SUGGESTED ANSWER: unsatisfied. What remedy, if any, isisavailable exceptions from the trust fund doctrine are b) delinquency not deprive the having knowledge thereof, does not after aor new chattel mortgage or an addendum entity iswho, being used to or defeat public canNo. beThe invoked when a did corporation formed For the removal of a corporate officer or who has lost any movable has been c. The shares will be offered to existing a) Yes, A would have a pre-emptive right to to plaintiff? redemption of right redeemable shares and, in stockholder of his to receive dividends forthwith file with the BOD corporate secretary to the original chattel mortgage isisexecuted convenience, justify wrong, protect fraud, orit his the or the used in avoiding a just obligation. While it employee, the vote of the sufficient unlawfully deprived thereof, may recover stockholders, who are entitled to preemptive b) Three practical reasons for a corporation 200 of the new issue of 1000 shares. A is a the case that of close corporation, when there objection thereto; When to an hold 4) declared. However, the cash dividend written to cover the obligation after it he hasagrees defend crime or inthe entity isbeen justsame.” is true a family corporation may be for the purpose. from the person possession of the right, at a price fixed by the BOD, which to increase stock are: 1)shares toorders stockholder of record holding 200 in the should beits atocapital deadlock and the SEC Stocks; Sale, ofand Certificates of(1991) Stock (2004)shall himself personally Stockholders; Removal; Minority declared may be applied by the corporation actually incurred. Accordingly, unless such instrument orTransfer alter ego orDirector adjunct of another organized pursue an estate tax; planning, (Art 559 NCC) not be less than the par value of such generate more working capital; X Corpo. to illegal the Corp Code, Piercing the Corporate Veil (2006) solidarily liable with the corporation; payment of the appraised value of each aCorp Fouror months before his PXof assigned to the According unpaid subscription. (Sec 71 Assuming that the minority block the XYZ entity supplements person. are made, thedeath, chattel mortgage (Delpher which is not per se or unlawful shares. Trust Fund Doctrine; Intra-Corporate Controversy (1991) stockholder has the pre-emptive right to all or stockholder’s share. 100 shares of stock registered in his name in Code) Corporation is able to elect only 1 director in the problem given would be deemed to Trades Corp v IAC 157 SCRA 349) the factual issues of shares madeindicate by the corporation in of a of his his andfavor therefore, secure only thewife loanand of P20,000 (Sec 5 Act settings, however, the existence proportion to could subject Pablo to a 1505; Belgian Catholic Missionaries v Magallanes lawsuit that Mercantile Mercantile LawLaw Bar Examination Bar Examination Q &Q A& (1990-2006) A (1990-2006)

Press 49p647)

Page 43 They then brought 39 of 103 103 children. 40 42 44 103 5) When Page Page of of 103 he is 41 made, by a

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Five Would yearsthe later seller-mortgagee after completing be payment legally of the justified purchase in foreclosing price, debtor on this obtained second title chattel to SUGGESTED ANSWER: themortgage? lot. And even as the chattel mortgage on The twowas mortgages were executed to theNo.house still subsisting, debtor secure the to payment of the unpaid mortgaged a bank the lot and installments for the purchase new This car. improvement thereon to secureofa aloan. When the mortgage on the old car was real estate mortgage was duly registered and foreclosed, theback seller-mortgagee deemed Due to business reverses, to annotated at the of the debtor title. isfailed have renounced other mortgage rights. A was paytohis creditors. Theall chattel foreclosure of additional property, that is,tothe foreclosed when the debtor failed new car covered by the second mortgage reimburse the surety company for payments Chattel Ownership of Thing Mortgagedsale, (1990) would be a nullity. made onMortgage; the bond. In the foreclosure lives inwas Bulacan, bought a 1988 theZonee, suretywho company awarded the house model Toyota Corolla sedan on July 1, 1989 as the highest bidder. from Anadelaida, who lives Quezon City, Only after the foreclosure saleindid the surety for P300th, paying P150th as downpayment company learn of the real estate mortgage in andofpromising to pay the balance 3 equal favor the lending investor on theinlot and quarterly installments beginning October the improvement thereon. Immediately, 1, it 1989. Anadelaida executed a deed of saleof of filed a complaint praying for the exclusion vehicle in the favor of Zonee to secure thethe house from 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. documents, had on the Onabovementioned the suggestion that a chattelZonee mortgage favor. car transferred and registered in her name. a house- a real property- was a nullity, the Contemporaneously, Anadelaida surety company countered that had whenthethe chattel mortgage on the car registered in the chattel mortgage was executed, debtor was Mortgage Registry of on thewhich Office of notChattel yet the owner of the lot the the Register of Deeds of Quezon City. house was built. Accordingly, the house was a In Sep 1989, Zonee sold the sedan to Jimbo 1 Discuss theand validity of the position personal property a proper subject oftaken a without telling the latter that the car was by the surety company. (3%) chattel mortgage. to Anadelaida. When Zonee failed 2 mortgaged Who has a better claim to the house, the to pay the firstorinstallment October Explain 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 itgive up thetitle car in ona be Jimbo. bolstered by therefused fact that acquired the ground that the chattel mortgage foreclosure sale conducted by 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

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 was foreclosed and the whole contracts. subdivision was acquired by the bank as the highest bidder. a) May the bank dispossess individual lotsof or, alternatively, require prior purchasers them to pay again for the paid lots? b) Discuss What(3%) are the rights of the bank vis-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) should apply the payments to the mortgage 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 a house on the lot. constituted two chattel mortgages,Sometime i.e., one thereafter, debtor mortgaged the house to over his very old car and the other covering histhat obligation from as the thesecure new car he had arising just bought issuance of a bond needed in the conduct of aforesaid, on installments. After Ritz his business. Theinstallments, mortgage was defaulted on three 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.

103 48 Mercantile Law Bar Examination Q & A (1990-2006) Page 46 of 103 ToPage of of 103 pay47 forPage her loan obtained Mercantile Law Bar Examination Q & A (1990-2006) from Stela, constituted Stela’s Because of business reverses, neither the (5) b.Integrity The Liza lease Bank – rentals whichingranted belongfavor Edzo to aathe LDC countered that it had chattel over anthe electric generator. Borrower nor Mr. Timbol wasbuilt ableon to the pay the loan mortgagor. in mortgage 2001 inHowever, the amount ofmortgage P500,000. extends The mortgaged property theextrajudicially prior Cecil, arentals creditor of Liza, levied on attachment loan. In June 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) Is the resolve the dispute between the conflicting foreclosure sale. On September 16, 2001, the stockholder, paymentclaims. of the Eduardo mortgageZ. 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 mortgagor of property (1992) (2006) The 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) questions is not included within the these two judicially or extrajudicially. In what instance Timbol were able to raise sufficient funds to payment the amount by Edzo, of P500th, the bankmortgaging demanded as scope of the Bar properties Questions in Mercantile may a mortgagee extrajudicially foreclose a redeem their respective from the immediate security payment. therefore Because its realthe property. bank SUGGESTED ANSWER: Law, as it is within Civil Law, it is real estate mortgage? (5%) Bank, but the Bank refused to 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 paidoftomachinery. 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 a better right than properties. The Borrower and Mr. Timbol principal payment amount of the of obligation P500,000, under plus the accrued LC, the given additional credit. 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 hadForeclosure hardly a surety any cash agreement left for operations in the local Mortgage; (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. topublic close its business. May the sale at auction by a bank of SUGGESTED ANSWER: agreement. As the company defaulted inathe limitations established by law, whether the reasons (5%). paying the unpaid salaries of its employees, property mortgaged to it beinnullified because 1 With 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 or possession of the imported machinery. At the mortgagor or passes into the hands of a third SUGGESTED ANSWER: Primetime Corporation, a juridical body, the period 2002. claims of the five creditors mentionedthe same 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 company Foreclosure (2003) and to hold thepriority 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 Because ofoffailure of Janette and to remove the building from coverage of the The claim Handyman Garage forJeanne P10,000 2 As to the real estate mortgage over the Did the taking of possession of the under the Surety Agreement. their loan lien to Xon Bank, the repaired. latter foreclosed mortgage considering that the building was pay a specific the car residential house and lot owned by Mr. Timbol, the hasmachinery by the bank result in the 1) full on the mortgage constituted on their built after the mortgage was constituted and 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 for the payment of the not as to the construction of the building. preference orANSWER: priority against eachloan. otherThe in SUGGESTED period has not yet expired in this case. mortgage? paid for the property at the foreclosure Since the mortgagee was informed of the price (1) No.taking 4 –order: claim of the BIR of forthe unpaid The of possession machinery the1) following sale wasbank not enough to inliquidate the of lease and did not object to it, the mortgagee 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 companyIn and their Janette and Jeanne did not deny whenRemedies it acquired Unlawful termination Mortgage; (2003)the property as the highest itsanswer, officers. The taking of such possession (3) No. – of claim Ace equipment themust existence the of loan nor the of their in bidder. Hence, intoon the Carmakers, Inc., the soldmortgagee a motor steps vehicle be1considered merely asfact a measure default. They, an unpaid however, seller; and interposed shoes of basis the mortgagor acquires installment to Chari and Paredes. Thethe Supplies order as to protect or further safeguardthethe (4) No. 5 – claim of SUGGESTED ANSWER: defenses that the price at the auction wascan rights of was the lessor under 1768 of the transaction reflected on Art a promissory bank’s security interest. Dacion en pago a) The house is a real property even Integrity Bank. extremely low and thatastheir loan, despite NCC. This provision the the right note byalways Charigives in favor oflessor Carmakers. only be considered having taken place 1stexecuted Alternative Answer: SUGGESTED ANSWER: (PNB v Pineda 197 s 1) though it was constructed on a land not thewhen loan adocuments, was a and long-term loan appropriate the condominium building but a.note The was mortgagee has better right the Theto secured by a amortgage overto the creditor accepts appropriates belonging to the builder. However, the not yetof If in you were the paying the Art lessee half theNCC, value of which building. Under 2127 ofof the the car.after Contemporaneous with the execution of the had ownership the goods payment of a Mortgage; Foreclosure ofmatured. Improvements (1999) 2) The mere taking of possession of parties may treat it as a personal property how would you rule on the case? Why? building atmortgage thatto time. Should the lessor mortgage extends alldeed, improvements on judge, thethe note and the Carmakers, due obligation. Borrower obtained a does loan not against the to mortgaged assets amount and constitute a chattel mortgage (6%) refuse to reimburse said amount, theoflessee the mortgaged property regardless who Inc., assigned the instruments sans thereon. recourse security of a mortgage on arequires parcel of foreclosure. Foreclosure a land. sale at Such mortgage shall be valid and binding but remove improvement even Chari though and when the the improvements were to may Adelantado Finance Corporation. While the mortgage was foreclosure, subsisting, borrower public auction. The therefore, only onland thewill parties. Itdamage will not bind orotherwise, affect the suffer thereby. introduced. cannot complain defaulted in LDC her obligations. Could leased for fifty years the mortgaged property b) The lending investor has a better claim SUGGESTED ANSWER: has not as yet been effected. third parties.it because knew corporation that the property ittowas Adelantado Finance take action to Land Development Company (LDC). The Mortgage; Redemption Period; Foreclosed Property Preference of Credits (2002) the2nd house. The real estate mortgage alternative Answer: leasing was mortgaged when it built the against both Carmakers Inc., and Chari? Why? mortgagee was duly advised of the lease. (2002) As a. of June 1, the 2002, Systems 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) indebted to third the duly constituted under the Condominium registered and bindswas the parties and mortgaged an office condominium. (1) Equipment Supplies – the for various obtainedproperty a P10 Million, five-year term loan following creditors: Law,Ace before LDCother could validly constitute persons. On the hand, chattelthe Borrower defaulted on his loan and personal computers and accessories sold to from Universal Bank (the Bank) in 1996. As same as a condominium, it should cause to mortgage on the 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 recorded in the register of affect deeds the of the of be the 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 rights of third parties such as the lending an 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 of showing, among investor despite registration the chattel corresponding Certificate ofandSale was in owned by mortgage the Borrower which Edzo’s was company foreclosed car amounting did not affect to P10,000. the rights real estate over the landlocated and others, a certificate of the registered owner mortgage. executed and after the lapse of one year, title (3) Joselyn Reyes former employee Quezon City; 2) the joint and several of and third like– the lending building ofparties all registered holders of investor. any of lien or was consolidated inof the mortgagee. Timbol, the note President of theofBorrower; and Edzo who unlawful termination promissory Pr.name Primo Since the sued third Edzo parties are not bound by the encumbrance onfor 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 notof also consent to the registration thebound deed.by (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 of its provisions. The RA 4726). If the mortgagee gave its 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 toof the bolster or addANSWER: anything tothe thecondominium position no consent was given, was 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 of 103 Upon his failure to the loan 49 50 53 52 54 103 51 103 Page of 103 Page of pay Yes, relation, Moreover, Onwhen March Purita in insured the 19,cannot 1993, problem and be a insurer fire at a razed

on due date, the bank foreclosed the donee hand, have theagreed there of building the isto deceased. no to the double the payment ground. Hence, insurance ofGarapal premium shebecause cannot Insurance by 1989, citing Gcrcio v.favor Sun Life, G.R. No.arson reinsurance the over Will no After continuing Petra’s the evidence his building vehicle is an suit crisis insurance prosper? of inburned involving suicide of against down, Explain. IOU. the or banking Robin When liability 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 beneficiary. to 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 EFG. in may Asian the these On incur region. chattel Feb in events. favor 1994, BX No, Petra’s suit will not prosper (assuming subsequently forcontract. only atGarapal the Clause 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 in becomes Insurance; Double Insurance (2005) Concealment; Material Concealment (2001) foreclosure Atty Roberto sale. took Thereafter, out acar life the insurance bank filed policy an Insurance Insurance liable. Company. legally When justified The thesame inloss refusing is true happened with thethat deficiency. proceeds Robin meaning sought offrom May the reconsideration Insurance IOU the still two recover Code ofpolicies, the of the the denial, the 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 collection the from the Dana Insthe Co (DIC) onagreed 1ofSep 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 reiterated (PD1460)? for Explain. which its (2%) position. IS had been On March faithfully 20, Yes. IOU BD may has insurable no longer interest recover in his the bank deficiency. SUGGESTED ANSWER: said policy without the beneficiary's consent the date of its issue). The matters which Juan (2%) The insured did not inform the insurer that deficiency. A contended that the mortgage On 31 Aug 1990, Roberto died. DIC refused policies. period collect of payment on the insurance had not yet policy? elapsed (UCPB payingRobin 1995, during commenced all the time judicial heaction was alive. (Nario v. Philamlife, G.R. No. 22796, June 26, SUGGESTED ANSWER: Under Section 93 of the Insurance Code, deposit. Under In Art case 1484 of loss of the of said NCC, deposit, in a contract more of failed to disclose was material and relevant to c) As Judge, I would allow the businessman oneto week to his application forto contract executed was indivisible andNo. pay hisheprior beneficiaries because it discovered General Insurance v. Masagana Telamart, G.R. StarbriteEFG. against refused Should payment, Robin’s action contending be given that 1967); 1)Yes. At the time of the loss, Benjie was no SUGGESTED ANSWER: there is double insurance when there is overparticularly sale of personal to the extent property of the the amount price of in which the approval and issuance of and the therefore insurance recover his total loss of misrepresented P5M representing the insurance, he examined and confined atto consequently, the had norecover legal right that April Robert had . bank Francis can certain 137172, 4,was 2001) BX had due course? no insurable Explain. interest (3) The Insured cannot add another No, Robin’s action should not be given due the owner of the property insured as insurance with or more companies, excess is payable of the limit intwo installments, covered by the thePDIC vendor Act,may, policy. They would have affected Good Life’s full value of his goods which were lost through St. longer Luke’s Hospital he was diagnosed foreclose only thewhere real estate mortgage material facts in his application. The from Peninsula Insurance Company, but theand was not entitled to receive the proceeds beneficiary because that would reduce the SUGGESTED ANSWER: course. Is filing of the request for he failed to redeem the property. The law covering the same property, the same PBD among will IS’s 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 for lung cancer. The soon thereafter leave beneficiaries out the sued chattel onmortgage, basis and thathim then DIC sue can latter has the right toinsured deduct the amount of to from insurance coverage on his life and amount which the first beneficiary may Starbrite is correct with respect to the reconsideration did not suspend the running requires in property insurance that a person insurable interest and the same risk. Double pecuniary mortgage loss on of the P300,000.00, thing sold, that if one is, his has been it with theproperty. corresponding adjustment for a unpaid recover amount to extent ofpolicy or died infor athe plane crash. Is insurance the liable him athe supposed deficiency judgment. If contest premium validity from the of the insurer insurance also on his 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 ofyou credit hehe considering that the fact concealed had no you were the Judge, would sustain only within 2the years from the date ofthe issue proceeds. valid? Explain? (5%) (Go v. or Redfem, G.R. No. 47705, April SUGGESTED ANSWER: vested right SUGGESTED ANSWER: SUGGESTED ANSWER: The beneficiary the property insurance stipulated in the insurance policy. Thus, when has insurable interest atthe the time of policy of insurance upon his life, with a insured by several insurers separately in P200,000.00 pay cover which two isin more the maximum installments. amount In sucha The Moreover, a disclosure may have warranted extended to the businessman for the stocksbearing with the cause death of thethe contention of A? and during the lifetime ofof insured. Decide Insurable Interest: Public Enemy (2000) 25, 1941); If I were the Judge, I would dismiss the action No. The concealed fact is material to the I would rule in favor of the insurance policy or the assignee thereof must have robin commenced judicial action against EFG issuance thewere policy and alsobyatJose, the the value ofof P100th was mortgaged assigned atime respect the same subject matter and recoverable case,of however, from thethe PDIC. vendor shall have no examination of Juan by Good Life in face in-trade which by insured? Why? (5%) the case. (4) medical Unless the policy allows, the Insured May a member of the MILF or its breakaway as being premature since the proper remedy approval and issuance of the insurance company. The incontestability clause, insurable interest in the property insured. BX, Insurable Interest; Equitable Interest (1991) Assurance on March 20, 1995, his ability when the loss occurs. At the time of fire, married man with 2 legitimate children, to interests. (Geagonia v. Court of Appeals, G.R. No. further action against the purchaser to ordereven for designate it to reasonably assess the risk businessman. cannot another beneficiary Insurance; Double Insurance; effect (1993) group, the Abu Sayyaf, be insured with a would be to complete the foreclosure of the policy. It is well settled that the insured need applies only if the policy had been in effect a mere friend-companion of IS, has no A piece of was to Mr do soFebruary had prescribed. The price one-year Benjie noYmachinery longer had insurable in the nephew as security for a shipped loaninterest of P50th. 114427, 6, 1995) recover any unpaid balance of the involved inalready accepting the application. Inand any his should the original beneficiary predecease Julie and Alma formed a the business 2) No. While at the time of the loss he had company licensed to do under the mortgages and only thereafter can there not die of the disease he failed to disclose toby for at least 2 years. The 2 year period is insurable interest in 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 the business name Pino insurable interest in the building, as he was Insurance Code of the Phils (PD 1460)? an action for collection of any deficiency. In the insurer. It is sufficient that his counted from the time the insurance IS. BX is not entitled to receive theastate proceeds insured said machinery the Talaga EFG denied Robin’s notof from the date of such assignment despitewith the explicit the given facts did claim, not explicitly that concealment. The waiver medical SUGGESTED ANSWER: vested right upon his death; and As to the insurance coverage on the lifeEFG of Shop, the partnership engaged in a sale of the owner thereof, Nat did not have Explain. (3%) Caltex v 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) when to ANSWER: that effect in the policy. Jose Anjo’s failure tocannot pay covered 2 ormay more examination in the ‘non-medical’ life provision ALTERNATIVE (5) The Insured allow his creditors A member of the MILF or the Abu Sayyaf construction IS, BX is materials. entitled to Julie receive insured the the proceeds. 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 route reiterated its position denying Robin’s claim. Upon the claim onfavor the policy byen the installments, may safely be presumed insurance from Good Life makes it more died. Iautomatic would rule in of the insurance to attach orwith execute on the policy. (Philamlife be There insured athis company licensed toeven do have Concealment; Material Concealment: Incontestability stocks in is trade no requirement of Pino Shop that with BX WGC should transfer clause inapay the policy that are either an action to filed collect or toon foreclose insurance policy or then in refused making inquiries. 29Jun1989) to Manila. Pablo claim with The reason for this rule is1989) insure that assignee, the insurer the because the right ofJuan IOU Co totoforeclose the necessary that supply complete v. Pineda, G.R. No. 54216, July 19, company. Although an toinsurer may not business under the Insurance Code of the Clause (1994) insurable interest in the life of IS. It was IS Insurance Co for P350th. Subsequently, she would give him such interest in the policy. a contract of real security. These remedies Tamic which was denied for the reason that of claims against insurance companies are ground that it was not notified of the chattel mortgage under the circumstances is information about his previous hospitalization rescind the contract on ground Phils. What isinsurance prohibited toinsurance be insured is his afor own Interest; 23, 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 although an action prior to deliver, Pablo had no insurable promptly settled that insurance suits are assignment. Upon remedies, the other hand, the heirs premised on Anjo’s failure toapay orormore Beneficiary: Rights; Irrevocable Beneficiary (2005) for such information constitutes an2(2002) important misrepresentation after an action is If the policy of life insurance has been in Insurable Interest; Life vs. Property Insurance public enemy. A public enemy is citizen Pablo JQ, owner had an of existing a condominium insurable unit, interest insured on the insurance policythe from Philam. The policy was life. P1m and then from EIC for while P200th. Aevidence fire of have for any deficiency is Y not precluded, subject to interest. Decide case. brought by the insured the as of Jose contended that is not entitled to installments. The foreclosure would not Jacob obtained a life insurance policy for P1 factor which Good Life takes into Insurance; Return of Premiums (2000) commenced for recovery under the policy, the force of for period of 2which yearsthe orthe from national aa country with Distinguish insurable interest inmore property SUGGESTED ANSWER: the piece of machinery he bought. same against fire6, with the XYZ Insurance issued on November 1990. He died onThe April unknown origin gutted the store of certain exceptions as those stated to the origin and cause the destruction has amount under thesuch policy because the in Art been valid if itits notof so. (The given facts 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 the date of issue (on which point the A life insurance is assignable. A provision, Philippines is at war. Such member of the insurance from insurable interest in life and ofof made goods theunder lossa foreclosure payable a perfected toonhis 26,Co., 1992 hepatoma. The insurance partnership. Julie filed her(See claims with the Ltd v purchase 1484 of the Civil Code, by not yet disappeared. Sun Ins Office assignment without due notice to the insurer did not also state explicitly whether Anjo’s friend, as his beneficiary. Jacob, however, (See Sunlife Assurance Co of policy or not. SUGGESTED ANSWER: insured is(5%) entitled aa Good return groundin ofMLQ. misrepresentation aclaim defense in given facts are vague) then Life canthe no however, the policy stating thatas written MILF or the Abu Sayyaf is to not citizen orof insurance. contract brother, of sale In already case of factual vests loss by equitable fire ofand the company denied the beneficiaries’ three insurance companies. However, her the mortgages. While the settings in CA gr 89741, Mar 13 insurance, 91 195s193) was void. Resolve the issues. SUGGESTED ANSWER: default was a payment default or a default changed his mind and wants Yob and Jojo, his Canada v CA GR 105135, June 22, 1995 245 s 268) a) In property the expectation premium paid. the action for recovery. This is alright since longer prove that the policy is void ab initio notice of such an assignment should be given national of another butfor ofbreach the interest said condominium on the property unit, in who of recover buyer rescinded policy by reason of alleged claims were denied country, separately of the case of Suria are not on v IAC (30favor Junemay 87)the Three instances when insured ispledge entitled arising fromto abe breach ofan negative or Insurable Interest: Separate Insurable Interest (1999) other friends, included beneficiaries of benefit must have aa as legal basis. In life bar problem is not covered yet byof the or is rescindible by reason of the fraudulent to the insurer is valid (Secs 181-182 Ins Philippines. even while it is pending delivery (Filipino the fire insurance policy? State the reason(s) misrepresentation and concealment policy which required the insured to similar toANSWER: the factsConcealment; given in the problem, the Concealment; Material Incontestability to acondition return are: breach ofthat aof warranty. Inpaid such case, however, SUGGESTED A businessman inpremium the grocery business considering the proceeds of policy ALTERNATIVE ANSWER: insurance, the expectation ofthe benefit to be incontestability clause. concealment or misrepresentation of Juan Code). The failure of the notice of Merchants Ins Co v CA GR for your answer. (5%) material facts made by 85144 Tan in28Nov1989) hisaassignment application. give notice ofthe anyWHOLE insurance effected SC implied that foreclosure as remedy in for 1 To PREMIUM, if noJacob part oftohis Insurable Clause (1998) The indivisibility ofProperty a contract offrom real Company would not have been able JQ can recover on the fire insurance policy Concealment; Material Concealment: Incontestability Interest; Life vs. Insurance (1997)security, obtained from First Insurance an insurance areIOU sufficient for the three friends. Can derived from the continued existence of a life ( Sec 48 Ins Code) would thus preclude the assignee It returned the premiums paid. covering the stocks in trade. Julie went to SUGGESTED ANSWER: secured firsthis be availed of on interest in the thing insured exposed to any Renato was issued amust life insurance policy such as aobligations estate mortgage or a He chattel the loss ofareal said condominium unit. has thea foreclose chattel validly as of Clause (1997) policy forYob P5M to Jojo fully cover his be stocks-ina) A obtains fire insurance on house and as stillRemedies; add and as hismortgage beneficiaries? Available to Mortgagee-Creditor (2001) need not have any legal basis. The beneficiaries contend that the company claiming rights under the policy. The failure court and contended that she should not be No, Jacob can no longer add Yob and Jojo as by a creditor in preference to other remedies thefrom perils insured January 2,to 1990. He concealed the fact mortgage, only means that a division orasathat insurable interest as owner-insured. such foreclosure, under the circumstances The assured answers to the question in generous gesture names his neighbor theAs trade the risk ofagainst. fire. Explain. (2%) Debtor “A” issued a “No” promissory note in the had no right rescind the contract as of notice did not, however, avoid the policy; blamed forIn theproperty omission, alleging that the hiscontemplated beneficiaries in addition to Diwata. As the that might also be invoked by him. b) insurance, the actual Three 2 months Where thereafter, the insurance a fire is of made accidental for a definite 3 years prior to the issuance of his life can partial payment of house afire secured obligation beneficiary beneficiary. in If A’s the insurance is destroyed policy, bydoes fire, MLQ by law, could onlybank be the application forinathe life policy: “Are you amount of P10M favor of commercial rescission must be done “during the lifetime” hence, upon the death of Jose, the proceeds insurance agents for WGC, RSI and EIC knew irrevocable beneficiary, Diwata has acquired value of the interest is theproperties limitIn of period of for time and the therein insured surrenders his origin broke outby completely insurance policy, he had been seeing a successfully claim against the b) Atopolicy. not B insured warrant a corresponding division or cannot recover ontwo the firepolicy? insurance effected aand payment default covering two suffering from any form of heart illness?” Y secured mortgage of destroyed his of the within and prior would, in the absence of ayears designated of existence ofportion the additional insurance a-vested right over Jacob's life insurance the policy, insurance to such that can of the validly premium be placed as thethe grocery including his stocks-in-trade. This doctor about his heart obtains insurance over his life and names proportionate reduction ofof the security given. For the beneficiary toailment. recover on thehis fire or or more installments) (Luis v Filipinas fact, theP30M. assured has been a Ridad hearttopatient worth When A failed pay for his the commencement ofestate the action. Is the beneficiary, go1, to the the insured. coverages and that she was not informed policy. Any additional beneficiaries will SUGGESTED ANSWER: On March 1992, Renato died of heart SUGGESTED ANSWER: thereon. In life insurance, there is no limit to neighbor B the beneficiary because of A’s secret corresponds with the unexpired time at a pro rata prompted the businessman to file with 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 7 Sep 1991, the assured is indebtedness, despite demands made by The contention of beneficiaries tenable? estate,May inthe turn, would be liable for the about the requirement that such other or reduce the amount which Diwata, as the first 1) No. An insured is required to disclose the failure. the heirs file a claim on the No. The incontestability clause does not for B. If A dies, can B successfully claim against the amount ofshort insurance may be taken loveremedy rate, unless a period rate has been agreed Insurance; Perfection of Insurance Contracts Insurance claim for five million the ofowing foreclosure, inofpart or in full, or he must have insurable interest in the Jan27,83 120s246) killed inaa plane crash. Thethat insurance bank Y, the latter instituted apesos collection suit loan of P50,000 in favor Y. (2003) additional insurance should be stated in the beneficiary, may recover, which will other insurances covering the subject matter proceeds of the life insurance policy of 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 on any property insured. In this case, MLQ does not company denies the claim for insurance to enforce payment of the P10M account. SUGGESTED ANSWER: policy. Is the contention of claim Julie tenable? (Go v. SUGGESTED ANSWER: adversely affect her vested right. of the c) insurance In property being applied insurance, for. an interest (New Life First Insurance denied the because it claim Renato? (5%) years from the of Note: Liability (2001) deducting from the whole premium any Insurance Corporation a comprehensive amount due. A issuance favorable judgment can on have insurable interest in the the policy condominium proceeds and returns premiums paid. Is forPromissory Subsequently, bank Ythe also filed foreclosure Yes. The life insurance policy in question was Explain. May she recover on her fire SUGGESTED ANSWER: a) No. In property insurance, the beneficiary Insurance; Cash & Carry Basis (2003) Redfern, G.R. No. 47705, April 25, 1941) Ent v CA 207 s 669) insured must exist when the insurance takes discovered thatof at theinsurance time of the loss, the September 23, 1990. The insured died on X, Y and Z signed a promissory note in favor loss or Life damage under the policy which has motor vehicle insurance toacover brand warrant an issuance of writ ofher execution on unit. the decision the company proceedings against A for security given for Beneficiary; Insurance; Prohibited Beneficiaries issued on January 9, 1990. More than 2 years 2) No, Assuming because that she Explain. is the guilty incontestability of violation of clause a not insurance policies? must have insurable interest into the property What is1992, meant by “cash and carry” inon the effect and when the loss occurs but need SUGGESTED ANSWER: stocks-in-trade were mortgaged to a creditor April 26, or less than 2 years from of A stating: “We promise pay A 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, theP5,000.00” insured, died warranty/ does not condition. apply the policy has The case for collection will beInsurance allowed insured. (Sec 18 Ins Code). B does not have business ofto insurance? exist in the meantime. InSecond life insurance, itnot isto September who likewise obtained from 23, 1990. December 31, 2001 the sum of 3 When the contract is voidable on account 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 force for from the date of or insurable interest indue, the house insured. proceed. But the2 years, foreclosure proceedings The right of the insurer to rescind iscreditor only enough that interest exists atinsurer the Company fire insurance coverage for the When theencashed, note Awas sued X aand Y who ofMidland the in fraud orinsurable misrepresentation of the could be Josie involved in alost should be no fell legal obstacle for to the Life Insurance Co on a whole life Insurance; Effects; Payment of Premiums by Installment applies. issue, during the lifetime of the insured, the have to be dismissed. In instituting if the beneficiary has commenced an action time when the contract is made but it need Z. Is the defense valid? Why? (5%) stocks at their full value of P5M. a) May the put up the defense that A should have offor hisP20,000 agent oron onAugust account of1989. facts the existence motor vehicle accident where her car waive, full or in part, his right to(1994) plan 19, Juan is Insurance; Co-Insurance vs. INCONTESTABILITY b) Yes. Inin life insurance, it is not required (2006) separate insurance coverages over the same Insurance Law decision the insurance company not to pay SUGGESTED ANSWER: foreclosure proceedings, after filing a on the policy. There isCLAUSE noRe-Insurance such action in this not exist of at the time of loss. businessman and the creditor obtain impleaded of which the insured was ignorant without his became a total wreck. She sought payment foreclosure on contracts of real security. The insurer has two years from the date married to Cynthia with whom he has three Distinguish co-insurance from re The Peninsula Insurance Company offered to that the beneficiary must have insurable Insurable Interest; Property Insurance (1994) The defense is not valid. The liability of X, Y, of in-trade? Explain (3%) b) First Insurance SUGGESTED ANSWER: stocksis justified. There was fraudulent (Taninsurer. v CA 174 s 143) collection case by involving the same account or case. fault; or when, any default of the insured other from the Could the insurer be made SUGGESTED ANSWER: issuance ofYes, theConcealment: insurance contract of its legitimate designated insurance. insure brand new car against risks interest in the life of the insured. It was the Concealment; Material Incontestability (per Dondee) because there was a In a Francis' civil suit, the Court ordered Benjie to pay Z under the promissory note is or joint. refused to children. pay claiming that double concealment. It He, is not material that theany transaction, bank Yhowever, is guilty of all splitting a and than actual fraud, the insurer never incurred 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 contrary to1loan law. Is this contention insured himself who took the policy on his in the sum of PI Million 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 thanis the cause of action. The ofthe P10M the Such liability under the What value are of the the effects insured of an property irrevocable which the the whether or not,that 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 life. procured a “non-medical” life A insurance there ispolicy, a meeting of the minds with respect the sheriff levied upon Benjie’s registered indispensable party. The fact did notstill fact concealed. The fact concealed, that is Juan principal obligation while mortgage designation insured of avs. assumes beneficiary orfrom undertakes under the to act lives within such period. After two years, Insurable Interest; Life Property Insurance (2000) application and policy the legal wife. 3 how much would youinas 160,000.00 payable 6 Francis onlythe from Good Life Insurance. designated histhe property (a parcel of land and the building to the object and the causeHe of payment. The Z himself will not prevent A collecting heart ailment, ismonths. material to securing the same is merely an accessory to implead SUGGESTED ANSWER: Insurance as insurer Code? tothe the Explain. of (2%) deficiency defenses of concealment or IS, an elderly bachelor with no known years later, died. Purita filed claim allow theJuan businessman and the creditor paid the first two months installments. wife, Petra, as beneficiary. Earlier, in the his in thereon),and sold same at her public auction payment of check is aextent valid payment unless proportionate share of X the and Ythe in determination by the the insurance said loan obligation. The collection ofcompany thetoloan the The irrevocable designation gives the insurance of the insured property. In case misrepresentation, no matter how patent or the incontestability clause which relatives, obtained lifeEven insurance coverage for (Observation: ifbounced. the liability from their insurers. Explain for However, the proceeds ofhe theaccept policy as the recover Despite demands, failed tothe pay the application in to the question asof to to Nat, the highest The latter, on upon encashment the check payment of theresponse whether orifrespective not to application for and the foreclosure ofbidder. the mortgage securing beneficiary aloan. vested right over Life Insurable Interest: Bank Deposit (2000) SUGGESTED ANSWER: of loss or damage, the insurer will be liable well founded, no longer lie. applies to the insurance policy covering the Insurance; Property Insurance; Prescription of Claims P250,000.00 from Starbrite Insurance X, Y, and Z is solidary, the defense (3%) designated beneficiary therein. The widow, subsequent Five months after or The notInsured he cannot had act everto divest been March 18,installments. 1992, with the Register insurance and registered to one require the medical said loan constitute and the same cause whether Insurance. BD has a bank deposit of halfof atomillion 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 engage in or would still not be valid) Cynthia, also filed a claim as the legal wife. the issuance of the policy, the vehicle was hospitalized, he answered in the negative. He Deeds the certificate of collection sale issued to him examination of the insured. of action. The filing of the case bars SUGGESTED ANSWER: the irrevocable beneficiary, in whole or in Since the limit of the insurance coverage of creditor, as mortgagee, have separate damage as his the amount of insurance bears To years secure from the issuance payment thereof, of of his loan the of insurance P200th, Robin insured 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 under confinement at the to by the sheriff. Meanwhile, on January 27, the subsequent filing the foreclosure The proceeds of the insurance policy shall be part, without the beneficiary's consent. To Philippine Insurance Corp (PDIC) insurable interests in theof same stocks-inthe designated percentage of the full value Available toDeposit (1996) A company executed would ininsured favor not be the justified Angeles in Banking denying Remedies; After Juan diedbeneficiary in aMortgagee-Creditor plane crash, Petra filed a of EFG Assurance. The insurance policy Code of the Philippines (PD1460). He also insurance be awarded? (5%) company apolicy claim for its value. However, the Kidney Hospital. 1993, Benjie with Garapal Insurance proceedings. (1) The designated in a life awarded to the ESTATE of 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 such interest to the property insured. Finding ahis 24-month payment plan attractive, Co the claim 1denied document, for insure proceeds a real of the estate insurance mortgage and claim with Good Life. Discovering contained the usual stipulation anyJuan’s insured residential house for twice that company his claim on ground thatthat for in P1,000,000.00 the same building insurance contract cannot bethat changed Purita, the commonlaw-wife, isthe disqualified a third party, called the reinsurer, toexcess insure he would like some protection for the protect his own separate interest. b) The Anjo purchased a Tamaraw FX from Toyota over in returning 3 lots the registered premium in paid. his name In that and case, a previous hospitalization, Good Life rejected action or suit must be filed within one year amount within the same corporation. He he failed to pay premium resulting in the was sold at the public tobecause Nat. Benjie without theout consent of reason the beneficiary as the beneficiary of the auction deceased him against liability by of such original by taking an insurance against all risks contention of First Insurance that double QC. He paid a down-payment of P100th and chattel the insurer mortgage cannot over prove his 3 the cars policy and 1 void Isuzu ab Petra’s on ground of rights concealment after theclaim rejection of the claim. immediately assigned all his to policy the cancellation of the policy. Candeceased Francis failedrelation to redeem the property by March because heBasically, hasthe a vested interest in from the of illicit between the and 18, insurance. a SUGGESTED ANSWER: ormisrepresentation. contingencies ofBX, loss arising any insurance is contrary to law is 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. Pineda, G.R. No. 54216, July 19, Purita, the designated beneficiary. Due to unsound or unsafe practices There is no(5%) law providing that double Hewith executed a chattel concealment or misrepresentation of the Co. invoking good faith on years partmortgage ofbanking Juan.IS died living him. Three later, in a Company? such illicit including unforeseen adverse effects insurance insured.is illegal per se. fire that gutted his insured house twoof days after he had sold it. There is

58 59 55 57 56 P4,500 103 injured Mercantile Law Examination Q & A (1990-2006) Page Page of 103 of 103 Page of unpaid son, hired Luz balance BOY, professionals for onthe the 3damage to children afloatto of Mercantile Mercantile LawLaw Bar Examination Bar Examination Q &Q A & (1990-2006) ABar (1990-2006) or willful exposure to needless peril which are excepted risks. The insured’s promissory POS,vessel the car a neighbor, as note evidenced forto should P900,000.00. whobe 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 bypolicy, the full in single payment the death principles policy on the 60 103 Page of a. print, reprint, publish, copy, act was purely an act of negligence which is covered by the policy and for Insured; Accident vs. Suicide (1993) the SAM's the executed installments vessel lawyer by needed Luz was due discharging and ATT, repairs payable who estimated was Raul. before paid at for the his (seepolicies Oriental Assurance v CA 200 s be of coverage ainsurance underlying passenger. solidary At theissued time obligations of bythe YCoand accident, Z, would Fortune 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 The insurance for reporting company 459) . (Malayan Ins Co v CA Sep Jay violated may Cruz no was longer licensed recover to drive from butGR it XL-36413 was insurance photo engravings, and pictorial magazine thecar. gun when he pointed the gun toillustrations his temple he did soof the Marine Warranties (2000) So Cala demanded reimbursement from Luz, or policy to 165s536; Bob with face periodically refused to pay on the claim case to of CNI. the ship In one owner, report, 26,Insurance; 88 Figuracion vda devalue Maglana confiscated policy. byImplied anTan LTO agentawho issued himof v because he thought that it was safe for him to do so. He did so other to assure his works; b. to make any translation or 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 disclosed refused totopay, saying thathis the total P500th. In theGR evening of(TVR) Sep 5, 1992, after Consolacion 60506 Aug 6, 92 212s268) ATT stating there CNI was that “no after constructive total to Open Policy a Traffic Violation Report just minutes extracts orthat arrangements orinsured adaptation thereof; SUGGESTED ANSWER: relieve the insurer ofto liability for car the death of the since the death was Insurer; 3rd Party Liability (2000) insurance? c) If each of the policies obtained by Fortune X company procured a group accident damage the was P9,500.00 Since Cala his birthday party, Tan was in a happy mood investigations, loss.” a) found “constructive the injuries total to the loss” 3 before the accident. Could Asiatic Insurers, dramatize if Was it be there ahe non-dramatic work; convert it an accident. The following are implied in X was riding awarranties suburban utility vehicle (SUV) SUGGESTED ANSWER:

owner toaccidental recover from the company? the problem (a) above iswith an open policy insurance policy for its construction paid P5,000 only, Luz contends that shetowas butinnot drunk. He was playing his hand children not the ship intentional. Inc., be made liable under its policy? Why? intoto aentitle non-dramatic work ifbut it be ainsurance drama; marine insurance: 1) That the ship is Asiatic Insurers, Inc., should be made liable covered by a comprehensive motor vehicle Explain. b) Was it proper forclaim the and it was immediately determined after employees variously assigned itsship entitledorto go after to theorowner gun, from which he previously removed thethe (6%) complete execute itRaul if it be ato model design; c. and/or to take in certain cargoes 2) That the seaworthy to make the voyage under the policy. The fact that the driver was liability insurance (CMVLI) underwritten by SAM lost the case in court, and POS was to send a notice of fire that As thehis value of Fortune’s house was provincial infrastructure projects. Y Insurance additional P4,500.00 1) Is Cala, as subrogee magazine. secretary was watching to exhibit, perform, represent, produce or reproduce ship shall not deviate the merely holding TVR from does not violate the FastPay Insurance Company when itfrom collided abandonment tothe the insurance company? awarded one million pesos in damages which P2.4m, how much may he voyage collect Company underwrote the Luz, entitled to reimbursement from Raul? television, he astood in front of her andX,Y theofwork in any manner orcoverage, 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 of which were paid for entirely by 2) May Cala recover what it has paid Luz? pointed the gun at her. She pushed it aside for profit or otherwise; if not reproduced in copies 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 in serious to X; X used ATTs report to deny the claim on the Company without any employee and said that it resulted mayorbe loaded. Heinjuries assured to sell any manuscripts or any record show nationality neutrality and that it will Besides, such a condition should be 1) No, No. there Luz was executed no "constructive a release in total favor loss" of his total loss up tobus; theand amount of thenot sale, Y, a passenger of the Z, a pedestrian What is the nature of the liability of the ground that the injuries to POS's 3other children contributions. While the policy was in effect, her carry that itany was not and then pointed it at his whatsoever thereof; d. to make any use or document which will cast reasonable disregarded because what is involved is a Raul because the vessel was refloated and the (Manila Mahogany Mfg Corp v CA GR insurance cover. Thus, the extent of recovery several insurers in double insurance? waiting for a ride moment, at the scene of the collision. were intentional, hence excluded from the five of the covered employees perished at temple. The next there was an disposition ofOct the1987) work consistent withrepairs the laws of suspicion thereon; 4) That the ship shall SUGGESTED ANSWER: 52756, passenger jeepney, and what is involved costs of12 refloating plus the needed would be P400th from X, P200th fromnot Y,on and The wifepolice of the deceased sought payment (2%) The report established that the bus Explain. policy's coverage. POSprovincial countered that CNI (P sea on their way to their explosion and Tan slumped to the floor the land 2) Yes. Cala lost its right against Raul carry contraband, if The nature of liability of the several here is not own damage insurance buthad third 2.9 Million) willthe not be more than threeP600th Z. especially the policy but her claim was rejected. The was thefrom offending vehicle. bus CMVLI The was estopped from using ATTs report assignments. Their wives sued Y Insurance lifeless. it is making a voyage through belligerent because of the release executed by Luz. d) In problem (a), what is the extent of the insurers in double insurance is that each party liability where the injured iswas aY, and fourths ofitthe of thefor vessel. insurance company that there no Z Company policy issued by agreed Dragon Insparty Co. X, because wasvalue unethical ATT toAprovide for payment of death benefits waters. Sinceisthe release made the to a liability of insurance companies bound to was the contribute third party notthe privy the the contract of among constructive total loss is onewithout which gives suicide. However, itto was submission of for insurer jointly sued RM Travel and Dragon Ins prejudicial information against hisratably client to under the policy. While the suit was pending, SUGGESTED ANSWER: Marine Insurance; Peril of the Ship vs. Peril of the Sea Insurer; Authorized Driver Clause; vehicle is stolen consent of Cala, Cala may recover the themselves? the loss in proportion to the amount for which insurance. person insured a right to abandon. (Sec, theindemnity insuranceunder company that there was no Insurance Code of the thethe insurer, CNI. Who should prevail: the 131, wives signed a power of attorney In problem (a), thethe insurance companies (1998) (1993) SUGGESTED ANSWER: amount of P5,000 form Luz (Manila Mahogany he is liable under his contract as provided Insurance Code) There would have been for a accident. In supportThe thereof, itcourt contended a) Phils (PD1460). lower applied claimant, POS; or the insurer, CNI? X Company executive, PJ, Decide asreport, among themselves would be liable, viz: X –the designating A marine insurance policy on a cargo states CNI is not estopped from using ATT's HL insured his brand new car with P Ins Co Mfg Corp v CA GR 52756, 12 Oct 1987). Sec 94 of ICPtotal par.loss The ratable contribution had the vessel MN that there was indemnity no accidentpolicy when of a deliberate “no fault” the statute, by constructive with reasons briefly. (5%) authorized representative to enter into Insurer; Authorized Driver Clause (1991) 4/12 of P600th P200th – 2/12for of P600th that “the insurer =coverage shall be Ywherein liable losses = their because CNI, in the first place, for comprehensive the of each of each insurer will be determined Pearly Shells suffer loss or needed refloating actdismissed was performed unless some additional, the suit against RM Travel, and a settlement with her the insurance SUGGESTED Sheryl insured newly acquired car, athe P100th ZANSWER: –perils 6/12 of P600th =to P300th incident to of the sea.” During the commissioned it and paid ATTcompany. for it. Onthreeinsurance company undertook indemnify based the following formula: AMOUNT OF and on repairs of more than the required unexpected, independent and unforeseen ordered Dragon Ins to pay indemnity to all No. The cause ofdamage action of Y is based on the When a settlement was no reached, PJof Nissan Maxima against any loss or interest damage voyage, seawater entered the compartment other hand, ATT has conflict him against loss or to the car a) by POLICY divided by TOTAL INSURANCE TAKEN fourthsANSWER: of itsinsurance value, i.e., more than P30.0 happening occur which produces brings three plaintiffs. Do you agree with the court’s ALTERNATIVE instructed the company to issue contract ofcargo carriage, while that oforX and Z is for P50th and against 3rd party liability for SUGGESTED ANSWER: where thecollision was stored due to the because SAM and CNI are on the same side accidental ... b) by fire, external multiplied by LOSS = LIABILITY OF THE (Sec. 139, Insurance Code, cited in Million about the injury or death; and b) that the judgment? Explain (2%) However, the insurance company shall pay e) Supposing in problem (a)should above, Fortune Each insurer is bound, as between himself the settlement check to the order of X based on torts. The court not have Yes. P20th with the XYZ Ins Co. Under the policy, The suit will prosper. Y Ins Co is liable. X defective drainpipe oftheft, the ship. The insured — their interests being congruent with each explosion, burglary, or and c) malicious INSURER. Oriental Assurance v. Court of Appeals and insured willfully exposed himself to needless for the total costs of refloating and needed was able to collect from both Y and Z, may and other insurers, to contribute ratably to Company, which will undertake the payment dismissed the suit against RM Travel. The car must be driven only by an After a month, carnapped while of Co,the through its executive, PJ,POS's acted asauthorized agent filed an actionthe on car thewas policy for recovery other, oppose claim. It act. Panamanamely, Saw Mill,to G.R. No. 94052, August 9, peril and thus removed himself from the SUGGESTED ANSWER: repairs (P2.9 Million). he keep the entire amount he was able to the loss in proportion to the amount to the individual claimants of their respective court should have ordered Dragon Ins to pay driver who is either: 1) the insured, or 2) any SUGGESTED ANSWER: parked in the parking space in front of the of Y Ins Co. The latter is thus bound by the the damages caused to the cargo. May the cannot be said that ATT has used the for 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. of two X, Ycontentions , andinZMakati. to thenot extent shares. PJ misappropriated settlement However, inits Finman General Assurance Corp. v. No.each These are tenable. person driving on the insured’s order or with Intercontinental Hotel HL’s wifeof the misconduct of agent. It isthe the usual insured recover damages? (5%) information to the disadvantage or prejudice SUGGESTED ANSWER: contentions of the insurance company the cargo insured was the defective send a notice of abandonment to the 94, Insurance Code) amount and the wives pursued their case Court of Appeals, 213 SCRA 493 (1992), insurance coverage, but whatever amount is it was The insurer is liable for injury or death even his permission: provided that the person who was driving said car before it was practice in the group insurance business that of SAM. SUGGESTED ANSWER: No, heExplain. can only beThis indemnified his loss, tenable? Insurer; 3rd Liability (1996) drainpipe the ship. peril of for the ship, insurance company? Explain. against Y Party Insurance Co. Will the suit prosper? upon in theis negligence. policy should explained that there nois "accident" in the dueagreed to theofreported insured’s gross The be driving is permitted inis accordance with carnapped immediately the the employer-policy holder the agent of No, it was not proper for the ship owner to not profit thereby; hence he must return While driving his car along EDSA, Cesar and not peril of the sea. The defect in the Insurer; Liability of the Insurers (1990) answered first by RM Travel and the Explain context (3%) of an accident policy, if it is the fact that the insured removed the magazine licensing or other laws or regulations to drive incident to various government agencies in thesend insurer. a notice of abandonment to the P200th of the P800th he was able to collect. sideswiped Roberto, causing injuries to the act, drainpipe was the result of the ordinary use by a) Suppose that Fortune owns adisqualified house succeeding amount should beinsured paid natural result of the insured's voluntary from the hand gun means that the the motor vehicle and is not from compliance with the insurance requirements. insurance company because abandonment During the effectivity of the policy, the car, latter, Roberto sued Cesar and the third party of the ship. Tocould recover aneedless marine Because theInsurance car not beunder recovered, HL valued at P600th and insured the same up to the amount of the unaccompanied by anything unforeseen didDragon not willfully expose himself to driving such motor vehicle by 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 and/or insurance policy, the proximate cause of filed aAt claim for loss of the car with thethe against fire with 3Sheryl insurance companies aswhen insurance coverage. The excess of the claims except the injury. There is no accident a peril. most, the insured is only guilty of court. RC Corporation purchased rice from insurance contract, the amount to be driver’s license, met an accident and was 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,(Sun and over andto above such deliberate act is performed, unless some negligence Ins vZ, 211 s 554) Thailand, which itCA intended sell locally. Mutual Insurance Company; Nature & 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, if any, should additional and unforeseen happening occurs Due is toisstormy weather, the 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 not yet been determined when it was carnapped in the possession answered or paid by was RM Travel. that brings about the injury. This element of SUGGESTED ANSWER: rice became submerged ininsea water, and association? Vessel MN Pearly Shells needed only P2.9 indemnity” clause found an insurance Accident Policy to Henry Dy with a face value notified XYZ, but the latter refused paythe on with finality. a) Is the contention of theto of an expired driver’s license, a violation of deliberateness is not clearly shown from A mutual life insurance corporation is a SUGGESTED ANSWER: with it the rice cargo. When the cargo arrived Million, which does not meet the required policy? of P500th. A provision in the policy states In the the absence policy alleging ofExplain. anyespecially that stipulation in violated the the insurer correct? b)Sheryl Mayconsidering the insurer the “authorized driver” clause ofwelfare the facts of the case, the SUGGESTED ANSWER: cooperative Under the that “NO promotes FAULT INDEMNITY” the ofclause, its SUGGESTED ANSWER: in Manila, RC filed a claim for total loss with three-fourths of its value to merit that indemnify “the company HL for the shall loss not of the be insured liable vehicle? in policies terms from thereof which when insurance she drove company it without or a be fact heldthat liable with Cesar? insurance company. 1) May the insurance BOY is a minor, and the injured The insurer was not correct in denying the No, the contention of the insurer is not own any members, claim for with death the money or injury collected of any the insurer, because the rice was no longer abandonment. (Section 139, Insurance Code, Explain. 2) Supposing that the car was upon respect ofbe “bodily injury’ consequent driver’s license. Is(1992) therecover insurer correct? companies may Fortune in case fire company held liable toparty parties are also children. Accordingly, Loss: Total Loss Only claim since the proviso “that the person correct. There isvs. no need wait forit is the from among themselves or consumption. third and solely shall for be their paid SUGGESTED ANSWER: fitinsured forby human Admittedly, the Insured; Accident Suicide (1990) cited in Oriental Assurance v.to Court of Appeals brought HL on thepassenger person attempting to commit should destroy his house completely? SUGGESTED ANSWER: possible that CNI may not prosper. ATT's An insurance company issued a marine driving is permitted in accordance with the decision of the court determining Cesar’s own protection and not for profit. Members without the necessity of proving fault or Fortune maythe recover from the insurers in rice could still beand used as were animal feed. Is LuisPanama was holder of an accident and Saiv Mill, G.R. No. 94052, insurance August 9, installment basis there installments suicide or claim willfully exposing to Yes, RC’s forand total loss ishimself 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 kind. insured. The indemnity A mutual in such order as he may select up to their RC’s total loss justified? Explain. and claim payable before the loss of the car as well as 1991) policy effective Nov 1, 1988 to Oct 31, 1989. due needless perilfor except in an attempt to save rice, which was imported from Thailand for 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 any one person shall not exceed concurrent liability 94 Ins installments not yet payable. Because of the loss At a boxing contest held on Jan 1, 1989 and human life.” Sixreport months later Henry Dy diedfor sale locally, is obviously intended Mindoro garden stones against “total loss 1. police of the (Palermo v gave Pyramid the time of the accident of the injury toby Roberto immediately riseIns and P5,000.00, relies solely upon they its are contributions under orthe the car, wound theprovided vendor demanded fromoath, HL the of sponsored his employer, he slipped and of a bullet inthe his head. Investigation ALTERNATIVE ANSWER: consumption by public. The complete 2. death certificate and evidence only.” The stones were loaded in two lighters, accident; and Co GR 36480 31fact May insurer 88)his opponent to the liability of the under itsso policy. premiums toone unexpected losses, following proofs shall be sufficient: Policy balance of themeet promissory note. HL resisted the Valued unpaid was hit on the by he fell showed that evening Henry was in anot The insurer 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 he was only liable for and his head hit one of the posts of the happy mood although heand was not drunk. He driver” in the policy evidently applies to both essential to constitute an actual total loss. 3. medical report evidence of 400 pieces. Because of rough seas, damage by Fortune in the problem is a insures directly against liability, the(a) insurer’s Sunlife, G.R. No 158085, October 14,which 2005). installments due payable before thehe loss of obtained the boxing ring. He was unconscious was playing with hisand handgun from the insured and any rendered other person drivinginthe Intellectual Property Such a loss exists in this case since the rice, medical or hospital disbursement in respect was caused the second lighter resulting valued policy and the value of his house was liability accrues immediately upon the car but no longer liable for other installments the and wasatdead on arrival the hospital due had previously removed itswater magazine. He vehicle the time of the theat400 accident. The term ALTERNATIVE INSTANCE: 4. Claim may be made against one having of which been refund soaked is claimed. in sea and thereby the loss of 325 out of pieces. The fixed eachofofthe theinjury policies P1m,upon how which occurrence or at event due at the time of the losswho of the not yet to in “intra-cranial hemorrhage.” pointed the gun at his sister gotcar. “authorized driver” should be construed as a In case of an over insurance byscared. several motor vehicle only. rendered unfit for human consumption, has owner of the shipment filed claims against SUGGESTED ANSWER: much would Fortune recover from X if under he has Can his father who is a beneficiary the 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 1) Yes. The was useless lost to theft. What the insurance ground of 14 Henry’s wifecar Beverly, asdue the for designated already obtained full payment on the said insurance policy successfully claim RTC 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 return of the premium, proportioned to SUGGESTED ANSWER: Raul’s bumped the car owned by Luz. (Pan Malayan Co vthe CA which ittruck was imported applies in this case is “theft” clause, constructive total loss inasmuch as moreis beneficiary, sought to the collect under theInsand insurance policies issued by Y(2003) andcompany? Z? indemnity from the insurance 88 167s386) Insurer; Authorized Driver Clause SUGGESTED ANSWER: protected by copyright? M/V Pearly Shells, a passenger and cargo trigger. The gun fired and Henry slumped on based on contract while that of Cesar is amount by which the aggregate sum insured Fortune may still value recover the balance of The car was5,insured by clause. Cala Insurance. For gr 95070 Sep 1991) SUGGESTED ANSWER: not the “authorized driver” It her is than ¾ of the of only the stones hadunder been policy. Sun-Moon Insurance rejected Explain. SUGGESTED ANSWER: The insurance company is not liable its Rick de la Cruz insured his passenger vessel, was insured for P40,000,000.00 the based on tort. Ifthe the insurer were solidarily infloor. alldamage the policies insurable value P200,000 from X insurance company since the caused, Cala paid Luz P5,000.00 Yes, the father who is a beneficiary under immaterial that HL’sexceeds wife wasthe driving car lost in one of lighters. Is the insurance claim the ground that the death ofthe Henry Secagainst 5 on of PD 49 provides that Copyright shall policy covering against “total loss only” the jeepney with Asiatic Insurers, Inc. The “constructive totalLuz loss.” Due itto a a liable with Cesar, it recover could beupmade to policy pay ofnot the thing atdriver’s risk. the insured may only to Why? the in amicable settlement. executed the accidental insurance successfully with an expired license at the time company liable under its can policy? was accidental. Beverly sued the consist in the exclusive right: shipment of 1,000 pieces of Mindoro garden provided that the authorized driver of the ALTERNATIVE: typhoon, it 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 ishave no constructive total vehicle should a valid and existing Beverly can promissory recover the proceeds of the only policy from theCala insurer.passengers. The deathpolicy of were no casualties, injured CNI insure SAM under a homeowner's This would, contrary toloss thethat 2) The rights against Raul. note is When not affected demanded by Clearly, thehowever, proximatebe cause of death was CA 208 was s 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 notice of principles against claims for accidental injuries by underlying contracts. whatever reimbursement befalls the from subject Raul, matter thea latter of the refused the boxing contest.insurance Death sustained in aOn on if the totalwas 1,000 pieces of driven Rick dehand, la Cruz which atwere the time abandonment his interest over the vessel neighbors. SAM's minor thecomputed other the accessory saying that contract. he of had The already paid boxing contest is aninsurer accident . (Desolidarily la Cruz v Mindoro by Jay Cruz, to the insurance company which then liable withInsCesar andCo it 17s559) is made to pay only Capital & Surety up to the amount


62 63 66 61 64 103 103 Page Page of 103 of 103 Page of of invention An Liza deception insolvent cannot didPage debtor, could not be65 fall held be after within rather liable for

their lawful infringement remote. regular discharge Since of following itmeantime, copyright cannot What prevails an really since adjudication be is under said the that the of bank formula be The 3) b) said demanded Victoria to E=mc2. If There beAaron similar Hotel is immediate The no isIPO to chain need declared such disapproved reproduces of payment. products exact an insolvent duplication as TV, by thepetition. law are Induties. the conferred by thethe case fact filed by of provision insolvency, Intellectual physicians ofproceeded is the can released Property Intellectual benot so from, Code, easily Property generally, one deceived of Code the by such Einstein's stereo Because videotapes, of the the court, and the patentee’s application radio bank what distributes sets threatened would existing or on 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. inAlthough a all ALTERNATIVE ANSWER: that debts, limitations trademark holds claims, that as to 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 guest to .rooms. To tradename judgment obtained and logo bythereto Vicente long before, be enforced Benito, A declaration by thenominal court that the ANOTHER ANSWER: trademark which manufactures certain types SUGGESTED ANSWER: part ofof 5 any obligations hisjudicial regular proceedings duties, ofthe the insolvent even or if for he debtor giving uses toof 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 S Yes, the IPO is correct because under the The application for registration of Turbo SUGGESTED SUGGESTED ANSWER: ANSWER: is insolvent will have the following effects: of goods could reasonably be expected to time, survive. professorial facilities Corporation and advice materials by legal ofpractitioner, the it was the to Integrity theexisting an videotape Bank patented the player. fullinvention 1) principal Can the amount must Victoria be of a Development proceedings? 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 copyrights first tomay register the intellectual deamounting Leon L-32160 of all assets of the debtor until the that enforced survive independently are as follows: of the insolvency scientific theories and mathematical settings do not indicate that there had been product using the same trademark, another Patents: Infringement; Remedies & Defenses (1993) How does the international affiliation of author are identified (See Section 184.1[k] of 30Jan82) to P55,000. and held As liable a result, for damages? Edzo had2)hardly Would any it 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 of the party who uses the trademark for that Ferdie is a patent owner of a certain Corporation the the Intellectual Property Codeaffect of the cash make left any for operations difference and if Victoria decided Hotel to close does not Shangrila SUGGESTED ANSWER: 2) can Payment toEintein's thefordebtor of any outcome government, national or to local; invented device can convert Law, the assignment the assignee of all patentable inventions." theory of trademark “Axilon.” Copyright; Photocopy; when allowed (1998) product be liable using that invention. He discovered that his invention is of the dispute? Explain. (5%) Philippines). its Cheche charge business. any After fee held paying fora the use the that unpaid of the videotape? salaries Trademark (1994) 1) Yes. Victoria Hotel has no right tobeing useto athe SUGGESTED ANSWER: debts due to him and the delivery 2 Obligations arising from rainwater into automobile fuel. She asked the real and personal property, estate and relativity falls within the category of May a person have photocopies of some trademark. Using this standard, infringement being infringed by Johann. 1) What are the of its employees, Edzo filed a petition for international Shangrila such video tapes inproperty its hotel business Laberge, Inc., manufactures and markets debtor of any belonging to him, The embezzlement or fraud; Macon, a lawyer, to assist in getting her effects ofthe the debtor made byofthe clerk of the In the insolvency proceedings in court, the non-patentable "scientific theory." pages of book of Professor Rosario made exists because Sony can be reasonably remedies available toaffiliation Ferdie against Johann? insolvency onofJuly 1, 2002. Patents: Trademark; Gas-Saving Test Dominancy Device: first (1996) to file rule (2005) Corporation may be critical in the event that after-shave lotion, shaving cream, deodorant, without the consent of the creator/ owner of and transfer of any property by him 3 Obligation of any person liable with assignee invention in insolvency patented. sought Macon suggested to invalidate that court shall vacate and set aside any without violating the copyright law? (3%) expected to use such trademark on electric 2) If you were the lawyer of Johann in the 3) All civil proceedings pending its Cezar N Corporation works in amanufactures car manufacturing rubber company 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 other friends judgment entered incompany 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 byaJoab. trademark “Jordann” is quite innovative which hit the registered in a foreign trademark “PRUT”, whichjurisdiction is registered with as a solidary codebtor, surety, guarantor, and have theCezar corporation apply for the for being fraudulent transfer because it and 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 not partner, indorser or of otherwise. patent, 80% thebefore sharesthe of stock commencement insolvency proceedings. made within 30 of days filing thereof of the to 1) The following remedies are available to Ferdie affected by the order declaring a person consumption. (Filipino Society of5% Composers, reproduction is subject made by asupport; natural person materials trademark and with parts of the Bureau car, he of was Patents, able to andmanufacture is to protection under briefs and underwear and 4 Alimony or claim for and be subscribed by In Cheche and by Macon. insolvency petition. defense, Integrity Bank Intradename this case, however, the action filed bythese against insolvent. (Sec. 59, Insolvency Law) Authors Publishers v Tan 148 s 461; pd 1988) exclusively for research and private study, Trademarks invent a gas-saving and Technology device that (BPTTT) will in enable 1990. Treaty of Paris for the Protection of isof are specified in commenced the the certificate 5 items Debts not provable against estate The corporation was formed Vicente against Carlito was by asserted that the payment to it and was the for apatent 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 co Johann. seize andthan destroy b. injunction c. damages Intellectual Property to which the Philippines registration. (such as a. after-incurred obligations) of, or legitimate application debt was that filed. wasHowever, not covered Cheche bya the died Vicente not later June 16, 1995 (the In action for damages on account of anit c) an Assuming that,“Javorski” Aaron has guarantors wants to know whether, under our laws, he the Franco, the estranged husband of Cheche, Copyright; Commissioned Artist (1995) owner of the copyright in the work. worker, with the saw trademark how Cezar created the which device is afacts in member. such amount been when obtained included in this the schedule submitted by, the from 3 monthsbecause later of it a was heart on pointmay are have not clear) prohibition “aattack. valuable infringement of a copyright, the defendant Infringement vs. Unfair Competition (1996) for his debts, are the guarantors released Insolvency & Corporate can use and register the trademark “PRUTE” contested the application the corporation Solid Investment House commissioned Mon which can and registered likewise, with came BPTTT upinwith 1978. aofsimilar gadget, use of the invention properly transacted insolvent debtor. pecuniary consideration made in good faith,” Vicente obtained a ifwrit of preliminary (the alleged pirate) raised the defense that In 1992, PK Co adopted and copied What is the distinction between infringement from their obligations once Aaron is for his merchandise. What is your advice? and filed his own patent application as the Blanco and his son Steve, both noted artists, also using and spare partsinof be more thanagainst what the infringer (Johann received. thus fallingscrap withinmaterials the exception specified attachment Carlito or more than)30 Recovery SUGGESTED ANSWER: SUGGESTED ANSWER: Insolvency; Effect; Declaration of Attorney’s Insolvency (1991) hecompany. was unaware that what he had filed copied design of N Corporation’s “Jordann” rubber and unfair competition? discharged from his debts? Explain. sole surviving heir of Cheche. Decide the to paint a mural for the Main Lobby of the the Thereafter, Francis an d. fees and cost theNo, Insolvency Law. As judge the in the principle pending of daysThe before the petition for involuntary SUGGESTED ANSWER: precisely under Yes. trademark registered in the name of SUGGESTED ANSWER: SUGGESTED ANSWER: What are the effects of a judgment in was a copyright material. Would this defense shoes, both as to shape and color, but issue with reasons. new building of Solid for a contract price of application for registration ofishis device with insolvency was filed against Carlito by his insolvency case, how would decide the No. An intention to pirate“Javorski” not an guarantors element excussion, the liability of the The distinction between infringement Laberge Inc covers only after-shave lotion, The estranged husband ofyou Checke cannot SUGGESTED ANSWER: insolvency in Voluntary Insolvency cases? beBureau valid? retained the oftrademark on its Insolvency vs. Suspension of Payment (1998) P2m. a) who owns the mural? Explain b) the Patents. Eighteen months respective contentions of the assignee in other creditors. (i.e. on July 29, 1995) ofcontention infringement. Hence, an honest SUGGESTED arises after theassignee exhaustion ofintention the assets (presumably trademark) and unfair shaving ANSWER: cream, deodorant, talcum powder successfully contest the application. The The of the in insolvency 1) Is only the filed gas-saving device patentable? products. Distinguish insolvency from suspension of Who owns the copyright of the mural? later, Cezar hisaction application for the (Radiola-Toshiba Phil v IAC GR 75222 July18,91 insolvency and of Integrity Bank? Explain is no defense to an for infringement. The adjudication or declaration of insolvency SUGGESTED ANSWER: of the principal obligor. The effect of competition are as follows: 1) Infringement of and toilet soap. It does not cover briefsinand right inventions from the May PKover Company be accrue held liable totoN Co? SUGGESTED 2) These ANSWER: are the defenses that can be asserted is correct. The payment made by Edzo Explain. payments. (3%) Explain. registration of his device with the Bureau of ALTERNATIVE ANSWER: 199s373) (5%) Yes, theANSWER: gas-saving device is patentable SUGGESTED of ANSWER: acourt, trademark, whereas competition is by the after hearing orunfair default, shall discharge confirms trademark is the unauthorized use the underwear. moment ofmerely creation and as aexhaustion right it canof a) Solid owns the mural. Solid was one an infringement suit: Explain. Integrity Bank was a fraudulent preference orthe SUGGESTED Patents. Yes. The owner of 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 a technical solution to a the have the following effects: a) Forbid the assets being of assigned. the available Patent is invalid (Sec 45 lawfully be Oncethirty the title is who1 commissioned thethe artists toRA do165, the work payment, madeobligor within (30)thereto days his a) In insolvency, liabilities ofas the others aware that thethe material in question is Yes. Article 2076 of Civil Code provides: against N Co. By copying the design, shape certificate issued to Laberge Inc. It does another; problem in a field of human activity. It is new payment to the debtor of any debt due creditors. amended) vested in the transferee, the latter has the and paid for the work in the sum of P2m before the filing of the insolvency petition. debtor are more than his assets, while toinnot under or covered byofa copyright. This is doneis The obligation the guarantor 2) and delivery intent ispatentable unnecessary him of any inare and color of N Corporation’s “Jordann” rubber include briefs and underwear which involves an inventive step, and certainly 2 himFraudulent Patent is not new orto right to apply for its registration. The suspension ofthe payments, assets of property 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 shoes andJurisdiction; using theSole same in its rubber different products protected by does Larberge’s Insolvency; Proprietorship industrially applicable. It therefore fulfills the b)Unless there isof a stipulation to the contrary 3 are Specification of the invention not is estranged husband of Cheche, if (1990) not shoes debtor more than his liabilities. portion of the copyright material. When the debtor, and for the same causes as all other Note: Aninherit, examinee who answers on the unfair competition; any property by14 him; c)shall Stay of all civil essential in trademarked “Javorski,” PK is obviously trying trademark. requisites One day Jerry mandated Haw, doingby business the intellectual under the in the contract, the copyright belong in comply with Sec b) In insolvency, theand assets of the debtor disqualified to merely would succeed alleged pirate is thus made aware thereof, obligations. basis of the issue of validity of the JG can register the trademark “PRUTE” proceedings against the insolvent but to pass off its shoes for those of N. It is of no Property name Starlight Code for Enterprise, what is patentable. a sole joint ownership to Solid and Mon and Steve. 4 Patent was issued not to the true and are to be converted into cash for distribution to to the interest of Cheche. d) What remedies are available to the transfer of patent as a valid consideration his act of pirating the copy material will 2) Assuming it is patentable, who isamong foreclosure may be or allowed (Secs 18 of & The prior registration of of the trademark 3) cover its briefs and underwear (Faberge Inc24 v moment that finds he that trademark “Javorski” proprietorship, himself short on cash was actual inventor, designer author the utility his creditors, while in suspension 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 losing entitled to the Insolvency Law) is a prerequisite to an action for infringement IAC 215 s 316) Copyright; Artist (2004) registered ahead of the trademark and unable to pay his debts as they“Jordann.” fall due modelCommissioned orthe the plaintiff did derive his for rights payments, debtor is not only asking time SUGGESTED ANSWER: Juan Xavier wrote and published Trademark (1990) should be given due credit. a story creditors? Explain. Trademark, Test of Dominancy (1996) party? of trademark, whereas registration of the BR and CT are noted artists whose paintings Priority in registration is not material in an although he has sufficient property to cover from the true and actual inventor, designer or within which to convert his frozen assets into Under Article 2081, theDrug guarantor maystory set up similar tothe an Food unpublished copyrighted In 1988, and Administration SUGGESTED ANSWER: Insolvency; Fraudulent Payment (2002) What isofthe “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 the utility model (Sec 28 RA 165 as liquid cash ANSWER: with which to pay his obligations against the creditor the defenses that Cezar of Manoling is entitled Santiago. to the submitted patent Itallwas, because however, he was approved the labels by Turbo SUGGESTED As of June 1, 2002, Edzo Systems Patents; Infringement (1992) competition. (Del Monte Corp v CA 78325 Jan commissioned them to paint a mural at the from an action forprincipal infringement of The trademark. counsel, fortoadvice on the following queries: amended) when the latter fall due. the debtor. discharge The test of dominancy requires that if the conclusively proven thatdrug Juan Xavier wasthe not thepertain real inventor. Francis, copying from Corporation for its new brand name, Corporation (Edzo) was indebted to the the 25,90 181s410) In an action for infringement offor patent, Insolvency: Voluntary Insolvency (2005) main lobby of his new hospital children. The basis of an action for unfair competition a) Should he file a petition with the SEC to be obtained by Aaron on the principal obligation aware theCo story of claim Manoling Santiago competing contains thestating main or work of that Cezar, cannot thewith essential Infringement vs.trademark Unfair Competition (2003)by “Axilon.” Turbo isv now applying the (Converse Rubber Jacinto Rubber & Plastics following creditors: a) Ace alleged defended himself Both agreed to collaborate onEquipment the project for Aaron, ainfringer well-known architect, is suffering is can confusing andused misleading similarity inthe declared in a state of suspension of now be as a defense by essential features of personal another and confusion was protected by copyright. criteria ofofan inventor, who Manoling must In what way isvarious an infringement of aequally Bureau Patents, Trademarks and possess Co GR 27425 and 30505, Apr28,80 97s158) computers and accessories sold to Edzo Supplies – for 1) that the patent issued by the Patent Office a total fee of two million pesos to be from financial reverses. He has four creditors general appearance, not similarity of payments insued viewagainst of the said financial guarantors creditors. The andnot deception isan likely to which result, infringement Santiago Juan forregistration infringement of was essential elements of Xavier novelty, originality and Technology Transfer forthe the of trademark similar toinvention that pertains to credit amounting P300,000. really which was divided between them. It to was also agreed with a on total claim of P26 Million. Despite his trademarks condition he faces? Explain your answer. b) SUGGESTED ANSWER: SUGGESTED ANSWER: Tradename: International Affiliation (2005) guarantors are also entitled to indemnity takes place. Duplication or imitation copyright. Juan liable? precedence to be Xavier to (2%) protection. said brand Is name. Itentitled was subsequently unfair competition? b)Dr. DL Handyman Garage – for mechanical patentable; 2) these that he had no intentistonot that had to provide all the materials intention to pay obligations, his Yes. Juan Xavier liable for infringement of Insolvency; Assets vs.isparticipation Liabilities (1998) Should he sell profit 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 the assets painting and pay foractionable wages current are insufficient tothe cover allon of of copyright. It is not necessary that Juan to his 10 brothers and sisters in order to raise Horacio opened a coffee shop using money Infringement; Jurisdiction (2003) Corporation for using the “S” logo and the a) Ifor would counsel Jerry to file the and Petition for as infringing label and should suggest effort Francis application would have to be given a class of anti-fungal drugs is used Edzo’s company car about amounting toan P10,000. for infringement; 3)needed that was no to technicians and laborers for the work them. His creditors are tothere sue him. Xavier is business? aware that the story of Manoling cash for his Explain. borrowed from financial institutions. After 3 K-9 Corporation, a foreign corporation tradename “Shangrila”. The former claims Suspension of Payment with the ordinary c) Joselyn Reyes – former employee of imitate. Similarity in size, form and color, priority. Cezar, however, has within three such by the medical profession and the Assume that the project is completed exact of the patentee’s existing on alleging Consequently, the duplication project. hetowas constrained to owner file aand Santiago was protected by copyright. The months, Horacio left for the US with the itself be the registered of that it was the first to register the logo and the Edzo who sued unlawful termination courts, rather than the SEC.toand SEC’s jurisdiction while relevant, is for not (Asia months from the decision, have it cancelled pharmaceutical industry, that it is used both BRbut and CT fully paid the amount of petition theare court toa)conclusive. declare him patent only a Edzo minor improvement. With petition for insolvency. (5%) Since Aaron work of Manoling Santiago is protected at Trademark; Infringement (1991) intent of defrauding his creditors. While his trademark “K-9” and logo “K”, filed an Inter tradename in the Philippines and that had SUGGESTED ANSWER: of employment and was able to obtain over such cases is confined petitions Brewery v CA GR 103543 224s437) as as the rightful inventor; oronly within oneit year a generic chemical name intovarious P2M as artists' feethe bycircumstances DL.Jul5,93 Under the law aon insolvent, can judge properly treat those defenses, would you exempt was merely forced by to the time of its creation. Sony is a registered trademark fortheTV, liabilities are worth P1.2m, his assets, Partes case with Intellectual Property been using the same in its restaurant I would not exempt the alleged violator from final judgment against Edzo for P100,000. filed by corporations and partnerships under from publication, to file an action to prove his scientific and professional publications. A intellectual property, who will own the petition as one forliability? involuntary insolvency? Copyright; Infringement (2006) alleged violator from Why? SUGGESTED ANSWER: stereo, radio, cameras, betamax and other however are worth P1.5m. May Horacio be Office against Kanin Corporation for the d) Bureau of Internal Revenue – for business. Shangrila Corporation counters that liability for the following reasons: 1) A patent its regulatory powers. SUGGESTED ANSWER: priority to the invention, which has been taken competing drug manufacturer asks you to mural? Who will own the copyright in the 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 Office local company, declared insolvent? (2%) cancellation of mark “K-9” andBest b) of selling profit participation SUGGESTED ANSWER: unpaid taxes amounting it isInstead an him affiliate of an international organization once issued thethe Patent raises a to No. This isvalue-added aby case forlatter’s voluntary insolvency from and fraudulently by contest the registration ofdeclared theregistered brand name mural? Why? Explain. (5%) No. Horacio may not be 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 thedebtor case Under presumption Section that the thegranted article Intellectual is e) Integrity Bank –of which Edzo a certificates, I would urge Jerry toyou enter into a his P30,000. which hasby been using such logo and because this was 178.4 filed by an insolvent Francis. “Axilon” Turbo. What will advice be? His assets worth P1.5m are more than learnership, Liza quoted without permission a 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 liabilities worth labor law expert's comment appearing in his registration of aP1.2m. trademark whenand ALTERNATIVE ANSWER: and Francis were using his which, materials 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 cash for his business. loan was notK-9 secured by any asset Edzo, However, Shangrila Corporation registered the P1,000.00 Insolvency; Assignees (1996) SUGGESTEDunder ANSWER:Section 14 of the Insolvency book entitled "Annotations on the Labor applied to or used in connection with his b) Jerry may sell profit participation company time making will only his Manufacturing for Decide the for infringement and damages. Could the stipulation but statement it was to guaranteed or the allegation contrary) unconditionally not owns enough and the to tradename andin logo in the the devices, Philippines Under Section 20infringement. of theis Insolvency Law, On June 16, 1995, Vicente obtained aLiza writ of Law. There is no infringement. In order that a case Code." Can the labor law expert hold products, is merely descriptive or deceptively Which of the two corporations has a better certificates to his brothers and sisters claimthe prevail over those of his employees? action before the RTC prosper? Why? v the de copyright, solidarily destroy but by that the Edzo’s presumption. work President itself belongs and ( Aquas controlling after suit was filed. thecase. petition must be filed by(2006) three or to more preliminary attachment against Carlito. The Patent; Non-Patentable Inventions for infringement of trademark can prosper, SUGGESTED ANSWER: liable for ofConfusion copyright for misdescriptive ofthe them. can right to registering useinfringement the logo and the tradename? without same with the SECresult Explain. Leon 30 Jan 82 L32160 person stockholder, who Eduardo commissioned Ong, as itsalive creation. creditors. In the case at)Z. bar, it is Aaron, ALTERNATIVE ANSWER: levy on property occurred on June Supposing Albert Einstein were today No, Joab's cannot prevail over those SUGGESTED ANSWER: the products on which the trademark isthe used quoting aCarlito’s portion of his book without his of from the use of as the generic Explain. because hisclaim sale is “Axilon” an exempted transaction 2) An intention to infringe is not Accordingly, the mural belongs to DL. accommodation surety. Medical drugs may be procured only upon debtor, who filed the insolvency proceedings. SUGGESTED ANSWER: 25, 1995. On July 29, 1995, another creditor S Development a did better and loan hebefiled with the Intellectual Property his employees. In Corporation the place, Joab not must of the same kind. in Thea electric fans permission? (5%) product itself. being isolated and notfirst a sale tohas the public. The due to Integrity fell duesince on necessary nor an element case for However, BR and CT own theBank copyright, prescription made by a duly licensed filed a petition for involuntary insolvency right to use the logo and the tradename, Office (IPO) an application for patent for his commission any of the two employees to produced by Best Manufacturing cannot Insolvency; obligations that survive (1997) Copyright; Infringement (1994) June 2002. Despite pleas for extension of infringement of a patent. there is 15, no stipulation to the contrary. physician. The possibility of against Carlito. The court gave since the benefits of theory of relativity expressed in the invent theprotective device, and itsinsolvency payment by Edzo, the due course to the


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

68 67 Page Page of 103 of 103

rehabilitation 1 In suspension in accordance of payments,with the debtor 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 doesof notthe 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 assets and liabilities, earnings and debts 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 of Payments; Remedies (2003) interest of the investors and creditors. discharge from all of debts and liability; When is the remedy declaration in a state In suspension of payments, no to limita for of 3suspension of payments available the amount of indebtedness is required, SUGGESTED ANSWER: corporation? whereas, in This insolvency, mustto a (per dondee) remedythe is debts available exceed P1,000 in case of voluntary corporation when it 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 corporation sufficient to cover all its petitioning either: Distinguish the property stay order in corporate debts but foresees the impossibility of rehabilitation from a declaration in a state of meeting them when they fall due (solvent Insolvency; Voluntary Insolvency Proceeding (1991) suspension of payments? (4%) but illiquid) or ANSWER: of an order, declaring a Is SUGGESTED the issuance 2 sufficientInsolvency property (insolvent) petitionhas in ano Voluntary proceeding Suspension of Payments; Rehabilitation Receiver (1999) but is under the management of a insolvent, mandatory upon the court? SUGGESTED ANSWER: Debtor Corporation and its principal rehabilitation receiver or a management Assuming that the petition was in due committee, stockholders the applicable filed withlaw the is P.D. Securities No. form and 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 SUGGESTED ANSWER: Insolvency Law) Finding the petition sufficient in form and objective was for SEC to take control of the c. The order of suspension of payments Insolvency; Voluntary vs. Involuntary Solvency (1995) substance, the court issued an Order corporation and all its assets and liabilities, suspended the foreclosure proceedings Distinguish voluntaryand insolvency and appointing a rehabilitation receiver and staying earnings between and operations, to determine initiated by the Second Bank. While the involuntary insolvency. the enforcement of allfor claims against the What is the rationale the Stay Order? the feasibility of continuing operations and foreclosure is against the property of a third SUGGESTED ANSWER: SUGGESTED ANSWER: corporation. (5%) is in reality an action to collect the the company the benefit of party, In rehabilitating voluntary insolvency, it for is creditors the debtor The itpurpose of the stay order is intended to Generally, the unsecured had investors creditors. principal obligation owned committee by the or himself who and files the petition insolvency, give the management manifested willingness toforcooperate with corporation. During the time that the while in involuntary insolvency, at least 3 rehabilitation receiver the leeway to make Debtor Corporation. The secured creditors, payment of the principal obligation is to creditors are the ones who file theobjections petition forand the business viable again, without having however, expressed serious ALTERNATIVE ANSWER: suspended, the debtor corporation is insolvency against the insolvent debtor. divert attention and resources to litigation in Thereservations. following are the distinctions: considered to be not inAirlines default and, (Philippine v. Spouses variousANSWER: fora FirstIn Bank had insolvency, already initiated judicial ALTERNATIVE 1 involuntary 3 or more G.R. Nos.even 76879 77143, October 3, the 1990; therefore, the& right to enforce Kurangking, et al, G.R. No. 146698, September foreclosure proceedings on the mortgage c. The suspension order does not apply to a creditors are required, whereas in voluntary Rubberworld [Phils.] Inc. v. NLRC, G.R. No. security, whether owned by the debtor24,party 2002; BF Homes, Inc. v. Court of Appeals, constituted on themay factory of Debtor third mortgage because in such a case, insolvency, one creditor be sufficient; 126773, April 14,a1999; ASB Dev. corporation or of thirdSobrejuanite party, has v. not yet Corporation. theCorp., credit is not yet being enforced against 2 In involuntary insolvency, the creditors arisen. G.R. No. 165675, September 30, 2005). It Second Bank had already initiated foreclosure thealso corporation but against the third party must be residentson of the prevents a creditor from obtaining an proceedings a Philippines, third-partywhose mortgage mortgagor’s property. credits or demand accrued in the Philippines, advantage or preference over another with SUGGESTED ANSWER: constituted on certain assets of the principal and none of the creditors has become a respect to actions d. For the same reason against as in (c),the the corporation order of stockholders. assignment within 30 days to (Finasia Investments and suspended Finance Corpthe v. Court Third by Bank had already filed a suitprior against suspension of payments suit of creditor thethe filingprincipal of the petition, whereaswho in voluntary . Appeals, G. R. No. 107002, October 7,1994) stockholders had held filed by Third Bank against the principal Suspension of Payment vs. Insolvency (1995) insolvency, these are not required. ALTERNATIVE ANSWER: themselves liable jointly and severally for stockholders. between suspension payments 3 In involuntary insolvency, the debtor d. Distinguish The action against the ofprincipal the loans of Debtor Corporation with said and insolvency. must have done any of the acts of insolvency stockholders’ surety in favor of the Bank. SUGGESTED ANSWER: as enumerated Sec 20,directed whereasthe in corporation is not as itdebtor is notisan After hearing,bythe SEC In suspension of suspended payments, the not voluntary insolvency, the debtor must not and action againstHe theonly corporation but within againstwhich the appointment of a rehabilitation receiver insolvent. needs time have done any of said acts. stockholders whose personality is separate ordered the suspension of all actions and to convert his asset/s into cash with which to 4 claims In involuntary the amount from that of the corporation. against the insolvency, Debtor corporation as well pay his obligations when they fall due. In the SUGGESTED ANSWER: of indebtedness must not be less than P1,000 as against the principal stockholders. a) insolvency, theappointment debtor is insolvent, e. case Underof PD 902A, the of a (2%) whereas in the voluntary mustor ALTERNATIVE ANSWER: Discuss validityinsolvency, of the SECitorder that is, his assets are less his liabilities. rehabilitation receiver willthan suspend all exceed P1,000. The following are the distinctions: suspension? actions for claims against the corporation 5 In involuntary insolvency, the petition and the corporation will be placed under must be accompanied by a bond, whereas such is not required in voluntary insolvency.

70 71 72 69aof contract 103should Mercantile Law Examination Q & A (1990-2006) Page Page of 103 of 103 PageAA of 103Page The insurance entered into company with Mercantile Mercantile LawLaw Bar Examination Bar Examination Q &Q A & (1990-2006) ABar (1990-2006) SUGGESTED ANSWER: bear BBthe thru loss CCto tothe transport cargo because ladies' wear the from M/V The BV Ilog agreed Saad de Manila Dev to sell Co with to enters AC, a cargo ainto Ship of a and voyage 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 from bound logs MV LadyLove. for at $27 Manila. per Before For cubic one meter the reason Saad FOB. or could another, After load it, 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 ship causing order. which itdecided to sinkan along to load with it for itsits cargo. own A account. of the consignee, H&T Corporation of LA, owned by BC Shipping Company. When the salvor, a) May Salvador, XYZ Shipping Inc., was Cocontracted validly askto for 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 at sight to RC, the crate appearedfee intact; but upon average Saad recover was the damages? refloating To what of P1extent? million, b) If SUGGESTED ANSWER: infor favor of BV for contents, the total priceisof inspection ofnot the RC discovered andOslob whose did account load it should for itspurchase own it be? account, Why? it Particular Average. The owner of the vessel the logs. The letter of credit was mailed to FE that the by items inside party? had allc) been badly (4%) bound the charter Explain the shall shoulder the average. Generally Bank with instruction “toany forward the damaged. He did not notice meaning ofthe “owner profile hac vice of theit toof speaking, simpleThe or particular averages beneficiary.” letter of credit provided damage or In anything with least does of all vessel.” what kind of anyone, charter party include all expenses and damages caused to that the draft to be drawn is on SP Bank and with BC Shipping Company. What he did was this obtain? ANSWER: theSUGGESTED vessel or cargo which have not inured to that it bedirectly accompanied by,office among to proceed tothe your toofother consult XYZ may ask for rescission the thea) common benefit (Art.from 809, andstating are, things, a certification AC, that youcharter about party whether he should have given a if, as in thisby case, it sold the therefore, to be borne only the owner of he the logs have been approved prior shipment notice of damage and how long a time SUGGESTED ANSWER: vessel before the charterer begun to Before loading ongave the vessel chartered by AC, the property which rise tohas the same in accordance with the terms and conditions had to initiate a suit under the provisions of My advice would be that RC should give load the vessel and the purchaser loads the logs were inspected by custom inspectors (Art. 810) while general or gross averages it 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 ofcargo 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 ofcargo, Commerce) exportability oforthe logs. After the loading was vessel, its 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 to indemnify delivery of the cargo to him. issued a mate receipt of the cargo which for the common benefit, gross averages are COGSA; Prescriptive Period (1995) Oslob ifthat itby was not informed of articles the Charter stated the logs are in condition. to be borne the owners of good the Bottomry (1994) What is the prescriptive period for actions Party at the time of sale. (Art 689 Code However, AC refused to issuecase the required saved (Art. 812). In the present there of is Gigi obtained a loan from Jojo Corporation, involving lost or damaged cargo under the of certification in vessel the letter of credit. Because no Commerce) proof that the had to be put afloat c) 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“in of favor the vessel in its thesuccessors case of transferred of Jojo, May Fewhen Bank the be held liable under the been letter of the date goods should have or charter (Litonjua Shipping andbareboat 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, Party BV, argued FE Bank, by accepting Charter (2004)wasthat 10Aug1989) chattel mortgage 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 Coca-Cola Company through 1. 2 vessels coming the opposite Gigi defaulted andtohad 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 asBank atwo Insurance Company. The cargo but is toNo. both. are liabilities of the mortgage onWhat the vessel because itarrived sank liable under the letterto ofthe credit. Is thecaused condition a certification of AC. Without such to with Coca-Cola demanded from vessels with respect damage during ashortages. typhoon. Meanwhile, Lutang argument tenable? Explain. certification, there is no obligation on the Capitol Insurance Co. P500.000 in services settlement them and their cargoes? Explain. Corporation which rendered salvage SUGGESTED ANSWER: part of FE Bank to advance payment of the for Trading. The MM Regional Trial Court, 2. If XXO 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, thatof ofaJojo preference. The lien of have Jojo by virtue 2) No. FE Bank may 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 when it notified BV, thatExplain. an Code Commerce, thecargoes? shipping agent is tocredit theofvessels and the vessel sank. Under such loaninthe on bottomry letter of credit has been civilly liable forshould damages favor of third 3. irrevocable Which party bear damage to the Jojopersons acted not only as creditor but also asof the transmitted itthe onconduct its behalf. the to 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. thecomplied loan is predicated on the safe arrival of with, namely that from the draft be is party exempting the owner liability ANSWER: theSUGGESTED vessel at the port of destination. The accompanied by a certification from AC. not against public policy. Coca-Cola No. The appeal ofthe Coca-Cola will not prosper. SUGGESTED ANSWER: right was lost when vessel sank 17 Further, confirmation of aprosper? letter of(Sec credit appealed. Will its appeal Reason Under Article 587 of the Code of Commerce, 1. Each vessel must bear its own damage. Both Carriage of Goods: Deviation: Liability (2005) Letters of Credit; Liability of a confirming and notifying PD briefly. 1521)be(5%) must expressed. (Feati Bank v CA 196 s 576) shipping agent is civilly liable for of them were at fault. (Art 827, Code of Onthe a clear weather, M/V Sundo, carrying bank (1994) damages in credit favor of third due to the Commerce) insured cargo, left the ofpersons Manila bound In letters of inport banking transactions, conduct of the carrier's captain, and the 2. Each of them bear their respective for distinguish Cebu. While at should sea, the the liability ofvessel a confirming bank SUGGESTED ANSWER: shipping agent can exempt himself damages. Since it cannot be determined as to encountered a strong typhoon forcing the from a notifying bank. In case anything wrong happens to the letter therefrom only abandoning the which isby atvessel fault. to This the vessel doctrine of captain tovessel steer the theisnearest of credit, aitequipment confirming bank incurs liability with all his the freight he “inscrutable fault.”for and island where stayed seven days. The for the amount of the letter of credit, while may have theits voyage. Oncause thea 3. Noran party shall beduring held liable since the vessel outearned of provisions for 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 anto insurer. proceeded Leyte to replenish its supplies. Letters of offrom a Notifying Bankis(2003) because ofCredit; such deviation, who between the exempting theLiability owner 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 inInsurance a letter of cargo bears the loss? Explain. large is not involved (Home 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 Taiwan. avoid a peril, Somehow whichthe wasgoods the strong were not loaded b) Taiwan Bravo Bank Hence, received from Cisco typhoon. at The on running time. out of provisions when the goods was Bank by registered mail irrevocable letter of a direct arrived consequence in France, they ofan the arrived proper "off-season" deviation ALTERNATIVE ANSWER: credit issued by Bank for thethe account in order and AA to was avoid paid theDelta only perilfor of one-half the typhoon. value of The owner of the cargo bears the loss Y Company in the amount of US$10,000,000 by the buyer. AA claimed damages from the 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 anwas improper beneficiary of respondents the letter of credit was X defense of the prescription. deviation. Every deviation not specified in Corporation that which onwear partially availed Considering thelater ladies' suffered Sec. 124 is improper. (Sec. 1 25, Insurance itself of the letter of credit by submitting "loss of value," as claimed by AA, should theto Code) Bravo Bankperiod all documents relative to the prescriptive beWhen oneProper year under the Carriage of Goods; Deviation; (2005) SUGGESTED ANSWER: shipmentofofGoods the cans ofAct, fruitorjuices. Bravo Carriage by Sea ten years The applicable prescriptive is ten Under what circumstances canperiod 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: period prescriptive under the Carriage of fraud 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 ship has any neither Mitsui interpreted by the in latter. How would you rule if youwith were control; b) when necessary to comply a the O.S.K. Lines Ltd. v. Court of Appeals, 287 SCRA judge to decide controversy? (6%) Letters of Three Contract Relationships warranty orCredit; avoid atheDistinct 366 (1998) , contemplates a situation where (2002) peril, whether the made peril isby insured no delivery or at not all was the carrier of Explain the three (3) distinct but intertwined against; c) when made in good faith, and the goods because the same had perished or grounds of belief in its necessity avoid a contract aretoindispensable upon reasonable gone out relationships of commercethat 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 intertwined contract Insurance Code) 124, COGSA; Prescription of Claims (1992) delivered. The "loss of value" is not theintotal relationships that are indispensable a letter of Letterssought ofthe Credit A local consignee to enforceofjudicially loss contemplated by Carriage Goods transaction are: credit Carriage of Goods; Exercise Extraordinary Diligence a claim against the carrier for loss of a by Sea Between Act. 1) the applicant/buyer/importer and (2005) shipment of drums of lubricating oil from Letter of Credit: Mortgage (2005) the beneficiary/seller/exporter Star Shipping Lines acceptedof100 cartons of –Act The Japan under the Carriage Goods by Sea Ricardo mortgaged his fishpond to AC Bank applicant/buyer/importer is the one who sardines from Master to be delivered to 555 (COGSA) after the carrier had rejected its procures to secure a P1 Million loan. In a separate the letter of credit and obliges to reimburse Company in The Manila. Only 88 cartons demand. carrier pleaded inhimself itswere Answer transaction, he opened a letter of credit with the issuing bank upon receipt of the documents of delivered, however, these were in bad the affirmative defense of prescription under thetitle, same bank for $500,000.00 in favor of while the beneficiary/seller/exporter condition. 555 Company claimed from Star the provisions of said Act inasmuch as the is the one HS Bank, a foreign bank, to purchase who in compliance with the contract of sale ships Shipping Lines the value ofconsignee the missing suit was brought by the after one outboard Likewise, Ricardo executed the year goods toasthe buyer and theIndocuments goods, as motors. well the damaged goods. Star (1) from the delivery of delivers the goods. a Surety Agreement in favor of AC Bank. of title and draft to the issuing bank Shipping Lines refused contended because the former turn, the consignee that the to recover The outboard motors arrived and were SUGGESTED ANSWER: payment for a the Their is failed to present bill ofgoods. lading. Resolverelationship period of prescription was suspended by the The delivered claim to of Ricardo, 555 Company but he is was meritorious, not able to governed by contract sale. with reasons thethe claim of 555ofCompany. 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) Between the issuing bank and the Although bill of lading theoutboard best evidence Bank takeapossession of is the 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 providing that the prescription of actions is and the one that issues the letter of credit nevertheless can exist even the mortgagesuch overcontract the fishpond? Explain. interrupted when there is a written undertakes pay the seller without (5%) a bill oftolading. Like anyupon otherreceipt of the SUGGESTED ANSWER: extrajudicial demand by the creditors. Has to draft and properof documents titlea) and contract, a contract carriage is aof meeting a) No, for AC Bank has no legal standing, the action in fact prescribed? Why? b) If the SUGGESTED ANSWER: surrender the documents to the buyer of minds that gives rise to an obligation on upon much less a lien, on the outboard motors. consignee’s action were predicated on Theofaction taken bytransport the localthe consignee reimbursement. Their relationship is governed thea) part the carrier to goods. Insofar as AC Bank isthe concerned, it hasofprivity misdelivery or conversion of the goods, wouldby has, in fact, prescribed. The period one by the terms of letter of credit Jurisprudence has held that the moment issued the with the person of Ricardo under the Surety G.R. No. L-18965, October 30, 1964; Negre v. your answer be the same? Explain briefly. year under the Carriage of transport, Goods by Sea the bank. carrier receives the cargo for thenAct Agreement, and ainterrupted lien on issuing the fishpond based 3) Between the bank and the Cabahug Shipping & Co., G.R. No. L-19609, April (COGSA) is not by a written its duty toANSWER: exercise extraordinary diligence ALTERNATIVE on the real estate mortgage constituted 29,extrajudicial 1966) applicant/buyer/importer Their relationship is demand. The–provisions of Art . (Cia. Maritima v. Insurance Co. of North arises Star Shipping Lines can refuse to honor 555 therein. governed by the terms of the application and 1155 of the NCC merely apply to prescriptive America, Company's for the missing b) agreement Yes, claim butfor only to issuance enforce and payment of of the of and thenot letter periodsgoods. provided for inof said Code to damaged The Bill Lading is the thecredit principal loan of P1million secured by the by the bank. special laws such as COGSA except when document title thaton legally establishes the real estateof mortgage 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.to 555118). to present theCommerce Bill Lading onneeds misdelivery or conversion of goods, the Maritime Stolt-Nielaen, No. 87958, April 26, 1990) Letter of Credit; Certification from Consignee (1993) legally claim G.R. 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 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 SUGGESTED ANSWER: from the operation of a ship is confined to the 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-


74 73 Page Page 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 toradar 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 theAt P500th would constitute a Manila major failed to 213) the time of the collision, accidentally, and without fault or negligence Nationalized or Undertakings (1995) investment and A is International not even elected follow Rule 19yet of the Rules of of anyone onActivities the ship, hit a huge floating Global KL Malaysia, a 100% Malaysian owned member of the BOD or one of the officers. the Road which requires 2 vessels meeting object. The accident caused damage to the corporation, desires to build a hotel beach Furthermore, may also becourse shownby that A head on to itchange their each vessel and loss of an accompanying crated resort in Samal Island, Davao City, to take does not even have the means to raise the vessel steering to starboard (right) so that cargo of passenger PR. In order to lighten the advantage of the increased traffic of tourists amount of P500th that or(left) each vessel mayand pass onthe theofficers port side vessel and save it from sinking and in order SUGGESTED ANSWER: and boost the tourism industry of the majority of the directors are foreigners. of the other. that it would to avoid risk of damage to or loss of the rest 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 of a foreigner does not bring her within in a hotel beach resort in the Philippines, maywife accordingly, resulting Law. in the collision. located on the deck), some had to be ambit of thethus Anti-Dummy it be allowed to acquire the land on which to theDon Claro’s captain was off-duty and was ALTERNATIVE ANSWER: 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 it atcan the be time of Being a common law wife, repaired at its port of destination. SF passengers who died and the owners the conditions may Global acquire the land? the collision. a) Who would you holdthe liableoffor presumed that she is the one running Shipping thereafter filed a complaint recover damages from the owner of said cargoes Discuss fully. the collision? b) If Don Claro was at fault, business, which raises a prima facie demanding all the other cargo owners to SUGGESTED ANSWER: vessel? 2. May Global be allowed to manage the hotel presumption may ofvessels the ofliable. of violation the Anti-dummy share in the total repair costs incurred by the I can the holdheirs the 2 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 restaurantsNationalized Activities or Undertakings (1994) jettisoned SUGGESTEDcargoes. ANSWER: In answer to the settings or under the doctrine of inscrutable within the hotel beach resort? Explain. Celeste, a domestic complaint, thecan shippers’ contention was As a 1. Global securesole a lease on the land. SUGGESTED ANSWER: fault, both vesselscorporation can be saidwholly to have been owned byofFilipino citizens, engaged that,The under the Code of aCommerce, each The corporation with Malaysian nationality, No. shippers’ contention is not valid. guilty negligence. Theisliability of in 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 andthe resells 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 loss the of orproducts damageoftoMatilde, the goods domestic corporation, 90% of whose capital loss orresort. damage were obligated to make There isnot no to lawcontribution. prohibiting itThe from the cargoes, are entitled 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 the Philippines fromif at all, 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 in can only be relevant, materials found or produced in the owned Marina Navigation Co,issank off the within the beach resort. part of the thereof to by contribution from 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 More Shipping is not to contribution/ 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) liabilityCeleste of the shipowners would and ECQ took partonly in abe to vessel fromignored the shippers. captain typhoon bulletins issued by products. the extent of any remaining value ofits the Pag-asa during the 24-hour period public bidding conducted by MWSS for vessel,pipe proceeds of insurance, if any, requirements. Celeste wonand the immediately prior to the vessel’s departure asbestos earned freightage. Given the factual settings, Nationalized Activities or 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 the of sea crafts to avoid the typhoon’s expected offered Undertakings negligence and, therefore, the doctrine can to supply itsunder asbestos pipes to from path near Mindoro. To make matters worse, contract 1) Is Celeste barred the Flag Law well apply (Amparoto denullify los Santos v CA 186 ECQ 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 to 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 its luxury passenger the Anti-Dummy Law? 3) 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 If of MV Nationalization island routesLaw? of theExplain. company from La Union youMariposa; were the prosecutor, evidence and 2) thatwhat assuming it can had not in the north to Davao City in the south. The SUGGESTED ANSWER: SUGGESTED ANSWER: you present to prove violation of the Antibeen so extinguished, such liability should be 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 la the Are these post-repair voyage. It sankinoff coast of meritorious. The captain ofcargo. MV Mariposa is submitted are made in the Philippines lawcontentions wife of a foreigner wrested the control of meritorious in the context of Zambales while en route to La Unionfrom from guilty of negligence in ignoring the typhoon produced or grown inshowed the Philippines, a television At the by instance of the Code applicablefirm. provisions of the 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 of theMV Anti-Dummy May casualties in that disaster. Faced be with a ofviolation the vessel MariposaLaw. 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 wife of a foreigner? Explain. repair, X Shipping company the shiplaw can invoke doctrine of 2) No, 1)common A allows orowner permits the use orthe exploitation since Celeste is merely aasserted dealer of who offers imported materials. Limited Liability Rule; Doctrine of Inscrutable Fault exemption from liability on the basis of the limited liability. or enjoyment of a right, privilege or business, SUGGESTED ANSWER: Matilde and not an alter ego of the latter. (1991) hypothecary orsells limited liability rule under is the exercise or enjoyment of which is No. The assertion ofon X Shipping Company Celeste buys and its own account In a collision between M/T Manila, a tanker, Article 587 of the Code of Commerce. Is X expressly reserved by the Constitution or the valid. The total destruction of the vessel thenot products of Matilde. and M/V Don Claro, an inter-island vessel, Shipping Company’s assertion valid? laws to citizens of the Philippines, by the 3) Matilde not violate the Retail Trade does notdid affect the liability of the shipExplain owner Don Claro sank and many of its passengers (3%). foreigner not possessing the requisites Law since it does notvessel sell itscompleted products tobefore its for repairs on the 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 Examination Bar Examination Q &Q A& (1990-2006) A (1990-2006) SUGGESTED ANSWER: does not fall prevented Excel under from thebecoming category.aNeither holder

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

in

goods, landc) general corporate factories, application ownership. andcan d) its stillown apply in SURETY is habitually issued byengaged a surety or employees. suppletorily. Is EL engaged in retail trade? dueA course, does it appear as BOND that suchZfailure is or refusal ALTERNATIVE ANSWER: insurance company favorthat of a designated Explain. in selling constituted to bad the general faith. in public The dismissal by theLaw court was board correct. A SUGGESTED ANSWER: beneficiary, pursuant to which such 3) Yes. Not being holder course, c) The Anti-dummy allows commodity. Sincea there is in nodue violation of the Thecheck sale whether by EL ofto generators to or not post-dated or crossed, company acts as surety to the debtor Excel is subject tothere theapersonal defense representation the extent of government actual and Retail Trade Law, would likewise by no or 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 permissible foreign investments in (State 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) A foreign a guarantor firm Check is engaged or surety in the to business secure of the Acme may nomay, sit factual intherefore, the BOD ofbe themade Checks: Checks (2005) thebe said corporation. However, salesdo of held liable for the dishonor of the On Oct 12,Crossed 1993, Chelsea Straights, a corp to manufacturing selling rubber products obligation ofand another. department store corporation but can 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 dealers who in turn sell themof to cigarettes, others. It also in the corporation. effects of crossing a check? Explain. constitute retail sales and are proscribed. position either in department store , the court did not go so far 72764 13Jul1989) ordered fromto Moises 2,000 bales of tobacco. sells directly 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 PD 714, the term “retail the Anti-Dummy Law prohibits the render the instrument non-negotiable. postdated 15 Mar andbulk, 15 Apr full which buy them in94 large and94 toinits 13Jul1989), the SC considered a crossed check practice, crossing a check is done by writing business” employment shall of not aliens include in such a manufacturer 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 withoutdespite 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 the Filipino common-law wife of a to and/or toLaw; produce or (1991) manufacture goods demand. Consequently, on 1 Mar 94 Chelsea Act? Explain. Retail Trade Consignment doing in thethe Philippines, the sale order a sum certain in engaging money. Ininthe paybusiness only with intervention ofto that foreigner from thetransfer retail which are barred in turn sold by them (eg issued a “stopCrossed payment” order on the 2 ABC Manufacturing Inc, a company wholly Checks SUGGESTED ANSWER: theEffects dealersof of agricultural enterprises, of non-negotiable credits by assignment, the company. business? agricultural enterprises and factories). checks issued to Moises. Dragon, claiming to but only 1) The check may not be encashed owned by foreign nationals, manufactures A Filipino common-law wife of a foreigner automotive assembly plants, and public transferor does not assume liability for theis (Goodyear Tires v Reyes Sr Gr 30063, Jly 2, 83 ALTERNATIVE ANSWER: be a holder in due course, filed a complaint in theis bank. 2) The check may benot negotiated deposited typewriters which ABC distributes to thethe SUGGESTED ANSWER: not barred from engaging in retail business. utilities wholesale and, therefore, in fault of the debtor or obligor. Accordingly 123s273). Yes. ABC The check isways: crossed. It should have for collection against Chelsea for the The value of only once—to one 1 consigns its typewriters to Dragon cannot collect from Chelsea. general public in 2 On the assumption she acts for and in violation of the Retail Trade Act (BF Goodrich v court’s decision wasthat correct. forewarned Mr. Noble that it was for a the checks. Rule on thewith complaint of Dragon. who has an account a bank. 3) The act independent dealers who in turn sellissued themofto instruments are crossed checks which were 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 operation of the canteen inside the public; and, intended to pay for the 2,000 bales of Anti-Dummy Law which prohibits a foreigner a holder inindividuals, due course. He is subject to the that the check has issued for 2a be the premises its officers and are notor an tobacco toholder beexclusively delivered tofor Moises. It been was fromThrough being either the realwho proprietor the personal defense of breach of trust/ definite purpose, soDragon he inquire ifemployees heemployee employees, would amount tothat an input in the ofof ABC, and who are paid strictly therefore the obligation of tomust inquire a person engaged in the retail agreement by Mr. Pablo. Such defense is ALTERNATIVE ANSWER: received the check pursuant to that purpose; has Do these arrangements violate the Retail manufacturing process therefore, on trade, a commission basis for each sale. as to the purpose of theand, issuance of thedoes 2 she would be violating the Retail Trade otherwise, he is not a holder in due An engagement by a wife (including available in favor of Mr Carlos against Mr Law? not violate the Retail Trade Act. them to be crossed checks before causing Trade Act. Checks; Crossedrelationships) Check (1994) SUGGESTED ANSWER: course. common-law of a foreigner in Noble. Retail Trade Law (1996) discounted. Failure on its part to make such Po Press issued in favor of Jose postdated a) The first arrangement would not be in Checks: Crossed Checks vs. Cancelled Checks (2004) Retail Trade Law (1990) the retail trade business, raisesathe With a capital of P2th Maria inquiry, which resulted in itsoperates bad faith,a stall crossed check, in payment of newsprint violation of thethat Retail Law. The law Distinguish clearly (1) crossedcompany checks from Acme Trading CoShe Inc, a trading presumption sheTrade has violated the Antiat a public market. Dragon cannot claim to manufactures be a holder in soap due which Jose promised to deliver. Jose sold and applies only when the sale is direct to cancelled checks; wholly owned bythe foreign stockholders, was Dummy Law. Hence, the wife is barred the from that sheMoreover, sells to the general public. Her not course. checks were sold, SUGGESTED ANSWER: negotiated the check to Excel Inc. at a general public. A dealer buysbusiness. and sells for persuaded by Paulo Alva, a Filipino, to engaging in the retail trade common law husband, MaLee, whodid hasnot a invest endorsed, by check him toisDragon which A crossed one with two parallel lines Retail Trade Law (1992) discount. Excel did not ask Jose thethe purpose and in his own behalf and, therefore, sale in 20% of the outstanding shares of stock pending petition for naturalization, become a holder in due course. Not being a ofaa drawn diagonally across its face or across of crossing check. Since Jose failed A Cooperative purchased from Co on to to the generalthe public is made byYthe dealer corporation he is forming which will engage occasionally finances the purchase of goods holder in due course, Dragon is subject to the in corner thereof. On the other hand, a deliver the newsprint, Po ordered the installments a rice mill and made a down and not by the manufacturer (Marsman &drawee 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 the20June1988) check. Efforts payment therefore. Ason security for the First Coconut Control Co GR39841 “department store a corporation”). Paulo also the business. Is breach there violation ofthe the Retail a) The first arrangement violates the Retail concerning the of trust on part of No,"paid" there is no violation of the Retail Trade and/or "cancelled" by or on behalf of a of Excel to collect from Po failed. Excel wants payment of the balance, the Cooperative Checks; Crossed Check (1996) urged Acme to complying invest in 40% ofhis the Trade Law? Explain. Trade Law because when ABC “consigned” Moises Lim in not with Law. Maria is a manufacturer who sells to the drawee bank to indicate payment thereof. to know from you as counsel: in 1)favor Whatof are executed a chattel mortgage Y the What are the effects ofof crossing outstanding shares stockbales ofatheof realty the typewriters, the transaction was one of obligation to deliver the 2000 Checks; Crossed Check (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 inCo due course? tobacco. Mr Pablo sought to aborrow P200th from The effects of crossing check are as market, the soap which she manufactures. second indorser and holder the to the chattel mortgage to Zof a 5% foreign on which the department store will be built agency relationship is created soof it is as if 3) Whether Po’s defense of lack Carlos. Carlos agreed tobeloan the b) amount in 1 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 consideration asis also available as against the form postdated check which was deposited in aofbank; P5th (it issaid only P2th) then she is considered Acme invest ina the realty corporation? SUGGESTED ANSWER:The cooperative thereafter made Philippines. in the department store Excel? crossed (i.e. 2the parallel diagonally drawn thepayments Cooperative 2 The4a check may be lines negotiated only under Sec Retail Trade Law as not Discuss. c) of May the President of Acme, aonce to agents. b) Because The second arrangement wouldto meet be installment to Zwas Co.unable SUGGESTED ANSWER: on the top left portion of the check). Before its obligations in full, Z Co filed against it a BOD of the said department store corporation? one who has an account with a bank; engaged in the Inasmuch foreigner, sit“retail in the business.” violative of the Retail Tradea check Law, since the 1) The effects of crossing due date the check, Pablo discounted he be a business director of realty corporation? court suit for collection. The Coop resisted May as Maria’s is the not aa“retail business,” sale is done through individuals being The act ofofcrossing check serves as a 3 the The check is for deposit onlypaid in the are:1 it with Noble On due date, Noble deposited contending that Z Co was illegally engaged Discuss. d) May the Treasurer of Acme, then the to requirement in Sec 1that of the strictlyaccount on a of commission basis. The said in warning the holder thereof theRetail check has the payee the occupy check the with same his position bank. The in so the check said department was the retail would trade business having sold aas another foreigner, Trade Law that only Philippine nationals shall individuals then may be for acting merely been issued for a definite purpose 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 agents of the manufacturer. Sales, therefore, holder must inquire if he has received the check SUGGESTED ANSWER: once 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 of decision correct? violated the Anti-Dummy Law. Is Z guilty of participation of Ma Lee, Maria’s common Law sales by the manufacturer. holder in due course (See Bataan Cigar andto the Carlos, being 3 The check is issued for a specific a) Acme may notimmediate invest in theparties department the Retail Trade Law because typewriters are violating the Retail Trade Law and the Antihusband, in the are management ofby theMar business Cigarette Factory, Inc. vgoverned CA GR 93048, 3,rules 1994;of instrument, the ANSWER: purpose and the personor whogoods takes it for not Retail Tradecorporation Law (1996) store since the Retail Trade Act notSUGGESTED consumption goods Dummy Law? Why? 230 s 643) would not be a violation of the Retail Trade privity. Given the factual circumstances of Z Coinisaccordance not guilty of violating the Retail Trade 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 Housea) v IAC RETAIL under Retail thereunder. Trade Act Law requires entitled to the payment andtrade. sells them to the(State following customers: Negotiable Instruments 2) No. It is a crossed check and Excel did not GR 72764 13July1989). Pablo undoubtedly had b) Acme may invest in the realty that the seller must be habitually engaged in government offices which use the generators take it in accordance with the purpose for Bond: Cash Bond vs. Surety Bond (2004) benefited in the transaction. corporation, onto the assumption that To the b)hold selling to the general public consumption during brownouts render public service, which the check was issued. Failure on its Distinguish cash bond from surety otherwise would also contravene the basic balance of 60% of ownership of the latter goods. Byclearly consumption goods are meant agricultural enterprises which utilize the part to inquire as and to said purpose, purposes. A bond. rules ofas unjust Even corporation, is Filipinoenrichment. owned since the law in “personal, family household” generators negotiable instruments, the merely Rice Mill

78 instrument. 79 of 103 of 103 alterationPage of Page the Thedrawee-bank serial numberbears is not the material the Family Bank v. payment therefor through the Clearing loss to(BPI (Traders Royal Bank v. House, RPN, G.R.XM 138510,it.October 10, 2002). Buenaventura, No.1996, 148196, September 2005). A OnG.R. April 1, Pentium stopped 30, payment negotiability of the instrument. BankNo. honored Thereafter, Albert withdrew • Drawee-bank can recover from the of the drawee-bank check for failure payingofonCD a Bytes forgedtocheck deliver must the P210,000 and closed his account. collecting bank (Great Eastern Life Ins. Co. b. As a general the drawee not and theYes. be computer. considered Thus, as rule, when paying Fund out House of itsisfunds v. Hongkong & Shanghai Bank, G.R. No. after a (Samsung Construction Co. to Phils, v. Far East When the check was returned to him liable under the check because there is no deposited cannot charge the check, the the amount drawee the bank drawer because even if the indorsement on XM 18657, August 23,1922) Bank, August 13, 2004). If the month, William discovered the alteration. privity ofG.R. contract between XYZ Marketing, dishonored it.No. 129015, check deposited bank's If House aBank complaint against drawee-bank has charged Bankthe recredited P210,000by tothe William’s asFund payee, and files ABC as thedrawer's drawee account, bank. client is forged, bank is Pentium and CDaction Bytes forsuch theby payment ofisthethe the latter can recover amount from current account, andcollecting sought reimbursement However, if the taken the bank G.R. No.of107382, January 31, Bank 1996; Bank of P. I. by its as anclaiming indorser dishonored check, will the complaint prosper? drawee-bank (Associated v. Court of frombound ND Bank. NDwarranties Bank refused, an abuse right which caused damage not v. Case Montessori Internationale, G.R. cannot set up defense ofaltered forgery SUGGESTED Explain. The complaint filed Appeals, that and XM Bank failed to return the only to the issuerANSWER: of the: check but also to theNo. May 28, 2004). asto against drawee bank (Associated by 149454, Fundthe House against not check it within 24 hour clearing period. payee, payee has a Pentium cause ofwill action However, the drawer may be precluded or Checks; Presentment (1994) v. Court ofXM Appeals, prosper but the one against CD Bytes will. Who,Bank as between, Bank G.R. and No. ND 107382, Bank, under quasi-delict. estopped from setting up the 13, defense of SUGGESTED ANSWER: January 31, 1996). Checks; Liability; Drawee Bank (1995) Gemma drew a check on September Fund House is not a holder in due course and, should bear the loss? Explain. forgery as against the drawee-bank, it ND Guzman Bank should the loss if XM Mario issuedbear to Honesto Santos a Bank 1990. The Pentium holder presented to when the therefore, can raisethe thecheck defense of is shown that the drawer himself had been returned the altered check to ND Bank within check for P50th as payment for a 2nd hand drawee only on March 5, 1994. failure ofbank consideration against it. TheThe check guilty of gross negligence as to have twenty four hours after its discovery of the car. Without the knowledge of Mario, bank dishonored the check on the same in question was issued by Pentium to pay for facilitated the by the forgery ( Metropolitan alteration. Under the given facts, William Honesto changed the amount to P150th date. After dishonor drawee the a computer that itBENE: ordered from CD bank, Bytes. (NOTA The question does not Waterworks v. Court of Appeals, G.R. No. L62943, discovered the alteration when the altered which alteration could not be detected by the holder gave a formal notice of"forged dishonor to The computer not the having been delivered, qualify term check". An ). April 27, 143 SCRA 20, July 14, 1986 check was returned to him the after a month. It naked eye. Honesto deposited altered Gemma through a letter dated there was a failure of consideration. The answer addressing the liabilities of a maywithsafely be assumed that the William check Shure Bank which forwarded 1994. What is meant bybe “unreasonable check 1) discounted with Fund House by CD drawer should deemed sufficient. immediately advised of such fact same to Progressive BankXM for Bank payment. time” as applied tocheck presentment? 2) Is ofhave Answers addressing liabilities parties Bytes is a crossed and this should SUGGESTED ANSWER: and that the latter promptly notified Progressive Bank without noticing the ND Bank — Drawee Bank versus Collecting Bank Gemma liable to the holder? should likewise be given credit) put Fund House inquiry. It should have 1) As applied to on presentment for full payment, thereafter. Central Bank Circular No. 9, as alteration paid the check, debiting P150th When the signature of the drawer ischeck forged, ascertained title of CD Bytes to the “reasonable the time: is meant not more than 6 amended, on of which decisions of the from the account Mario.the Honesto withdrew as between the drawee-bank and collecting or the nature of the latter’s possession. months from the date of issue. Beyond said Hongkong & and Shanghai theSupreme amount ofCourt P15th in from Shure Bank bank, this the respect, drawee-bank sustains the loss, Failing Fundtime” House is deemed period, in it is “unreasonable and the Banking Corp v People’s & Trust Co and disappeared. After receivingBank his bank since the collecting bank does not guarantee guilty gross negligence amounting to legal check of becomes stale. were based was RepublicMario Bank vs CA the statement, discovered alteration the signature of the drawer. The payment absence of good and, thus, not a holder of SUGGESTED ANSWER: 2) No. Aside formfaith the check being already expressly cancelled and superseded by CB and demanded restitution from Progressive theGemma check by the drawee constitutes in due course. Fund House can bank collect from The demand of Mario for restitution of the stale, is also discharged formof (Philippine National Bank v. Court Appeals, No Discuss 317 dated Dec 23 1970. The latter was in Bank. fully the rights and the the proximate negligence since it has CD Bytes as Acceptance the latter was the immediate amount of P150,000 to his account is tenable. Checks; Effect; by the drawee bank (1998) liability under the check, being a drawer and the G.R. No. L-26001, October 29, 1968). turn amended by CB Circular No 580, dated liabilities of the parties duty aof to know the(See signature ofaccount its clientBataan Cigar andis indorser the check. Progressive Bank has noconcerned. right to deduct said X person draws check against current a whose liability ishis secondary, this Sept 19, 1977. As to altered checks, the new drawer. Cigarette Factory CAthe et alnotice s of 643 GR 93048 amount from Mario’s account since the order with to the Ortigas of230 Bonifacio Bank in due the givingvbranch of dishonor rules provide that the drawee bank can still Mar 3, 94) of Mario is different. Moreover, Progressive favor B. Although X does not have beyond the period allowed by law. The giving (b)of When Forged Payee's Signature: return them even after 4:00 pm of the next Bank is liable for the negligence of its sufficient funds, the bank honors the check of notice of dishonor on 27, check, 1994 isit must drawee-bank pays theApril forged day provided it does so within 24 hours from employees in not noticing the alteration when it is presented for payment. more one (1)as month from 5, be than considered paying out March of its funds and discovery of the alteration but in no event which, though it cannot be detected by the Apparently, X has conspired with the bank’s 1994 whencharge the check was dishonored. cannot the amount so paid toSince the beyond period fixed or provided by law ALTERNATIVEthe ANSWER: naked eye, could be detected by a bookkeeper sothe that his ledger card it isaccount not shown that Gemma and thewould holderthe of depositor. In such case, XM BankProgressive bear theand loss. When the for filing ofshould a legal action by the returning As between Bank Shure magnifying instrument used by tellers. show that he has sufficient funds. resided in thestill same place, theits period within bank becomes liable since primary duty is bank drawee bank (XM the that Bank) bank failed sending to return the the The bank files an action for recovery of the Bank, it isagainst the former should bear the same. which to give notice of dishonor must be the to verify the authenticity of the payee's ALTERNATIVE ANSWER: altered check to the collecting bank (ND Assuming thatBank the relationship between the loss. Progressive failed to notify Shure amount paid to B because the check same time can that the be notice would (Traders Royal Bank v.reach Radio signature 2) Gemma still liable under the drawee Bank) bankwas the and 24 thehour collecting clearing bank period is Bank that within there something wrong with (c) Forged presented has no sufficient funds. Decide Philippines Network, G.R. No. 138510, Gemma if sent by mail. (NIL Sec 103 &October 104; original contract for the consideration of SUGGESTED ANSWER: inby Sec 4c ofwritten CBhour Circular 9, 24 dated evidenced some document, the : Indorsement theprovided check within the clearing rule of • Drawer's account cannot be 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 issued. bank cannot recover the amount paid to Checks; Material Alterations; (1999) prescriptive Feb 17, 1949, period the Liability latter would is be absolved 10 years. from The hours. charged, and charged, he can recover 132560, January 30,if2002). 256) Checks; Presentment (2003)Bank B for the check. When the bank honored the A check for (See P50,000.00 drawn liability. PB&T Co GRagainst L-28226 Sep (Campos, NIL HSBC 5th edv was 454-455) (Associated v. Court of Appeals, from the drawee-bank A bank issues its own check. May the holder check, it became acceptor. As31,1996). acceptor, drawee bank made tovXYZ 30 1970; 35and s 140; alsopayable Rep Bank CA GR 42725 G.R. No. an 107382 January Checks; Forged Check; Effects (2006) hold the liable thereunder if he fails the bank became primarily directly • bank Apr 22, 1991 196 sThe 100)check was deposited Drawer has and no cause of to action Marketing or order. Discuss the legal consequences when a bank – prove presentment for payment, liable to the payee/holder B. against collecting bank, since theor duty of with payee’s account at ABC Bank which honors a forged check. (5%) The recourse of the bank should be against collecting bank is only to the payee. A then sent the check for clearing to drawee present the bill to the drawee for SUGGESTED ANSWER: X and its bookkeeper who conspired to make collecting bankyour is not guilty of negligence bank. bank refused when to honor the honors acceptance? Explain answers. (4%) TheDrawee legal consequences a bank X’s ledger show that he has sufficient over a forged indorsement on funds. checks for check on ground serial number a forged checkthat are the as follows: ALTERNATIVE ANSWER: 1 Is it proper for the drawee bank to it has no way of ascertaining thereof had been altered. XYZ marketing (a) When Drawer's Signature is Forged: The bank can recover from B. This is solutio the dishonor the check for the reason that it had been authority of the endorsement and when it sued drawee bank. Drawee-bank by accepting the check cannot indebiti because there is payment by the altered? Explain (2%) caused the checks to pass through the set up the defense of forgery, because by bank to B when such payment is not due. (Manila Lighter Transportation, Inc. v. Court of 2 accepting In instant suit, drawee bank contended clearing house before allowing withdrawal the instrument, the drawee bank The check issued by X to B as payee had no On the Appeals, G.R. No. 50373, February 15, 1990). that XYZ Marketing as payee could not sue theof of the proceeds thereof admits the genuineness of signature Checks; Crossed Check (1996) sufficient funds. other hand, a collecting bank which drawee bank as there was no privity between (BPI Family Bank vs. Buenaventura G.R. Ondrawer March 1, 1996, Pentium Company ordered Checks; Effects; Alterations; Period (1996) endorses a Prescriptive check bearing a forged then. Drawee theorized that30, there wasSection no basis to No. 148196, September 2005; 23, a computer from CD Bytes, and issued a William issued to Albert a check for P10,000 endorsement and presents it to the Unless a forgery attributable to the fault make it liable for the is check. Is this contention Negotiable Instruments Law).of P30,000 postcrossed check in the amount drawn on XM Bank. Albert the SUGGESTED ANSWER: drawee bank altered guarantees all prior or negligence of the drawer himself, the correct? Explain. (3%) dated Mar 31, 1996. Upon receipt of the a. No. The serial number is not a material amount of the check to P210,000 and endorsements including the forged remedy of the drawee-bank is against the check, CD Bytes discounted the check with particular of the check. Its alteration does deposited the check to his account NDbe held endorsement itself and with should party responsible for the forgery. Otherwise, Fund House. material not constitute Bank. When ND Bank presented the check liable for Mercantile Mercantile LawLaw Bar Examination Bar Examination Q &Q A& (1990-2006) A (1990-2006)

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82 83 84 103 & Page Page of 103 of 103 Negotiable Instrument: Page delivered b) Paragraph it to Marie. 281Definition – of negotiability She

accepted is “NOT AFFECTED” check in good faitheither as payment Characteristics (2005) What is afrom negotiable a) MP 2. liability P2,500.00 Celso bought has in the Ithe promise a used event rightcell that to topay 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 for instrument? goods Give delivered the characteristics to Ruth. Eventually, ofataa particular andorder preferred through Benito. the cash oversight sum Celso but ofis P2,500. or MP a inadvertence. party is asubsequent friendDespite so to JR Jose? SUGGESTED ANSWER: and is determinable. does not make the sum time Ruth negotiable regretted instrument. what she(2%) didItand apologized 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 may enforce saiddrawee promissory uncertain or the not promise conditional. c) to Jun. Immediately he directed the JR against Yu thought upon Felix presentation of who converting is a party ofthe thesubsequent note check. into Limcash sued to note against Mario and Jose. The promissory SUGGESTED ANSWER: (Sgd.) Castro Paragraph 3 – negotiability is “AFFECTED.” bank to dishonor the check. When Marie Celso by BPI endorsing (Sec for Noel paying 60 and itagainst 66 to NIL) hishisbrother order. Decide KR. The the SUGGESTED ANSWER: (2004) Negotiable Instrument is a written contract note at the time of forgery being payable Incomplete & Delivered Giving the maker the option renders theto promise encashed the check, it was dishonored. promissory case. note is a piece of paper with the In the event that Mr. Lim, in fact, had for the payment of money which is intended order, the signature of Pablo was essential for 2) Manila, June 3, 1993 1. conditional Is Jun liable d) to Paragraph Marie? (5%) 4 – negotiability is AX, a businessman, was preparing for a following hand-printed notation: “MP WILL reasons tousually issue stop SUGGESTED ANSWER: as a substitute for money andtitle passes from the instrument to pass to subsequent “NOT AFFECTED.” business triplegal abroad. As he did in the PAYsufficient 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 P10,000.00 For value received, I promise to parties. Giving A the forged option signature to the holder was inoperative 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 (Secthe 23 NIL). Accordingly, the course parties the before pay Sergio Dee ortoorder sum of with entrusted his the secretary Below this them notation MP’s signature with thetheto Negotiable Instruments Law, related which to Lim didnext not mean that itthem need not exercise right hold the instrument free from forgery are not juridically P10,000.00 in it, five (5) installments, with the instruction to to safeguard and fill them “8/1/00” indicating the date of the provides that there was prima facie authority Negotiability; Holderthe in Due Course (1992) due diligence protectJRthe interest ofMP’s its defenses to prior parties. partiesavailable after forgery toSuch allow such first installment payable onpresented October 5, 1993 out only when required to pay accounts promissory note.to When b) Camilo may not go against Pablo, the on the part of Ruth to fill-up any of account holder. It is not amiss to state that Perla brought a motor car payable on instrument must comply with Sec. 1 of thethe enforcement. andtothe other onitorwas before the during hisKR, absence. OB, his secretary, filled note theinstallments latter said not a latter not having the instrument. material particulars thereof. done so, the drawee, unless the instrument has earlier installments fromindorsed Automotive for Negotiable Instrument Law toHaving be Company considered fifth day of the succeeding month or out one of the checks by placing her name negotiable instrument under the law and so The characteristics of a negotiable instrument and when it is first completed before it is P250th. She made a down payment of P50th been accepted by it, is not bound to honor negotiable. thereafter. as thenot payee. She filled out the could be a valid substitute for amount, cash. JR c) Camilo may enforce the instrument are; (Sgd.) Lito Villa negotiated to a aholder in due course payment todelivered the holder of check the check that and executed promissory note for thelike endorsed the to KC, who took the and opposite view, insisting on the ALTERNATIVE ANSWER: against Julian because of his Marie special b) TH is an indorsee of a promissory note that 1) Negotiability That quality or attribute whereby a Marie, it is valid for all purposes, and balance. The company subsequently thereby excludes it from any liability if it accepted it in good faith for payment of note’s negotiability. You are asked to referee. 1991 6b) BPI would not be liable to Mr Lim. SUGGESTED ANSWER: indorsement to Camilo, thereby making him to simply states: “PAY TO JUAN TAN OR ORDER bill, note or check passes or mayFinance pass from may enforce it within a reasonable time, as hand if were to comply with itsLater, stop payment order indorsed the note to Reliable gems that KC sold to OB. OB told AX of Which of the opposing 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 parties afterin 400 PESOS.” The note hasAX notimely date, no place hand, similar towhich money, so asbeing to give the holder it had been filled upfinanced strictly in accordance (Sec 61did NIL) Corporation the purchase. what she with regrets. directed agreement. The waiver executed by Mr Lim, Yes. AX could be held liable to KC. This is a complies with Sec 1, NIL. Ruth's possession and a thief filled the blank the forgery. of payment and no consideration mentioned. due course the right to hold instrument and with thepromissory authority given. The note read:the “For value the bank dishonor the check. Could AX be neither being one future fraud or gross d) the Julian, inandturn, may enforce the case of signed anto incomplete check, which has been check, endorsed delivered it to Marie in Firstly, itMK is of inand writing and signed by the collect It was by written under his sum payable for himself free from received, I promised to pay Automotive held liable to KC? Answer and reason briefly. negligence, would be valid. The problem instrument against Bert who, by his forgery, delivered. Under Sectionthe 14 ofaddress, the Negotiable payment for the goods heof purchased from maker, Noel Castro. letterhead specifying which defenses. 2) Accumulation Secondary Contracts as Company or order at its office in Legaspi (5%) does not indicate the existence of fraud or has rendered himself primarily liable. Instruments Law, KC, as a holder in due her, is Jun liable to Marie if the check is at Secondly, the promise is unconditional to they happens to be his residence. TH accepted the arethe transferred from one person to another. City, sum of P200,000.00 with interest e) Pablo preserves his right to recover from gross negligence on the part of BPI so as to course, enforce ofthat the check as dishonored? (5%)percent per annum, payable in pay acan sum certain inpayment money, P2,500.00 promissory note aspayment for is, services twelve (12%) Defenses; Forgery (2004) SUGGESTED ANSWER: either Mario or Jose who remain parties warrant liability on its part. if it had been filled up strictly in accordance Manila September 21, 1991. rendered to SH, who inpayable turn received the note Thirdly, it checking is on demand as no date equal installments of P20,000.00 monthly for No. Even though Marie is a holder in isdue CX maintained a account with juridically related to him. Mario still with the authority given by AX to OB and from Juan Tan as payment for a prepaid cell of maturity is specified. ten (10) months starting October 21, 1991. course, this is an incomplete and UBANK, Makati Branch. One of his checks in considered primarily liable toundelivered Pablo. Pablo (sgd) Perla within acard reasonable time. Fourth, it is payable to phone worth 450 pesos. The payee instrument, covered by Section 15 of the a stuband of fifty was(2005) missing. Later, he Incomplete Delivered may, in case of dishonor, go after Jose who, order. acknowledged having received the note on Negotiable Instruments Law. 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 isWhere secondarily Pay to the order of Reliable Finance The promissory note is negotiable. All the August 1, 2000. A Bar reviewee had told TH, incomplete instrument notblank been succeeded to encash P15,000 from distinguish between and hisand debt to Pete, 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 not delivered, it will not, if completed and another branch the bank. was ableto to special indorsements of prior parties threatened to takeofBrad’s life DY if he failed The sum to be paid is still certain despite a holder in due course under Article 52 of the negotiatedwhich authority, be a valid encash friend, can thereby alter pay. Brad the andcheck Petewhen wentET, toa see Señorita By:without (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 thethe 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 was a holder due course. Can CX recover problem did not clearly indicate the Because Perla defaulted in the payment of sheNegotiability could sign a promissory note in his favor (2002) SUGGESTED under ANSWER: protection the statute. TH asks for our Forgery; Liabilities; Prior & Subsequent Parties (1995) signature was placed before the from bank? Reason briefly. kind of indorsements made.Corporation her installments, Reliable thereon Finance in Yes, the money amount of the P10,000.00 pay Pete. Which ofcan the following stipulations or features CX recover the to bank. Under advice specifically in from connection with the SUGGESTED ANSWER: Alex issued a negotiable PN (promissory delivery. Such defense is a real defense even (5%) Fearing that Pete would killaffect Brad,orSeñorita initiated a case against her for a sum of of abeing promissory (PN) doisnot Section 23undated of The thenote Negotiable Indorser: Irregular Indorser vs. General Indorser (2005) note and not Instruments mentioning a a) KR is right. promissory note not note) payable to Benito or order in payment against a holder in due course, to note a money. Perla argued that theavailable 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 ofthat negotiability containing Celsoindorser. in payment to delivery. assurance Brad he will just fill it up negotiable SUGGESTED ANSWER:instrument open to all defenses by writing the paragraph number of the CX cannot be held liable thereon by anyone, therein. It isthen not filled issued in the accordance with Later Alextofound the goods totherefore, be defective. available the assignor later. Brad blank paper, Irregular Indorser is not and, a party to the stipulation oraNegotiable feature of due the PN as shown not even by holder up in course. Under a Section 1 of the Instruments Law While Celso’s possession thea PN was ReliableinFinance not holder making aand promissory note for theanswer, amount of instrument but he Corporation places his issignature in in below your forged signature of the drawer, is either no What defense orcorresponding defenses canthere Señorita stolen by Dennis who forged Celso’s P100,000.00. He then indorsed and delivered duebefore course.delivery. a) Is the He promissory mere blank is not a note partyabut “Affected” or “Not affected.” Explain (5%). valid instrument that would give to a b) Theset fact the instrument is rise undated Isobel upthat against Pete? Explain. (3%) signature and discounted it with Edgar, a a)same 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 doesANSWER: not mention the place oforpayment money lender who did not make inquiries b) defense The bearsofinterest payable on the instrument? Why? b) Is his Reliable Finance payment 2002.” of thePN debt. theSUGGESTED instrument. Because signature he Corp is The (personal which liability part the defense) drawer. ANSWER: does noton the militate against its Thebeing 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 no right or authority to is a) promissory note the a negotiable. The has date and place of payment a The holder in Indorser due course. When Felix equal to five percent (5%) above the then While, a General warrants that the parties in the instrument. that the amount of P100,000.00 is not in 1. What are the rights of Felix, if any, the drawer's funds required deposited the negotiable instrument, being in from compliance aretouch not material particulars towith make demanded payment of the PN the Forgery; Liabilities; Prior & Subsequent Parties (1990) prevailing 91-day Treasury Bill rate as instrument is Alex, genuine, that he has a Alex good accordance with the authority given to her to against Benito, Celso and Edgar? drawee bank. with the provisions of 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 isofmade oftoPete any fact that theall payable sum ishad to be paid with be located. c) The PN gives the maker the option to evidence quarter. his indebtedness, Mario executed contract; that the instrument at the time of SUGGESTED ANSWER: was not a holder consideration is not in due material. course Consideration for acting in 2. Does Celso any right against Alex, interest nor thathave the maturities are in stated make payment either in money or in quantity andfaith delivered a promissory note as theSUGGESTED indorsement is validuncertain and subsisting; and ANSWER: bad whento Jose accepted the note is presumed. Benito and Felix? Explain. installments renders the amount of palay or equivalent value. payable to his order. that 1. on Felix due has presentment, no right to the claim instrument against will Alex, Negotiable Instrument: Ambiguous Instruments (1998) payment despite his knowledge that it was payable (Sec 2 NIL) d) endorsed The PN the gives theto holder the option Jose note Pablo. Bert be b) Benito accepted or Celso paid who or are both parties accepted prior and to the How do you treat awas negotiable instrument Yes, and Reliable Finance Corporation is a 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 of Celso’s to its tenor, signature and that by if Dennis. it is that isduring so ambiguous that there is doubt holder in due course given thefor factual Isobel their meeting with 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 Instrument dishonored, Parties toSaid an he instrument will pay ifwho theare necessary such prior whether itvs. is Incomplete a bill or aUndelivered note? (5%) settings. 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 a) Camilo enforce the said 1. Camilo. Where a May negotiable instrument is so Jun was about to leave a business As party whonegotiability became such to indications that itYuacquired itorinsubsequent bad faith (Sec Bank in favor of Mr as payment of certain a) Paragraph 1 – for negotiability istrip. “NOT of the following notes note against Mario and Jose? b) ambiguous that there is doubt whether itblank is a hispromissory usual practice, he signed several theNIL forgery. However, Edgar, whoOn became a 52 see Salas v CA s 296) shares of stock which he 181 purchased. the AFFECTED.” 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 ahis promissory noteRuth at fill Camilo them as payment for obligations. forgery and who indorsed the same Lim ordered BPI to stop payment. Per to Felix, Julian theas right of hisAgainst election. filled one whom check can with 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 •

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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 ofof 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 since are secondarily liable, Holder forgery it was his signature that in wasdue ALTERNATIVE ANSWER: course may have rights better than forged. As transferor, a general endorser, B is secondarily liablethe its subject is money and to Instrument F. C is liable to F since it is due to itself is property of value. the On the of other negotiable negligence C inhand, placing the notedocument in his doesthat not contain Sec. 1 ofand NIL, it drawer enabledrequisites X to stealof the same has the no secondary liability of intermediate forge signature of C relative to the parties, transferee steps C into indorsement in favor of merely D. As between andthe shoes the innocent transferor, its subject goods F who areofboth parties, it is Care whose and the instrument is merely evidence negligence is the proximate cause of the of title; thing of valuesuffer are the loss. Hence C should thegoods loss. mentioned Negotiable Instruments; incomplete and undelivered Negotiable Instrument; Negotiability (1997) in the document. instruments; holder due courseor (2000) Can a bill of in exchange a promissory note PN qualify makesas a apromissory for P5,000.00, negotiable note instrument if – it the is not buta.leaves 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 Xthe saidinstrument he had c) Yes. Sec NIL makes no payable participation in, orbecause knowledge the to bearer the about, name of the pilferage and alteration of the note and payee does not purport to be the name b) Can the payee in a promissory note be a of therefore he enjoys the rights of a holder in any person. “holder in due course” within the meaning of dued)course the Negotiable Instruments A bill under mayInstruments not be addressed two or the Negotiable Law (Actto 2031)? 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 right. The the instrument is incomplete so 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 to manner: X. Signed: Auroraof endorses it “Payable to X in this the Negotiable Instruments Page.” Law, because a Later, X, immediate without endorsing promissory payee is an party inthe relation to transfers andis subject deliverstothe same to thenote, maker. The payee whatever Napoleon. The note available is subsequently defenses, real of personal, to the ALTERNATIVE ANSWER: dishonored by Richard Clinton. May Napoleon maker of the promissory note. b) A payee can be a “holder in due course.” proceed against Richard Clinton for the note? A holder SUGGESTED ANSWER: as the payee or indorsee (5%) is defined Richard Clinton is possession liable to Napoleon of Yes. the instrument who is in of it. under the is promissory note. facie The note Every holder deemed prima to bemade 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

86 85 Page Page 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 Instruments blank. He instructs B, his secretary, to(1997) A delivers bearerand instrument B then safekeep the achecks fill them to outB.when specially indorses it to C and C later and as required to pay accounts duringindorses 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, fills of in D, thesucceeds in “negotiating” it todelivers F who acquires the amount, endorses and the check to instrument in good faith and for value. C who accepts it in good faith as paymenta) forIf, for any drawee bank refuses goods soldreason, to B. B the regrets her action and to honor theshe check, F enforce the in tells A what did. can A directs the Bank SUGGESTED ANSWER: instrument against the drawer? b) In case of time to dishonor the check. When C Yes, A can be held liable to C, assuming that the dishonor of the check by both the drawee encashes the check, is dishonor dishonored. A is the latter gave noticeitof to A.Can This and the drawer, can F hold any of B, C and D be heldofliable to C? SUGGESTED a case anANSWER: incomplete instrument but liable on the instrument? a) Yes.secondarily The was delivered as 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 juridical relation between or the which is the proximate cause ofamong theinstrument; loss. words of negotiability parties prior to(2002) the forgery and the parties A. Define theforgery. following: a negotiable after the The(1) only party who can promissory note, (2) a bill of exchange raise the defense of forgery against and a holder Negotiable Instrument: (3)in a due check. (3%)isIdentification course the person(2005) 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) payable Postal Money to bearer, being a check, bearer each instrument. (5%) promissory note and Order; (2) your 2) A certificate of time deposit Moreover, instrument was indorsed in containing thethe essential elements 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 an Negotiable Instruments; bearer instruments; liabilities THOUSAND PESOS (P4,000.00) only,of unconditional promise in writing made by makerLetters and to indorsers (2001) 3) of credit; repayable the depositor 200 days after 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 a fixed or 5) bearer. Treasury payable from a A pay delivered the note to B. B indorsed receipts; determinable future time, a sum certain in specific fund. the note to C. C placed the note in his 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 D indorsed the note torules E whoand in order in writing addressed by one person to regulation which may be inconsistent with turn delivered the note to F, a holder in due 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 demand certificate to F. As of amaker time of the which to or the at fixed deposit or (3) A check is a bill of exchange on a states promissory “This is note, to A certify is directly that orbearer primarily determinable future time a sum drawn 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 note date.” detract – from Non-Negotiable the fact thatas a bearer it does not comply instrument, with thelike requisites the promissory of Sec. 1note of NIL in 3) question, Letters of credit Nonis always negotiable by mere B, as a general is liable to F Negotiable delivery, until itindorser, is indorsed restrictively “For 4) secondarily, Warehouse receipts Non-Negotiable and warrants that the Deposit Only.” for instrument the sameisas Bill ofand Lading it merely genuine in all respects represents good, not what it purports to money. 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 Non-Negotiable being payable fact which would 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

87 of is 103 Mercantile Law Bar Examination Q & A (1990-2006) Page 88 of 103 YES! Page Dagul an Mercantile Law Bar Examination Q & A (1990-2006) accommodation party because therequires case at 2. If Pedro pays the said P20,000 to Y, Pedro Commercial Banking Co. The By-laws ofinS aad 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 Treasurer or the Vice-President. Since the Treasurer was maker without receiving any consideration, accommodated or the ultimately SUGGESTED ANSWER: instrument? absent, C requested the Vice-President to co-sign the for check, signs as an accommodation party merely liable for the instrument. Pedro is only an The requisites of a negotiable instrument are the latter check of washis delivered to B. the which purpose ofreluctantly lendingdid. theThe credit name. accommodation party. Otherwise, it would be as follows: a) It must be in writing and The check was dishonored upon presentment on due date And as an accommodation party he cannot for unjust enrichment on the part of X if he is drawer; b) It must contain an unconditional signed by the maker or Parties; Accommodation Party (2003) of consideration funds. a) Is Saad liable on the check setinsufficiency up lack of against any as an not to pay Pedro. promise or order Susan Kawada borrowed P500,000 from XYZ accommodation party? b) If it is not, who then, under the holder, even as to one who is not a holder inabove to pay a sum certain in money; c) It must be Parties; Holder in Due Course (1993) Bank which required her, together with Rose 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 or otherwise indicated therein amount in blank with his loan account in the payable to the bank, or its order on stated 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 in accommodating a friend of the negotiated the note to Julie who had Rose, that of an accommodation party or that SUGGESTED ANSWER: When is notice of dishonor not required to (Crisologo-Jose v CA GR President, is ultra vires knowledge of the infirmity. Julie in turn of a solidary debtor? Explain. (4%) (per may be held liable. Rose is beDondee) given toRose the drawer? While may be legally 80599, 15Sep1989). 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 followingof accommodation. Defense of the absence ordinary course of business, such as one if she can, for how much? Explain. 2) cases: a) Where thebe drawer and drawee are consideration cannot validly interposed by given byDevi a financing company an Supposing endorses the notetotobe Baby the same person; b) against When the draweeinisdue a SUGGESTED ANSWER: accommodation party a holder accommodation party, this situation, for value butcan whoenforce has knowledge of the and not having capacity contract; c) When the Parties; Accommodation Party (2003) fictitious person or ato person b) Considering that both the President 1) Yes, Devi thein negotiable course. however, is not the case the bar problem. infirmity, can the latter enforce the 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 in the amount against Larry? presented for payment; d) oneinstrument generator is set on installment with chattel accommodation, they themselves canand 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 upinstrument by Larry against Devi instrument; e) Where the drawer has v CA 15Sep1989) immediately sold it without consent of the capacity because it is(Crisologo-Jose a personal defense. As a holder countermanded payment (Sec Parties; Accommodation Party (1996) to such vendor. Juan Sy was criminally charged with in due course, Devi is not subject 114the NIL) 2) Yes. NoraBaby applied is not foraa holder loan ofin P100th due course with BUR To settle 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 thereon, and the instrument was negotiated duethat course, VilmaBaby received has all nothe part rights of the of loan. a May the balance. 1) What is the liability of Ben SUGGESTED ANSWER: to Raffy, a holder for value. At the time Raffy holder Vilma in be dueheld course. liable? Baby Explain. did not participate Lopez as an accommodation party? Explain. Vilma of may be committed held liable. by Vilma is an SUGGESTED ANSWER: took the instrument, knew in Yes, the breach 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 up and to the sum on the instrument to instead a holderoffor value as such promissory note washolder not paid, Raffy instrument with P5,000 P1,000 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 for thepleads promissory note.the Thisfact is wasconstitutes aware at the time itintook What a holder due the instrument sued Jorge. 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 is one who has taken canreceiving ask for reimbursement fromthe Juan Sy, the and received no part of the loan (See Sec 29, value therefor, and 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: Accommodation Party (1998) 2) Juan Sy is liable to the extent of P5,000 in 1 Parties; That it is complete and regular upon conditions: 143 s 7) 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 for his that an accommodation party is liable on the value therefore, Pedro a NIL). If Ben Lopez paid promissory 2 receiving That he became holder of it makes before it indorsement. Is Jorgethe liable? Discuss. note, 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 Y recover from Pedro if the latter taking said instrument knew him to be only knowing that Pedro is not a party for value. directly to the holder of the promissory note, fact; interposes the15, consideration? “September an accommodation party. This is the nature or he pays Ben Lopez for the reimbursement 3 That he took itabsence in2002 good of faith and for (3%) or the essenceby of the accommodation. of the payment latter to the holder, value; Parties; Accommodation Party (1991) Parties; Accommodation Party (2005) “For Supposing I hereby same promise facts, to pay Pedro 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. required lend 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 Dagul, dated 20Dec1990. he does not another, through whoseSince name would from date hereof. negotiating it. (Sec 52, NIL) accommodation party. Absence of have any account, A, with the knowledge of B, appear in checking 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 to accommodate him. C agreed, signed a check note Facundo. Is he Dagul anfor SUGGESTED ANSWER: cannot be validly interposed by the aforesaid amount dated 20Dec 1990,(2%) drawn against Saad’s to: consideration Philippine National accommodation party? Explain. accommodation party against a holder in due account with the ABC Bank Escolta, Manila course. Branch”


90 93 92 89 91 Page Page of 103 of 103 A who connives gave course passenger, hadhim aofcertificate 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 and she GH B Port legislative important The her number Area funds reorganized to franchise, of Calamba, under 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 at same 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 itsunanswered, obligation his There course presented Inc. is Dizon nothing would ofEOL, action the subcontracted through not 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 claimed an apparent in tender his is not that possession its sale, the offer employee. ordinance Awas will and announced, retain heResolve was went the null to DOP with and AB. It legislative specificity, of the Later certificate against Soya on, franchise Grace bean the when or extent any with meal. MTis other Investment the necessary of Aside Regional form its difference from ofor sued authorization the Trial required driver, her, Court from Eva of 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 it Thus inhad effect OB for Makati. information three raised from an male entity the the Grace, employees government. to generally defense operate through ofof as available absence It Reyes supplier owns her rode lawyer, the of previously, offacilities, on electric the filed a Yellow Cab Company shall be liable with arrangement amends already earned hisamade certificate sizable lawful? payment profit. (3%) of public Is b) onOB Ifthe the convenience, liable note. salefor Can breach EF power and truck consideration, but motion its with and does nature the to light not dismiss cargo. and operate tothe its reliability. While on check factory them. thethe having ground and (Sec. 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 is the 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 of Is Certificate of Public ofof public B. As a sequel to under the same facts narrated 1) Robert isP5th aConvenience; holder oftherefore aainseparability certificate not less than nor more than P500th or Commission information can gained do from Sec her 16 employment? (m) of the stopped not a license sell. the Does truck and Eva and was have hijacked valid the defense? cargo. barred from No. Eva not have aa valid First, a) No. The arrangement not lawful. Itthe isor anAs Yellow Cab under the is boundary system. certificate and does vessel (1992) above, EF, out ofUnder pity for ABsection, who had already convenience taxicab service in 2) imprisonment ofoperate not than 7defense. years nor Public she Service also liable Act.for damages said to sellers Investigation Explain. bringing suit by to the and police (b)less violated disclosed the that Securities one MT Investment is a holder in due course and, artificial manipulation of the price of such,P1,000.00 the death of GH, passenger Pietro is breach Antonio was a Certificate of Public paid to to forgive AB Manila and suburbs. One evening, one and of more than 21granted years, 3) or both such fine Commission buyers with is empowered whom shedecided traded? to amend, If so, modify, what 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 andmeasure instead go after CD who convenience indorsed the taxicab units was boarded byofthree robbers imprisonment in the discretion the court. or revoke the a certificate of such of damages? public Explain weapon securities while the within other the was Philippines unarmed. For without (Hernandez v. Dolor, No. 160286, July 30, OB isin anblank insider (as defined in Subsection any defect of title of staging prior parties and from Regulation Code. If G.R, the sale materializes, If the person is the aand corporation, partnership, common carrier Yellow Cab and its between Batangas using the note tob)him. IsSecondly, CD still liable as they 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) ofathe the Securities Regulation Code) defenses available to prior parties among it isvirtue calledof wash sale sale. association or other juridical entity, the employee, Baldo, solidarily motor vessel “MV Lotus.” He stopped indorsement inliable. blank? Why? Because of said incident, the LTFRB revoked contended that even if or thesimulated ordinance was sued SEC Dizon andfor thus damages. came to Dizon court in “with turn set unclean up Carriage; Breach of Contract; Presumption of SUGGESTED ANSWER: since she is an employee of the Bank, the themselves. Eva cantoinvoke the defense of valid, penalty shall be imposed upon the officers of operations in 1988 due unserviceability of (2%) the certificate of public convenience of it is only theCode; Commission which can a 3rd hands.” party EOL complaint opposed against the motion Reyes which to dismiss, Negligence (1990) Securities Regulation Purpose (1998) A. No. EF cannot claim payment from AB. EF financial adviser of DOP, and this relationship absence of ground consideration against the corporation, etc. responsible forthe vessel. In the 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 to taxicab owned and SUGGESTED ANSWER: What is the principal purpose ofinformation laws and To is not a holder of the promissory note. gives her access material Investment if an the latter was privy to the violation. And ifonly such officer is anthe alien, hethat CPC for the same route. After aDid few months, failed to render safe, proper and adequate Sec 17 (j)the ofgoverning said Act and since the loss physical was due presence to force majeure. in the Philippines, and operated by Jimmy Cheng and driven No. The hijacking in this case cannot be regulations securities in the make presentment for payment, itby is about issuer (DOP) and the latter's purpose for which the checks were issued implementation shall, in the addition toCarlos the penalties prescribed, he discovered that was operating on service asactivities required under Sec 19a of the of the ordinance was without hijacking all of constitute force related majeure to plaintiffs to trading SUGGESTED ANSWER: Hermie Cortez. Peter asked Cortez towhich take considered force majeure. Only one thecourse. Philippines? (2%) necessary to exhibit the instrument, securities (shares), which information is not and, therefore, not aWas holder in of due be deported without further proceedings his route Antonio’s CPC. Because Public Service Act. a) the revocation sanction or approval of the Commission, its exculpate in U.S.under Reyes securities from all any transpired liability to outside Dizon? of the The principal purpose of laws and regulations SUGGESTED ANSWER: him to his office in Malate. On the way to two hijackers was armed with a bladed EF cannotavailable do because he is not inAccordingly, possession generally to the public. Second, it issentence. not a ground for the discharge after service (Sec 56 RSA) Basilio filed aof complaint for illegal operations the certificate of public convenience of enforcement was unauthorized and illegal. 1) Discuss Philippines. fully. If you are the judge, decide the governing securities in the Philippines is to The grounds of the thePractices to dismiss Malate, the taxicab collided athe passenger weapon. As against 4motion male employees of are Insider Trading; Manipulative (1994) thereof. (j) of Public Service Act it iswith only 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 onof the respective protect public against the nefarious B. because CDcan negotiated the instrument SUGGESTED ANSWER: both untenable. EOL is not doing business in jeepney, as a result of require which Peter was Reyes, 2acourse hijackers, with only one them 1) Give case where aitan person who is not an as Commissioner which compliance 27No, ofthe the Securities Regulation Code, which due that was issued merely and Carlos jointly filed application for sale Commission (Board) exercise its power to the Public Service Act be sustained? Explain. contentions of the parties on the 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. Peter being armed with a bladed weapon, cannot issuing corporation, director or officer with the provisions of the ordinance? requires disclosure when trading in The only certificate grounds for the discharge andsecurity. transfer of Antonio’s CPC and suspend or revoke of public 2) Was XJimmy correct his contention that under facts presented above. (10%) salesmen in selling securities. SUGGESTED ANSWER: buyers with whom she traded. Under not link taxicab cannot benotsetselling Securites Act, because itare was sued forindamages, based upon a be considered force majeure. The hijackers thereof, or Robert’s a of person controlling, controlled by Explain. securities. of negotiable instruments those forth substitution the vessel “MV Lotus” with convenience? Securities; Definition (1996) Section 17 Place of Payment (2000) 1) No. The power vested in the Public Service Subsection 63.1 of the Securities Regulation construed that he rendered a service that is securities in the country. contract of carriage, and Peter won. Jimmy did not act with grave or irresistible threat, or under common control with the issuing in Sec 119 Lost of Carlos. the NIL and ofnone of those Define securities another owned by Should Antonio’s Carriage; Liability; Baggage or Acts Passengers The contention of EOL is correct, because it PN is the of aawarded negotiable promissory Commission under Sec 16m is subordinate SUGGESTED ANSWER: Code, the damages could be anto unsafe, inadequate and improper (Manzanal wanted toholder challenge the decision before the violence or force. corporation, is also considered an “insider.” grounds are available to be Eva. The latter may SUGGESTED ANSWER: and Carlos’ joint application approved? (1997) never did any business in the Philippines. All The joint application of Antonio and Carlos note within the meaning of the Negotiable the authority of the City of Manila under Sec amount not exceeding triple the amount of in v Ausejo 164 s 36) SC on the ground that the trial court erred 2) In Securities Law,discharge what is a “shortswing” not unilaterally herself fromAct, her Stocks, bonds notes, convertible debentures, Giver your reasons. Parties; Holder intransfer Due Course (1998) 1b) Under Sec 19a of the Public Service 1997 (15) Antonio, a paying passenger, for its the sale transactions and of in Antonio’s question CPC were Instruments Law (Act 2031). The note was 18 (hh) of its revised charter to superintend, the transaction plus actual damages. not making an express finding as to whether transaction. 3) In “insider trading,” what is a of warrants liability by the mere expediency orANSWER: other documents that represent SUGGESTED SUGGESTED ANSWER: X makes a promissory note for P10,000 the Commission (Board) can suspend or boarded a bus bound for Batangas City. He and consummated substitution of outside the vessel the Philippines. MV Lotus with originally issued by RP to XL as payee. XL in regulate or control the streets of the citycollision of Exemplary damages may also be awarded or not Jimmy was responsible for the “fact of special significance”? withdrawing her fromto the drawee a share in note athe company or a debt owned by a2)by IXL. willThe counsel Jimmy to desist from Tender Offer (2002) 1) It may becertificate a owned case where person, mentions the place of payment payable to A, minor, help himbank. buy revoke a of row, public convenience chose a seat at the afunds front near the whose bus another vessel by theatransferee indorsed note to PN for goods bought Manila. (Lagman v City of Manila 17 s 579) case of bad faith, fraud, malevolence or and, hence, civilly liable toThe Peter. He of went (State Investments vdriver CA 101163, 11, company or government entity. Evidences of to challenging the decision. action Peter 2002 (6) relationship or former relationship to the on the specified maturity date as the office school books. A bus endorses the note toJan B 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 by law upon the wantonness in the violation of the Securities you for advice. What will you tell 93 217s32). obligations to pay orwere ofofrights to him? being based on money culpa contractual, the A. What is or ain tender offer? issuer gives gave him access to a which fact of the corporate secretary 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 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 a tender offer required special significance about the issuer or the banking hours. ON maturity date, RP was at knows A is a minor. If C sues X on the note, to render any service which can be he then placed beside the driver’s inseparable. The unserviceability ofseat. the Not to The denycourt or supersede the regulatory power of is also authorized to award corporate assets. Instruments giving to their breach of contract. The burden of proof to be security that isdemanded not generally available, or and a the aforesaid office ready totraffic pay the note can Xmade? setfor up the defenses ofhad minority reasonably and furnished. having slept 24 hours, he requested the vessel covered by the certificate local governments over motor inofthe attorney's fees not exceeding 30% the SUGGESTED ANSWER: legal holders rights to money or other instead would lie on Jimmy to establish that Insider Trading (1995) Revocation of Certificate (1993) (Lagman v City of Manila 17 s person, who learns such a fact from any of but PN did not up. What PN later did lacktoofrendered consideration? (3%) driver keep an eye on the bag he likewise ineffective the should certificate streets subject to show 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 forof the face value of the note, doze off during theknowledge trip. Whilemay Antonio was itself, and thewith holder thereof not the 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 Requirements collision could not havetoWill been avoided. unlawful for an insider sellthe or buy prosper? a convenience, failed tothe register to the from whom heConvenience; learns fact, isbag such plus interest and costs. suit asleep, another passenger took the transfer the same to another. (Cohon v(1995) CA an Act does not really define the term Carriage; Breach of Contract; Presumption of Yes. The suit will prosper as far as the face SUGGESTED ANSWER: instrument concert with as other it does persons not contain to acquire any equity word 2) A “shortswing” is a transaction where a WWW Communications Inc. is an e-commerce recognized and used as such in the regular What requirements must be met before a security of the issuer if he knows a fact of number of unitsSecurities required by insider (Sec 30, parat (b) Rev Act)her Explain. (5%) away and alighted Calamba, Laguna. 188complete sOrdinarily, 719). ‘securities.’) Negligence (1997) Yes. the common carrier is not value of the note is concerned, but not with of securities negotiability, of a public that is, company. order or It may bear, also or person buys securities and sells or disposes channels company of whose commerce. present business activity is certificate of public convenience may be bysuch special significance with respect to the issuer certificate. However, shebetried to justify Could the common carrier held liable Securities; Selling of Securities; Meaning (2002) In a court case involving claims for damages liable for acts of other passengers. But the respect to the interest due subsequent toof the words be defined of similar as a method meaning of or taking import. over Not a of the same within a period of six (6) limited to providing its clients with all types granted under the Public Service Act? or the that isCorporation not generally available, failurefor bythe the accidents that allegedly befell Antonio loss? 2002 (18)security Equity Online (EOL), 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 istotosell 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 a securities 2) It is a purchase by any person for the passengers, counsel for the bus operator The following are the requirements for the liability if the common carrier’s employees collection. RP was ready and willing to payfiles such shares personal at a price defenses higher of minority than the and current lack re-focus corporate direction of gradually party.its 3.a) Whaton does the term “insider” burdened by the successive accidents and brokerage service 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 consideration. market pricethat and she C onisadid aparticular mere assignee date. who converting itself into aU.S. full convergence mean as used in the Revised Securities misfortunes not know what sheis 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 with the issuer, convenience, to wit: a)control The must complaint should beconsidered dismissed because the exercising due diligence. In applicant this case, the on specified maturity date,to but PN did subject to all defenses. organization. Towards this objective, the 3.b)the When is a EOL’s fact be “of 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 of 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 lost his right recover the company has been aggressively acquiring special significance” under theto same Act? tangent momentarily, although (www.eonline..com), which is hosted bynegligent. a minor only. defense is not available to among towhich anSuch agreement made between pursuant association organized under the laws of inor issuer or any such person, resulting the operator or its employees were on the bag was placed beside the interest due subsequent to the maturity of telecommunications businesses broadcast 3.c) in What are the liabilities ofand a users person who had theperson moneyand andone financial ability to buy SUGGESTED ANSWER: server Florida, enables Internet to X. or more sellers. the the Philippines and at least 60% of the beneficial ownership of more than 10% of If you were the judge, would you dismiss the driver’s seat. Ifand therepair driverthe exercised dueone. Are the note andpertinent theand costs of collection. media enterprises, consolidating their violates the provisions ofthe the new trucks destroyed No. In the carriage of passengers, failure X cannot set up the defense against C. Lack trade on-line in securities listed in the various Carriage; Prohibited & Valid Stipulations (2002) SUGGESTED ANSWER: b) The person intends to acquire 30% or SUGGESTED ANSWER: Public Service Law stock of capital of which must anythe class of shares (Sec 32 R Sec Act) complaint? diligence, hepaid-up could have prevented the loss corporate structures. The ultimate plan is to Revised Securities Act regarding the unfair reasons given by Pepay sufficient of common to bring the of consideration isshares athe personal defense which within stock exchanges incarrier the U.S. buys 3) In “insider the equity trading,” a of “fact a public of special company 3a.the “Insider” means 1) theEOL issuer, 2)and a No. The reasons given by Pepay are not Discuss more whether of or not following belong to citizens of the Philippines. (Sec of the bag. have only two organizations: oneaccounts to controlling, own the use of inside information? Certificate of public Convenience (1998) to excuse her from completing passengers safely to or their destination is16a, only between sells U.S. listed securities for the of pavailable eriod ofaddition 12 months. significance” is, to immediate being material, director or officer of, a person b) grounds The a applicant must prove public sufficient grounds to excuse her from stipulations in a in contract of carriage of a parties CA 146, as amended) facilities of the combined businesses and to units? Explain. The Batong Bakal Corporation filed with the immediately raises the presumption that or against parties who are not holders in due c) The person intends to acquire its clients all over the world, who convey their c) completing 1 The a stipulation applicant limiting must prove the that that the may be necessity. such fact as would likely, on sum being made controlled by, or under common control with, 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 the facilities and provide Certificate of Public Convenience for the fault or negligence. In the case at bar, not prevent C from being a holder in due would result ownership of16n more than Internet. has no offices, employees theaauthorized value authorization of the goods inin do case business of extent, loss will due promote theft. of security to a to significant ortowhich formerEOL relationship to issuer givesorthe or representatives (Sec Pub mass media and commercial purpose of supplying electric power and fact death and injury ofU.S. thespecial bus website course. C took the promissory note from 50% ofHalili the said representatives outside The theServ 2 public aAct; stipulation interest that a shares. proper in thesand event suitable of loss, a reasonable person would consider as a gaveofhim access to a the fact of vin Herras 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 in Due Course; Indorsement in blank Communications will be the flagship entity within the compound. The application was 1996 2.2) Evagenerally issued toavailable, Imelda check Transportation Law negligence on Traders” the part of theacarrier. The Securities Regulation capable of undertaking the service icon “For containing of the defective condition ofproposed the vehicle used in determining his course of action in thein that is Filipino not or 4)the ain person (2002) which will own the facilities of the opposed by Bulacan Electric Corporation the amount of P50th post-dated Sep 30, carrier must rebut such presumption. and meeting the responsibilities incident to day’s prices ofsuch U.S. a listed expressed the contract of factors carriage,as thethe carrier’s liability light of (2004) such degree of itsis who learns fact securities from any of the Insider A. AB issued a promissory note for P1,000 conglomerate and provide content to the contending that the Batong Bakal 1995, as security for a diamond ring to beother Otherwise, the conclusion can be properly its operation. in U.S. dollars and their Philippine peso limited to the value of the goods appearing in the specificity, the extent ofinits difference from foregoing insiders with knowledge that the Ms. OB was employed MAS Investment Carriage; Fortuitous Event (1995) Boundary System (2005) payable tounless CDService orthe hisCommission order onor(1993) September 15, new corporation which, in turn, will operate Corporation 3b. Itcommission. is one which, has not in secured addition athe to franchise being to Powers of the Public sold on On Sep 15, 1995, made that the carrier failed to exercise equivalent. Grace Gonzales, a resident of bill of lading shipper owner declares information generally available previously, person from whom he learns fact is such SUGGESTED ANSWER: Bank. WIC, a medical drug company, M. Dizon Trucking entered into a hauling Baldo is a driver of Yellow Cab Company 2002. CD indorsed the note in blank and those facilities and provide the services. WWW Manipulative Practices (2001) material, would be likely affect the operate maintain anasto electric Is the The City of Manila passed an ordinance Imelda the check to MT extraordinary diligence required bymarket law. Makati, iscertificate aand regular customer of the plant. website a higher value (5%) and its nature and reliability (Sec 30 itpar c an insider (Sec 30b, RSA) No. Anegotiated of public convenience 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 opposition’s contention correct? (5%) banning provincial buses from the city. The investment which paid the amount of P40thon and has been purchasing and selling RSecAct) be granted to Batong Bakal Corporation, desirable to make a tender offer for DOP former bound itself to haul the latter’s 2000 along the South Expressway, Baldo’s cab SUGGESTED ANSWER: from EF and on September 14, 2002 advice on whether or not its reorganized securities. To create an appearance active being made generally available, ordinance was challenged as invalid of under to her. Eva failed toEOL sellwith the ring, soor she securities through the use ofone her though not possessing a company, a drug manufacturer. OB sacks of Soya bean meal from Manila in aitcollision, his When asked presented to AB for payment. business activity would be considered a public trading forService such securities, which a reasonable would consider thefigured Public Act bykilling X returned itExpress to Imelda onperson Sep 19, 1995. American 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 fromshe thehad series of erroneous stock picks, government. will be your advice? Explain incurred a netWhat indebtedness of US$30,000. (5%) with EOL, at which time she cancelled her 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:


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 ground making services a continuous nevertheless offerscheduled to bus riders. her to It is flythe twoduty hours of common later aboard carriers theirof plane. passengers She agreed to stop and their arrived conveyances in Hongkong for a safely. reasonable The aircraft length of used time byinFar order EasttoAirlines afford passengers developed engine 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 unable jerking to of their take the conveyances Far (per dondee) No, there was breachEast of flight. 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 protection (2002) andCommon Airline (1992) pertaining to adefense contractofofdue carriage. Why was is the in the Marino a passenger on a diligence train. Another selectionJuancho, and supervision of an employee passenger, had taken a gallon of not available to a common carrier? (2%) gasoline placed in a plastic 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? Explain The bus owner’s personnel lost no time a) No. The railway company is not 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 particularly advice whether she can packages or bags, 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 so as to carriers, it ispreviously not lawfulhappened to carry flammable imposeinanpassenger obligationaircrafts, on part of theairline materials and personnel of the bus company to warn the companies may open and investigate 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; Limitation of Liability is notcarrier? an insurer. (Pilapil v(1998) CA notbus onecompany is a common X took a plane from Manila bound for Davao SUGGESTED 180 s ANSWER: 346) Cebu there was a change Thevia test for where determining whether or notof one planes. X arrived in Davao safely but to is a common carrier is whether the person his or dismay, his two suitcases were left entity, for some business purpose andbehind with in Cebu.orThe airline company assured X that the general limited clientele, offers the service suitcasesorwould come inpassengers the next flight of carrying transporting or but they never did. X claimed P2,000 for the loss goods or both for compensation. Common Carriers; Defenses (1996) of both suitcases, but 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 sign certificate of public and in outnot that he did not the stipulation convenience. fact had not even read it.

96 95 Page Page 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 the stipulation that any claimAM for loss a) May Reynaldo hold 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 for Reynaldo’s the two luggages defeat claim? lost. toP500 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 facts that common carrier when the accident happened LG Airlines from Teheran to Manila AM as Trucking operates only two trucks for on and A suffered serious injuries. In anhire action evidenced by LG Air Waybill which disclosed a selective basis, caters only tothe a latter few by A against the common that the actual gross weightcarrier, of the luggage customers, not make regular in or claimed 1)not there was aan stipulation the was 180 kg.that Zdoes did declare inventory of scheduled trips, and does not have a ticket issued to A absolutely exempting the the contents or the value of the 13 pieces of thefrom law does distinguish between certificate of public convenience are of no carrier liability from the passenger’s luggage. After the not said pieces of luggage moment one whose principal business activity isable the to death orManila, injuriesthe ad notices were posted by arrived inas consignee was carrying of persons or goods or both and the common carrier dispensing with the claim from the cargo broker only 12 pieces, anyone who weight doesdiligence such carrying as an extraordinary of theXonly carrier, and with a total of 174 kg. advised the 2) ancillary activity, A was given a discount on his plane fare airline of the loss of one of the 13 pieces of thereby reducing the liability of distinction the common the law making any luggage and ofavoids the contents thereof. Efforts carrier with respect to A in particular. a) Are between a person or enterprise offering of the airline to trace the missing 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 to scheduled basis and one offering such service comply with the demand of X to produce the SUGGESTED ANSWER: limit or exempt it from liability? (4%) on an occasional, episodic or unscheduled missing X not filedvalid an action for because breach a) No.luggage, These are defenses basis, and of contract with damages against LG Airlines. they are contrary to law as they are in the law refrains from alleged making athat the In violation its answer, LGextraordinary Airlines of the diligence distinction between a carrier offering Warsaw Convention which limits(Article theits liability required of common carriers. 1757, services to the public and one who to of the carrier, ifgeneral any, with respect to cargo 1758 New Civil Code) b) The available to anyper common offers services solicits business only from a a sum of defenses $20 or per kilo or $9.07 pound, carrier to limitvalue orthe exempt it from are: narrow of population unless asegment higher isgeneral declared inliability advance 1 observance of extraordinary and additional charges are paid by the SUGGESTED ANSWER: diligence, Yes. Unless the of ofa the cargo are passenger and thecontents conditions contract 2 or the proximate cause of the declared or the a lost expressly luggage as set forth in contents the air of waybill, incident is athe fortuitous event or subject are proved the contract by ofsatisfactory the carriage evidence offorce cargo majeure, other than the self-serving declaration of one to the Warsaw Convention. May the 3 act or omission of the shipper or party, the contract enforced as it allegation of LG should Airlinesbe be sustained? of the goods, is the owner only reasonable basis to arrive at a Explain. 4 the character of the or is just award. The passenger or goods shipper the packing or in the ticket bounddefects by the in terms of the passenger Common Carrier (1996) containers, and or the waybill. (Panama v Rapadas 209 s 67) Define5a common ordercarrier? or act of competent public Common Carrier; Duration Liability (1996) carrier SUGGESTED ANSWER: authority, withoutofthe common A common carrier a A bus of GL Transit onperson, itssimple way corporation, tonegligence Davao being guilty ofiseven firm stopped or(Article association to enable engaged a passenger in the to business alight. 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, the bus driveroffering failed toits notice services Santiago to who the 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, which sudden motion, Santiago slipped and fell acted a ticketing ofMay Far Santiago East downassuffering seriousagent injuries. SUGGESTED ANSWER: Airlines, forTransit a round trip for flight on the latter’s hold GL liable breach of contract Santiago may hold GL Transit liable forThe aircraft, from Manila-Hongkong-Manila. of carriage? Explain. breach of contract of carriage. It was ticket was cut by an employee of 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 would have the effect of Flight F007. atVivian leave Manila 5:30 arrived at the Ninoy increasing the perilAirport to a passenger as Aquino International an hour such before Santiago while he was attempting to board the time scheduled in her ticket, but was the same. bus is F007 not in had motion told that Far When East’sa Flight leftthere at is no necessity for a 12:10 p.m. It •

•

•


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, the contention of limited few (De sustain 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 ). Loss (1991) Dec 22,88 168 scra 612 for 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

98 97 Page Page of 103 of 103 “received policy and for

shipment” therefore void andand contained inexistent. an entry (Art. 1409[1], indicating Civil transshipment Code) seemingly inadequate despite its efforts of Trust Receipts Law; Liability forTransportation, 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 byTrading the Kabit System; Agent of thedelivered Registered the Owner (2005) IncTransportation executed a trust receipt and in favor of BPI despite the entries, he Land Franchising Procopio purchased an Isuzu Bank toBoard secure the importation check in payment of thepassenger Regulatory of a certificate of publicby his corresponding jeepney from Enteng, a holder of at a certificate company of certain goods. After release and freight. The shipment was delivered the convenience for the same Manila-Tarlacofofpublic convenience for the operation of sale route. of the imported goods, theInc., proceeds port discharge but the buyer refused to Manila Could Bayan Bus Lines, SUGGESTED ANSWER: public utility vehicle plying the Calamba-Los fromthe the sale operator” were not rules turned over to BPI. accept the anahaw fans because there was invoke “prior 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%) cannot BPI would invoke be the justified “prior operator” in filing rules a case for offering the jeepney for public transport estafa against Noble? transshipment since the goods were estafa under PD 115 against Noble. The fact against Pasok Transportation, Inc. because services,inhe did not have transferred Hongkong from the MV registration Pacific, the of that the trust wasRule” issued in favor such “Prior or Oldreceipt Operator under the of a the vehicle transferred in a his name. Neither feeder vessel, to MV Oriental, mother bank, instead of aapplies seller,asto secure Public Service Act only a policy of the did JRT he argued secure that for the himself certificate of vessel. 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 of the Land Transportation vessels belong to the same shipping 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: satisfactory of a trust service, receipt and is who subject in all to things the penal One day, the jeepney was traveling there waswhile transshipment, it cannot be The filing of a case for estafa under the penal that thereunder (Sia with v People 166s655) andliability respects is complying the rule and southbound, collided witheven a ten-wheeler deemed to have it agreed thereto if it provisions of the RPC would not be justified. regulation of the Commission. In the facts of truck owned by Emmanuel. The driver of the signed the bill of lading containing such entry It has been held in Sia v People (161 s 655) Procopio sued Emmanuel for damages, but the case at bar, Bayan Bus Lines service truck admitted responsibility for shipping the accident, because it was made tothe the that corporate officers and directors are not the latter moved toknown dismiss case on the became seemingly inadequate despite its explaining that the truck lost its brakes. lines from the that transshipment was in criminally liable for a violation of said Code. 2 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 therefore, it had no intention to allow Johnny owns Sarao jeepney. He asked cargo out of one ship and loading it in officer maya be criminally liable for anhis offense of the jeepney. Resolve the motion with services, use of the 'prior and 1 the must be aoperator' specific provision of transshipment of the subject cargo. Is the SUGGESTED ANSWER: neighbor Van There ifby hethe 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 Theperson, motion to or dismiss should argument tenable? Reason. jeepney under Van’s certificate of public same firm, entity owns the be two denied n this case. act; and because Procopio, as the real owner of the convenience. Van agreed and, accordingly, vessels. (Magellan v CA 201 s 102) 2 There must be an explicit statement in 2) jeepney, No. JRT is is bound by the terms of the bill of the real party in interest. Procopio Johnny registered his jeepney under Van 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 are to be personally and criminally included transshipment in Hongkong. does not apply in this case because the bumped Tomas. Tomas was injured and in liable Acceptance such public at under large is notcircumstances deceived nor involved. due time, hetherefore. filed a complaint for damages makes the bill of lading a binding contract. (Lim v. Court of Appeals, G.R. No. 125817, against Van and his driver for the injuries he (Magellan v Ca 201 s 102) January 16, 2002, citing Baliwag v. suffered. The court rendered judgment in Trust Receipts Law toTransit In any event, Procoprio is deemed be "the Court of Appeals, G.R. No. 57493, January 7, favor of Tomas and ordered Van and his agent" of the registered owner. (First 1987) driver, jointly and severally, to pay Tomas Trust Receipts Law; Acts & Omissions; Covered (2006) 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 Maritime Commerce; Bareboat (2003) alleging ownership of the jeepney levied 1994) The27, Trust Receipts Law (P.D. No. 115) For the transportation of itsgoods cargoorfrom the upon and stating that the jeepney was declares the failure to turn 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., under chartered “bareboat” enable Johnny to make use of Van’s criminal offense Art. 315(l)(b) of M/V Ilog of Kabit System (2005) Karagatan Corporation. M/V Ilog certificate of public convenience. May the Revised Penal Code. The law is violatedmet a sea Discuss the “kabit system” in land SUGGESTED ANSWER: accidentthe resulting in the loss ofto the cargo and Sheriff proceed with the public auction of whenever entrustee or person whom transportation and its legal Yes, the Sheriff may proceed withconsequences. the the death of some of the seamen manning Johnny’s jeepney. Discuss with reasons. SUGGESTED trust receipts were issued fails to: (a) return the (2%) saleANSWER: auction of Johnny’s jeepney. In vessel. Who should bear theNo. loss of theAugust cargo (Metropolitan Bank v. Tonda, G.R. 134436, The kabit system arrangement where a theSUGGESTED goods covered ANSWER: by the trust receipts; or contemplation of lawisasan regards the public 16, 2000). thethe death of the seamen? (4%) granted certificate of public (b)and return proceeds the Co. saleWhy? of said (per Dondee) Osawaofand shall bear the andperson third persons, the avehicle is considered Is lack of intent to defraud a bar to the convenience allows other persons to operate goods loss because under a demise or bareboat the property of the registered operator prosecution of these acts or omissions? theirvmotor vehicles license, Trans-Shipment; of Lading; binding his 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 the vessel his own and becomes, No. The 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 or over service whenever the entrustee fails (1) turn JanuaryAs 16,payment 2002, citing Baliwag Trannit $23,000. thereof, a letter of v. Court thestipulated, subject to liability for damages proceeds of the sale of the goods, or (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 lawof enjoining the the kabit system aims to Prior Operator Rule (2003) letter credit required 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 the for an failure to account or return gives rise tooperating the accident in order to protectofthe riding public. satisfactorily a bus service over the transshipment. The President JRT then crime which is malum prohibitum. There is route The law does not penalize the parties to a The policy has no force when the public at to Tarlac and vicetoversa via the contracted a shipping agent to ship thesystem is no Manila requirement to prove intent defraud kabit agreement. But the kabit large fans is neither deceived nor involved. McArthur Highway. With G.R. the No. upgrading anahaw (Ching v. Secretary of Justice, 164317, of the contrary tothrough 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, became credit. However, the bill of lading issued by G.R.service 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 Examination Bar Examination Q &Q A& (1990-2006) A (1990-2006)

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

Warehouse Receipts Law Bill of Lading (1998)

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

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 receipt because the raw materials were lack of deceit should not be sustained not sold but the corporation in the because the used mere by failure to account for manufacture of its products. Would those importation, or return the articles constitutes defenses be of sustainable? Why? the abuse confidence in (6%) the crime of 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 Usury Law them to the Bank upon demand. Usury Law (199)

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 be violative of hisis constitutional No. Violation of a trust receipt criminal as right against “imprisonment for nonpayment it is punished as estafa under Art 315 of theof a debt.” Is he RPC. There is correct? 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.

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 Howsued. 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%) 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,

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