5. mercantile law (1990-2014)

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2014 BAR EXAMINATION

1. Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in love with eachother and got married soon after. They have been cohabiting blissfully as husband andwife, but they did not have any offspring. As the years passed by, Carlo decided to tae out

an insurance on Bianca!s life for "1 # with him $Carlo% as sole beneficiary, given that he didnot have a steady source of income and he always depended on Bianca both emotionallyand financially. &uring the term of the insurance, Bianca died of what appeared to be amysterious cause so that Carlo immediately re'uested for an autopsy to be conducted. Itwas established that Bianca died of a natural cause. #ore than that, it was also establishedthat Bianca was a transgender all along(a fact unnown to Carlo. Can Carlo claim theinsurance benefit)

Answer *+es. Carlo can claim the insurance benefit. If a person insures the life or health of

another person with himself as beneficiary, all his rights, title and interests in the policy shallautomatically vest in the person insured. Carlo, as the husband of Bianca, has an insurable

interest in the life of the latter. Also, every person has an insurable interest in the life andhealth of any person on whom he depends wholly or in part for support. The insurableinterest in the life of the person insured must eist when the insurance taes effect butneed not eist when the loss occurs. Thus, the subse'uent nowledge of Carlo, upon thedeath of Bianca, that the latter is a transgender does not destroy his insurable interest onthe life of the insured.

-. Bong bought // bags of rice from Ben for "//,///. As payment, Bong indorsed to Ben aB"I chec issued by Baby in the amount of "//,///. 0pon presentment for payment, theB"I chec was dishonored because Baby!s account from which it was drawn has beenclosed. To replace the dishonored chec, Bong indorsed a crossed &B" chec issued also

by Baby for "//,///. Again, the chec was dishonored because of insufficient funds. Bensued Bong and Baby on the dishonored B"I chec. Bong interposed the defense that theB"I chec was discharged by novation when Ben accepted the crossed &B" chec asreplacement for the B"I chec. Bong cited ection 112 of the 3IL which provides that anegotiable instrument is discharged 4by any other act which will discharge a simple contractfor the payment of money.5 Is Bong correct)

Answer *3o. Bong is not correct. 6hile ection 112 of the 3IL in relation to Article 1-1 of the

Civil Code provides that one of the modes of discharging a negotiable instrument is by anyother act which will discharge a simple contract for the payment of money, such asnovation, the acceptance by the holder of another chec which replaced the dishonored

ban chec did not result to novation.

There are only - ways which indicate the presence of novation and thereby produce theeffect of etinguishing an obligation by another which substitutes the same. 7irst, novationmust be eplicitly stated and declared in une'uivocal terms as novation is never presumed.econdly, the old and the new obligation must be incompatible on every point.

In the instant case, there was no epress agreement that the holder!s acceptance of thereplacement chec will discharge the drawer and endorser from liability. 3either is there

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incompatibility because both checs were given precisely to terminate a single obligationarising from the same transaction.

. 0nder the 7inancial 8ehabilitation and Insolvency Act $78IA%, the filing of a petition for voluntary rehabilitation must be approved by*

a. A ma9ority vote of the Board of &irectors and authori:ed by the vote of the stocholdersrepresenting at least a ma9ority of the outstanding capital stoc.

b. A ma9ority vote of the Board of &irectors and authori:ed by the vote of the stocholdersrepresenting at least -; of the outstanding capital stoc.

c. -; vote of the Board of &irectors and authori:ed by the vote of the stocholdersrepresenting at least a ma9ority of the outstanding capital stoc.

d. -; vote of the Board of &irectors and authori:ed by the vote of the stocholdersrepresenting at least -; of the outstanding capital stoc.

Answer *b. A ma9ority vote of the Board of &irectors and authori:ed by the vote of the stocholders

representing at least -; of the outstanding capital stoc.

<. &C is a unit owner of #edici Condominium located in "asig City. =n eptember >, -/11,#edici Condominium Corp. $#edici% demanded from &C payment for alleged unpaidassociation dues and assessments amounting to "12?,///. &C disputed the claim, sayingthat he paid all dues as shown by the fact that he was previously elected as &irector and"resident of #edici. #edici, on the other hand, claimed that &C!s obligation was aConstruction Corporation. Conse'uently, &C was prevented from eercising his right tovote and be voted for during the -/11 election of #edici!s Board of &irectors. Thisprompted &C to file a complaint for damages before the pecial Commercial Court of "asigCity. #edici filed a motion to dismiss on the ground that the court has no 9urisdiction over

the intra@corporate dispute which the L08B has eclusive 9urisdiction over. Is #edicicorrect)

Answer *3o. #edici is not correct. A controversy between the condominium corporation and its

members@unit owners for alleged unpaid association dues and assessments and theprevention of &C from eercising his right to vote and be voted for during the -/11 electionof the #edici!s Board of &irectors, partaes of the nature of an intra@corporate disputewhich does not fall within the 9urisdiction of the L08B despite its epansive 9urisdiction. Itis considered as an intra@corporate controversy falling within the 9urisdiction of the 8egionalTrial Court designated as special commercial court.

?. A corporation organi:ed under the Corporation Code commences to have corporateeistence and 9uridical personality and is deemed incorporated*

a. 7rom the date the application for incorporation is filed with the C.b. 7rom the date the C issues a certificate of incorporation under its official seal.c. / days after the date the application for incorporation is filed with the C.d. / days after the date the C issues a certificate of incorporation under its official seal.

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Answer *b. 7rom the date the C issues a certificate of incorporation under its official seal.

. =n #ay -, -/1, Dess insured with Dac Insurance $Dac% his -/1< Toyota Corolla sedanunder a comprehensive motor vehicle insurance policy for one year. =n Duly 1, -/1<, Dess!

car was unlawfully taen. ence, he immediately reported the theft to the Trafficmanagement Command $T#C% of the "hilippine 3ational "olice $"3"%, which made Dessaccomplish a complaint sheet as part of its procedure. In the complaint sheet, Dess allegedthat a certain 8ic ilat $ilat% too possession of the sub9ect vehicle to add accessories andimprovements thereon. owever, ilat failed to return the sub9ect vehicle within the agreed@day period. As a result, Dess notified Dac of his claim for reimbursement of the value of the vehicle under the insurance policy. Dac refused to pay claiming that there is no theft asDess gave ilat lawful possession of the car. Is Dac correct)

Answer * 3o. Dac is not correct. The 4theft clause5 of a comprehensive motor vehicle insurancepolicy has been interpreted by the Court in several cases to cover situations lie $1% when

one taes the motor vehicle of another without the latter!s consent even if the motor vehicleis later returned, there is theft(there being intent to gain as the use of the thing unlawfullytaen constitutes gain, or $-% when there is taing of a vehicle by another person withoutthe permission or authority from the owner thereof.

>. Dinggy went to Eluwer 0niversity $E0% in Fermany for his doctorate degree $"h.&.%. ecompleted his degree with the highest honors in the shortest time. 6hen he came bac, hedecided to set@up his own graduate school in his hometown in Gamboanga. After seeingfree legal advice from his high@flying lawyer@friends, he learned that the "hilippines followsthe territoriality principle in trademar law, i.e., trademar rights are ac'uired through validregistration in accordance with the law. 7orwtih, Dinggy named his school the Eluwer

Fraduate chool of Business of #indanao and immediately secured registration with theBureau of Trademars. E0 did not lie the unauthori:ed use of its name by its top alumnusno less. E0 sought your help. 6hat advice can you give E0)

Answer *I will advice E0 to see for the cancellation of the Eluwer Fraduate chool of Business

of #indanao with the Bureau of Trademars. Dinggy!s registration of the mar 4Eluwer5should not have been allowed because the law prohibits the registration of the mar 4whichmay disparage or falsely suggests a connection with persons, living or dead, institutions,beliefs5. #oreover, the "hilippines is a signatory to the "aris Convention for the "rotectionof Intellectual "roperty $"aris Convention%, it is obligated to assure nationals of countries of the "aris Convention that they are afforded an effective protection against violation of their

intellectual property rights in the "hilippines. Thus, under the "hilippine law, a trade nameof a national of a tate that is a party to the "aris Convention, whether or not the tradename forms part of a trademar, is protected 4without the obligation of filing or registration5.

H. As a rule, an insurance contract is consensual and voluntary. The eception in the case of*

a. Inland #arine Insurance

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b. Industrial Life Insurancec. #otor ehicle Liability Life Insuranced. Life Insurance

Answer *c. #otor ehicle Liability Life Insurance

2. =n 7ebruary -1, -/1, Barrac entered into a contract of insurance with #atino InsuranceCompany $#atino% involving a motor vehicle. The policy obligates #atino to pay Barracthe amount of "//,/// in case of loss or damage to said vehicle during the periodcovered, which is from 7ebruary -, -/1 to 7ebruary -, -/1<.

=n April 1, -/1, at about 2*//am, Barrac instructed his driver, DD, to bring the motor vehicle to a nearby auto shop for tune@up. owever, DD no longer returned and despitediligent efforts to locate the said vehicle, the efforts proved futile. 8esultantly, Barracpromptly notified #atino of the said loss and demanded payment of the insurance proceedsof "//,///.

In a letter dated Duly ?, -/1. #atino denied the claim, reasoning as stated in the contractthat 4the company shall not be liable for any malicious damage caused by the insured, anymember of his family or by a person in the insured!s service. Is #atino correct in denyingthe claim)

Answer *3o. #atino is not correct in denying the claim. An insurance company cannot deny a

claim by the owner of a motor vehicle who insured it against loss or damage because thedriver he employed stole it. #atino cannot invoe the provision ecluding maliciousdamages caused by a person in the service of the insured. In common ordinary usage, lossmeans failure to eep possession, while malicious damage is damage resulting from the

willful act of the driver. 6ords which have different meanings shall be understood in thesense which is most in eeping with the nature and ob9ect of the insurance contract. If astipulation admits several meanings, is should be understood as bearing the meaningwhich is most ade'uate to render it effectual. It may be shown that the words have a local,technical or peculiar meaning and were so used and understood by the parties.

1/. A person is said to have an insurable interest in the sub9ect matter insured where he has arelation or connection with, or concern in it that he will derive pecuniary benefit or advantage from its preservation. 6hich among the following sub9ect matters is notconsidered insurable)

a. A partner in a firm on its future profits.b. A general creditor on the debtor!s propertyc. A 9udgment creditor on debtor!s propertyd. A mortgage creditor on debtor!s mortgaged property.

Answer *a. A partner in a firm on its future profits.

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11. "A Assurance $"A% was incorporated in 12H/ to engage in the sale of pre@need educationalplans. It sold open@ended educational plans which guaranteed the payment of tuition andother fees to planholders irrespective of the cost at the time of availment. It also engaged inthe sale of fied value plans which guaranteed the payment of a pre@determined amount toplanholders. In 12H-, "A was among the country!s top corporations. owever, itsubse'uently suffered financial difficulties.

=n eptember H, -//?, "A filed a "etition for Corporate 8ehabilitation before the 8TC of #aati City. =n =ctober 1>, -//?, 1/ plan holders filed an =pposition and #otion toclude "lanholders from tay =rder on the ground that planholders are not creditors asthey $planholders% have a trust relationship with "A. Are the planholders correct)

Answer *3o. The planholders is not correct. =n 3ovember -1, -///, the Court approved the

Interim 8ules of "rocedure on Corporate 8ehabilitation of -/// $Interim 8ules%, which tooeffect on &ecember 1?, -///. The Interim 8ules apply to petitions for rehabilitation filed bycorporations, partnerships, and associations pursuant to "& 2/-@A, as amended. 0nder theInterim 8ules, 4claim5 shall include 4all claims or demands of whatever nature or character

against the debtor or its property, whether for money or otherwise.5 4Creditor5 shall mean4any holder of a claim.5 ence, the claim of the planholders from "A is included in thedefinition of 4claims5 under the Interim 8ules.

1-. To constitute a 'uorum for the transaction of corporate business, only a ma9ority of thenumber of Board of &irectors is re'uired*

a. As fied by the corporate by@lawsb. As fied in the articles of incorporationc. Actually serving in the boardd. Actually serving in the board but constituting a 'uorum

Answer *b. As fied in the articles of incorporation

1. "ursuant to its By@Laws, oei Corporation!s Board of &irectors created an ecutiveCommittee to manage the affairs of the corporation in between board meetings. The Boardof &irectors appointed the following members of the ecutive Committee* the "resident,arah LJ the ice@"resident, Dane LJ and a third member from the board, Duan 8iles. =n&ecember 1, -/1, the ecutive Committee, with arah L and Dane L present, met anddecided on the following matters*

1. "urchase of a delivery van for use in the corporation!s retail businessJ-. &eclaration and approval of the 1th month bonusJ. "urchase of an office condominium unit at the 7ortJ and<. &eclaration of "1/.// per share cash dividend.

Are the actions of the ecutive Committee valid)

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Answer *The action of the ecutive Committee with regard to the purchase of a delivery van for use

in the corporation!s retail business, declaration and approval of the 1th month bonus,purchase of an office condominium unit at the 7ort, and the declaration of "1/.// per sharecash dividend is valid, as such matters were taen by a ma9ority vote of all its members, onsuch matters within the competence of the board and as delegated to it in the by@laws.

1<. =n eptember -?, -/1, &anny #arcial $&anny% procured an insurance on his life with aface value of "? # from 83 Insurance Company $83%, with his wife Tina #arcial $Tina% assole beneficiary. =n the same day, &anny issued an undated chec to 83 for the fullamount of the premium. =n =ctober 1, -/1, 83 issued the policy covering &anny!s lifeinsurance. =n =ctober ?, -/1, &anny met a tragic accident and died. Tina claimed theinsurance benefit, but 83 was 'uic to deny the claim because at the time of &anny!sdeath, the chec was not yet encashed and therefore the premium remained unpaid.

Is 83 correct) 6ill your answer be the same if the chec is dated =ctober 1?, -/1)

Answer * 3o. 83 is not correct. After the issuance of the chec by &anny for the full amount of thepremium, the unconditional delivery of an insurance policy of 83 to &anny correspondingto the terms of the application ordinarily consummates the contract, and the policy asdelivered becomes the final contract between the parties. 6here the parties, so intend, theinsurance becomes effective at the time of the delivery of the policy notwithstanding thefact that the chec was not yet encashed. #y answer will still be the same even if the checis dated =ctober 1?, -/1 since an acnowledgment in a policy of the receipt of premium isconclusive evidence of its payment for the purpose of maing the policy binding.

1?. A, B, C, & and were members of the -//@-//< Board of &irectors of 7L" Corporation.

At the election for the -//<@-//? Board of &irectors, not one of them was elected. Theyfiled in court a derivative suit on behalf of 7L" Corporation against the newly@electedmembers of the Board of &irectors. They 'uestioned the validity of the election as it wasallegedly marred by lac of 'uorum, and prayed for the nullification of the said election. The-//<@-//? Board of &irectors moved to dismiss the complaint because the derivative suit isnot proper. &ecide.

Answer *The derivative suit is not proper. The party@in@interest are the petitioners as stocholders,

who were members of the -//@-//< Board of &irectors of 7L" Corporation. The cause of action devolves on the petitioners, not on 7L" Corporation, which did not have the right tovote. ence, the complaint filed by A, B, C, & and is a direct action by the petitioners,

who were the members of the Board of &irectors of the corporation before the election,against respondents, who are the newly@elected Board of &irectors. 0nder thecircumstances, the derivative suit filed by petitioners in behalf of 7L" is improper.

1. In intellectual property cases, fraudulent intent is not an element of the cause of actionecept in cases involving*

a. Trademar infringement

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b. Copyright infringementc. "atent infringementd. 0nfair competition

Answer *a. Trademar infringement

1>. =n &ecember 1, -/1/, Eore A Corporation shipped from outh Eorea to LT Corporation in#anila some //,/// sheets of high@grade special steel. The shipment was insured againstall ris by 3A Insurance $3A%. The carrying vessel arrived at the "ort of #anila on Danuary1/, -/11. 6hen the shipment was discharged, it was noted that -?,/// sheets weredamaged and in bad order. The entire shipment was turned over to the custody of ATI, thearrastre operator, on Danuary -1, -/11 for storage and safeeeping, pending its withdrawalby the consignee!s authori:ed customs broer, 8#.

=n Danuary - and -2, -/11, the sub9ect shipment was withdrawn by 8# from thecustody of ATI. =n Danuary -2, -/11, prior to the withdrawal of the last batch of the

shipment, a 9oint inspection of the cargo was conducted per the 8e'uest for bad =rder urvey $8B=% dated Danuary -H, -/11. The eamination report showed that /,/// sheetsof steel were damaged and in bad order.

3A Insurance paid LT Corporation the amount of "/ # for the /,/// sheets that weredamaged, as shown in the ubrogation 8eceipt dated Danuary 1, -/1. Thereafter, 3AInsurance demanded reparation against ATI for the goods damaged in its custody, in theamount of "? #. ATI alleged that the C=FA applies in this case since the goods wereshipped from a foreign port to the "hilippines. 3A Insurance claims that the C=FA doesnot apply, since ATI is not a shipper or carrier. 6ho is correct)

Answer *

3A Insurance is correct. ATI should be ordered to pay 3A Insurance notwithstanding thelapse of the one year prescriptive period for filing a suit under the C=FA. The term4carriage of goods5 under ection 1 in C=FA, covers the period from the time when thegoods are loaded to the time when they are discharged from the ship infer that the period of time when the goods have been discharged from the ship and given to the custody of thearrastre operator is not covered by the C=FA. The C=FA does not mention that anarrastre operator may invoe the prescriptive period of one yearJ hence, it does not cover the arrastre operator.

1H. echers Corporation sued Inter@"acific for trademar infringement claiming that Inter@"acific used echers! registered 45 logo mar on Inter@"acific!s shoe products without its

consent. echers has registered the trademar 4EC85 and the trademar 45 $withan oval design% with the Intellectual "roperty =ffice $I"=%.

In its complaint, echers points out the following similarities* the color scheme of the blue,white and gray utili:ed by echers. ven the design and 4wave@lie5 pattern of the mid@sole and outer sole of Inter@"acific!s shoes are very similar to echers! shoes, if not eactpatterns thereof. =n the side of Inter@"acific!s shoes, near the upper part, appears thestyli:ed 45 placed in the eact location as that of the styli:ed 45 the echers shoes. =n

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top of the 4tongue5 of both shoes, appears the styli:ed 45 in practically the saem locationand si:e.

In its defense, Inter@"acific claims that under the olistic Test, the following dissimilaritiesare present* the mar 45 found in trong shoes is not enclosed in an 4oval design5J the

word 4trong5 is conspicuously placed at the bacside and insolesJ the hang tags labelsattached to the shoes bear the word 4trong5 for Inter@"acific and ecers 0..A.5 for echersJ and, trong shoes modestly priced compared to the cost of echers shoes.

0nder the foregoing circumstances, which is the proper test to be applied(olistic or &ominancy Test) &ecide.

Answer *The proper test to be applied is the dominancy test. Applying the dominancy test, there

is a confusing similarity 4echers5 rubber shoes and 4trong5 rubber shoes. The use of thestyli:ed 45 by Inter@"acific in its trong hoes infringes on the trademar 4echers5already registered by echers 0..A. with the I"=. 6hile it is undisputed that echers

0..A. styli:ed 45 is within an oval design, the dominant feature of the trademar isstyli:ed 45 as it is precisely the styli:ed 45 which catches the eye of the purchaser.

12. Fuet:e and his wife have chidren* 3eymar, -?, who is now based in 8io de Daneiro,Bra:ilJ #uelter, -, who has migrated to #unich, FermanyJ and Dames, -1, who resides inBogota, Colombia. 3eymar and #uelter have since renounced their "hilippine citi:enship infavor of their country of residence. 3earing >/ years old, Fuet:e decided to incorporate hisbusiness in Binondo, #anila. e ased his wife and children to act as incorporators with 1share of stoc each, while he owned 222,22 shares of the 1,///,/// shares of the capitalstoc.

a. Assuming all other re'uirements are met, should the C accept or re9ect the Articles of Incorporation) 6hy)

b. Being the control frea and micro@manager that he is, Fuet:e ased you(his astutelegal adviser(if he can serve as Chairman of the Board of &irectors, as "resident, andas Feneral #anager of the corporation, all at the same time. "lease advise Fuet:e.

c. Assuming the corporation has been properly registered, may the Articles of Incorporationnow be amended to reduce the number of directors to two(Fuet:e and his wife(toreflect the real owners of the shares of stoc)

Answer *a. +es, the C should accept the Articles of Incorporation. If the Articles of Incorporation

substantially comply with the statute and all other re'uirements are met, the C has no

discretion, but may be compelled by mandamus to file them. The discretion eercised byC does not etend to the merits of an application for incorporation, although it may beeercised as to matters of form.

b. +es, Fuet:e can serve as Chairman, as "resident, and as Feneral #anager of thecorporation all at the same time. ection -? of the Corporation Code provides that 4twoor more positions may be held concurrently by the same person, ecept that no oneshall act as president and secretary or as president and treasurer at the same time.5uch case does not fall within the eception under the aforesaid ection.

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c. 3o, the Articles of Incorporation may not be amended to reduce the number of directorsto two. ection 1< of the Corporation Code re'uires that the Articles of Incorporationshall contain the number of directors, which shall not be less than ? nor more than 1?.ence, the reduction of the number of directors to two, to reflect the real owners of theshares of stoc, is not valid

-/. =n #ay 1, 122, "A#, Inc. obtained a "1? # fire insurance policy from Ilocano Insurancecovering its machineries and e'uipment effective for 1 year or until #ay 1<, 122>. Thepolicy epressly stated that the insured properties were located at 4anyo "recision "hils.Building, "hase III, Lots < and , Bloc 1?, "GA, 8osario Cavite.5 Before its epiration, thepolicy was renewed on 4as is5 basis for another year until #ay, 1, 122H. The sub9ectproperties were later transferred to "ace 7actory also in "GA. =n =ctober 1-, 122>,during the effectivity of the renewed policy, a fire broe out at the "ace 7actory which totallyburned the insured properties.

The policy forbade the removal of the insured properties unless sanctioned by Ilocano.Condition 2$c% of the policy provides that 4the insurance ceases to attach as regards the

property affected unless the insured, before the occurrence of any loss or damage, obtainsthe sanction of the company signified by endorsement upon the policy $c% if theproperty insured is removed to any building or place other than in that which is hereinstated to be insured.5 "A# claims that it has substantially complied with notifying Ilocanofor the insurance coverage. Is Ilocano liable under the policy)

Answer *Ilocano is not liable under the policy. 6ith the transfer of the location of the sub9ect

properties, without notice and without insurer!s consent, after the renewal of the policy, theinsured clearly committed concealment, misrepresentation and a breach of materialwarranty. The Insurance Code provides that a neglect to communicate that which a partynows and ought to communicate, is called concealment. A concealment entitles the in9ured

party to rescind a contract of insurance in case of an alteration in the use or condition of thething insured. An alteration in the use or condition of a thing insured from that to which it islimited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the riss, entitles the insurer to rescind the contract of fireinsurance.

-1. =n Duly , 122, &elia otero $&elia% too out a life insurance policy from Ilocos BanersLife Insurance Corporation $Ilocos Life% designating Creencia Aban $Aban%, her niece, asher beneficiary. Ilocos Life issued "olicy 3o. ><>, with a face value of "1//,///, in otero!sfavor on August /, 122, after the re'uisite medical eamination and payment of thepremium.

=n April 1/, 122, otero died. Aban filed a claim for the insurance proceeds on Duly 2,122. Ilocos Life conducted an investigation into the claim and came out with the followingfindings*

1. otero did not personally apply for insurance coverage, as she was illiterate.-. otero was sicly since 122/.. otero did not have the financial capability to pay the premium on the policy.<. otero did not sign the application for insurance.

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?. Aban was the one who filed the insurance application and designated herself as thebeneficiary.

7or the above reasons and claiming fraud, Ilocos Life denied Aban!s claim on April 1,122>, but refunded the premium paid on the policy.

a. #ay otero validly designate her niece as beneficiary)b. #ay the incontestability period set in even in cases of fraud as alleged in this

case)c. Is Aban entitled to claim the proceeds under the policy)

Answer *a. +es. otero may validly designate her niece, Aban, as beneficiary. otero had insurable

interest in her own life, and could validly designate anyone as her beneficiary.

b. +es. The 4incontestability clause5 is a provision in law that after a policy of life insurancemade payable on the death of the insured shall have been in force during the lifetime of the insured for a period of - years from the date of its issue or of its last reinstatement,

the insurer cannot prove that the policy is void ab initio or is rescindable by reason of fraudulent concealment or misrepresentation of the insured or his agent.

In this case, the policy was issued on August /, 122, and the insured died on April 1/,122. The insurance policy was thus in force for a period of years, > months and -<days. Considering that the insured died after the -@year period, Ilocos is, therefore,barred from proving that the policy is void ab initio by reason of the insured!s fraudulentconcealment or misrepresentation or want of insurable interest on the part of thebeneficiary.

c. +es, Aban is entitled to claim the proceeds. After the -@year period lapse, or when theinsured dies within the period, the insurer must mae good on the policy, even though

the policy was obtained by fraud, concealment, or misrepresentation, as in this case,when the insured did not personally apply for the policy as she was illiterate and that itwas the beneficiary who filled up the insurance application designating herself asbeneficiary.

--. "aul Feorge "ua $"ua% filed a complaint for a sum of money against the spouses Benitoand Caroline Dames $pouses Dames%. In the complaint, "ua prayed that the defendantspay "ua the amount of "H.? # covered by a chec. "ua asserts that defendants owed hima sum of money way bac in 12HH for which the pouses Dames gave him several checs.The checs, however, had all been dishonored and "ua has not been paid the amount of the loan plus the agreed interest. In 122, the pouses Dames approached "ua to get the

computation of their liability including the -K compounded interest. After bargaining tolower the amount of their liability, the pouses Dames gave "ua a postdated chec bearingthe discounted amount of "H.? #. Lie the 12HH checs, the drawee ban liewisedishonored this chec. To prove his allegations, "ua submitted the original copies of the 1>checs issued by Caroline in 12HH and the chec issued in 122, #anilatrust Chec 3o.>?/. The pouses Dames, on the other hand, completely denied the eistence of the debtasserting that they had never approached "ua to borrow money in 12HH or in 122. Theyassert, instead, that "ua is simply acting at the instance of his sister, Lilian, to file a false

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charge against them using a chec left to fund a gambling business previously operated byLilian and Caroline. &ecide.

Answer *The 1> original checs, completed and delivered to "ua, are sufficient by themselves to

prove the eistence of the loan obligation of pouses Dames to "ua. In Pacheco v. Court of

Appeals, the Court has epressly recogni:ed that a chec 4constitutes an evidence of indebtedness5 and is a veritable 4proof of an obligation.5 ence, it can be used 4in lieu of and for the same purpose as a promissory note.5 In fact, in the seminal case of Lozano v.Martinez , the Court pointed out that a chec functions more than a promissory note since itnot only contains an undertaing to pay an amount of money but is an 4order addressed toa ban and partaes of a representation that the drawer has funds on deposit against whichthe chec is drawn, sufficient to ensure payment upon its presentation to the ban.5 TheCourt reiterated this rule in Lim v. Mindanao Wines and Liquour Galleria stating that 4achec, the entries of which are in writing, could prove a loan transaction.5 This is the verysame principle underpin ection -< of the 3IL which provides that 4every negotiableinstrument is deemed prima facie to have been issued for a valuable considerationJ andevery person whose signature appears thereon to have become a party for value.5

Conse'uently, the case should be decided in favor of "ua and against pouses Dames.

-. 6hat vote is needed to consider every decision to be valid corporate act)

a. A ma9ority of the directors present at the meetingb. -; of the directors present at the meetingc. A ma9ority of the directors present at the meeting at which there is a 'uorumd. -; of the directors present at the meeting at which there is a 'uorum

Answer *c. A ma9ority of the directors present at the meeting at which there is a 'uorum

-<. A criminal complaint for violation of B"-- was filed by 7oton #otors $7oton%, an entityengaged in the business of car dealership, against "ura 7elipe $"ura% with the office of theCity "rosecutor of ue:on City. The office found probable cause to indict "ura and filed aninformation before the #eTC of ue:on City, for her issuance of a postdated chec in theamount of "1,/-/,///.// which was subse'uently dishonored upon presentment due to4top "ayment5.

"ura issued the chec because her son, 7reddie, attracted by a huge discount of "--/,///, purchased a 7oton Bli::ard <- from 7oton. The term of the transaction wasCash@on@&elivery and no down payment was re'uired. The car was delivered on #ay 1<,

122>, but 7reddie failed to pay upon delivery. &espite non@payment, 7reddie toopossession of the vehicle.

"ura was eventually ac'uitted of the charge of violating B" -- but was found civilly liablefor the amount of the chec plus legal interest. "ura appealed the decision as regards thecivil liability, claiming that there was no privity of contract between 7oton and "ura. 3o civilliability could be ad9udged against her because of her ac'uittal from the criminal charge. Itwas 7reddie who was civilly liable to 7oton, "ura claimed. "ura added that she could notbe an accommodation party either because she only came in after 7reddie failed to pay the

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purchase price, or months after the eecution of the contract between 7oton and 7reddie.er liability was limited to her act of issuing a worthless chec, but by her ac'uittal in thecriminal charge, there was no more basis for her to be held civilly liable to 7oton. "ura!s actof issuing the sub9ect chec did not, by itself, assume the obligation of 7reddie to 7oton or automatically mae her a party to the contract. Is "ura liable)

Answer *+es. "ura is liable. The rule is that every act or omission punishable by law has its

accompanying civil liability. The civil aspect of every criminal case is based on the principlethat every person criminally liable is also civilly liable. If the accused however, is not foundto be criminally liable, it does not necessarily mean that she will not liewise be held civillyliable because etinction of the penal action does not carry with it etinction of civil action.

Although "ura was not an accommodation party, she cannot escape civil liability. In casesof violation of B" --, a special law, the intent in issuing a chec is immaterial. "ura issuedthe bouncing chec. Thus, regardless of her intent, she remains civilly liable because theact or omission, the maing and issuing of the sub9ect chec, from which her civil liabilityarises.

-?. In an action for collection of a sum of money, the 8TC of #aati City issued a decisionfinding &@ecurities, Inc. liable to 8ehouse Corporation for "1/ #. ubse'uently, the writ of eecution was issued but returned unsatisfied because &@ecurities had no more assets tosatisfy the 9udgment. 8ehouse moved for an Alias 6rit of ecution against 7airfield Ban$7B%, the parent company of &@ecurities. 7B opposed the motion on the grounds that it isa separate entity and that it was never made party to the case. The 8TC granted themotion and issued the Alias 6rit of ecution. In its 8esolution, the 8TC relied on thefollowing facts* <22,22? out of the ?//,/// outstanding shares of stocs of &@ecurities areowned by 7BJ 7B had actual nowledge of the sub9ect matter of litigation as the lawyerswho represented &@ecurities are also the lawyers of 7B. As an alter ego, there is no needfor a finding of fraud or illegality before the doctrine of piercing the veil of corporate fiction

can be applied. The 8TC ratiocinated that being one and the same entity in the eyes of thelaw, the service of summons upon &@ecurities has bestowed 9urisdiction over both theparent and wholly@owned subsidiary. Is the 8TC correct)

Answer *3o, the 8TC is not correct. The court must have first ac'uire 9urisdiction over the

corporation$s% involved before its or their separate personalities are disregardedJ and thedoctrine of piercing the veil of corporate entity can only be raised during a full@blown trialover a cause of action duly commenced involving parties duly brought under the authorityof the court by way of service of summons or what passes as such service.

-. &#" Corporation $&#"% obtained a loan of "-/ # from 3ational Ban $3B% secured by areal estate mortgage over a ,H/@s'uare meter land situated in Cabanatuan City. &ue tothe Asian conomic Crisis, &#" eperienced li'uidity problems disenabling it from payingits loan on time. 7or that reason, 3B sought the etra9udicial foreclosure of the saidmortgage by filing a petition for sale on Dune /, -//. =n eptember <, -//, themortgaged property was sold at public auction, which was eventually awarded to 3B as thehighest bidder. That same day, the heriff eecuted a Certificate of ale in favor of 3B.

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=n =ctober -1, -//, &#" filed a "etition for 8ehabilitation before the 8TC. "ursuant tothis, a tay =rder was issued by the 8TC on =ctober ->, -//.

=n the other hand, 3B caused the recording of the heriff!s certificate of ale on&ecember , -// with the 8egister of &eeds of Cabanatuan City. 3B eecuted an Affidavitof Consolidation of =wnership and had the same annotated on the title of &#".

Conse'uently, the 8egister of &eeds cancelled &#"!s title and issued a new title in thename of 3B on &ecember 1/, -//.

3B also filed on #arch 1>, -//< an @"arte "etition for Issuance of 6rit of "ossessionbefore the 8TC of Cabanatuan City. After hearing, the 8TC issued on eptember , -//<an =rder directing the Issuance of the 6rit of "ossession, which was issued on =ctober <,-//<.

&#" claims that all subse'uent actions pertaining to the Cabanatuan property should havebeen held in abeyance after the tay =rder was issued by the rehabilitation court. Is &#"correct)

Answer *3o. &#" is not correct. ince the foreclosure of the mortgage and the issuance of the

certificate of sale in favor of the mortgagee were done prior to the appointment of a8ehabilitation 8eceiver and the issuance of the tay =rder, all the actions taen withrespect to the foreclosed mortgaged property which were subse'uent to the issuance of thetay =rder were not affected by the tay =rder. Thus, after the redemption period epiredwithout the mortgagor redeeming the foreclosed property, the mortgagee becomes theabsolute owner of the property and it was within its right to as for consolidation of title andthe issuance of new title in its favor. The writ of possession procured by the mortgageedespite the subse'uent issuance of tay =rder in the rehabilitation proceeding instituted isalso valid.

->. L" Insurance, Inc. issued a #arine "olicy 3o. HHH in favor of 7CL Corp. to insure theshipment of 1- bundles of electric copper cathodes against all riss. ubse'uently, thecargoes were shipped on board the vessel 4#; #enchu5 from Leyte to "ier 1/, 3ortharbor, #anila.

0pon arrival, 7CL Corp. engaged the services of CF#, Inc. for the release and withdrawalof the cargoes from the pier and the subse'uent delivery to its warehouses;plants inalen:uela City. The goods were loaded on board 1- trucs owned by CF#, Inc., driven byits employed drivers and accompanied by its employed truc helpers. =f the 1- trucs enroute to alen:uela City, only 11 reached the destination. =ne truc, loaded with 11 bundlesof copper cathodes, failed to deliver its cargo.

Because of this incident, 7CL Corp. filed with L" Insurance, Inc. a claim for insuranceindemnity in the amount of "1.? #. After the re'uisite investigation and ad9ustment, L"Insurance, Inc. paid 7CL Corp. the amount of "1,?/,///.// as insurance indemnity.

L" Insurance, Inc., thereafter, filed a complaint for damages against CF#, Inc. before the8TC, seeing reimbursement of the amount it had paid to 7CL Corp. for the loss of thesub9ect cargo. CF#, Inc. denied the claim on the basis that it is not privy to the contract

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entered into by and between 7CL Corp. and L" Insurance, Inc., and hence, it is not liabletherefor. If you are the 9udge, how will you decide the case)

Answer *CF#, Inc. should be held liable for damages against L" Insurance, Inc. The insurer,

upon happening of the ris insured against and after payment to the insured is subrogated

to the rights and cause of action of the latter. As such, the insurer has the right to seereimbursement for all the epenses paid.

-H. 6hich of the following instruments is negotiable if all the other re'uirements of negotiability are met)

a. A promissory note with promise to pay out of the 0.. &ollar account of the maer inM+G Ban.

b. A promissory note which designates the 0.. &ollar currency in which payment is to bemade.

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

d. A promissory note made payable to the order of Dose Cru: or Dosefa Cru:.

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

-2. EE is from Bango, Thailand. he studies medicine in the "ontifical 0niversity of antoTomas $0T%. he learned that the same foreign boos prescribed in 0T are </@?/Kcheaper in Bango. o she ordered ?/ copies of each boo for herself and her classmatesand sold the boos at -/K less than the price in the "hilippines. MM, the eclusive licensedpublisher of the boos in the "hilippines, sued EE for copyright infringement. &ecide.

Answer *EE did not commit copyright infringement. 0nder the 4first sale5 doctrine, the owner of a

particular copy or phonorecord lawfully made is entitled, without the authority of thecopyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.ence, there is no infringement by EE since the said doctrine permitted importation andresale without the publisher!s further permission.

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1. Antonio issued the following instrument*

August 1/, -/1

#aati City

"1//,///.//

ity days after date, I promise to pay Bobby or his designated representative the sumof =3 03&8& T=0A3& "= $"1//,///.//% from my B"I Acct. 3o. 1-< if, bythis due date, the sun still sets in the west to usher in the evening and rises in the east thefollowing morning to welcome the day.

$gd.% Antonio 8eyes

plain each re'uirement of negotiability present or absent in the instrument.

Answer *The instrument contains a promise to pay and was signed by the maer, Antonio 8eyes.

The promise to pay is unconditional insofar as the reference to the setting of the sun inthe west in the evening and its rising in east in the morning are concerned. These arecertain to happen. The promise to pay is conditional, because the money will be taen froma particular fund, B"I Acct. 3o. 1-<.

The instrument contains a promise to pay a sum certain in money, "1//,///.//.

The money is payable at a determinable future time, / days after August 1/, -/1.

The instrument is not payable to order or to bearer.

-. Benny applied for life insurance for "1.? #. the insurance company approved his applicationand issued an insurance policy effective 3ov. , -//H. Benny named his children as hisbeneficiaries. =n April , -/1/, Benny died of hapatoma, a liver ailment.

The insurance company denied the children!s claim for the proceeds of the insurance policyon the ground that Benny failed to disclose in his application - previous consultations withhis doctors for diabetes and hypertension, and that he had been diagnosed to be sufferingfrom hepatoma. The insurance company also rescinded the policy and refunded the

premiums paid.

6as the insurance company correct)

Answer *The insurance company correctly rescinded the policy because of concealment. Benny

did not disclose that he was suffering from diabetes, hypertension, and hepatoma. Theconcealment is material because these are serious ailments. Benny died less than - yearsfrom the date of the issuance of the policy.

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. 7rom his first term in -//>, Congressman Abner has been endorsing his por barrelallocations to Twin 8ivers in echange for a commission of </K of the face value of theallocation. Twin 8ivers is a non@governmental organi:ation whose supporting papers, after audit, were found by the C=A to be fictitious. =ther than to prepare and submit falsifiedpapers to support the encashment of the por barrel checs, Twin 8ivers does not appear tohave done anything on the endorsed pro9ects and Congressman Abner liewise does not

appear to have bothered to monitor the progress of the progress of the pro9ects heendorsed. The congressman converted most of the commissions he generated into 0dollars, and deposited these in a foreign currency account with Banco de "lata $B&"%

Based on amply@supported tips given by a congressman from another political party, the A#LC sent B&" an order* $1% to confirm Cong. Abner!s deposits with the ban and toprovide details of these depositsJ and $-% to hold all withdrawals and other transactionsinvolving the congressman!s ban accounts.

As counsel for B&", would you advise the ban to comply with the order)

Answer *

I shall advise B&" not to comply with the order of the A#LC. It cannot in'uire into thedeposits of Congressman Abner, regardless of currency, without a ban inuiry orser from acompetent court, because crimes involved are not idnapping for ransom, violations of the&angerous &rugs act, hi9acing and other violations of 8.A. 3o. -?, destructive arson,murder, and terrorism and conspiracy to commit terrorism.

The A#LC cannot order B&" to hold all withdrawals and other transactions involving theaccounts of Congressman Abner. It is the Court of Appeals which has the power to issue afree:e order over that accounts upon petition of the A#LC.

<. 8udy is a fine arts student in a university. e stays in a boarding house with Bernie as his

roommate. &uring his free time, 8udy would paint and leave his finished wors lying aroundthe boarding house. =ne day, 8udy saw one of his wors(an abstract painting entitled#anila Traffic Dam(on display at the university cafeteria. The cafeteria operator said hepurchased the painting from Bernie who represented himself as its painter and owner.

8udy and the cafeteria operator immediately confronted Bernie. 6hile admitting that he didnot do the painting, Bernie claimed ownership of its copyright since he had alreadyregistered it in his name with the 3ational Library as provided in the Intellectual "ropertyCode.

6ho owns the copyright to the painting) plain.

Answer *8udy owns the copyright to the painting because he was the one who actually created it.

is rights eisted from the moment of its creation. The registration of the painting by Berniewith the 3ational Library did not confer copyright upon him. The registration is merely for thepurpose of completing the records of the 3ational Library.

?. +ou are a member of the legal staff of a law firm doing corporate and securities wor for Coco "roducts Inc., a company with uni'ue products derived from coconuts and whose

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shares are traded in the "hilippine toc change. A partner in the law firm, Atty.Bueneito, to whom you report, is the Corporate ecretary of Coco "roducts. +ou have longbeen investing in Coco "roducts stocs even before you became a lawyer.

6hile woring with Atty. Bueniito on another file, he accidentally gave you the Cocoproducts file containing the company!s planned corporate financial rehabilitation. 6hile you

new you had the wrong file, your curiosity prevailed and you browsed through the filebefore returning it. Thus, you learned that a petition for financial rehabilitation is imminent,as the company could no longer meet its obligations as they fell due.

oon after, your mother is rushed to the hospital for an emergency operation, and you haveto raise money for her hospital bills. An immediate option for you is to sell your Coco"roducts shares. The sale would be very timely because the price of the company!s stocsare still high.

6ould you sell the shares to raise the needed funds for your mother!s hospitali:ation) Taeinto account legal and ethical considerations.

Answer *The sale of the shares does not constitute insider trading. Although Atty. Buenito, as

corporate secretary of Coco products, Inc. was an insider, I did not obtain the informationregarding the planned corporate rehabilitation by a communication from him. e 9ustaccidentally gave the wrong file.

It would be unethical to sell the shares. 8ule 1./1 of the Code of "rofessional8esponsibility provides, 4A lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct.5

A lawyer should not only refrain from performing unlawful acts. e should also desistfrom engaging in unfair deceitful conduct to conceal from the buyer of the shares the

planned corporate rehabilitation.

. &elano Cru: is in default in the payment of his eisting loan from B&" Ban. To etend andrestructure this loan, &elano agreed to eecute a trust receipt in the ban!s favor coveringthe iron pellets &elano imported from China one year earlier. &elano subse'uentlysucceeded in selling the iron pellets to a smelting plant, but the proceeds went to thepayment of the separation benefits of his employees who were laid off as he reduced hisoperations.

6hen the etended loan period epired without any significant payment from &elano $noteven to the etent of the proceeds of the sale of the iron pellets%, B&" Ban consulted you

to on how to proceed against &elano. The ban is contemplating the filing of estafa pursuantto the provisions of "& 11? $Trust 8eceipts Law% to force &elano to turn in at least theproceeds of the sale of the iron pellets.

6ould you, as ban counsel and as officer of the court, advise the ban to proceed with itscontemplated action)

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Answer *I will not advise B&" Ban to file a criminal case for estafa against &elano. &elano

received the iron pellets he imported one year before the trust receipt was eecuted. As heldby the upreme Court, where the eecution of a trust receipt agreement was made after thegoods covered by it had been purchased by and delivered to the entrustee and the latter asa conse'uence ac'uired ownership to the goods, the transaction does not involve a trust

receipt but a simple loan even though the parties denominated the transaction as one of trust receipt.

>. table Insurance Co. $IC% and t. "eter #anufacturing Co. $"#C% have had a long@standing insurance relationship with each otherJ "#C secured the comprehensive fireinsurance on its plant and facilities from IC. The standing business practice between themhas been to allow "#C a credit period of 2/ days from the renewal of the policy withinwhich to pay the premium.

oon after the new policy was issued and before premium payments could be made, a firegutted the covered plant and facilities to the ground. The day after the fire, "#C issued a

manager!s chec to IC for the fire insurance premium, for which it was issued a receiptJ awee later "#C issued its notice of loss.

IC responded by issuing its own manager!s chec for the amount of the premiums "#Chad paid, and denied "#C!s claim on the ground that under the 4cash and carry5 principlegoverning fire insurance, no coverage eisted at the time the fire occurred because theinsurance premium had not been paid.

Is "#C entitled to recover for the loss from IC)

Answer *"#C is entitled to recover for the loss from IC. IC granted a credit term to pay the

premiums. This is not against the law, because the standing business practice of allowing"#C to pay the premiums after / or 2/ days, was relied upon in good faith by "#C. ICis in estoppel.

H. In the 3ovember -/1/ stocholder!s meeting of Freenville Corporation, H directors wereelected to the board. The directors assumed their posts in Danuary -/11. ince nostocholders! meeting was held in 3ovember -/11, the H directors served in a holdover capacity and thus continued discharging their powers.

In Dune -/1-, - of Freenville Corporation!s directors(&irector A and &irector B(resignedfrom the board. 8elying on ection -2 of the Corporation Code, the remaining directors

elected - new directors to fill in the vacancy caused by the resignation of &irectors A and B.

tocholder M 'uestioned the election of the new directors, initially, through a letter@complaint addressed to the board, and later $when his letter@complaint went unheeded%,through a derivative suit filed with the court. e claimed that the vacancy in the board shouldbe filled up by the vote of the stocholders of Freenville Corporation. FreenvilleCorporation!s directors defended the legality of their action, claiming as well that tocholder M!s derivative suit was improper.

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8ule on the issued raised.

Answer *The remaining directors cannot elect new directors to fill in the two vacancies. The board

of directors may fill up vacancy only if the ground is not due to epiration of term, removal or increase in the number of board seats. In this case, the term of the two directors epired

after 1 year. They remained in office in a hold@over capacity only until their resignation. Thehold@over period is not part of their term. The vacancies should be filled up by election by thestocholders.

The derivative suit was improper. In a derivative suit, the corporation, not the individualstocholder, must be the aggrieved party and that the stocholder is suing on behalf of thecorporation. 6hat stocholder M is asserting is his individual right as a stocholder to electthe two directors. The case partaes more of an election contest under the rules on intra@corporate controversy.

2. 7il@Asia Air 7light 21 was on a scheduled passenger flight from #anila when it crashed as it

landed at the Cagayan de =ro airportJ the pilot miscalculated the plane!s approach andundershot the runway. =f the 1?/ people on board, 1/ passengers died at the crash scene.

=f the 1/ who dies, one was a passenger who managed to leave the plane but was run over by an ambulance coming to the rescue. Another was an airline employee who hitched a freeride to Cagayan de =ro and who was not in the passenger manifest.

It appears from the Civil Aeronautics Authority investigation that the co@pilot who had controlof the plane!s landing had less than the re'uired flying and landing time eperience, andshould not have been in control of the plane at the time. e was allowed to fly as a co@pilotbecause of the scarcity of pilots("hilippine pilots have been recruited by foreign airlinesunder vastly improved flying terms and wages so that newer and less trained pilots are

being locally deployed. The main pilot, on the other hand, had a very high level of bloodalcohol at the time of the crash.

+ou are part of the team that the victims hired to handle the case for them as a group. Inyour case conference, the following 'uestions came up*

a% plain the causes of action legally possible under the given facts against the airline andthe pilotsJ whom will you specifically implead in these causes of action)

b% ow will you handle the cases of the passenger run over by the ambulance and theairline employee allowed to hitch a free ride to Cagayan de =ro)

Answer *

a% A complaint for breach of contract of carriage can be filed against 7il@Asia air for failureto eercise etraordinary diligence in transporting the passengers safely from their pointof embaration to their destination.

A complaint based on a 'uasi@delict can be filed against the pilots because of their faultand negligence. 7il@Asia Air can be included for negligence in the selection andsupervision of the pilots.

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A third cause of action may be a criminal prosecution for recless imprudence resultingin homicide against two pilots. The airline will be subsidiarily liable for the civil liabilityonly after the pilots are convicted and found to be insolvent.

b% It is the driver of the ambulance and his employer who should be held liable for damages, because a passenger was run over. This is in accordance with Articles -1>

and -1H/ of the Civil Code. There could also be a criminal prosecution for reclessimprudence resulting in homicide against the ambulance driver and the conse'uent civilliability.

ince the airline employee was being transported gratuitously, 7il@Asia Air was notre'uired to eercise etraordinary diligence for his safety and only ordinary care.

1/. Bell "hilippines, Inc. $Bel"hil% is a public utility company, duly incorporated and registeredwith the C. its authori:ed capital stoc consists of voting common shares and non@votingpreferred shares, with e'ual par values of "1//;share. Currently, the issued and outstandingcapital stoc of Bel"hil consists only of common shares shared between Bayani Cru:, a

7ilipino with /K of the issued common shares, and Bernard 7leet, a Canadian, with </K.

To secure additional woring fund, Bel"hil issued preferred shares to Bernard 7leete'uivalent to the currently outstanding common shares. A suit was filed 'uestioning thecorporate action on the ground that the foreign e'uity holdings in the company would noweceed the </K foreign e'uity limit allowed under the Constitution for public utilities.

8ule on the legality of Bernard 7leet!s current holdings.

Answer *The holding of Bernard 7leet e'uivalent to the outstanding common shares is illegal. is

holdings of preferred shares should not eceed </K. ince the constitutional re'uirement of

/K 7ilipino ownership of the capital of public utilities applies not only to voting control butalso to beneficial ownership of the corporation, it should also apply to the preferred shares."referred shares are also entitled to vote in certain corporate matters. The tate shalldevelop a self@reliant and independent national economy effectively controlled by 7ilipinos.The effective control here should be mirrored across the board on all inds of shares.

MULTIPLE CHOICE QUESTIONS

1. Claude, the registered stocholder of 1,/// shares in ABC Corp., pledged the shares to

Conrad by endorsement in blan of the covering stoc certificates and, eecution of a &eedof Assignment of hares of toc, intended as collateral for a loan of "1 # that was alsosupported by a separate promissory note.

1.1. 0nder these facts, is there a valid pledge of the shares of stoc to Conrad)

a% 3o, because shares of stocs are intangible personal properties whose possessioncannot be delivered and, hence, cannot be the sub9ect of a pledgeJ

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b% 3o, because the pledge of shares of stoc re'uires double registration with the8egister of &eeds of the principal place of business of the corporation and of theresidence of the pledgorJ

c% +es, because endorsement and delivery of the certificates of stoc is e'uivalent tothe transfer of possession of the covered shares to the pledge.

d% +es, because the eecution of the &eed of Assignment of hares of toc is

e'uivalent to a lawful pledge of the shares of stoc.

Answer *d% +es, because the eecution of the &eed of Assignment of hares of toc ise'uivalent to a lawful pledge of the shares of stoc.

1.-. After Claude defaulted on the loan, Conrad sought to have the shares registered in hisname in the boos of the corporation. If you are the Corporate ecretary of ABCCorporation, would you register the shares in the name of Conrad without any writteninstruction from Claude)

a% +es, since the endorsement and delivery of the certificates of stoc eecuted byClaude constitute the legal authority to cancel the shares in his name and to placethem in Conrad!s nameJ

b% +es, since the eecution of the &eed of Assignment by Claude would constitute thelegal authority to cancel the shares in his name and place them in Conrad!s nameJ

c% 3o, because corporate officers can only tae direct instructions from the registeredowners on the proper disposition of shares registered in their namesJ

d% 3o, because the corporation has a primary lien on the shares covering the unpaidsubscription.

Answer *3one of the answers is correct. The pledge must be foreclosed. Conrad cannot

9ust appropriate the shares of stoc.

-. A foreign delegation of business man and investment baners called on your law firm todiscuss the possibilities of investing in various pro9ects in the "hilippines, and wanted your thoughts on certain issues regarding foreign investments in the "hilippines.

-.1. The delegation has been told about the 7oreign Investments Act of 1221, as amended$7IA !21%, and they ased what eactly is the law!s essential thrust regarding foreigninvestments in "hilippine business and industries.

+ou replied that 7IA !21 essentially reflects NNNNNNNNNN.

a% The 47ilipino 7irst "olicy5Jb% The 47oreign Investments "ositive Lists5 conceptJc% The 47oreign Investments 3egative Lists5 conceptJd% The 4Control Test5 conceptJe% All of the above.

Answer *c% The 47oreign Investments 3egative Lists5 concept.

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-.-. The delegation ased* aside from 7ilipino citi:ens, what entities would fall under thedefinition of 4"hilippine 3ational5 under 7IA !21)

+ou replied that the definition of 4"hilippine 3ational5 under 7IA !21 covers NNNN.

a% &omestic partnership wholly composed of 7ilipino citi:ensJb% &omestic corporations /K of whose capital stoc, outstanding and entitled to vote,

are owned and held by 7ilipino citi:ensJc% 7oreign corporations considered as doing business in the "hilippines under the

Corporation Code, 1//K of whose capital stoc, outstanding and entitled to vote, arewholly@owned by 7ilipino citi:ensJ

d% All of the above, because the law considers the 9uridical personality, whether domestic or foreign, as a mere mediumJ the test of nationality is on the individualswho control the mediumJ

e% 3one of the above, because the term "hilippine national can only cover individualsand not 9uridical entities.

Answer *d% All of the above, because the law considers the 9uridical personality, whether domesticor foreign, as a mere mediumJ the test of nationality is on the individuals who control themedium.

-.. The delegation heard that foreigners can invest up to 1//K of the e'uity in 4eportoriented enterprises5 and you were ased eactly what the term covers.

+ou replied that an 4eport oriented enterprises5 under 7IA !21 is an enterprise that

NNNNNNNN.

a% =nly engages in the eport of goods and services, and does not sell goods or services to the domestic maretJ

b% ports consistently at least </K of its goods or services, and sells at least /K of the rest to the domestic maretJ

c% ports consistently at least /K of the goods or services produced, and sells atleast </K of the rest to the domestic maretJ

d% ports consistently at least /K of its goods or services produced, and can sellgoods or services to the domestic maretJ

e% 3one of the above.

Answer *e% 3one of the above.

-.<. As a last 'uestion and by way of a concrete eample, a delegation member finallyin'uired(which of the following corporations or businesses in the "hilippines may itinvest and up to what etent)

a% A lifestyle maga:ine publication corporation up to </K e'uityJ

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b% An advertising corporation, up to 1//K e'uityJc% A commercial ban, up to /K e'uityJd% A 9eepney manufacturing corporation, up to 1//K e'uityJe% A real estate development corporation, up to /K e'uity.

Answer *

d% A 9eepney manufacturing corporation, up to 1//K e'uity.

. &ennis subscribed to 1/,/// shares of M+G Corporation with a par value of 1// per share.owever, he paid only -?K of the subscription or "-?/,///. 3o call has been made on theunpaid subscription.

ow many shares is &ennis entitled to vote at the annual meeting of the stocholders of M+G)

a% 1/,/// sharesJb% -,?// sharesJ

c% 1// sharesJd% / sharesJe% 3one of the above.

Answer *a% 1/,/// shares

<. ABC Corp. issued redeemable shares. 0nder the terms of the issuance, the shares shall beredeemed at the end of 1/ years from date of issuance, at par value plus a premium of 1/K.

Choose the correct statement relating to these redeemable shares.

a% ABC Corp. would need unrestricted retained earnings to be able to redeem the sharesJb% Corporations are not allowed to issue redeemable sharesJ thus, the issuance by ABC

Corp. is ultra viresJc% olders of redeemable shared en9oy a preference over creditorsJd% ABC Corp. may redeem the shared at the end of 1/ years without need for unrestricted

retained earnings provided that, after the redemption, there are sufficient assets to cover its debtsJ

e% All of the above are incorrect.

Answer *d% ABC Corp. may redeem the shared at the end of 1/ years without need for unrestricted

retained earnings provided that, after the redemption, there are sufficient assets to cover itsdebts.

?. Arnold, representing himself as an agent of Brian for the sale of Brian!s car, approached&ennis who appeared interested in buying the car. At Arnold!s prodding, &ennis issued acrossed chec payable to Brian for "-?,/// on the understanding that the chec would onlybe shown to Brian as evidence of &ennis! good faith and interest in buying the car. Instead,

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Arnold used the chec to pay for the medical epenses of his wife in Brian!s clinic after Brian, a doctor, treated her.

Is Brian a holder in due course)

a% +es, Brian is a I&C because he was the payee of the chec and he received it for

services renderedJb% +es, Brian is a I&C because he did not need to go behind the chec that was payable

to himJc% 3o, Brian is not a I&C because &ennis issued the chec only as evidence of good

faith and interest in buying the carJd% 3o, Brian is not a I&C because Brian should have been placed on notice* the chec

was crossed in his favor and Arnold was not the drawerJe% 3o, Brian is not a I&C because the re'uisite consideration to &ennis was not present.

Answer *d% 3o, Brian is not a I&C because Brian should have been placed on notice* the chec wascrossed in his favor and Arnold was not the drawer.

. Fawsengsit Corp. is a corporation incorporated in ingapore. It invested in BumblebeeCorp., a "hilippine corporation, by ac'uiring /K of its shares. As a result, FawsengsitCorp. nominated /K of the directors of the Bumblebee Corp., all of whom areingaporeans and officers of Fawsensit Corp.

Choose the correct statement relating to Fawsengsit Corp.

a% Fawsengsit Corp. is doing business in the "hilippines and re'uires a license from theCJ

b% Fawsengsit Corp. is not doing business in the "hilippines by its mere investment in a

"hilippine corporation and does not need a license from the CJc% Fawsengsit Corp. has to appoint a resident agent in the "hilippinesJd% Fawsengsit Corp. cannot elect directors in Bumblebee Corp.Je% All of the above choices are incorrect.

Answer *b% Fawsengsit Corp. is not doing business in the "hilippines by its mere investment in a

"hilippine corporation and does not need a license from the C.

>. The BI8 assessed ABC Corp. for deficiency income ta for taable year -/1/ in the amountof "-,>1,-/H.//, inclusive of surcharge and penalties.

The BI8 can NNNNNNN.

a% 8un after the directors and officers of the ABC Corp. to collect the deficiency ta andtheir liability will be solidaryJ

b% 8un after the stocholders of ABC Corp. and their liability will be 9ointJc% 8un after the stocholders of ABC Corp. and their liability will be solidaryJd% 8un after the unpaid subscriptions still due to ABC Corp., if anyJe% 3one of the above choices is correct!

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Answer *d% 8un after the unpaid subscriptions still due to ABC Corp., if any.

H. Anton imported perfumes from Taiwan and these were released to him by the ban under a

trust receipt. 6hile the perfumes were in Anton!s warehouse, thieves broe in and stole all of them.

6ho will shoulder the loss of the stolen perfumes)

a% The loss of the perfumes will be borne by the ban in whose behalf the perfumes wereheld in trustJ

b% Anton will bear the lossJc% The eporter can hold both the ban and Anton liable for the lossJd% The eporter from whom Anton bought the perfumes will bear the lossJe% 3o one bears the loss for an unforeseen event.

Answer *b% Anton will bear the loss.

2. A ban may ac'uire real property NNNNNNN.

a% By purchase at a public sale of properties levied to satisfy ta delin'uenciesJb% By purchase from a real estate corporation in the ordinary course of the ban!s businessJc% Through dacion en pago in satisfaction of a debt in favor of a banJd% In echange for the purchase of shares of stocs of the banJe% All of the aboveJf% 3one of the above.

Answer *b% By purchase from a real estate corporation in the ordinary course of the ban!s businessJc% Through dacion en pago in satisfaction of a debt in favor of a banJd% In echange for the purchase of shares of stocs of the banJ

1/. 0nder A#LA, a depositor!s ban account may be fro:en.

a% By the ban when the account is the sub9ect of a suspicious or covered transactionreportJ

b% By the A#LC when the account belongs to a person already convicted of money

launderingJc% By the 8TC, upon ex parte motion by the A#LC, in a criminal prosecution for money

laundering pending before itJd% By the Court of Appeals motu proprio in an appeal from a 9udgment of conviction of a

criminal charge for money launderingJe% 3one of the above.

Answer *e% 3one of the above.

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11. 0nnown to the other four proponents, nrico $who had been given the tas of attending tothe Articles of Incorporation of the proposed corporation, Auto #o, Ayos Eo% misappropriatedthe filing fees and never filed the Articles of Incorporation with the C. instead, heprepared and presented to the proposed incorporators a falsified C certificate approving

the Articles. 8elying on the falsified C certificate, the latter began assuming anddischarging corporate powers.

Auto #o, Ayos Eo is a NNNNNN.

a% &e 9ure corporationJb% &e facto corporationJc% Corporation by estoppelJd% Feneral partnershipJe% 3one of the above.

Answer *

c% Corporation by estoppel( if the term 4latter5 refers to the incorporators.e% 3one of the above(if the term 4latter5 refers to nrico.

1-. "referred shares cannot vote on the proposal NNNNNNN.

a% To include other corporate officers in the corporation!s by@lawsJb% To issue corporate bondsJc% All of the aboveJd% 3one of the above.

Answer *

e% 3one of the above.

1. In -/1/, the "3" declared Eaddafy Ben9elani 4"ublic nemy 3o. 15 because of his terroristactivities in the country that have resulted in the death of thousands of 7ilipinos. A ransom of "1? # was placed on Eaddafy Ben9elani!s head.

6orried about the future of their family, Eaddafy Ben9elani!s estranged wife, Aurelia, securedin &ecember -/1/ a life insurance policy on his life and designated herself as beneficiary.

Is the policy valid and binding)

a% +es, the policy is valid and binding because Aurelia has an insurable interest on the lifeof Eaddafy Ben9elani.

b% 3o, the policy is not valid and binding because Eaddafy Ben9elani has been officiallydeclared a public enemyJ

c% +es, the policy is valid and binding because it has been in force for more than - yearsJd% 3o, the policy is not valid and binding since the spouses! estrangement removed

Aurelia!s insurable interest in Ben9alani!s lifeJe% 3one of the above.

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Answer *a% +es, the policy is valid and binding because Aurelia has an insurable interest on the life

of Eaddafy Ben9elani.

1<. #uebles Classico, Inc. $#C%, a #anila@based furniture shop, purchased hardwood lumber

from urigao Timber, Inc. $TI%, a #indanao@based logging company. #C was to pay TIthe amount of "? # for ?/ tons of lumber. To pay TI, #C opened a letter of credit withBanco de "lata $B&"%. B&" duly informed TI of the opening of a letter of credit in its favor.

In the meantime, #C(which had been undergoing financial reverses(filed a petition for corporate rehabilitation. The rehabilitation court issued a tay =rder to stay the enforcementof all claims against #C.

After shipping the lumber, TI went to &B", presented the shipping documents, anddemanded payment of the letter of credit opened in its favor. #C, on the other hand,informed the ban of the tay =rder and instructed it to deny payment to TI because of thetay =rder.

B&" comes to you for advice. +our best advice is to NNNNNN.

a% Frant TI!s claim. 0nder the 4Independence "rinciple,5 the ban deals only with thedocument and not the underlying circumstancesJ hence, the presentation of the letter of credit is sufficientJ

b% &eny TI!s claim. The tay =rder covers all claims against the debtor and binds all itscreditors. The letter of credit is a claim against the debtor that is covered by the tay=rderJ

c% Frant TI!s claim. The letter of credit is not a claim against the debtor under rehabilitation, but against the ban which has assumed a solidary obligationJ

d% &eny TI!s claim. If the ban disregards the tay order, it may be sub9ect to contempt by

the rehabilitation court. TI should file its claim with the rehabilitation courtJe% 7ile an action for interpleader to resolve the parties! competing claims.

Answer *c% Frant TI!s claim. The letter of credit is not a claim against the debtor under rehabilitation,but against the ban which has assumed a solidary obligation.

1?. Airo of Toyo, Dapan sent various goods to his friend Duan in Cebu City, "hilippines,through one of the vessels of 6orthwell hippers, Inc., an American corporation. n route toCebu City, the vessel had two stops, first in ong Eong, and second, in #anila.

1?.1. 6hile travelling from Toyo to ong Eong, the goods were damaged.

6hat law will govern)

a% Dapanese lawJb% ong Eong lawJc% Chinese lawJd% "hilippine lawJe% American law.

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Answer *d% "hilippine law.

1?.-. Assuming "hilippine law is to be applicable and Duan fails to file a claim with the carrier,

may he still commence an action to recover damages with the court)

a% 3o, the failure to file a claim with the carrier is a condition precedent for recoveryJb% +es, provided he files the complaint within 1/ years from deliveryJc% +es, provided he files the complaint within 1/ years from discovery of the damageJd% +es, provided he files the complaint within 1 year from deliveryJe% +es, provided he files the complaint within 1 year from discovery of the damageJ

Answer *d% +es, provided he files the complaint within 1 year from delivery.


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MULTIPLE CHOICE QUESTIONS (MCQs)

1. Letters of Credit are financial devices in commercial transactions which will ensure that theseller of the goods is sure to be paid when he parts with the goods and the buyers of thegoods get control of the goods upon payment. 6hich statement is most accurate)

a% The use of the Letter of Credit serves to reduce the ris of non@payment of the purchaseprice in a sale transactionJ

b% The Letters of Credit can only be used eclusively in sales transactionJc% The Letters of Credit are issued for the benefit of the seller onlyJd% A, b, and c are all correct.

Answer *a% The use of the Letter of Credit serves to reduce the ris of non@payment of the purchase

price in a sale transaction.

-. Letter of Credit which is used in non@side transaction, where it serves to reduce the ris of non@performance is called(

a% Irrevocable letter of creditJb% tandby letter of creditJc% Confirmed letter of creditJd% 3one of the above.

Answer *b% tandby letter of credit.

. At the instance of CCC Corporation, AAA Ban issued an irrevocable Letter of Credit in favor of BBB Corporation. The terms of the irrevocable Letter of Credit state that the beneficiary

must present certain documents including a copy of the Bill of Lading of the importation for the ban to release the funds. BBB Corporation could not find the original copy of the Bill of Lading so it instead presented to the ban a Mero copy of the Bill of lading. 6ould youadvise the ban to allow the drawndown on the Letter of Credit)

a% 3o, because the rule of strict compliance in commercial transactions involving letters of credit, re'uiring documents set as conditions for the release of the fund has to be strictlycomplied with or else funds will not be releasedJ

b% +es, because an irrevocable letter of credit means that the issuing ban undertaes torelease the fund anytime when claimed by the beneficiary, regardless of the ind of document presentedJ

c% +es, because the issuing ban can always 9ustify to CCC Corporation that Mero copies

are considered as faithful reproduction of the original copiesJd% +es, because the issuing ban has no discretion to determine whether the documents

presented by the beneficiary are sufficient or not.

Answer *

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a% 3o, because the rule of strict compliance in commercial transactions involving letters of credit, re'uiring documents set as conditions for the release of the fund has to be strictlycomplied with or else funds will not be released.

<. AAA Carmaers opened an irrevocable Letter of Credit with BBB Baning Corporation with

CCC Cars Corporation as beneficiary. The irrevocable Letter of Credit was opened to pay for the importation of 1/ units of #ercedes Ben: class. 0pon arrival of the cars, AAACarmaers found out that the cars were all not in running condition and some parts weremissing. As a conse'uence, AAA Carmaers instructed BBB Baning Corporation not toallow drawdown on the Letter of Credit. Is this legally possible)

a% 3o, because under the 4Independence "rinciple5 conditions for the drawdown on theLetters of Credit are based only on documents, lie shipping documents, and not withthe condition of the goods sub9ect of the importation.

b% +es, because the acceptance by the importer of the goods sub9ect of importation ismaterial for the drawdown of the Letter of Credit.

c% +es, because under the 4Independence "rinciple5, the seller of or the beneficiary is

always assured of prompt payment if there is no breach in the contract between theseller and the buyer.

d% 3o, because what was opened was an irrevocable letter of credit and not a confirmedletter of credit.

Answer *a% 3o, because under the 4Independence "rinciple5 conditions for the drawdown on the

Letters of Credit are based only on documents, lie shipping documents, and not withthe condition of the goods sub9ect of the importation.

?. 7or a fee, M deposited 1,/// sacs of corn in the warehouse owned by +. + is in the

business of warehousing. + issued a warehouse receipt as proof of the possession of the1,/// sacs of corn. The warehouse receipt states as follows* 4&eliver to M or bearer 1,///sacs of corn.5 M wanted to use the warehouse receipt as payment of his debt in favor of G.how can the ownership of the goods covered b the warehouse receipt be transferred)

a% 3egotiate the warehouse receipt by 9ust delivering the warehouse receipt to G.b% Assign the warehouse receipt to G to transfer ownership of the goods.c% 3egotiate the warehouse receipt by specifically indorsing it to G.d% The warehouse receipt in this case is non@negotiable.

Answer *a% 3egotiate the warehouse receipt by 9ust delivering the warehouse receipt to G.

. The warehouseman, by issuing the warehouse receipt, acnowledges that the goods are inpossession, but he can refuse to deliver the goods to the holder of the warehouse receiptcovering the goods if(

a% The warehouse receipt covering the goods is not presentedJb% The lien of the warehouseman is not satisfiedJc% The said holder presents a materially altered warehouse receiptJ

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d% All of the above.

Answer *d% All of the above.

>. The legal remedy of the warehouseman in case of conflicting claims is to(

a% 7ile an action for interpleaderJb% Five the goods to the first one who first presented the warehouse receiptJc% 0se his discretion as to who he believes has the prior rightJd% Eeep the goods and appropriate them to himself.

Answer *a% 7ile an action for interpleader.

H. BBB Baning Corporation issued a Letter of Credit in the amount of "? #, for the purchaseof ? tons of corn by M. upon arrival of the goods, the goods were delivered to the warehouse

of M. thereafter, he was ased to sign a Trust 8eceipt covering the goods. 6hen the goodswere sold, M did not deliver the proceeds to BBB Baning Corporation, arguing that he willneed the fund for the subse'uent importation. Is there sufficient basis to sue for criminalaction)

a% +es, because M!s failure to turn over the proceeds to the ban is a violation of the Trust8eceipt LawJ

b% 3o, because the trust receipt was signed only after the delivery of the goods. 6hen thetrust receipt was signed, the ownership of the goods was already with MJ

c% +es, because violation of Trust 8eceipt Law is mala prohibita, intention is irrelevantJd% 3o, because M has a valid reason not to deliver the proceeds to BBB Baning

Corporation.

Answer *a% +es, because M!s failure to turn over the proceeds to the ban is a violation of the Trust

8eceipt Lawc% +es, because violation of Trust 8eceipt Law is mala prohibita, intention is irrelevant.

2. M secured a loan from BBB Ban to pay for the importation of some dried fruits. 0pon arrivalof the goods consisting of dried fruits imported by M but before delivery to him, a trust receiptwas eecuted by M to cover the transfer of the dried fruits to his possession. The dried fruitswere so saleable but instead of turning over the proceeds of the sale, M used the funds topay for the medical epenses of his mother who was sic of cancer of the bone. 6hich

statement is most accurate)

a% M cannot be held criminally liable because although he did not pay the ban he used theproceeds for a good reasonJ

b% 7raud or deceit is a necessary element to hold M criminally liable for non@payment under the Trust 8eceipts LawJ

c% M can be held criminally liable under the Trust 8eceipts Law regardless of the purpose or intention for the use of the proceedsJ

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d% M cannot be held criminally liable because the underlying obligation is one of simpleloan.

Answer *c% M can be held criminally liable under the Trust 8eceipts Law regardless of the purpose or intention for the use of the proceeds.

1/. M is the "resident of AAA "roducts Corporation. M signs all the Trust 8eceipts documentsfor certain importations of the company. In the event of failure to deliver the proceeds of thesale of the goods to the ban, which statement is most accurate)

a% The criminal liability will not attach to M as president because of separate 9uridicalpersonalityJ

b% 7or violation of Trust 8eceipts Law, the law specifically provides for the imposition of penalty upon directors;officers of the corporationJ

c% The officer will not be held criminally accountable because he is 9ust signing the trustreceipt for and in behalf of the corporationJ

d% The officer of the corporation will be held liable provided it is clear that the officer concerned participated in the decision not to pay.

Answer *b% 7or violation of Trust 8eceipts Law, the law specifically provides for the imposition of

penalty upon directors;officers of the corporation.

11. 6ho is the ntrustee in a Trust 8eceipt arrangement)

a% The owner of the goodsJb% The one who holds the goods and receives the proceeds from the sale of the goodsJ

c% The person to whom goods are delivered for sale and who bears the ris of the lossJd% The party who ac'uires security interest in the goods.

Answer *c% The person to whom goods are delivered for sale and who bears the ris of the loss.

1-. 6hich phrase best completes the statement(In accordance with the Trust 8eceipt Law,purchasers of the goods from the ntrustee will*

a% Fet the goods only as a collateralJb% 3ot get good title to the goodsJ

c% =nly get security interest over the goodsJd% Fet good title to the goods.

Answer *d% Fet good title to the goods.

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1. M acted as an accommodation party in signing as a maer of a promissory note. 6hichphrase best completes the sentence(This means that M is liable on the instrument to anyholder for value*

a% 7or as long as the holder does not now that M is only an accommodation partyJb% ven though the holder new all along that M is only an accommodation partyJ

c% 7or as long as M did not receive any consideration for acting as accommodation partyJd% "rovided M received consideration for acting as accommodation party.

Answer *b% ven though the holder new all along that M is only an accommodation party.

1<. M issued a promissory note which states, 4I promise to pay + or order "1//,/// or 1 unitolvo edan.5 6hich statement is most accurate)

a% The promissory note is negotiable because the forms of payment are clearly statedJb% The promissory note is non@negotiable because the option as to which form of payment

is with the maerJc% The promissory note is an invalid instrument because there is more than one form of

paymentJd% The promissory note can be negotiated by way of delivery.

Answer *b% The promissory note is non@negotiable because the option as to which form of payment iswith the maer

1?. M issued a promissory note which states 4I promise to pay + or bearer the amount of EO?/,/// on or before &ecember /, -/1.5 Is the promissory note negotiable)

a% 3o, the promissory note becomes invalid because the amount is in foreign currencyJb% +es, the promissory note is negotiable even though the amount is stated in foreign

currencyJc% 3o, the promissory note is not negotiable because the amount is in foreign currencyJd% +es, the promissory note is negotiable because the ong Eong dollar is a nown foreign

currency in the "hilippines.

Answer *b% +es, the promissory note is negotiable even though the amount is stated in foreign

currency

1. M delivered a chec issued by him and payable to the order of CA to + in payment for certain obligations incurred by M in favor of +. + then delivered the checs to G in paymentfor certain obligations. 6hich statement is most accurate)

a% G can encash the chec even though + did not indorse the checJb% G cannot encash the chec for lacing in proper endorsementJc% + is the only one liable because he was the one who delivered the chec to GJd% The negotiation is not valid because the chec is an instrument payable to order.

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Answer *a% G can encash the chec even though + did not indorse the chec.

1>. A stale chec is a chec(

a% That cannot anymore be paid although the underlying obligation still eistsJb% That cannot anymore be paid and the underlying obligation under the chec is also

etinguishedJc% That can still be negotiated or indorsed so that whoever is the holder can claim payment

therefromJd% 6hich has not been presented for payment within a period of / days.

Answer *a% That cannot anymore be paid although the underlying obligation still eists

1H. In payment for his debt in favor of M, + gave M a #anager!s Chec in the amount of "1//,/// dated #ay /, -/1-. 6hich phrase best completes the statement(A #anager!sChec*

a% Is a chec issued by a manager of a ban for his own accountJb% Is a chec issued by a manger of a ban in the name of the ban against the ban itself

for the account of the banJc% Is lie any ordinary chec that needs to be presented for payment alsoJd% Is better than a cashier!s chec in terms of use and effect.

Answer *b% Is a chec issued by a manger of a ban in the name of the ban against the ban itself

for the account of the ban.

12. 6hich phrase best completes the statement( A chec which is payable to bearer is abearer instrument and*

a% 3egotiation can be made by delivery onlyJb% 3egotiation must be by written indorsementJc% 3egotiation must be by specific indorsementJd% 3egotiation must be by indorsement and delivery.

Answer *

a% 3egotiation can be made by delivery onlyJ

-/. As payment for a debt, M issued a promissory note in favor of + but the promissory note onits face was mared non@negotiable. Then + instead of indorsing the promissory note,assigned the same in favor of G to whom he owed some debt also. 6hich statement is mostaccurate)

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a% G cannot claim payment from M on the basis of the promissory note because it is marednon@negotiableJ

b% G can claim payment from M even though it is mared non@negotiableJc% G can claim payment from + because under the 3IL, negotiation and assignment is one

and the sameJd% G can claim payment from + only because he was the endorser of the promissory note.

Answer *b% G can claim payment from M even though it is mared non@negotiableJ

-1. 3egotiable instruments are used as substitutes for money, which means(

a% That they can be considered legal tender.b% That when negotiated, they can be used to pay indebtednessJc% That at all times the delivery of the instrument is e'uivalent to delivery of the caseJd% That at all times negotiation of the instruments re'uires proper indorsement.

Answer *b% That when negotiated, they can be used to pay indebtednessJ

--. The signature of M was forged as drawer of a chec. The chec was deposited in theaccount of + and when deposited was accepted by AAA Ban, the drawee ban.ubse'uently, AAA Ban found out that the signature of M was actually forged. 6hichstatement is most accurate)

a% The drawee ban can recover from +, because the chec was deposited in his accountJb% The drawee ban can recover from M, because he is the drawer even though his

signature was forgedJ

c% The drawee ban is estopped from denying the genuiness of the signature of the M, thedrawer of the checJ

d% The drawee ban can recover from + because as endorser he warrants the genuiness of the signature.

Answer *c% The drawee ban is estopped from denying the genuiness of the signature of the M, the

drawer of the chec.

-. A issued a chec in the amount of "-/,/// payable to B. B endorsed the chec but only tothe etent of "1/,///. 6hich statement is most accurate)

a% The partial indorsement is not a valid indorsement, although will result in the assignmentof that partJ

b% The partial indorsement will invalidate the whole instrumentJc% The endorsee will be considered as a holder in due courseJd% The partial indorsement is valid indorsemtn up to the etent of the "1/,///.

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Answer *a% The partial indorsement is not a valid indorsement, although will result in the assignment

of that part.

-<. A promissory note which does not have the words 4or order5 or 4or bearer5 will render the

promissory note non@negotiable and, therefore(

a% It will render the maer not liableJb% The note can still be assigned and the maer made liableJc% The holder can become holder in due courseJd% The promissory note can 9ust be delivered and the maer will still be liable.

Answer *b% The note can still be assigned and the maer made liable.

-?. A chec is(

a% A bill of echangeJb% The same as a promissory noteJc% Is drawn by a maerJd% A non@negotiable instrument

Answer *a% A bill of echange.

-. A chec was issued to Tiger 6oods. But what was written as payee is the word 4Tiger 6oods5. To validly endorse the chec(

a% Tiger 6oods must sign his real nameJb% Tiger 6oods must sign both his real name and assumed nameJc% Tiger 6oods can sign his assumed nameJd% The chec has become non@negotiable.

Answer *c% Tiger 6oods can sign his assumed name.

->. +, as "resident of and in behalf of AAA Corporation, as a way to accommodate M, one of itsstocholders, endorsed the chec issued by M. 6hich statement is most accurate)

a% It is an ultra vires actJb% It is a valid indorsementJc% The corporation will be held liable to any holder in due courseJd% It is an invalid indorsement.

Answer *a% It is an ultra vires act.b% It is a valid indorsement.

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-H. In a negotiable instrument, when the sum is epressed both in numbers and in words andthere is discrepancy between the words and numbers(

a% The sum epressed in words will prevail over the one epressed in numbersJb% The sum epressed in numbers will prevail over the one epressed in wordsJ

c% The instrument becomes void because of the discrepancyJd% This will render the instrument invalid.

Answer *a% The sum epressed in words will prevail over the one epressed in numbers.

-2. A promissory note which is undated is presumed to be(

a% &ated as of the date of issueJb% &ated as of the date of the first indorsementJc% "romissory note is invalid because there is no dateJ

d% &ated on due date.

Answer *a% &ated as of the date of issue.

/. An insurance contract is an aleatory contract, which means that(

a% An insurer will pay the insured e'uivalent to the amount of the premiumJb% The obligation of the insurer is to pay depending upon the happening of an uncertain

eventJc% The insured pays a fied premium for the duration of the policy period and the amount of

the premiums paid to the insurer is not necessarily the same amount as what the insuredwill get upon the happening of an uncertain future eventJ

d% The obligation of the insurer is to pay depending upon the happening of an event that iscertain to happen.

Answer *b% The obligation of the insurer is to pay depending upon the happening of an uncertain

event.

1. An Insurance Contract is a contract of adhesion, which means that in resolving ambiguitiesin the provision of the insurance contract P

a% The general rule is that, the insurance contract is to be interpreted strictly in accordancewith what is written in the contractJ

b% Are to be construed liberally in favor of the insured and strictly against the insurer whodrafted the insurance policyJ

c% Are to be construed strictly against the insured and liberally in favor of the insurerJd% If there is an ambiguity in the insurance contract, this will invalidate the contract.

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Answer *b% Are to be construed liberally in favor of the insured and strictly against the insurer whodrafted the insurance policy.

-. M is the common law wife of +. + loves M so much that he too out a life insurance on his

own life and made her the sole beneficiary. + did this to ensure that M will be financiallycomfortable when he is gone. 0pon the death of +(

a% M as sole beneficiary under the life insurance policy on the life of + will be entitled to theproceeds of the life insuranceJ

b% &espite the designation of M as the sole beneficiary, the proceeds of the life insurancewill go to the estate of +J

c% The proceeds of the life insurance will go to the compulsory heirs of +Jd% The proceeds of the life insurance will be divided e'ually amongst M and the compulsory

heirs of +.

Answer *

b% &espite the designation of M as the sole beneficiary, the proceeds of the life insurance willgo to the estate of +J

. M, in Danuary /, -//2, or - years before reaching the age of ?, insured his life for "-/ #.for reason unnown to his family, he too his own life - days after his ? th birthday. Thepolicy contains no ecepted ris. 6hich statement is most accurate)

a% The insurer will be liableJb% The insurer will not be liableJc% The state of sanity of the insured is relevant in cases of suicide in order to hold the

insurer liableJ

d% The state of sanity of the insured is irrelevant in cases of suicide in order to hold theinsurer liable.

Answer *a% The insurer will be liable.

<. M, a minor, contracted an insurance on his own life. 6hich statement is most accurate)

a% The life insurance policy is void ab initioJb% The life insurance is valid provided it is with the consent of the beneficiaryJc% The life insurance policy is valid provided the beneficiary is his estate or his parents, or

spouse or childJd% The life insurance is valid provided the disposition of the proceeds will be sub9ect to the

approval of the legal guardian of the minor.

Answer *c% The life insurance policy is valid provided the beneficiary is his estate or his parents, or spouse or child.

8/18/2019 5. Mercantile Law (1990-2014)


?. The 4incontestability clause5 in a Life Insurance "olicy means(

a% That life insurance proceeds cannot be claimed - years after the death of the insuredJb% That - years after date of issuance or reinstatement of the life insurance policy, the

insurer cannot anymore prove that the policy is void ab initio or rescindable by reason of fraudulent concealment or misrepresentation of the insuredJ

c% That the insured can still claim from the insurance policy after - years even thoughpremium is not paidJ

d% That the insured can only claim proceeds in a life insurance policy - years after death.

Answer *b% That - years after date of issuance or reinstatement of the life insurance policy, the

insurer cannot anymore prove that the policy is void ab initio or rescindable by reason of fraudulent concealment or misrepresentation of the insured.

. 7or both the Life Insurance and "roperty Insurance, the insurable interest is re'uired to be(

a% isting at the time of perfection of the contract and at the time of lossJb% isting at the time of perfection and at the time of loss for propertyJc% isting at the time of perfection for property insurance but for life insurance both at the

time of perfection and at the time of lossJd% isting at the time of perfection only.

Answer *b% isting at the time of perfection and at the time of loss for property.

>. A house and lot is covered by a real estate mortgage $8#% in favor of GGG Ban. The

Ban re'uired that the house be insured. The owner of the policy failed to endorse nor assign the policy to the ban. owever, the &eed of 8# has an epress provision whichsays that the insurance policy is also endorsed with the signing of the 8#. 6ill this besufficient)

a% 3o, insurance policy must be epressly endorsed to the ban so that the ban will havea right in the proceeds of such insurance in the event of lossJ

b% The epress provision contained in the &eed of 8# to the effect that the policy is alsoendorsed is sufficientJ

c% ndorsement of the Insurance "olicy in any form is not legally allowedJd% ndorsement of the Insurance "olicy must be in a formal document to be valid.

Answer *a% 3o, insurance policy must be epressly endorsed to the ban so that the ban will have

a right in the proceeds of such insurance in the event of loss

H. M is a passenger of a 9eepney for hire being driven by +. the 9eepney collided with another passenger 9eepney being driven by G who was driving reclessly. As a result of the collision,M suffered in9uries. Both passenger 9eepneys are covered by Comprehensive #otor

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ehicular Insurance Coverage. If M wants to claim under the 4no fault indemnity clause5, hisclaim will lie(

a% Against the insurer of the 9eepney being driven by G who was the one at faultJb% The claim shall lie against the insurer of the passenger 9eepeney driven by + because M

was his passengerJ

c% M has a choice against whom he wants to mae his claimJd% 3one of the above.

Answer *b% The claim shall lie against the insurer of the passenger 9eepeney driven by + because M

was his passenger.

2. M insured the building she owns with - insurance companies for the same amount. In caseof damage(

a% M cannot claim from any of the - insurers because with the double insurance, the

insurance coverage becomes automatically voidJb% The - insurers will be solidarily liable to the etent of the lossJc% The - insurers will be proportionately liableJd% M can choose who he wants to claim against.

Answer *d% M can choose who he wants to claim against.

</. 6hen M insured his building, M indicated in the application that it is a residential building,but actually the building was being used as a warehouse for some ha:ardous materials.6hat is the effect on the insurance policy, if any)

a% The insurance policy can be cancelled because of the change in the useJb% The insurance policy will automatically be changedJc% The insurance policy need not be changedJd% The insurance policy is fied regardless of the changes in the use.

Answer * Any of the above should be given full credit.

<1. M owned a house and lot. M insured the house. The house got burned. Then he sold thepartially burnt house and the lot to +. 6hich statement is most accurate)

a% M is not anymore entitled to the proceeds of the insurance policy because he alreadysold the partially burnt house and lotJ

b% M is still entitled to the proceeds of the insurance policy because what is material is thatat the time of the loss, M is the owner of the house and lotJ

c% 3o one is entitled to the proceeds because ownership over the house and lot wasalready transferredJ

d% + will be the one entitled to the proceeds because he now owns the partially burnt houseand lot.

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Answer *b% M is still entitled to the proceeds of the insurance policy because what is material is thatat the time of the loss, M is the owner of the house and lot.

<-. M, while driving his Toyota Altis, tried to cross the railway tract of "38 along Blumetritt Avenida t., #anila. The train as it approached Blumentritt, applied its horn as a warning toall the vehicles that might be crossing the railway tract, but there was really nobody manningthe crossing. M was listening to his i"od touch, hence, he did not hear the sound of the hornof the train and so his car was hit by the train. As a result of the accident, M suffered somein9uries and his car was totally destroyed as a result of the impact. Is "38 liable)

a% "38 is not liable because M should have nown that he was crossing a placedesignated as crossing for train, and therefore should have been more carefulJ

b% "38 is a liable because 8ailroad companies owe to the public a duty of eercising areasonable degree of care to avoid in9ury to person and property at railroad crossingswhich means a flagman or a watchman should have been posted to warn the public at

all timesJc% "38 is not liable because it blew its horn when it was about to cross the railway along

Blumentritt Avenida t.Jd% "38 is not liable because M was negligent, for listening to his i"od touch while driving.

Answer *a% "38 is not liable because M should have nown that he was crossing a place

designated as crossing for train, and therefore should have been more careful.

<. The AAA Bus Company pics up passengers along &A, M, the conductor, while on boardthe bus, drew his gun and randomly shot the passengers inside. As a result, +, a passenger,

was shot and died instantly. Is AAA Bus Company liable)

a% The bus company is not liable for as long as the bus company can show that when theyhired M, they did the right selection processJ

b% The bus company cannot be held liable because what M did is not part of hisresponsibilityJ

c% The bus company is liable because common carriers are liable for the negligence or willful act of its employees even though they acted beyond the scope of their responsibilityJ

d% The bus company is not liable because there is no way that the bus company cananticipate the act of M.

Answer *c% The bus company is liable because common carriers are liable for the negligence or willfulact of its employees even though they acted beyond the scope of their responsibility.

<<. M is a trader of school supplies in Calapan, =riental #indoro. To bring the school supplies toCalapan, it has to be transported by a vessel. Because there were so many passengers, the- boes of schools supplies were loaded but the shipping company was not able to issuethe Bill of lading. o, on board, the hip Captain issued the Bill of Lading. o, on board, the

8/18/2019 5. Mercantile Law (1990-2014)


hip Captain issued instead a 4shipping receipt5 to M indicating the - boes of schoolsupplies being part of the cargo of the vessel. 6hich phrase therefore, is the most accurate)

a% The owner of the vessel is not liable because no bill of lading was issued to M hence, nocontract of carriage was perfectedJ

b% It is possible to have a contract of carriage of cargo even without a bill of lading, and the

4shipping receipt5 would be sufficientJc% The only acceptable document of title is a Bill of LadingJd% 3one of the above.

Answer *b% It is possible to have a contract of carriage of cargo even without a bill of lading, and the

4shipping receipt5 would be sufficient.

<?. M too "AL 7light "8 1/- to Los Angeles, 0A. he had - luggage checed@in and was -baggage checs. 6hen M reached Los Angeles, 1 of the - checed@in luggage could not befound. 6hich statement is most accurate)

a% "AL is liable for the loss of the checed@in@luggage under the provision of the 6arsawConvention on Air TransportJ

b% "AL is liable for the loss only if the baggage chec epressly states that the airline shallbe liable in case of lossJ

c% "AL cannot be held liable because that is the ris that a passenger taes when shechecs@in her baggageJ

d% "AL can only be held liable if it can be proven that "AL was negligent.

Answer *a% "AL is liable for the loss of the checed@in@luggage under the provision of the 6arsawConvention on Air Transport.

<. M owns a passenger 9eepney covered by Certificate of "ublic Convenience. e allowed + touse its Certificate of Convenience for a consideration. + therefore was operating thepassenger 9eepney under the same Certificate of "ublic Convenience $Eabit ystem% under the name of M. the passenger 9eepney met an accident. 6ho will be liable)

a% +, the one actually operating the 9eepney, will be liable to the in9ured partyJb% M will be the one liable to the in9ured party despite the fact that it is + who is actually

operating the 9eepney, because while the Eabit ystem is tolerated, the public should notbe inconvenienced by the arrangementJ

c% M will not be held liable if he can prove that he is not the owner anymoreJ

d% "ublic "olicy dictates that the real owner, even not the registered one, will be hld liable.

Answer *b% M will be the one liable to the in9ured party despite the fact that it is + who is actuallyoperating the 9eepney, because while the Eabit ystem is tolerated, the public should not beinconvenienced by the arrangement.

8/18/2019 5. Mercantile Law (1990-2014)


<>. M owns a fleet of taicabs. e operates it through what is nown as boundary system. +drives one of such taicabs and pays M a fied amount of "1,/// daily under the boundarysystem. This means that anything above "1,/// would be the earnings of +. +, drivingreclessly, hit an old lady crossing the street. 6hich statement is most accurate)

a% M as the owner is eempt from liability because he was not the one drivingJ

b% M as the owner is eempt from liability because precisely the arrangement is one under the 4boundary system5J

c% M will not be eempt from liability because he remains to be the registered owner andthe boundary system will not allow the circumvention of the law to avoid liabilityJ

d% + is the only one liable because he drove reclessly.

Answer *c% M will not be eempt from liability because he remains to be the registered owner and

the boundary system will not allow the circumvention of the law to avoid liability.

<H. The Articles of Incorporation of AAA Corporation was approved by C. After the receipt of

the Certificate of Approval from the C, AAA Corporation decided to immediately start theoperation of its business despite the fact that it has no approved By@Laws. 6hat is the legalstatus of the AAA Corporation)

a% A de 9ure corporationJb% A de facto corporationJc% A corporation by estoppelsJd% An unregistered corporation.

Answer *a% A de 9ure corporation.

<2. M, the "resident of GGG Corporation, was authori:ed by the Board of &irectors of GGGCorporation to obtain a loan from +++ Ban and to sign documents in behalf of thecorporation. M personally negotiated for the loan and got the loan at very low interest rates.0pon maturity of the loan, GGG Corporation was unable to pay. 6hich statement is mostaccurate)

a% Because M was personally acting in behalf of the Corporation, he can be held personallyliableJ

b% M, as "resident, cannot be personally held liable for the obligation of the corporationeven though he signed all the loan documents, because the loan was authori:ed by theBoardJ

c% +++ Ban can choose as to who it wants to hold liable for the loanJd% If GGG Corporation cannot pay, M can be held subsidiarily liable.

Answer *b% M, as "resident, cannot be personally held liable for the obligation of the corporation

even though he signed all the loan documents, because the loan was authori:ed by theBoard.

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?/. M owns 22K of the capital stoc of Corporation. M also own 22K of TTT Corporation. Corporation obtained a loan from Bans. =n due date, Corporate defaulted.TTT Corporation is financially healthy. 6hich statement is most accurate)

a% M being a controlling owner of Corporation can automatically be held personallyliable for the loan of CorporationJ

b% TTT Corporation, owned by 22K by M, can automatically be held liableJc% Corporation and TTT Corporation, although both are owned by M, are - distinct

corporations with separate 9uridical personalities hence, the TTT Corporation cannotautomatically be held liable for the loan of CorporationJ

d% The principle of piercing the veil of corporation fiction can be applied in this case

Answer *c% Corporation and TTT Corporation, although both are owned by M, are - distinct

corporations with separate 9uridical personalities hence, the TTT Corporation cannotautomatically be held liable for the loan of Corporation.

?1. A corporation generally can issue both par value stoc and no par value stoc. These are allfied in the Articles of Incorporation of the corporation. 6hich of the following corporationsmay not be allowed to issue no par value shares)

a% Insurance companiesJb% BansJc% Trust CompaniesJd% All of the above.

Answer *b% Bans.

?-. 7ather M, an American priest who came from 3ew +or, registered the &iocese of Bacolodof the 8oman Catholic Church which was incorporated as a corporation sole. There wereyears when the head of the &iocese was a 7ilipino, but there were more years when theheads were foreigners. Today, the head is an American again. + donated a piece of landlocated in Bacolod City for use as a school. 6hich statement is most accurate)

a% The 8egister of &eed of Bacolod City can refuse to register and transfer the titlebecause the present head of the corporation sole is not a 7ilipinoJ

b% The nationality of a corporation sole depends upon the nationality of the head at anygiven timeJ

c% A corporation sole, regardless of the nationality of the head, can ac'uire real property

either by sale or donationJd% A corporation sole is not legally allowed to own real property.

Answer *c% A corporation sole, regardless of the nationality of the head, can ac'uire real propertyeither by sale or donation.

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?. The number of the Board of Trustees of a non@stoc, non@profit education institution be(

a% ? onlyJb% Any number for as long as it is not less than ? and no more than 11Jc% Any number in multiples of ?, for as long as it is not less than ? and no more than 1?Jd% 3ot less than ? nor more than 1/ in multiples of ?.

Answer *c% Any number in multiples of ?, for as long as it is not less than ? and no more than 1?.

?<. M subscribed 1/,/// shared in the capital stocs of AAA Corporation. e paid ?/K of the1/,/// shares. M ased the Corporate ecretary to issue him the corresponding stoccertificate representing the ?/K of what he already paid. The Corporate ecretary of thecorporation refused. 6as the Corporate ecretary correct)

a% The Corporate ecretary is correct because the Corporation Code provides that nocertificate of stoc shall be issued to a subscriber until the shares as subscribed have

been fully paidJb% The Corporate ecretary cannot refuse because a toc Certificate can be issued

corresponding to the percentage of shares which were paidJc% The Corporation ecretary cannot refuse because a certificate of toc can be issued

provided it is indicated in the Certificate the actual percentage of what has been paidJd% The Corporate ecretary cannot refuse because it is his legal duty to issue a stoc

certificate corresponding to the number of shares actually subscribed regardless of theactual payment.

Answer *a% The Corporate ecretary is correct because the Corporation Code provides that no

certificate of stoc shall be issued to a subscriber until the shares as subscribed have

been fully paid.

??. MMM Corporate and +++ Corporation have agreed to be merged into one corporation. Tofacilitate the merger, both corporations agreed that the merger be made effective on #ay 1,-/1-. The C approved the Articles of #erger on Dune /, -/1-. 6hich statement is mostaccurate)

a% The effective date of merger is #ay 1, -/1-, the date stipulated by the parties as theeffective dateJ

b% The effective date of the merger is always the date of the approval of the Articles of #erger by the CJ

c% The effective date of the merger would be the date approved by the Board of &irectorsand the stocholdersJ

d% The stocholders and the Board of &irectors can set the effective date of the merger anytime after the approval of the C.

Answer *b% The effective date of the merger is always the date of the approval of the Articles of

#erger by the C.

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?. AAA Corporation is a wholly owned subsidiary of BBB Corporation. To support the businessof AAA Corporation, BBB Corporation agreed to give its corporate guarantee to the loan of

AAA Corporation. 6hat is re'uired so that the corporate guarantee will be valid)

a% It only re'uires the approval of the Board of &irectors of BBB CorporationJb% The Articles of Incorporation must provide such power and be approved by the Board of

&irectorsJc% "roviding corporate guarantee to another corporation is a necessary eercise of power

of a corporationJd% It would re'uire both the approval of the Board of &irectors and the stocholders on

record.

Answer *a% It only re'uires the approval of the Board of &irectors of BBB Corporation.

?>. The capital stoc of ABC Corporation is divided into common shares and preferred shares."referred shares are preferred as to dividends and common shares are those shares which

have the regular and ordinary attributes of a share of a corporation. 6hich statement is mostaccurate)

a% This ind of classification may not be allowed or else it will violate the &octrine of 'uality of sharesJ

b% Classifications of shares may be allowed for as long as it is clearly stated as such in the Articles of Incorporation of the CorporationJ

c% Classifications of shares is mainly for business purpose to attract investorsJd% Classifications of shares may be allowed with the approval of the stocholders and the

Board of &irectors.

Answer *

b% Classifications of shares may be allowed for as long as it is clearly stated as such in the Articles of Incorporation of the Corporation.

?H. ABC Corporation declared stoc dividends to its stocholders. The stoc dividends wereapproved by the Board of &irectors of ABC Corporation. In the subse'uent year, however,the Board again approved the redemption of all stoc dividends and to pay theshareholdings in cash. 6hich statement is most accurate)

a% The redemption of the stoc dividends can be validly approved but hr Board without anyconditionsJ

b% The redemption of stoc dividends may only be allowed if there are sufficient earnings

and should not be violative of the trust fund doctrineJc% The redemption of the shares may be taen from the eisting property and other assets

of the corporationJd% 3one of the above.

Answer *aminee should be giver full credit for whatever answer they gave as the 'uestion is

vague.

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?2. M sold all his shares in AAA otel Corporation to +. M owns 22K of AAA otel Corporation. As the new owner, + wanted a reorgani:ation of the hotel which is to include primarily theseparation of all eisting employees and the hiring of new employees. 6hich statement ismost accurate)

a% 6ith the change in ownership, in effect there is a new 9uridical entity and therefore all

employees are considered separatedJb% &espite the change in shareholder, there is actually no change in the 9uridical entity and

therefore eisting employees cannot automatically be considered separatedJc% +, as the new shareholder, has the right to retain only those employees who in his

9udgment are 'ualifiedJd% 7or as long as the eisting employees are given their separation pay, they can be

terminated.

Answer *b% &espite the change in shareholder, there is actually no change in the 9uridical entity andtherefore eisting employees cannot automatically be considered separated.

/. outh China Airlines is a foreign airline company. outh China Airlines ticets are sold in the"hilippines though "AL as their general agent. outh China Airlines is not registered to dobusiness as such with the "hilippine C. which statement is most accurate)

a% Although unlicensed to do business in the "hilippines, outh China Airlines can suebefore the "hilippine Courts and can also be suedJ

b% outh China Airlines can sue but cannot be suedJc% outh China Airlines cannot sue and cannot be sued alsoJd% outh China Airlines can be sued in the "hilippine Courts but it cannot sue.

Answer *

d% outh China Airlines can be sued in the "hilippine Courts but it cannot sue.

1. o that ABC Corporation could venture into more pro9ects, it needed to raise funds byissuing new shares to increase its capitali:ation. M, +, G, D and F are the ? eistingshareholders of the company. They hold -/K each. ow will the additional shares bedivided among the eisting shareholders)

a% The eisting shareholders can subscribe to the new shares e'uivalent to their eistingshareholdings because the Corporation Code provides that each of the eistingstocholders will have preemptive rights to the etent of their eisting shareholdingsJ

b% The eisting shareholders! preemptive rights is e'uivalent to the percentage that they

wantJc% ach of the eisting shareholder can eercise their right of first refusal against each

otherJd% "reemptive rights and right of first refusal are one and the same.

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Answer *a% The eisting shareholders can subscribe to the new shares e'uivalent to their eisting

shareholdings because the Corporation Code provides that each of the eistingstocholders will have preemptive rights to the etent of their eisting shareholdings.

-. If ABC Corporation will increase its authori:ed capital stoc, the Corporation Code re'uires(

a% The approval of the ma9ority of the Board of &irectors onlyJb% The approval of the ma9ority of the stocholders and the Board of &irectorsJc% The approval of -; of the shareholders of the outstanding capital stoc as well as the

approval of the CJd% The approval of the ma9ority of the Board of &irectors and approval of the shareholders

holding -; share of the outstanding capital stoc.

Answer *aminees should be given full credit for whatever answer they gave as the 'uestion is

vague.

. M is a minority stocholder of CCC Corporation. + is a member of the Board of &irectors of CCC Corporation and at the same time he is the "resident. M believes that + ismismanaging CCC Corporation hence, as a stocholder and in behalf of the other stocholders, he wanted to sue +. which statement is most accurate)

a% M can institute a derivative suit in behalf of himself as a stocholderJb% A derivative suit must be instituted in behalf of the corporationJc% &erivative suit is an eclusive remedy that M can instituteJd% &erivative suit is not the remedy in this situation.

Answer *b% A derivative suit must be instituted in behalf of the corporation.

<. The term of FFF Corporation in accordance with its Articles of Incorporation ended lastDanuary /, -/1-. The term was not etended. 6hat will happen to the corporation)

a% The corporation is dissolved ipso factoJb% There is a need to pass a board resolution to formally dissolve the corporationJc% The Board of &irectors must pass a resolution for the corporation to formally go into

li'uidationJ

d% The stocholders must pass a resolution to dissolve the corporation.

Answer *a% The corporation is dissolved ipso facto.

?. The term 1 year of the Board of &irectors of AAA Corporation epired last 7ebruary 1?,-/1-. 3o new election of the Board of &irectors was called, hence, the eisting members of the Board continue as &irectors in hold over capacity. 6hich statement is most accurate)

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a% This is allowed provided there is a valid and 9ustifiable reason for not calling for anelection of the new members of the BoardJ

b% This is not allowed because the term of the directors must only be for a period of 1 yearJc% The positions of the members of the Board of &irectors will be automatically declared

vacantJ

d% Acting as member of the Board of &irectors in a hold over capacity must be ratified bythe stocholders.

Answer *a% This is allowed provided there is a valid and 9ustifiable reason for not calling for an

election of the new members of the Board.

. AAA Corporation is a foreign corporation that wants to operate a representative office in the"hilippines. As re'uired by the Corporation Code, there is a need to appoint a 8esident

Agent as a condition precedent to the issuance of a license to transact business in the"hilippines. After - years, AAA Corporation removed its 8esident Agent and did not appoint

anyone anymore. 6hich statement is the most accurate)

a% This can be a ground for revocation or suspension of its license to do businessJb% There is no more effect in the license because anyway at the time of registration, a

resident agent was appointedJc% This can be a ground for suspension onlyJd% This will result in automatic revocation of its license to do business in the "hiippines.

Answer *a% This can be a ground for revocation or suspension of its license to do business.

>. The By@laws of the ABC Corporation is silent as to when a stocholder can be 'ualified toattend the meeting of the stocholders. The Corporate ecretary sent out the notice of thestocholders meeting - days before the meeting and at that time M was not yet astocholder. =n the day of the meeting, however, M became a shareholder which was dulyrecorded in the stoc and transfer boo. 6hich statement is most accurate)

a% M is a stocholder of ABC Corporation as of the time of meeting of the stocholders for the purpose of electing the members of the boardJ

b% M is not 'ualified to elect members of the board because at the time the notice of themeeting was sent, she was not yet a stocholderJ

c% ualifications as to who are considered as stocholders on record for purposes of beingable to elect members of the board are to be determined by the By@laws aloneJ

d% 3one of the above.

Answer *a% M is a stocholder of ABC Corporation as of the time of meeting of the stocholders for

the purpose of electing the members of the board.

H. M, who is the ecutive " of ABC Corporation, a listed company, can be held liable or guilty of insider trading if, he(

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a% Bought shares of ABC Corporation when it was planning to ac'uire another company toimprove its asset base, the news of which increased the price of the shares in the tocchange.

b% Bought shares of M+C Corporation, a sister company of ABC Corporation when helearned that M+C Corporation was about to also list its share in the "hilippine toc

changeJc% Bought shares of GGG Corporation when he learned that ABC Corporation would ac'uire

GGG CorporationJd% All of the above.


2. The purpose of the 4Tender =ffer5 8ule is to(

a% nsure an even playing field for all shareholders of a company in term of opportunity to

sell their shareholdingsJb% nsure that minority shareholders in a publicly listed company are protected in the sense

that they will e'ually have the same opportunity as the ma9ority shareholders in termsselling their sharesJ

c% nsure that the shareholders who would also want to sell their shareholdings will havethe opportunity for a better priceJ

d% All of the above.


>/. ection 2 of the 8C defines an independent director as a person who must not have arelation with the corporation which would interfere with his eercise of independent 9udgmentin carrying out the responsibilities of a director. To ensure independence therefore, he mustbe(

a% 3ominated and elected by the entire shareholdersJb% 3ominated and elected by the minority shareholdersJc% 3ominated and elected by the ma9ority shareholdersJd% Appointed by the board.

Answer *c% 3ominated and elected by the ma9ority shareholders.

>1. 4ecurities5 issued to the public are re'uired by law to be registered with(

a% The Bano entral ng "ilipinasJb% The "hilippine toc changeJc% The ecurities and change CommissionJd% The ecurities and change Commission and the "hilippine toc change.

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Answer *c% The ecurities and change Commission.

>-. The government agency granted with the power of supervision and eamination over bansand non@ban financial institutions performing 'uasi@baning functions, to ensure that the

conduct of its business is on a sound financial basis that will provide continued solvency andli'uidity is(

a% The "hilippine &eposit Insurance CorporationJb% The Bango entral ng "ilipinasJc% The Anti@#oney Laundering CouncilJd% The ecurities and change Commission.

Answer *b% The Bango entral ng "ilipinas.

>. M maintains a savings deposit in the amount of "1 # with ABC Ban Corporation. M alsohas obtained a loan from ABC Ban Corporation in the amount of "1 #. in case of default*

a% ABC Ban can set@off the loan from the savings account being maintained by M with ABC BanJ

b% et@off is not possible because legal compensation is not allowed in baning transactionJc% &eposit accounts are usually earmared for specific purpose hence off@setting is not

legally possibleJd% =ff@setting is not possible because the obligation of M is a 4simple loan5.

Answer *a% ABC Ban can set@off the loan from the savings account being maintained by M with

ABC Ban.

><. M+G Corporation is engaged in lending funds to small vendors in various public marets. Tofund the lending, M+G Corporation raised funds through borrowings from friends andinvestors. 6hich statement is most accurate)

a% M+G Corporation is a banJb% M+G Corporation is a 'uasi@banJc% M+G Corporation is an Investment CompanyJd% M+G is none of the above.

Answer *b% M+G Corporation is a 'uasi@ban.

>?. MMM Ban Corporation and GGG Corporation were merged into MM GG Ban Corporation. oas not to create any unnecessary conflict, all the former directors of both bans wanted tobe appointed;elected as members of the Board of &irectors of the merged ban. ach banused to have 11 members of the board. The maimum number of directors of the mergedban is(

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a% 1?Jb% --Jc% -1Jd% 11.

Answer *c% -1.

>. All senior officers of ABC Ban are entitled to obtain a housing loan. M is an ecutive "for =perations of ABC Ban. he obtained a housing loan with the ABC Ban. 6hichstatement is most accurate)

a% The housing loan of M re'uired a guarantor from somebody who is not connected withthe banJ

b% The housing loan of M re'uires the approval of the Board of &irectors of the banJc% The housing loan of M, being a benefit for employees does not re'uire $a% but will re'uire

$b%Jd% The housing loan of M, being a benefit for employees, will not re'uire $a% and $b%.

Answer *d% The housing loan of M, being a benefit for employees, will not re'uire $a% and $b%.

>>. ABC oldings Company, a ong Eong company, owns 1/K of M+G Ban. Because of thepeace and order situation in the "hilippines, ABC olding Company wanted to sell itsshareholdings in M+G Ban. 0nfortunately, nobody is interested to buy a 1/K shareholdingsin a ban. The board of directors of M+G Ban thought that it would be a good idea to buybac the shares owned by ABC olding Company. 6hich statement is most accurate)

a% Buying bac the shares by M+G Ban is absolutely not allowedJb% Buying bac the shares may be allowed provided it is with the approval of the #onetary

Board and disposed of within monthsJc% Buying bac the shares may be allowed provided such shares will be disposed of within

1/ yearsJd% Buying bac the shares may be done anytime provided the Board of &irectors will

approve the same.

Answer *b% Buying bac the shares may be allowed provided it is with the approval of the #onetaryBoard and disposed of within months.

>H. M is being charged for violation of Anti@Fraft and Corrupt "ractices because he is suspectedof having accumulated uneplained wealth. M maintains deposit accounts with ABC Ban.The =mbudsman filed criminal cases against M before the andiganbayan. Can the courtissue subpoena against ABC Ban to produce all documents pertaining to all the depositaccounts of M)

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a% +es, because there is already a pending case and provided the subpoena must bespecific as to which accountJ

b% +es, it is enough that the specific ban is identifiedJc% 3o, because the issuance of the subpoena has no real legal basisJd% ven without a subpoena, information about the deposit accounts of M can be submitted

to the andiganbayan because it will be used in a pending case.

Answer *a% +es, because there is already a pending case and provided the subpoena must be

specific as to which account.

>2. M, a private individual, maintains a dollar deposit with ABC Ban. M is suspected to be theleader of a Eidnap for 8ansom Fang and he is suspected of depositing all ransom money insaid deposit account which are all in 0 &ollars. The police want to open said account tonow if there are really deposits in big amounts. 6hich statement is most accurate)

a% The same rules under the ecrecy of Ban &eposit Act will applyJ

b% An approval from the #onetary Board is necessary to open the accountJc% Because the deposit is in 0 &ollars, it is covered by the 7oreign Currency &eposit Act

which allows disclosure only upon the written permission of the depositorJd% Approval from the court is necessary to order disclosure of the account.

Answer *a% The same rules under the ecrecy of Ban &eposit Act will apply.

H/. M is a depositor of AAA Ban. he has deposit accounts all under her name. =ne, inchecing account, one in saving account and another one in time deposit account. achaccount has a balance of "-?/,///. AAA Ban became insolvent. "&IC closed the Ban. M

therefore is unable to withdraw from all of the accounts. he then filed her claims with the"&IC. 6hich statement is most accurate)

a% M can claim a total of "?//,/// for all accountsJb% M can only claim from 1 account of "-?/,///Jc% M can claim a total of ">?/,/// from all accountsJd% M cannot claim anything from any of the deposit accounts.

Answer *a% M can claim a total of "?//,/// for all accounts.

H1. The Ban ecrecy Law $8A 1</?% prohibits disclosing any information about depositrecords of an individual without court order ecept(

a% In an eamination to determine gross estate of a decedentJb% In an investigation for violation of Anti@Fraft and Corrupt "racticesJc% In an investigation by the =mbudsmanJd% In an impeachment proceeding.

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Answer *a% In an eamination to determine gross estate of a decedent.

H-. M wors as a research computer engineer with the Institute of Computer Technology, agovernment agency. 6hen not busy with his wor, but during office hours, he developed a

software program for law firms that will allow efficient monitoring of the cases, whichsoftware program is not at all related to his wor. Assuming the program is patentable, whohas the right over the patent)

a% MJb% Institute of Computer TechnologyJc% 3either M nor the Institute Computer Technology can claim patent right over the

inventionJd% M and the employer of M will 9ointly have the rights over the patent.

Answer *a% M.

H. The 4test of dominancy5 in the Law on Trademars, is a way to determine whether thereeists an infringement of a trademar by(

a% &etermining if the use of the mar has been dominant in the maretJb% 7ocusing on the similarity of the prevalent features of the competing mars which might

create confusionJc% Looing at the mar whether they are similar in si:e, form or colorJd% Looing at the mar whether there is one specific feature that is dominant.

Answer *

b% 7ocusing on the similarity of the prevalent features of the competing mars which mightcreate confusion.

H<. M!s painting of #adonna and Child was used by her mother to print some personali:ed giftwrapper. As part of her mother!s efforts to raise funds for Bantay Bata, the mother of M soldthe wrapper to friends. +, an entrepreneur, lied the painting in the wrapper and made manycopies and sold the same through 3ational Boostore. 6hich statement is most accurate)

a% + can use the painting for his use because this is not a copyrightable materialJb% M can sue + for infringement because artistic wors are protected from the moment of

creationJ

c% 6ors of art need to be copyrighted also to get protection under the lawJd% + can use the drawing even though not copyrighted because it is already a public

property having been published already.

Answer *b% M can sue + for infringement because artistic wors are protected from the moment of creation.

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H?. Compulsory Licensing of Inventions which are duly patented may be dispensed with or willbe allowed eploitation even without agreement of the patent owner under certaincircumstances, lie national emergency, for reason of public interest, lie national security,etc. The person who can grant such authority is(

a% The &irector Feneral of the Intellectual "roperty =fficeJ

b% The &irector of Legal Affairs of the Intellectual "roperty =fficeJc% The owner of the "atent rightJd% Any agent of the owner of the "atent right.

Answer *b% The &irector of Legal Affairs of the Intellectual "roperty =ffice.

H. The 7air 0se &octrine allows others to utili:e copyrighted wors under certain conditions.The factors to consider whether use is fair or not would be the purpose and character of theuse, nature of the copyrighted wor, amount and substantially of the portions used, andelse)

a% ffect of the use upon the creator of the worJb% ffect upon the potential maret of the worJc% ffect of the use upon the public in generalJd% ffect of the use upon the class in which the creator belongs.

Answer *b% ffect upon the potential maret of the wor.

H>. 6hich phrase best completes the statement(A chattel mortgage can be constituted tosecure*

a% =bligation both past and futureJb% =bligation eisting at the time the mortgage is constitutedJc% 7uture obligations onlyJd% "ast obligations only.

Answer *b% =bligation eisting at the time the mortgage is constituted.

HH. 6hich phrase best completes the statement(A chattel mortgage can cover*

a% =nly property described in the deed without eceptionJb% Can also cover substituted propertyJc% "roperties described in the deed ecept in case of stoc in trade being a substituteJd% After ac'uired property.

Answer *c% "roperties described in the deed ecept in case of stoc in trade being a substitute.

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H2. 6hich phrase best completes the statement(The &eed of Chattel mortgage, if notregistered with the 8egister of &eeds where debtor resides*

a% Is not valid, hence not binding between the mortgagor and the mortgageeJb% Is binding between the mortgagor and the mortgagee but will not affect third partyJc% To be valid between the mortgagor and the mortgagee, it must be coupled with the

delivery of the sub9ect matter of the chattel mortgageJd% Is as if a non@eistent chattel mortgage.

Answer *b% Is binding between the mortgagor and the mortgagee but will not affect third party.

2/. 6hich phrase best completes the statement(To bind third parties, a chattel mortgage of shares of stoc must be registered*

a% 6ith the 8egister of &eeds where the debtor residesJb% 6ith the 8egister of &eeds where the principal office of the corporation isJ

c% In the toc and Transfer Boo of the corporation with the Corporate ecretaryJd% 6ith the 8egister of &eeds where the debtor resides and the principal office of the

corporation.

Answer *d% 6ith the 8egister of &eeds where the debtor resides and the principal office of thecorporation.

21. 6hich phrase best completes the statement(The affidavit of good faith in a &eed of Chattel #ortgage is*

a% An oath where the parties swear that the mortgage is made for the purpose of securingthe obligations specified and that the obligation is 9ust and validJ

b% An affidavit, the absence of which will vitiate the mortgage between the partiesJc% 3ecessary only if the chattel being mortgaged are growing cropsJd% A certification from the mortgagor that he is the mortgagor of the chattel.

Answer *a% An oath where the parties swear that the mortgage is made for the purpose of securing

the obligations specified and that the obligation is 9ust and valid.

2-. M defaulted in his loan with +. + instituted etra@9udicial foreclosure of the property sub9ect to

a real estate mortgage that secured the loan. M has 1 year within which to redeem theproperty. After the foreclosure, M filed an action 'uestioning the validity of the etra@9udicialforeclosure sale. 6hich statement is most accurate)

a% The 1 year period within which to redeem will be interrupted by the filing of an action'uestioning the validity of the foreclosureJ

b% The 1 year period will not be interrupted by the filing of the actionJc% The 1 year period will be etended for another year because of the filing of an action

'uestioning the validity of the foreclosure saleJ

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d% If the action which 'uestions the validity of the foreclose prospers, the period will beinterrupted.

Answer *b% The 1 year period will not be interrupted by the filing of the action.

2. 6hat is the effect if the proceeds in an etra@9udicial foreclosure sale is not sufficient to payfor the obligation)

a% The mortgagee can claim for deficiency 9udgment from the debtorJb% The mortgagee can claim for deficiency 9udgment from the mortgagor even though it is a

third party mortgageJc% The mortgagee has no more recourse or claim against the debtorJd% The mortgagee cannot claim for deficiency 9udgment from the debtor because it!s an

etra9udicial foreclosure.

Answer *

a% The mortgagee can claim for deficiency 9udgment from the debtor.

2<. M mortgaged her residential house and lot in favor of ABC Ban. M defaulted in her loan andso the ban foreclosed the real estate mortgage on the residential house. + then bought theresidential house and lot before the epiration of the redemption period. Can + now taepossession of the property)

a% 3o, because it is still covered by the redemption period and the purchaser is not yetentitled as a matter of right to tae possession of the propertyJ

b% +es, the purchaser is now entitled to the possession of the houseJc% 3o, because there is a need to tal to M to leave the houseJ

d% 3o, because + was not the one who foreclosed the mortgage on the property.

Answer *a% 3o, because it is still covered by the redemption period and the purchaser is not yet

entitled as a matter of right to tae possession of the property

2?. 6hich phrase best completes the statement(6hen a debt is secured by a real estatemortgage, upon default of the debtor*

a% The only remedy of the creditor is to foreclose the real estate mortgageJb% Another remedy is filing an action for collection and then foreclose if collection is not

enoughJc% The creditor can foreclose the mortgage and demand collection for any deficiencyJd% 3one of the above.

Answer *c% The creditor can foreclose the mortgage and demand collection for any deficiency.

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2. M+G Corporation bought 1/ units of onda Civic from CCC Corporation. ABC Ban granteda loan to M+C Corporation which eecuted a financing agreement which provided for theprincipal amount, the installment payments, the interest rates and the due dates. =n duedates of the installment payments, M+G Corporation was ased to pay for some handlingcharges and other fees which were not mentioned in the financing Agreement. Can M+CCorporation refuse to pay the same)

a% 3o, because handling charges and other fees are usual in certain baning transactionsJb% +es, because ABC Ban is re'uired to provide M+G Corporation not only the amount of

the monthly installments but also the details of the finance charges as re'uired by theTruth in Lending ActJ

c% 3o, because the 7inancing Agreement is a valid document to establish the eistence of the obligationJ

d% +es, because legally, finance charges are never allowed in any baning transaction.

Answer *b% +es, because ABC Ban is re'uired to provide M+G Corporation not only the amount of

the monthly installments but also the details of the finance charges as re'uired by the

Truth in Lending Act.

2>. 6hich of the following is an eception to the secrecy of ban deposits which are in the"hilippine "esos, but 3=T an eception to the secrecy of foreign currency deposits)

a% 0pon B" in'uiry into or eamination of deposits or investments with any ban, whenthe in'uiry or eamination is made in the course of the B"!s periodic specialeamination of said ban to ensure compliance with the A#LAJ

b% 0pon "&IC and B" in'uiry into eamination of deposit accounts in case there is afinding of unsafe or unsound baning practiceJ

c% 0pon in'uiry in cases of impeachmentJ

d% 0pon in'uiry by the Commissioner of Internal 8evenue in the event a tapayer files anapplication to compromise his ta liabilities on the ground of financial incapacity.

Answer *c% 0pon in'uiry in cases of impeachment.

2H. The Anti@#oney Laundering Law is a law that sees to prevent money laundering activitiesby providing for more transparency in the "hilippine 7inancial ystem, hence the followinginstitutions are covered by the law, ecept*

a% Ban and any financial institutionsJ

b% "awnshopsJc% Casino operatorsJd% All of the above.

Answer *c% Casino operators.

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22. 7or purposes of determining violation of the provisions of the Anti@#oney Laundering Law, atransaction is considered as a 4uspicious Transaction5 with 4Covered Institutions5regardless of the amount involved, where which the following circumstances eists)

a% The amount involved is not commensurate with the client!s business or financialcapacityJ

b% There is no underlying legal or trade obligation, purpose or economic 9ustificationJc% Client is not properly identifiedJd% All of the above.


1//. The main feature of the 7oreign Investment Act of 1221 is to introduce the concept of 43egative Lists5. 0nder the said law, what is a 43egative List5)

a% It is a list of business activities or enterprises in the "hilippines that foreigners are

dis'ualified to engage inJb% It is a list of business activities or enterprises in the "hilippines that foreigners are

'ualified to engage inJc% It is a list of business activities or enterprises that are open to foreign investments

provided it is with the approval of the Board of Investment.d% It is a list of business activities or enterprises that are open to foreign investments

provided it is with the approval of the C.

Answer *a% It is a list of business activities or enterprises in the "hilippines that foreigners are

dis'ualified to engage in.

ESSAYTYPE QUESTIONS

1. ABC Company filed a "etition for 8ehabilitation with the Court. An =rder was issued by theCourt, $1% staying enforcement of all claims, whether money or otherwise against ABCCompany, its guarantors and sureties not solidarily liable with the companyJ and $-%prohibiting ABC Company from maing payments of its liabilities, outstanding as of the dateof the filing of the petition. M+C Company is a holder of an irrevocable tandby Letter of Credit which was previously procured by ABC Company in favor of M+G Company to secureperformance of certain obligations. In the light of the =rder issued by the Court,

a% Can M+G Company still be able to draw on their irrevocable tandby Letter of Credit

when due) plain your answer.b% plain the nature of Letters of Credit as a financial devise.

Answer *a% +es, as an eception to a tay or uspension =rder included in a Commencement =rder

issued pursuant to ection 1$'% of the 78IA, ection 1H$c% of the said law provides thata tay or uspension =rder shall not apply 4to the enforcement of claims againstsureties and other persons solidarily liable with the debtor, and third party or accommodation mortgagors as well as issuers of letters of credit 5 imilarly,

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assuming that it has not been superseded by the 78IA, ection >$b% of the upremeCourt 8ules of "rocedure on Corporate 8ehabilitation $-//H% provides that a stay order shall not cover claims against letters of credit and similar security arrangements issuedby a third party to secure the payment of the debtor!s obligations. This was the basis of the decision in the case of Metropolitan Waterwors and !ewerage !"stem v. #on.$e"naldo %. &awa"' et al ., F.8. 3o. 1/>-, Dune -1, -//<.

b% A letter of credit is a financial device developed by merchants as a convenient andrelatively safe mode of dealing with sale of goods to satisfy the seemingly irreconcilableinterest of the seller, who refuses to part with his goods before he is paid, and a buyer,who wants to have control of the goods before paying. To brea the impasse, the buyer may be re'uired to contract a ban to issue a letter of credit in favor of the seller so that,by virtue of the letter of credit, the issuing ban can authori:e the seller to draw draftsand engage to pay them upon their presentment simultaneously with the tender of documents re'uired by the letter of credit. The buyer and the seller agree on whatdocuments are to be presented for the payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer. =nce the credit is

established, the seller ships the goods to the buyer and in the process secures there'uired shipping documents or documents of title. To get paid, the seller eecutes adraft and presents it together with the re'uired documents to the issuing ban. Theissuing ban redeems the draft and pays cash to the seller if it finds that the documentssubmitted by the seller conform with what the letter of credit re'uires. The ban thenobtains possession of the documents upon paying the seller. The transaction iscompleted when the buyer reimburses the issuing ban and ac'uires the documentsentitling him to the goods, while the buyer ac'uired the said documents and control over the goods only after reimbursing the ban.

owever, letters of credit are also used in non@sale settings where they serve toreduce the ris of non@performance. Fenerally, letters of credit in non@sale settings have

come to be nown as standby letters of credit.

-. CCC Car, Inc. obtained a loan from BBB Ban, which fund was used to import 1/ units of #ercedes Ben: Class vehicles. 0pon arrival of the vehicles and before the release of saidvehicles to CCC Car, Inc, M and +, the president and treasurer, respectively, of CCC signedthe Trust 8eceipt to cover the value of the 1/ units of #ercedes Ben: class vehicles, after which, the vehicles were all delivered to the car display room of CCC. ales of the vehicleswere slow, and it too a month to dispose the 1/ units. CCC wanted to be in business and tosave on various documentations re'uires by the ban, decided that instead of turning over the proceeds of the sales, CCC used the proceeds to buy another 1/ units of B#6 series.

a% Is the action of CCC legally 9ustified)b% 6ill the corporate officers of CCC be held liable under the circumstances) plain your

answer.

Answer *a% 3o. It is the obligation of CCC, as entrustee, to receive the proceed of the sale of the

#ercedes Ben: class vehicles in trust for BBB Ban, as entruster, and turn over thesame to BBB Ban to the etent of the amount owing to the latter or as appears in thetrust receipt.

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b% +es, particularly the president and the treasurer of CCC who both signed the trustreceipts in the problem. ection 1 of the Trust receipts Law provides that if the violationor offense is committed by a corporation, partnership, association, or other 9uridicalentity, the penalty provided for in the law shall be imposed upon the directors, officers,employees or other officials or persons therein responsible for the offense, without

pre9udice to the civil liabilities arising from the criminal offense.

. M borrowed money from + in the amount of "1 # and as payment, issued a chec. + thenendorsed the chec to his sister G for no consideration. 6hen G deposited the chec to her account, the chec was dishonored for insufficiency of funds.

a% Is G a holder in due course) plain your answer.b% 6ho is liable on the chec) The drawer or the indorser) plain your answer.

Answer *a% G is not a holder in due course. he did not give any valuable consideration for the

chec. To be a holder in due course, the holder must have taen the chec in good faith

and for value.

b% M, the drawer, will be liable. As drawer, M engaged that on due presentment the checwould be paid according to its tenor and that if it is dishonored and he is given notice of dishonor, he will pay the amount to the holder. 3o notice of dishonor need be given to Mif he is aware that he has insufficient funds in his account. 0nder ection 11<$d% of the3IL, notice of dishonor is not re'uired to be given to the drawer where he has no right toepect that the drawee will honor the instrument.

G cannot hold +, the endorser, liable as the latter can raise the defense that therewas no valuable consideration for the endorsement of the chec.

<. Indicate and eplain whether the promissory note is negotiable or non@negotiable.

a% I promise to pay A or bearer "1//,/// from my inheritance which I will get after thedeath of my father.

b% I promise to pay A or bearer "1//,/// plus the interest rate of 2/(day treasury bills.c% I promise to pay A or bearer "1//,/// if A passes the -/1- bar eams.d% I promise to pay A or bearer "1//,/// on or before &ecember /, -/1-.e% I promise to pay A or bearer "1//,///.

Answer *a% 3ot negotiable. There is no unconditional promise to pay a sum certain in money as the

promise is to pay the amount out of a particular funds, i.e., the inheritance from thefather of the promisor.

b% 3ot negotiable. There is no unconditional promise to pay a sum certain in money. Thepromise to pay 4the interest rate of 2/(day treasury bills5 is vague because, first, thereare no 2/(day treasury billsJ second, the promise does not specify whether the so@called 4interest rate5 is that established at the primary maret $where new T@bills are soldfor the first time by the Bureau of Treasury% or at the secondary maret $where T bill canbe bought and sold after they have been issued in the primary maret%J and third, T@billsare conventionally 'uoted in terms of their discount rate, rather than their interest rate.

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They do not pay any interest directlyJ instead, they are sold at a discount of their facevalue and thus 4earn5 by selling at face value upon maturity.

c% 3ot negotiable. The promise to pay is sub9ect to a condition, i.e., that A will pass the-/1- bar eams.

d% 3egotiable. It conforms fully with the re'uirements of negotiability under ection 1 of 3IL.

e% 3egotiable. It conforms fully with the re'uirements of negotiability under ection 1 of 3IL. It is payable on demand because the note does not epress a time for its payment.

?. M borrowed from CCC Ban. he mortgaged her house and lot in favor of the ban. Minsured her house. The ban also got the house insured.

a% Is this double insurance) plain your answer.b% Is this legally valid) plain your answer.c% In case of damage, can M and CCC ban separately claim for the insurance proceeds)

Answer *

a% 3o, there is no double insurance. &ouble insurance eists where the same person isinsured by several insurers separately with respect to the same sub9ect and interest.

b% +es, M and CCC Ban can both insure the house as they have different insurableinterests therein. M, the borrower@mortgagor, has an insurable interest in the house beingthe owner thereof while CCC Ban, the lender, also has an insurable interest in thehouse as mortgagee thereof.

c% +es. If M obtained an open policy then she could claim an amount corresponding to theetent of the damage based on the value of the house determined as of the date thedamaged occurred, but not to eceed the face value of the insurance policyJ however, if she obtained a valued policy then she could claim an amount corresponding to the

etent of the damage based on the agreed upon valuation of the house.

As for CCC Ban, it could claim an amount corresponding to the etent of the damagebut not to eceed the amount of the loan it etended to M or so much thereof as mayremain unpaid.

. M is a 7ilipino immigrant residing in acramento, California. + is a 7ilipino residing ue:onCity. G is a resident alien residing in #aati City. FFF Corporation is a domestic corporation(</K owned by foreigners and /K owned by 7ilipinos, with T as authori:edrepresentative. CCC Corporation is a foreign corporation registered with the "hilippinesC, EEE Corporation is a domestic corporation $1//K% 7ilipino owned. is a 7ilipino, 1

years of age, and daughter of +.

a% 6ho can be incorporators) 6ho can be subscribers)b% 6hat are the differences between an incorporator and a subscriber, if there are any)c% 6ho are 'ualified to become members of the board of directors of the corporation)d% 6ho are 'ualified to act as Treasurer of the company)e% 6ho can be appointed Corporate ecretary)

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Answer *a% M, +, G and T could all be incorporators and subscribers. 3ote, however, that ection 1/

of the Corporation Code re'uires that there must be at least ? but not more than 1?incorporators $who must all be natural persons% and that a ma9ority of the incorporatorsmust be residents of the "hilippines. , being a minor, could neither be an incorporator nor a subscriber. FFF Corporation, CCC Corporation, and EEE Corporation could not

be incorporators as they are not natural persons. owever, they could be subscribers.

b% ome of the differences are as follows* first, all the incorporators are re'uired to signand acnowledge the Articles of Incorporation while the subscribers, as such, are notsub9ect to the same re'uirementJ second, the incorporators are all re'uired to be naturalpersons while the subscribers could either be natural or 9uridical personsJ and third, thenumber of incorporators cannot eceed 1? while the number of subscribers could bemore than 1? $sub9ect to compliance, in the appropriate cases, with the re'uirements of the 8C%.

c% M, +, G and T could be directors $sub9ect to the residency re'uirement mentioned in $a%above and any nationality re'uirement under the law governing the business of the

corporation% but not FFF Corporation, CCC Corporation, and EEE Corporation as theyare not natural persons. owever, the aforementioned corporations could have their respective representatives nominated and possibly elected as directors by thestocholders. ach director must own at least one share of the capital stoc of thecorporation.

d% The Corporation Code does not impose any nationality or residency re'uirement inrespect of the Treasurer. Any such re'uirement or any other reasonable re'uirementmay be adopted by the corporation and reflected in its by@laws, or re'uired by the law$s%governing the business of the corporation or a law of general application $e.g., the Anti@&ummy Law which applies to all nationali:ed businesses%. Accordingly, anybody with the'ualifications re'uired under the by@laws of the corporation or under the law$s% governing

the business of the corporation, could be elected Treasurer by the Board of &irectors.owever, the Treasurer could not be "resident at the same time.

e% The ecretary is re'uired to be both a resident and a citi:en of the "hilippines.

>. M obtained a loan for "?/ # from Ban. The collateral is his vacation house in BaguioCity under a real estate mortgage. M needed more funds for his business so he againborrowed another "1/ #, this time from BBB Ban, another ban, using the same collateral.The loan secured from Ban fell due and M defaulted.

a% If Ban forecloses the real estate mortgage, what rights, if any, are left with BBB

Ban as mortgagee also)b% If the value of the Baguio property is less than the amount of loan, what would be the

recourse of ban) BBB Ban)c% If the value of the property is more that the amount of the loan, who will benefit from the

ecess value of the property)d% If M defaulted with its loan in favor of BBB Ban but fully paid his loan with Ban,

can BBB foreclose the real mortgage eecuted in its favor)e% &oes M have any legal remedy after the foreclosure in the event that later on he has the

money to pay for the loan)

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f% If Ban and BBB Ban abandoned their rights under the real estate mortgage, isthere any legal recourse available to them)

Answer *

a% BBB Ban, as 9unior mortgagee, would have a right to redeem the foreclosed property,together with M, his successors in interest, any 9udicial or 9udgment creditor of M, or anyother person or entity having a lien on the vacation house subse'uent to the real estatemortgage in favor of Ban.

b% In case of a deficiency, Ban could file suit to claim for the deficiency. BBB Bancould file an ordinary action to collect its loan from M. if it does so, it would be deemed tohave waived it mortgage lien. If the 9udgment in the action to collect is favorable to BBBBan, and it becomes final and eecutor, BBB Ban could enforce the said 9udgment byeecution. It could even levy eecution on the same mortgaged property, but it would nothave priority over the latter.

c% If the value of the property is more than the amount of the loan, the ecess could benefitand be claimed by BBB Ban, any 9udicial or 9udgment creditor of M, any other 9unior mortgagee, and M.

d% If M defaulted in respect of his loan from BBB Ban but fully paid his loan from Ban, BBB Ban could now foreclose the mortgaged property as it would be the onlyremaining mortgagee of the same.

e% +es, M could redeem the property within 1 year from the date of registration of thesheriff!s certificate of foreclosure sale.

f% Ban and BBB Ban could each file an ordinary action to collect its loan from M.

H. M obtained a "1/ # loan from BBB Baning Corporation. The loan is secured by 8# onhis vacation house in Tagaytay City. The original &eed of 8# for the "1/ # was dulyregistered. The &eed of 8# also provides that 4The mortgagor also agrees that thismortgage will secure the payment of additional loans or credit accommodations that may begranted by the mortgageeQ5 ubse'uently, because he needed more funds, he obtainedanother "? # loan. =n due dates of both loans, M failed to pay the "? # but fully paid the"1/ #. BBB Baning Corporation instituted etra9udicial foreclosure proceedings.

a% 6ill the etra9udicial foreclosure prosper considering that the additional "? # was notcovered by the registration)

b% 6hat is the meaning of a 4dragnet clause5 in a &eed of 8eal state #ortgage) 0nder what circumstances will be 4dragnet clause5 applicable)

Answer *a% +es. M eecuted a 8# containing a 4blanet mortgage clause5. #ortgages given to

secure future advancements are valid and legal contracts, and the amounts names asconsideration in said contracts do not limit the amount for which the mortgage may standas security if from the four corners of the instrument the intent to secure future and other indebtedness.

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b% Fenerally, a dragnet clause is a clause in a deed of 8# stating that the mortgagesecures all the loans and advances that the mortgagor may at any time owe to themortgagee. The word 4dragnet5 is a reference to a net drawn through a river or acrossground to trap fish or game. It is also nown in American 9urisprudence as a 4blanetmortgage clause5 or an 4anaconda clause5. A mortgage with a dragnet clause enables

the parties to provide continuous dealings, the nature or etent of which may not benown or anticipated at the time, and they avoid the epense and inconvenience of eecuting a new security on each new transaction. It operates as a convenience andaccommodation to the borrower as it maes available additional funds to him without hishaving to eecute additional security documents, thereby saving time, travel, costs of etra legal services, recording fees, etc.

The 4dragnet clause5 may not apply to other loans etended by the mortgagee to themortgagor for which other securities were given. In the case of "rudential Ban v. Alviar,the upreme Court adopted the 4reliance on the security test5 to the effect that 4when themortgagor taes another loan Rfrom the mortgageeS for which another security wasgiven, it could not be inferred that such loan was made in reliance solely on the original

security with the 4dragnet clause5, but rather, on the new security given5. This meansthat the eistence of the new security must be respected and the foreclosure of the oldsecurity should only be for the other loans not separately collaterali:ed and for anyamount not covered by the new security for the new loan.

2. A, B, C, &, , are all duly elected members of the Board of &irectors of M+G Corporation. 7,the general manager, entered into a supply contract with an American firm. The contract wasduly approved by the Board of &irectors. owever, with the nowledge and consent of 7, nodeliveries were made to the American firm. As a result of the non@delivery of the promisedsupplies, the American firm incurred damages. The American firm would lie to file a suit for damages. The American firm would lie to file a suit for damages. Can the American firm

sue*

a% The members of the Board of &irectors individually, because they approved thetransaction)

b% The corporation)c% 7, the general manager, personally, because the non@delivery was with his nowledge

and consent)d% plain the rules on liabilities of a corporation for the act of its corporation officers and

the liabilities of the corporate officers and Board of &irectors of a corporation acting inbehalf of the corporation.

Answer *

a% 3o. in approving the transaction, the directors were not acting in their personalcapacities but rather on behalf of M+G Corporation eercising the powers of thecorporation and conducting its business. The problem contains no facts that wouldindicate that the directors acted otherwise.

b% +es. The Board approved the supply contract and the Feneral #anager entered into thecontract, both of them acting on behalf of the M+G Corporation.

c% +es, 7 could be sued in his personal capacity because he nowingly consented to thenon@delivery of the promised supplies contrary to the contract that was duly approved by

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the Board of &irectors. The problem does not indicate any circumstance that wouldecuse or favorably eplain the action of 7.

d% A corporation would be liable for the acts of its Board of &irectors and officers if the saidacts were performed by them in accordance with the powers granted to them under theCorporation Code, the articles of incorporation and by@laws of the corporation, the lawsand regulations governing the business of, or otherwise applicable to, the corporation,

and, in the case of officers, the resolution approved by the Board of &irectors.

As the directors have a personality separate from that of the corporation, they would bepersonally liable only if they acted willfully and nowingly vote for or assent to a patentlyunlawful act of the corporation, or when they are guilty of gross negligence or bad faith indirecting the affairs of the corporation, or when they ac'uire any personal or pecuniaryinterest in conflict with their duty as directors, which acts result in damages to thecorporation, its stocholders or other persons, when they agree to hold themselvespersonally and solidarily liable with the corporation, or when they are made, by a specificprovision of law, to personally answer for the corporate action.

1/. AAA Corporation is a ban. The operations of AAA Corporation as a ban were not doingwell. o, to avert any ban run, AAA Corporation, with the approval of the #onetary Board,sold all its assets and liabilities to BBB Baning Corporation which includes all depositsaccounts. In effect then, BBB Corporation will service all deposits of AAA Corporation.

a% 6ill the sale of all assets and liabilities of AAA Corporation to BBB Baning Corporationautomatically dissolve or terminate the corporate eistence of AAA Corporation) plainyour answer.

b% 6hat are the legal re'uirements in order that a corporation may be dissolved)

Answer *a% 3o, the sale of all the assets and liabilities of AAA Corporation to BBB Baning

Corporation will not result in the automatic dissolution or termination of the eistence of the former. A decision to dissolve AAA Corporation or to terminate its corporate eistencewould re'uire a separate approval by a ma9ority of the Board of &irectors of AAACorporation and its stocholders holding at least -; of the total outstanding capitalstoc, as well as the separate approval by the #onetary Board.

b% A corporation may be dissolved voluntarily under ection 11H $where no creditors areaffected% or under ection 112 $where creditors are affected% or by shortening of thecorporate term under ection 1-/, or involuntarily by the C under ection 1--, all of the Corporation Code. &issolution under ections 11H, 112, and 1-/ re'uire the samecorporate approvals stated in $a% above.

The C has the authority under ection of "& 2/-@A to revoe the certificate of registration of a corporation upon any grounds provided by law, including theaforementioned ection @A.

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SET A

1. " rode a entinel Liner bus going to Baguio from #anila. At a stop@over in Tarlac, the busdriver, the conductor, and the passengers disembared for lunch. " decided, however, to

remain in the bus, the door of which was not loced. At this point, , a vendor, sneaed intothe bus and offered " some refreshments. 6hen " rudely declined, attaced him,resulting in " suffering from bruises and contusions. &oes he have cause to sue entinelLiner)

a. +es, since the carrier!s crew did nothing to protect a passenger who remained in the busduring the stop@over.

b. 3o, since the carrier!s crew could not have foreseen the attac.c. +es, since the bus is liable for anything that goes wrong in the course of the trip.d. 3o, since the attac on " too place when the bus was at a stop@over.

Answer!

a. +es, since the carrier!s crew did nothing to protect a passenger who remained in the busduring the stop@over.

-. A cargo ship of M hipping Co. ran aground off the coast of Cebu during a storm and lost allits cargo amounting to "?/ #. the ship itself suffered damages estimated at "H/ #. thecargo owners filed a suit against M hipping but it invoed the doctrine of limited liabilitysince it vessel suffered an "H/ # damage, more than the collective value of all lost cargo. IsM hipping correct)

a. +es, since under the doctrine, the value of the lost cargo and the damage to the ship canbe set@off.

b. 3o, since each cargo owner has a separate and individual claim for damages.c. +es, since the etent of the ship!s damage was greater than that of the value of the lost

cargo.d. 3o, since M hipping neither incurred a total loss nor abandoned its ship.

Answer!d. 3o, since M hipping neither incurred a total loss nor abandoned its ship.

. A writes a promissory note in favor of his creditor, B. it says* ub9ect to my option, I promiseto pay B "1 # or his order to give "1 # worth of cement or to authori:e him to sell myhouse worth "1 #. signed, A.5 Is the note negotiable)

a. 3o, because the eercise of the option to pay lies with A, the maer and debtor.b. 3o, because it authori:es the sale of collateral securities in case the note is not paid at

maturity.c. +es, because the note is really payable to B or his order, the other provisions being

merely optional.d. +es, because an election to re'uire something to be done in lieu of payment of money

does not affect negotiability.

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Answer *a. 3o, because the eercise of the option to pay lies with A, the maer and debtor.

<. ABC Corp. increased its capital stocs from "1/ # to "1? # and, in the process, issued1,/// new shares divided into Common hares 4B5 and common shares 4C5. T, a

stocholder owning ?// shares, insists on buying the newly issued shares through a right of pre@emption. The company claims, however, that its By@laws deny T any right of pre@emption. Is the corporation correct)

a. 3o, since the by@laws cannot deny a shareholder his right of [email protected]. +es, but the denial of his pre@emptive right etends only to ?// shares.c. +es, since the denial of the right under the By@laws is binding on T.d. 3o, since pre@emptive rights are governed by the articles of incorporation.

Answer *a. 3o, since the by@laws cannot deny a shareholder his right of pre@emption.

?. # maes a promissory note that states* 4I, #, promise to pay "?,///.// to B or bearer.igned, #.5 # negotiated the note by delivery to B, B to 3, 3 to =. B had nown that # wasbanrupt when # issued the note. 6ho would be liable to =)

a. # and 3 sine they may be assumed to now of #!s banruptcy.b. 3, being =!s immediate negotiator of a bearer note.c. B, #, and 3, being indorsers by delivery of a bearer note.d. B, having nown of #!s banruptcy.

Answer *b. 3, being =!s immediate negotiator of a bearer note.

. delivered 1/ boes of cellphones to Tre Bus Liner, for transport from #anila to Ilocos ur on the following day, for which paid the freightage. #eanwhile, the boes were stored inthe bus liner!s bodega. That night, however, a robber broe into the bodega and stole !sboes. sues Tre Bus Liner for contractual breach but the latter argues that has nocause of action based on such breach since the loss occurred while the goods awaitedtransport. 6ho is correct)

a. The bus liner since the goods were not lost while being transported.b. since the goods were unconditionally placed with T for transportationc. since the freightage for the goods had been paid.

d. The bus liner since the loss was due to a fortuitous event.

Answer *b. since the goods were unconditionally placed with T for transportation.

>. M Corp. operates a call center that received orders for pi::as on behalf of + Corp. whichoperates a chain of pi::a restaurants. The two companies have the same set of corporateofficers. After - years, M Corp. dismissed its call center agents for no apparent reason. The

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agents filed a collective suit for illegal dismissal against both M Corp. and + Corp. based onthe doctrine of piercing the veil of corporate fiction. The latter set up a defense that theagents are in the employ of M Corp. which is a separate 9uridical entity. Is the defenseappropriate)

a. 3o, since the doctrine would apply, the two companies having the same set of corporate

officers.b. 3o, the real employer is + Corp., the pi::a company, with M Corp. serving as an arm for

receiving its outside orders for pi::as.c. +es, it is not shown that one company completely dominates the finances, policies, and

business practices of the latter.d. +es, since the two companies perform two distinct businesses.

Answer *c. +es, it is not shown that one company completely dominates the finances, policies, and

business practices of the latter.

H. A negotiable instrument can be indorsed by way of a restrictive indorsement, which prohibitsfurther negotiation and constitutes the indorsee as agent of the ondorser. As agent, theindorsee has the right, among others, to*

a. &emand payment of the instrument only.b. 3otify the drawer of the payment of the instrument.c. 8eceive payment of the instrument.d. Instruct that payment be made to the drawee.

Answer *c. 8eceive payment of the instrument.

2. 0nder the 3IL, a signature by the procuration operates as a notice that the agent has but alimited authority to sign. Thus, a person who taes a bill that is drawn, accepted, or indorsedby procuration is duty@bound to in'uire into the etent of the agent!s authority by*

a. amining the agent!s special power of attorney.b. amining the bill to determine the etent of such authority.c. Asing the agent about the etent of such authority.d. Asing the principal about the etent of such authority.

Answer *b. amining the bill to determine the etent of such authority.

1/. 0nder the 3IL, if the holder has a lien on the instrument which arises either from a contractor by implication of law, he would be a holder for value to the etent of

a. is successor!s interest.b. is predecessor!s interest.c. The lien in his favor.d. The amount indicated on the instrument!s face.

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Answer *c. The lien in his favor.

11. The liability of a common carrier for the goods it transports begins from the time of

a. Conditional receipt.b. Constructive receipt.c. Actual receipt.d. ither actual or constructive receipt.

Answer *d. ither actual or constructive receipt.

1-. =n M!s failure to pay his loan to ABC Ban, the latter foreclosed the 8eal state #ortgagehe eecuted in its favor. The auction sale was set for &ec. 1, -/1/ with the notices of sale

published as the law re'uired. The sale was, however, cancelled when &ec. 1, -/1/ wasdeclared a holiday and rescheduled to Dan. 1/, -/11 without republication of notice. Theauction sale then proceeded on the new date. 0nder the circumstance, the auction sale is

a. 8escissible.b. 0nenforceable.c. oid.d. oidable.

Answer *c. oid.

1. M eecuted a promissory note with a face value of "?/,///, payable to the order of +. +indorsed the note to G, to whom + owed "/,///. If M has no defense at all against +, for how much may G collect from M)

a. "-/,///, as he is a holder for value to the etent of the difference between +!s debt andthe value of the note.

b. "/,///, as he is a holder for value to the etent of his lien.c. "?/,///, but with the obligation to hold "-/,/// for +!s benefit.d. 3one, as G!s remedy is to run after his debtor, +.

Answer *

c. "?/,///, but with the obligation to hold "-/,/// for +!s benefit.

1<. 0nder the Anti@#oney Laundering Law, a covered institution is re'uired to maintain asystem of verifying the true identity of their clients as well as persons purporting to act onbehalf of

a. Those doing business with such clients.b. 0nnown principals.

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c. The covered institution.d. uch clients.

Answer *d. uch clients.

1?. It is settled that neither par value nor boo value is an accurate indicator of the fair value of a share of stoc of a corporation. As to unpaid subscriptions to its shares of stoc, as theyare regarded as corporate assets, they should be included in the

a. Capital value.b. Boo valuec. "ar value.d. #aret value.

Answer *b. Boo value.

1. " sold to # 1/ grams of shabu worth "?,///. As he had no money at the time of the sale, #wrote a promissory note promising to pay " or his order "?,///. " then indorsed the note toM $who did not now about the shabu%, and M to +. 0nable to collect from ", + then sued Mon the note. M set up the defense of illegality of consideration. Is he correct)

a. 3o, since M, being a subse'uent indorser, warrants that the note is valid and subsisting.b. 3o, since M, a general indorser, warrants that the note is valid and subsisting.c. +es, since a void contract does not give rise to any right.d. +es, since the note was born of an illegal consideration which is real defense.

Answer *

b. 3o, since M, a general indorser, warrants that the note is valid and subsisting.

1>. In a contract of carriage, the common carrier I liable for the in9ury or death of a passenger resulting from its employee!s fault although the latter acted beyond the scope of hisauthority. This is based on the

a. 8ule that the carrier has an implied duty to transport the passenger safely.b. 8ule that the carrier has an epress duty to transport the passenger safely.c. &octrine of 8espondeat uperior.d. 8ule in culpa a'uiliana.

Answer *a. 8ule that the carrier has an implied duty to transport the passenger safely.

1H. A holder in due course holds the instrument free from any defect of title of prior parties andfree from defenses available to prior parties among themselves. An eample of suchdefense is@

a. 7raud in inducement.

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b. &uress amounting to forgery.c. 7raud in esse contractus.d. Alteration.

Answer *a. 7raud in inducement.

12. In elections for the Board of Trustees of non@stoc corporations, members may cast asmany votes as there are trustees to be elected but may not cast more than one vote for onecandidate. This is true@

a. 0nless set aside by the members in a plenary session.b. In every case even if the Board of Trustees resolves otherwise.c. 0nless otherwise provided in the Articles of Incorporation or in the [email protected]. In every case even if the ma9ority of the members decide otherwise during the elections.

Answer *

c. 0nless otherwise provided in the Articles of Incorporation or in the By@laws.

-/. The rule is that valuation of the shares of a stocholder who eercises his appraisal rights isdetermined as of the day prior to the date on which the vote was taen. This is true@

a. 8egardless of any depreciation or appreciation in the share!s fair value.b. 8egardless of any appreciation in the share!s fair value.c. 8egardless of any depreciation in the share!s fair value.d. =nly if there is no appreciation or depreciation in the share!s fair value.

Answer *

a. 8egardless of any depreciation or appreciation in the share!s fair value.

-1. T hipping, Co. insured all of its vessels with 8 insurance, Co. The insurance policiesstated that the insurer shall answer for all damages due to perils of the sea. =ne of theinsured!s ship, the # &on "riscilla, ran aground in the "anama Canal when its enginepipes leaed and the oil seeped into the cargo compartment. The leaage was caused bythe etensive mileage that the ship had accumulated. #ay the insurer be made to answer for the damage to the cargo and the ship)

a. +es, because the insurance policy covered any or all damage arising from perils of thesea.

b. +es, since there appears to have been no fault on the part of the shipowner and shipcaptain.

c. 3o, since the proimate cause of the damage was the breach of warranty of seaworthiness of the ship.

d. 3o, since the proimate cause of the damage was due to ordinary usage of the ship, andthus not due to perils of the sea.

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Answer *d. 3o, since the proimate cause of the damage was due to ordinary usage of the ship, andthus not due to perils of the sea.

--. M has been a long@time household helper of G. M!s husband, +, has also been G!s long@time

driver. #ay G insure the lives of both M and + with G as beneficiary)

a. +es, since M and + render services to G.b. 3o, since M and + have no pecuniary interest on the life of G arising from their

employment with him.c. 3o, since G has no pecuniary interest in the lives of M and + arising from their

employment with him.d. +es, since M and + are G!s employees.

Answer *c. 3o, since G has no pecuniary interest in the lives of M and + arising from their employment with him.

-. M, Co. a partnership, is composed of A $capitalist partner%, B $capitalist partner% and C$industrial partner%. If you were partner A, who between B and C would you have aninsurable interest on, such that you may then insure him)

a. 3o one, as there is merely a partnership contract among A, B and C.b. Both B and C, as they are your partners.c. =nly C, as he is an industrial partner.d. =nly B, as he is a capitalist partner.

Answer *

b. Both B and C, as they are your partners.

-<. M is the holder of an instrument payable to him $M% or his order, with + as maer. M thenindorsed it as follows* 4ub9ect to no recourse, pay to G. igned, M.5 6hen G went to collectfrom +, it turned out that +!s signature was forged. G now sues M for collection. 6ill itprosper)

a. +es, because M, as a conditional indorser, warrants that the note is genuine.b. +es, because M, as a 'ualified indorser, warrants that the note is genuine.c. 3o, because M made a 'ualified indorsement.d. 3o, because a 'ualified indorsement does not include the warranty of genuineness.

Answer *b. +es, because M, as a 'ualified indorser, warrants that the note is genuine.

-?. A bill of echange has T for its drawee, 0 as drawer, and 7 as holder. 6hen 7 went to T for presentment, 7 learned that T is only 1? years old. 7 wants to recover from 0 but the latter insists that a notice of dishonor must first be made the instrument being a bill of echange.Is he correct)

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a. +es, since a notice of dishonor is essential to charging the drawer.b. 3o, since T can waive the re'uirement of notice of dishonor.c. 3o, since 7 can treat 0 as maer due to minority of T, the drawee.d. +es, since in a bill of echange, notice of dishonor is at all times re'uired.

Answer *c. 3o, since 7 can treat 0 as maer due to minority of T, the drawee.

-. An insured, who gains nowledge of a material fact already after the effectivity of theinsurance policy, is not obliged to divulge it. The reason for this is that the test of concealment of material fact is determined.

a. At the time of the issuance of the policy.b. At any time before the payment of premium.c. At the time of the payment of the premium.d. At any time before the policy becomes effective.

Answer *d. any time before the policy becomes effective.

->. T, the captain of # &on Alan, while asleep in his cabin, dreamt of an Intensity Hearth'uae along the path of his ship. =n waing up, he immediately ordered the ship toreturn to port. True enough, the earth'uae and tsunami struc days later and the shipwas saved. 6as the deviation proper)

a. +es, because the deviation was made in good faith and on reasonable ground for believing that it was necessary to avoid a peril.

b. 3o, because no reasonable ground for avoiding a peril eisted at the time of thedeviation.

c. 3o, because T relied merely on his supposed gift of prophecy.d. +es, because the deviation too place based on a reasonable belief of the captain.

Answer *b. 3o, because no reasonable ground for avoiding a peril eisted at the time of the

deviation.

-H. M, drawee of a bill of echange, wrote the words* 4Accepted, with promise to mae paymentwithin two day. igned, M.5 The drawer 'uestioned the acceptance as invalid. Is the

acceptance valid)

a. +es, because the acceptance is in reality a clear assent to the order of the drawer to pay.b. +es, because the form of the acceptance is really immaterial.c. 3o, because the acceptance must be a clear assent to the order of the drawer to pay.d. 3o, because the document must not epress that the drawee will perform his promise

within two days.

Answer *

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a. +es, because the acceptance is in reality a clear assent to the order of the drawer to pay.

-2. M came up with a new way of presenting a telephone directory in a mobile phone, which hedubbed as the 4iTel5 and which uses lesser time for locating names and telephone numbers.#ay M have his 4iTel5 copyrighted in his name)

a. 3o, because it is a mere system or method.b. +es, because it is an original creation.c. +es, because it entailed the application of M!s intellect.d. 3o, because it did not entail any application of M!s intellect.

Answer *a. 3o, because it is a mere system or method.

/. &, debtor of C, wrote a promissory note payable to the order of C. C!s brother, #,misrepresenting himself as C!s agent, obtained the note from &, then negotiated it to 3 after

forging C!s signature. 3 indorsed it to , who indorsed it to 7, a holder in due course. #ay 7recover from )

a. 3o, since the forgery of C!s signature results in the discharge of .b. +es, since only the forged signature is inoperative and is bound as indorser.c. 3o, since the signature of C, the payee, was forged.d. +es, since the signature of C is immaterial, he being the payee.

Answer *b. +es, since only the forged signature is inoperative and is bound as indorser.

1. A material alteration of an instrument without the assent of all parties liable thereon resultsin its avoidance, MC"T against a

a. "rior indorsee.b. ubse'uent acceptor.c. ubse'uent indorser.d. "rior acceptor.

Answer *c. ubse'uent indorser.

-. M constituted a chattel mortgage on a car $valued at "1 #% to secure a "?//,/// loan. 7or the mortgage to be valid, M should have

a. The right to mortgage the car to the etent of half its value.b. =wnership of the car.c. 0n'ualified free disposal of his car.d. 8egistered the car in his name.

Answer *

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c. 0n'ualified free disposal of his car.

. B borrowed "1 # from L and offered to him his B#6 car worth "1 # as collateral. B theneecuted a promissory note that reads* 4I, B, promise to pay L or bearer the amount of "1 #and to eep my B#6 car $loan collateral% free from any other encumbrance. igned, B.5 Is

this note negotiable)

a. +es, since it is payable to bearer.b. +es, since it contains an unconditional promise to pay a sum certain in money.c. 3o, since the promise to 9ust pay a sum of money is unclear.d. 3o, since it contains a promise to do an act in addition to the payment of money.

Answer *d. 3o, since it contains a promise to do an act in addition to the payment of money.

<. A ban can be placed under receivership when, if allowed to continue in business, its

depositors or creditors would incur

a. "robable lossesb. Inevitable lossesc. "ossible lossesd. A slight chance of losses

Answer *a. "robable losses

?. 7F 7oundation, Inc., a non@profit organi:ation, scheduled an election for its si@member

Board of Trustees. M, + and G, who are minority members of the foundation, wish to eercisecumulative voting in order to protect their interest, although the 7oundation!s Articles and By@laws are silent on the matter. As to each of the three, what is the maimum number of votesthat he;she can cast)

a. b. 2c. 1-d.

Answer *a.

. If the drawer and the drawee are the same person, the holder may present the instrumentfor payment without need of a previous presentment for acceptance. In such case, theholder treats it as a

a. 3on@negotiable instrument.b. "romissory note.c. Letter of credit.

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d. Chec.

Answer *b. "romissory note.

>. & draws a bill of echange that states* 4=ne month from date, pay to B or his order "1//,///. igned, &.5 The drawee named in the bill is . B negotiated the bill to #, # to 3,3 to =, and = to ". &ue to non@acceptance and after proceedings for dishonor were made," ased = to pay, which = did. 7rom whom may = recover)

a. B, being the payee.b. 3, as indorser to =.c. , being the drawee.d. &, being the drawer.

Answer *d. &, being the drawer.

H. T, an associate attorney in M+G Law =ffice, wrote a newspaper publisher a letter disputing acolumnist!s claim about an incident in the attorney!s family. T used the law firm!s letterheadand its computer in preparing the letter. T also re'uested the firm!s messenger to deliver theletter to the publisher. 6ho owns the copyright to the letter)

a. T, since he is the original creator of the contents of the letter.b. Both T and the publisher, one wrote the letter to the other who has possession of it.c. The law office since it was an employee and he wrote it on the firm!s letterhead.d. The publisher to whom the letter was sent.

Answer *a. T, since he is the original creator of the contents of the letter.

2. received goods from T for display and sale in !s store. was to turn over to T theproceeds of any sale and return the ones unsold. To document their agreement, eecuteda trust receipt in T!s favor covering the goods. 6hen failed to turn over the proceeds fromthe sale of the goods or return the ones unsold despite demand, he was charged in court for estafa. moved to dismiss on the ground that his liability is only civil. Is he correct)

a. 3o, since he committed fraud when he promised to pay for the goods and did not.b. 3o, since his breach of the trust receipt agreement sub9ects him to both civil and criminal

liability for estafa.c. +es, since cannot be charged with estafa over goods covered a trust receipt.d. +es, since it was merely a consignment sale and the buyer could not pay.

Answer *b. 3o, since his breach of the trust receipt agreement sub9ects him to both civil and criminal

liability for estafa.

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</. The authori:ed alteration of a warehouse receipt which does not change its tenor rendersthe warehouseman liable according to the term of the receipt.

a. In its original tenor if the alteration is material.b. In its original tenor.c. As altered if there is fraud.

d. As altered.

Answer *b. In its original tenor.

<1. Any agreement binding upon the holder to etend the time of payment or to postpone theholder!s right to enforce the instrument results in the discharge of the party secondarily liableunless made with the latter!s consent. This agreement refers to one which the holder madewith the

a. "rincipal debtor

b. "rincipal creditor c. econdary creditor d. econdary debtor

Answer *a. "rincipal debtor

<-. 0pon eecution of a trust receipt over goods, the party who is obliged to release suchgoods and who retains security interest on those goods, is called the

a. older.

b. hipper.c. ntrustee.d. ntrustor.

Answer *d. ntrustor.

<. M, warehouseman, sent a tet message to +, to whom M had issued a warehouse receipt for +!s ?// sacs of corn, notifying him of the due date and time to settle the storage fees. Themessage stated also that if + does not settle the warehouse charges within 1/ days, he willadvertise the goods for sale at a public auction. 6hen + ignored the demand, M sold 1//

sacs of corn at a public auction. 7or M!s failure to comply with the statutory re'uirement of written notice to satisfy his lien, the sale of the 1// sacs of corn is

a. oidable.b. 8escissible.c. 0nenforceable.d. oid.

Answer *

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d. oid.

<<. =n Dune 1, -/11, M mailed to + Insurance, Co. his application for life insurance, withpayment for ? years of premium enclosed in it. =n Duly -1, -/11, the insurance companyaccepted the application and mailed, on the same day, its acceptance plus the cover note. It

reached M!s residence on August 11, -/11. But, as it happened, on August <, -/11, M figuredin a car accident. e died a day later. #ay M!s heir recover on the insurance policy)

a. +es, since under the Cognition Theory, the insurance contract was perfected uponacceptance by the insurer of M!s application.

b. 3o, since there is no privity of contract between the insurer and M!s heirs.c. 3o, since M had no nowledge of the insurer!s acceptance of his application before he

died.d. +es, since under the #anifestation Theory, the insurance contract was perfected upon

acceptance of the insurer of M!s application.

Answer *

c. 3o, since M had no nowledge of the insurer!s acceptance of his application before hedied.

<?. A bill of echange has & as drawer, as drawee and 7 as payee. The bill was thenindorsed to F, F to , and to I, the current holder presented the bill to for acceptance. accepted but, as it later turned out, & is a fictitious person. Is freed from liability)

a. 3o, since by accepting, admits the eistence of the drawer.b. 3o, since by accepting, warrants that he is solvent.c. +es, if was not aware of that fact at the time of acceptance.d. +es, since a bill of echange with a fictitious drawer is void and ineistent.

Answer *a. 3o, since by accepting, admits the eistence of the drawer.

<. &ue to his debt to C, & wrote a promissory note which is payable to the order of C. C!sbrother, #, misrepresenting himself as agent of C, obtained the note from &. # thennegotiated the note to 3 after forging the signature of C. #ay 3 enforce the note against &)

a. +es, since & is the principal debtor.b. 3o, since the signature of C was forged.c. 3o, since it is C who can enforce it, the note being payable to the order of C.

d. +es, since &, as maer, is primarily liable on the note.

Answer *b. 3o, since the signature of C was forged.

<>. T Corp. has a corporate term of -/ years under its Articles of Incorporation or from Dune 1,12H/ to Dune 1, -///. =n Dune 1, 1221 it amended its Articles of Incorporation to etend itslife by 1? years from Dune 1, 12H/ to Dune 1, -/1?. The C approved this amendment. =n

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Dune 1, -/11, however, T Corp. decided to shorten its term by 1 year or until Dune 1, -/1<.Both the 1221 and -/11 amendments were approved by ma9ority vote of its Board of &irectors and ratified in a special meeting by its stocholders representing at least -; of itsoutstanding capital stoc. The C, however, disapproved the -/11 amendment on theground that it cannot be made earlier than ? years prior to the epiration date of thecorporate term, which is Dune 1, -/1<. Is this C disapproval correct)

a. 3o, since the ?@year rule on amendment of corporate term applies only to etension, notshortening, of term.

b. +es, any amendment affecting corporate term cannot be made earlier than ? years prior to the corporation!s epiration date.

c. 3o, since a corporation can in fact have a corporate life of ?/ years.d. +es, the amendment to shorten corporate term cannot be made earlier than ? years prior

to the corporation!s epiration date.

Answer *a. 3o, since the ?@year rule on amendment of corporate term applies only to etension, not

shortening, of term.

<H. B, while drun, accepted a passenger in his taicab. B then drove the tai reclessly, andinevitably, it crashed into an electric post, resulting in serious physical in9uries to thepassengers. The latter then filed a suit for tort against B!s operator, A, but A raised thedefense of having eercised etraordinary diligence in the safety of the passenger. Is hisdefense tenable)

a. +es, as a common carrier can rebut the presumption of negligence by raising such adefense.

b. 3o, as in tort actions, the proper defense is due diligence in the selection andsupervision of the employee by the employer.

c. 3o, as B, the common carrier!s employee, was obviously negligent due to hisintoication.

d. +es, as a common carrier can invoe etraordinary diligence in the safety of passengersin tort cases.

Answer *b. 3o, as in tort actions, the proper defense is due diligence in the selection and

supervision of the employee by the employer.

<2. M is a director in T Corp. who was elected to a 1@year term on 7eb. 1, -/1/. =n April 11,-/1/, M resigned and was replaced by 8, who assumed as director on #ay 1>, -/1/. =n

3ov. -1, -/1/, 8 died. was then elected in his place. 0ntil which time should serve asdirector)

a. April 11, -/11b. 7eb. 1, -/11c. #ay 1>, -/11d. 3ov. -1, -/11

Answer *

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b. 7eb. 1, -/11

?/. #, the maer, issued a promissory note to ", the payee which states* 4I, #, promise to pay" or order the amount of "hp1 #illion. igned, #.5 " negotiated the note by indorsement to3, then 3 to = also by indorsement, and = to , again by indorsement. But before =

indorsed the note to , =!s wife wrote the figure 4-5 on the note after 4"hp15 without =!snowledge, maing it appear that the note is for "hp1- #illion. 7or how much is = liable to)

a. "hp 1 #illion since it is the original tenor of the note.b. "hp 1 #illion since he warrants that the note is genuine and in all respects what it

purports to be.c. "hp 1- #illion since he warrants his solvency and that he has a good title to the note.d. "hp 1- #illion since he warrants that the note is genuine and in all respects what it

purports to be.

Answer *

d. "hp 1- #illion since he warrants that the note is genuine and in all respects what itpurports to be.

?1. M Corp., whose business purpose is to manufacture and sell vehicles, invested its funds in+ Corp., an investment firm, through a resolution of its Board of &irectors. The investmentgrew tremendously on account of + Corp!s ecellent business 9udgment. But a minoritystocholder in M Corp. assails the investment as ultra vires. Is he right and, if so, what is thestatus of the investment)

a. +es, it is an ultra vires act of the corporation itself but voidable only, sub9ect tostocholder!s ratification.

b. +es, it is an ultra vires act of its Board of &irectors and thus void.c. +es, it is an ultra vires act of its Board of &irectors but voidable only, sub9ect to

stocholders! ratification.d. +es, it is an ultra vires act of the corporation itself and, conse'uently, void.

Answer *c. +es, it is an ultra vires act of its Board of &irectors but voidable only, sub9ect to

stocholders! ratification.

?-. 3otice of dishonor is not re'uired to be made in all cases. =ne instance where such noticeis not necessary is when the indorser is the one to whom the instrument is suppose to be

presented for payment. The rationale here is that the indorser

a. Already nows of the dishonor and it maes no sense to notify him of it.b. Is bound to mae the acceptance in all cases.c. as no reason to epect the dishonor of the instrument.d. #ust be made to account for all his actions.

Answer *a. Already nows of the dishonor and it maes no sense to notify him of it.

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?. 4agleson 8efillers, Co.,5 a firm that sells water to the public, opposes the trade nameapplication of 4agleson Laundry, Co.,5 on the ground that such trade name tends to deceivetrade circles or confuse the public with respect to the water firm!s registered trade name. 6illthe opposition prosper)

a. +es, since such use is liely to deceive or confuse the public.b. +es, since both companies use water in conducting their business.c. 3o, since the companies are not engaged in the same line of business.d. 3o, since the root word 4agle5 is a generic name not sub9ect to registration.

Answer *c. 3o, since the companies are not engaged in the same line of business.

?<. 7or a constructive total loss to eist in marine insurance, it is re'uired that the personinsured relin'uish his interest in the thing insured. This relin'uishment must be

a. Actual.b. Constructive first and if it fails, then actual.c. ither actual or constructive.d. Constructive.

Answer *a. Actual.

??. The Corporation Code sanctions a contract between two or more corporations which haveinterlocing directors, provided there is no fraud that attends it and it is fair and reasonableunder the circumstances. The interest of an interlocing director in one corporation may be

either substantial or nominal. It is nominal if his interest*

a. &oes not eceed -?K of the outstanding capital stoc.b. ceeds -?K of the outstanding capital stoc.c. ceeds -/K of the outstanding capital stoc.d. &oes not eceed -/K of the outstanding capital stoc.

Answer *d. &oes not eceed -/K of the outstanding capital stoc.

?. M, an amateur astronomer, stumbled upon what appeared to be massive volcanic eruption

in Dupiter while peering at the planet through his telescope. The following wee, M, withoutnotes, presented a lecture on his findings before the Association of Astronomers of the"hilippines. To his dismay, he later read an article in a science 9ournal written by +, aprofessional astronomer, repeating eactly what M discovered without any attribution to him.as + infringed on M!s copyright, if any)

a. 3o, since M did not reduce his lecture in writing or other material form.b. +es, since the lecture is considered M!s original wor.

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c. 3o, since no protection etends to any discovery, even if epressed, eplained,illustrated, or embodied in a wor.

d. +es, since +!s article failed to mae any attribution to M.

Answer *c. 3o, since no protection etends to any discovery, even if epressed, eplained, illustrated,

or embodied in a wor.

?>. In case of disagreement between the corporation and a withdrawing stocholder whoeercises his appraisal right regarding the fair value of his shares, a three@member groupshall by ma9ority vote resolve the issue with finality. #ay the wife of the withdrawingstocholder be named to the three@member group)

a. 3o, the wife of the withdrawing shareholder is not a disinterested person.b. +es, since she could best protect her husband!s shareholdings.c. +es, since the rules do not discriminate against wives.d. 3o, since the stocholder himself should sit in the three@member group.

Answer *a. 3o, the wife of the withdrawing shareholder is not a disinterested person.

?H. Apart from economic rights, the author of a copyright also has moral rights which he maytransfer by way of assignment. The term of these moral rights shall last

a. &uring the author!s lifetime and for ?/ years after his death.b. 7orever.c. ?/ years from the time the author created his wor.d. &uring the author!s lifetime.

Answer *a. &uring the author!s lifetime and for ?/ years after his death.

?2. 6hich of the following indorsers epressly warrants in negotiating a instrument that 1% it isgenuine and trueJ -% he has a good title to itJ % all prior parties have capacity to negotiateJand <% it is valid and subsisting at the time of his indorsement)

a. The irregular indorser.b. The regular indorser.c. The general indorser.

d. The 'ualified indorser.

Answer *c. The general indorser.

/. 6here the insurer was made to pay the insured for a loss covered by the insurancecontract, such insurer can run after the third person who caused the loss throughsubrogation. 6hat is the basis for conferring the right of subrogation to the insurer)

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a. Their epress stipulation in the contract of insurance.b. The e'uitable assignment that results from the insurer!s payment of the insured.c. The insured!s formal assignment of his right to indemnification to the insurer.d. The insured!s endorsement of its claim to the insurer.

Answer *b. The e'uitable assignment that results from the insurer!s payment of the insured.

1. M invented a device which, through the use of noise, can recharge a cellphone battery. eapplied for and was granted a patent on his device, effective within the "hilippines. As itturns out, a year before the grant of M!s patent, +, also an inventor, invented a similar devicewhich he used in his cellphone business in #anila. But M files an in9unctive suit against + tostop him from using the device on the ground of patent infringement. 6ill the suit prosper)

a. 3o, since the correct remedy for M is a civil action for damages.b. 3o, since + is a prior user in good faith.

c. +es, since M is the first to register his device for patent registration.d. +es, since + unwittingly used M!s patented invention.

Answer *b. 3o, since + is a prior user in good faith.

-. ", a sales girl in a flower shop at the Ayala tation of the #etro 8ail Transit $#8T% boughttwo toens or ticets, one for her ride to wor and another for her ride home. he got to her flower shop where she usually wored from H*//am@?*//pm. At about *//pm, while " wasattending to her duties at the flower shop, two crews of the #8T got into a fight near theflower shop, causing in9uries to " in the process. Can " sue the #8T for contractual breach

as she was within the #8T premises where she would shortly tae her ride home)

a. 3o, since the incident too place, not in the #8T train coach, but at the #8T station.b. 3o, since " had no intention to board an #8T train coach when the incident occurred.c. +es, since she already had a ticet for her ride home and was in the #8T!s premises at

the time of the incident.d. +es, since she bought a round trip ticet and #8T had a duty while she was at its station

to eep her safe for her return trip.

Answer *b. 3o, since " had no intention to board an #8T train coach when the incident occurred.

. 7orgery of bills of echange may be subdivided into, a% forgery of an indorsement on the billand b% forgery of the drawer!s signature, which may either be with acceptance by thedrawee, or

a. 6ith acceptance but the bill is paid by the drawee.b. 6ithout acceptance but the bill is paid by the drawer.c. 6ithout acceptance but the bill is paid by the drawee.d. 6ith acceptance but the bill is paid by the drawer.

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Answer *c. 6ithout acceptance but the bill is paid by the drawee.

<. If an insurance policy prohibits additional insurance on the property insured without the

insurer!s consent, such provision being valid and reasonable, a violation by the insured

a. 8educes the value of the policy.b. Avoids the policy.c. =ffsets the value of the policy with the additional insurance!s value.d. 7orfeits premiums already paid.

Answer *b. Avoids the policy.

?. M found a chec on the street, drawn by + against ABC Ban, with G as payee. M forged G!s

signature as an indorser, then indorsed it to ABC Ban which charged it to the +!s account. +later sued ABC Ban but it set up the forgery as its defense. 6ill it prosper)

a. 3o, since the payee!s signature has been forged.b. 3o, since +!s remedy is to run after the forger, M.c. +es, since forgery is only a personal defense.d. +es, since ABC Ban is bound to now the signature of +, its client.

Answer *d. +es, since ABC Ban is bound to now the signature of +, its client.

. The rule is that no stoc dividend shall be issued without the approval of stocholdersrepresenting at least -; of the outstanding capital stoc at a regular or special meetingcalled for the purpose. As to other forms of dividends*

a. A mere ma9ority of the entire Board of &irectors applies.b. A mere ma9ority of the 'uorum of the Board of &irectors applies.c. A mere ma9ority of the votes of stocholders representing the outstanding capital stoc

applies.d. The same rule of -; votes applies.

Answer *b. A mere ma9ority of the 'uorum of the Board of &irectors applies.

>. M, at +!s re'uest, eecuted a 8eal state #ortgage $8#% on his $M!s% land to secure +!sloan from G. G successfully foreclosed the 8# when + defaulted on the loan but half of +!sobligation remained unpaid. #ay G sue M to enforce his right to the deficiency)

a. +es, but solidarily with +.b. +es, since M!s is deemed to warrant that his land would cover the whole obligation.c. 3o, since it is the buyer at the auction sale who should answer for the deficiency.

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d. 3o, because M is not G!s debtor.

Answer *d. 3o, because M is not G!s debtor.

H. #ay a publicly listed universal ban own 1//K of the voting stocs in another universalban and in a commercial ban)

a. +es, if with the permission of the Bango entral ng "ilipinas.b. 3o, since it has no power to invest in e'uities.c. +es, as there is no prohibition on it.d. 3o, since under the law, the 1//K ownership on voting stocs must be in either ban

only.

Answer *d. 3o, since under the law, the 1//K ownership on voting stocs must be in either banonly.

2. "erils of the ship, under marine insurance law, refer to loss which in the ordinary course of events results from

a. 3atural and inevitable actions of the sea.b. 3atural and ordinary actions of the sea.c. 0nnatural and inevitable actions of the sea.d. 0nnatural and ordinary actions of the sea.

Answer *a. 3atural and inevitable actions of the sea.

>/. 0nder the Intellectual "roperty Code, lectures, sermons, addresses or dissertationsprepared for oral delivery, whether or not reduced in writing or other material forms, areregarded as

a. 3on@original wors.b. =riginal wors.c. &erivative wors.d. 3ot sub9ect to protection.

Answer *

b. =riginal wors.

>1. Can the drawee who accepts a materially altered chec recover from the holder and thedrawer)

a. 3o, he cannot recover from either of them.b. +es from both of them.c. +es but only from the drawer.

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d. +es but only from the holder.

Answer *a. 3o, he cannot recover from either of them.

>-. The rule is that the intentional cancellation of a person secondarily liable results in thedischarge of the latter. 6ith respect to an indorser, the holder!s right to cancel his signatureis*

a. 6ithout limitation.b. 3ot limited to the case where the indorsement is necessary to his title.c. Limited to the case where the indorsement is not necessary to his title.d. Limited to the case where the indorsement is necessary to his title.

Answer *c. Limited to the case where the indorsement is not necessary to his title.

>. M, in the hospital for idney dysfunction, was about to be discharged when he met his friend+. M told + the reason for his hospitali:ation. A month later, M applied for an insurancecovering serious illness from ABC Insurance, Co., where + was woring as Corporateecretary. ince M had already told + about his hospitali:ation, he no longer answered a'uestion regarding it in the application form. 6ould this constitute concealment)

a. +es, since the previous hospitali:ation would influence the insurer in deciding whether togrant M!s application.

b. 3o, since + may be regarded as ABC!s agent and he already new of M!s previoushospitali:ation.

c. +es, it would constitute concealment that amounts to misrepresentation on M!s part.

d. 3o, since the previous illness is not a material fact to the insurance coverage.

Answer *a. +es, since the previous hospitali:ation would influence the insurer in deciding whether to

grant M!s application.

><. everal American doctors wanted to set up a group clinic in the "hilippines so they couldrender modern medical services. If the clinic is to be incorporated under our laws, what isthe re'uired foreign e'uity participation in such a corporation)

a. </K

b. /Kc. /Kd. >/K

Answer *b. /K

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>?. M eecuted a promissory note in favor of + by way of accommodation. It says* 4"ay to + or order the amount of "?/,///.//. igned, M.5 + thenindorsed the note to G, and G to T. 6henT sought collection from +, the latter countered as indorser that there should have been apresentment first to the maer who dishonors it. Is + correct)

a. 3o, since + is the real debtor and thus, there is no need for presentment for payment

and dishonor by the maer.b. +es, since as an indorser who is secondarily liable, there must first be presentment for

payment and dishonor by the maer.c. 3o, since the absolute rule is that there is no need for presentment for payment and

dishonor to hold an indorser liable.d. +es, since the secondary liability of + and G would only arise after presentment for

payment and dishonor by the maer.

Answer *a. 3o, since + is the real debtor and thus, there is no need for presentment for payment

and dishonor by the maer.

>. The Board of &irectors of M+G Corp. unanimously passed a resolution approving the taingof steps that in reality amounted to willful ta evasion. =n discovering this, the governmentfiled ta evasion charges against the company!s members of the board of directors. Thedirectors invoed the defense that they have no personal liability, being mere directors of afictional being. Are they correct)

a. 3o, since as a rule only natural persons lie the members of the board of directors cancommit corporate crimes.

b. +es, since it is the corporation that did not pay the ta and it has a personality distinctfrom its directors.

c. +es, since the directors officially and collectively performed acts that are imputable only

to the corporation.d. 3o, since the law maes directors of the corporation solidarily liable for gross negligence

and bad faith in the discharge of their duties.

Answer *d. 3o, since the law maes directors of the corporation solidarily liable for gross negligenceand bad faith in the discharge of their duties.

>>. T is the registered trademar owner of 4C8=C=5 which he uses on his ready@to@wear clothes. Baning on the popularity of T!s trademar, B came up with his own 4C8=C=5mar, which he then used for his 4C8=C=5 burgers. T now sues B for trademar

infringement but B argues that his product is a burger, hence, there is no infringement. Is Bcorrect)

a. 3o, since the owner of a well@nown mar registered in the "hilippines has rights thatetends even to dissimilar inds of goods.

b. +es, since the right of the owner of a well@nown mar registered in the "hilippines doesnot etend to goods which are not of the same ind.

c. +es, as B was in bad faith in coming up with his own 4C8=C=5 mar.d. 3o, since unlie T, he did not register his own 4C8=C=5 mar for his product.

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Answer *a. 3o, since the owner of a well@nown mar registered in the "hilippines has rights that

etends even to dissimilar inds of goods.

>H. A, the proprietor of a fleet of 1/ taicabs, decides to adopt, as his business name, 4ATransport Co., Inc.5 #ay this be allowed)

a. 3o, it would be deceptive since he is a proprietor, not a corporation.b. 3o, since 4A5 is a generic name, not suitable for registration.c. +es, since his line of business is public transportation.d. +es, since such name would give his business a corporate identity.

Answer *a. 3o, it would be deceptive since he is a proprietor, not a corporation.

>2. T delivers two refrigerators to the warehouse of 6 who then issues a negotiable receiptundertaing the delivery of the refrigerators to 4T or bearer5. T entrusted the receipt to B for safeeeping only. B negotiated it, however, to 7 who bought it in good faith and for value.6ho is entitled to the delivery of the refrigerators)

a. T, since he is a real owner of the refrigerators.b. 7, since he is a purchaser in good faith and for value.c. B, since T entrusted the receipt to him.d. 6, since he has as a warehouseman a lien on the goods.

Answer *b. 7, since he is a purchaser in good faith and for value.

H/. The Articles of Incorporation must be accompanied by a Treasurer!s Affidavit certifyingunder oath, among others, that the total subscription paid is*

a. 3ot less than "-?,///.//b. 3ot more than "?,///.//c. 3ot less than "?,///,//d. 3ot more than "-?,///.//

Answer *c. 3ot less than "?,///,//

H1. In a special meeting called for the purpose, -; of the stocholders representing theoutstanding capital stoc in M Co. authori:ed the company!s Board of &irectors to amend itsBy@laws. By ma9ority vote, the Board then approved the amendment. Is the amendmentvalid)

a. 3o, since the stocholders cannot delegate their right to amend the By@laws to theBoard.

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b. +es, since the ma9ority votes in the Board was sufficient to amend the [email protected]. 3o, because, the voting in the Board should have been by a ma9ority of a 'uorum.d. +es, since the votes of -; of the stocholders and ma9ority of the Board were secured.

Answer *a. 3o, since the stocholders cannot delegate their right to amend the By@laws to the

Board.

H-. A group of #alaysians wanted to invest in the "hilippines! insurance business. After negotiations, they agreed to 47I#A Insurance Corp.5 with a group of 7ilipino businessmen.7I#A would have a "?/ # paid up capital. "</ # of which would come up from the 7ilipinogroup. All corporate officers would be 7ilipinos and H out of 1/@member Board of &irectorswould be 7ilipinos. Can 7I#A operate an insurance business in the "hilippines)

a. 3o, since an insurance company must have at least ">< # paid up capital.b. +es, since there is substantial compliance with our nationali:ation laws respecting paid@

up capital and 7ilipino dominated Board of &irectors.

c. +es, since 7I#A!s paid up capital more than meets the country!s nationali:ation laws.d. 3o, since an insurance company should be 1//K owned by 7ilipinos.

Answer *a. 3o, since an insurance company must have at least ">< # paid up capital.

H. 0nder the "ublic ervice Act, an administrative agency has the power to approveprovisionally the rates of public utilities without a hearing in case of urgent public needs. Theeercise of this power is

a. upervisory

b. Absolutec. &iscretionaryd. #andatory

Answer *c. &iscretionary.

H<. M, creditor of +, obtained a 9udgment in his favor in connection with +!s unpaid loan to him.The court!s sheriff then levied on the goods that + stored in T!s warehouse, for which thelatter issued a warehouse receipt. A month before the levy, however, G bought thewarehouse receipt for value. 6ho has a better right over the goods)

a. T, being the warehouseman with a lien on the goods.b. G, being a purchaser for value of the warehouse receipt.c. M, being +!s 9udgment creditor.d. +, being the owner of the goods.

Answer *b. G, being a purchaser for value of the warehouse receipt.

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H?. A promissory note states, on its face* 4I, M, promise to pay + the amount of "?,///.// fivedays after completion of the on@going construction of my house. igned, M.5 Is the notenegotiable)

a. +es, since it is payable at a fied period after the occurrence of a specified event.b. 3o, since it is payable at a fied period after the occurrence of an event which may not

happen.c. +es, since it is payable at a fied period or determinable future time.d. 3o, since it should be payable at a fied period before the occurrence of a specified

event.

Answer *b. 3o, since it is payable at a fied period after the occurrence of an event which may nothappen.

H. " sold to # a pair of geco $tuo% for "?/,///. # issued a promissory note to " promisingto pay the money within 2/ days. 0nnown to " and #, a law was passed a month beforethe sale that prohibits and declares void any agreement to sell geco in the country. If Mac'uired the note in good faith and for value, may he enforce payment on it)

a. 3o, since the law declared void the contract on which the promissory note was founded.b. 3o, since it was not M who bought the geco.c. +es, since he is a holder in due course of a note which is distinct from the sale of geco.d. +es, since he is a holder in due course and " and # were not aware of the law that

prohibited the sale of geco.

Answer *

a. 3o, since the law declared void the contract on which the promissory note was founded.

H>. " authori:ed A to sign a bill of echange in hi $"!s% name. the bill reads* 4"ay to B or order the sum of "1 #. igned, A $for and in behalf of "%.5 The bill was drawn on ". B indorsed thebill to C, C to &, and & to . #ay treat the bill as a promissory note)

a. 3o, because the instrument is payable to order and the same person.b. +es, because the drawer and the drawee are one and the same person.c. 3o, because the instrument is a bill of echange.d. +es, because A was only an agent of ".

Answer *b. +es, because the drawer and the drawee are one and the same person.

HH. G wrote out an instrument that states* 4"ay to M the amount of "1 # for collection only.igned, G.5 M indorsed it to his creditor, +, to whom he owed "1 #. + now wants to collectand satisfy M!s debt through the "1 # on the chec. #ay he validly do so)

a. +es, since the indorsement to + is for "1 #.

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b. 3o, since G is not a party to the loan between M and +.c. 3o, since M is merely an agent of G, his only right being to collect.d. +es, since M owed + "1 #.

Answer *c. 3o, since M is merely an agent of G, his only right being to collect.

H2. M hipping Co., insured its vessel # &on Teodoro for "1// # with ABC Insurance Co.through T, an agent of M hipping. &uring a voyage, the vessel accidentally caught fire andsuffered damages estimated at "H/ #. T personally informed ABC Insurance that Mhipping was abandoning the ship. Later, ABC Insurance denied M hipping!s claim for losson the ground that a notice of abandonment through its agent was improper. Is ABCInsurance right)

a. +es, since M hipping should have ratified its agent!s action.b. 3o, since T, as agent of M hipping who procured the insurance, can also give notice of

abandonment for his principal.

c. +es, since only the agent of M hipping relayed the fact of abandonment.d. 3o, since in the first place, the damage was more than of the ship!s value.

Answer *b. 3o, since T, as agent of M hipping who procured the insurance, can also give notice of abandonment for his principal.

2/. A law was passed dis'ualifying former members of Congress from sitting in the Board of &irectors of F=CC. Because of this, the Board of &irectors of ABC Corp., a F=CC,dis'ualified C, a former Congressman, from continuing to sit as one of its members. Cob9ected, however, insisting that under the Corporation Code members of the board of

directors of corporations may only be removed by vote of stocholders holding -; of itsoutstanding capital stoc in a regular or special meeting called for that purpose. Is Ccorrect)

a. +es, since the new law cannot be applied to members of the board of directors alreadyelected prior to its passage.

b. 3o, since the dis'ualification taes effect by operation of law, it is sufficient that he wasdeclared no longer member of the board.

c. +es, since the provisions of the Corporation Code applies as well to F=CC.d. 3o, since the board has the power to oust him even without the new law.

Answer *

b. 3o, since the dis'ualification taes effect by operation of law, it is sufficient that he wasdeclared no longer member of the board.

21. //-@H@///1 F, a grocery goods supplier, sold 1// sacs of rice to who promised to payonce he has sold all the rice. , in the meantime, delivered the goods to 6, awarehouseman, who issued a warehouse receipt. 6ithout the nowledge of F and 6, negotiated the receipt to " who ac'uired it in good faith and for value. " then claimed thegoods from 6, who released them. After the rice was loaded on a ship bound for #anila, F

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invoes his right to stop the goods in transit due to his unpaid lien. 6ho has a better right tothe rice)

a. ", since he has superior rights as a purchaser for value and in good faith.b. ", regardless of whether or not he is a purchaser for value and in good faith.c. F, since as an unpaid seller, he has the right of stoppage in transitu.

d. 6, since it appears that the warehouse charges have not been paid.

Answer *a. ", since he has superior rights as a purchaser for value and in good faith.

2-. In a signature by procuration, the principal is bound only in case the agent acted within theactual limits of his authority. The signature of the agent in such a case operates as noticethat he has

a. A 'ualified authority to sign.b. A limited authority to sign.

c. A special authority to sign.d. A full authority to sign.

Answer *b. A limited authority to sign.

2. In return for the -/ years of faithful service of M as a house helper to +, the latter promisedto pay "1//,/// to M!s heirs if he $M% dies in an accident by fire. M agreed. Is this aninsurance contract)

a. +es, since all the elements of an insurance contract are present.

b. +es, since M!s services may be regarded as the consideration.c. 3o, since + actually made a conditional donation in M!s favor.d. 3o, since it is in fact an innominate contract between M and +.

Answer *c. 3o, since + actually made a conditional donation in M!s favor.

2<. A bill of echange states on its face* 4=ne $1% month after sight, pay to the order of #r. 8the amount of "?/,///.//, chargeable to the account of #r. . igned, #r. T.5 #r. , thedrawee, accepted the bill upon presentment by writing on it the words 4I shall pay"/,///.// three $% months after sight.5 #ay he accept under such terms, which varies the

command in the bill of echange)

a. +es, since a drawee accepts according to the tenor of his acceptance.b. 3o, since, once he accepts, a drawee is liable according to the tenor of the bill.c. +es, provided the drawer and the payee agree to the acceptance.d. 3o, since he is bound as drawee to accept the bill according to its tenor.

Answer *a. +es, since a drawee accepts according to the tenor of his acceptance.

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2?. #ay the indorsee of a promissory note indorsed to him 4for deposit5 file a suit against theindorser)

a. +es, as long as the indorser received value for the restrictive indorsement.

b. +es, as long as the indorser received value for the conditional indorsement.c. +es, whether or not the indorser received value for the conditional indorsement.d. +es, whether or not the indorser received value for the restrictive indorsement.

Answer *a. +es, as long as the indorser received value for the restrictive indorsement.

2. M issued a chec in favor of his creditor, +. It reads* 4"ay to + the amount of evenThousand undred "esos $"hp>//,///.//%. igned, M.5 6hat amount should be construedas true in such case)

a. "hp >//,///.//.b. "hp >//.//.c. "hp >,///.//.d. "hp >//,1//.//.

Answer *a. "hp >//,///.//.

2>. hipowner M, in applying for a marine insurance policy from ABC, Co., stated that his vesselusually sails middle of August and with normally 1// tons of cargo. It turned out later that thevessel departed on the first wee of eptember and with only 1/ tons of cargo. 6ill this

avoid the policy that was issued)

a. +es, because there was breach of implied warranty.b. 3o, because there was no intent to breach an implied warranty.c. +es, because it relates to a material representation.d. 3o, because there was only representation of intention.

Answer *d. 3o, because there was only representation of intention.

2H. The Articles of Incorporation of ABC Transport Co., a public utility, provides for 1/ members

in its Board of &irectors. 6hat is the prescribed minimum number of 7ilipino citi:ens in itsBoard)

a. 1/b. c. >d. ?

Answer *

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b.

22. " authori:ed A to sign a negotiable instrument in his $"!s% name. It reads* 4"ay to B or order the sum of "1 #. igned, A $for and in behalf of "%.5 The instrument shows that it was drawnon ". B then indorsed to C, C to &, and & to . then treated it as a bill of echange. Is

presentment for acceptance necessary in this case)

a. 3o, since the drawer and the drawee are the same person.b. 3o, since the bill is non@negotiable, the drawer and drawee being the same person.c. +es, since the bill is payable to order, presentment is re'uired for acceptance.d. +es, in order to hold all persons liable on the bill.

Answer *a. 3o, since the drawer and the drawee are the same person.

1//. The corporate term of a stoc corporation is that which is stated in its Articles of

Incorporation. It may be etended or shortened by an amendment of the Articles whenapproved by ma9ority of its Board of &irectors and*

a. Approved and ratified by at least -; of all stocholdersb. Approved by at least -; of the stocholders representing the outstanding capital stoc.c. 8atified by at least -; of all stocholders.d. 8atified by at least -; of the stocholders representing the outstanding capital stoc.

Answer *d. 8atified by at least -; of the stocholders representing the outstanding capital stoc.


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Q"es#$%n N%& 1!Briefly describe the following types of bans*

1. 0niversal ban

Answer * A universal ban is a commercial ban with - additional powers, namely*

a. The power of an investment houseJ andb. The power to invest in non@allied enterprises.

-. Commercial ban

Answer * A commercial ban is a ban that can*

a. Accept draftsJ

b. Issue letters of creditJc. &iscount and negotiate promissory note, bills of echange, and other evidence of debtJd. Accept or create demand depositsJe. 8eceive other types of deposits, as well as deposit substitutesJf. Buy and sell foreign echange, as well as gold or silver bullionJg. Ac'uire maretable bonds and other debts securitiesJ andh. tend credit, sub9ect to such rules promulgated by the #onetary Board.

. Thrift ban

Answer *

A thrift ban is one established as a savings and mortgage ban, a stoc savings andloan association, or a private development ban, for the purpose of*a. Accumulating the savings of depositors and investing them in outlets determined by the

#onetary Board as necessary in the furtherance of national economic ob9ectivesJb. "roviding short@term woring capital, medium and long@term financing, to business

engaged in agriculture, services, industry and housingJ andc. "roviding diversified financial and allied services for its chosen maret and

constituencies especially for small and medium enterprises and individuals.

<. 8ural ban

Answer *

A rural ban is one established to provide credit facilities to farmers and merchants or their cooperatives and, in general, to the people of the rural communities.

?. Cooperative ban

Answer *

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A cooperative ban is organi:ed under the Cooperative Code to provide financial andcredit services to cooperatives. It may perform any or all the services offered by a ruralban, including the operation of a 7oreign Currency &eposit 0nit sub9ect to certainconditions.

Q"es#$%n N%& 2!1. ow do you characteri:e the legal relationship between a commercial ban and its safety

deposit bo client)

Answer *The relationship between a commercial ban and its safety deposit bo client is that of a

bailee and bailor, the bailment being for hire and mutual benefit.

A'#ern#$e Answer!The legal relationship of the ban and its safety deposit bo client is that of a lessor and

lessee.

-. Is a stipulation in the contract for the use of a safety deposit bo relieving the ban of liabilityin connection with the use thereof valid)

Answer *The stipulation relieving the ban of liability in connection with the use of the safety

deposit bo is void as it is against law and public policy.

. &ifferentiate 4ban deposits5 from ban substitutes5.

Answer *

Ban deposits are funds obtained by a ban from the public which are relent by suchban to its own borrowers. &eposit substitutes are alternative forms of obtaining funds fromthe public, other than deposits, through the issuance, endorsement, or acceptance of debtinstruments for the own account of the borrower, for the purpose of relending or purchasingof receivables and other obligations. These instruments may include, but need not be limitedto, baners acceptances, promissory notes, participations, certificates of assignment andsimilar instruments with recourse, and repurchase agreements.

<. 6hy are bans re'uired to maintain reserves against their deposits and deposit substitutes)tate one of three purposes for these reserves.

Answer * Any one of the following < purposes for re'uiring bans to maintain reserves against

their deposits and deposit substitutes will suffice*

a. =ne of the purposes of the re'uirement to maintain ban reserves is to control thevolume of money created by the credit operations of the baning systemJ

b. It is to enable the bans to answer any withdrawalJc. To help Fovernment to finance its operationJd. To help Fovernment control money supply.

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Q"es#$%n N%& 3!=:amis "aper Corporation secured loans from ABC 0niversal Ban in the aggregate

principal amount of "1// #, evidenced by several promissory notes, and secured by acontinuing guaranty of its principal stocholder #enandro #ar'ue:J a pledge of #ar'ue:!s

shares in the corporation valued at "<? #J and a real estate mortgage over certain parcels of land owned by #ar'ue:.

The corporation defaulted and the ban etra@9udicially foreclosed on the real estatemortgage. The ban, which was the sole bidder for ">? #, won the award.

1. Can the ban sue #ar'ue: for the deficiency of "-? #) plain.

Answer *+es, the ban can sue #ar'ue: for the deficiency of "-? #. in etra9udicial foreclosure

of a real estate mortgage, if the proceeds of the sale are insufficient to pay the debt, themortgagee has the right to sue for the deficiency.

-. If the ban opts to file an action for collection against the corporation, can it afterwardsinstitute a real action to foreclose the mortgage) plain.

Answer *3o, the ban can no longer file an action to foreclose the real estate mortgage. 6hen it

filed a collection case, it was deemed to have abandoned the real estate mortgage.

. Can the ban foreclose on the pledged shares of #ar'ue: and recover the deficiency fromthe corporation)

Answer *If the ban forecloses the pledge, it cannot recover the deficiency because the

foreclosure etinguishes the principal obligation, whether or not the proceeds from theforeclosure are e'ual to the amount of the principal obligation.

Q"es#$%n N%& 4! Andante 8ealty, a mareting company that promotes and facilitates sales of real

property through leverage mareting, solicits investors who are re'uired to be a BusinessCenter =wner $BC=% by paying an enrollment fee of O-?/. The BC= is then entitled to recruittwo other investors who pay O-?/ each. The BC= receives O2/ from the O-?/ paid by each of

his recruits and is credited a certain amount for payments made by investors through the initialefforts of his Business Center. =nce the accumulated amount reaches O?,///, the same is usedas down payment for the real property chosen by BC=.

1. &oes the multi@level mareting scheme constitute an 4investment contract5 under the 8C)&efine an 4investment contract5.

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Answer *+es. The multi@level mareting scheme constitutes an 4investment contract5 under the

8C. An 4investment contract5 is a contract, transaction or scheme*a. Involving an investment of money,b. In a common enterprise,c. 6ith epectation of profits,

d. "rimarily from the efforts of others.

-. 6hat procedure must be followed under the 8C to authori:e the sale or offer for sale or distribution of an investment contract)

Answer *Before the investment contract is sold or offered for sale or distribution to the public in

the "hilippines, it should be registered with the C in accordance with ection H of the8C.

. 6hat are the legal conse'uences of failure to follow this procedure)

Answer *The failure to follow this procedure has criminal conse'uences $i.e., upon conviction, a

fine "?/,/// to "? # and;or imprisonment of >@1- years%. It carries also civil liabilities in thatthe purchaser can recover from the seller $i% the consideration paid with interest thereon,less the amount of any income received on the purchased securities, upon the tender of such securities, or $ii% damages if the purchaser no longer owns such securities.7urthermore, the C may issue a cease and desist order.

Q"es#$%n N%& *!

ene:ia is a famous international fashion chain outlets in #aati, =rtigas, and #anila. Ithas complied with the minimum capitali:ation re'uired under the 8etail Trade 3ationali:ation

Act and carries on retail business worth more than O # for each outlets. As its #anila outlet isnot doing very well, it decides to sell all of its business there consisting of remaining inventory,furniture and fitures and other assets to its competitor.

1. ene:ia!s #anila outlet constitutes 1; of its total business. hould it comply with there'uirements of the Bul ales Law) 6hy or why not)

Answer *ene:ia need not comply with the re'uirements of the Bul ales Law as its #anila

outlet constitutes only 1; of its total business and, therefore, it would not be a sale of all or

substantially all of the business conducted by ene:ia. #oreover, the re'uirements of theBul ales Law reflected in ections , <, ?, and 2, by the epress language of saidprovisions, apply only to the first type of bul sales, i.e., to any sale, transfer, mortgage or assignment of a stoc of goods, wares, merchandise, provisions or materials otherwise thanin the ordinary course of trade and the regular prosecution of business of the vendor,mortgagor, transferor, or assignor, and not to the second type $as in the sale described inthe problem% or the third type $i.e., sale, etc. =f all or substantially all of the fitures ande'uipment used in and about the business%. As the Bul ales Law is penal in nature, itshould be interpreted strictly against the tate.

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-. If instead of selling its #anila outlet, ene:ia merely mortgages its assets there, would itneed to comply with the re'uirements of the Bul ales Law)

Answer *

7or the same reasons stated in the answer to $1% above, ene:ia need not comply withthe re'uirements of the Bul ales Law. The second type of bul sales also includes themortgage of all or substantially all of the business of the mortgagor.

. 6hat are the legal conse'uences of a failure to comply with the re'uirements of a Bulales Law)

Answer *7ailure to comply with the re'uirements of a Bul ales Law renders the sale, transfer,

mortgage, or assignment fraudulent and void, and maes any person found guilty of violating any provision of the Bul ales Law punishable by imprisonment for not less than

months nor more than ? years, or a fine in an amount not eceeding "?,///, or both suchimprisonment and fine in the discretion of the court.

Q"es#$%n N%& +!1. 6hat contractual stipulations are re'uired in all technology transfer agreements)

Answer *The following stipulations are re'uired in all technology transfer agreements*

a. The laws of the "hilippines shall govern its interpretation and in the event of litigation,the venue shall be the proper court in the place where the licensee has its principal

place of businessJ

b. Continued access to improvements in techni'ues and processes related to thetechnology shall be made available during the period of the technology transfer arrangementJ

c. In case it shall provide for arbitration, the "rocedure of Arbitration of the Arbitration Lawof the "hilippines or the Arbitration 8ules of the International Chamber of Commerce$ICC% shall apply and the venue of arbitration shall be the "hilippines or any neutralcountryJ

d. The "hilippine taes on all payments relating to the technology transfer agreement shall

be borne by the licensor.

-. numerate stipulations that are prohibited in technology transfer agreements.

Answer *The following stipulations are prohibited in technology transfer agreements*

a. Those that contain restrictions regarding the volume and structure of productionJ

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b. Those that prohibit the use of competitive technologies in no@eclusive agreementJ andc. Those that establish a full or partial purchase option in favor of the licensor.

. Can an article of commerce serve as a trademar and at the same time en9oy patent andcopyright protection) plain and give an eample.

Answer! A stamped or mared container of goods can be registered as a trademar. An original

ornamental design or model for articles of manufacturer can be copyrighted. An ornamentaldesign cannot be patented, because aesthetic creations cannot be patented. owever, itcan be registered as an industrial design. Thus, a container of goods which has an originalornamental design can be registered as a trademar, can be copyrighted, and can beregistered as an industrial design.

Q"es#$%n N%& ,!0nion #ines, Inc. has a total asset of "/ # with -1/ stocholders holding at least 1//

shares each.

The company has two principal stocholders, ABC which owns /K of the shares of stoc, and M+G which owns 1>K.

ABC in turn is owned to the etent of -1.1K by Acme, Inc.J -2.2K by Folden Boy, IncJ2Kby M+GJ and the rest by individual stocholders.

3one of the parties is a publicly@listed company.

M+G now proposes to buy Acme!s and Folden Boy!s shares in ABC, which would give itdirect control of ABC and indirect control of 0nion #ines.

Is the proposed ac'uisition by M+G sub9ect to the mandatory tender offer and when is itmandatory)

Answer *+es, the proposed ac'uisition is sub9ect to mandatory tender offer rule. A tender offer is a

publicly announced intention by a person $acting alone or in concert with other persons% toac'uire shares of a public company. A tender offer is meant to protect minor stocholdersagainst any scheme that dilutes the share value of their investments. It gives them the chanceto eit the company under the same terms offered to the ma9ority stocholders.

0nder the 8C and its implementing rules, a mandatory tender offer is re'uired*

a. 6hen at least ?K of the outstanding shares of a public company is to be ac'uired in onetransaction or a series of transaction during a 1-@month period, or

b. ven if any ac'uisition is less than ?K threshold but the result thereof is the ownership of more than ?1K of the total outstanding shares of a public company. The mandatory offer rule also applies to share ac'uisition meeting the threshold, which is done at the level of theholding or parent corporation controlling a public company

In this case, 0nion #ines is clearly a public company, since it has a total asset of "/ #with -1/ stocholders holding at least 1// shares each. A public company is defined as a

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corporation listed on the stoc echange, or a corporation with assets eceeding "?/ # andwith -// or more stocholders at least -// of them holding not less than 1// share of suchcorporation.

M+G!s ac'uisition of shares of Acme, Inc. and Folden Boy, Inc., taen separately, doesnot reach ?K threshold. If taen collectively, the two ac'uisitions total only ?/K. owever,

when the ac'uisitions are added to M+G!s eisting shares in 0nion #ines, they meet themore@than@?1K threshold for mandatory tender offer.

Q"es#$%n N%& -!#arlon deposited with L+8IC ban a money maret placement of "1 # for a term of 1

days. =n maturity date, one claiming to be #arlon called up the L+8IC Ban account officer andinstructed him to give the manager!s chec representing the proceeds of the money maretplacement to #arlon!s girlfriend, Ingrid.

The chec, which bore the forged signature of #arlon, was deposited in Ingrid!s accountwith +A#AA Ban. +A#AA Ban stamped a guaranty on the chec reading* 4All prior

endorsements and;or lac of endorsement guaranteed.5

0pon presentment of the chec, L+8IC Ban funds the chec. &ays later, #arlon goesto L+8IC Ban to collect his money maret placement and discovers the foregoing transactions.

#arlon thereupon sues L+8IC Ban which in turn files a third@party complaint against+A#AA Ban. &iscuss the respective rights and liabilities of the two bans.

Answer *ince the money maret placement of #arlon is in the nature of a loan to Lyric Ban,

and since he did not authori:e the release of the money maret placement to Ingrid, theobligation of Lyric Ban to him has not been paid. Lyric Ban still has the obligation to pay him.

ince +amaha Ban indorsed the chec bearing the forged endorsement of #arlon andguaranteed all endorsements, including the forged endorsement, when it presented the chec toLyric Ban, it should be held liable to it.

owever, since the issuance of the chec was attended with the negligence of LyricBan, it should share the loss with +amaha Ban on a ?/K basis.

Q"es#$%n N%& .!+our client &ianne approaches you for legal advice on putting up a medium@si:ed

restaurant business that will speciali:e in a novel type of cuisine. As &ianne feels that the

business is a little risy, she wonders whether she should use a corporation as the businessvehicle, or 9ust run it as a single proprietorship. he already has an eisting corporation that isproducing meat products profitably and is also considering the alternative of simply setting upthe restaurant as a branch office of the eisting corporation.

1. Briefly eplain to your client what you see as the legal advantages and disadvantages of using a separate corporation, a single proprietorship, or a branch of an eisting corporationfor the proposed restaurant business.

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Answer *If &ianne will set up a separate corporation, her liability for its obligations and losses will

be limited to the amount of her subscription in the absence of showing that there is a groundto disregard its separate 9uridical personality. If she were to operate a single proprietorship,her liability for its debts and losses will be unlimited.

The formation and the operation of a corporation re'uire a great deal of paper wor andrecord@eeping. This is not the situation in the case of a single proprietorship.

If she were to set@up the restaurant as a branch office an eisting corporation, thecorporation will have more funds as capital than if she were to form a separate corporation.owever, all the assets of the eisting corporation will be liable for the debts and losses of the restaurant business.

-. If you advise your client to use a corporation, what officer position must the corporation atleast have)

Answer *The corporation must have at least < directors. It must also have a president, treasurer,

and a secretary.

. 6hat particular 'ualifications, if any, are these officers legally re'uired to possess under theCorporation Code)

Answer *very director must own at least 1 share of the capital stoc of the corporation, which

must be recorded in his name on the boos of the corporation, and a ma9ority of thedirectors must be residents of the "hilippines.

The president must also be a director. The secretary must be a resident and citi:en of the "hilippines.

Q"es#$%n N%& 10!To secure a loan of "1/ #, #ario mortgaged his building to Armando. In accordance

with the loan arrangements, #ario had the building insured with 7irst Insurance Company for "1/ #, designating Armando as the beneficiary.

Armando also too an insurance on the building upon his own interest with econdInsurance Company for "? #.

The building was totally destroyed by fire, a peril insured against under both insurancepolicies. It was subse'uently determined that the fire had been intentionally started by #arioand that in violation of the loan agreement, he had been storing inflammable materials in thebuilding.

1. ow much, if any, can Armando recover from either or both insurance companies)

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Answer * Armando can receive "? # from econd Insurance Company. As mortgagee, he had aninsurable interest in the building. Armando cannot collect anything from 7irst InsuranceCompany. 7irst Insurance Company is not liable for the loss of the building. 7irst, it wasdue to a willful act of #ario, who committed arson. econd, fire insurance policiescontain a warranty that the insured will not store ha:ardous materials within the insured!s

premises. #ario breached this warranty when he stored inflammable materials in thebuilding. These two factors eonerate 7irst Insurance Company from liability to Armandoas mortgagee even though it was #ario who committed them.

-. 6hat happens to the "1/ # debt of #ario to Armando) plain.

Answer *ince Armando would have collected "? # from econd Insurance Company, this

amount should be considered as partial payment of the loan. Armando can only collect thebalance of "? #. econd Insurance Company can recover from #ario the amount of "? # itpaid, because it became subrogated to the rights of Armando.

Q"es#$%n N%& 11!nri'ue obtained from eguro Insurance Company a comprehensive motor vehicle

insurance to cover his top of the line Aston #artin. The policy was issued on #arch 1, -/1/and, on even date, nri'ue paid the premium with a personal chec postdated April , -/1/.

=n April ?, -/1/, the car was involved in an accident that resulted in its total loss.

=n April 1/, -/1/, the drawee ban returned nri'ue!s chec with the notation4Insufficient 7unds.5 0pon notification, nri'ue immediately deposited additional funds with theban and ased the insurer to redeposit the chec.

nri'ue thereupon claimed indemnity from the insurer. Is the insurer liable under theinsurance coverage) 6hy or why not)

Answer *The insurer is not liable under the insurance policy. 0nder Art 1-<2 of the Civil Code, the

delivery of a chec produces the effect of payment only when it is encashed. The loss occurredon April ?, -/1/. 6hen the chec was deposited, it was returned on April 1/, -/1/, for insufficiency of funds. The chec was honored only after nri'ue deposited additional funds withthe ban. ence, it did not produce the effect of payment.

Q"es#$%n N%& 12! AA entered into a contract with BB for the latter to transport ladies wear from #anila to

7rance with transshipment via Taiwan. omehow the goods were not loaded in Taiwan on time,hence, these arrived in 7rance [email protected] AA was only paid U the value by the buyer.

AA claimed damages from BB. BB invoed prescription as a defense under the C=FA.Considering the 4loss of value5 of the ladies wear as claimed by AA, is BB!s defense tenable)plain.

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Answer!3o. the defense of BB is not tenable. The 1 year prescriptive period in the C=FA

applies only in case the goods were not delivered or were delivered in a damaged condition. Itdoes not apply to damages as a result of delay in the delivery of the goods. The prescription of the action is governed by Article 11<< of the Civil Code, which provides for a prescriptive periodof 1/ years in case of actions based on a written contract.

Q"es#$%n N%& 13!"aolo, the owner of an ocean@going vessel, offered to transport the logs of Constantino

from #anila to 3agoya. Constantino accepted the offer, not nowing that the vessel wasmanned by an irresponsible crew with deep@seated resentments against "aolo, their employer.

Constantino insured the cargo of logs against both perils of the sea and barratry. Thelogs were improperly loaded on one side, thereby causing the vessel to tilt on one side. =n theway to 3agoya, the crew unbolted the sea valve of the vessel causing water to flood the shiphold. The vessel san.

Constantino tried to collect from the insurance company which denied liability, given theunworthiness of both the vessel and its crew.

Constantino countered that he was not the owner of the vessel and he could thereforenot be responsible for conditions about which he was innocent.

1. Is the insurance company liable)

Answer *3o. the insurance company is not liable because there is an implied warranty in every

marine insurance that the ship is seaworthy whoever is insuring the cargo, whether it be theshipowner or not. There was a breach of warranty, because the logs were improperly loaded

and the crew was irresponsible. It is the obligation of the owner of the cargo to loo for areliable common carrier which eeps its vessel in seaworthy condition.

-. at is 4barratry5 in marine insurance)

Answer *Barratry is any willful misconduct on the part of the master or the crew in pursuance of

some unlawful or fraudulent purpose without the consent of the owner and to the pre9udiceof the interest of the owner.

Q"es#$%n N%& 14!6hen =CCI&3TAL Ban folded up to insolvency, #anuel had the following separate

deposits in his nameJ "-//,/// in savings depositJ "-?/,/// in time depositJ "?/,/// in acurrent accountJ "1 # in a trust accountJ and " # in money maret placement. 0nder the"&IC Act, how much could #anuel recover)

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Answer *#anuel can recover "?//,/// because this is the total of his savings deposit, time

deposit and current account. The trust account and the money maret placements are notincluded in the insured deposits.

Q"es#$%n N%& 1*!6hile vacationing in Boracay, alentino surreptitiously too photographs of his girlfriend

#onali:a in her simpy biini. - wees later, her photograph appeared in the Internet and in anational celebrity maga:ine.

#onali:a found out that alentino had sold the photograph to the maga:ine and, addinginsult to in9ury, uploaded them to his personal blog on the Internet.

1. #onali:a filed a complaint against alentino for damages based on, among other grounds,violation of her intellectual property rights. &oes she have any cause of action) plain.

Answer *

3o. #onali:a cannot sue alentino for violation of her intellectual property rights,because she was not the one who too the pictures. he may sue alentino instead for violation of her right to privacy. e surreptitiously too photographs of her and then sold thephotographs to a maga:ine and uploaded them to his personal blog in the Internet.

-. alentino!s friend 7rancesco stole the photographs and duplicated them and sold them to amaga:ine publication. alentino sued 7rancesco for infringement and damages. &oesalentino have any cause of action) plain.

Answer *3o. alentino cannot sue 7rancesco for infringement, because he has already sold the

photographs to a maga:ine.

. &oes #onali:a have any cause of action against 7ranceso) plain.

Answer *+es. #onali:a can also sue 7rancesco for violation of her right to privacy.

Q"es#$%n N%& 1+! An importer of Christmas toys loaded 1// boes of anta Clause taling dolls aboard a

ship in Eorea bound for #anila. 6ith the intention of smuggling U of his cargo, he too a bill of lading for only ?/ boes to save the more precious cargo.

1. Is the importer entitled to receive any indemnity for average)

Answer *3o. The importer is not entitled to receive any indemnity for average. In order that the

goods 9ettisoned may be included in the general average and the owner be entitled toindemnity, it is necessary that their eistence on board be proven by means of the bill of lading.

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-. 6hat are the types of averages in marine commerce)

Answer *The types of averages are particular and general average. "articular averages include

all epenses and damages caused to the vessel or to the cargo which did not inure to the

common benefit and profit of all the persons interested in the vessel and the cargo. Feneralaverages include all damages and epenses which are deliberately caused to save thevessel, its cargo, or both at the same time, from real and nown ris.

Q"es#$%n N%& 1,!The upreme Court has held that fraud is an eception to the 4independence principle5

governing letters of credit. plain this principle and give an eample of how fraud can be aneception.

Answer *The 4independence principle5 posits that the obligations of the parties to a letter of credit

are independent of the obligations of the parties to the underlying transaction. Thus, thebeneficiary of the letter of credit, which is able to comply with the documentary re'uirementsunder the letter of credit, must be paid by the issuing or confirming ban, notwithstanding theeistence of a dispute between the parties to the underlying transaction, say a contract of saleof goods where the buyer is not satisfied with the 'uality of the goods delivered by the seller.The upreme Court in (ransfield Philippines' )nc. v. Luzon #"dro Corporation' **+ !C$A +,- /,,*0 for the first time declared that fraud is an eception to the independence principle. 7or instance, if the beneficiary fraudulently presents to the issuing or confirming ban documentsthat contain material facts that, to his nowledge, are untrue, then payment under the letter of credit may be prevented through court in9unction.

Q"es#$%n N%& 1-!7or years, + has been engaged in the parallel importation of famous brands, including

shoes carrying the foreign brand #AFIC. clusive distributor M demands that + ceaseimportation because of his appointment as eclusive distributor of #AFIC shoes in the"hilippines.

+ countered that the trademar #AFIC is not registered with the Intellectual "roperty=ffice as a trademar and therefore no one has the right to prevent its parallel importation.

1. 6ho is correct) 6hy)

Answer *

M is correct. is rights under his eclusive distributorship agreement are property rightsentitled to protection. The importation and sale by + of #AFIC shoes constitutes unfair competition. 8egistration of the trademar is not necessary in case of an action for unfair competition.

-. uppose the shoes are covered by a "hilippine patent issued to the brand owner, whatwould your answer be) plain.

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Answer *

A patent for a product confers upon its owner the eclusive right of importing the product.The importation of a patented product without authori:ation of the owner of a patentconstitutes infringement of the patent. M can prevent the parallel importation of such shoesby + without its authori:ation.

Q"es#$%n N%& 1.!&r. 3obel discovered a new method of treating Al:heimer!s involving a special method of

diagnosing the disease, treating it with a new medicine that has been discovered after longeperimentation and field testing, and novel mental isometric eercises. e comes to you for advice on how he can have his discoveries protected. Can he legally protect his new method of diagnosis, the new medicine, and the new method of treatment) If no, why) If yes, how)

Answer *&r. 3obel can be protected by a patent for the new medicine as it falls within the scope

of ection -1 of the Intellectual "roperty Code. But no protection can be legally etended to him

for the method of diagnosis and method of treatment which are epressly non@patentable.

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200. BAR EXAMINATION

PART I

Q"es#$%n N%& 1!TRUE OR /ALSE& Answer T80 if the statement is true, or 7AL if the statement is

7AL. plain your answer in not more than - sentences.

a% The &enicola (est in intellectual property law states that if design elements of an articlereflect a merger of aesthetic and functional considerations, the artistic aspects of the worcannot be conceptually separable from the utilitarian aspectsJ thus, the article cannot becopyrighted.

Answer *True. Applying the &enicola (est in %randir )nternational' )nc. v. Cascade Pacific Lum1er

Co. $H< 7.-d 11<-, 12HH Copr.L.&ec. "-%, the 0nited tate Court of Appeals for the

econd Circuit held that if there is any aesthetic element which can be separated from theutilitarian elements, then the aesthetic element may be copyrighted.

b% If the =mbudsman is convinces that there is a violation of law after investigating a complaintalleging illicit ban deposits of public officer, the =mbudsman may order the ban concernedallow in camera inspection of ban records and documents.

Answer *7alse. The Ban ecrecy Law prohibits the inspection of a ban account unless the

permission of the account holder is obtained, or upon lawful order of the court or when thedeposit is the sub9ect matter of litigation. Investigation by the =mbudsman is not considered

as a pending litigation to allow the eamination of the ban records and documents.

c% ven if the seller and the buyer in a sale in bul violate the Bul ales Law, the sale wouldstill be valid.

Answer *7alse. 6hen the Bul ale Law is violated, the sale is null and void. 6hen the provision

of the said law have not been complied with, the sale is considered as being 4fraudulent andvoid5 and even when coupled with delivery, the title over the goods does not transfer to thebuyer. owever, the civil liabilities arising from the transaction remain enforceable betweenthe parties thereto.

d% &ividends on shares of stoc can only be declared out of unrestricted retained earnings of the corporation.

Answer *True. &ividends on shares of stoc of a corporation, whether cash dividend or stoc

dividend, can be validly declared only out of unrestricted retained earnings. It cannot be

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declared out of the capital. =therwise, such declaration of dividend will violate the trust funddoctrine.

e% A ban under a receivership can still grant new loans and accept new deposits.

Answer *7alse. &uring the receivership, the assets and properties of the corporation are being

gathered for conversion into cash in preparation for distribution to creditors. Franting newloans and accepting new deposits would constitute doing business for the ban in theordinary course of business which is contrary to the purpose and nature of a receivershipproceeding.

Q"es#$%n N%& 2! Atlantis 8ealty Corporation $A8C%, a local firm engaged in real estate development,

plans to sell one of its prime assets(a @hectare land valued at about "1// #. for this purpose,the board of directors of A8C unanimously passed a resolution approving the sale of the

property for ">? # to hangrila 8eal state entures $8%, a rival realty firm. The resolutionalso called for a special stocholders meeting at which the proposed sale would be up for ratification.

Atty. dric, a stocholder who owns only 1 share in A8C, wants to stop the sale. e thencommences a derivative suit for and in behalf of the corporation from approving the sale.

a% Can Atty. dric, who owns only 1 share in the company, initiate a derivative suit) 6hy or why not)

Answer *+es, Atty. dric can initiate a derivative suit, otherwise nown as the minority

stocholders! suit. It is allowed by law to enable the minority stocholder;s to protect theinterest of the corporation against illegal or disadvantageous act;s of its officers or directors,the people who are supposed to the corporation.

b% If such a suit is commenced, would it constitute an intra@corporate dispute) If so, why andwhere would such a suit be filed) If not, why not)

Answer *+es, such suit would constitute an intra@corporate dispute as it is a suit initiated by a

stocholder against other stocholders who are officers and directors of the samecorporation. uch suit should be filed in the 8TC designated by the upreme Court as a

corporate or commercial court.

c% 6ill the suit prosper) 6hy or why not)

Answer *3o. The suit will not prosper. There is no re'uisite demand on the officers and directors

concerned. There is, therefore, no ehaustion of administrative remedies.

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Q"es#$%n N%& 3! Armando, a resident of #anila, borrowed " # from Bernardo, offering as security his

?// shares of stoc worth "1.? # in Meres Corporation, and his -//> B#6 sedan, valued at"- #. the mortgage on the shares of stoc was registered in the =ffice of the 8egister of &eedsof #aati City where Meres Corporation has its principal office. The mortgage on the car was

registered in the =ffice of the 8egister of &eeds of #anila. Armando eecuted a single Affidavitof Food 7aith, covering both mortgages.

Armando defaulted on the payment of his obligationJ thus, Bernardo foreclosed on thetwo chattel mortgages. Armando filed suit to nullify the foreclosure and the mortgages, raisingthe following issues*

a% The eecution of only one Affidavit of Food 7aith for both mortgages invalidated the twomortgagesJ and

Answer!The eecution of only one Affidavit of Food 7aith for both mortgages is not a ground to

nullify the said mortgages and the foreclosure thereof. aid mortgages are valid as betweenimmediate parties, although they cannot bind third parties.

b% The mortgage on the shares of stocs should have been registered in the =ffice of the8egister &eeds of #anila where he resides, as well as in the stoc and transfer boo of Meres Corporation.

8ule on the foregoing issues with reasons.

Answer *The mortgage on the shares of stoc should be registered in the chattel mortgage

registry in the register of &eeds of #aati City where the corporation has its principal officeand also in the 8egister of &eeds of #anila where the mortgagor resides. 8egistration of chattel mortgage in the stoc and transfer boo is not re'uired to mae the chattel mortgagevalid. 8egistration of dealings in the stoc and transfer boo under ection of theCorporation Code applies only to sale or disposition of shares, and has no application tomortgages and other forms of encumbrances.

c% Assume that Bernardo etra9udicially foreclosed on the mortgages, and both the car and theshared of stoc were sold at public auction. If the proceeds from such public sale should be1@million short of Armando!s total obligation, can Bernardo recover the deficiency) 6hy or why not)

Answer *+es. Bernardo can recover the deficiency. Chattels are given as mere security, and not

as payment or pledge.

Q"es#$%n N%& 4! Antarctica Life Assurance Corporation $ALAC% publicly offered a specially designed

insurance policy covering persons between the ages of ?/ to >? who may be afflicted with

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serious and debilitating illnesses. uirco applied for insurance coverage, stating that he wasalready H/ years old. 3onetheless, ALAC approved his application.

uirco then re'uested ALAC for the issuance of a cover note while he was trying to raisefunds to pay the insurance premium. ALAC granted the re'uest. 1/ days after he received thecover note, uirco had a heart sei:ure and had to be hospitali:ed. e then filed a claim on the

policy.

a% Can ALAC validly deny the claim on the ground that the insurance coverage, as publiclyoffered was available only to persons ?/ to >? years of age) 6hy or why not)

Answer *3o. by approving the application of uirino who disclosed that he was already H/ years

old, ALAC waived the age re'uirement. ALAC is now stopped from raising such defense of age of the insured.

b% &id ALAC!s issuance of a cover note result in the perfection of an insurance contract

between uirco and ALAC) plain.

Answer *+es. The issuance of a cover note resulted in the perfection of the contract of insurance.

In that case, it is only because there is delay in the issuance of the policy that the cover notewas issued.

The cover note is a receipt whereby the company agrees to insure the insured for /days pending the issuance of a regular policy. 3o separate premium is to be paid on a cover note. It is not a separate policy but is integrated in the regular policy to be subse'uentlyissued.

Q"es#$%n N%& *!Cecilio is planning up a grocery store in the subdivision where he and his family reside.

To promote this proposed business venture, he told his wife and children to send outpromotional tet messages to all the residents in the subdivision. Cecilio!s family members didas instructed, and succeeded in reaching, through tet messages, more than H/K of theresidents in the subdivision.

Is Cecilio habitually engaged in commerce even if the grocery store has yet to beestablished) plain your answer.

Answer *

+es. ven if the grocery store has yet to be established, Cecilio already habituallyengaged in commerce, when per his instruction the members of his family contacted more thanH/K the residents of the subdivision where they reside. According to Article of the Code of Commerce, 4legal presumption of habitually engaging in commerce shall eist from the momentthe person who intends to engage therein announced through circulars, newspapers, handbills,posters ehibited to the public, or in any other manner whatsoever, an establishment which hasfor its ob9ect some commercial operation.5 Tet messages may 'ualify to be e'uivalent toelectronic documents.

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Q"es#$%n N%& +!Loren:o drew a bill of echange in the amount of "1//,/// payable to Barbara or order,

with his wife, &iana, as drawee. At the time the bill was drawn, &iana was unaware that Barbarais Loren:o!s paramour.

Barbara then negotiated the bill to her sister, lena, who paid for it for value, and whodid not now who Loren:o was. =n due date, lena presented the bill to &iana for payment, butthe latter promptly dishonored the instrument because, by then, &iana had already learned of her husband!s dalliance.

a% 6as the bill lawfully dishonored by &iana) plain.

Answer *3o, the bill was not lawfully dishonored by &iana. lena, to whom the instrument was

negotiated, was a holder in due course inasmuch as she paid value therefor in good faith.

b% &oes the illicit cause or consideration adversely affect the negotiability of the bill) plain.

Answer *3o. The illicit cause or consideration does not adversely affect the negotiability of the bill,

especially in the hands of a holder in due course. 0nder ec. 1 of the 3IL, the bill of echange is a negotiable instrument. very negotiable instrument is deemed prima facie tohave been issued for valuable consideration, and every person whose signature appearsthereon is deemed to have become a party thereto for value.

Q"es#$%n N%& ,!Flobal Transport ervices, Inc $FTI% operates a fleet of cargo vessels plying interisland

routes. =ne of its vessels, # &onna Duana, left the port of #anila for Cebu laden with, amongother goods, 1/,/// television sets consigned to 8omualdo, a T retailer in Cebu.

6hen the vessel was about 1/ nautical miles away from #anila, the ship captain heardon the radio that a typhoon which, as announced by "AF@AA, was on its way out of thecountry, had suddenly veered bac into "hilippine territory. The captain reali:ed that # &onaDuana would traverse the storm!s path, but decided to proceed with the voyage. True enough,the vessel sailed into the storm. The captain ordered the 9ettison of the 1/,/// television sets,along with some other cargo, in order to lighten the vessel and mae it easier to steer the vesselout of the path of the typhoon. ventually, the vessel, with its crew intact, arrived safely in Cebu.

a% 6ill you characteri:e the 9ettison of 8omualdo!s T sets as an average) If so, what ind of

an average, and why) If not, why not)

Answer *The 9ettison of 8omualdo!s T sets resulted in a general average loss, which entitles him

compensation or indemnification from the shipowner and the owners of the cargoes savedby the 9ettison.

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b% Against whom does 8omualdo have a cause of action for indemnity of his lost T sets)plain.

Answer *8omualdo has a cause of action for his lost T sets against the shipowner and the

owners of the cargoes saved by the 9ettison. The 9ettison of the T sets resulted in a general

average loss, entitling 8omualdo to indemnity for the lost T sets.

Q"es#$%n N%& -!#aharliang "ilipino Baning Corporation $#"BC% operates several branches of

#aharliang "ilipino 8ural Ban in astern isayas. Almost all the branch managers are closerelatives of the members of the Board of &irectors of the corporation. #any undeservingrelatives of the branch managers were granted loans. In time, the branches could not settle their obligations to depositors and creditors.

8eceiving reports of these irregularities, the upervising and amining &epartment$&% of the #onetary Board prepared a detailed report $& 8eport% specifying the facts and

the chronology of events relative to the problems that beset #"BC rural ban branches. Thereport concluded that the ban branches were unable to pay their liabilities as they fell due, andcould not possibly continue in business without incurring substantial losses to its depositors andcreditors.

a% #ay the #onetary Board order the closure of the #"BC rural bans relying only on the &8epost, without need of an eamination) plain.

Answer *+es. 0pon receipt of the report of the &, the #onetary Board is authori:ed to tae any

of the actions enumerated under ec. /, 8A 3o. >?, otherwise nown as the 3ewCentral Ban Act, leading to the receivership and li'uidation of a ban or 'uasi@ban. There

is no re'uirement that an eamination be first conducted before a baning institution may beplaced under receivership.

b% If the #"BC hires you as a lawyer because the #onetary Board has forbidden it fromcarrying on its business due to its imminent insolvency, what action will you institute to'uestion the #onetary Board!s order) plain.

Answer *The order of the #onetary Board may be 'uestioned on a petition for certiorari on the

ground that the action taen was in ecess of 9urisdiction or with grave abuse of discretionamounting to lac or ecess of 9urisdiction. The petition of certiorari may only be filed by the

stocholders of record representing the ma9ority of the capital stoc within 1/ days fromreceipt by the board of directors of the #"BC of the order directing receivership, li'uidationor conservatorship.

Q"es#$%n N%& .!6hen is there an ultra vires act on the part of $a% the corporationJ $b% the board of

directorsJ and $c% the corporate officers.

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Answer *a% 0nder ec. <? of the Corporation Code, no corporation shall possess or eercise any

corporate power ecept those conferred by the Code or by its articles of incorporationand ecept such as are necessary or incidental to the eercise of the powers soconferred. 6hen the corporation does an act or engages in an activity which is outsideof its epress, implied or incidental powers set out in its articles of incorporation, the act

is deemed to be ultra vires.

b% 6hen the Board engages in an activity or enters into a contract without the ratificatoryvote of the stocholders in those instances where the Corporation Code so re'uiressuch ratificatory vote, such as when the corporation is made to invest in another corporation or engage in a business which is not in pursuit of its primary purpose, theboard resolution not ratified by stocholders owning or representing at least -; of theoutstanding capital stoc would mae the transaction void, as being ultra vires.

c% 6hen a corporate officer enters into a contract on behalf of the corporation withouthaving been so epressly or impliedly authori:ed by the board of &irectors, even whenthe act or contract falls within the corporation!s epress, implied or incidental power, then

the unauthori:ed act of the corporate officer is deemed to be ultra vires.

Q"es#$%n N%& 10!6hat are the so@called eempt securities under the 8C)

Answer *0nder ec. 2 of the 8C, the so@called eempt securities are*

a. Those issued or guaranteed by the government of the "hilippines or any of its politicalsubdivisions or agenciesJ

b. Those issued or guaranteed by the government of any foreign country with which the

"hilippines has diplomatic relations, or any other state on the basis of reciprocity,although the C may re'uire compliance with the form and content of disclosuresJ

c. Those issued by the receiver or by the trustee in a banruptcy duly approved by theproper ad9udicatory boardJ

d. Those involving the sale or transfer which is by law, under the regulation of the =IC,L08B, BI8J and

e. Those issued by bans, ecept its own shares.

PART II

Q"es#$%n N%& 10!TRUE %r /ALSE& Answer T80 if the statement is true, or 7AL if the statement is

7AL. plain your answer in not more than - sentences.

a% A loan agreement which provides that the debtor shall pay interest at the rate determined bythe ban!s branch manager violates the disclosure re'uirement of the Truth in Lending Act.

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Answer *True. This is contrary to the duty of the creditor to disclose in detail the interests, charges

and other figures indicating in detail the cost of the credit granted to the debtor.

b% 0nder the 6arehouse 8eceipts Law, a warehouseman loses his lien upon the goods when

he surrenders possession thereof.

Answer *True. A lien is dependent on possession. 6hen a warehouseman surrenders

possession, he thereby loses his lien on the goods over which he no longer has possession.

c% The #owe" (est that there is an investment contract when a person invests money in acommon enterprise and is led to epect profits primarily from the efforts of others.

Answer *7alse. The #owe" (est re'uires a transaction, contract, or scheme whereby a person

maes an investment of money in a common enterprise with the epectation of profits to bederived solely, not primarily from efforts of others.

d% A document, dated Duly 1?, -//2, that reads* 4Pa" to 2 or order the sum of P3',,,.,, fiveda"s after his pet dog' !par"' dies. !igned 4.5 is a negotiable instrument.

Answer *True. The document is sub9ect to a term and not a condition. The dying of the dog is a

day which is certain to com. Therefore, the order to pay is unconditional, in compliance withection 1 of the 3IL.

e% 4A ban is bound to now its depositor!s signature5 is an infleible rule in determining theliability of a ban in forgery cases.

Answer *7alse. In cases of forgery, the forger may not necessarily be a depositor of the ban,

especially in the case of a drawee ban. +et in many cases of forgery, it is the drawee that isheld liable for the loss.

Q"es#$%n N%& 12!Faudencio, a store owner, obtained a "1 # loan from Bathala 7inancing Corporation

$B7C%. As security, Faudencio eecuted a 4&eed of Assignment of 8eceivables,5 assigning 1?checs received from various customers who bought merchandise from his store. The checswere duly indorsed by Faudencio!s customers.

The &eed of Assignment contains the following stipulation*

4)f' for an" reason' the receiva1les or an" part thereof cannot 1e paid 1" the o1ligors' the A!!)G56$ unconditionall" and irrevoca1l" agrees to pa" the same' assuming the lia1ilit" to

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pa"' 1" wa" of a penalt"' +7 of the total amount unpaid' for the period of dela" until the same isfull" paid.5

6hen the checs became due, B7C deposited them for collection, but the drawee bansdishonored all the checs for one of the following reasons* 4account closed,5 4payment stopped,54account under garnishment,5 or 4insufficiency of funds5. B7C wrote Faudencio notifying him of

the dishonored checs, and demanding payment of the loan. Because Faudencio did not pay,B7C filed a collection suit.

In his defense, Faudencio contended that* $a% B7C did not give timely notice of dishonor of the checsJ and $b% considering that the checs were duly indorsed, B7C should proceedagainst the drawers and the indorsers of the checs.

Are Faudencio!s defenses tenable) plain.

Answer *3o. Faudencio!s defenses are untenable. The cause of action of B7C was really on the

contract of loan, with the checs merely serving as collateral to secure the payment of the loan.

By virtue of the &eed of Assignment which he signed, Faudencio undertoo to pay for thereceivables if for any reason they cannot be paid by the obligors.

Q"es#$%n N%& 13!Ciriaco leased a commercial apartment from upreme Building Corporation $BC%. =ne

of the provisions of the 1@year lease contract states*

41H. The L shall not insure against fire the chattels, merchandise, tetiles,goods and effects placed at any stall or store or space in the leased premises without firstobtaining the written consent of the L=8. If the L obtains five insurance coveragewithout the consent of the L=8, the insurance policy is deemed assigned and transferred to

the L8= for the latter!s benefit.5

3otwithstanding the stipulation in the contract, without the consent of BC, Ciriacoinsured the merchandise inside the premises against loss by fire in the amount of "?//,/// with7irst 0nited Insurance Corporation $70IC%.

A day before the lease contract epired, fire broe out inside the leased premises,damaging Ciriaco!s merchandise. aving learned of the insurance earlier procured by Ciriaco,BC demanded from 70IC that the proceeds of the insurance policy be paid directly to it, asprovided in the lease contract.

6ho is legally entitled to receive the insurance proceeds) plain.

Answer!Ciriaco is entitled to receive the proceeds of the insurance policy. The stipulation that the

policy is deemed assigned and transferred to BC is void, because BC has no insurableinterest in the merchandise of Ciriaco.

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Q"es#$%n N%& 14!MMM Corporation $MMM% and its sister company, +++ Corporation $+++%, are both under

9udicial receivership. The receiver has the option to sell all or substantially all of the properties of +++ to MMM, or simply merge the two corporations. 0nder either option, the re'uirements under the Corporation Code have to be complied with.

The receiver sees your advice on whether the Bul ales Law will apply to either, or both, options. 6hat will your advice be)

Answer!I will advice the receiver that the Bul ales Law does not apply to both options. ection

H of the Bul ales Law epressly provides that it will not apply to eecutors, administrators,receivers, and assignees in insolvency, or public officers, acting under 9udicial process. In thiscase, the receiver is acting under 9udicial process.

Q"es#$%n N%& 1*! After disposing of his last opponent in only two rounds in Las egas, the renowned

boer onny Bachao arrived at the 3AIA met by thousands of hero@worshipping fans andhundreds of media photographers. The following day, a colored photograph of onny wearing ablac polo short embroidered with the -@inch Lacoste crocodile logo appeared on the front pageof every "hilippine newspaper.

Lacoste International, the 7rench firm that manufactures Lacoste apparel and owns theLacoste trademar, decided to cash in on the universal popularity of the boing icon. It reprintedthe photographs, with the permission of the newspaper publishers, and went on a world@wideblit: of print commercials in which onny is shown wearing a Lacoste shirt alongside the phrase4!onn" %achao 8ust loves Lacoste5.

6hen onny sees the Lacoste advertisements, he hires you as a lawyer and ass you to

sue Lacoste International before a "hilippine court*

a% 7or trademar infringement in the "hilippines because Lacoste International used his imagewithout his permission,

Answer *onny Bachao cannot sue for infringement of trademar. The photographs showing him

wearing a Lacoste shirt were not registered as a trademar.

b% 7or copyright infringement because of the unauthori:ed use of the published photographs.

Answer *onny Bachao cannot sue for infringement of copyright for the unauthori:ed use of the

photographs showing him wearing a Lacoste shirt. The copyright to the photographs belongto the newspaper which published them inasmuch as the photographs were the result of theperformance of the regular duties of the photographers. #oreover, the newspaper publishers authori:ed the reproduction of the photographs.

c% 7or in9unction in order to stop Lacoste International from featuring him in their commercials.

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6ill these actions prosper)

Answer *The complaint for in9unction to stop Lacoste International from featuring him in its

advertisements will prosper. This is a violation of subsection 1-.<V of the I"C and Art. 12

in relation to Article 1>/ of the 8"C.

d% Can Lacoste International validly invoe the defense that it is not a "hilippine company and,therefore, "hilippine courts have no 9urisdiction) plain.

Answer *3o. "hilippine courts have 9urisdiction over it, if it is doing business in the "hilippines.

#oreover, under ection 1 of the Corporation Code, while a foreign corporation doingbusiness in the "hilippines without license to do business, cannot sue or intervene in anyaction, it may be sued or proceeded against before our courts or administrative tribunal.

Q"es#$%n N%& 1+!=n eptember 1?, -//>, M+G Corporation issued to "aterno H// preferred shares with

the following terms*

4(he Preferred !hares shall have the following rights' preferences' qualifications' and limitations' to wit9

:. (he right to receive a quarterl" dividend of :7 cumulative participating;/. (hese shares ma" 1e redeemed' 1" drawing of lots' at an" time after / "ears from date

of issue' at the option of the Corporation; x x x.<

Today, "aterno sues M+G Corporation for specific performance, for the payment of dividendson, and to compel the redemption of, the preferred shares, under the terms and conditionsprovided in the stoc certificates. 6ill the suit prosper) plain.

Answer *3o. the suit will not prosper. "aterno cannot compel M+G Corporation to pay dividends,

which have to be declared by the Board of &irectors and the latter cannot do so, unless thereare sufficient unrestricted retained earnings. =therwise, the corporation will be forced to use itscapital to mae said payments in violation of the trust fund doctrine. Liewise, redemption of shares cannot be compelled. 6hile the certificate allows such redemption, the option anddiscretion to do so are clearly vested in the Corporation.

Q"es#$%n N%& 1,!"hilippine "alaces 8ealty $""8% had been representing itself as a registered broer of

securities, duly authori:ed by the C. =n =ctober , 122, ""8 sold to spouses Leon andCarina one timeshare of "alacio del Boracay for 0O>,?//. owever its 8egistration tatementbecame effective only on 7ebruary 11, 122H after the C issued a resolution declaring that""8 was authori:ed to sell securities, including timeshares

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=n #arch /, 122H, Leon and Carina wrote ""8 rescinding their purchase agreementand demanding the refund of the amount they paid, because the "alacio del Boracay timesharewas sold to them by ""8 without the re'uisite license or authority from the C. ""8contended that the grant of the C authority had the effect of ratifying the purchase agreement$with Leon and Carina% of =ctober , 122.

Is the contention of ""8 correct) plain.

Answer *The contention of ""8 is not correct. It is settled that no securities shall be sold or

offered for sale or distribution in the "hilippines without a registration duly filed and approved bythe Commission. Corporate registration is one of the re'uirements under ection H of B" Blg.1>H.

Q"es#$%n N%& 1-!Triple A Corporation $Triple A% was incorporated in 12/, with ?// founder!s shares and

>H common shares as its initial capital stoc subscription. owever, Triple A registered its stoc

subscription. owever, Triple A registered its stoc and transfer boos only in 12>H, andrecorded merely common shares as the corporation!s issued and outstanding shares.

a% In 12H-, Duancho, the sole heir of one of the original incorporators filed apetition with theC for the registration of his property rights over 1-/ founder!s shares and 1- commonshares. The petition was supported by a copy of the Articles of Incorporation indicating theincorporators! initial capital stoc subscription. 6ill the petition be granted) 6hy or why not)

Answer *+es. The articles of incorporation defines the charter of the corporation and the

contractual relationship between the tate and the corporation, the tate and thestocholders, and between the corporation and the stocholders. Its contents are thus

binding upon both the corporation and the stocholders, conferring on Duancho a clear rightto have his stocholding recorded.

b% =n #ay , 122-, a special stocholders! meeting was held. At this meeting, what would haveconstituted a 'uorum) plain.

Answer * A 'uorum consists of the ma9ority of the totality of the shares which have been

subscribed and issued. Thus the 'uorum for such meeting would be -H2 shares or ama9ority of the ?> shares issued and outstanding as indicated in the articles of incorporation. This includes the common shares reflected in the stocs and transfer boo,

there being no mention or showing of any transaction effected from the time of Triple A!sincorporation in 12/ up to the said meeting.

c% 6hat is a stoc and transfer boo)

Answer *a stoc and transfer boo is a boo which records all stocs in the name of the

stocholders alphabetically arrangedJ the installments paid or unpaid on all stocs for which

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subscription has been made and the date of payment of any installment, a statement of every alienation, sale or transfer of stoc made, the date thereof, and by and to whommadeJ and such other entries as the by@laws may prescribe.

Q"es#$%n N%& 1.!

=ne of the passenger buses owned by Continental Transit Corporation $CTC%, plying itsusual route, figured in a collision with another bus owned by 0nniversla Transport Inc. $0TI%.

Among those in9ured inside the CTC bus were* 8omeo, a stow awayJ amuel, a picpocet thenin the act of robbing his seatmate when the collision occurredJ Teresita, the bus driver!s mistresswho usually accompanied the driver on his trips for freeJ and 0riel, a holder of a free riding passhe won in a raffle held by CTC.

a% 6ill a suit for breach of contract of carriage filed by 8omeo, amuel, Teresita, and 0rielagainst CTC prosper) plain.

Answer *8omeo cannot sue for breach of contract of carriage. A stowaway lie 8omeo, who

secures passage by fraud, is not a passenger.

amuel and Teresita cannot sue for breach of contract of carriage. The element s in thedefinition of a passenger are* an undertaing of a person to travel in the conveyanceprovided by the carrier and an acceptance by the carrier of the person as a passenger.amuel did not board the bus to be transported but to commit robbery. Teresita did notboard the bus to be transported but to accompany the driver while he was performing hiswor

0riel can sue for breach of contract of carriage. e was a passenger although he wasbeing transported gratuitously, because he won a free riding pass in a raffle held by CTC.

b% &o 8omeo, amuel, Teresita, and 0riel have a cause of action for damages against 0TI)plain.

Answer *8omeo, amuel, Teresita, and 0riel may sue 0TI on the basis of 'uasi@delict since they

have no pre@eisting contractual relationship with 0TI. They may allege that the collision wasdue to the negligence of driver of 0TI and 0TI was negligent in the selection andsupervision of its driver.

c% 6hat, if any, are the valid defenses that CTC and 0TI can raise in the respective actions

against them) plain.

Answer *6ith respect to 8omeo, amuel and Teresita, since there was no pre@eisting

contractual relationship between them and CTC, CTC can raise the defense that it eercisedthe due diligence of a good father of a family in the selection of its driver.

It can raise the same defense against 0riel if there is a stipulation that eempts it fromliability for simple negligence, but not for willful acts or gross negligence.

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CTC cam also raise against all the plaintiffs the defense that the collision was dueeclusively to the negligence of the driver of 0TI, and this constitutes a fortuitous event,because there was no concurrent negligence on the part of its own driver.

CTC can also raise against amuel the defense that he was engaged in a seriously

illegal act at the time of the collision, which can render him liable for damages on the basisof 'uasi@delict.

ince 0TI had no pre@eisting contractual relationship with any of the plaintiffs, it canraise the defense that it eercised due diligence in the selection and supervision of its driver,that the collision was due eclusively to the negligence of the driver of CTC, and thatamuel was committing a seriously illegal act at the time of the collision.

Q"es#$%n N%& 20!0nder the 8C, what is the #argin Trading 8ule)

Answer *0nder the #argin Trading 8ule, no registered broer or dealer, or member of an

echange shall etend credit on any security an amount greater than whichever is higher of*

a% ?K of the current maret price of the securityJb% 1//K of the lowest maret price of the security during the preceding calendar

months, but not more than >?K of the current maret price.

The purpose of the #argin Trading 8ule is to prevent ecessive use of credit for thepurchase of securities it is a counter to broer!s desire to generate more sales byencouraging clients to buy securities on credit.

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200- BAR EXAMINATION

1. M Corporation entered into a contract with "T Construction Corp. for the latter toconstruct and build a sugar mill within months. They agreed that in case of delay, "TConstruction Corp. will pay M Corporation "1//,/// for every day of delay. To ensure payment

of the agreed amount of damages, "T secured from Atlantic Ban a confirmed and irrevocableletter of credit which was accepted by M Corporation in due time. 1 wee before the epirationof the month period, "T re'uested for an etension of time to deliver claiming that the delaywas due to the fault of M Corporation. A controversy as to the cause of the delay which involvedthe wormanship of the building ensued. The controversy remained unresolved. &espite thecontroversy, M Corporation presented a claim against Atlantic Ban by eecuting a draft againstthe letter of credit.

a% Can Atlantic Ban refuse payment due to the unresolved controversy) plain.b% Can M Corporation claim directly from "T Construction Company)

Answer *

a% Atlantic Ban cannot refuse to pay because in a letter of credit, where the credit isstipulated as irrevocable, there is a definite undertaing by the issuing ban to pay thebeneficiary, provided that the stipulated documents are presented and the conditions of the credit are complied with. 0nder the 4independence principle5, the issuing ban is notobligated to ascertain compliance by the parties in the main contract. In other words,where the legal relation arises from a letter of credit, such letter of credit contains theentire contract of the parties and the resulting obligations should be measured by itsprovisions. It is unaffected by any breach of contract on the part of one of the parties or by any controversy which may arise between them.

b% +es, M Corp. can claim directly from "T. the call upon the letter of credit is not eclusiveJit is merely an alternative remedy in case of delay due to the fault of "T.

-. Tom Cru: obtained a loan of "1# from M+G Ban to finance his purchase of ?,/// bags of fertili:er. e eecuted a trust receipt in favor of M+G Ban over the ?,/// bags of fertili:er.Tom withdrew the ?,/// bags from the warehouse to be transported to Lucena City wherehis store was located. =n the way, armed robbers too from Tom the ?,/// bags of fertili:er. Tom now claims that his obligation to pay the loan to M+G Ban is etinguishedbecause the loss was not due to his fault. Is Tom correct) plain.

Answer *Being the entrustee, the obligation of Tom Cru: to pay M+G Ban is not etinguished by

the loss of goods. ection 1/ of the Trust 8eceipts Law provides*

4ection 1/. Lia1ilit" of entrustee for loss. The ris of loss shall be borne by theentrustee. Loss of goods, documents or instruments which are the sub9ect of a trust receipt,pending their disposition, irrespective of whether or not it was due to the fault or negligenceof the entrustee, shall not etinguish his obligation to the entruster for the value thereof.5

. a% As a rule under the 3IL, a subse'uent party may hold a prior party liable but not vice@versa. Five - instances where a prior party may hold a subse'uent party liable.

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b% ow does the 4shelter principle5 embodied in the 3IL operate to give the rights of aholder in due course to a holder who does not have the status of a holder in due course)

Answer *a% A party may hold a subse'uent party liable in the following instances* $1% in case of an

accommodated partyJ and $-% in case of an acceptor for honor.

An accommodation party may hold the party accommodated liable to him, even if theparty accommodated is a subse'uent party. The relation between them is that of principal and surety. 7or the same reason, an acceptor for honor may hold the party for whose honor he accepted a bill of echange liable to him. A payer for honor issubrogated to the rights of the holder as regards the party for whose honor he paid andall parties liable to the latter.

b% The 4shelter principle5 provides that in the hands of a holder other than a holder in duecourse, a negotiable instrument is sub9ect to the same defenses as if it were non@negotiable. This principle is etended to a holder who is not himself a holder in duecourse but derives title from a holder in due course, provided he himself is not a party to

any fraud or illegality affecting the instrument. ection ?H of the 3IL provides*4ec. ?H. When su18ect to original defense. In the hands of any holder other thana holder in due course, a negotiable instrument is sub9ect to the same defensesas if it were non@negotiable. But a holder who derives his title through a holder indue course, and who is not himself a party to any fraud or illegality affecting theinstrument, has all the rights of such former holder in respect of all parties prior tothe latter5.

<. AB Corporation drew a chec for payment to M+ Ban. The chec was given to an officer of AB Corporation who was instructed to deliver it to M+ Ban. Instead, the officer, intending todefraud the Corporation, filled up the chec by maing himself as the payee and delivered it

to M+ Ban for deposit to his personal account. M+ Ban debited AB Corporation!s account. AB Corporation came to now of the officer!s fraudulent act after he absconded. ABCorporation ased M+ Ban to recredit its amount. M+ Ban refused.

a% If you were the 9udge, what issues would you consider relevant to resolve the case)plain.

b% ow would you decide the case) plain.

Answer *a% If I were the 9udge, I will consider the following issues* $1% whether the chec was a

complete instrumentJ $-% whether the chec has been deliveredJ and $% whether ABCorporation can be held liable for the amount of the chec.

b% The chec was an incomplete instrument in as much as the name of the payee as notwritten by the drawer, AB Corporation. owever, the said instrument has been deliveredby AB Corporation to its officer. Thus, the chec became binding on AB Corporation asdrawer thereof. An incomplete instrument, if delivered, as in this case, creates liabilityon the part of the drawer. Therefore, AB Corporation cannot as M+ Ban to recredit theamount of the chec to his account.

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?. "ancho drew a chec to Bong and Ferard 9ointly. Bong indorsed the chec and also forgedFeread!s indorsement. The payor ban paid the chec and charged "ancho!s account for the amount of the chec. Ferard received nothing from the payment.

a% "ancho ased the payor ban to recredit his account. hould the ban comply) plainfully.

b% Based on the facts, was "ancho as drawer discharged on the instrument) 6hy)

Answer *a% +es, the ban should recredit the full amount of the chec to the account of "ancho.

Considering that the chec was payable to the account of "ancho. Considering that thechec was payable to Bong and Ferard 9ointly, the indorsement of Ferard wasnecessary to negotiate the chec pursuant to ec. <1 of the 3IL, to wit*

4ec. <1. )ndorsement where pa"a1le to two or more persons.(6here an instrument ispayable to the order of - or more payees or indorsees who are not partners, all mustindorse unless the one indorsing has authority to indorse for the others5

ince Bong forged the signature of Ferard without authority, the indorsement waswholly inoperative.

b% "ancho was not discharged on the instrument, because the payment was not in duecourse.

. =n Danuary 1, -///, Antonio 8ivera secured a life insurance from = Insurance Corp. for "1 # with Femma 8ivera, his adopted daughter, as the beneficiary. Antonio 8ivera died on#arch <, -//? and in the police investigation, it was ascertained that Femma 8iveraparticipated as an accessory in the illing of Antonio 8ivera. Can = Insurance Corp.avoid liability by setting up as a defense the participation of Femma 8ivera in the illing of

Antonio 8ivera) &iscuss with reasons.

Answer *= cannot avoid liability under the policy. 6hile Femma!s interest as beneficiary in the

policy is considered forfeited since she is an accessory to the illing of Antonio, theproceeds of the policy should be paid to the nearest relative of Antonio $if not otherwisedis'ualified%. The Insurance Code provides that the interest of a beneficiary in a lifeinsurance policy shall be forfeited when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of the insuredJ in which event, the nearestrelative of the insured shall receive the proceeds of said insurance if not otherwisedis'ualified.

>. Terra:as de "ation erde, a condominium building, has a value of "?/ #. The owner insured the building against fire with insurance companies for the following amounts*

3orthern Insurance Corp.("-/ #outhern Insurance Corp.("/ #astern Insurance Corp.("?/ #

a% Is the owner!s taing of insurance for the building with insurers valid) &iscuss.

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b% The building was totally ra:ed by fire. If the owner decides to claim from asternInsurance Corp. only "?/ #, will the claim prosper) plain.

Answer *a% The taing of insurance from the insurers is valid. It is a case of 4double insurance5.

The Insurance Code provides that a double insurance eist where the same person is

insured by several insurers separately in respect to the same sub9ect and interest.

&ouble insurance is valid. 6hat is prohibited is for the insured to recover more than hisinterest or value of the property pursuant to the 4principle of indemnity5.

b% +es, the owner may legally claim the entire "?/ # from astern Insurance, Corp. TheInsurance Code provides that where the insured is overinsured by double insurance,the insured, unless the policy otherwise provides, may claim payment from the insurersin such order as he may select, up to the amount for which the insurers are severallyliable under their respective contracts. ach insurer is bound, as between himself andthe other insurers, to contribute ratably to the loss in proportion to the amount for whichhe is liable under his contract.

H. City 8ailways, Inc. $C8I% provides train service, for a fee, to commuters from #anila toCalamba, Laguna. Commuters are re'uired to purchase ticets and then proceed todesignated loading and unloading facilities to board the train. 8icardo antos purchased aticet for Calamba and entered the station. 6hile waiting, he had an altercation with thesecurity guard of C8I leading to a fistfight. 8icardo antos fell on the railway 9ust as thetrain was entering the station. 8icardo antos was run over by the train. e died.

In the action for damages files by the heirs of 8icardo antos, C8I interposed lac of causeof action, contending that the mishap occurred before 8icardo antos boarded the trainand that it was not guilty of negligence. &ecide.

Answer *C8I is liable. It has a contract of carriage with 8icardo, created from the moment the

latter purchased a ticet and entered the station. The duty of a common carrier lie the C8Iis to provide safety to its passengers, not only during the course of the trip, but as long asthey are within its premises and where they ought to be in pursuance to the contract of carriage. 7urthermore, a common carrier is liable for the death of or in9uries to passengersthrough the negligence or willful act of its employees, pursuant ot Art. 1>?2 of the CivilCode, to wit*

4Art. 1>?2. Common carriers are liable for the death of or in9uries to passengers throughthe negligence or willful acts of the former!s employees, although such employees may

have acted beyond the scope of their authority or in violation of the orders of the commoncarriers.

The liability of the common carriers does not cease upon proof that they eercised all thediligence of a good father of a family in the selection and supervision of their employees.5

2. =n =ctober /, -//>, #; "acific, a "hilippine registered vessel owned by Cebu hippingCompany $CC%, san on her voyage from ong Eong to #anila. mpire Assurance

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Company $mpire% is the insurer of the lost cargoes loaded on board the vessel which wereconsigned to &ebenhams Company. After it indemnified &enbenhams, mpire as subrogeefiled an action for damages against CC.

a% Assume that the vessel was seaworthy. Before departing, the vesse was advised bythe Dapanese #eteorological Center that it was safe to travel to its destination. But

while at sea, the vessel received a report of a typhoon moving within its general path.To avoid the typhoon, the vessel changed its course. owever, it was still at the fringeof the typhoon when it was repeated hit by huge waves, foundered and eventually san.The captain and the crew were saved ecept who perished. Is CC liable to mpire)plain.

b% Assume the vessel was not seaworthy as in fact its hull had leaed, causing flooding inthe vessel. 6ill your answer be the same) plain.

c% Assume the facts in 'uestion b%. Can the heirs of the crew members who perishedrecover from CC) plain fully.

Answer *a% 3o, CC is not liable to mpire. The doctrine of proper deviation is applicable in this

case. The change of course made by the vessel is proper as it was to avoid the typhoonand the huge waves which are considered perils of the sea.

b% 3o, my answer will be different. Allowing the vessel to depart on a voyage when it isnot seaworthy is a violation of the implied warranty of seaworthiness, and thusconstitutes negligence on the part of owner of the ship and the ship captain. Thehypothecary principle in maritime commerce(limiting the ship owner!s liability to theamount of insurance proceeds(is not applicable when the unseaworthiness of thevessel is due to the owner!s fault or negligence.

c% +es, the heirs of the crew members perished can recover from CC for negligencewhich constitutes a 'uasi@delict in this case.

1/. 3elson owned and controlled onnel Construction Company. Acting for the company,3elson contracted the construction of a building. 6ithout first installing a protective net atopthe sidewals ad9oining the construction site, the company proceeded with the constructionwor. =ne day a heavy piece of lumber fell from the building. It smashed a taicab which atthat time had gone offroad and onto the sidewal in order to avoid the traffic. The taicabpassenger died as a result.

a% Assume that the company had no more account and property in its name. as counsel

for the heirs of the victim, whom will you sue for damages, and what theory will youadopt)

b% If you were the counsel for onnel Construction, how would you defend your client)6hat would be your theory)

c% Could the heirs hold the taicab owner and driver liable) plain.

Answer *a% As counsel for the heirs of the victim, I will sue onnel Construction Company and

3elson for gross negligence which constitutes a 'uasi@delict. As an officer and

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controlling stocholder of onnel Construction Company, 3elson is solidarily liable withthe corporation for 'uasi@delict.

b% If I were the counsel for onnel Construction Company, I will argue that the proimatecause of the death of the victim is the gross negligence of the taicab driver. The latter drove the taicab offroad and onto the sidewal in order to avoid the traffic.7urthermore, I will argue that assuming that 3elson was negligent, he alone should be

sued as the onnel Coonstruction Company has a separate and distinct personality.3elson!s controlling interest in onnel Construction Company does not 9ustify thepiercing of the corporate veil.

c% +es, the heirs can hold the taicab owner and the driver solidarily liable for breach of contract of carriage and for 'uasi@delict. The common carrier has the duty to safelytransport its passenger, which it failed to do in this case. It cannot escape liability bypassing the blame to 3elson and onnel Construction Company as the taicab driver himself is concurrently negligent.

11. a% ince 7ebruary H, 12?, the legislature has not passed even a single law creating a

private corporation. 6hat provision of the Constitution precludes the passage of such law)

b% #ay the composition of the board of directors of the 3ational "ower Corporation $3"C%be validly reduced to ) plain your answer fully.

Answer *a% ection 1, Article MII of the 12H> Constitution states 4The Congress shall not, ecept

by general law, provide for the formation, organi:ation, or regulation of privatecorporations.5 The same provision is contained in ection >, Article MI of the 12?Constitution and ection <, Article MI of the 12> Constitution.

b% The composition of the board of directors of the 3"C may not be validly reduced to .

The Corporation Code applies in a suppletory manner to corporations created byspecial law. A corporation must have at least ? directors.

1-. "edro owns >/K of the subscribed capital stoc of a company which owns an officebuilding. "aolo and Duan own the remaining stoc e'ually between them. "aolo also ownsa security agency, a 9anitorial company and a catering business. In behalf of the officebuilding company, "aolo engaged his companies to render their service to the officebuilding. Are the service contracts valid) plain.

Answer *The service contracts are voidable at the option of office building company as provided

in ection - of the Corporation Code, vi:*

4ec. -. &ealing of directors, trustees or officers with the corporation.( A contract of thecorporation with one or more of its directors or trustees or officers is voidable, at the optionof such corporation, unless all the following conditions are present*

1. That the presence of such director or trustee in the board meeting in which thecontract was approved was not necessary to constitute a 'uorum for such meetingJ

-. That the vote of such director or trustee was not necessary for the approval of thecontractJ

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. That the contract is fair and reasonable under the circumstancesJ and<. That in case of an officer, the contract has been previously authori:ed by the board

of directors.

6here any of the first two conditions set forth in the preceding paragraph is absent, inthe case of a contract with a director or trustee, such contract may be ratified by the vote of

the stocholders representing at least -; of the outstanding capital stoc or of at least -;of the members in a meeting called for the purpose* "rovided, that full disclosure of theadverse interest of the directors or trustees involved is made at such meeting* "rovided,however, that the contract is fair and reasonable under the circumstances.5

1. Frand Fas Corporation, a publicly listed company, discovered after etensive drilling a richdeposit of natural gas along the coast of Anti'ue. 7or ? months, the company did notdisclose the discovery so that it could 'uietly and cheaply ac'uire neighboring land andsecure mining rights to the land. Between the discovery and its disclosure of theinformation to the C, all the directors and ey officers of the company bought shares inthe company at very low prices. After the disclosure, the price of the shares went up. The

directors and officers sold their shares at huge profits.

a% 6hat provision of the 8C did they violate, if any) plain.b% Assuming that the employees of the establishment handling the printing wor of Frand

Fas Corporation saw the eploration reports which were mistaenly sent to their establishment together with other materials to be printed. They too brought shares inthe company at low prices and later sold them at huge profits. 6ill they be liable for violation of the 8C) 6hy)

Answer *a% They violated ec. -> of the 8C, on insider!s duty to disclose when trading, to wit*

4It shall be unlawful for an insider to sell or buy securities of the insurer, while inpossession of material information with respect to the issuer or the security that is notgenerally available to the public, unless*1. The insider proves that the information was not gained from such relationshipJ or -. If the other party selling to or buying from the insider $or his agent% is identified, the

insider proves*-.1. That he disclosed the information to the other party, or -.-. That he has reason to believe that the other party otherwise is also in

possession of the information.5

b% +es, the employees of the establishment handling the printing 9ob of the corporation arealso liable for violation of the prohibition against insider trading. These employees fall

within the classification of an 4insider5 under subsection .H $c% of the 8C, to wit* 4aperson whose relationship or former relationship to the issuer gives or gave him accessto material information about the issuer or the security that is not generally available tothe public.5

1<. Ace Cru: subscribed to 1//,/// shares of stoc of D" &evelopment Corporation, whichhas a par value of "1 per share. e paid "-?,/// and promised to pay the balance before

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&ecember 1, -//H. D" &evelopment Corporation declared a cash dividend on =ctober 1?,-//H, payable on &ecember 1, -//H.

a% 7or how many shares is Ace Cru: entitled to be paid cash dividends) plain.b% =n &ecember 1, -//H, can Ace Cru: compel D" &evelopment Corporation to issue to

him the stoc certificate corresponding to the "-?,/// paid by him)

Answer *a% Ace is entitled to be paid cash dividends for 1//,/// shares of stoc. Although he has

not fully paid for his shares of stoc, he is not delin'uent and is therefore entitled to allthe rights of a stocholder.

b% 3o, Ace cannot compel D" to issue to him a stoc certificate corresponding to "-?,///paid by him.

1?. loise, an accomplished writer, was hired by "etong to write a bimonthly newspaper column for &iario de manila, a newly@established newspaper of which "etong was theeditor@in@chief. loise was to be paid "1,/// for each column that was published. In the

course of - months, loise submitted columns which, after some slight editing, wereprinted in the newspaper. owever, &iario de #anila proved unprofitable and closed onlyafter - months. &ue to the minimal amounts involved, loise chose not to pursue any claimfor payment from the newspaper, which was owned by 3ew #edia nterprises.

a% &oes loise have to secure authori:ation from 3ew #edia nterprises to be able topublish her &iario de #anila columns in her own anthology) plain fully.

b% Assume that 3ew #edia nterpises plans to publish loise!s columns in it ownanthology entitled, 4The Best of &iario de #anila5. loise wants to prevent thepublication of her columns in that anthology since she was never paid by thenewspaper. 3ame one irrefutable legal argument loise could cite to en9oin 3ew #edianterprises from including her columns in its anthology.

Answer *a% loise does not have to secure the authori:ation of 3ew #edia, because as the author,

she owns the copyright to her columns.b% loise could invoe that under the Intellectual "roperty Code, as the owner of the

copyright to the columns, she can either 4authori:e or prevent5 reproduction of the wor,including the public distribution of the original and each of the wor 4by sale or other forms of transfer of ownership5. 6hile the anthology as a derivative wor is protected asa new wor, it does not affect the force of the copyright of loise upon her columns anddoes not imply any right to 3ew #edia to use the columns without the consent of loise.

1. In 1222, #ocha 6arm, an American musician, had a hit rap single called 6arm 6armoney which he himself composed and performed. The single was produced by aCalifornia record company, Falactic 8ecords. #any noticed that some passages from6arm 6arm oney sounded eerily similar to parts of 0nder assle, a 12>H hit song by theBritish roc band #a9esty. A copyright infringement suit was filed in the 0nited tatesagainst #ocha 6arm by #a9esty. It was later settled out of court, with #a9esty receivingattribution as co@author of 6arm 6arm oney as well as share in the royalties.

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By -//-, #ocha 6arm was nearing banruptcy and he sold his economic rights over 6arm6arm oney to Falactic 8ecords for O1/,///.

In -//H, "lanet 7ilms, a 7ilipino move producing company, commissioned &D Chef Dean, a7ilipino musician, to produce an original re@mi of 6arm 6arm oney for use in one of itslatest films, AstigW. &D Chef Dean remied 6arm 6arm oney with a salsa beat, and

interspersed as well a recital of a poetic stan:a by Dohn Blae, a 1> th century cottish poet.&D Chef Dean died shortly after submitting the remied 6arm 6arm oney to "lanet 7ilms.

"rior to the release of AstigW, #ocha 6arm learns of the remied 6arm 6arm oney anddemands that he be publicly identified as the author of the remied song in all the C&covers and publicity releases of "lanet 7ilms.

a% 6ho are the parties or entities entitled to be credited as author of the remied 6arm6arm oney) 8eason out your answers.

b% 6ho are the particular parties or entities who eercise copyright over the remied 6arm6arm oney) plain.

Answer *a% #ocha 6arm, #a9esty and Chef Dean are entitled to be credited as authors of the

remied 6arm 6arm oney, because it is their 9oint wor. #ocha 6arm retained hismoral right to be credited as an author of the remied 6arm 6arm oney despite thesale of his economic rights to Falactic 8ecords, because his moral rights eistindependently of his economic rights. Dohn Blae cannot be credited for the use of hiswor because copyright etends only during the lifetime of the author and ?/ years after his death.

b% The copyright over the remied 6arm 6arm oney belongs to Falactic records,#a9esty, and Chef Dean. The copyright of #ocha 6arm belongs to Falactic 8ecords,because he assigned it to Falactic 8ecords. #a9esty also has a copyright, because it isa co@author. The copyright of Chef Dean belongs to him even if his wor was

commissioned by "lanet 7irm, because the copyright remained with him.

1>. =n Danuary 1, -//H, Al obtained a loan of "1/,/// from Bob to be paid on Danuary /,-//H, secured by a chattel mortgage on a Toyota motor car. =n 7ebruary 1, -//H, Alobtained another loan of "1/,/// from Bob to be paid on 7ebruary 1?, -//H. e securedthis by eecuting a chattel mortgage on a onda motorcycle. =n the due date of the firstloan Al failed to pay. Bob foreclosed the chattel mortgage but the car was bidded for ",///only. Al also failed to pay the second loan due on 7ebruary 1?, -//H. Bob filed an action for collection of sum of money. Al filed a motion to dismiss claiming that Bob should firstforeclose the mortgage on the onda motorcycle before he can file the action for sum of money. &ecide with reasons.

Answer *Bob can file an action for collection of a sum of money without first foreclosing the

chattel mortgage on the motorcycle of Al. Bob has the right to abandon the chattelmortgage and file instead an action for collection of a sum of money.

1H. a% Can a distressed corporation file a petition for corporate rehabilitation after the dismissalof its earlier petition for insolvency) 6hy)

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b% Can the corporation file a petition for rehabilitation first, and after it is dismissed file apetition for insolvency) 6hy)

c% plain the ey phrase 4e'uality is e'uity5 in corporate rehabilitation proceedings.

Answer *a% +es, the dismissal of a petition for insolvency does not preclude the distressed

corporation from filing a petition for corporate rehabilitation. The dismissal of the petitionfor insolvency only means that the corporation may still be restored to solvency.

b% +es, the dismissal of a petition for rehabilitation means that the corporation can nolonger be restored to solvency. ence, it can file a petition for insolvency.

c% All assets of a corporation under rehabilitation receivership are held in trust for thee'ual benefit of all creditors, precluding one from obtaining an advantage or preferenceover another by the epediency of attachment, eecution or otherwise. =nce thecorporation is taen over by a receiver, all the creditors stand on e'ual footing and no

one may be paid ahead of the others. This is precisely the reason for suspending allpending claims against the corporation under receivership. This is called the 4pari passuprinciple5.

12. Industry Ban, which has a net worth of "1 Billion, etended a loan to celestial "ropertiesInc. amounting to "->/ #. the loan was secured by a mortgage over a vast commercial lotin the 7ort Bonifacio Flobal City, appraised at "?/ #. After audit, the B" gave notice thatthe loan to Celestial "roperties eceeded the single borrower!s limit of -?K of the ban!snet worth under a recent B" Circular. In light of other previous similar violations of thecredit limit re'uirement, the B" advised Industry Ban to reduce the amount of the loan toCelestial "roperties under pain of severe sanctions. 6hen Industry Ban informed Celestial

"roperties that it intended to reduce the loan by "?/ #, Celestial "roperties counter@proposal, and referred the matter to you as counsel. ow would you advise Industry Banto proceed, with its best interest in mind)

Answer *I shall advise Industry Ban that the mortgage is indivisible. Therefore, Celestial

"roperties cannot as for a partial release of the mortgage so long as the loan has notbeen completely paid.

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200, BAR EXAMINATION

1. 8 issued a chec for "1 # which he used to pay for illing his political enemy.

a% Can the chec be considered a negotiable instrument)

b% &oes have a cause of action against 8 in case of dishonor by the drawee ban)c% If negotiated the chec to T, who accepted it in good faith and for value, may 8 be held

secondarily liable by T)

8eason briefly in a, b, and c.

Answer *a% +es, the chec can be considered a negotiable instrument even if it was issued to pay

to ill his political enemy. The validity of the consideration is not one of the re'uisites of anegotiable instrument $ection 1, 3IL%. It merely constitutes a defect of title. $ection ??,3IL%

b% 3o, does not have a cause of action against 8 in case of dishonor of the chec by thedrawee ban. is not a holder in due course, thus, 8 can raise the defense that thechec was issued for an illegal consideration. $ection ?H, 3IL%

c% +es, 8 may be held secondarily liable by T who too the chec in good faith and for value. T is a holder in due course. 8 cannot raise the defense of illegality of theconsideration, because T too the chec free from the defect of title of $ection ?>,3IL%

-. Ale deposited goods for which Billy, a warehouseman, issued a negotiable warehousereceipt wherein the goods were deliverable to Ale or order. Ale negotiated the receipt to

Caloy. Thereafter, &ario, a creditor, secured 9udgment against Ale and served notice of levyover the goods on the warehouseman.

a% To whom should the warehouseman deliver the goods upon demand)b% 6ould your answer be the same if the warehouseman issued a non@negotiable

warehouse receipt) 8eason briefly.

Answer *a% The warehouseman should deliver the goods upon demand to Caloy who is a holder of

the receipt in good faith and for value. The goods cannot be levied upon by the creditor of Ale after it was negotiated to Caloy $ection -?, 3IL%.

b% 3o, my answer would not be the same if the warehouseman issued a non@negotiablewarehouse receipt. In such case, the warehouseman should deliver the goods to &ario,if the notice of levy was served on the warehouseman prior to the notification of thewarehouseman by Ale or Caloy of the transfer of the non@negotiable receipt. In suchcase, the title of Caloy would be defeated by the notice of levy by &ario $ection <-,6arehouse 8eceipts Law%.

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. &iana and "iolo are famous personalities in showbusiness who ept their love affair secret.They use a special instant messaging service which allows them to see one another!s typingon their own screen as each letter ey is pressed. 6hen Freg, the controller of the servicefacility, found out their identities, he ept a copy of all the messages &iana and "iolo senteach other and published them. Is Freg liable for copyright infringement) 8eason briefly.

Answer *+es, Freg is liable for copyright infringement. Letters are among the wors which are

protected from the moment of their creation. The publication of the letters without theconsent of their writers constitutes infringement of copyright.

<. Alfredo too out a policy to insure his commercial building against fire. The broer for theinsurance company agreed to give a 1?@day credit within which to pay the insurancepremium. 0pon delivery of the policy on #ay 1?, -//, Alfredo issued a postdated checpayable on #ay /, -//. =n #ay -H, -//, a fire broe out and destroyed the buildingowned by Alfredo.

a% #ay Alfredo recover on the insurance policy)b% 6ould your answer in a% be the same if it as found that the proimate cause of the fire

was an eplosion and that fire was but the immediate cause of the loss and there is noecepted peril under the policy)

c% If the fire was found to have been caused by Alfredo!s own negligence, can he stillrecover on the policy)

8eason briefly in a, b and c.

Answer *a% +es, Alfredo may recover on the policy. It is valid to stipulate that the insured will be

granted credit term for the payment of premium. "ayment by means of a chec which

was accepted by the insurer, bearing a date prior to the loss, would be sufficient. Thesubse'uent effects of encashment retroact to the date of the chec.

b% +es, recovery under the insurance contract is allowed if the cause of the loss was either the proimate or the immediate cause as long as an ecepted peril, if any, was not theproimate cause of the loss.

c% +es, mere negligence on the part of the insured will not prevent recovery under theinsurance policy. The law merely prevents recovery when the cause of loss is the willfulact of the insured, alone or in connivance with others.

?. C contracted & to renovate his commercial building. & ordered construction materials from and received delivery thereof. The following day, C went to 7 Ban to apply for loan to payfor the construction materials. As security for the loan, C was made to eecute a trustreceipt. =ne year later, after C failed to pay the balance of the loan, 7 Ban charged himwith violation of the Trust 8eceipts Law.

a% 6hat is a Trust 8eceipt)b% 6ill the case against C prosper) 8eason briefly.

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Answer *a% A Trust 8eceipt is a written or printed document signed by the entrustee in favor of the

entrustor containing terms and conditions substantially complying with the provisions of the Trust 8eceipts law, whereby the ban as entruster releases the goods to thepossession of the entrustee but retains ownership thereof while the entrustee may sellthe goods and apply the proceeds for the full payment of his liability to the ban.

b% 3o, the case against C will not prosper. ince C received the construction materials from before the trust receipt transaction was entered into, the transaction was a simpleloan, with the trust receipt merely as a collateral or security for the loan. This isinconsistent with a trust receipt transaction where the title to the goods remains with theban and the goods are released to the entrustee before the loan is granted.

. &iscuss the trust fund doctrine.

Answer *The trust fund doctrine means that the capital stoc, properties and other assets of a

corporation are regarded as e'uity in trust for the payment of corporate creditors. tatedsimply, the trust fund doctrine states that all funds received by the corporation in payment of the shares of stoc shall be held in trust for the corporate creditors and other stocholders of the corporation. 0nder such doctrine, no fund shall be used to buy bac the issued shares of stoc ecept only in instances specifically allowed by the Corporation Code.

>. In a stocholder!s meeting, dissented from the corporate act converting preferred votingshares to non@voting shares. Thereafter, submitted his certificates of stoc for notation thathis shares are dissenting. The net day, transferred his shares to T to whom newcertificates were issued. 3ow, T demands from the corporation the payment of the value of his shares.

a% 6hat is the meaning of stocholder!s appraisal right)b% Can T eercise the right of appraisal) 8eason briefly.

Answer *a% Appraisal right is the right of a stocholder, who dissents from a fundamental or

etraordinary corporate action, to demand payment of the fair value of his shares. It isthe right of a stocholder to withdraw from the corporation and demand payment of thefair value of his shares after dissenting from certain corporate acts involving fundamentalchanges in the corporate structure.

b% 3o, T cannot eercise the right of appraisal in this case. 6hen transferred his shares

to T and T was issued new stoc certificates, the appraisal right of ceased, and Tac'uired all the rights of a regular stocholder. The transfer of shares from to Tconstitutes an abandonment of the appraisal right of . All that T ac'uired from theissuance of new stoc certificates was the rights of a regular stocholder.

H. &ue to growing financial difficulties, G Ban was unable to finish construction of its -1@storeybuilding on a prime lot located in #aati City. Inevitably, the Bango entral ordered theclosure of G Ban and conse'uently placed it under receivership. In a bid to save the ban!s

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property investment, the "resident of G Ban entered into a financing agreement with agroup of investors for the completion of the construction of the -1@storey building inechange for a 1/@year lease and the eclusive option to purchase the building.

a% Is the act of the "resident valid) 6hy or why not)b% 6ill a suit to enforce the eclusive right of the investors to purchase the property

prosper) 8eason briefly.

Answer *a% 3o, the ban president!s act is not valid. e had no authority to enter into the financing

agreement. G Ban was ordered closed and placed under receivership. Control over theproperties of G Ban passed to the receiver. The appointment of a receiver operates tosuspend the authority of the ban and its officers over the ban!s assets and properties,such authority being reposed in the receiver.

b% 3o, the eclusive option granted to the investors, having been entered into by onewithout authority to do so, is unenforceable. The ban, therefore, cannot be compelled tosell the property. 0nder ection / of the 8.A. 3o. >?, 3ew Central Ban Act, the

properties of G Ban should be administered for the benefit of its creditors. The propertyin 'uestion can be disposed of only for the purpose of paying the debts of G Ban.

2. =n &ecember <, -//, 8& Corporation eecuted a real estate mortgage in favor of BL0Ban. 8& Corporation defaulted in the payment of its loan. Conse'uently, on Dune <, -//<,BL0 Ban etra9udicially foreclosed the property. Being the highest bidder in the auctionsale conducted, the Ban was issued a Certificate of ale which was registered on August <,-//<.

&oes 8& Corporation still have the right to redeem the property as of eptember 1<,-//>) 8eason briefly.

Answer *3o, 8& Corporation has lost its right to redeem the property. Duridical persons whose

property is sold pursuant to an etra9udicial foreclosure, shall have the right to redeem theproperty until registration of the certificate of sale with the 8egister of &eeds, which shall inno case be more than months after foreclosure, whichever is earlier.

1/. 3ame at least ? predicate crimes to money laundering.

Answer *a. Eidnapping for ransom under Article -> of Act no. H1?, otherwise nown as the 8"C,

as amendedJ

b. ections ,<,?,>,H, and 2 of Article Two of 8.A. 3o. <-?, as amended, otherwise nownas the &angerous &rugs Act of 12>-J

c. ection paragraphs B,C,,F,, and I of 8.A. 3o. /12, as amended, otherwise nownas the Anti@Fraft and Corrupt "ractices ActJ

d. "lunder under 8.A. 3o. >/H/, as amendedJ

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e. 8obbery and etortion under Articles -2<, -2?, -2, //, /1, and /- of the 8"C, asamendedJ

f. Dueteng and #asiao punished as illegal gambling under "& 3o. 1/-J

g. "iracy on the high seas under the 8"C, as amended and "& 3o. ?-J

h. ualified theft under Article 1/ of the 8"C, as amendedJ

i. windling under Article 1? of the 8"C, as amendedJ

9. muggling under 8.A. 3os. <?? and 12>J

. iolations under 8A 3o. H>2-, otherwise nown as the lectronic Commerce Act of -///J

l. i9acing and other violations under 8A 3o. -?J destructive arson and murder, as

defined under the 8"C, as amended, including those perpetrated by terrorists againstnon@combatant persons and similar targetsJ

m. 7raudulent practices and other violations under 8A 3o. H>22, otherwise nown as the8C of -///J

n. 7elonies or offenses of a similar nature that are punishable under the penal laws of other countries.

11. Two vessels figured in a collision along the traits of Fuimaras resulting in considerableloss of cargo. The damaged vessels were safely conducted to the "ort of Iloilo. "assenger A

failed to file a maritime protest. B, a non@passenger but a shipper who suffered damage tohis cargo, liewise did not file a maritime protest at all.

a% 6hat is a maritime protest)b% Can A and B successfully maintain an action to recover losses and damages arising

from the collision) 8eason briefly.

Answer *a% A maritime protest is a sworn statement made within -< hours after a collision in which

the circumstances thereof are declared or made nown before a competent authority atthe point of accident or the first port of arrival if in the "hilippines or the "hilippine consulin a foreign country.

b% B, the shipper, can successfully maintain an action to recover losses and damagesarising from the collision notwithstanding his failure to file a maritime protest since thefiling thereof is re'uired only on the part of A, who, being a passenger of the vessel atthe time of the collision, was epected to now the circumstances of the collision. A!sfailure to file a maritime protest will therefore prevent him from successfully maintainingan action to recover his losses and damages.

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1-. eeing to streamline its operations and to bail out its losing ventures, the stocholders of MCorporation unanimously adopted a proposal to sell substantially all of the machineries ande'uipment used in and about its manufacturing business and to sin the proceeds of thesale for the epansion of its cargo transport services.

a% 6ould the transaction be covered by the provisions of the Bul ales Law)

b% ow would M Corporation effect a valid sale)

Answer *a% 3o, the transaction is not covered by the provisions of the Bul ales Law. Bul ales

Law applies only to retail merchants, traders and dealers. It does not apply tomanufacturers. M Corporation is engaged in the manufacturing business.

b% To effect a valid sale, M Corporation must prepare an affidavit stating the names of all itscreditors, their addresses, the amount of their credits and their maturities. M Corporationshould give the affidavit to the buyer who, in turn, should furnish a copy to each creditor and notify the creditors of the proposed bul sale to enable them to protect their interest.

1. a% 6hat are the preferred claims that shall be satisfied first from the assets of an insolventcorporation)

b% ow shall the remaining non@preferred creditors share in the estate of the insolventcorporation above)

Answer *a% 0nder the Insolvency Law necessary funeral epenses of the debtor is the most

preferred claim. owever, this is an insolvent corporation, thus, claims shall be paid inthe following order*1. &ebts due for personal services rendered the insolvent by employees, laborers, or

domestic servants immediately preceding the commencement of proceedings ininsolvencyJ

-. Compensation due to the laborers or their dependents under the provisions of Act3umbered <-H, nown as the 6ormen!s Compensation Act, as amended by Act3umbered H1- and under the provisions of Act 3umbered 1H><, nown as themployees! Liability Act, and of other laws providing for payment of indemnity for damages in cases of labor accidentsJ

. Legal epenses, and epenses incurred in the administration of the insolvent!s estatefor the common interest of the creditors, when properly authori:ed and approved bythe courtJ

<. &ebts, taes, and assessments due the Insular FovernmentJ?. &ebts, taes and assessments due to any province;s of the "hilippine IslandsJ

. &ebts, taes and assessments due to any municipality or municipalities of the"hilippine Islands.

b% The remaining non@preferred creditors, whose debts are duly proved and allowed, shallbe entitled to share pro@rata in the assets, without priority or preference whatsoever.

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200+ BAR EXAMINATION

Q"es#$%n N%& 1!1. 6hat is the doctrine of 4piercing the veil of corporate entity)5 plain.

Answer *0nder the doctrine of 4piercing the veil of corporate entity5, the legal fiction that a

corporation is an entity with a 9uridical personality separate and distinct from its members or stocholders may be disregarded and the corporation will be considered as a mere associationof persons, such that liability will attach directly to the officers and the stocholders. It is ane'uitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes.

-. To what circumstances will the doctrine apply)

Answer *

The doctrine of 4piercing the veil of corporate entity5 will apply when the corporation!sseparate 9uridical personality is used*

a% To defeat public convenienceJb% To 9ustify wrong, protect fraud, or defend crimeJc% As a shield to confuse the legitimate issuesJd% 6here a corporation is the mere alter ego or business conduit of a personJ or e% 6here the corporation is so organi:ed and controlled and its affairs are so conducted as

to mae it merely an instrumentality, agency, conduit or ad9unct of another corporation.

. 6hat is the minimum and maimum number of incorporators re'uired to incorporate a stoc

corporation) Is this also the same minimum and maimum number of directors in a stoccorporation)

Answer *To incorporate a stoc corporation, a minimum of ? and a maimum of 1? incorporators

are re'uired.

+es, the same minimum and maimum number of directors is re'uired in a stoccorporation.

<. #ust all incorporators and directors be residents of the "hilippines)

Answer *3o. =nly a ma9ority of the incorporators and a ma9ority of the directors must be residents

of the "hilippines.

Q"es#$%n N%& 2!&iscuss the legal conse'uences when a ban honors a forged chec.

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Answer * A ban, which honors a chec wherein the drawer!s signature was forged, must bear the

loss, because it has the legal duty to ascertain that the drawer!s signature is genuine beforeencashing a chec. The liability chain ends with the drawee ban.

=n the other hand, if the drawee ban pays under forged indorsement, the drawee ban

is still liable to the payee as it has guaranteed the genuineness of all prior indorsements.owever, the drawee ban may generally pass liability bac through the collection chain to theparty who obtained the chec from the forger and from the forger himself.

Q"es#$%n N%& 3!Dun was to leave for a business trip. As his usual practice, he signed several blan

checs. e instructed 8uth, his secretary, to fill them as payment for his obligations. 8uth filledone chec with her name as payee, placed "/,/// thereon, endorsed and delivered it to#arie. he accepted the chec in good faith as payment for goods she delivered to 8uth.ventually, 8uth regretted what she did and apologi:ed to Dun. immediately, he directed thedrawee ban to dishonor the chec. 6hen #arie encashed the chec, it was dishonored.

1. Is Dun liable to #arie)

Answer *+es. Dun is liable to #arie, as she is a holder in due course. "ursuant to ec. 1< of the

3IL, in order that an incomplete instrument, when completed, may be enforced against anyperson who became a party thereto prior to its completion, it must be filled up strictly inaccordance with the authority given and within a reasonable time. owever, if any suchinstrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it in accordance with the authority given andwithin a reasonable time. Considering that #arie accepted the chec in good faith and for value,she is a holder in due course, who has the right to enforce payment of the chec for the full

amount thereof against Dun. That the blan chec was filled@up not in accordance with theauthority given is only a personal defense that cannot be used against a holder in due course.

-. upposing the chec was stolen while in 8uth!s possession and a thief filled the blanchec, endorsed and delivered it to #arie in payment for the goods he purchased from her,is Dun liable to #arie if the chec is dishonored)

Answer *3o. section 1? of the 3IL provides that 4where an incomplete instrument has not been

delivered, it will not, if completed and negotiated without authority, be a valid contract in thehands of any holder, as against any person whose signature was placed thereon before

delivery.5 The want of delivery of an incomplete instrument is a real defense available againstany holder, including a holder in due course.

Q"es#$%n N%& 4!8udy is 9obless but s reputed to be a 9ueteng operator. e has never been charged or

convicted of any crime. e maintains several bans accounts and has purchased ? houses andlots for his children from the Luansing 8ealty, Inc. since he does not have any visible 9ob, thecompany reported his purchases to the A#LC. Thereafter, A#LC charged him with violation of

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the Anti@#oney Laundering Law. 0pon re'uest of the A#LC, the ban disclosed to it 8udy!sban deposits amounting to "1// #. ubse'uently, he was charged in court for violation of the

Anti@#oney Laundering Law.

1. Can 8udy move to dismiss the case on the ground that he has no criminal record)

Answer *3o. As with any crime, the absence of a criminal record is not a defense against a

charge for violation of the Anti@#oney Laundering Law. #oreover, having a criminal record is notan element of #oney Laundering =ffense defined under ection < of the Anti@#oneyLaundering Law.

-. To raise funds for his defense, 8udy sold the houses and lots to a friend. Can Luansing8ealty, Inc. be compelled to transfer to the buyer ownership of the houses and lots)

Answer *+es. In the absence of a free:e order on the sub9ect houses and lots pending criminal

proceedings against 8udy, the ownership thereof may be validly transferred to another, andLuansing 8ealty, Inc. can be compelled to recogni:e the rights of the buyer as the new owner.ection >$% in relation to ection 1/ of the Anti@#oney Laundering Law re'uired an =rder fromthe Court of Appeals for the free:ing of any money or property believed to be the proceeds of any unlawful activity.

. In disclosing 8udy!s ban accounts to the A#LC, did the ban violate any law)

Answer *+es. The ban violated 8A 3o. 1</? $ecrecy of Ban &eposits Act%, which considers all

deposits of whatever nature with bans or baning institutions as absolutely confidential and

may not be eamined, in'uired or looed into by any person, government officials, bureau or office ecept upon depositor!s written permissionJ in cases of impeachmentJ upon order of acompetent court in cases of bribery of, or dereliction of duty by public officialJ and in caseswhere the money deposited or invested is the sub9ect matter of the litigation. The disclosure wasmade before 8udy was charged in court for violation of the Anti@#oney Laundering Law. ence,his deposits were technically not yet the sub9ect matter of litigation.

#oreover, under 8A 3o. 21/, the A#LC may in'uire into or eamine any particular deposit or investment with any baning institution upon order of any competent court for violation of the said Act. In the case at bar, the A#LC merely re'uested the disclosureJ it did notsecure the re'uisite court order. The ban, therefore, was under no obligation to disclose 8udy!sdeposits.

<. upposing the titles of the houses and lots are in possession of the Luansing 8ealty, Inc., isit under obligation to deliver the titles to 8udy)

Answer *+es. There being no free:e order over the sub9ect houses and lots, Luansing 8ealty,

Inc., is obliged to deliver the titles to 8udy who is the owner thereof.

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Q"es#$%n N%& *!The "eninsula Insurance Company offered to insure 7rancis! brand new car against all

riss in the sum of "1 # per year. The policy was issued with the premium fied at "/,///payable in months. 7rancis only paid the first two months installments. &espite demands, hefailed to pay the subse'uent installments. ? months after the issuance of the policy, the vehiclewas carnapped. 7rancis filed with the insurance company a claim for its value. owever, the

company denied his claim on the ground that he failed to pay the premium resulting in thecancellation of the policy.

Can 7rancis recover from the "eninsula Insurance Company)

Answer *+es, 7rancis can recover from "eninsula considering that his car was carnapped before

the month period to pay the premium installments epired. An insurance premium can be paidin installments, and the insurance contract became valid and binding upon payment of the firstpremium. 6hen the insurer granted a credit term for the payment of the premium, it is liablewhen the loss occurred before the epiration of such term. It could not deny liability on theground that payment was not made in full, for the reason that it agreed to accept installment

payments. 7or the same reason, it could not validly cancel the policy, more so, without givingnotice to the insured of its cancellation.

Q"es#$%n N%& +!1. In several addresses etensively covered by media since his appointment on &ecember -1,

-//?, Chief Dustice Artemio . "anganiban vowed to leave a 9udiciary characteri:ed by 4four Ins5 and to focus in solving the 4four ACI&5 problem that corrode the administration of 9usticein our country.

plain this 4four Ins5 and 4four ACI&5 problems.

Answer *Chief Dustice Artemio . "anganiban!s vision for the 9udiciary is characteri:ed by four

4Ins5 as follows* $1% IndependenceJ $-% IntegrityJ $% IndustryJ and $<% Intelligence. e vows tofocus in solving the four ACI& problem corroding the administration of 9ustice as follows* $1%limited Access to 9ustice by the poorJ $-% CorruptionJ $% IncompetenceJ and $d% delay in the&elivery of 'uality 9udgments.

-. The Chief Dustice also said that the 9udiciary must 4safeguard the liberty5 and 4nurture theprosperity5 of our people. plain the philosophy. Cite the &ecisions of the upreme Courtimplementing each of these twin beacons of the Chief Dustice.

Answer *The philosophies of 4safeguard the liberty5 and 4nurture the prosperity5 of our people are

goals which the 9udiciary must achieve. These twin beacons of Liberty and "rosperity arefounded on the faith that our people en9oy the inalienable right to be free from the bondage of fear, and that they possess a boundless capacity to redeem themselves from misery, to respondpositively to opportunities as they arise, and to soar above the challenges of fear and want.

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&ecisions implementing these twin beacons include*

a% enate of the "hilippines v. ecutive ecretary rmita, F.8. 3os. 12>>>, 12?2,12/, 12>, 12H< and 1>1-<, April -/, -//, on the validity of .=. 3o. << whichbarred officials from testifying in congressional investigations without the epress approvalof the president $deferential interpretation of laws and eecutive issuances%J

b% Bayan v. ecutive ecretary rmita, F.8. 3os. 12HH, 12H<H and 12HH1, April-?, -//on the validity of the so@called preemptive response policy of the ecutive &epartmentdeferential interpretation of laws and eecutive issuances%J

c% "rof. 8andy . &avid v. "res. Floria #acapagal@Arroyo, F.8. 3o. 1>12, 1>1</2, 1>1<H?,1>1<H, 1>1<//, 1>1<H2 and 1>1<-<, #ay , -//, on the validity of "res. "roclamation3o. 1/1> $4heightened5 scrutiny or 4strict5 review of actions and policies of the government%.

Q"es#$%n N%& ,!1. 6hat is a mutual insurance company or association)

Answer * A mutual insurance company is a cooperative enterprise where the members are both

the insurer and the insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and wherethe profits are divided among themselves, in proportion of their interest.

-. &istinguish between the role of a conservator and that of a receiver of a ban.

Answer *The role of a conservator is to restore the viability of the ban. The role of a receiver is to

determine whether or not a ban can be rehabilitated.

Q"es#$%n N%& -!"io is the president of 6estern Ban. is wife applied for a loan with the said ban to

finance an internet cafX. The loan officer told her that her application will not be approvedbecause the grant of loans to related interests of ban directors, officers, and stocholders isprohibited by the Feneral Baning Law.

plain whether the loan officer is correct.

Answer *

3o. the loan officer should have advised the wife to as her husband to secure theapproval of the ban!s Board of &irectors for the intended loan and to limit the same in anamount not to eceed its unencumbered deposits and boo value of its paid@up capitalcontribution in the banJ if the intended loan should eceed the foregoing limit, the borrower should have the same secured by a non@ris assets as determined by the #onetary Board,unless the loan shall be in the form of a fringe benefit.

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Q"es#$%n N%& .!The Blue tar Corporation filed with the 8TC a petition for rehabilitation on the ground

that it foresaw the impossibility of paying its obligations as they fall due. 7inding the petitionsufficient in form and substance, the court issued an =rder appointing a rehabilitation receiver and staying the enforcement of all claims against the corporation.

6hat is the rationale for the tay =rder)

Answer *The stay order is a recognition that all assets of a corporation under rehabilitation are

held in trust for the e'ual benefit of all creditors under the doctrine of 4e'uality is e'uity5. As allthe creditors ought to stand on e'ual footing, not any one of them should be paid ahead of others. 7urthermore, the stay order will enable the management committee or the rehabilitationreceiver to effectively eercise its or his powers free from 9udicial or etra9udicial interferencethat might unduly hinder or prevent the 4rescue5 of the distressed company, rather than to wasteits;his time, effort and resources in defending claims against the corporation.

Q"es#$%n N%& 10!1. 6hat acts or omissions are penali:ed under the Trust 8eceipts Law)

Answer *7ailure of the entrustee to turn over the proceeds of the sale of the goods, documents or

instrument covered by a trust receipt to the etent of the amount owing to the entruster or toreturn the goods, documents or instruments if they were not sold or disposed of in accordancewith the terms of the trust receipt is penali:ed as estafa under Article 1?$1% of the 8evised"enal Code.

-. Is lac of intent to defraud a bar to the prosecution of these acts or omissions)

Answer *3o. there is no re'uirement to prove intent to defraud. The mere failure to account for or

return the goods, documents or instruments in 'uestion gives rise to the crime, which is malum prohi1itum.

Q"es#$%n N%& 11!0nder 8A 3o. 1</? $The Ban ecrecy Law%, ban deposits are considered absolutely

confidential and may not be eamined, in'uired or looed into by any person, governmentofficial, bureau or office.

6hat are the eceptions)

Answer!The following are the eceptions to the Ban ecrecy Law under ection - of 8A 3o.

1</?, vi:*1. 0pon written permission of the depositorJ-. In cases of impeachmentJ. In cases where the money deposited or invested is the sub9ect matter of litigationJ and

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<. 0pon order of a competent court in cases of bribery or dereliction of duty of publicofficials.

The following circumstances also constitute eceptions to the secrecy of ban deposits*

1. 0pon order of the court in cases of uneplained wealth under ection H of the Anti@Fraft

and Corrupt "ractices Act.-. 0pon order of the Commissioner of the Internal 8evenue with respect to the ban

deposits of a decedent for the purpose of determining the decedent!s gross estate.. 0pon the order of the Commissioner of the Internal 8evenue with respect to the ban

deposits of a tapayer who has filed an application for compromise of his ta liabilityunder ection -/<$A%$-% of the 3I8C by reason of financial incapacity to pay his taliability.

<. In the case of unclaimed balances.?. 6ithout need of court order, if the A#LC determines that a particular deposit or

investment with any baning institution is related to any one of the following unlawfulactivities*

a. Eidnapping for ransom under Art.-> of Act 3o. H1? $8"C%Jb. iolations of ections <, ?, , H, 2, 1/, 1-, 1, 1<, 1?, and 1 of 8A 3o. 21?

$Comprehensive &angerous &rugs Act of -//-%Jc. i9acing and other violations under 8A 3o. -?J destructive arson and murder, as

defined under the 8"C, as amended, including those perpetrated by terroristsagainst non@combatant persons and similar targetsJ

d. 0pon order of the court, if the A#LC determines that a particular deposit or investment with any baning institution is related to any one of the unlawful activitiesunder ec. $i%, ecept those referred to in ection $i%R1S,R-S and R1-S of 8A 3o. 21/or a money laundering offense under ection < $ec.11, 8A 21/%J and

e. In'uiry into or eamination of nay deposit or investment with any baning institutionwhen the eamination is made by the Bango entral ng "ilipinas to insure

compliance with the Anti@#oney Laundering Law in the course of a periodic or special eamination of the B" $ec.11, 8A 21/J see also ec.<, 8A H>21%.

. 6hen the eamination is made in the course of a special or general eamination of aban and is specially authori:ed by the #onetary Board after being satisfied that there isreasonable ground to believe that a ban fraud or serious irregularity has been or isbeing committed and that it is necessary to loo into the deposit to establish such fraudor irregularityJ

>. 6hen eamination is made by an independent auditor hired by the ban to conduct itsregular audit provided that eamination is for audit purposes only and the results thereof shall be for the eclusive use of the banJ

H. 0pon order of the court in cases filed by the =mbudsman and upon the latter!s authority

to eamine and have access to ban accounts and records.

Q"es#$%n N%& 12!1. 6hat is an intra@corporate controversy)

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Answer * An intra@corporate controversy is a dispute between a stocholder and the corporation of

which he is a stocholder, or between a stocholder and another stocholder of the samecorporation, where the sub9ect of the dispute or controversy arose out of such relationship.

-. Is the C the venue for actions involving intra@corporate controversies)

Answer *3o. Actions involving intra@corporate controversies are cogni:able by the 8TC,

designated by the upreme Court under C Adm. #emo 3o. //@11@/, which has 9urisdictionover the principal office of the corporation, partnership or association concerned.

Q"es#$%n N%& 13!upposing that Albert instein were alive today and he filed with the Intellectual "roperty

=ffice $I"=% an application for patent for his theory of relativity epressed in the formula Ymc-.The I"= disapproved instein!s application on the ground that his theory of relativity is not

patentable.

Is the I"=!s action correct)

Answer *+es. The I"=!s action is correct that the theory of relativity is not patentable. 0nder

ection --.1 of the Intellectual "roperty Code $8A H-2%, 4&iscoveries, scientific theories andmathematical methods5 are not patentable.

Q"es#$%n N%& 14!In a written legal opinion for a client on the difference between apprenticeship and

learnership, Li:a 'uoted without permission a labor law epert!s comment appearing in his booentitled 4Annotations on the Labor Code.5

Can the labor law epert hold Li:a liable for infringement of copyright for 'uoting aportion of his boo without his permission)

Answer *3o. the labor law epert cannot hold Li:a liable for infringement of copyright. 0nder

ection 1H<.1$% of the Intellectual "roperty Code, 4Any use made of a wor for the purpose of any 9udicial proceeding or for giving of professional advice by a legal practitioner5 shall notconstitute infringement of a copyright.

Q"es#$%n N%& 1*! A real estate mortgage may be foreclosed 9udicially or etra9udicially.

In what instance may a mortgage etra9udicially foreclose a real estate mortgage)

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Answer * A mortgage may etra9udicially foreclose a real estate mortgage when the right to

foreclose etra9udicially has been epressly stipulated in the deed of mortgage or there is aspecial power in the real estate mortgage authori:ing it.

Q"es#$%n N%& 1+!"ursuant to a writ of eecution issued by the 8TC in 4press Ban v. &on 8ubio,5 the

sheriff levied and sold at public auction H photocopying machines of &on 8ubio. Is the sheriff!ssale covered by the Bul ales Law)

Answer *3o. The sheriff!s sale is not covered by the Bul ales Law. If the sale and transfer in

bul is made by a public officer, acting under 9udicial process, as is true in this case, said sale or transfer is not covered by the Bul ales Law.

200* BAR EXAMINATION

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Q"es#$%n N%& 1!1. 6hat is a negotiable instrument) Five the characteristics of a negotiable instrument)

Answer *

A negotiable instrument is an instrument in writing, signed by the maer or drawer,containing an unconditional promise or order to pay a sum certain in money, on demand, or at a fied or determinable future time. It must be payable to order or bearer. 6hen in theform of a bill of echange, the drawee to whom the order to pay is addressed must benamed or otherwise indicated therein with reasonable certainty. =therwise stated, to benegotiable, the instrument must comply with ection 1 of the 3IL.

It must be capable of being transferred from one person to another, thereby transferringthe title thereof to the latter so as to mae him a holder who is entitled to payment thereof.

Another characteristic is that the instrument is capable of accumulating contracts resultingfrom indorsements at the bac thereof.

-. &istinguish a negotiable document from a negotiable instrument.

Answer * A negotiable document is governed by the Civil Code, while a negotiable instrument is

governed by the 3IL. The sub9ect matter of a negotiable document is things or goods, whilethat of a negotiable instrument is capable of accumulating secondary contracts resultingfrom indorsements at the bac thereof, while a negotiable document is not, especiallyconsidering that indorsement of the latter does not result in liability of the indorser when thedepositary, lie the warehouseman, fails to comply with his duty to deliver the things or goods deposited and covered by the warehouse receipt by the depositary.

. tate and eplain whether the following are negotiable instruments under the 3IL*

a. "ostal #oney =rderJb. A certification of time deposit which states 4This is to certify that bearer has

deposited in this ban the sum of 7=08 T=0A3& "= $"<,///.//% only,repayable to the depositor -// days after date5.

c. Letters of creditJd. 6arehouse receiptsJe. Treasury warrants payable from a specific fund.

Answer *

a. A "ostal #oney =rder is not a negotiable instrument because of the conditionappearing at the bac thereof, thereby maing the order conditional, contrary toection 1 of the 3IL.

b. A certificate of time deposit is a negotiable instrument, because it is anacnowledgment in writing by the ban of the amount of deposit with a promise torepay the same to the depositor or bearer thereof at a specific time.

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c. A letter of credit is not a negotiable instrument, because it is not payable to order or bearer and is generally conditionalJ therefore, it does not comply with ection 1 of the 3IL.

d. 6arehouse receipts are not negotiable instruments, because their sub9ect matter isthings or goods, and not a sum certain in money as re'uired by ection 1 of the 3IL.

e. Treasury warrants payable from a specific fund are not negotiable instruments asthey are payable out of a particular fund which may or may not eist, thereby maingthe order conditional, in contravention of ection 1 of the 3IL.

Q"es#$%n N%& 2!1. &agul has a business arrangement with 7acundo. The latter would lend money to another,

through &agul, whose name would appear in the promissory note as the lender. &agulwould then immediately indorse the note to 7acundo.

Is &agul an accommodation party) plain.

Answer *&agul is not an accommodation party. An accommodation party is one who signs the

instrument as maer, drawer, or indorser, without receiving any valuable consideration andfor the purpose of lending his name or credit to another.

-. a% 6hat is a crossed chec) 6hat are the effects of crossing a chec) plain.b% &istinguish an irregular indorser from a general indorser.

Answer *a% a crossed chec is a chec with - parallel lines, written diagonally on the upper right

corner thereof. It is a warning to the drawee ban that payment must be made to theright party, otherwise the ban has no authority to use the drawer!s funds deposited withthe ban. To be assured that it will avoid any mistae in paying to the wrong party, bansadopted the policy that crossed checs must be deposited in the payee!s account. 6henwithdrawal is made, the bans can be sure that they are paying to the right party. Later,

9urisprudence added to the development of crossed checs in that the crossing becomesa warning also to whoever deals with the said instrument to in'uire as to the purpose of its issuance. =therwise, if something wrong happens to the payment thereof, that personcannot claim to be a holder in due course. ence, he is sub9ect to the personal defenseon the part of the drawer that there is breach of trust committed by the payee in notcomplying with the drawer!s instruction.

b% An irregular indorser, not otherwise a party to the instrument, places his signaturethereon in blan before delivery to add credit thereto. A general indorser is a regular party to the instrument lie a maer, drawer or acceptor and he signs upon delivery of the instrument. 6hile an irregular indorser signs for valuable consideration.

. Brad was in desperate need of money to pay his debt to "ete, a loan shar. "ete threatenedto tae Brad!s life if he failed to pay. Brad and "ete went to enorita Isobel, Brad!s richcousin, and ased her if she could sign a promissory note in his favor in the amount of

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"1/,/// to pay "ete. 7earing that "ete would ill Brad, enorita Isobel acceded to hisre'uest. he affied her signature on a piece of paper with the assurance of Brad that hewill 9ust fill it up later. Brad then filled up the blan paper, maing a promissory note for theamount of "1//,///. e then indorsed and delivered the same to "ete, who accepted thenote as payment of the debt.

6hat defense;s can enorita Isobel set up against "ete) plain.

Answer *enorita Isobel can raise the personal defense of breach of trust against "ete that

Brad!s authority to fill up the amount of the promissory note was limited o "1/,///. "ete isnot a holder in due course as he was present when Brad ased enorita Isobel to sign thepromissory note for "1/,///. ence, "ete was aware of the infirmity of the instrument.

Q"es#$%n N%& 3!1. 0nder what conditions may a stoc corporation ac'uire its own shares)

Answer!The conditions under which a stoc corporation can ac'uire its own share are as follows*

a. That it be for a legitimate and proper corporate purposeJ andb. That there shall be unrestricted retained earnings to purchase the same and its capital is

not thereby impaired.

-. Danice rendered some consultancy wor for M+G Corporation. er compensation includedshares of stoc therein.

Can M+G Corporation issue shares of stoc to pay for the service of Danice as its

consultant) &iscuss your answer.

Answer!The corporation can issue shares of stoc to pay for actually performed services to the

corporation, but not for future services or services yet to be performed.

Q"es#$%n N%& 4!&ivine Corporation is engaged in the manufacture of garments for eport. In the course

of its business, it was able to obtain loans from individuals and financing institutions. owever,due to the drop in the demand for garments in the international maret, &ivine Corporation couldnot meet its obligations. It decided to sell all its e'uipment such as sewing machines, perma@

press machines, high speed sewers, cutting tables, ironing tables, etc., as well as it suppliesand materials to Top Frade 7ashion Corporation, its competitor.

a% ow would you classify the transaction)b% Can &ivine Corporation sell the aforesaid items to Top Frade 7ashion Corporation)

6hat are the re'uirements to the validly sell the items) plain.c% ow would you protect the interest of the creditors of &ivine Corporation)d% In case &ivine Corporation violated the law, what remedies are available to Top Frade

7ashion Corporation)

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Answer *a% The sale is a sale in bul, because it is a sale of all or substantially all of the fitures

used in and about the business of the vendor, a garments manufacturer.

b% &ivine Corporation can sell the aforesaid items to Top Frade 7ashion Corporation. But it

must secure the approval of at least -; of its stocholders and a ma9ority vote of themembers of its board of directors as this is a sale of all or substantially all of its assets.

c% To protect the interest of the creditors, I will re'uire the seller to prepare an affidavitstating the names of all its creditors, their addresses, the amount of their credits andtheir respective maturities, and to submit the affidavit to the buyer who, in turn, shouldnotify the creditors about the transaction he is about to conclude with the seller.

If the transaction was made to defraud the creditors, the latter may have the contractrescinded. The creditors may also file a petition for involuntary insolvency and have the salevoided if it was made in fraud of creditors.

d% Top Frade 7ashion Corporation may recover the amount paid if the sale was made infraud of creditors and sue for damages.

Q"es#$%n N%& *!1. a% 0nder what circumstances may a corporation declare dividends)

b% &istinguish dividend from profitJ cash dividend from stoc dividend.c% 7rom what funds are cash and stoc dividends sourced) plain why.

Answer *a% A corporation may declare dividends if it has unrestricted retained earnings.

b% "rofits belong to the corporation, while dividends belong to the stocholders whendividend is declared.

A cash dividend involves disbursement of earnings to stocholders, while stoc dividenddoes not involve any disbursement. A cash dividend affects the fractional interest inproperty which each share represents, while a stoc dividend decreases the fractionalinterest in corporate property which each share represents. A cash dividend does notincrease the legal capital, while a stoc dividend does, as there is no cash outlayinvolved. Cash dividends are sub9ect to income ta, while stoc dividends are not.&eclaration of stoc dividend re'uires the approval of both the ma9ority of the membersof the board of directors and at least -; of the stocholders. In the declaration of cashdividend, the approval by a ma9ority of the members of the board of directors will suffice.

c% Both cash dividend and stoc dividend may be declared out of unrestricted retainedearnings. "aid@in surplus can be declared stoc dividend but not cash dividend, becausea stoc dividend merely transfers the paid@in surplus to capital.

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-. A Eorean national 9oined a corporation which is engaged in the furniture manufacturingbusiness. e was elected to the Board of &irectors. To complement its furnituremanufacturing business, the corporation also engaged in the logging business.

6ith the additional logging activity, can the Eorean nationals still be a member of the Boardof &irectors) plain.

Answer *+es. The Eorean national can still be a member of the board of directors, if he has

sufficient e'uity to entitle him to a seat. ince the corporation is only re'uired to be at least/K owned by 7ilipino citi:ens, foreigners can be members of the board of directors inproportion to their e'uity which cannot eceed </K.

Q"es#$%n N%& +!Do9o deposited several cartons of goods with 3 6arehouse Corporation. The

corresponding warehouse receipt was issued to the order of Do9o. e endorsed the warehousereceipt to D who paid the value of the goods deposited. Before D could withdraw the goods,

#elchor informed 3 6arehouse Corporation that the goods belonged to him and were taenby Do9o without his consent. #elchor wants to get the goods, but D also wants to withdraw thesame.

a% 6ho has the better right to the goods) 6hy)b% If 3 6arehouse Corporation is uncertain as to who is entitled to the property, what is

the proper recourse of the corporation) plain.

Answer!a% D has better right to the goods. The goods are covered by a negotiable warehouse

receipt which was indorsed to D for value. The negotiation to D was not impaired bythe fact that Do9o too the goods without the consent of #elchor, as D had no notice of

such fact. #oreover, D is in possession of the warehouse receipt and only he cansurrender it to the warehouseman.

b% ince there is a conflicting claim of ownership or title, 3 6arehouse Corporation shouldfile a complaint in interpleader re'uiring D and #elchor to interplead. The matter involves a 9udicial 'uestion as to whose claim is valid.

Q"es#$%n N%& ,!1. Briefly discuss the doctrine of corporate opportunity.

Answer *

The doctrine of corporate opportunity means that if the director ac'uired for himself abusiness opportunity that should belong to the corporation, he must account to thecorporation for all the profits he obtained, unless his act was ratified by at least -; of thestocholders.

-. #alyn, chiera and Da: are directors of "atio Investments, a close corporation formed to runthe "atio CafX, an al fresco coffee shop in #aati City. In -///, "atio CafX began

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eperiencing financial reverses, conse'uently, some of the checs it issued to its beveragedistributors and employees bounced.

In =ctober -//, chiera informed #alyn that she found a location for a second cafX inTaguig City. #alyn ob9ected because of the dire financial condition of the corporation.

ometime inApril -//<, #alyn learned about 7ort "atio CafX located in Taguig City and thatits development was undertaen by a new corporation nown as 7ort "atio, Inc., where bothchiera and Da: are directors. #alyn also found that chiera and Da:, on behalf of "atioInvestments and personally guaranteed by chiera and Da:.

#alyn then filed a corporate derivative action before the 8TC of #aati City against chieraand Da:, alleging that the two directors had breached their fiduciary duties bymisappropriating money and assets of "atio Investments in the operation of 7ort "ationCafX.

a% &id chiers and Da: violate the principle of corporate opportunity) plain.b% 6as it proper for #alyn to file a derivative suit with a prayer for in9unctive relief) plain.

c% Assuming that a derivative suit is proper, may the action continue if the corporation isdissolved during the pendency of the suit) plain.

Answer *a% chiera and Da: violated the principle of corporate opportunity, because they used "atio

Investments to obtain a loan, mortgaged its assets and used the proceeds of the loan toac'uire a coffee shop through a corporation they formed.

b% It was proper for #alyn to file a derivative suit with a prayer for in9unction, becausechiera and Da: diverted the assets of the corporation for their own personal benefit.

c% The case should be allowed to continue so that the assets and claims should be

administered for the benefit of all concerned, as they should have been administeredbefore the dissolution of the corporation.

Q"es#$%n N%& -! Aaron, a well@nown architect, is suffering from financial reverses. e has < creditors

with a total claim of "- #. &espite his intention to pay these obligations, his current assets areinsufficient to cover all of them. is creditors are about to sue him. Conse'uently, he wasconstrained to file a petition for insolvency.

a% ince Aaron was merely forced by circumstances to petition the court to declare himinsolvent, can the 9udge properly treat the petition as one for insolvency) plain.

b% If Aaron is declared an insolvent by the court, what would be the effect, if any, of suchdeclaration on his creditors) plain.

c% Assuming that Aaron has guarantors for his debts, are the guarantors released from their obligations once Aaron is discharged from his debts) plain.

d% 6hat remedies are available to the guarantors in case they are made to pay thecreditors) plain.

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Answer!a% The petition cannot be treated as one of the involuntary insolvency, because it was filed

by Aaron himself, the debtor, and not by his creditors. To treat it as one of involuntaryinsolvency would unduly benefit Aaron as a debtor, because he would not be sub9ect tothe limitation of time within which he is sub9ect in the case of voluntary insolvency for purposes of discharge.

b% Actions for unsecured claims cannot be filed, because the claims should be filed in theinsolvency proceeding. Actions for secured claims may be commenced with leave of theinsolvency court.

c% The guarantors are not discharged, because the discharge is limited to Aaron only.

d% Their remedy is to prove in the insolvency proceeding that they paid the debt and thatthey substitute for the creditors, if the creditors have not proven their claims.

Q"es#$%n N%& .!1. 6hat are the effects of an irrevocable designation of a beneficiary under the Insurance

Code) plain.

Answer *The irrevocable beneficiary has a vested interest in the policy, including its incident such

as the policy loan and cash surrender value.

-. Dacob obtained a life insurance policy for "1 # designating irrevocably &iwata, a friend, ashis beneficiary, Dacob, however, changed his mind and wants +ob and Do9o, his other friends, to be included as beneficiaries considering that the proceeds of the policy are

sufficient for the three friends.

Can Dacob still add +ob and Do9o as his beneficiaries) plain.

Answer *The insured cannot add other beneficiaries as this would diminish the interest of &iwata

who is the irrevocably designated beneficiary. The insured can only do so with the consentof &iwata.

Q"es#$%n N%& 10!1. # "early hells, a passenger and cargo vessel, was insured for "</ # against

4constructive total loss5. &ue to typhoon, it san near "alawan. Lucily, there were nocasualties, only in9ured passengers. The shipowner sent a notice of abandonment of hisinterest over the vessel to the insurance company which then hired professionals to afloatthe vessel for "2//,///. 6hen re@floated, the vessel needed repairs estimated at "- #. theinsurance company refused to pay the claim of the shipowner, stating that there was 4noconstructive total loss.5

a% 6as there 4constructive total loss5 to entitle the shipowner to recover from the insurancecompany) plain.

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b% 6as it proper for the shippowner to send a notice of abandonment to the insurancecompany) plain.

Answer *a% There was constructive total loss. 6hen the vessel san, it was liely that it would be

totally lost because of the improbability of recovery.

b% It was proper for the shipowner to send a notice of abandonment to the insurancecompany, because there was reliable information of the loss of the vessel.

-. a% 6hen does double insurance eist)

b% 6hat is the nature of the liability of the several insurers in double insurance) plain.

Answer *a% &ouble insurance eists where the same person is insured by two or more insurers

separately with respect to the same sub9ect matter and interest.

b% In double insurance, the insurers are considered as co@insurers. ach one is bound tocontribute ratably to the loss in proportion to the amount for which he is liable under hiscontract.

Q"es#$%n N%& 11!8icardo mortgaged his fishpond to AC Ban to secure a "1 # loan. In a separate

transaction, he opened a letter of credit with the same ban for O?//,/// in his favor of Ban, a foreign ban, to purchase outboard motors. Liewise, 8icardo eecuted a urety

Agreement in favor of AC Ban.

The outboard motors arrived and were delivered to 8icardo, but he was not able to pay

the purchase price thereof.

a% Can AC Ban tae possession of the outboard motors) 6hy)b% Can AC Ban also foreclose the mortgage over the fishpond) plain.

Answer *a% If what 8icardo eecuted is a trust receipt, AC Ban can tae possession of the outboard

motors so that it can eercise its lien and sell them. If what 8icardo eecuted is a urety Agreement, AC Ban cannot tae possession of the outboard motors, because it has nolien on them.

b% AC Ban can also foreclose the mortgage over the fishpond if 8icardo fails to pay the

loan of "1 #.

Q"es#$%n N%& 12!i +ielding Corporation filed a complaint against ? of its officers for violation of ection

1 of the Corporation Code. The corporation claimed that the said officers were guilty of advancing their personal interests to the pre9udice of the corporation, and that they were grosslynegligent in handling its affairs. Aside from documents and contracts, the corporation also

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submitted in evidence records of the officers! 0.. &ollar deposits in several ban overseas(Boston Ban, Ban of wit:erland, and Ban of 3ew +or.

7or their part, the officers filed a criminal complaint against the directors of i +ieldingCorporation for violation of 8A 3o. <-, otherwise nown as 7oreign Currency &eposit Act of the "hilippines. The officers alleged that their ban deposits were illegally disclosed for want of

a court order, and that such deposits were not even the sub9ect of the case against them.

a% 6ill the complaint filed against the directors of i +ielding Corporation prosper) plain.b% 6as there a violation of the ecrecy of Ban &eposits Law $8A 1</?%) plain.

Answer *a% 3o. ection - of 8A 3o. <-, as amended, speas of deposit with such "hilippine

bans in good standing, as may be designated by the Central Ban for the purpose, andis inapplicable to the foreign currency account in 'uestion.

b% 3o. ection -of 8A 3o. 1</? or the Ban ecrecy Law covers only 4deposits of whatever nature with bans or baning institutions in the "hilippines 5, hence, cannot

be made to apply to foreign bans.

Q"es#$%n N%& 13!1. &iscuss the 4abit system5 in land transportation and its legal conse'uences.

Answer!The 4abit system5 is an arrangement whereby a person who has been granted a

certificate of public convenience allows another who owns a motor vehicle to operate under hiscertificate for a fee or a percentage of the earnings. The owner of the certificate of publicconvenience and the actual owner of the motor vehicle should be held 9ointly and severallyliable for damages to third persons as a conse'uence of the negligent operation of the motor

vehicle.

-. "rocopio purchased an Isu:u passenger 9eepney from nteng, a holder of a certificate of public convenience for the operation of public utility vehicle plying the Calamba@Los Banosroute. 6hile "rocopio continued offering the 9eepney for public transport services he did nothave the registration of the vehicle transferred in his name. 3either did he secure for himself a certificate of public convenience for its operation. Thus, per the records of the LT78B,nteng remained its registered owner and operator. =ne day, while the 9eepney wastravelling southbound, it collided with a ten@wheeler truc owned by mmanuel. The driver of the truc admitted responsibility for the accident, eplaining that the truc lost its braes.

"rocopio sued mmanuel for damages, but the latter moved to dismiss the case on theground that "rocopio is not the real party in interest since he is not the registered owner of the 9eepney.

8esolve the motion with reasons.

Answer *The motion to dismiss should be denied. The rule en9oining the registered owner of the

motor vehicle under the 4abit system5 from proving another person is the owner is intended

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to protect third parties. ince this case does not involve liability of the registered owner tothird parties, and it is the owner of the motor vehicle who is seeing compensation for damages, the rule is not applicable.

. Baldo is a driver of +ellow Cab Company under the boundary system. 6hile cruising along

the outh pressway, Baldo!s cab figured in a collision, illing his passenger, "ietro. Theheirs of "ietro sued +ellow Cab Company for damages, but the latter refused to pay to theheirs, insisting that it is not liable because Baldo is not an employee.

8esolve with reasons.

Answer *+ellow Cab Company is liable because there eists an employer@employee relationship

between a 9eepney owner and a driver under the boundary system arrangement inaccordance with Art. 1/ of the 8"C. Indeed to eempt from liability the owner of a publicvehicle who operates it under the 4boundary system5 on the ground that he is a mere lessor would not only to abet a flagrant violations of the "ublic ervice Law but also to place the

riding public at the mercy of recless and irresponsible drivers recless because themeasure of their earnings depends largely on the number of trips they mae and, hence, thespeed at which they driveJ and irresponsible because most, if not all of them, are in noposition to pay the damages they might cause.

Q"es#$%n N%& 14!1. =n a clear weather, # undo, carrying insured cargo, left the port of #anila bound for

Cebu. 6hile at sea, the vessel encountered a strong typhoon forcing the captain to steer thevessel to the nearest island where it stayed for > days. The vessel ran out of provisions for its passengers. Conse'uently, the vessel proceeded to Leyte to replenish its supplies.

a% Assuming that the cargo was damaged because of such deviation, who between theinsurance company and the owner of the cargo bears the loss) plain.

b% 0nder what circumstances can a vessel properly proceed to a port other than its port of destination) plain.

Answer *a% The insurance company should bear the loss. ince the deviation was caused by a

strong typhoon, it was caused by circumstances beyond the control of the captain, andalso to avoid a peril whether or not insured against. &eviation is therefore proper.

b% A vessel can properly proceed to a port other than its port of destination in the followingcases*

1. 6hen caused by circumstances over which neither the master or the owner of theship has any controlJ

-. 6hen necessary to comply with a warranty, or to avoid a peril, whether or not theperil is insured againstJ

. 6hen made in good faith, and upon reasonable grounds of belief in the necessity toavoid perilJ

<. 6hen made in good faith for the purpose of saving human life or relieving another vessel in distress.

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-. tar hipping Lines accepted 1// cartons of sardines from #aster to be delivered to ???Company of #anila. =nly HH cartons were delivered, however, these were in bad condition.

??? Company claimed from tar hipping Lines the value of the missing goods, as well as

the damaged goods. tar hipping Lines refused because the former failed to present a billof lading.

8esolve with reasons the claim of ??? Company.

Answer *tar hipping Lines should pay the claim of ??? Company. The mere fact that some

cartons were lost and the HH cartons were damaged is sufficient proof of the fault of tar hipping Lines. The fact that ??? Company failed to present a bill of lading maes nodifference, because it was the actual consignee. #oreover, under Art. ? of the Code of Commerce, the surrender of the original bill of lading is not a condition precedent for acommon carrier to be discharged of its obligation. If surrender of the original bill of lading is

not possible, acnowledgment of delivery by signing the delivery receipt suffices.

Q"es#$%n N%& 1*!1. &evelopment Corporation sued hangrila Corporation for using the 45 logo and the

tradename 4hangrila5. The former claims that it was the first to register the logo and thetradename in the "hilippines and that it had been using the same in its restaurant business.

hangrila Corporation counters that it is in an affiliate of an international organi:ation whichhas been using such logo and tradename 4hangrila5 for over -/ years.

owever, hangrila Corporation registered the tradename and logo in the "hilippines only

after the suit was filed.

a% 6hich of the - corporations has a better right to use the logo and the tradename)plain.

b% ow does the international affiliation of hangrila Corporation affect the outcome of thedispute) plain.

Answer *a% &evelopment Corporation has a better right to use the logo and tradename, since it

was the first to register the logo and tradename.

b% ince hangrila Corporation is not the owner of the logo and tradename but is merely an

affiliate of the international organi:ation which has been using them it is not the owner and does not have the rights of an owner.

-. Ce:ar wors in a car manufacturing company owned by Doab. Ce:ar is 'uite innovative andloves to tiner with things. 6ith the materials and parts of the car, he was able to invent agas@saving device that will enable cars to consume less gas. 7rancis, a co@worer, saw howCe:ar created the device and liewise, came up with a similar gadget, also using scrapmaterials and spare parts of the company. Thereafter, 7rancis filed an application for

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registration of his device with the Bureau of "atents. 1H months later, Ce:ar filed anapplication for registration his device with the Bureau of "atents.

a% Is the gas@saving device patentable) plain.b% Assuming that it is patentable, who is entitled to the patent) 6hat, if any, is the remedy

of the losing party)

c% upposing Doab got wind of the inventions of his employees and also laid claim to thepatents, asserting that Ce:ar and 7rancis were using his materials and company time inmaing the devices, will his claim prevail over those of his employees) plain.

Answer *a% It is patentable because it is new, it involves an inventive step and it is industrially

applicable.b% 7rancis is entitled to the patent, because he had the earlier filing date. The remedy of

Ce:ar is to file a petition in Court for the cancellation of the patent of 7rancis on theground that he is the true and actual inventor, and as for his substitution as patentee.

c% The claim of Doab will not prevail over those of his employees, even if they used hismaterials and company time in maing the gas@saving device. The invention of the gas@

saving device is not part of their regular duties as employees.

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1. $A% 0nder a charter party MM= Trading Company shipped sugar to Coca@Cola Companythrough 3egros hipping Corp., insured by Capitol Insurance Company. The cargoarrived but with shortages. Coca@Cola demanded from Capital Insurance Co. "?//,///

in settlement for MM= Trading. The ## 8TC, where the civil suit was filed, 4absolved theinsurance company, declaring that under the Code of Commerce, the shipping agent iscivilly liable for damages in favor of third persons due to the conduct of the carrier!scaptain, and the stipulation in the charter party eempting the owner from liability is notagainst public policy. Coca@Cola appealed. 6ill its appeal prosper) 8eason briefly.

Answer *3o. The appeal of Coca@Cola will not prosper. 0nder Article ?H> of the Code of

Commerce, the shipping agent is civilly liable for damages in favor of third persons dueto the conduct of the carrier!s captain, and the shipping agent can eempt himself therefrom only by abandoning the vessel with all his e'uipment and the freight he mayhave earned during the voyage. =n the other hand, assuming there is bareboat charter,

the stipulation in the charter party eempting the owner from liability is not against publicpolicy because the public at large is not involved.

$B% AA entered into a contract with BB thru CC to transport ladies! wear from #anila to7rance with transshipment at Taiwan. omehow the goods were not loaded at Taiwan ontime. ence, when the goods arrived in 7rance, they arrived 4off@season5 and AA waspaid only for U the value by the buyer. AA claimed damages from the shipping companyand its agent. The defense of the respondents was prescription.

Considering that the ladies! wear suffered 4loss value5, as claimed by AA, should theprescriptive period be one year under the C=FA, or 1/ years under the Civil Code)

plain briefly.

Answer *The applicable prescriptive period is 1/ years under the Civil Code. The 1@year

prescriptive period under the C=FA applies in cases of loss or damage to the cargo.The term 4loss5 as interpreted by the upreme Court in #itsui =..E. Lines,contemplates a situation where no delivery at all was made by the carrier of the goodsbecause the same had perished or gone out of commerce deteriorated or decayed whilein transit. In the present case, the shipment of ladies! wear was actually delivered. The4loss of value5 is not the total loss contemplated by the C=FA.

-. $A% #s. =B was employed in #A Investment Ban. 6IC, a medical drug company,retained the Ban to assess whether it is desirable to mae a tender offer for &="company, a drug manufacturer. =B overheard in the course of her wor the plans of 6IC. By herself and thru associates, she purchased &=" stocs available at the stocechange price at "-/ per share. 6hen 6IC!s tender offer was announced, &=" stocs

9umped to "/ per share. Thus =B earned a si:able profit.

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Is =B liable for breach and misuse of confidential or insider information gained from her employment) Is she also liable for damages to sellers or buyers with whom she traded)If so, what is the measure of such damages) plain briefly.

Answer *=B is an insider $as defined in ubsection .H$% of the 8C% since she is an

employee of the Ban, the financial adviser of &=", and this relationship gives her access to material information about the issuer $&="% and the latter!s securities$shares%, which information is not generally available to the public. Accordingly, =B isguilty of insider trading under ection -> of the 8C, which re'uires disclosure whentrading in securities.

=B is also liable for damages to sellers or buyers with whom she traded. 0nder ubsection .1 of the 8C, the damages awarded could be an amount not eceedingtriple the amount of the transaction plus actual damages. emplary damages may alsobe awarded in case of bad faith, fraud, malevolence or wantonness in the violation of the8C or its implementing rules. The court is also authori:ed to award attorney!s fees noteceeding /K of the award.

$B% CM maintained a checing account with 0BA3E, #aati Branch. =ne of his checsin a stub of ?/ was missing. Later, he discovered that #s. &+ forged his signature andsucceeded to encash "1?,/// from another branch of the ban. &+ was able to encashthe chec when T, a friend, guaranteed due eecution, saying that she was a holder indue course.

Can CM recover the money from the ban) 8eason briefly.

Answer *+es, CM can recover from the ban. 0nder ection - of the 3IL, forgery is a real

defense. The forged chec is wholly inoperative in relation to CM. CM cannot be heldliable thereon by anyone, not even by a holder in due course. 0nder a forged signatureof the drawer, there is no valid instrument that would give rise to a contract which can bethe basis or source of liability on the part of the drawer. The drawee ban has no right or authority to touch the the drawer!s funds deposited with the drawee ban.

. $A% 6hat is a corporation sole) ow does one pierce the veil of corporate fiction)

Answer *ection 1/ of the Corporation Code defines a 4corporation sole5 as one formed

for the purpose of administering and managing, as trustee, the affairs, property and

temporalities of any religious denomination, sect or church. It is formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of such religiousdenomination, sect or church.

The veil of corporate fiction may be pierced by proving the court that the notion of legal entity is being used to defeat public convenience, 9ustify wrong, protect fraud, or defend a crime or the entity is 9ust an instrument or alter ego or ad9unct of another entityor person.

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$B% &istinguish clearly $1% a private corporation from a public corporationJ and $-% a stoccorporation from a non stoc corporation.

Answer * A private corporation is one formed for some private purpose, benefit or end,

while a public corporation is formed for the government of a portion of the tate for the

general good or welfare. The true test is the purpose of the corporation. If thecorporation is created for political or public purpose connected with the administration of government, then it is a public corporation. If not, it is a private corporation although thewhole or substantially the whole interest in the corporation belongs to the tate. A publiccorporation is created by special legislation or act of Congress. A private corporationmust be organi:ed under the Corporation Code.

A stoc corporation is one that has capital stoc divided into shares and isauthori:ed to distribute to the holders of such shares dividends or allotment of thesurplus profits on basis of the shares held. All other corporations are non@stoccorporations.

$C% Is there a difference between a de facto corporation and a corporation by estoppels)plain briefly.

Answer * A de facto corporation is one which actually eists for all practical purposes as a

corporation but which has no legal right to corporate eistence as against the tate. It isessential to the eistence of a de facto corporation that there be*1. A valid law under which a corporation might be incorporated-. A bona fide attempt to organi:e as a corporation under such law, and. Actual use or eercise in good faith of corporate powers conferred upon it by law

A corporation by estoppels eists when person assume to act as a corporationnowing it to be without authority to do so. In this case, those persons will be liableas general partners for all debts, liabilities and damages incurred or arising as aresult of their actions.

$&% &istinguish clearly $1% crossed checs from cancelled checsJ and $-% cash bondfrom surety bond.

Answer * A crossed chec is one with two parallel lines drawn diagonally across its face or

across a corner thereof. =n the other hand, a cancelled chec is one mared or stamped

4paid5 and;or 4cancelled5 by or on behalf of a drawee ban to indicate payment thereof.

A surety bond is issued by a surety or insurance company in favor of a designatedbeneficiary, pursuant to which such company acts as a surety to the debtor or obligor of such beneficiary.

A cash bond is a security in the form of cash established by a guarantor or surety tosecure the obligation of another.

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$% 6hat is the difference between government deregulation and privati:ation of anindustry) plain.

Answer *Fovernment deregulation is the relaation or removal of regulatory constraints on

firms or individuals, with a view to promoting competition and maret@oriented

approaches toward pricing, output, entry, and other related economic decisions.

"rivati:ation of an industry refers to the transfer of ownership and control by thegovernment of assets, firms and operations in an industry to private investors.

<. $A% 7our months before his death, "M assigned 1// shares of stoc registered in hisname in favor of his wife and his children. They then brought the deed of assignment tothe proper corporate officers for registration with the re'uest for the transfer in thecorporation!s stoc and transfer boos of the assigned shares, the cancellation of thestoc certificates in "M!s name, and the issuance of new stoc certificates in the namesof his wife and his children as the new owners. The officers of the Corporation denied

the re'uest on the ground that another heir is contesting the validity of the deed of assignment.

#ay the Corporation be compelled by mandamus to register the shares of stoc in thenames of the assignees) plain briefly.

Answer *+es. The corporation may be compelled by mandamus to register the shares of

stoc in the name of the assignee. The only legal limitation imposed by ection of theCorporation Code is when the Corporation holds any unpaid claim against the sharesintended to be transferred. The alleged claim of another heir of "M is not sufficient todeny the issuance of new certificates of stoc to his wife and children. It would be

otherwise if the transferee!s title to the shares has no prima facie validity or is uncertain.

$B% The Board of &irectors of ABC, Inc., a domestic corporation, passed a resolutionauthori:ing additional issuance of shares of stocs without notice nor approval of thestocholders.

&M, a stocholder, ob9ected to the issuance, contending that it violated his right of pre@emption to the unissued shares. Is his contention tenable) plain briefly.

Answer *+es. &M;s contention is tenable. 0nder ection 2 of the Corporation Code, all

stocholders of ABC, Inc. en9oy preemptive right to subscribe to all issues of shares of any class, including the reissuance of treasury shares in proportion to their respectiveshareholdings.

?. $A% #3 and =" rented a safety deposit bo at IBA3E. The parties signed a contract of lease with the conditions that* the ban is not a depository of the contents of the safeand has neither the possession nor control of the sameJ the ban assumed no interest insaid contents and assumes no liability in connection therewith. The safety deposit bo

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had two eyholes* one for the guard ey which remained with the banJ and the other for the renter!s ey. The bo can be opened only with the use of both eys.

The renters deposited certificates of title in the bo. But later, they discovered that thecertificates were gone. #3 and =" now claim for damages from IBA3E. Is the banliable) plain briefly.

Answer *The ban is liable, based on the decision of the upreme Court in CA Agro@

Industrial &evelopment Corp. v. Court of Appeals. -12 C8A <- $122% and ia v.Court of Appeals, --- C8A -< $122%. In those cases, the upreme Court ruled thatthe renting out of safety deposit boes is a 4special ind of deposit5 wherein the ban isthe depositary. In the absence of any stipulation prescribing the degree of diligencere'uired, that of a good father of a family is to be observed by the depositary. Anystipulation eempting the depositary from any liability arising from the loss of the thingdeposited would be void for being contrary to law and public policy. The deposit bo islocated in the ban premises and is under the absolute control of the ban.

$B% The Law on ecrecy of Ban &eposits provides that all deposits of whatever naturewith bans or baning institutions are absolutely confidential in nature and may not beeamined, in'uired or looed into by any person, government official, bureau or office.owever, the law provides eceptions in certain instances.

6hich of the following may not be among the eceptions*1. In cases of impeachment.-. In cases involving bribery.. In cases involving BI8 in'uiry.<. In cases of anti@graft and corrupt practices.?. In cases where the money involved is the sub9ect of litigation.

plain your answer or choice briefly.

Answer *0nder ection $7% of the 3I8C, the Commissioner of Internal 8evenue can

in'uire into the deposits of a decedent for the purpose of determining the gross estate of such decedent. Apart from this case, a BI8 in'uiry into ban deposits cannot be made.Thus, eception may not always be applicable.

Turning to eception <, an in'uiry into ban deposits is possible only inprosecutions fro uneplained wealth under the Anti@Fraft and Corrupt "ractices Act,according to the upreme Court in the cases of "hilippine 3ational Ban v. Fancayco,

1? C8A 21 $12?% and Banco 7ilipino avings and #ortgage Ban v. "urisima, 11C8A ?> $12HH%. owever, all other cases of anti@graft and corrupt practices will notwarrant an in'uiry into ban deposits. Thus, eception, it must be interpreted strictly.

ceptions 1, -, and ?, on the other hand, are provided epressly in the Law onecrecy of Ban &epositor. They are available to depositor at all times.

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. $A% AM, a businessman, was preparing for a business trip abroad. As he usually did inthe past, he signed several checs in blan and entrusted them to his secretary withinstruction to safeguard them and fill them out only when re'uired to pay accountsduring his absence. =B, his secretary, filled out one of the checs by placing her nameas the payee. he filled out the amount, endorsed and delivered the chec to EC, whoaccepted it in good faith for payment of gems that EC sold to =B. Later, =B told AM of

what she did with regrets. AM timely directed the ban to dishonor the chec. Could AMbe held liable to EC) Answer and reason briefly.

Answer *+es. AM could be held liable to EC. This is a case of an incomplete chec, which

has been delivered. 0nder ection 1< of the 3IL, EC, as a holder in due course, canenforce payment of the chec as if it had been filled up strictly in accordance with theauthority given by AM to =B and within a reasonable time.

$B% In its eercise of police power and business regulation, the legislature of L# tatepassed a law prohibiting aliens from engaging in domestic timber trade. iolators

including dummies would, after proper trial, be fined and imprisoned or deported. #rs.BC, a citi:en of L# but married to GC, an alien merchant of "3F, filed suit to invalidatethe law or eempt from its coverage their timber business.

he contended that the law is, inter alia, gravely oppressive and discriminatory. Itviolated the 0niversal &eclaration of uman 8ights $0&8% passed in 12<H by the0nited 3ations, of which L# is a member, she said, as well as the reciprocityprovisions of the 6orld Trade =rgani:ation $6T=% Agreement of 122<, of which "3Fand L# are parties. Aside from denying them e'ual protection, according to BC, thelaw will also deprive her family their livelihood without due process nor 9ustcompensation.

Assuming that the legal system of L# is similar to ours, would #rs. BC!s contention betenable or not) 8eason.

Answer *#rs. BC!s contention is not tenable. 7irst, the 0&8 does not purport to limit the

right of states $lie L#% to regulate domestic trade. econd, the 6T= Agreementinvolves international trade between states or governments, not domestic trade in timber or other commodities. Third, nationality is an accepted norm for maing classificationsthat do not run counter to the e'ual protection of law clause of the Constitution. 7ourth,there is no impairment of due process here because violators of the law will be punishedonly after 4proper trial5. 7ifth, the issue of 49ust compensation5 does not arise, becausethe property of #rs. BC is not being epropriated. =n the contrary, as a citi:en of L#,

#rs. BC is freely allowed to engage in domestic timber trade in L#.

>. $A% AA, a minority stocholder, filed a suit against BB, CC, CC, and , the holders of ma9ority shares of #=" Corporation, for alleged misappropriation of corporate funds.The complaint averred, inter alia, that #=" Corporation is the corporation in whosebehalf and for whose benefit the derivative suit is brought. In their capacity as membersof the Board of &irector, the ma9ority stocholders adopted a resolution authori:ing #="

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Corporation to withdraw the suit. "ursuant to said resolution, the corporate counsel fileda #otion to &ismiss in the name of the #=" Corporation.

hould the motion be granted or denied) 8eason briefly.

Answer *

3o. All the re'uisites for a valid derivative suit eist in this case. 7irst, AA waseempt from ehausting his remedies within the corporation, and did not have to mae ademand on the Board of &irectors for the latter to sue. ere, such a demand would befutile, since the directors who comprise the ma9ority $namely, BB, CC, && and % arethe ones guilty of the wrong complained of. econd, AA appears to be stocholder at thetime the alleged misappropriation of corporate funds. Third, the suit is brought on behalf and for the benefit of #=" Corporation. In this connection, it was held in Conmart Phils.0 )nc. v. !ecurities and =xchange Commission, 12H C8A > $1221% that to grantto the corporation concerned the right of withdrawing or dismissing the suit, at theinstance of the ma9ority stocholders and directors who themselves are the personsalleged to have committed the breach of trust against the interest of the corporationwould be to emasculate the right of minority stocholders to see redress for the

corporation. 7iling such action as a derivative suit even by a lone stocholder is one of the protections etended by law to minority stocholders against abuses of the ma9ority.

$B% M+G Corporation entered into a contract of lease with ABC, Inc., over a piece of realestate for a term of -/ years, renewable for another -/ years, provided that M+G!scorporate term is etended in accordance with law. 7our years after the term of M+GCorporation epired, but still within the period allowed by the lease contract for theetension of the lease period, M+G Corp. notified ABC Inc., that it is eercising the optionto etend the lease. ABC Inc. ob9ected to the proposed etension, arguing that since thecorporate life of M+G Corp. had epired, it could no longer opt to renew the lease. M+GCorp. countered that withstanding the lapse of its corporate term it still has the right to

renew the lease because no quo warranto proceedings for involuntary dissolution of M+GCorp. has been instituted by the =ffice of the olicitor Feneral.

Is the contention of M+G Corp. meritorious) plain briefly.

Answer *M+G Corporation!s contention is not meritorious. Based on the ruling of the

upreme Court in Philippine 5ational %an v. C>) of $izal , -/2 C8A $122-%. M+G Corp.was dissolved ipso facto upon the epiration of its original term. It ceased to be a bodycorporate for the purpose of continuing the business for which it was organi:ed, eceptonly for purposes connected with its winding up or li'uidation. tending the lease is notan act to wind up or li'uidate M+G Corp.!s affairs. It is contrary to the idea of winding up

the affairs of the corporation.

H. $A% C&C maintained a savings account with CBan. =n orders of the ## 8TC, theheriff garnished "?/,/// of his account, to satisfy the 9udgment in favor of his creditor,#=. C&C complained that the garnishment violated the Law on the ecrecy of Ban&eposits because the eistence of his saving account was disclosed to the public.

Is C&C!s complaint meritorious or not) 8eason briefly

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Answer *3o. C&C!s complaint is not meritorious. It was held in China Baning Corporation

v. =rtega, <2 C8A ?? $12>% that peso deposits may be garnished and the depositaryban can comply with the order of garnishment without violating the Law on the ecrecyof Ban &eposits. ecution is the goal of litigation as it is its fruit. Farnishment is part of

the eecution process. 0pon service of the notice of garnishment on the ban where thedefendant deposited funds, such funds become part of the sub9ect matter of litigation.

$B% The Collector of Customs ordered the sei:ure and forfeiture of new electronicappliances shipped by T=3 Corp. from ong Eong for violation of customs law becausethey were falsely declared as used office e'uipment and then undervalued for purposesof customs duties. T=3 filed a complaint before the ## 8TC for replevin, alleging thatthe Customs officials erred in the classification and valuation of its shipment, as well asin the issuance of the warrant of sei:ure. The Collector moved to dismiss the suit for lacof 9urisdiction on the part of the trial court.

hould the Collector!s motion be granted or denied)

Answer *The Collector!s motion should be granted. 0nder ection /-$g% of the Tariff and

Customs Code, the Bureau of Customs has eclusive original 9urisdiction over sei:ureand forfeiture cases under the tariff and customs laws.

2. $A% +E Trading filed a complaint for specific performance with damages against the"6C Corporation for failure to deliver cement ordered by plaintiff. In its answer, "6Cdenied liability on the ground, inter alia, that +E has no personality to sue, not beingincorporated, and that the "resident of "6C was not authori:ed to enter into a contract

with plaintiff by the "6C Board of &irectors, hence the contract is ultra vires. +ETrading replied that it is a sole proprietorship owned by +E, and that the "resident of "6C had made it appear in several letters presented in evidence that he had authorityto sign contracts on behalf of the Board of &irectors of "6C.

6ill the suit prosper or not) 8eason briefly.

Answer *+es, the suit will prosper. As the sole proprietorship, the proprietor of +E

Trading has the capacity to act and the personality to sue "6C. It is not necessary for +E Trading to be incorporated before it can sue. =n the other hand, "6C is stoppedfrom asserting that its "resident had no authority to enter into the contract, considering

that, in several of "6C!s letters, it had clothed its "resident with apparent authority todeal with +E Trading.

$B% CF, a customer, sued #8ALC= in the ## 8TC to disclose the basis of thecomputation of the purchased power ad9ustment $""A%. The trial court ruled it had no

9urisdiction over the case because, as contended by the defendant, the customer notonly demanded a breadown of #8ALC=!s bill with respect to ""A but 'uestioned as

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well the imposition of the ""A, a matter to be decided by the Board of nergy, theregulatory agency which should also have 9urisdiction over the instant suit.

Is the trial court!s ruling correct or not) 8eason briefly.

Answer *

The trial court!s ruling is correct. As held in Manila =lectric Compan" v. Court of Appeals, -> C8A <1Z $122>%, the Board of nergy had the power to regulate and fipower rates to be charged by franchised electric utilities lie #8ALC=. In fact,pursuant to .=. 3o. <>H $April 1>, 122H%, this power has been transferred to the nergy8egulatory Board $now the nergy regulatory Commission%. 0nder ection <$u% of thelectric "ower Industry 8eform Act of -//1, the nergy 8egulatory Commission hasoriginal and eclusive 9urisdiction over all cases contesting power rates.

1/. $A% B8 and CT are noted artists whose paintings are highly pri:ed by collectors. &r. &Lcommissioned them to paint a mural at the main lobby of his new hospital for children.Both agreed to collaborate on the pro9ect for a total fee of "- # to be e'ually divided

between them. It was also agreed that &r. &L had to provide all the materials for thepainting and pay for the wages of technicians and laborers needed for the wor on thepro9ect.

Assume that the pro9ect is completed and both B8 and CT are fully paid the amount of "- # as artists! fee by &L. 0nder the law on intellectual property, who will own themural) 6ho will own the copyright in the mural) 6hy)

Answer *0nder ection 1>H.< of the Intellectual "roperty Code, in case of commissioned

wor, the creator $in the absence of a written stipulation to the contrary% owns thecopyright, but the wor itself belongs to the person who commissioned its creation.

Accordingly, the mural belongs to &L. owever, B8 and CT own the copyright, sincethere is no stipulation to the contrary.

$B% C3I insured A# under a homeowner!s policy against claims for accidental in9uriesby neighbors. A#!s minor son, B=+, in9ured children of "=, a neighbor, who suedA# for damages.

A#!s lawyer was at ATT, who was paid for his services by the insurer for reportingperiodically on the case to C3I. In one report, ATT disclosed to C3I that after hisinvestigations, he found the in9uries to the children not accidental but intentional.

A# lost the case in court, and "= was awarded "1 # in damages which he sought tocollect from the insurer. But C3I used ATT!s report to deny the claim on the ground thatthe in9uries to "=! children were intentional, hence ecluded from the policy!scoverage. "= countered that C3I was stopped from using ATT!s report because it wasunethical for ATT to provide pre9udicial information against his client to the insurer, C3I.

6ho should prevail* the claimant, "=J or the insurer, C3I) &ecide with reasons briefly.

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Answer *C3I is not stopped from using ATT!s report because C3I, in the first place,

commissioned it and paid ATT for it. =n the other hand, ATT has no conflict of interestbecause A# and C3I are on the same side(their interests being congruent with eachother, namely, to oppose "=! claim. It cannot be said that ATT has used the informationto the disadvantage or pre9udice of A#.

owever, in >inman General Assurance Corp. v. Court of Appeals , -1 C8A<2 $122-%, it was eplained that there is no 4accident5 in the contet of an accidentpolicy, if it is the natural result of the insured!s voluntary act, unaccompanied by anythingunforeseen ecept the in9ury. There is no accident when a deliberate act is performed,unless some additional and unforeseen happening occurs that brings about the in9ury.This element of deliberateness is not clearly shown from the facts of the case, especiallyconsidering the fact that B=+ is a minor, and the in9ured parties are also children.

Accordingly, it is possible that C3I may not prosper. ATT!s report is not conclusive on"= or the court.

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1. 3ame methods by which a stoc corporation may be voluntarily dissolved. plain eachmethod.

Answer *The methods by which a stoc corporation may be voluntarily dissolved are*

a. oluntary dissolution where no creditors are affected. This is done by a ma9ority vote of thedirectors, and resolution of at least -; vote of stocholders, submitted to the C.

b. oluntary dissolution where creditors are affected. This is done by a petition for dissolutionwhich must be filed with the C, signed by a ma9ority of the members of the board of directors, verified by the president or secretary, and upon affirmative vote of stocholdersrepresenting at least -; of the outstanding capital stoc.

c. &issolution by shortening of the corporate term. This is done by amendment of the articles

of incorporation.

-. 6hich of the following corporate acts are valid, void, or voidable) Indicate your answer bywriting the paragraph number of the 'uery, followed by your corresponding answer as 4valid5,4void5 or 4voidable5, as the case may be. If your answer is 4void5, eplain your answer. In thecase of a 4voidable5 answer, specify what conditions must be present or complied with to maethe corporate act valid.

1% ML 7oods Corporation, which is engaged in the fastfood business, entered into a contractwith its "resident Dose Cru:, whereby the latter would supply the corporation with its meatand poultry re'uirements.

-% The board of directors of ML 7ood Corporation declared and paid cash dividends withoutapproval of the stocholders.

% ML 7ood Corporation guaranteed the loan of its sister company ML #eat "roducts.

Answer *1% oidable(A contract of the corporation with one or more of its directors or trustees or

officers is voidable, at the option of such corporation.-% alid% oid(This is an ultra vires act on the part of ML 7oods Corporation, and is not one of the

powers provided for in ec. of the Corporation Code.

. plain the distinct but intertwined contract relationships that are indispensable in a letter of credit transaction.

Answer *The distinct but intertwined contract relationships that are indispensable in a letter of

credit transaction are*1. Between the applicant;buyer;importer and the beneficiary;seller;eporter(The

applicant;buyer;importer is the one who procures the letter of credit and obliges himself toreimburse the issuing ban upon receipt of the documents of title, while the

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beneficiary;seller;eporter is the one who in compliance with the contract of sale ships thegoods to the buyer and delivers the documents of title and draft to the issuing ban torecover payment for the goods. Their relationship is governed by the contract of sale.

-. Between the issuing ban and the beneficiary;seller;eporter(The issuing ban is the onethat issues the letter of credit and undertaes to pay the seller upon receipt of the draft and

proper documents of title and to surrender the documents to the buyer upon reimbursement.Their relationship is governed by the terms of the letter of credit issued by the ban.

. Between the issuing ban and the applicant;buyer;importer(Their relationship is governedby the terms of the application and agreement for the issuance of the letter of credit by theban.

<. As part of the safeguards against imprudent baning, the Feneral Baning Law imposes limitsor restrictions on loans and credit accommodations which may be etended by bans. Identify atleast - of these limits or restrictions and eplain the rationale of each of them.

Answer * Any - of the following limits or restrictions on loan and credit transaction which may be

etended by bans, as part of the safeguard against imprudent baning, to wit*1% BL 8ules(BL $i.e., single borrower!s limit% rules are those promulgated by the B",

upon the authority of ection ? of the Feneral Baning Law $FBL% of -///, which regulatethe total amount of loans, credit accommodations and guarantees that may be etended bya ban to any person, partnership, association, or corporation or other entity. The rules seeto protect a ban from maing ecessive loans to a single borrower by prohibiting it fromlending beyond a specified ceiling.

-% &=8I 8ules(These are rules promulgated by the B", upon authority of ection ? of theFBL of -///, which regulate the amount of credit accommodations that a ban may etend

to its directors, officers, stocholders and their related interests. Fenerally, a ban!s creditaccommodations to its &=8I must be in the regular course of business and on terms notless favorable to the ban than those offered to non@&=8I borrowers.

% 3o commercial ban shall mae any loan or discount on the security of shares of its owncapital stoc.

?. +ou have been ased to incorporate a new company to be called 7B avings Z #ortgageBan, Inc. List the documents that you must submit to the C to obtain a certificate of incorporation for 7B avings Z #ortgage Ban, Inc.

Answer *The documents to be submitted to the C to incorporate a new company to be called

7B avings Z #ortgage Ban, Inc., to obtain the certificate of incorporation for said company,are*1% Articles of IncorporationJ-% Treasurer!s affidavitJ% Certificate of Authority from the #onetary Board of the B"J<% erification slip from the records of the C whether or not the proposed name has already

been adopted by another corporation, partnership or associationJ

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?% Letter undertaing to change the proposed name if already adopted by another corporation,partnership or associationJ

% Ban certificate of deposit concerning the paid@up capitalJ>% Letter authori:ing the C or #onetary Board or its duly authori:ed representative to

eamine the ban records regarding the deposit of the paid@up capitalJH% 8egistration sheet.

. A. 6hat is a tender offer)B. In what instances is a tender offer re'uired to be made)

Answer * A. Tender offer is a publicly announced intention of a person acting alone or in concert with

other persons to ac'uire e'uity securities of a public company. It may also be defined as amethod of taing over a company by asing stocholders to sell their shares at a pricehigher that the current maret price and on a particular date.

B. Instances where tender offer is re'uired to be made*

1. The person intends to ac'uire 1?K or more of the e'uity share of a public companypursuant to an agreement made between or among the person and one or more sellers.

-. The person intends to ac'uire /K or more of the e'uity shares of a public companywithin a period of 1- months.

. The person intends to ac'uire e'uity shares of a public company that would result inownership of more than ?/K of the said shares.

>. There are classes of bans identified in the Feneral Baning Law of -///. 3ame at least < of them and eplain the distinguishing characteristic or function of each one.

Answer *

Any < of the following classes of bans identified in the FBL of -//-, to wit*

1% Un$ers' Bns(these are those which used to be called epanded commercial bansand the operations of which are now primarily governed by the FBL of -///. They caneercise the powers of an investment house and invest in non@allied enterprises. They havethe highest capitali:ation re'uirement.

-% C%er$' Bns(these are ordinary or regular commercial bans, as distinguishedfrom a universal ban. They have a lower capitali:ation re'uirement than universal bansand cannot eercise the powers of an investment house and invest in non@allied enterprises.

% Tr$# 5ns(these bans $such as savings and mortgage bans, stoc savings and loan

associations, and private development bans% may eercise most of the powers andfunctions of a commercial ban ecept that they cannot, among others, open current or chec accounts without prior #onetary Board approval, and they cannot issue letter of credit. Their operations are governed primarily by the Thrift Bans Act of 122? $8A 3o,>2/%

<% R"r' Bns(these are those which are organi:ed primarily to etend loans and other credit facilities to farmers, fishermen or farm families, as well as cooperatives, merchants,

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and private and public employees and whose operations are primarily governed by the 8uralBans Act of 122- $8A 3o. >?%

?% C%%6er#$e Bns(these are those which are organi:ed primarily to provide financial andcredit services to cooperatives and whose operations are primarily governed by theCooperative Code of the "hilippines $8A 3o. 2H%

% Is'$ Bns(these are those which are organi:ed primarily to provide financial andcredit services in a manner or transaction consistent with the Islamic hari!a. at present,only the Al Amana Islamic Investment Ban of the "hilippines has been organi:ed as anIslamic ban.

H. A. 3ame - characteristics which differentiate a common carrier from a private carrier.

B. 6hy is the defense of due diligence in the selection and supervision of an employee notavailable to a common carrier)

Answer * A. Two characteristics that differentiate a common carrier from a private carrier are*

1. A common carrier offers its service to the publicJ a private carrier does not.-. A common carrier is re'uired to observe etraordinary diligenceJ a private carrier is not

re'uired.

B. The defense of due diligence in the selection and supervision of an employee is notavailable to a common carrier because the degree of diligence re'uired of a common carrier is not the diligence of a good father of a family but etraordinary diligence, i.e., diligence of the greatest sill and utmost foresight

2. &iscuss whether or not the following stipulations in a contract of carriage of a common carrier are valid*

1% A stipulation limiting the sum that may be recovered by the shipper or owner to 2/K of thevalue of the goods in case of loss due to theft.

-% A stipulation that in the event of loss, destruction or deterioration of goods on account of thedefective condition of the vehicle used in the contract of carriage, the carrier!s liability islimited to the value of the goods appearing in the bill of lading unless the shipper or owner declares a higher value.

Answer *

1% The stipulation is considered unreasonable, un9ust and contrary to public policy under Article1><? of the Civil Code.

-% 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 epressly recogni:ed in Article1><2 of the Civil Code.

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1/. "rimetime Corporation $the Borrower% obtained a "1/ #, ?@year term loan from 0niversal Ban$the Ban% in 122. As security for the loan and as re'uired by the Ban, the Borrower gave thefollowing collateral security in favor of the Ban*

1% A real estate mortgage over the land and building owned by the Borrower and located inue:on CityJ

-% The 9oint and several promissory note of #r. "rimo Timbol, the "resident of the BorrowerJand

% A real estate mortgage over the residential house and lot owned by #r. Timbol, also locatedin ue:on City

Because of business reverses, neither the Borrower nor #r. Timbol was able to pay the loan. InDune -//1, the Ban etra9udicially foreclosed the two real estate mortgages, with the Ban asthe only bidder in the foreclosure sale. =n eptember 1, -//1, the certificates of sale of thetwo properties in favor of the Ban were registered with the 8egister of &eeds of ue:on City.

1/ months later, both the Borrower and #r. Timbol were able to raise sufficient funds to redeemtheir respective properties from the Ban, but the Ban refused to permit redemption on the

ground that the period for redemption had already epired, so that the Ban now has absoluteownership of both properties. The Borrower and #r. Timbol came to you today, eptember 1?,-//-, to find out if the position of the Ban is correct. 6hat would be your answer) tate your reasons.

Answer *1% 6ith respect to the real estate mortgage over the land and building owned by the Borrower,

"rimetime Corporation, a 9uridical body, the period of redemption is only months, whichperiod already epired.

-% As to the real estate mortgage over the residential house and lot owned by #r. Timbol, theperiod of redemption is 1 year from the date of registration of the sale, which period has not

yet epired in this case.

11. Andrew is engaged in the business of the building low@cost housing units under contracts withreal estate developers. e applied for a loan of " # from 8eady Credit Ban $the Ban%, whichre'uired Andrew to provide collateral security for it. Andrew offered to assign to the Ban hisreceivables amounting to "< # from ome Builders &evelopment Corporation $the =bligor%.

The Ban accepted the offer. Accordingly, Andrew obtained the loan and he eecuted apromissory note undertaing to pay the loan in full in one lump sum on eptember 1, -//-,together with interest thereon at the rate of -/K per annum. At the same time, Andrew eecuteda &eed of Assignment in favor of the Ban, assigning to the Ban his receivables from the

=bligor. The &eed of Assignment read*

4I, Andrew Lee, hereby assign, transfer and convey, absolutely and unconditionally, to8eady Credit Ban $hereinafter called the Ban% all my right, title and interest in and to myaccounts receivable from ome Builders &evelopment Corporation $hereinafter called the=bligor% arising from delivery of housing units with a total contract price of "< #, the descriptionand contract value of which are attached hereto as Anne A $hereinafter called the8eceivables%.

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In the event that I shall be unable to pay my outstanding indebtedness owed to theBan, the Ban shall have the right, without any further formality or act on its part, to collect the8eceivables from the =bligor and to apply the proceeds thereof toward payment of my saidindebtedness.

Andrew failed to pay the loan on its due date on eptember 1, -//-. 6hen the Ban attempted

to collect from the =bligor, the Ban discovered that the latter had already closed operationsand li'uidated its assets. The Ban sued Andrew for collection, but Andrew moved to dismissthe complaint on the ground that the debt had already been paid by reason of his eecution of the aforesaid &eed of Assignment which, being absolute and unconditional, was in essence adacion en pago. The Ban opposed the motion, contending that the &eed of Assignment wasonly a security for the loan.

If you were the 9udge, how would you resolve the motion to dismiss filed by Andrew) plain.

Answer *The motion to dismiss should be granted. The simple absolute and unconditional

conveyance embodied in the deed of assignment would be operative, and the assignment

would constitute essentially a mode of payment or dacion en pago.

1-. As of Dune 1, -//-, d:o ystems Corporation $d:o% was indebted to the following creditors*

1. Ace 'uipment upplies@ for various personal computers and accessories sold to d:o oncredit amounting to "//,///.

-. andyman Farage@ for mechanical repairs $parts and service% performed on d:o!scompany car amounting to "1/,///.

. Doselyn 8eyes@ former employee of d:o who sued d:o for unlawful termination of employment and was able to obtain a final 9udgment against d:o for "1//,///.

<. BI8@ for unpaid AT amounting to "/,///.

?. Integrity Ban@ which granted d:o a loan in -//1 in the amount of "?//,///. The loan wasnot secured by any asset of d:o, but it was guaranteed unconditionally and solidarily byd:o!s "resident and controlling stocholder, duardo G. =ng, as accommodation surety.

The loan owed to Integrity Ban fell due on Dune 1?, -//-. &espite pleas for etension of payment by d:o, the ban demanded immediate payment. Because the ban threatened toproceed against the surety, duardo G. =ng, d:o decided to pay up all of its obligations toIntegrity Ban. =n Dune -/, -//-, d:o paid to Integrity Ban the full principal amount of "?//,///, plus accrued interests amounting to "??,///. As a result, d:o has hardly any cashleft for operations and decided to close its business. After paying the unpaid salaries of itsemployees, d:o filed a petition for insolvency on Duly 1, -//-.

In the insolvency proceedings in court, the assignee in insolvency sought to invalidate thepayment made by d:o to Integrity Ban for being a fraudulent transfer because it was madewithin / days before the filing of the insolvency petition. In defense, Integrity Ban assertedthat the payment to it was for a legitimate debt that was not covered by the prohibition becauseit was 4a valuable pecuniary consideration made in good faith,5 thus falling within the eceptionspecified in the Insolvency Law.

As 9udge in the pending insolvency case, how would you decide the respective contentions of the assignee in insolvency and of Integrity Ban) plain.

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Answer *The contention of the assignee in insolvency is correct. The payment made by d:o to

Integrity Ban was a fraudulent preference or payment, being made within / days before thefiling of the insolvency petition.

1. Based on the same facts as stated in the preceding 'uestion, how would you, as 9udge in theinsolvency proceedings, ran the respective credits or claims of the ? creditors mentionedabove in terms of preference or priority against each other)

Answer *The claim of the andyman Farage for "1/,/// has a specific lien on the car repaired.

The remaining < claims have preference or priority against each other in the followingorder*

1. 3o. <@ claim of the BI8 for unpaid ATJ-. 3o. @ claim of Doselyn 8eyes for unlawful terminationJ

. 3o. 1@ claim of Ace 'uipment upplies as an unpaid sellerJ and<. 3o. ?@ claim of Integrity Ban.

1<. A. &efine the following* $1% a negotiable promissory note, $-% a bill of echange and $% a chec.

B. +ou are "edro Cru:. &raft the appropriate contract language for $1% your negotiablepromissory note and $-% your chec, each containing the essential elements of a negotiableinstrument.

Answer * A. $1% A negotiable promissory note is an unconditional promise in writing made by one person

to another, signed by the maer, engaging to pay on demand or at a fied determinablefuture time, a sum certain in money to order or bearer.

$-% A bill of echange is an unconditional order in writing addressed by one person toanother, signed by the person giving it, re'uiring the person to whom it is addressed to payon demand or at a fied or determinable future time a sum certain in money to order or bearer.

$% A chec is a bill of echange drawn on a ban payable on demand.

B. $1% 3egotiable promissory note(4eptember 1?, -//-

47or value received, I hereby promise to pay Duan antos or order the sum of T3T=0A3& "= $"1/,///.//% thirty $/% days from date hereof.

$igned% "edro Cru:5

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$-% Chec(4eptember 1?, -//-

4"ay to the order of Duan antos the sum of T3 T=0A3& "= $"1/,///.//%,"hilippine currency.

$igned% "edro Cru:

To* "hilippine 3ational Banscolta, #anila Branch5

1?. 6hich of the following stipulations or feature of a promissory note $"3% affect or do not affect itsnegotiability, assuming that the "3 is otherwise negotiable) Indicate your answer by writing theparagraph number of the stipulation or feature of the "3 as shown below and eplain your corresponding answer, either 4Affected5 or 43ot affected5. plain.

1% The date of the "3 is 47ebruary /, -//-5

-% The "3 bears interest payable on the last day of each calendar 'uarter at a rate e'ual to?K above the then prevailing 21@day Treasury Bill rate as published at the beginning of suchcalendar 'uarter.

% The "3 gives the maer the option to mae payment either in money or in 'uantity of palayof e'uivalent value.

<% The "3 gives the holder the option either to re'uire payment in money or to re'uire themaer to serve as the bodyguard or escort of the holder for / days.

Answer *1% "aragraph 1(negotiability is 43=T A77CT&5. The date is not one of the re'uirements for

negotiability.

-% "aragraph -(negotiability is 43=T A77CT&5. The interest is to be computed at aparticular time and is determinable. It does not mae the sum uncertain or the promiseconditional.

% "aragraph (negotiability is 4A77CT&5. Fiving the maer the option renders thepromise conditional.

<% "aragraph <(negotiability is 43=T A77CT&5. Fiving the option to the holder does notmae the promise conditional.

1. A. AB issued a promissory note for "1,/// payable to C& or his order on eptember 1?, -//-.

C& indorsed the note in blan and delivered the same to 7. F stole the note from 7 and oneptember 1<, -//- presented it to AB for payment. 6hen ased by AB, F said C& gave himthe note in payment for - cavans of rice. AB therefore paid F "1,/// on the same date. =neptember 1?, -//-, 7 discovered that the note of AB was not in possession and he went to

AB. It was then that 7 found out that AB had already made payment on the note. Can 7 stillclaim payment from AB) 6hy)

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B. As a se'uel to the same facts narrated above, 7, out of pity for AB who had already paid"1,/// to F, decided to forgive AB and instead go after C& who indorsed the note in blan tohim. Is C& still liable to 7 by virtue of the indorsement in blan) 6hy)

Answer * A. 3o. 7 cannot claim payment from AB. 7 is not a holder of the promissory note. To mae

presentment for payment, it is necessary to ehibit the instrument, which 7 cannot dobecause he is not in possession thereof.

B. 3o, because C& negotiated the instrument by delivery.

1>. &istinguish insurable interest in property insurance from insurable interest in life insurance.

Answer *1% In property insurance, the epectation of benefit must have a legal basis. In life insurance,

the epectation of benefit to be derived from the continued eistence of a life need not haveany legal basis.

-% In property insurance, the actual value of the interest therein is the limit of the insurance thatcan validly be placed thereon. In life insurance, there is no limit to the amount of insurancethat may be taen upon life.

% In property insurance, an interest insured must eist when the insurance taes effect andwhen the loss occurs but need not eist in the meantime. In life insurance, it is enough thatinsurable interest eists at the time when the contract is made but it need not eist at thetime of loss.

1H. 'uity =nline Corporation $=L%, a 3ew +or corporation, has a securities broerage service

on the Internet after obtaining all re'uisite 0.. licenses and permits to do so. =L!s website$www.eonline.com%, which is hosted by a server in 7lorida, enables Internet users to trade on@line in securities listed in the various stoc echanges in the 0.. =L buys and sells 0..@listedsecurities for the accounts of its clients all over the world, who convey their buy and sellinstructions to =L through the Internet. =L has no offices, employees or representativesoutside the 0.. The website has icons for many countries, including an icon 47or 7ilipinoTraders5 containing the day!s prices of 0..(listed securities epressed in 0.. dollars and intheir "hilippine peso e'uivalent. Frace Fon:ales, a resident of #aati, is a regular customer of the website and has been purchasing and selling securities through =L with the use of her

American press credit card. Frace has never traveled outside the "hilippines. After a seriesof erroneous stoc pics, she had incurred a net indebtedness of 0O/,/// with =L, at whichtime she cancelled her American press credit card. After a number of demand letters sent to

Frace, all of them unanswered, =L, through a #aati law firm, filed a complaint for collectionagainst Frace with the 8TC of #aati. Frace, through her lawyer, filed a motion to dismiss onthe ground that =L $a% was doing business in the "hilippines without a license and wastherefore barred from bringing suit and $b% violated the 8C by selling or offering to sellsecurities within the "hilippine C and thus came to court 4with unclean hands5. =L opposedthe motion to dismiss, contending that it had never established a physical presence in the"hilippines, and that all of the activities related to plaintiffs trading in 0.. securities alltranspired outside the "hilippines. If you are the 9udge, decide the motion to dismiss by ruling onthe respective contentions of the parties on the basis of the facts presented above.

http://www.eonline.com/

http://www.eonline.com/

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Answer *1% The grounds of the motion to dismiss are both untenable. =L is not doing business in

the "hilippines, and it did not violate the ecurities Act, because it was not sellingsecurities in the country.

-% The contention of =L is correct, because it never did any business in the "hilippines.

All its transactions in 'uestion were consummated outside the "hilippines

12. A. 6hat is the legal test for determining if an unlicensed foreign corporation is doing businessin the "hilippines)

B. Five at least eamples of the acts or activities that are specifically identified under our foreign investment laws as constituting 4doing business5 in the "hilippines.

Answer * A. The test is whether or not the unlicensed foreign corporation has performed an act or acts

that imply a continuity of commercial dealings or arrangements, and contemplate to that

etent the performance of acts or wors, or the eercise of some of the functions normallyincident to, and in progressive prosecution of, commercial gain or of the purpose and ob9ectof the business organi:ation.

B. Any three of the following acts or activities constitute 4doing business5 in the "hilippinesunder our foreign investment laws*1. oliciting orders-. =pening offices by whatever name. "articipating in the management, supervision or control of any domestic entity<. ntering into service contracts?. Appointing representatives or distributor, operating under the control of the foreign entity,

who is domiciled in the "hilippines or who stays in the country for a period totaling at

least 1H/ days in any calendar year.

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1. 4M5 company is a stoc corporation composed of the 8eyes family engaged in real estatebusiness. Because of the regional crisis, the stocholders decided to convert their stoccorporation into a charitable non@stoc and non@profit association by amending the articles

of incorporation.

a% Could this be legally done) 6hy)b% 6ould your answer be the same if at the inception, 4M5 company is a non@stoc

corporation) 6hy)

Answer *a% +es, it can be legally done. In converting the stoc corporation to a non@stoc

corporation by a mere amendment of the Articles of Incorporation, the stoccorporation is not distributing any of its assets to the stocholders. =n the contrary, thestocholders are deemed to have waived their right to share in the profits of thecorporation which is a gain not a loss to the corporation.

b% 3o, my answer will not be the same. In a non@stoc corporation, the members are notentitled to share in the profits of the corporation because all present and future profitsbelong to the corporation. In converting the non@stoc corporation to a stoccorporation by a mere amendment of the Articles of Incorporation, the non@stoccorporation is deemed to have distributed an asset of the corporation(i.e. its profits,among its members, without a prior dissolution of the corporation. 0nder ection 1--,the non@stoc corporation must be dissolved first.

-. 4M+5 is a recreational club which was organi:ed to operate a golf course for its memberswith an original authori:ed capital stoc of "1// #. the articles of incorporation nor the by@laws did not provide for distribution of dividends although there is a provision that after its

dissolution, the assets shall be given to a charitable corporation. Is 4M+5 a stoccorporation) Five reasons for you answer.

Answer *4M+5 is a stoc corporation because it is organi:ed as a stoc corporation and there is no

prohibition in its Articles of Incorporation or in its by@laws for it to declare dividends. 6hena corporation is organi:ed as a stoc corporation and its Articles of Incorporation or By@Laws are silent, the corporation is deemed to have the power to declare dividends under ection <. ince it has the power to declare dividends, 4M+5 is a stoc corporation.

The provision in its Articles of Incorporation that at dissolution the assets of thecorporation shall be given to a charitable corporation does not prohibit the corporation

from declaring dividends before dissolution.

. uppose that 4M5 Corporation has already issued the 1/// originally authori:ed shares of the corporation so that its Board of &irectors and stocholders wish to increase 4M!s5authori:ed capital stoc. After complying with the re'uirements of the law on increase of capital stoc, 4M5 issued an additional 1/// shares of the same value.

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a% Assume that the stocholder 4A5 presently holds -// out of the 1/// original shares.6ould 4A5 have a preemptive right to -// of the new issue of 1/// shares) 6hy)

b% 6hen should stocholder 4A5 eercise the preemptive right)

Answer *a% +es, 4A5 would have a preemptive right to -// of the new issue of 1/// shares. 4A5 is a

stocholder of record holding -// shares in 4M5 Corporation. According to theCorporation Code, each stocholder has the preemptive right to all issues of sharesmade by the corporation in proportion to the number of share he holds on record in thecorporation.

b% "reemptive right must be eercised in accordance with the Articles of Incorporation or the By@Law. 6hen the Articles of Incorporation and By@Laws are silent, the Board mayfi a reasonable time within which the stocholders may eercise the right.

<. In 1222, Corporation 4A5 passed a board resolution removing 4M5 from his position asmanager of said corporation. The by@laws of 4A5 corporation provides that the officers are

the president, vice@president, treasurer and secretary. 0pon complaint filed with the C,it held that a manager could be removed by mere resolution of the board of directors. =nmotion for reconsideration, 4M5 alleged that could only be removed by the affirmative voteof the stocholders representing -; of the outstanding capital stoc. Is 4M!s5 contentionlegally tenable. 6hy)

Answer *3o. tocholders! approval is necessary only for the removal of the members of the

Board. 7or the removal of a corporate officer or employee, the vote of the Board of &irectors is sufficient for the purpose.

?. uppose 4M5 Corporation has an authori:ed capital stoc of "1 # divided into 1//,///shares of stoc with par value of "1/ each.

a% Five two ways whereby said authori:ed capital stoc may be increased to about "1.?#.

b% Five three practical reasons for a corporation to increase its capital stoc.

Answer *a% Two ways of increasing the Authori:ed Capital toc of 4M5 Corporation to "1.? # are*

1. Increase the number of shares from 1//,/// to 1?/,/// shares with the same par value of "1/ each.

-. Increase par value of the 1///,/// shares to "1? each.

b% Three practical reasons for a corporation to increase its capital stoc are*1. To generate more woring capitalJ-. To have more shares with which to pay for the ac'uisition of more assets lie

ac'uisition of company car, stocs, house, machinery or businessJ and. To have etra share with which to cover or meet the re'uirement for declaration of

stoc dividend.

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. 7or the past years of its commercial operation, 4M5, an oil company, has been earningtremendously in ecess of 1//K of the corporation!s paid@in capital. All of the stocholdershave been claiming that they share in the profits of the corporation by way of dividends butthe Board of &irectors failed to lift its finger.

a% Is Corporation 4M5 guilty of violating a law) If in the affirmative, state the basis.

b% Are there instances when a corporation shall not be liable for not declaring dividends)

Answer *a% Corporation 4M5 is guilty of violating ection < of the Corporation Code. This provision

prohibits stoc corporations from retaining surplus profits in ecess of 1//K of their paid@in capital.

b% The instances when a corporation shall not be held liable for not declaring dividendsare*1. 6hen 9ustified by definite corporate epansion pro9ects or programs approved by

the board of directorsJ-. 6hen the corporation is prohibited under any loan agreement with any financial

institution or creditor, whether local or foreign, from declaring dividends without its

or his consent, and such consent has not yet been securedJ or . 6hen it can be clearly shown that such retention is necessary under special

circumstances obtaining in the corporation, such as when there is need for specialreserve for probable contingencies.

>. 4A5 is the registered owner of toc Certificate 3o. ////11. e entrusted the possessionof said certificate to his best friend 4B5 who borrowed the said endorsed certificate tosupport B!s application for passport $or for a purpose other than transfer%. But 4B5 sold thecertificate to 4M5, a bona fide purchaser who relied on the endorsed certificates andbelieved him to be the owner thereof.

a% Can 4A5 claim the shares of stocs from 4M5) plain.b% 6ould your answer be the same if 4A5 lost the stoc certificate in 'uestion or if it was

stolen from him)

Answer *a% 3o. Assuming that the shares were already transferred to 4B5. 4A5 cannot claim the

shares of stoc from 4M5. the certificate of stoc covering said shares have been dulyendorsed by 4A5 and entrusted by him to 4B5. by his said acts 4A5 is now stopped fromclaiming said shares from 4M5, a bona fide purchaser who relied on the endorsementby 4A5 of the certificate of stoc.

b% +es. In the case where the certificate of stoc was lost or stole from 4A5, 4A5 has a rightto claim the certificate of stoc from the thief who has no right or title to the same. 4=ne

who has lost any movable or has been unlawfully deprived thereof, may recover it fromthe person in possession of the same.5

H. 4M5 Corporation shortened its corporate life by amending its articles of incorporation. It hasno debts but owns a prime property located in ue:on City. ow would the said propertybe li'uidated among the five stocholders of said corporation) &iscuss two methods of li'uidation

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Answer *The prime property of 4M5 Corporation can be li'uidated among the five stocholders

after the property has been conveyed by the corporation to the five stocholders, bydividing or partitioning it among themselves in any two of the following ways*1. By physical division or partition based on the proportion of the values of their

stocholdingsJ or

-. elling the property to a third person and dividing the proceeds among the fivestocholders in proportion to their stocholdingsJ or

. After the determination of the value of the property, by assigning or transferring theproperty to one stocholder with the obligation on the part of said stocholder to paythe other four stocholders the amount;s in proportion to the value of the stocholdingof each.

2. uppose that the by@laws of 4M5 Corporation, a mining firm, provides that 4The directorsshall be relieved from all liability for any contract entered into by the corporation with anyfirm in which the directors may be interested.5 Thus, director 4A5 ac'uired claims whichoverlapped with 4M!s5 claims and where necessary for the development and operation of

4M!s5 mining properties.

a% Is the by@law provision valid)b% 6hat happens if director 4A5 is able to consummate his mining claims over and above

that of the corporation!s claims)Answer *a% 3o. it is in violation of ection - of the Corporation Code.b% 4A5 should account to the corporation for the profits which he reali:ed from the

transaction. e grabbed the business opportunity from the corporation.

1/. "laintiffs filed a collection action against 4M5 Corporation. 0pon eecution of the court!s

decision, 4M5 Corporation was found to be without assets. Thereafter plaintiffs filed anaction against its present and past stocholder 4+5 Corporation which owned substantiallyall of the stocs of 4M5 Corporation. The two corporations have the same board of directorsand 4+5 Corporation financed the operations of 4M5 Corporation. #ay 4+5 Corporation beheld liable for the debts of 4M5 Corporation) 6hy)

Answer *+es, 4+5 Corporation may be held liable for the debts of 4M5 Corporation. The doctrine of

piercing the veil of corporate fiction applies to this case. The two corporations have thesame board of directors and 4+5 corporation owned substantially all of the stocs of 4M5Corporation, which facts 9ustify the conclusion that the latter is merely an etension of thepersonality of the former, and that the former controls the policies of the latter. Added to

this is the fact that 4+5 Corporation controls the finances of 4M5 Corporation which is merelyan ad9unct, business conduit or alter@ego of 4+5 Corporation.

11. Is a by@law provision of 4M5 Corporation 4rendering ineligible or if elected, sub9ect toremoval, a director if he is also a director in a corporation whose business is in competitionwith or is antagonistic to said corporation5 valid and legal) tate your reason.

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Answer *+es, the by@law provision is valid. It is the right of a corporation to protect itself against

possible harm and pre9udice that may be caused by its competitors. The position of director is highly sensitive and confidential. To say the least, to allow a person, who is adirector in a corporation whose business is in competition with or is antagonistic to 4M5Corporation, to become also a director in 4M5 Corporation would be harboring a conflict of

interest which is harmful to the latter.

1-. &ebtor 4A5 issued a promissory note in the amount of "1/ # in favor of a commercialban 4+5 secured by mortgage of his properties worth "/ #. 6hen 4A5 failed to pay hisindebtedness, despite demands made by ban 4+5, the latter instituted a collection suit toenforce payment of the "1/ # account. ubse'uently, ban 4+5 also filed foreclosureproceedings against 4A5 for the security given for the account. If you were the 9udge, howwould you resolve the two cases)

Answer *The case for collection will be allowed to proceed. But the foreclosure proceedings have

to be dismissed. In instituting a foreclosure proceedings, after filing a collection caseinvolving the same account or transaction, ban 4+5 is guilty of splitting a cause of action.The loan of "1/ # is the principal obligation while the mortgage securing the same ismerely an accessory to said loan obligation. The collection of the loan and the foreclosureof the mortgage securing said loan constitute one and the same cause of action. The filingof the collection case bars the subse'uent filing of the foreclosure proceedings.

1. 4A5 issed a promissory note payable to 4B5 or bearer. 4A5 delivered the note to 4B5. 4B5indorsed the note to 4C5. 4C5 placed the note in his drawer, which was stolen by the 9anitor 4M5. 4M5 indorsed the note to 4&5 by forging 4C!s5 signature. 4&5 indorsed the note to 45who in turn delivered the note to 475, a holder in due course, without indorsement. &iscuss

the individual liabilities to 475 of 4A5, 4B5 and 4C5.

Answer *4A5 is liable to 475 as the maer of the promissory note, 4A5 is directly or primarily liable to

475, who is a holder in due course. &espite the presence of the special indorsements onthe note, these do not detract from the fact that a bearer instrument, lie the promissorynote in 'uestion, is always negotiable by mere delivery, until it is indorsed restrictively 47or &eposit =nly5.

4B5, as a general endorser, is liable to 475 secondarily, and warrants that the instrumentis genuine and in all respects what it purports to beJ that he has good title to itJ that all prior parties had capacity to contractJ that he has no nowledge of any fact which would impair

the validity of the instrument or render it valuelessJ that at the time of his indorsement, theinstrument is valid and subsistingJ 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 necessaryproceedings on dishonor be duly taen, he will pay the amount thereof to the holder, or toany subse'uent indorser who may be compelled to pay.

4C5 is not liable to 475 since the latter cannot trace his title to the former. The signature of 4C5 in the supposed indorsement by him to 4&5 was forged by 4M5. 4C5 can raise thedefense of forgery since it was his signature that was forged.

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1<. M, + and G signed a promissory note in favor of A stating* 46e promise to pay A on&ecember 1, -//1 the sum of "?,///. 46hen the note fell due, A sued M and + who putup the defense that A should have impleaded G. is the defense valid) 6hy)

Answer *The defense is not valid. The liability of M, + and G under the promissory note is 9oint.

uch being the case, G is not an indispensable party. The fact that A did not implead G willnot prevent A from collecting the proportionate share of M and + in the payment of theloan.

1?. The Law on ecrecy of Ban &eposits, otherwise nown as 8A 1</?, is intended toencourage people to deposit their money in baning institutions and also to discourageprivate hoarding so that the same may be properly utili:ed by bans to assist in theeconomic development of the country. Is a notice of garnishment served on a ban at theinstance of a creditor of a depositor covered by the said law) tate the reason;s for your

answer.

Answer *3o. The notice of garnishment served on a ban at the instance of a creditor of a

depositor is not covered by the Law on ecrecy of Ban &eposits. Farnishment is 9ust apart of the process of eecution. The moment a notice of garnishment is served on a banand there eists a deposit by the 9udgment debtor, the ban is directly accountable to thesheriff, for the benefit of the 9udgment creditor, for the whole amount of the deposit. In suchevent, the amount of the deposit becomes, in effect, a sub9ect of the litigation.

1. 4A5 applied for a non@medical life insurance. The insured did not inform the insurer that

one wee prior to his application for insurance, he was eamined and confined at t.Lue!s ospital where he was diagnosed for lung cancer. The insured soon thereafter diedin a plane crash. Is the insurer liable considering that the fact concealed had no bearingwith the cause of death of the insured) 6hy)

Answer *3o. The concealed fact is material to the approval and issuance of the insurance policy.

It is well settled that the insured need not die of the disease he failed to disclose to theinsurer. It is sufficient that his non@disclosure misled the insurer in forming his estimate of the riss of the proposed insurance policy or in maing in'uiries.

1>. D, owner of a condominium unit, insured the same against fire with M+G Insurance Co.,and made the loss payable to his brother, #L. In case of loss by fire of the saidcondominium unit, who may recover on the fire insurance policy) tate the reason;s for your answer.

Answer *D can recover on the fire insurance policy for the loss of the said condominium unit. e

has the insurable interest as owner@insured. As beneficiary in the fire insurance policy,#L cannot recover on the fire insurance policy. 7or the beneficiary to recover on the fire

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or property insurance policy, it is re'uired that he must have insurable interest in theproperty insured. In this case, #L does not have insurable interest in the condominiumunit.

1H. 4A5 is a merchant engaged in the sale of a variety of goods and merchandise. Because of

the economic crisis, he incurred indebtedness to 4M5, 4+5 and 4G5. thereafter, 4A5 sold to 4B5all the stoc of goods and merchandise.

a% 6hat steps should 4A5 undertae to effect a valid sale in bul of his goods to 4B5.b% uppose 4A5 submitted a false statement on the schedule of his creditors. 6hat is the

effect of such false statement as to vendee 4B5.c% 6hat is the right of creditors 4M5, 4+5, and 4G5 if 4A5 failed to comply with the

procedure;steps re'uired by law under 'uestion letter a% hereof)

Answer *a% 4A5 must prepare an affidavit stating the names of all his creditors, in this case, 4M5, 4+5

and 4G5, their addresses, the amount of their credits and their maturity. 4A5 should give

the affidavit to 4B5 who, in turn, should furnish a copy to each creditor and notify thecreditors that there is a proposed bul sale in order to enable the latter to protect their interest.

b% If the vendee does not have nowledge of the falsity of the schedule, the sale is valid.owever, if the vendee has nowledge of such falsity, the sale is void because he is inbad faith.

c% The recourse of 4M5, 4+5 and 4G5 is to 'uestion the validity of the sale from 4A5 to 4B5 soas to recover the goods and merchandise to satisfy their credits.

12. uppose 4A5 is the owner of several inactive securities. To create an appearance of activetrading for such securities, 4A5 connives with 4B5 by which 4A5 will offer for sale some of hissecurities and 4B5 will buy them at certain fied price, with the understanding that althoughthere would be an apparent sale, 4A5 will retain the beneficial ownership thereof.

a% Is the arrangement lawful)b% If the sale materiali:es, what is it called)

Answer *a% 3o. the arrangement is not lawful. It is an artificial manipulation of the price of

securities. This is prohibited by the ecurities 8egulation Code.b% If the sale materiali:es, it is called a wash sale or simulated sale.

-/. uppose 4A5 was riding on an airplane of a common carrier when the accident happenedand 4A5 suffered serious in9uries. In an action by 4A5 against the common carrier, the latter claimed that $1% there was a stipulation in the ticet issued to 4A5 absolutely eempting thecarrier from liability from the passenger!s death or in9uries and notices were posted by thecommon carrier dispensing with the etraordinary diligence of the carrier, and $-% 4A5 wasgiven a discount on his plane fare thereby reducing the liability of the common carrier withrespect to 4A5 in particular.

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a% Are those valid defenses)b% 6hat are the defenses available to any common carrier to limit it from liability)

Answer *a% 3o. These are not valid defenses because they are contrary to law as they are in

violation of the etraordinary diligence re'uired of common carriers.

b% The defenses available to any common carrier to limit or eempt it from liability are*observance of etraordinary diligence, or the proimate cause of the incident is afortuitous event or force ma9eure, act or omission of the shipper or owner of the goods,the character of the goods or defects in the pacing or in the containers, and order or act of competent public authority, without the common carrier being guilty of evensimple negligence.

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1. a% 6hat is a 9oint account)b% &istinguish 9oint account from partnership.

Answer *

a% A 9oint account is a transaction of merchants where other merchants agree to contributethe amount of capital agreed upon, and participating in the favorable or unfavorableresults thereof in the proportion they may determine.

b% The following are the distinctions between 9oint account and partnership*1. A partnership has a firm name while a 9oint account has none and is conducted in the

name of the ostensible partner.-. 6hile a partnership has 9uridical personality and may sue or be sued under its firm

name, a 9oint account has no 9uridical personality and can sue or be sued only in thename of the ostensible partner.

. 6hile a partnership has a common fund, a 9oint account has none.<. 6hile in a partnership, all general partners have the right of management, in a 9oint

account, the ostensible partner manages its business operations.?. 6hile li'uidation of a partnership may, by agreement, be entrusted to a partner or

partners, in a 9oint account li'uidation thereof can only be done by the ostensiblepartner.

-. F" is a suspected 9ueteng lord who is rumored to be en9oying police and military protection.The envy of many drug lords who had not escaped the dragnet of the law, F" wassummoned to a hearing of the Committee on 8aceteering and =ther yndicated Crimes of the ouse of 8epresentatives, which was conducting a congressional investigation 4in aid of legislation5 on the involvement of police and military personnel, and possibly even of localgovernment officials, in the illegal activities of suspected gambling and drug lords.

ubpoenaed to attend the investigation were officers of certain identified bans with adirective to them to bring the records and documents of ban deposits of individualsmentioned in the subpoenas, among them F". F" and the bans opposed the production of the bans records of deposits on the ground that no such in'uiry is allowed under the Lawon ecrecy of Ban &eposits. $8A 1</?%. Is the opposition of F" and the ban valid)plain.

Answer *+es. The opposition is valid. F" is not a public official. The investigation does not involve

one of the eceptions to the prohibition against disclosure of any information concerningban deposits under the Law on ecrecy of Ban &eposits. The Committee conducting theinvestigation is not a competent court or the =mbudsman authori:ed under the law to issue

a subpoena for the production of the ban record involving such disclosure.

. Company M, engaged in the business of manufacturing car parts and accessories, operatesa factory with e'uipment, machinery and tools for this purpose. The manufactured goods aresold wholesale to distributors and dealers throughout the "hilippines. Company M wasamong the business entities adversely hit by the 122> Asian business crisis. Its salesdropped with the decline in car sales and its operating costs escalated, while its creditor bans and other financial institutions tightened their loan portfolios. Company M was faced

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with the dismal choice of either suspending its operations or selling its business. It chose thelatter. aving struc a deal with Company G, a more viable entity engaged in the samebusiness, Company M sold its entire business to the former without much fanfare or anyform of publicity. In fact, evidence eists that the transaction was furtively entered into toavoid the prying eyes of Company M!s creditors. The creditor bans and other financialinstitutions sued Company M for violation of the Bul ales Law. &ecide.

Answer *Company M violated the Bul ales Law when it sold its entire business to Company G

furtively to avoid the prying eyes of its creditors. Its manufactures goods are sold wholesaleto distributors and dealers. The sale of all or substantially all of its stocs, not in the ordinarycourse of business, constitutes bul sale. The transaction being a bul sale, entering intosuch transaction without complying with the re'uirements of the Bul ales law, Company Mviolated said law.

<. stored hardware materials in the bonded warehouse of 6, a licensed warehousemenunder the Feneral Bonded 6arehouse Law $Act H2 as amended%. 6 issued the

corresponding warehouse receipt in the form he ordinarily uses for such purpose in thecourse of his business. All the essential terms re'uired under ection - of the 6arehouse8eceipts Law $Act -1> as amended% are embodied in the form. In addition, the receiptissued to contains a stipulation that 6 would not be responsible for the loss of all or anyportion of the hardware materials covered by the receipt even if such loss is caused by thenegligence of 6 or his representatives or employees. endorsed and negotiated thewarehouse receipt to B, who demanded delivery of the goods. 6 could not deliver becausethe goods were nowhere to be found in his warehouse. e claims he is not liable because of the free@from@liability clause stipulated in the receipt. &o you agree with 6!s contention)plain.

Answer *

3o. I do not agree with the contention of 6. the stipulation that 6 would not beresponsible for the loss of all or any portion of the hardware materials covered by the receipteven if such loss is caused by the negligence of 6 or his representative or employees isvoid. The law re'uires that a warehouseman should eercise due diligence in the care andcustody of the things deposited in his warehouse.

?. a% #" bought a used cellphone from D8. D8 preferred cash but #" is a friend so D8accepted #"!s promissory note for "1/,///. D8 thought of converting the note into cash byendorsing it to his brother E8. The promissory note is a piece of paper with the followinghand@printed notation* 4#" 6ILL "A+ D8 T3 T=0A3& "= I3 "A+#3T 7=8 ICLL"=3 1 6E 78=# T=&A+5. Below this notation #"!s signature with 4H;1;//5

net to it, indicating the date of the promissory note. 6hen D8 presented #"!s note to E8,the latter said it was not a negotiable instrument under the law and so could not be a validsubstitute for cash. D8 too the opposite view, insisting on the note!s negotiability. +ou areased to referee. 6hich of the opposing views is correct) plain.

b% T is an indorsee of a promissory note that simply states* 4"A+ T= D0A3 TA3 =8 =&8<// "=.5 The note has no date, no place of payment and no consideration mentioned. Itwas signed by #E and written under his letterhead specifying the address, which happensto be his residence. T accepted the promissory note as payment for services he rendered

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to , who in turn received the note from Duan Tan as payment for a prepaid cellphone cardworth <?/ pesos. The payee acnowledged having received the note on August 1, -///. ABar reviewee had told T, who happens to be your friend, that T is not a holder in duecourse under Article ?- of the 3IL and therefore does not en9oy the rights and protectionunder the statute. T ass for your advice specifically in connection with the note beingundated and not mentioning a place of payment and any consideration. 6hat would your

advice be)

Answer *E8 is right. The promissory note is not negotiable. It is not issued to order or bearer.

There is no word of negotiability contained therein. It is not issued in accordance withection 1 of the 3IL.

The fact that the instrument is undated and does not mention the place of payment doesnot militate against its being negotiable. The date and place of payment are not materialparticulars re'uired to mae an instrument negotiable.

The fact that no mention is made of any consideration is not material. Consideration is

presumed.

. a% "3 maes a promissory note for "?,///, but leaves the name of the payee in blanbecause he wanted to verify its correct spelling first. e mindlessly left the note on top of hisdes at the end of the worday. 6hen he returned the following morning, the note wasmissing. It turned up later when M presented it to "3 for payment. Before M, T, who turnedout to have filched the note from "3!s office, had endorsed the note after inserting his ownname in the blan space as the payee. "3 dishonored the note, contending that he did notauthori:e its completion and delivery. But M said he had no participation in, or nowledgeabout, the pilferage and alteration of the note and therefore he en9oys the rights of a holder in due course under the 3IL. 6ho is correct and why)

b% Can the payee in a promissory note be a 4holder in due course5 within the 3IL) plainyour answer.

Answer *a% "3 is right. The instrument is incomplete and undelivered. It did not create any contract

that would bind "3 to an obligation to pay the amount thereof.

b% A payee in a promissory note cannot be a 4holder in due course5 within the meaning of the 3IL, because a payee is an immediate party in relation to the maer. The payee issub9ect to whatever defenses, real or personal, available to the maer of the promissorynote.

>. "3 is the holder of a negotiable promissory note within the meaning of the 3IL. The notewas originally issued by 8" to ML as payee. ML indorsed the note to "3 for goods bought byML. The note mentions the place of payment on the specified maturity date as the office of the corporate secretary of "M ban during baning hours. =n maturity date, 8" was at theaforesaid office ready to pay the note but "3 did not show up. 6hat "3 later did was to sueML for the face value of the note, plus interest and costs. 6ill the suit prosper) plain.

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Answer *+es. The suit will prosper as far as the face value of the note is concerned, but not with

respect to the interest due subse'uent to the maturity of the note and the costs of collection.8" was ready and willing to pay the note at the specified place of payment on the specifiedmaturity date, but "3 did not show up. "3 lost his right to recover the interest duesubse'uent to the maturity of the note and the cost of collection.

H. a% #ay a member of the #IL7 or its breaaway group, the Abu ayyaf, be insured with acompany licensed to do business under the Insurance Code of the "hilippines) plain.

b% B& has a ban deposit of half a million pesos. ince the limit of the insurance coverage of the "&IC is only 1;1/ of B&!s deposit, he would lie some protection for the ecess by taingout an insurance against all ris or contingencies of loss arising from any unsound or unsafebaning practices including unforeseen adverse effects of the continuing crisis involving thebaning and financial sector in the Asian region. &oes B& have an insurable interest withinthe meaning the Insurance Code of the "hilippines)

Answer *a% a member of the #IL7 or the Abu ayyaf may be insured with a company licensed to do

business under the Insurance Code of the "hilippines. 6hat is prohibited to be insuredis a public enemy. A public enemy is a citi:en or national of a country with which the"hilippines is at war. uch member of the #IL7 or the Abu ayyaf is not a citi:en or national of another country, but of the "hilippines.

b% +es. B& has insurable interest in his ban deposit. In case of loss of said deposit, moreparticularly to the etent of the amount in ecess of the limit covered by the "&IC Act,B& will be damnified. e will suffer pecuniary loss of "<//,///, that is, his ban depositof half a million pesos minus "1//,/// which is the maimum amount recoverable fromthe "&IC.

2. a% 3ame at least instances when an insured is entitled to a return of the premium paid.

b% 6hat warranties are implied in marine insurance)

Answer *a% Three instances when an insured is entitled to a return of premium paid are*

1. To the whole premium, if no part of his interest in the thing insured be eposed to anyof the perils insured against.

-. 6here the insurance is made for a definite period of time and the insured surrenders

his policy, to such portion of the premium as corresponds with the unepired time ata pro rata rate, unless a short period rate has been agreed upon and appears on theface of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued.

. 6hen the contract is voidable on account of the fraud or misrepresentation of theinsurer or of his agent or on account of facts the eistence of which the insured wasignorant without his faultJ or when, by any default of the insured other than actualfraud, the insurer never incurred any liability under the policy.

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b% The following warranties are implied in marine insurance*

1. That the ship is seaworthy to mae the voyage and;or to tae in certain cargoesJ-. That the ship shall not deviate from the voyage insuredJ. That the ship shall carry the necessary documents to show nationality or neutrality

and that it will not carry document which will cast reasonable suspicion thereonJ

<. That the ship shall not carry contraband, especially if it is maing voyage throughbelligerent waters.

1/. I, is an elderly bachelor with no nown relatives, obtained life insurance coverage for "-?/,/// from tarbrite Insurance Corporation, an entity licensed to engage in the insurablebusiness under the Insurance Code of the "hilippines. e also insured his residential housefor twice that amount with the same corporation. e immediately assigned all his rights tothe insurance proceeds to BM, a friend@companion living with him. years later, I died in afire that gutted his insured house - days after he had sold it. There is no evidence of suicideor arson or involvement of BM in these events. BM demanded payment of the insuranceproceeds from the - policies, the premiums for which I had been faithfully paying during all

the time he was alive. tarbrite, refused payment, contending that BM had no insurableinterest and therefore was not entitled to receive the proceeds from I! insurance coverageon his life and also on his property. Is tarbrite!s contention valid) plain.

Answer *tarbrite is correct with respect to the insurance coverage on the property of I. The

beneficiary in the property insurance policy or the assignee thereof must have insurableinterest in the property insured. BM, a mere friend@companion of I, has no insurable interestin the residential house of I. BM is not entitled to receive the proceeds from I! insuranceon his property.

As to the insurance coverage on the life of I, BM is entitled to receive the proceeds.

There is no re'uirement that BM should have insurable interest in the life of I. It was Ihimself who too the insurance on his own life.

11. a% M Company procured a group accident insurance policy for its construction employeesvariously assigned to its provincial infrastructure pro9ects. + Insurance Company underwrotethe coverage, the premiums of which were paid for entirely by M Company without anyemployee contributions. 6hile the policy was in effect, five of the covered employeesperished at sea on their way to their provincial assignments. Their wives sued + InsuranceCompany for payment of death benefits under the policy. 6hile the suit was pending, thewives signed a power of attorney designating an M Company eecutive. "D as their authori:ed representative to enter into a settlement with the insurance company. 6hen a

settlement was reached, "D instructed the insurance company to issue a settlement checto the order of the M Company, which will undertae the payment to the individual claimantsof their respective shares. "D misappropriated the settlement amount and the wives pursuedtheir case against + Insurance Company. 6ill the suit prosper) plain.

b% M was riding a suburban utility vehicle $0% covered by a comprehensive motor vehicleliability insurance $C#LI% underwritten by 7ast"ay Insurance Company when it collidedwith a speeding bus owned by 8# Travel, Inc. the collision resulted in serious in9uries to MJ+, a passenger of the busJ and G, a pedestrian waiting for a ride at the scene of the collision.

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The police report established that the bus was the offending vehicle. The bus had a C#LIpolicy issued by &ragon Insurance Corporation, M, + and G 9ointly sued 8# Travel and&ragon Insurance for indemnity under the Insurance Code of the "hilippines. The lower court applied the 4no@fault5 indemnity policy of the statute, dismissed the suit against 8#Travel, and ordered &ragon insurance to pay indemnity to all three plaintiffs. &o you agreewith the court!s 9udgment) plain.

Answer *a% +es. The suit will prosper. + insurance Company is liable. M Company, through its

eecutive, "D, acted as agent of + Insurance Company. The latter is thus bound by themisconduct of its agent. It is the usual practice in the group insurance business that theemployer@policy holder is the agent of the issuer.

b% 3o. The cause of action of + is based on the contract of carriage, while that of M and G isbased on torts. The court should not have dismissed the suit against 8# Travel. Thecourt should have ordered &ragon Insurance to pay each of M, +, and G to the etent of the insurance coverage, but whatever amount is agreed upon in the policy should beanswered first by 8# Travel and the succeeding amount should be paid by &ragon

Insurance up to the amount of the insurance coverage. The ecess of the claims of M, +and G, over and above such insurance coverage, if any, should be answered or paid by8# Travel.

1-. M has a Tamaraw 7M among other cars. very other day during the worwee, he goes tohis office in ue:on City using his Tamaraw 7M and pics up friends as passengers atdesignated points along the way. is passengers pay him a flat fee for the ride, usually "-/per person, one way. Although a lawyer, he never bothered to obtain a license to engage inthis type of income@generating activity. e believes that he is not a common carrier withinthe purview of the law. &o you agree with him) plain.

Answer *3o. I do not agree with M. A common carrier holds himself out to the public as engaged

in the business of transporting persons or property from place to place, for compensation,offering his services to the public generally. The fact that M has a limited clientele does noteclude him from the definition of a common carrier. The law does not mae any distinctionbetween one whose principal business activity is the carrying of persons or goods or both,and the one who does such carrying only as an ancillary activity or in the local idiom, as a4sideline5

1. a% M hipping Company spent almost a fortune in refitting and repairing its luurypassenger vessel, the # #arina, which plied the inter@island routes of the company from

La 0nion in the north to &avao City in the south. The # #arina met an untimely fate duringits post@repair voyage. It san off the coast of Gambales while en route to La 0nion from#anila. The investigation showed that the captain alone was negligent. There were nocasualties in that disaster. 7aced with a claim for the payment of the refitting and repair, Mhipping Company asserted eemption from liability on the basis of the hypothecary or limited liability rule under Article ?H> of the Code of Commerce. Is M hipping Company!sassertion valid) plain.

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b% # uper7ast, a passenger@cargo vessel owned by 7 hipping Company plying theinter@island routes, was on its way to Gamboanga City from the #anila port when itaccidentally, and without fault or negligence of anyone on the ship, hit a huge floating ob9ect.The accident caused damage to the vessel and loss of an accompanying crated cargo of passenger "8. In order to lighten the vessel and save it from sining and in order to avoidris of damage to or loss of the rest of the shipped items $none of which was located on the

dec%, some had to be 9ettisoned. 7 hipping had the vessel repaired at its port of destination. 7 hipping thereafter filed a complaint demanding all the other cargo ownersto share in the total repair costs incurred by the company and in the value 9ettisonedcargoes. In answer to the complaint, the shippers! sole contention was that, under the Codeof Commerce, each damaged party should bear its or his own damage and those that didnot suffer any loss or damage were not obligated to mae any contribution in favor of thosewho did. Is the shippers contention valid) plain.

Answer *a% 3o. the assertion of M hipping Company is not valid. The total destruction of the vessel

does not affect the liability of the shipowner for repairs on the vessel completed beforeits loss.

b% 3o. the shippers! contention is not valid. The owners of the cargo 9ettisoned, to save thevessel from sining and to save the rest of the cargoes, are entitled to contribution. The

9ettisoning of said cargoes constitute general average loss which entitles the ownersthereof to contribution from the owner of the vessel and also from the owners of thecargoes saved.

7 hipping is not entitled to contribution;reimbursement for the cost of repairs on thevessel from the shippers.

1<. a% # #ariposa, one of five passenger ships owned by the #arina 3avigation Company,

san off the coast of #indoro while en route to Iloilo City. #ore than -// passengersperished in the disaster. vidence showed that the ship captain ignored typhoon bulletinsissued by "AFAA during the -<@hour period immediately prior to the vessel!s departurefrom #anila. The bulletins warned all types of sea crafts to avoid the typhoon!s epectedpath near #indoro. To mae matters worse, he too more load than was allowed for theship!s rated capacity. ued for damages by the victim!s surviving relatives, #arina3avigation Company contended* $1% that its liability, if any, had been etinguished with thesining of # #ariposaJ and $-% that assuming it had not been so etinguished, such liabilityshould be limited to the loss of the cargo. Are these contentions meritorious in the contet of applicable provisions of the Code of Commerce)

b% 8C imported computer motherboards from the 0A and had them shipped to #anila

aboard an ocean@going cargo ship owned by BC hipping Company. 6hen the cargoarrived at the #anila seaport and delivered to 8C, the crate appeared intactJ but uponinspection of the contents, 8C discovered that the items inside had all been badly damaged.e did not file any notice of damage or anything with anyone, least of all with BC hippingCompany. 6hat he did was to proceed directly to your office to consult you about whether he should have given a notice of damage and how long a time he had to initiate a suit under the provisions of the C=FA. 6hat would your advise be)

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Answer *a% +es. The contentions of #arina 3avigation Company are meritorious. The captain of #

#ariposa is guilty of negligence in ignoring the typhoon bulletins issued by "AFAA andin overloading the vessel. But only the captain of the vessel # #ariposa is guilty of negligence. The shipowner is not. Therefore, the shipowner can invoe the doctrine of limited liability.

b% #y advice would be that 8C should give notice of the damage sustained by the cargowithin days and that he has to file the suit to recover the damage sustained by thecargo within 1 year from the date of the delivery of the cargo to him.

1?. 666 Communications Inc., is an e@commerce company whose present business activity islimited to providing its clients with all types of information technology hardware. It plans tore@focus its corporate direction of gradually converting itself into a full convergenceorgani:ation. Towards this ob9ective, the company has been aggressively ac'uiringtelecommunications businesses and broadcast media enterprises, and consolidating their corporate structures. The ultimate plan is to have only two organi:ations* one to own the

facilities of the combined businesses and to develop and produce content materials, andanother to operate the facilities and provide mass media and commercialtelecommunications services. 666 Communications will be the flagship entity which willown the facilities of the conglomerate and provide content to the other new corporationwhich, in turn, will operate those facilities and provide the services. 666 sees your professional advice on whether or not its reorgani:ed business activity would be considereda public utility re'uiring a franchise or certificate or any other form of authori:ation from thegovernment. 6hat will be your advice) plain.

Answer *The reorgani:ed business activity of 666 Communications Inc. would not be

considered a public utility re'uiring a franchise or certificate or any other form of

authori:ation from the government. It owns the facilities, but does not operate the same.

1. 3ine individuals formed a private corporation pursuant to the provisions of the CorporationCode of the "hilippines. Incorporator was elected director and president(generalmanager. "art of his emolument is a 7ord pedition, which the corporation owns. After afew years. lost his corporate positions but he refused to return the motor vehicle claimingthat as a stocholder with a substantial e'uity share, he owns that portion of the corporateassets now in his possession. Is the contention of valid) plain.

Answer *3o. the contention of is not valid. The 7ord pedition is owned by the corporation.

The corporation has a legal personality separate and distinct from that of its stocholder.6hat the corporation owns is its own property and not property of any stocholder even howsubstantial the e'uity share that stocholder owns.

1>. #arulas Creative Technology Inc., an e@business enterprise engaged in the manufacture of computer multimedia accessories, rents an office and store space at a commercial buildingowned by M. being a start@up company, #arulas en9oyed some leniency in its rent paymentJbut after years, M put a stop to it and ased #arulas president and general manager, +,

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who is a stocholder, to pay bac rentals amounting to a hundred thousand pesos or tovacate the premises at the end of the month. #arulas neither paid its debt nor vacated thepremises. M sued #arulas and + for collection of the unpaid rentals, plus interest and costsof litigation. 6ill the suit prosper against M) Against +)

Answer *

+es, the suit will prosper against #arulas. It is the one renting the office and store space,as lessee, from the owner of the building, M, as lessor.

But the suit against + will not prosper. +, as president and general manager, and alsostocholder of #arulas Creative Technology, Inc., has a legal personality separate anddistinct from that of the corporation and not that of its officers and stocholders who are notliable for corporate liabilities.

1H. a% At the annual stocholders! meeting of # Corporation, the stocholders unanimouslypassed a resolution authori:ing the Board of &irectors to amend the corporate by@laws so asto dis'ualify any stocholder who is also a director or stocholder of a competing business

from being elected to the Board of &irectors of # Corporation. The by@laws wereaccordingly amended. FE, a stocholder of # Corporation and a ma9ority stocholder of acompetitor, sought election to the Board of &irectors of # Corporation. is nomination wasdenied on the ground that he was ineligible to run for the position. eeing a nullification of the offending dis'ualification provision, FE consults you about its validity under theCorporation Code of the "hilippines. 6hat would your legal advice be)

b% The C approved the amendment of the articles of incorporation of F Corporationshortening its corporate life to only -? years in accordance with ection 1-/ of theCorporation Code. As shortened, the corporation continued its business operations until #ay/, 122>, the last day of its corporate eistence. "rior to said date, there were a number of pending civil actions, of varying nature but mostly money claims filed by creditors, none of

which was epected to be completed or resolved within ? years from #ay /, 122>.

If the creditors had sought your professional help at that time about whether or not their cases could be pursued beyond #ay /, 122>, what would have been your advice)

Answer *a% The provision in the amended by@laws, dis'ualifying any stocholder who is also a

director or stocholder of a competing business from being elected to the Board of &irectors of # Corporation, is valid. The corporation is empowered to adopt a code of by@laws for its government not inconsistent with the Corporation Code. uchdis'ualifying provision is not inconsistent with the Corporation Code.

b% The cases can be pursued even beyond #ay /, 122>, the last day of the corporateeistence of F Corporation. The Corporation is not actually dissolved upon theepiration of its corporate term. There is still the period for li'uidation or winding up.

12. a% The #onetary Board of the Bango entral closed 0rban Ban after it encounteredcrippling financial difficulties that resulted in a ban run. M, one of the members of the Boardof &irectors of the ban, attended and stayed throughout the entire meeting of the Boardthat was held well in advance of the ban run and before news had begun to tricle to the

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business community about the dire financial pit the ban had fallen into. Immediately after the meeting, M caused the preparation and issuance of a manager!s chec payable tohimself in the sum of "? # e'uivalent to the amount placed or invested in the ban by abusiness ac'uaintance. e now claims that he is eeping the funds in trust for the owner and that he had committed no violation of the Feneral Baning Act for which he should bepunished. &o you agree that there has been no violation of the statute)

b% After many years of shopping in the #etro #anila area, housewife 6 has developed thesound habit of maing cash purchases only, none on credit. In one shopping trip to #ega#all, she got the shoc of her shopping life for the first time, a store!s smart salesgirl refusedto accept her coins in payment for a purchase worth not more than "1//. 6 was paying">/ in -?@centavo coins and "-? in 1/@centavo coins. trange as it may seem, the salesgirltold 6 that her coins were not 4legal tender5. &o you agree with the salesgirl in respect of her understanding of 4legal tender5) plain.

Answer *a% 3o. I do not agree that there is no violation of the statute. M violated ection H? when he

caused the preparation and issuance of a manager!s chec payable to himself in the

sum of "? #. This is paying out or permitting to be paid out funds of the ban after thelatter became insolvent. This act is penali:e by fine of not less than "1,/// nor morethan "1/,/// and by imprisonment for not less than - nor more than 1/ years.

b% 3o. The salesgirl!s understanding that coins are not legal tender is not correct. Coins arelegal tender in amounts not eceeding "?/ for denominations from -?@centavos andabove, and in amounts not eceeding "-/ for denominations 1/@centavos and less.

-/. mbassy Appliance sells home theater components that are designed and customi:ed asentertainment centers for consumers within the medium@to@high price bracet. #ost, if notall, of these pacages are sold on installment basis, usually by means of credit cards

allowing a maimum of e'ual monthly payments. "referred credit cards of this type arethose issued by bans, which regularly hold mall@wide sales blit:es participated in byappliance retailers lie mbassy Appliances. The salescler who is attending to you simplyswipes your credit card on the electronic approval machine $which momentarily prints outyour charge slip since you have unlimited credit%, tears the slip from the machine, hands thesame over to you for your signature, and without more, proceeds to arrange the delivery andinstallation of your new home theatre system. +ou now you will receive a statement on your credit card purchases from the ban containing an option to pay only a minimum amount,which is usually 1; of the total price you were charges for your purchase. &id mbassy

Appliance comply with the provisions of the Truth in Lending Act)

Answer *

There is no need for mbassy Appliances to comply with the Truth in Lending Act. Thetransaction is not a sale on installment basis. mbassy Appliances is a seller on cash basis.It is the credit card company which allows the buyer to en9oy the privilege of paying the priceon installment basis.

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1... BAR EXAMINATION

1. Fovernment plans to impose an additional duty on imported sugar on top of the current tariff rate. The intent is to ensure that the landed cost of sugar shall not be lower than "H// per bag. This is the price at which locally produced sugar would be sold in order to enable sugar

producers to reali:e reasonable profits. 6ithout this additional duty, the current low price of sugar in the world, the current low price of sugar in the world maret will surely pull thedomestic price(a situation that could spell the demise of the "hilippine sugar industry.

a% &iscuss the validity of this proposal to impose an additional levy on imported sugar.b% 6ould the proposal be consistent with the tenets of the 6orld Trade =rgani:ation $6T=%

Answer *a% The proposal to impose an additional duty on imported sugar on top of the current tariff

rate is valid, not being prohibited by the Constitution. It would enable producers toreali:e reasonable profits, and would allow the sugar industry of the country to survive.

b% 3o. The proposal would not be consistent with the tenets of the 6T= which call for theliberali:ation of trade. owever, such proposal may be acceptable within the allowableperiod under the 6T= for ad9ustment of the local industry.

-. As a result of perennial business losses, a corporation!s net worth has been wiped out. Infact, it is now in negative territory. 3onetheless, the stocholders did not lie to give up.

Creditor@bans, however, do not share the confidence of the stocholders and refuse togrant more loans.

a% 6hat tools are available to the stocholders to replenish capital)

b% Assuming that the corporation continues to operate even with depleted capital, would thestocholders or the managers be solidarily liable for the obligations incurred by thecorporation) plain.

Answer *a% In the face of the refusal of the creditor@bans to grant more loans, the following are tools

available to the stocholders to replenish capital, to wit* $1% additional subscription toshares of stoc of the corporation by stocholders or by investorsJ $-% advances by thestocholders to the corporationJ $% payment of unpaid subscription by the stocholders.

b% 3o. As a general rule, the stocholders or the managers cannot be held solidarily liablefor the obligations incurred by the corporation. The corporation has a separate and

distinct personality from that of the stocholders and managers. The latter are presumedto be acting in good faith in continuing the operation of the corporation. The obligationsincurred by the corporation are those of the corporation which alone is liable therefor.owever, when the corporation is already insolvent, the directors and officers becometrustees of the business and assets of the corporation for the benefit of the creditors andare liable for negligence or mismanagement.

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. &ebtor purchased a parcel of land from a realty company payable in ? yearly installments.0nder the contract of sale, title to the lot would be transferred upon full payment of thepurchase price.

But even before full payment, debtor constructed a house on the lot. ometime thereafter,debtor mortgaged the house to secure his obligation arising from the issuance of a bond

needed in the conduct of his business. The mortgage was duly registered with the proper chattel mortgage registry.

? years later after completing payment of the purchase price, debtor obtained title to the lot. And even as the chattel mortgage on the house was still subsisting, debtor mortgaged to aban the lot and improvement thereon to secure a loan. This real estate mortgage was dulyregistered and annotated at the ban of the title.

&ue to business reverses, debtor failed to pay his creditors. The chattel mortgage wasforeclosed when the debtor failed to reimburse the surety company for payments made onthe bond. In the foreclosure sale, the surety company was awarded the house as thehighest bidder.

=nly after the foreclosure sale did the surety company learn of the real estate mortgage infavor of the lending investor on the lot and the improvement thereon. Immediately, it filed acomplaint praying for the eclusion of the house from the real estate mortgage. It wassubmitted that as the chattel mortgage was eecuted and registered ahead, it was superior to the real estate mortgage.

=n the suggestion that a chattel mortgage on a house(a real property(was a nullity, thesurety company countered that when the chattel mortgage was eecuted, debtor was notyet the owner of the lot on which the house was built. Accordingly, the house was a personalproperty and a proper sub9ect of a chattel mortgage.

a% &iscuss the validity of the position taen by the surety company.b% 6ho has a better claim to the house, the surety company or the lending investor)

plain.c% 6ould the position of the surety company be bolstered by the fact that it ac'uired title in

a foreclosure sale conducted by the "rovincial heriff. plain.

Answer *a% The house is always a real property even though it was constructed on a land not

belonging to the builder. owever, the parties may treat it as personal property andconstitute a chattel mortgage thereon. uch mortgage shall be valid and binding but onlyon the parties. It will not bind or affect third parties.

b% The lending investor has a better claim to the house. The real estate mortgage coveringthe house and lot was duly registered and binds the parties and third persons. =n theother hand, the chattel mortgage on the house securing the credit of the surety companydid not affect the rights of third parties such as the lending investor despite registration of the chattel mortgage.

c% 3o. The chattel mortgage over the house which was foreclosed did not affect the rightsof third parties lie the lending investor. ince third parties are not bound by the chattelmortgage, they are not also bound by any enforcement of its provisions. The foreclosure

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of such chattel mortgage did not bolster or add anything to the position of the suretycompany.

<. A businessman in the grocery business obtained from 7irst Insurance an insurance policyfor "? # to fully cover his stocs@in@trade from the ris of fire.

months later, a fire of accidental origin broe out and completely destroyed the groceryincluding his stocs@in@trade. This prompted the businessman to file with 7irst Insurance aclaim for "? # representing the full value of his goods.

7irst Insurance denied the claim because it discovered that at the time of the loss, the stoc@in@trade were mortgaged to a creditor who liewise obtained from econd InsuranceCompany fore insurance coverage for the stocs at their full value of "? #.

a% #ay the businessman and the creditor obtain separate insurance coverage over thesame stocs@in@trade) plain.

b% 7irst Insurance refused to pay claiming that double insurance is contrary to law. Is this

contention tenable)c% uppose you are the Dudge, how much would you allow the businessman and the

creditor to recover from their respective insurers. plain.

Answer *a% +es. The businessman, as owner, and the creditor, as mortgagee, have separate

insurable interests in the same stocs@in@trade. ach may insure such interest to protecthis own separate interest.

b% The contention of 7irst Insurance that double insurance is contrary to law is untenable.There is no law providing that double insurance is illegal per se. moreover, in theproblem at hand, there is no double insurance because the insured with the 7irstInsurance is different from the insured with the econd Insurance Company. The same

is true with respect to the interests insured in the two policies.

c% As 9udge, I would allow the businessman to recover his total loss of "? # pesosrepresenting the full value of his goods which were lost through fire. As to the creditor, Iwould allow him to recover the amount to the etent of or e'uivalent to the value of thecredit he etended to the businessman for the stocs@in@trade which were mortgaged bythe businessman.

?. &ebtor Corporation and its principal stocholders filed with the C a petition for rehabilitation and declaration of a state of suspension of payments under ".&. 2/-@A. Theob9ective was for C to tae control of the corporation and all its assets and liabilities,

earnings and operations and rehabilitating the company for the benefit of investors andcreditors.

Fenerally, the unsecured creditors had manifested willingness to cooperate with &ebtor Corporation. The secured creditors, however, epressed serious ob9ections andreservations.

7irst Ban had already initiated 9udicial foreclosure proceedings on the mortgage constitutedon the factory of &ebtor Corporation.

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econd Ban had already initiated foreclosure proceedings on a third@party mortgageconstituted on certain assets of the principal stocholders.

Third Ban had already filed a suit against the principal stocholders who had heldthemselves liable 9ointly and severally for the loans of &ebtor Corporation with said Ban.

After hearing, the C directed the appointment of a rehabilitation receiver and ordered thesuspension of all actions and claims against the &ebtor Corporation as well as against theprincipal stocholders.

a% &iscuss the validity of the C order of suspension)b% &iscuss the effects of the C order of suspension on the 9udicial foreclosure

proceedings initiated by 7irst Ban.c% 6ould the order of suspension have any legal effect on the foreclosure proceedings

initiated by econd Ban) plain.d% 6ould the order of suspension have any effect on the suit filed by Third Ban) plain.e% 6hat are the legal conse'uences of a rehabilitation receivership)

f% 6hat measures may the receiver tae to preserve the assets of &ebtor Corporation)

Answer *a% The C order of suspension of payment is valid with respect to the debtor corporation,

but not with respect to the principal stocholder. The C has 9urisdiction to declaresuspension of payments with respect to corporations, partnership or associations, butnot with respect to individuals.

b% The C order of suspension of payment suspended the 9udicial proceedings initiatedby 7irst Ban. According to the upreme Court in a line of cases, the suspension order applies to secured creditors and to the action to enforce the security against thecorporation regardless of the stage thereof.

c% The order of suspension of payments suspended the foreclosure proceedings initiatedby the econd Ban. 6hile the foreclosure is against the property of a third party, it is inreality an action to collect the principal obligation owed by the corporation. &uring thetime that the payment of the principal obligation is suspended, the debtor corporation isconsidered to be not in default and, therefore, even the right to enforce the security,whether owned by the debtor@corporation or of a third party, has not yet arisen.

d% 7or the same reason as in $c%, the order of suspension of payments suspended the suitfiled by Third Ban against the principal stocholders.

e% 0nder "& 2/-@A, the appointment of a rehabilitation receiver will suspend all actions for

claims against the corporation and the corporation will be placed under rehabilitation inaccordance with a rehabilitation plan approved by the Commission.

f% To preserve the assets of the &ebtor Corporation, the receiver may tae custody of, andcontrol over, all the eisting assets and property of the corporationJ evaluate eistingassets and liabilities, earnings and operations of the corporationJ and determine the bestway to salvage and protect the interest of the investors and creditors.

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. =n &ecember 1, 122, Borrower eecuted a chattel mortgage in favor of the ban to securea loan of " #. in due time the loan was paid.

=n &ecember 1, 122>, Borrower obtained another loan of "- # which the Ban grantedunder the same security as that which secured the first loan.

7or the second loan, Borrower merely delivered a promissory noteJ no new chattel mortgageagreement was eecuted as the parties relied on a provision in the 122 chattel mortgageagreement which included future debts as among the obligations secured by the mortgage.The provision reads*

4In case the #=8TFAF=8 eecutes subse'uent promissory note or notes either asrenewal, as an etension, or as a new loan, this mortgage shall also stand as security for the payment of said promissory note or notes without the necessity of eecuting a newcontract and this mortgage shall have the same force and effect as if the said promissorynote or notes were eisting on date hereof.5

As borrower failed to pay the second loan, the Ban proceeded to foreclose the Chattel

#ortgage.

Borrower sued the Ban claiming that the mortgage was no longer in force. Borrower claimed that a fresh chattel mortgage should have been eecuted when the second loanwas granted.

a% &ecide the case and ratiocinate.b% upposed the chattel mortgage was not registered, would its validity and effectiveness

be impaired) plain.

Answer *a% The foreclosure of the chattel mortgage regarding the second loan is not valid. A chattel

mortgage cannot validly secure after@incurred obligations. The affidavit of good faithre'uired under the chattel mortgage law epressly provides that 4the foregoing mortgageis made for securing the obligation specified in the conditions hereof, and for no other purpose.5 The after@incurred obligation not being specified in the affidavit, it is notsecured by the mortgage.

b% +es. The chattel mortgage is not valid as against any person, ecept the mortgagor, hiseecutors and administrators.

>. ABC Corporation has an authori:ed capital stoc of "1 # divided into ?/,/// commonshares and ?/,/// preferred shares.

At its inception, the Corporation offered for subscription all the common shares. owever,only </,/// shares were subscribed.

8ecently, the directors thought of raising additional capital and decided to offer to the publicall the authori:ed shares of the Corporation at their maret value.

a% 6ould #r. M, a stocholder holding <,/// shares, have pre@emptive rights to theremaining 1/,/// shares)

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b% 6ould #r. M have pre@emptive rights to the ?/,/// preferred shares)c% Assuming that the eisting stocholders are entitled to pre@emptive rights, at what price

will the shares be offered)d% Assuming a stocholder disagrees with the issuance of new shares and the pricing for

the shares, may the stocholder invoe his appraisal rights and demand payment for hisshareholdings)

plain your answers.

Answer *a% +es. #r. M, a stocholder holding <,/// shares, has pre@emptive right to the remaining

1/,/// shares. All stocholders of a stoc corporation shall en9oy preemptive right tosubscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings. The ruling in Benito v. &atu and Tan v. C to the effect thatpreemptive right applies only to issuance of shares in connection with an increase incapital is no longer a valid rule under the Corporation Code. The facts in those caseshappened during the regime of the old Corporation Law.

b% +es. #r. M would have pre@emptive rights to the ?/,/// preferred shares. Allstocholders of a stoc corporation shall en9oy pre@emptive right to subscribe to allissues or disposition of shares of any class, in proportion to their respectiveshareholdings.

c% The shares will be offered to eisting stocholders, who are entitled to pre@emptive right,at a price fied by the Board of &irectors, which shall not be less than the par value of such shares.

d% 3o, the stocholder may not eercise appraisal right because the matter that hedissented from is not one of those where right of appraisal is available under theCorporation Code.

H. A 6arehouse Company received for safeeeping 1/// bags of rice from a merchant. Toevidence the transaction, the 6arehouse Company issued a receipt epressly providing thatthe goods be delivered to the order of said merchant.

A month after, a creditor obtained 9udgment against the said merchant for a sum of money.The sheriff proceeded to levy on the rice and directed the 6arehouse Company to deliver tohim the deposited rice.

a% 6hat advice will you give the 6arehouse Company) plain your answer.b% Assuming that a wee prior to the levy, the receipt was sold to a rice mill on the basis of

which it filed a claim with the sheriff. 6ould the rice mill have better rights to the rice thanthe creditor) plain your answer.

Answer *a% The 1/// bags of rice were delivered to the 6arehouse Company by a merchant, and a

negotiable receipt was issued therefore. The rice cannot thereafter, while in possessionof the 6arehouse Company, be attached by garnishment or otherwise, or be levied uponunder an eecution unless the receipt be first surrendered to the warehouseman, or itsnegotiation en9oined. The 6arehouse Company cannot be compelled to deliver the

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actual possession of the rice until the receipt is surrendered to it or impounded by thecourt.

b% +es. The rice mill, as a holder for value of the receipt, has a better right to the rice thanthe creditor. It is rice mill that can surrender the receipt which is in its possession andcan comply with the other re'uirements which will oblige the warehouseman to deliver

the rice, namely, to sign a receipt for the delivery of the rice, and to pay thewarehouseman!s lien and fees and other charges.

2. Borrower obtained a loan against the security of a mortgage on a parcel of land. 6hile themortgage was subsisting, borrower leased for ?/ years the mortgaged property to Landdevelopment Company $L&C%. The mortgagee was duly advised of the lease.

Thereafter, L&C constructed on the mortgaged property an office condominium.

Borrower defaulted on his loan and mortgagee foreclosed the mortgage. At the foreclosuresale, the mortgagee was awarded the property as the highest bidder. The corresponding

Certificate of ale was eecuted and after the lapse of 1 year, title was consolidated in thename of the mortgagee.

#ortgagee then applied with the 8TC for the issuance of a writ of possession not only over the land but also the condominium building. The mortgagee contended that the mortgageincluded all accessions, improvements and accessories found on the mortgaged property.

L&C countered that it had built on the mortgaged property with the prior nowledge of mortgagee which had received formal notice of the lease.

a% ow would you resolve the dispute between the mortgagee and L&C)b% Is the mortgagee entitled to the lease rentals due from L&C under the lease agreement)

Answer *a% The mortgagee has a better right than L&C. The mortgage etends to the improvements

introduced on the land, with the declarations, amplifications, and limitations establishedby law, whether the estate remains in the possession of the mortgagor or passes into thehands of a third person. The notice given by L&C to the mortgagee was not enough toremove the building from coverage of the mortgage considering that the building wasbuilt after the mortgaged was constituted and the notice was only as regards the leaseand not as to the construction of the building. ince the mortgagee was informed of thelease and did not ob9ect to it, the mortgagee became bound by the terms of the leasewhen it ac'uired the property as the highest bidder. ence, the mortgagee steps into theshoes of the mortgagor and ac'uires the rights of the lessor under Article 1>H of the

Civil Code. This provision gives the lessor the right to appropriate the condominiumbuilding but after paying the lessee half of the value of the building at that time. houldthe lessor refuse to reimburse said amount, the lessee may remove the improvementeven though the land will suffer damage thereby.

b% The lease rentals belong to the mortgagor. owever, the mortgage etends to rentals notyet received when the obligation becomes due and the mortgagee may ran after the saidrentals for the payment of the mortgage debt.

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1/. A chec for "?/,/// was drawn against drawee ban and made payable to M+G #aretingor order. The chec was deposited with payee!s account at ABC Ban which then sent thechec for clearing to drawee ban.

&rawee ban refused to honor the chec on ground that the serial number thereof had been

altered.

M+G #areting sued drawee ban.

a% Is it proper for the drawee ban to dishonor the chec for the reason that it had beenaltered) plain.

b% In instant suit, drawee ban contended that M+G #areting as payee could not sue thedrawee ban as there was no privity between them. &rawee theori:ed that there was nobasis to mae it liable for the chec. Is this contention correct) plain.

Answer *a% 3o. The serial number is not a material particular of the chec. Its alteration does not

constitute material alteration of the instrument. The serial number is not material to thenegotiability of the instrument.

b% +es. As a general rule, the drawee is not liable under the chec because there is noprivity of contract between M+G #areting, as payee, and ABC Ban as the draweeban. owever, if the action taen by the ban is an abuse of right which causeddamage not only to the issuer of the chec but also to the payee, the payee has a causeof action under 'uasi@delict.

11. Two corporations agreed to merge. They then eecuted an agreement specifying thesurviving corporation and the absorbed corporation. 0nder the agreement of merger dated

3ovember ?, 122H, the surviving corporation ac'uired all the rights, properties and liabilitiesof the absorbed corporation.

a% 6hat would happen to the absorbed corporation) #ust the absorbed corporationundertae dissolution and the winding up procedures) plain your answer.

b% "ending the approval of the merger by the C, may the surviving corporation alreadyinstitute suits to collect all receivables due to the absorbed corporation from itscustomers) plain your answer.

c% A case was filed against a customer to collect on the promissory note issued by him after the date of the merger agreement. The customer raised the defense that while thereceivables as of the date of the merger agreement were transferred to the survivingcorporation, those receivables which were created after the merger agreement remained

to be owned by the absorbed corporation. These receivables would be distributed to thestocholders conformably with the dissolution and li'uidation procedures under the 3ewCorporation Code) &iscuss the merits of this argument.

Answer *a% 3o. There is no need for the absorbed corporation to undertae dissolution and winding

up procedure. As a result of the merger, the absorbed corporation is automaticallydissolved and its assets and liabilities are ac'uired and assumed by the survivingcorporation.

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b% 3o. The merger does not become effective until and unless approved by the C.before the approval by the C of the merger, the surviving corporation has no legalpersonality with respect to receivables due to the absorbed corporation.

c% 6hether the receivable was incurred by the absorbed corporation before or after the

merger agreement, or before or after the approval thereof by the C, the saidreceivable would still belong to the surviving corporation under ection H/ of theCorporation Code which does not mae any distinction as to the assets and liabilities of the absorbed corporation that the surviving corporation would inherit.

1-. arious buyers of lots in a subdivision brought actions to compel either or both thedeveloper and the ban to release and deliver free and clear the titles to their respectivelots.

The problem arose because notwithstanding prior sales mostly on installments(made bythe developer to buyers, developer had mortgaged the whole subdivision to a commercial

ban. The mortgage was duly eecuted and registered with the appropriate governmentalagencies. owever, as the lot buyers were completely unaware of the mortgage lien of theban, they religiously paid the installments due under their sale contracts.

As the developer failed to pay its loan, the mortgage was foreclosed and the wholesubdivision was ac'uired by the ban as the highest bidder.

a% #ay the ban dispossess prior purchasers of individual lots or, alternatively, re'uire themto pay again for the paid lots) &iscuss.

b% 6hat are the rights of the ban vis@[@vis those buyers with remaining unpaidinstallments) &iscuss.

Answer *a% 3o. The ban may not dispossess the prior purchasers of the individual lots, much less

re'uire them to pay for the paid lots. The ban has to respect the rights of the prior purchasers of the individual lots. The purchasers have the option to pay the installmentsof the mortgagee.

b% The ban has to respect the rights of the buyers with remaining unpaid installments. Thepurchaser has the option to pay the installments to the mortgagee who should apply thepayments to the mortgage indebtedness.

1. Borrower obtained a loan from a money lending enterprise for which he issued a

promissory note undertaing to pay at the end of a period of / days the principle plusinterest at the rate ?.?K per month plus -K per annum as service charge.

=n maturity of the loan, borrower failed to pay the principal debt as well as the stipulatedinterest and service charge. ence, he was sued.

ow would you dispose of the issues raised by the borrower)

a% That the stipulated interest rate is ecessive and unconscionable)

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Answer *The rate of interest of ?.?K per month is ecessive and unconscionable.

a% The interest cannot be considered usurious. The 0sury Law has been suspended in itsapplication, and the interest rates are made 4floating5.

1<. Thining that the impending typhoon was still -< hours away, # "ioneer left port to sail for Leyte. That was a miscalculation of the typhoon signals by both the ship@owner and thecaptain as the typhoon came earlier and overtoo the vessel. The vessel san and a number of passengers disappeared with it.

8elatives of the missing passengers claimed damages against the shipowner. Theshipowner set up the defense that under the doctrine of limited liability, his liability was co@etensive with his interest in the vessel. As the vessel was totally lost, his liability had alsobeen etinguished.

a% ow will you advice the claimants) &iscuss the doctrine of limited liability in maritimelaw.

b% Assuming that the vessel was insured. #ay the claimants go after the insuranceproceeds)

a% 0nder the doctrine of limited liability in maritime law, the liability of the shipowner arisingfrom the operation of a ship is confined to the vessel, e'uipment, and freight, or insurance, if any, so that if the shipowner abandoned the ship, e'uipment, and freight,his liability is etinguished. owever, the doctrine of limited liability does not apply whenthe shipowner or captain is guilty of negligence.

b% +es. In case of a lost vessel, the claimants may go after the proceeds of the insurance

covering the vessel.

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1..- BAR EXAMINATION

1. a% 6hat do you understand by a 4bill of lading5)b% plain the two@fold character of a 4bill of lading.5

Answer *a% A bill of lading may be defined as written acnowledgment of the receipt of goods and an

agreement to transport and to deliver them at a specified place to a person namedtherein or on his order.

b% A bill of lading has two@fold character, namely, $a% it is a receipt of goods to betransportedJ and $b% it constitutes a contract of carriage of the goods.

-. M too a plane from #anila bound for &avao via Cebu where there was a change of planes.M arrived in &avao safely but to his dismay, his two suitcases were left behind in Cebu. Theairline company assured M that the suitcases would come in the net flight but they never did.

M claimed "-,/// for the loss of both suitcases, but the airline was willing to pay only "?//because the airline ticet stipulated that unless a higher value was declared, any claim for the loss cannot eceed "-?/ for each piece of luggage. M however reasoned out that he didnot sign the stipulation and in fact had not even read it.

M did not declare a greater value despite the fact that the cler had called his attention to thestipulation in the ticet. &ecide the case.

Answer *ven if he did not sign the ticet, M is bound by the stipulation that any claim for loss

cannot eceed "-?/ for each luggage. e did not declare a higher value. M is entitled to

"?// for the two luggages lost.

. A severe typhoon was raging when the vessel #asdaam collided with the #; "rincess.It is conceded that the typhoon was the ma9or cause of collision, although there was a verystrong possibility that it could have been avoided if the captain of the #asdaam was notdrun and the captain of the #; "rincess was not asleep at the time of the collisions.

6ho should bear the damages to the vessels and their cargoes)

Answer *The shipowners of the #asdaam and #; "rincess shall each bear their respective

loss of vessels.7or the losses and damages suffered by their cargoes, both shipowner are solidarily

liable.

<. The Batong Baal Corporation filed with the Board of nergy an application for a Certificateof "ublic Convenience for the purpose of supplying electric power and lights to the factoryand its employees living within the compound. The application was opposed by the Bulacan

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lectric Corporation, contending that the Batong Baal Corporation has not secured afranchise to operate and maintain an electric plant.

Is the opposition!s contention correct)

Answer *

3o. A certificate of public convenience may be granted to Batong Baal Corporation,though not possessing a legislative franchise, if it meets all the other re'uirements. There isnothing in the law nor the Constitution, which indicates that a legislative franchise isnecessary or re'uired for an entity to operate as supplier of electric power and light to itsfactory and its employees living within the compound.

?. a% ow do you treat a negotiable instrument that is so ambiguous that there is doubtwhether it is a bill or a note)

b% M maes a promissory note for "1/,/// payable to A, a minor, to help him buy schoolboos. A endorses the note to B for value, who in turn endorses the note to C. C nows A is

a minor. If C sues M on the note, can M set up the defenses of minority and lac of consideration)

Answer *a% 6here a negotiable instrument is so ambiguous that there is doubt whether it is a bill or

note, the holder may treat is either as a bill of echange or a promissory note at hiselection.

b% +es. C is not a holder in due course. The promissory note is not a negotiable instrumentas it does not contain any word of negotiability, that is, order or bearer, or words of similar meaning or import. 3ot being a holder in due course, C is to sub9ect suchpersonal defenses of minority and lac of consideration. C is a mere assignee who is

sub9ect to all defenses.

. M draws a chec against his current account with the =rtigas branch of Bonifacio Ban infavor of B. Although M does not have sufficient fund, the ban honors the chec when it ispresented to payment. Apparently, M has conspired with the ban!s booeeper so that hisledger card would show that he still has sufficient funds.

The ban files an action for recovery of the amount paid to B because the chec presentedhas no sufficient funds. &ecide the case.

Answer *

The ban cannot recover the amount paid to B for the chec. 6hen the ban honoredthe chec, it became an acceptor. As acceptor, the ban became primarily and directly liableto the payee;holder B.

The recourse of the ban should be against M and its booeeper who conspired tomae M!s ledger show that he has sufficient funds.

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>. 7or the purpose of lending his name without receiving value therefor, "edro maes a notefor "-/,/// payable to the order of M who in turn negotiates it to +, the latter nowing that"edro is not a party for value.

a% #ay + recover from "edro if the latter interposes the absence of consideration)b% upposing under the same facts, "edro pays the said "-/,///, may he recover the

same amount from M)

Answer *a% +es. + can recover from "edro. "edro is an accommodation party. Absence of

consideration is in the nature of an accommodation. &efense of absence of consideration cannot be validly interposed by accommodation party against a holder indue course.

b% If "edro pays the said "-/,/// to +, "edro can recover the amount from M. M is theaccommodated party or the party ultimately liable for the instrument. "edro is only anaccommodation party. =therwise, it would be un9ust enrichment on the part of M if he isnot to pay "edro.

H. 8ichard Clinton maes a promissory note payable to bearer and delivers the same to Aurora"age. Aurora "age, however, endorses it to M in this manner*

4"ayable to M. igned* Aurora "age.5

Later, M, without endorsing the promissory note, transfers and delivers the same to3apoleon. The note is subse'uently dishonored by 8ichard Clinton. #ay 3apoleon proceedagainst 8ichard Clinton for the note)

Answer *

+es. 8ichard Clinton is liable to napoleon under the promissory note. The note made by8ichard Clinton is a bearer instrument. &espite special indorsement made by Aurora "agethereon, the note remained a bearer instrument and can be negotiated by mere delivery.6hen M delivered and transferred the note to 3apoleon, the latter became a holder thereof.

As such holder, 3apoleon can proceed against 8ichard Clinton.

2. a% 6hat are the responsibilities and primary ob9ectives of the Bango entral ng "ilipinas)b% 6hat is the principal purpose of laws and regulations governing securities in the"hilippines)

Answer *

a% The Bango entral ng "ilipinas shall provide policy directions in the areas of money,baning and credit. It shall have supervision over the operations of bans and eercisesuch regulatory powers as provided in the Central Ban Act and other pertinent lawsover the operations of finance companies and non@ban financial institutions performing'uasi@baning functions, such as 'uasi@bans and institutions performing similar functions. The primary ob9ective of the B" is to maintain price stability conducive to abalanced and sustainable growth of the economy. It shall also promote and maintainmonetary stability and convertibility of the "eso.

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b% The principal purpose of laws and regulations governing securities in the "hilippines is toprotect the public against nefarious practices of unscrupulous broers and salesmen inselling securities.

1/. Duan de la Cru: was issued "olicy 3o. HHHH of the midland Life Insurance Co. =n a whole

life plan for "-/,/// on August 12, 12H2. Duan de la Cru: is married to Cynthia with whomhe has three legitimate children. e, however, designated "urita, his common@law@wife, asthe revocable beneficiary. Duan de la Cru: referred to "urita in his application and policy asthe legal wife.

years later, Duan de la Cru: died. "urita filed her claim for the proceeds of the policy asthe designated beneficiary therein. The widow, Cynthia, also filed a claim as the legal wife.To whom should the proceeds of the insurance policy be awarded)

Answer *The proceeds of the insurance policy shall be awarded to the estate of Duan. "urita, the

common@law wife, is dis'ualified as the beneficiary of the deceased because of illicit relation

between the deceased and "urita, the designated beneficiary. &ue to such illicit relation,"urita cannot be a donee of the deceased. ence, she cannot also be his beneficiary.

11. a% Duan Mavier wrote and published a story similar to an unpublished copyrighted story of #anoling antiago. It was, however, conclusively proven that Duan Mavier was not awarethat the story of #anoling antiago was protected by copyright. #anoling antiago suedDuan Mavier for infringement of copyright. Is Duan Mavier liable)

b% #ay a person have photocopies of some pages of the boo of "rofessor 8osario madewithout violating the copyright law)

Answer *a% +es. Duan is liable for infringement of copyright. It is not necessary that Duan is aware

that the story of #anoling was protected by copyright. The wor of #anoling is protectedfrom the time of its creation.

b% +es. The private reproduction of a published wor in a single copy, where thereproduction is made by a natural person eclusively for research and private study, ispermitted, without the authori:ation of the owner of the copyright in the wor.

1-. 8enato was issued a life insurance policy on Danuary -, 122/. e concealed the fact that years prior to the issuance of his life insurance policy, he had been seeing a doctor about his

heart ailment.

=n #arch 1, 122-, 8enato died of heart failure. #ay the heirs file a claim on the proceeds of the life insurance policy of 8enato)

Answer *+es. The life insurance policy in 'uestion was issued on Danuary -, 122/. #ore than -

years had elapsed when 8enato, the insured, died on #arch 1, 122-. The incontestabilityclause applies.

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1. A marine insurance policy on a cargo states that 4the insurer shall be liable for lossesincident to perils of the sea5. &uring the voyage, seawater entered the compartment wherethe cargo was stored due to the defective drainpipe of the ship. The insured filed an actionon the policy for recovery of the damages caused to the cargo. #ay the insured recover damages)

Answer *3o. the proimate cause of the damage to the cargo insured was the defective drainpipe

of the ship. This is peril of the ship, and not peril of the sea. The defect in the drainpipe wasthe result of the ordinary use of the ship. To recover under a marine insurance policy, theproimate cause of the loss or damage must be peril of the sea.

1<. Lu:on 6arehouse Corporation received from "edro -// cavans of rice for deposit in itswarehouse for which a negotiable warehouse receipt was issued. 6hile the goods werestored in the said warehouse, Cicero obtained a 9udgment against "edro for the recovery of a sum of money. The sheriff proceeded to levy upon the goods on a writ of eecution anddirected the warehouseman to deliver the goods. Is the warehouseman under obligation to

comply with the sheriff!s order)

Answer *3o. There was a valid negotiable receipt as there was a valid delivery of -// cavans of

rice for deposit. In such case, the warehouseman $L6C% is not obliged to deliver the -//cavans of rice deposited to any person, ecept to one who can comply with ection H of the6arehouse 8eceipts law, namely* $1% surrender the receipt of which he is a holderJ $-%willing to sign a receipt for the delivery of the goodsJ and $% pays the warehouseman!s liens,that is, his fees and advances, if any.

The sheriff cannot comply with these re'uisites, especially the first, as he is not theholder of the receipt.

1?. a% &istinguish insolvency from suspension of payment.b% oracio opened a coffee shop using money borrowed from financial institutions. After months, oracio left for the 0A with the intent of defrauding his creditors. 6hile hisliabilities are "1.- #, his assets, however are worth "1.?. #. #ay oracio be declaredinsolvent)

Answer *a% In insolvency, the liabilities of the debtor are more than his assets, while in suspension of

payments, assets of the debtor are more than his liabilities.

In insolvency, the assets of the debtor are to be converted into cash for distributionamong his creditors, while in suspension of payments, the debtor is only asing for timewithin which to convert his fro:en assets into li'uid cash with which to pay his obligationswhen the latter fall due.

b% 3o. oracio may not be declared insolvent. is assets worth "1.? # are more than hisliabilities worth "1.- #.

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1. In a complaint filed against M+G Corporation, Lu:on Trading Corporation allege that its"resident Z Feneral #anager, who is also a stocholder, suffered mental anguish, fright,social humiliation and serious aniety as a result of the tortuous acts of M+G Corporation.

In its counterclaim, M+G Corporation claimed to have suffered moral damages due tobesmirched reputation or goodwill as a result of Lu:on Trading Corporation!s complaint.

a% #ay Lu:on recover moral damages based on the allegations in the complaint)b% #ay M+G Corporation recover moral damages)

Answer *a% 3o. A corporation, being an artificial person which has no feelings, emotions or senses,

and which cannot eperience physical suffering or mental anguish, is not entitled tomoral damages.

b% +es. 6hen a 9uridical person has a good reputation that is debased, resulting in socialhumiliation, moral damages may be awarded. #oreover, goodwill can be considered anasset of the corporation.

1>. a% 6hat is the nationality of a corporation organi:ed and incorporated under the laws of aforeign country, but owned 1//K by 7ilipinos)

b% when is a foreign corporation deemed to be 4doing business in the "hilippines)5

Answer *a% 0nder the control test of corporate nationality, this foreign corporation is of 7ilipino

3ationality.

6here there are grounds for piercing the veil of corporate entity, that is, disregarding the

fiction, the corporation will follow the nationality of the controlling members or stocholders, since the corporation will then be considered as one and the same.

b% A foreign corporation is deemed to be 4doing business in the "hilippines5 if it iscontinuing the body or substance of the business or enterprise for which it wasorgani:ed.

It is the intention of an entity to continue the body of its business in the country. Thegrant and etension of 2/@day credit terms by a foreign corporation to a domesticcorporation for every purchase shows an intention to continue transacting with the latter

1H. The stocholders of "eople "ower, Inc. $""I% approved two resolutions in a specialstocholders! meeting*

a% 8esolution increasing the authori:ed capital stoc of ""IJ andb% 8esolution authori:ing the Board of &irectors to issue, for cash payment, the new shares

from the proposed capital stoc increase in favor of outside investors who are non@stocholders.

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The foregoing resolutions were approved by stocholders representing 22K of the totaloutstanding capital stoc. The sole dissenter was Dimmy #orato who owned 1K of thestoc.

a% Are the resolutions binding on the corporation and its stocholders including Dimmy#orato, the dissenting stocholder)

b% 6hat remedies, if any, are available to #orato)

Answer *a% 3o. the resolutions are not binding on the corporation and its stocholders including

Dimmy. 6hile these resolutions were approved by the stocholders, the directors!approval, which is re'uired by law in such case, does not eist.

b% Dimmy can petition the C to declare the - resolutions, as well as any and all actionstaen by the Board of &irectors thereunder, null and void.

12. The Board of &irectors of M Corporation, acting on a standing authority of the stocholders

to amend the by@laws, amended its by@laws so as to dis'ualify any of its stocholders who isalso a stocholder and director of a competitor from being elected to its Board of &irectors.

+, a stocholder holding sufficient shares to assure him of a seat in the Board, filed a petitionwith the C for a declaration of nullity of the amended by@laws. e alleged among other things that as a stocholder, he had ac'uired rights inherent in stoc ownership such as theright to vote and be voted upon in the election of directors. Is the stocholder!s petitiontenable)

Answer *3o. There is no vested right of a stocholder to be elected as director. 6hen a person

buys stoc in a corporation he does so with the nowledge that its affairs are dominated by a

ma9ority of the stocholders. To this etent, the stocholder parted with his personal right toregulate the disposition of his property which he invested in the capital stoc of thecorporation and surrendered it to the will of the ma9ority of his fellow incorporators or stocholders.

Corporations have the power to mae by@laws declaring a person employed in theservice of a rival company to be ineligible for the Corporation!s Board of &irectors. Anamendment which renders a director ineligible, or if elected, sub9ects him to removal, if he isalso a director in a corporation whose business is in competition with or is antagonistic tothe other corporation, is valid.

-/. An insurance company is deluded into releasing a chec to A for "? # to pay for T@billswhich A claims to e en route on board an armoured truc from a government ban. Thechec is delivered to A who deposits it to his account with M+G Ban before the insurancecompany reali:ed it is a scam. 0pon such reali:ation, the insurance company files an actionagainst A for recovery of the amount defrauded and obtains a writ of preliminary attachment.In addition to the writ, the ban is also served a subpoena to eamine the account records of

A. the ban declines to provide any information in response to the writ and moves to 'uashthe subpoenas invoing secrecy of ban deposits under 8A 1</?, as amended. Can the

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Ban 9ustifiably invoe 8A 1</? and $a% not respond to the writ and $b% 'uash for eamination)

Answer *+es. 6hether the transaction is considered a sale or money placement does not mae

the money sub9ect matter of litigation within the meaning of ec. - of 8A 1</? which

prohibits the disclosure or in'uiry into ban deposits ecept 4in cases where the moneydeposited or invested is the sub9ect matter of litigation5 nor will it matter whether the moneywas 4swindled5.

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1.., BAR EXAMINATION

1. The Civil Code adopts the theor" of cognition, while the Code of Commerce generallyrecogni:es the theor" of manifestation, in the perfection of contracts. ow do these twotheories differ)

Answer *0nder the theory of cognition, the acceptance is considered to effectively bind the offeror

only from the time it came to his nowledge. 0nder the theory of manifestation, the contractis perfected at the moment when the acceptance is declared or made by the offeree.

-. The sole proprietor of a medium@si:e grocery shop, engaged in both wholesale and retailtransactions, sells the entire business 4loc, stoc barrel5 because of his plan to emigrateabroad with his family. Is he covered by the provisions of the Bul ales Law) In theaffirmative, what must be done by the parties so as to comply with the law)

Answer *+es. This is a sale of all the stoc of goods, fitures and entire business, not in the

ordinary course of business or trade of the vendor. Before receiving from the vendee anypart of the purchase price, the vendor must deliver to such vendee a written statement, dulysworn, of the names and addresses of all creditors to whom said vendor may be indebted,together with the amount of indebtedness due or owing, on the account of the goods,fitures or business sub9ect matter of the bul sale.

. Duan was a stocholder of M Corporation. e owned a total of ?// shares evidenced byCertificate of toc 3o. 1//1. e sold the shares to "edro. After getting paid, Duanindorsede and delivered said certificate of toc 3o. 1//1 to "edro. The following day, Duan

went to the offices of the corporation and claimed that his Certificate of toc 3o. 1//1 waslost and that, despite diligent efforts, the certificate could not be located. The formalitiesprescribed by law for the replacement of the 4lost5 certificate, Certificate of toc 3o. -//-.Duan forthwith transferred for valuable consideration the new certificate to Dose who newnothing of the previous sale to "edro. In time, the corporation was confronted with theconflicting claims of "edro and Dose. The Board of &irectors of M Corporation invited you toenlighten them on these 'uestionsJ vi:*

a% If a suit were to be initiated in order to resolve the controversy between "edro and Dose,should the matter be submitted to C or to the regular courts)

b% Between "edro and Dose, whom should the corporation so recogni:e as the rightfulstocholder)

ow would you respond to the above 'ueries)

Answer *a% The matter should be submitted to the regular court. The controversy between "edro

and Dose is not an intra@corporate controversy.

b% If there is no over@issuance of shares resulting from the two transactions of Duan, thecorporation should recogni:e both "edro and Dose as rightful stocholders. This is

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without pre9udice to the right of the corporation to claim against Duan for the value of theshares which Duan sold to Dose.

<. A, B and C are shareholders of M+G Company. A has an unpaid subscription of "1//,///,B!s shares are fully paid up, while C owns only nominal but fully paid up shares and is a

director and officer. M+G Company becomes insolvent, and it is established that theinsolvency is the result of fraudulent practices within the company. If you were counsel for acreditor of M+G Company, would you advice legal action against A, B and C)

Answer *

a% An action can be brought against A for "1//,/// which is the amount of his unpaidsubscription. ince the corporation is insolvent, the limit of a stocholder!s liability to thecreditor is only up to the etent of his unpaid subscription.

b% There is no cause of action against B because he has already fully paid for hissubscription. As stated earlier, the limit of the stocholder!s liability to the creditor of the

corporation, when the latter becomes insolvent, is the etent of his subscription.

c% An action can be filed against C, not as a stocholder because he has already paid upthe shares, but in his capacity as director and officer because of the corporation!sinsolvency being the result of fraudulent practices within the company. &irectors areliable 9ointly and severally for damages sustained by the corporation, stocholders or other persons resulting from gross negligence or bad faith in directing the affairs of thecorporation.

?. The Board of &irectors of a corporation, by a vote of ten in favor and one against, declareddue and payable all unpaid subscription to the capital stoc. The lone dissenting director

failed to pay on due date, i.e., eptember 12, 122>, his unpaid subscription. =ther than theshares wherein he was unable to complete payment, he did not own any share in thecorporation. =n eptember -, 122>, he was informed by the Board of &irectors that, unlessdue payment is meanwhile received, he

a% Could no longer serve as a director of the corporation forthwithJb% 6ould not be entitled to the cash and stoc dividends which were declared and payable

on eptember -<, 122>J andc% Could not vote in the stocholders meeting scheduled to tae place on eptember -,

122>.

6as the action of the Board of &irectors on each of the foregoing matters valid)

Answer *a% 3o. the period / days within which the stocholder can pay the unpaid subscription had

not yet epired.

b% 3o. The delin'uency did not deprive the stocholder of his right to receive dividendsdeclared. owever, the cash dividend declared may be applied by the corporation to theunpaid subscription.

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c% 3o. the period of / days within which the stocholder can pay the unpaid subscriptionhad not yet epired.

. The corporation, once dissolved, thereafter continues to be a body corporate for years for purposes of prosecuting and defending suits by and against it and of enabling it to settle and

close its affairs, culminating in the final disposition and distribution of its remaining assets. If the @year etended life epires without a trustee or receiver being designated by thecorporation within that period and by that time $epiry of the @year etended term%, thecorporate li'uidation is not yet over, how, if at all, can a final settlement of the corporateaffairs be made)

Answer *The li'uidation can continue with the winding up. The members of the Board of &irectors

can continue with the winding of the corporate affairs until final li'uidation. They can act astrustees or receivers for this purpose.

>. An employee of a large manufacturing firm earns a salary which is 9ust a bit more than whathe need for a comfortable living. e is thus able to still maintain a "1/,/// savings account,a "-/,/// checing account, a "/,/// money maret placement and a "</,/// trust fundin a medium@si:e commercial ban.

a% tate which of the four accounts are deemed insured by the "&IC)b% tate which of the above accounts are covered by the Law on ecrecy of Ban

&eposits.

Answer *a% The "1/,/// savings account and the "-/,/// checing account are deemed insured

by the "&IC.

b% The "1/,/// savings account and the "-/,/// checing account are covered by theLaw on ecrecy of Ban &eposits.

H. Five the basic re'uirements to be complied with by the Central Ban before the #onetaryBoard can declare a ban insolvent, order it closed and forbid it from doing further businessin the "hilippines.

Answer *Before the #onetary Board can declare a ban insolvent, order it closed and forbid it

from doing further business in the "hilippines, the following basic re'uirements must be

complied with by the Central Ban, to wit*

a% There must be an eamination by the head of the &epartment of upervision or hiseaminers or agents into the condition of the ban.

b% The eamination discloses that the condition of the ban is one of insolvency, or that itscontinuance in business would involve probable loss to creditors or depositors.

c% The head of said &epartment shall inform in writing the #onetary Board of such facts.d% 0pon finding said information or statement to be true, the #onetary Board shall appoint

a receiver to tae charge of the assets and liabilities of the ban.

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e% 6ithin / days, the #onetary Board shall determine and confirm if the ban is insolvent,and public interest re'uires, to order the li'uidation of the ban.

2. A, single proprietor of a business concern, is about to leave for a business trip and, as he sooften does on these occasions, signs several checs in blan. e instructs B, his secretary,

to safeeep the checs and fill them out when and as re'uired to pay accounts during hisabsence. B fills out one of the checs by placing her name as payee, fills in the amount,endorses and delivers the chec to C who accepts it in good faith as payment for goods soldto B. B regrets her action and tells A what she did. A directs the Ban in time to dishonor thechec. 6hen C encashes the chec, it is dishonored.

Can A be held liable to C)

Answer *+es. A can be held liable to C, assuming that the latter gave notice of dishonor to A. this

case of an incomplete instrument but delivered as it was entrusted to B, the secretary of A.#oreover, under the doctrine of comparative negligence, as between A and C, both innocent

parties, it was the negligence of A in entrusting the chec to B which is the proimate causeof the loss.

1/. Can a bill of echange or a promissory note 'ualify as a negotiable instrument if(

a% It is not datedJ or b% The day and month, but not the year of its maturity, is givenJ or c% It is payable to 4cash5J or d% It names two alternatives drawees.

Answer *

a% +es. &ate is not a material particular re'uired by ec. 1, 3IL, for the negotiability of aninstrument.

b% 3o. The time for payment is not determinable in this case. The year is not statedc% +es. ec. 2$d%, 3IL, maes the instrument payable to bearer because the name of the

payee does not purport to be the name of any person.d% A bill may not be addressed to two or more drawees in the alternative or in succession,

to be negotiable. To do so maes the order conditional.

11. A delivers a bearer instrument to B. B then specially indorses it to C and C later indorses itin blan to &. steals the instrument from & and, forging the signature of &, succeeds in4negotiating5 it to 7 who ac'uires the instrument in good faith and for value.

a% If, for any reason, the drawee ban refuses to honor the chec, can 7 enforce theinstrument against the drawer)

b% In case of the dishonor of the chec by both the drawee and the drawer, can 7 hold anyof B, C and & liable secondarily on the instrument)

Answer *a% +es. The instrument was payable to bearer as it was a bearer instrument. It could be

negotiated by mere delivery despite the presence of special indorsements. The forged

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signature is unnecessary to presume the 9uridical relation between or among the partiesprior to the forgery and the parties after the forgery. The only party who can raise thedefense of forgery against a holder in due course is the person whose signature isforged.

b% =nly B and C can be held liable by 7. the instrument at the time of the forgery was

payable to bearer, being a bearer instrument. #oreover, the instrument was indorsed inblan by C to &. &, whose signature was forged by cannot be held liable by 7.

1-. A buys goods from a foreign supplier using his credit line with a ban to pay for the goods.0pon arrival of the goods at the pier, the ban re'uires A to sign a trust receipt before A isallowed to tae delivery of the goods. The trust receipt contains the usual language. Adisposes of the goods and receives payment but does not pay the ban. The ban files acriminal action against A for violation of the Trust 8eceipts Law. A asserts that the trustreceipt is only to secure his debt and that a criminal action cannot lie against him becausethat would be violative of his constitutional right against 4imprisonment for non@payment of adebt.5 Is he correct)

Answer *3o. iolation of a trust receipt is criminal as it is punished as estafa under Art. 1? of the

8"C. There is a public policy involved which is to assure the entruster with thereimbursement of the amount advanced or the balance thereof for the goods sub9ect of thetrust receipt. The eecution of the trust receipt or the use thereof promotes the smooth flowof commerce as it helps the importer or buyer of the goods covered thereby.

1. The assured answers 43o5 to the 'uestion in the application for a life policy. 4Are yousuffering from any form of heart illness)5 In fact, the assured has been a heart patient for many years. =n eptember >, 1221, the assured is illed in a plane crash. The insurance

company denies the claim for insurance proceeds and returns the premium paid.

Is the decision of the insurance company 9ustified)

Answer * Assuming that the incontestability clause does not apply because the policy has not

been in force for - years from date of issue, during the lifetime of the insured, the decision of the insurance company not to pay is 9ustified. There was fraudulent concealment. It is notmaterial that the insured died of a different cause than the fact concealed. The factconcealed, that is the heart ailment, is material to the determination by the insurancecompany whether or not to accept the application for insurance and to re'uire the medicaleamination of the insured.

owever, of the incontestability clause applies t the insurance policy covering the life of theinsured had been in force for - years from the issuance thereof, the insurance companywould not be 9ustified in denying the claim for the proceeds of the insurance and in returningthe premium paid. In that case, the insurer cannot prove the policy void ab initio or rescindable by reason of fraudulent concealment or misrepresentation of the insured.

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1<. a% A obtains a fire insurance on his house and as a generous gesture names his neighbor asthe beneficiary. If A!s house is destroyed by fire, can B successfully claim against the policy)

b% A obtains insurance over his life and names his neighbor B the beneficiary because of A!ssecret love for B. if A dies, can B successfully claim against the policy)

Answer *a% 3o. in property insurance, the beneficiary must have insurable interest in the property

insured. B does not have insurable interest in the house insured.

b% +es. In life insurance, it is re'uired that the beneficiary must have insurable interest inthe life of the insured. It was the insured himself who too the policy on his own life.

1?. Antonio, a paying passenger, boarded a bus bound for Batangas City. e chose a seat atthe front row, near the bus driver, and told the bus driver that he had valuable items in hishand@carried bag which he then placed beside the driver!s seat. 3ot having slept for -<hours, h re'uested the driver to eep an eye on the bag should he do:e off during the trip.

6hile Antonio was asleep, another passenger too the bag away and alighted at Calamba,Laguna. Could the common carrier be held liable by Antonio for the loss)

Answer *+es. =rdinarily, the common carrier is not liable for acts of other passengers. But the

common carrier cannot relieve itself from liability if the common carrier!s employees couldhave prevented the act or omission by eercising due diligence. In this case, the passenger ased the driver to eep an eye on the bag which was placed beside the driver!s seat.

If the driver eercised due diligence, he could have prevented the loss of the bag.

1. In a court case involving claims for damages arising from death and in9ury of buspassengers, counsel for the bus operator files a demurrer to evidence arguing that thecomplaint should be dismisses because the plaintiffs did not submit any evidence that theoperator or its employees were negligent. If you were the 9udge, would you dismiss thecomplaint)

Answer *3o. in the carriage of passengers, the failure of the common carrier to bring the

passengers safely to their destination immediately raises the presumption that such failure isattributable to the carrier!s fault or negligence. In the case at bar, the fact of death and in9uryof the bus passengers raises the presumption of fault or negligence on the part of thecarrier. The carrier must rebut such presumption. =therwise, the conclusion can be properly

made that the carrier failed to eercise etraordinary diligence as re'uired by law.

1>. plain these two doctrines in #aritime accidents(

a% The &octrine of Inscrutable 7aultJ andb% The &octrine of Limited Liability

Answer *

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a% 0nder the 4doctrine of inscrutable fault5, where fault is established but it cannot bedetermined which of the - vessels were at fault, both shall be deemed to have been atfault.

b% 0nder the 4doctrine of limited liability5 the eclusively 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. owever, such doctrine does notapply if the shipowner and the captain are guilty of negligence.

1H. In an action for damages on account of an infringement of a copyright, the defendant $thealleged pirate% raised the defense that he was unaware that what he had copied was acopyright material. 6ould this defense be valid)

Answer *3o. An intention to pirate is not an element of infringement. ence, an honest intention is

no defense to an action for infringement.

12. 8it: bought a new car on installments which provided for an acceleration clause in theevent of default. To secure payment of the unpaid installment, as and when due, heconstituted - chattel mortgages. i.e., one over his very old car and the other covering thenew car that he had 9ust bought, as aforesaid, on installment. After 8it: defaulted on installments, the seller@mortgagee foreclosed on the old car. The proceeds of the foreclosurewere not enough to satisfy the due obligationJ hence, he similarly sought to foreclose on thenew car. 6ould the seller@mortgagee be legally 9ustified in foreclosing on this second chattelmortgage)

Answer *3o. the - mortgages were eecuted to secure the payment of the unpaid installments for

the purchase of a new car. 6hen the mortgage on the old car was foreclosed, the seller@mortgagee is deemed to have renounced all other rights. A foreclosure of additionalproperty, that is, the new car covered by the second mortgage would be a nullity.

-/. An insolvent debtor, after a lawful discharge following an ad9udication of insolvency, isreleased from, generally, all debts, claims, liabilities and demands which are or have beenproved against his estate. Five ? obligations of the insolvent debtor that survive.

Answer *The ? obligations of the insolvent debtor that survive are as follows*

1. Taes and assessments due the government, national or localJ-. =bligations arising from embe::lement or fraudJ. =bligation of any person liable with the insolvent debtor for the same debt, either as a

solidary co@debtor, surety, guarantor, partner, indorser or otherwiseJ<. Alimony or claim for supportJ and?. &ebts not payable against the estate $such after@incurred obligations% of, or not included

in the schedule submitted by, the insolvent debtor.

1..+ BAR EXAMINATION

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1. a% 6hat are the re'uisites of a negotiable instrument)b% 6hen is notice of dishonor not re'uired to be given to the drawer)c% 6hat constitutes a holder in course)d% 6hat are the effects of crossing a chec)

Answer *a% The re'uisites of a negotiable instrument are as follows*

1. It must be in writing and signed by the maer or drawerJ-. It must contain an unconditional promise or order to pay a sum certain in moneyJ. It must be payable to order or to bearerJ and<. 6here the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.

b% 3otice of dishonor not re'uired to be given to the drawer in any of the following cases*

1. 6here the drawer and the drawee are the same personJ

-. 6hen the drawee is a fictitious person or a person not having capacity to contractJ. 6hen the drawer is the person to whom the instrument is presented for paymentJ<. 6here the drawer has no right to epect or re'uire that the drawee or acceptor will

honor the instrumentJ?. 6here the drawer has countermanded payment

c% A holder in due course is one who has taen the instrument under the followingconditions*

1. That it is complete and regular upon its faceJ-. That he became a holder of it before it was overdue and without notice that t had

been previously dishonored, if such was the factJ. That he too it in good faith and for valueJ<. That at the time it was negotiated to him, he had no notice of any infirmity in the

instrument or defect in the title of the person negotiating it.

d% The effects of crossing a chec are as follows*

1. The chec may not be encashed but only deposited in a bansJ-. The chec may be negotiated only once to one who has an account with a banJ. The act of crossing a chec serves as a warning to the holder thereof that the chec

has been issued for a definite purpose so that the holder must in'uire if he hasreceived the chec pursuant to that purpose, otherwise he is not a holder in due

course.

-. a% =n #arch 1, 122, "entium Company ordered a computer from C& Bytes, and issued acrossed chec in the amount of "/,/// post@dated #arch 1, 122. 0pon receipt of thechec, C& Bytes discounted the chec with 7und ouse.

=n April 1, 122, "entium stopped payment of the chec for failure of C& Bytes to deliver the computer. Thus, when 7und ouse deposited the chec, the drawee ban dishonored it.

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If 7und ouse files a complaint against "entium and C& Bytes for the payment of thedishonored chec, will the complaint prosper) plain.

Answer *The complaint filed by 7und ouse against "entium will not prosper but the one

against C& Bytes will. 7und ouse is not a holder in due course and, therefore, "entiumcan raise the defense of failure of consideration against it. The chec in 'uestion wasissued by "entium to pay for a computer that it ordered from C& Bytes. The computer not having been delivered, there was a failure of consideration. The chec discountedwith 7und ouse by C& Bytes is a crossed chec and this should have put 7und ouseon in'uiry. It should have ascertained the title of C& Bytes to the chec or the nature of the latter!s possession. 7ailing in this respect, 7und ouse is deemed guilty of grossnegligence amounting to legal absence of good faith and, thus, not a holder in duecourse. 7und ouse can collect from C& Bytes as the latter was the immediate indorser of the chec.

b% va issued to Imelda a chec in the amount of "?/,/// post@dated eptember /, 122?,as security for a diamond ring to be sold on commission. =n eptember 1?, 122?, Imeldanegotiated the chec to #T Investment which paid the amount of "</,/// to her.

va failed to sell the ring, so she returned it to Imelda on eptember 12, 122?. 0nable toretrieve her chec, va withdrew her funds from the drawee ban. Thus, when #TInvestment presented the chec for payment, the drawee ban dishonored it. Later on, when#T Investment sued her, va raised the defense of absence of consideration, the chechaving been issued merely as security for the ring that she could not sell.

&oes va have a valid defense) plain.

Answer *

3o, va does not have a valid defense. 7irst, #T Investment is a holder in duecourse and, as such, holds the post dated chec free from any defect of title of prior parties and from defenses available to prior parties among themselves. va can invoethe defense of absence of consideration against #T only if the latter was a privy to thepurpose for which the checs were issued and, therefore, not a holder in due course.econd, it is not a ground for the discharge of the post@dated chec as against a holder in due course that it was issued merely as security. The only grounds for the dischargeof negotiable instruments Law and none of those grounds are available to va. Thelatter may not unilaterally discharge herself from her liability by mere epediency of withdrawing her funds from the drawee ban.

. a% 3ora applied for loan of "1//,/// with B08 Ban. By way of accommodation, 3ora!ssister, ilma, eecuted a promissory note in favor of B08 Ban. 6hen 3ora defaulted, B08Ban sued ilma, despite its nowledge that ilma received no part of the loan.

#ay ilma be held liable) plain.

Answer *

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+es, ilma may be held liable. ilma is an accommodation party. As such, she isliable on the instrument to a holder for value such as B08 Ban. This is true even if B08Ban was aware at the time it too the instrument that ilma is merely anaccommodation party and received no part of the loan.

b% 6illiam issued to Albert a chec for "1//,/// drawn on M# Ban. Albert alerted theamount of the chec to "-1/,///, and deposited the chec to his account with 3& Ban.6hen 3& Ban presented the chec for payment through the Clearing ouse, M# Banhonored it. Thereafter, Albert withdrew the "-1/,///, and closed his account.

6hen the chec was returned to him after a month, 6illiam discovered the alteration. M#Ban recredited "-1/,/// to 6illiam!s current account, and sought reimbursement from 3&Ban. 3& Ban refused, claiming that M# Ban failed to return the altered chec to it withinthe -<@hour clearing period.

6ho, as between, M# Ban and 3& Ban, should bear the loss) plain.

Answer *3& Ban should bear the loss if M# Ban returned the altered chec to 3& Ban

within -< hours after its discovery of the alteration. 0nder the given facts, 6illiamdiscovered the alteration when the altered chec was returned to him after a month. Itmay safely be assumed that 6illiam immediately advised M# Ban of such fact and that6illiam immediately advised M# Ban of such fact and that the latter promptly notified3& Ban thereafter. CB Circular 3o. 2, as amended, on which the decisions of theupreme Court, in the ongong Z hanghai Baning Corporation v. "eople!s Ban ZTrust Co. and 8epublic Ban v. CA, et al. were based was epressly cancelled andsuperseded by the CB Circular 3o. 1>, dated &ecember -, 12>/. The latter was inturn amended by CB Circular 3o. ?H/, dated eptember 12, 12>>. As to the alteredchecs, the new rules provide that the drawee ban can still return them even after

<*//pm of the net day provided it does so within -< hours from discovery of thealteration but in no event beyond the period fied or provided by law for filing of a legalaction by the returning ban against the ban sending the same. Assuming that therelationship between the drawee ban and the collecting ban is evidenced by somewritten document, the prescriptive period would be 1/ years.

<. a% Duan procured a 4non@medical5 life insurance from Food Life Insurance. e designed hiswife, "etra, as the beneficiary. arlier, in his application in response to the 'uestion as towhether or not he had ever been hospitali:ed, he answered in the negative. e forgot tomention his confinement at the Eidney ospital.

After Duan died in a plane crash, "etra filed a claim with Food Life. &iscovering Duan!sprevious hospitali:ation, Food Life re9ected "etra!s claim on the ground of concealment andmisrepresentation. "etra sued Food Life, invoing good faith on the part of Duan.

6ill "etra!s suit prosper) plain.

Answer *

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3o. "etra!s suit will not prosper $assuming that the policy of life insurance hasbeen in force for a period of less than - years from the date of its issue%. The matterswhich Duan failed to disclose was material and relevant to the approval and issuance of the insurance policy. They would have affected Food Life!s action on his application,either by approving it with the corresponding ad9ustment for a higher premium or re9ecting the same. #oreover, a disclosure may have warranted a medical eamination

of Duan by Food Life in order for it to reasonably assess the ris involved in acceptingthe application. In any case, good faith is no defense in concealment. The waiver of amedical eamination in the 4non@medical5 life insurance from Food Life maes it evenmore necessary that Duan supply complete information about his previous hospitali:ationfor such information constitutes an important factor which Food Life taes intoconsideration in deciding whether to issue the policy or not.

If the policy of life insurance has been in force for a period of - years or morefrom the date of its issue $on which point the given facts are vague% then Food Life canno longer prove that the policy is void a1 initio or is rescindable by reason of thefraudulent concealment or misrepresentation of Duan.

b% 8C Corporation purchased from Thailand, which it intended to sell locally. &ue to stormyweather, the ship carrying the rice became submerged in sea water and with it the ricecargo. 6hen the cargo arrived in #anila, 8C filed a claim for total loss with the insurer,because the rice was no longer fit for human consumption. Admittedly, the rice could still beused as animal feed.

Is 8C!s claim for total loss 9ustified) plain.

Answer *+es, 8C!s claim for total loss is 9ustified. The rice, which was imported from

Thailand for sale locally, is obviously intended for consumption by the public. The

complete physical destruction of the rice is not essential to constitute an actual loss.uch a loss eists in this case since the rice, having been soaed in sea water andthereby rendered unfit for human consumption, has become totally useless for thepurpose for which it was imported.

?. a% 8obin insured his building against fire with 7F Assurance. The insurance policycontained the usual stipulation that any action or suit must be filed within 1 year after there9ection of the claim.

After his building burned down, 8obin filed his claim for fire loss with 7F. =n 7ebruary -H,122<, 7F denied 8obin!s claim. =n April , 122<, 8obin sought reconsideration of the

denial, but 7F reiterated its position. =n #arch -/,122?, 8obin commenced 9udicial actionagainst 7F.

hould 8obin!s action be given due course) plain.

Answer *3o, 8obin!s action should not be given due course. is filing of the re'uest for

reconsideration did not suspend the running of the prescriptive period of 1 year stipulated in the insurance policy. Thus, when 8obin commenced 9udicial action against

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7F on #arch -/, 122?, his ability to do so had already prescribed. The 1 year period iscounted from 7ebruary -H, 122< when 7F denied 8obin!s claim, not from the date$presumably after April , 122<% when 7F reiterated its position denying 8obin!s claim.The reason for this rule is to insure that claims against insurance companies arepromptly settled and that insurance suits are brought by the insured while the evidenceas to the origin and cause of the destruction has not yet disappeared.

b% 6hile driving his car along &A, Cesar sideswiped 8oberto, causing in9uries to thelatter. 8oberto sued Cesar and the third party liability insurer for damages and;or insuranceproceeds. The insurance company moved to dismiss the complaint, contending that theliability of Cesar has not yet been determined with finality.

1. Is the contention of the insurer correct) plain.-. #ay the insurer be held liable with Cesar)

Answer *1. 3o, the contention of the insurer is not correct. There is no need to wait for the

decision of the court determining Cesar!s liability with finality before the third partyliability insurer could be sued. The occurrence of the in9ury to 8oberto immediatelygave rise to the liability of the insurer under its policy. In other words, where aninsurance policy insures directly against liability, the insurer!s liability accruesimmediately upon the occurrence of the in9ury or event upon which the liabilitydepends.

-. The insurer cannot be held solidarily liable with Cesar. The liability of the insurer isbased on contract while that of Cesar is based on tort. If the insurer were solidarilyliable with Cesar, it could be made to pay more than the amount stated in the policy.This would, however, be contrary to the principles underlying insurance contracts. =nthe other hand, if the insurer were solidarily liable with Cesar and it is made to pay

only up to the amount stated in the insurance policy, the principles underlyingsolidary obligations would be violated.

. a% 6hat are the rights of a stocholder)

Answer *The rights of a stocholder are as follows*

1. The right to vote, including the right to appoint a proyJ-. The right to share in the profits of the corporation, including the right to declare stoc

dividendsJ

. The right to proportionate share of the assets of the corporation upon li'uidationJ<. The right of appraisalJ?. The preemptive right to sharesJ. The right to inspect corporate boos and recordsJ>. The right to elect directorsJH. uch other rights as may contractually be granted to the stocholders by the

corporation or by special law.

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b% 6hen may a corporate director, trustee or officer be held personally liable with thecorporation)

Answer * A corporate director, trustee or officer be held personally liable with the

corporation under the following circumstances*

1. 6hen he assents to a patently unlawful act of the corporationJ-. 6hen he acts in bad faith or with gross negligence in directing the affairs of the

corporation, or in conflict with the interest of the corporation, its stocholders or other personsJ

. 6hen he consents to the issuance of watered stocs or who, having nowledgethereof, does not forthwith file with the corporate secretary his written ob9ectiontheretoJ

<. 6hen he agrees to hold himself personally and solidarily liable with the corporationJor

?. 6hen he is made, by specific provision of law, to personally answer for the corporateaction.

a% 6hen may a corporation invest its funds in another corporation or business or for anyother purposes)

Answer * A corporation may invest its funds in another corporation or business or for any

purpose other than the primary purpose for which it was organi:ed when the saidinvestment is approved by a ma9ority of the Board of &irectors and such approval isratified by the stocholders representing at least -; of the outstanding capital. 6rittennotice of the proposed investment and the date, time and place of the stocholders!meeting at which such proposal will be taen up must be sent to each stocholder.

b% #ay a corporation enter into a 9oint venture)

Answer * A corporation may enter into a 9oint venture. owever, inasmuch as the term 9oint

venture has no precise legal definition, it may tae various forms. It could tae the formof a simple pooling of resources $not involving incorporation% between - or morecorporations for a specific pro9ect, purpose or undertaing, or for a limited time. It mayinvolve the creation of a more formal structure and, hence, the formation of acorporation. If the 9oint venture would involve the creation of a partnership, as the term isunderstood under the Civil Code, then a corporation cannot be a party to it.

>. a% Leonardo is the Chairman and "resident, while 8aphael is a &irector of 3T Corporation.=n one occasion, 3T Corporation, represented by Leonardo, and A nterprises, a singleproprietorship owned by 8aphael, entered into a dealership agreement whereby 3TCorporation appointed A nterprises as eclusive distributor of its products in 3orthernLu:on.

Is the dealership agreement valid) plain.

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Answer *The dealership agreement is voidable at the option of 3T inasmuch as the facts

do not indicate that the same was approved by the Board of &irectors of 3T Corporationbefore it was signed or, assuming such approval, that it was approved under thefollowing conditions*

1. That the presence of 8aphael, the owner of A nterprises, in the meeting of the Board of &irectors at which the agreement was approved was not necessary to constitute a'uorum for such meetingJ

-. That the vote of 8aphael was not necessary for the approval of the agreementJ. That the agreement is fair and reasonable under the circumstances.

b% Arnold has in his name 1,/// shares of the capital stoc of ABC Corporation asevidenced by a stoc certificate. Arnold delivered the stoc certificate to teven who nowclaims to be the real owner of the shares, having paid for Arnold!s subscription. ABC refusedto recogni:e and register teven!s ownership.

Is the refusal 9ustified) plain.

Answer * ABC!s refusal to recogni:e and register teven!s ownership is 9ustified. The facts

indicate that the stoc certificate for the 1,/// shares in 'uestion is in the name of Arnold. Although the certificate was delivered to teven or that the procedure for theeffective transfer of shares of stoc set out in the by@laws of ABC Corporation, if any, wasobserved. ince the certificate was not endorsed in favor of teven $or anybody else for that matter%, the only conclusion could be no other than that the shares in 'uestion stillbelong to Arnold.

H. a% "8 Corporation owns a beach resort with several cottages. Daime, the "resident of "8,occupied one of the cottages for residential purposes. After Daime!s term epired, "8wanted to recover possession of the cottage. Daime refused to surrender the cottage,contending that as a stocholder and former "resident, he has a right to possess and en9oythe properties of the corporation.

Is Daime!s contention correct) plain.

Answer *Daime!s contention is not correct. Daime may own shares of stoc in "8

Corporation but such ownership does not entitle him to the possession of any specific

property of the corporation or a definite portion thereof. 3either is he a co@owner of acorporate property. "roperties registered in the name of the corporation are owned by itas an entity separate and distinct from its stocholders.

tocholders lie Daime only own shares of stoc in the corporation. uch sharesof stoc do not represent specific corporate property.

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b% 8odman, the "resident of T7 Corporation wrote a letter to Fregorio, offering to sell to thelatter ?,/// bags of fertili:er at "1// per bag. Fregorio signed his conformity to the letter@offer, and paid a down payment of "?/,///. A few days later, the Corporate ecretary of T7informed Fregorio of the decision of the Board of &irectors not to ratify the [email protected], since Fregorio had already paid the down payment, T7 delivered the ?// bags of fertili:er which Fregorio accepted. T7 made it clear that the delivery should be considered

an entirely new transaction. Thereafter, Fregorio sought enforcement of the letter@offer.

Is there a binding contract for the ?,/// bags of fertili:er) plain.

Answer *3o, there is no binding contract for the ?,/// bags of fertili:ers. 7irst, the facts do

not indicate that 8odman, the "resident of T7 Corporation, was authori:ed by the Boardof &irectors to enter into the said contract or that he was empowered to do so under some provision of the by@laws of T7. The facts do not also indicate that 8odman hasbeen clothed with the apparent power to eecute the contract or agreements similar to it.econd, T7 has specifically informed Fregorio that it has not ratified the contract for thesale of ?,/// bags of fertili:er and that the delivery to Fregorio of ?// bags, which

Fregorio accepted, is an entirely new transaction.

2. a% Corporation sold its assets to #, Inc. after complying with the re'uirements of the Bulales Law. ubse'uently, one of the creditors of Corporation tried to collect the amountdue it, but found out that Corporation had no more assets left. The creditor then sued #,Inc. on the theory that #, Inc. is a mere alter ego of Corporation.

6ill the suit prosper) plain.

Answer *The suit will not prosper. The sale by Corporation of its assets to #, Inc. does

not result in the transfer of the liabilities of the latter to, nor in the assumption thereof bythe former. The facts given do not indicate that such transfer or assumption too place or was stipulated upon by the parties in their agreement. 7urthermore, the sale by Corporation of its assets is a sale of its property. It does not involve the sale of theshares of stoc of the corporation belonging to its stocholder. There is, therefore, nomerger or consolidation that too place. Corporation continues to eist and remainsliable to the creditor.

b% 8ichard owns 2/K of the shares of the capital stoc of F=# Corporation. =n oneoccasion, F=# Corporation, represented by 8ichard as "resident and Feneral #anager,eecuted a contract to sell a subdivision lot in favor of Tomas. 7or failure of F=#

Corporation to develop the subdivision, Tomas filed an action for rescission and damagesagainst F=# Corporation and 8ichard.

6ill the action prosper) plain.

Answer *The action may prosper against F=# Corporation but definitely not against

8ichard. 8ichard has a legal personality separate and distinct from that of F=#Corporation. If he signed the contract to sell, he did so as the "resident and Feneral

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#anager of F=# Corporation and not in his personal capacity. #ere ownership by8ichard of 2/K of the capital stoc of F=# Corporation is not of itself sufficient groundto disregard his separate legal personality absent a showing, for eample, that he actedmaliciously or in bad faith.

1/. a% &efine securities.

Answer *tocs, bonds, notes, convertible debentures, warrants or other documents that

represent a share in a company or debt owed by a company or government entity.vidences of obligations to pay money or rights to participate in earnings and distributionof corporate assets. Instruments giving to their legal holders rights to money or other propertyJ they are therefore instruments which have intrinsic value and are recogni:edand used as such in the regular channels of commerce.

b% 6hat is the original and eclusive 9urisdiction of the C)

Answer * The C has original and eclusive 9urisdiction over case involving*

1. &evices or schemes amounting to fraud and misrepresentationJ-. Controversies arising out of intra@corporate or partnership relationsJ. Controversies in the election or appointment of directors, officers, etc.J<. "etitions to be declared in the state of suspension of payment.

11. a% In 12>/, #agno 9oined A#& Corporation as a Dunior Accountant. e steadily rose fromthe rans until he became A#&!s ecutive ". ubse'uently, however, because of his

involvement in certain anomalies, the A#& Board of &irectors considered him resigned fromthe company due to loss of confidence.

Aggrieved, #agno filed a complaint in the C, 'uestioning the validity of hi termination,and seeing reinstatement to his former position, with bac wages, vacation and sic leavebenefits, 1th month pay and Christmas bonus, plus moral and eemplary damages,attorney!s fees and costs. A#& filed a motion to dismiss, arguing that the C has no

9urisdiction over cases of illegal dismissal, and has no power to award damages.

hould the motion to dismiss be granted) plain.

Answer *

The motion to dismiss should be denied. The dismissal of #agno is a corporateact as it resulted in his non@reelection to his position, and his non@acceptance of suchdismissal is an intra@corporate controversy. The fact that #agno sought payment of hisbac wages and other benefits, as well as moral and eemplary damages and attorney!sfees in his complaint for illegal dismissal, does not operate to prevent the C fromeercising its 9urisdiction under "& 2/-@A. 6hile the affirmative reliefs and monetaryclaims sought by #agno may, at first glance, mislead one into placing the case under the

9urisdiction of the Labor Arbiter, a closer eamination reveals that they are actually part

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of the per'uisites of his elective position, hence, intimately lined with his relations withthe corporation.

b% Dennifer and Fabriel owned the controlling stocs in #77 Corporation and CL=, Inc., bothfamily corporations. &ue to serious disagreements, Dennifer assigned all her shares in #77

Corporation to Fabriel, while Fabriel assigned all his shares in CL=, Inc. to Dennifer.ubse'uently, Dennifer and CL=, Inc., filed a complaint against Fabriel and #77Corporation in the C, seeing to recover the corporate records and funds of CL=, Inc.,which Fabriel allegedly refused to turn over, and which remained in the offices of #77Corporation.

Is there an intra@corporate controversy in this case) plain.

Answer *+es, there is an intra@corporate controversy in this case. The fact that, when the

complaint against Fabriel and #77 Corporation was filed with the C, Dennifer andCL=, Inc. were no longer stocholders of #77 Corporation did not divest the C of its

9urisdiction over the case inasmuch as Dennifer was a former stocholder of #77Corporation and the controversy arose out of this relation.

1-. a% 6ith a capital of "2-,///, #aria operates a stall in the public maret. he manufacturessoap that she sells to the general public. er common law husband, #a Lee, who has apending petition for naturali:ation, occasionally finances the purchase of goods for resale,and assist in the management of business.

Is there a violation of the 8etail trade Law) plain.

Answer *

3o, there is no violation of the 8etail Trade Law. #aria is a manufacturer whosells to the general public, through her stall in the public maret, the soap which shemanufactures. Inasmuch as her capital does not eceed "?,/// then she is consideredunder ec.< $a% of the 8etail Trade Law as not engaged in the 4retail business5.Inasmuch as #aria!s business is not a 4retail business,5 then the re'uirement in ection1 of the 8etail Trade Law that only "hilippine nationals shall engage , directly or indirectly, in the retail business is inapplicable. 7or this reason, the participation of #aLee in the management of the business would not be a violation of the 8etail Trade Lawin relation to the Anti@&ummy Law.

b% L, Inc., a domestic corporation with the foreign e'uity, manufactures electric generators,

and sells them to the following customers* $a% government offices which use the generatorsduring brownouts to render public service, $b% agricultural enterprises which utili:e thegenerators as bac up in the processing of goods, $c% factories, and $d% its own employees.

Is L engaged in retail trade) plain.

Answer *The sale by L of generators to government offices agricultural enterprises and

factories are outside the scope of the term 4retail business5 and may, therefore, be made

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by the said corporation. owever, sales of generators by L to its own employeesconstitute retail sales and are proscribed. 0nder the amendment to the 8etail Trade Lawintroduced by "& >1<, the term 4retail business shall not include a manufacturer $suchas L% selling to industrial and commercial users or consumers who use the productsbought by them to render service to the general public $e.g. the government offices%and;or to produce or manufacture goods which are in turn sold by them $e.g., the

agricultural enterprises and factories%.

1. a% &efine a common carrier)

Answer * A common carrier is a person, corporation, firm or association engaged in the

business of carrying or transporting passengers or goods or both, by land, water or air for compensation, offering its services to the public.

b% 6hat is the test for determining whether or not one is a common carrier)

Answer *The test for determining whether or not one is a common carrier is whether the

person or entity, for some business purpose and with general or limited clientele, offersthe service of carrying or transporting passengers or goods or both for compensation.

1<. a% A# Trucing, a small company, operates - trucs for hire on selective basis. It caters toonly a few customers, and its trucs do not mae regular or scheduled trips. It does not evenhave a certificate of public convenience.

=n one occasion, 8eynaldo contracted A# to transport, for a fee, 1// sacs of rice from

#anila to Tarlac. owever, A# failed to deliver the cargo, because its truc was hi9acedwhen the driver stopped in Bulacan to visit his girlfriend.

1. #ay 8eynaldo hold A# liable as a common carrier) plain.-. #ay A# set up the hi9acing as a defense to defeat 8eynaldo!s claim)

Answer *1. 8eynaldo may hold A# liable as a common carrier. The facts that A# operates only

- trucs for hire on a selective basis, caters only to a few customers, does not maeregular or scheduled trips, and does not have a certificate of public convenience areof no moment as the law $i% does not distinguish between one whose principalbusiness activity is the carrying of persons or goods or both and one who does such

carrying only as an ancillary activity, $ii% avoids maing any distinction between aperson or enterprise offering transportation service on a regular or scheduled basisand one offering such service on an occasional, episodic or unscheduled basis, and$iii% refrains from the general public and one who offers services or solicits businessonly from a narrow segment of the general population.

-. A# may not set up the hi9acing as a defense to defeat 8eynaldo!s claim as the factsgiven do not indicate that the same was attended by the use of grave or irresistible

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threat, violence or force. It would appear that the truc was left unattended by itsdriver and was taen while he was visiting his girlfriend.

b% A bus of FL Transit on its way to &avao stopped to enable a passenger to alight. At thatmoment, antiago, who had been waiting for a ride, boarded the bus. owever, the bus

driver failed to notice antiago who was still standing on the bus platform, and stepped onthe accelerator. Because of the sudden motion, antiago slipped and fell down, sufferingserious in9uries.

#ay antiago hold FL Transit liable for breach of contract of carriage) plain.

Answer *antiago may hold FL liable for breach of contract of carriage. It was the duty of

the driver, when he stopped the bus, to do no act that would have the effect of increasingthe peril to a passenger such as antiago while he was attempting to board the same.6hen a bus is not in motion there is no necessity for a person who wants to ride thesame to signal his intention to board. A public utility bus, once it stops, is in effect maing

a continuous offer to bus riders. It is the duty of common carriers of passengers to stoptheir conveyances for a reasonable length of time in order to afford passengers anopportunity to board and enter, and they are liable for in9uries suffered by boardingpassengers resulting from the sudden starting up or 9ering of their conveyances whilethey are doing so. antiago, by stepping and standing on the platform of the bus, isalready considered a passenger and is entitled to all the rights and protection pertainingto a contract of carriage.

1?. a% 6hat is the distinction between infringement and unfair competition)

Answer *

The distinction between infringement $presumably of trademar% and unfair competition are as follows*1. Infringement of a trademar is the unauthori:ed use of a trademar, whereas unfair

competition is the passing off of one!s goods as those of anotherJ-. 7raudulent intent is unnecessary in infringement of trademar, whereas fraudulent

intent is essential in unfair competitionJ. The prior registration of the trademar is a prere'uisite to an action for infringement

of trademar, whereas registration of the trademar is not necessary in unfair competition.

b% 6hat is the 4test of dominancy5)

Answer *The test of dominancy re'uires that if the competing trademar contains the main

or essential features of another and confusion and deception is liely to result,infringement taes place. &uplication or imitation is not necessaryJ nor is it necessarythat the infringing label should suggest an effort to imitate. imilarity in si:e, form andcolor, while relevant, is not conclusive.

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c% 3 Corporation manufactures rubber shoes under the trademar 4Dordann5 which hit the"hilippine #aret in 12H?, and registered its trademar with the Bureau of "atents,Trademars and Technology Transfer $B"TTT% in 122/. "E Company also manufacturesrubber shoes with the trademar 4Davorsi5 which it registered with the B"TTT in 12>H.

In 122-, "E Company adopted and copied the design of 3 Corporation!s 4Dordann5

rubber shoes, both as to shape and color, but retained the trademar 4Davorsi5 on itsproducts.

#ay "E Company be held liable to 3 Corporation) plain.

Answer *"E may be held liable for unfairly competing against 3 Corporation. By

copying the design, shape and color of 3!s 4Dordann5 rubber shoes and using thesame in its rubber shoes trademared 4Davorsi5, "E is obviously trying to passoff its shoes for those of 3. it is of no moment that the trademar 4Davorsi5 wasregistered ahead of the trademar 4Dordann5. "riority in registration is notmaterial in an action for infringement of trademar. The basis of an action for

unfair competition is confusing and misleading similarly in general appearance,not similarity of trademars.

1. 7inding a -<@month payment plan attractive, An9o purchased a Tamaraw 7M from Toyotaue:on City. e paid a down payment of "1//,///, and obtained financing for the balancefrom I=0 Company. e eecuted a chattel mortgages over the vehicle in favor of I=0.6hen An9o defaulted, I=0 foreclosed the chattel mortgage, and sought to recover thedeficiency.

#ay I=0 still recover the deficiency) plain.

Answer *I=0 may no longer recover the deficiency. 0nder Article 1<H< of the Civil Code, in a

contract of sale of personal property the price of which is payable in installments, the vendor may, among several options, foreclose the chattel mortgage on the thing sold, if one hasbeen constituted, should the vendee!s failure to pay cover - or more installments. In suchcase, however, the vendor shall have no further action against the purchaser to recover anyunpaid balance of the price and any agreement to the contrary is void. 6hile the given factsdid not eplicitly state that An9o!s failure to pay covered - or more installments, this maysafely be presumed because the right of I=0 to foreclose the chattel mortgage under thecircumstances is premised on An9o!s failure to pay - or more installment. The foreclosurewould not have been valid if it were not so.

1>. =3 Dune 1, 122?, icente obtained a writ of preliminary attachment against Carlito. Thelevy on Carlito!s property occurred on Dune -?, 122?. =n Duly -2, 122?, another creditor filed a petition for involuntary insolvency against Carlito. The insolvency court gave duecourse to the petition. In the meantime, the case filed by icente proceeded, and resulted ina 9udgment award in favor of icente.

#ay the 9udgment obtained by icente be enforced independently of the insolvencyproceedings) plain.

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Answer *The 9udgment obtained by icente can be enforced independently of the insolvency

proceedings. 0nder ection - of the Insolvency Law, the assignment to the assignee of allthe real and personal property, estate and effects of the debtor made by the cler of courtshall vacate and set aside any 9udgment entered in any action commenced within / days

immediately prior to the commencement of insolvency proceedings. In this case, however,the action filed by icente against Carlito was commenced by icente not later than Dune1, 122? $the facts on this point are not clear% when icente obtained a writ of preliminaryattachment against Carlito or more than / days before the petition for involuntaryinsolvency was filed against Carlito by his other creditors.

1..* BAR EXAMINATION

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Q"es#$%n N%& 1!

1. 6hat re'uirements must be met before a certificate of public convenience may be grantedunder the "ublic ervice Act)

-. 6hat is the prescriptive period for actions involving lost or damaged cargo under theCarriage of Foods by ea Act)

. 0nder the 8evised ecurities Act, it is unlawful for an insider to sell or buy a security of theissuer if he nows a fact or special significance with respect to the issuer or the security thatis not generally available, without disclosing such fact to the other party.

a. 6hat does the term 4insider5 mean as used in the 8evised ecurities Act)b. 6hen is a fact considered to be 4of special significance5 under the same Act)c. 6hat are the liabilities of a person who violates the pertinent provisions of the 8evised

ecurities Act regarding the unfair use of inside information)

Answer *1. The following are the re'uirements for the granting of a certificate of public convenience, to

wit*

a% The applicant must be a citi:en of the "hilippines, or a corporation, co@partnership or association organi:ed under the laws of the "hilippines and at least /K of the stocor paid@up capital of which must belong to citi:ens of the "hilippines.

b% The applicant must prove public necessity.c% The applicant must prove that the operation of the public service proposed and the

authori:ation to do business will promote the public interest in a proper and suitablemanner.

d% The applicant must be financially capable of undertaing the proposed service and

meeting the responsibilities incident to its operation.

-. =ne $1% year after delivery of the goods or the date when the goods should have beendelivered.

. a% 4Insider5 means $1% the issuer, $-% a director or officer of or a person controlling, controlledby, or under common control with, the issuer, $% a person whose relationship or former relationship to the issuer gives or gave him access to a fact of special significance about theissuer or the security that is not generally available, or $<% a person who learns such a factfrom any of the foregoing insiders with nowledge that the person from whom he learns thefacts is such an insider.

b% It is one which, in addition to being material, would be liely to affect the maret priceof a security to a significant etent on being made generally available, or one which areasonable person would consider especially important under the circumstances indetermining his course of action in the light of such factors as the degree of itsspecificity, the etent of its difference from information generally available previously, andits nature and reliability.

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c% The person may be liable to $1% a fine of not less than "?,/// nor more than"?//,///, or $-% imprisonment of not less than > years nor more than -1 years, $% or both such fine and imprisonment in the discretion of the court.

If the offender is a corporation, partnership, association or other 9uridical entity, thepenalty shall be imposed upon the officers of the corporation, etc. responsible for the

violation. And if such an officer is an alien, he shall, in addition to the penaltiesprescribed, be deported without further proceedings after service of sentence.

Q"es#$%n N%& 2!8onald ham doing business under the name of A#8=3 #acineries $A#8=3%

sold to Turtle #ercantile $T08TL% a diesel farm tractor. In payment, T08TL!s "resident and#anager &ic eldon issued a chec for "?/,/// in favor of A#8=3. A wee after, T08TLsold the tractor to Briccio Industries $B8ICCI=% for "/,///. B8ICCI= discovered that theengine of the tractor was reconditioned so he refused to pay T08TL. As a result, &ic eldonordered 4stop payment5 of the chec issued to A#8=3.

A#8=3 sued T08TL and &ic eldon. A#8=3 obtained a favorable 9udgmentholding co@defendants T08TL and eldon 9ointly and severally liable.

Comment on the decision of the trial court. &iscuss fully.

Answer *The trial court erred in holding &ic, "resident and Feneral #anager of Turtle, 9ointly and

severally liable with T0T8TL.

In issuing the chec issued to A#8=3 and, thereafter, stopping payment thereof,eldon was acting in his capacity as an officer of T08TL. e was not acting in his personalcapacity. 7urthermore, no facts have been provided which would indicate that the action of

eldon was dictated by an intent to defraud A#8=3 by himself or in collusion with T08TL.aving acted in what he considered as his duty as an officer of the corporation, eldon shouldnot be held personally liable.

Q"es#$%n N%& 3!Chito antos is a director of both "latinum Corporation $"LATI30#% and E6IE ilver

Corporation $E6IE%. e owns 1K of the outstanding capital stoc of "LATI30# and </K of E6IE. "LATI30# plans to enter into a contract with E6IE that will mae both companies earnvery substantial profits. The contract is presented at the respective board meetings of "LATI30# and E6IE.

1. In order that the contract will not be voidable, what conditions will have to be complied with)plain.

-. If these conditions are not met, how may this contract be ratified) plain.

Answer *1. At the meeting of the Board of &irectors of "LATI30# to approve the contract, Chito

antos would have to mae sure that*

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a% is presence as director at the meeting is not necessary to constitute a 'uorum for such meetingJ

b% is vote is not necessary for the approval of the contractJ andc% The contract is fair and reasonable under the circumstances.

At the meeting of the Board of &irectors of E6IE to approve the contract, Chito would have

to mae sure that*

a% There is no fraud involvedJ andb% The contract is fair and reasonable under the circumstances.

-. If the conditions relating to 'uorum and re'uired number of votes are not met, the contractmust be ratified by the vote of stocholders representing at least -; of the outstandingcapital stoc in a meeting called for the purpose.

7urthermore, the adverse interest of Chito in the contract must be disclosed and thecontract is fair and reasonable.

Q"es#$%n N%& 4!tii Cement Corporation $TIEEI% was organi:ed primarily for cement manufacturing.

Anticipating substantial profits, its "resident proposed that TIEEI invest in $a% a power plantpro9ect, $b% a concrete road pro9ect, and $c% 'uarry operations for limestone used in themanufacture of cement.

1. 6hat corporate approvals or votes are needed for the proposed investments) plain.-. &escribe the procedure in securing these approvals.

Answer *1. 0nless the power plant and the concrete road pro9ect are reasonably necessary to the

manufacture of cement by TIEEI $and they do not appear to be so%, then the approval of the said pro9ects by a ma9ority of the Board of &irectors and the ratification of such approvalby the stocholders representing at least -; of the outstanding capital stoc would benecessary.

As for the 'uarry operations for limestone, the same is an indispensable ingredient in themanufacture of cement and may, therefore, be considered reasonably necessary toaccomplish the primary purpose of TIEEI. In such case, only the approval of the Board of &irectors would be necessary.

-. a% The procedure in securing the approval of the Board of &irectors is as follows*i% A notice of meeting of the Board should be sent to all the directors. The notice

should state the purpose of the meeting.ii% At the meeting, each of the pro9ect should be approved by a ma9ority of the Board

$not merely a ma9ority of those present at the meeting%.

b% The procedure in securing the approval of the stocholders is as follows*i% 6ritten notice of the proposed investment and the time and place of the

stocholders! meeting should be sent to each stocholder at his place of residenceas shown on the boos of the corporation and deposited to the addressee in the postoffice with postage prepaid, or served personally.

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ii% At the meeting, each of the pro9ects should be approved by the stocholdersrepresenting at least -; of the outstanding capital stoc.

Q"es#$%n N%& *!8obert, 8ey and Ben eecuted a 9oint venture agreement to form a close corporation

under the Corporation Code the outstanding capital stoc of which the of them would e'uallyown. They also provided therein that any corporate act would need the vote of >/K of theoutstanding capital stoc. The terms of the agreement were accordingly implemented and thecorresponding close corporation was incorporated. After years, 8obert, 8ey and Ben could notagree on the business in which to invest the funds of the corporation. 8obert wants thedeadloc broen.

1. 6hat are the remedies available to 8obert under the Corporation Code to brea thedeadloc) plain.

-. Are there any remedies to prevent the paraly:ation of the business available to 8obertunder "& 2/-@A while the petition to brea the deadloc is pending litigation) plain.

Answer *1. 8obert can petition the C to arbitrate the dispute, with such powers as provided in the

Corporation Code.-. The C can appoint a rehabilitation receiver or a management committee.

Q"es#$%n N%& +!=n =ctober 1-, 122, Chelsea traights $CLA%, a corporation engaged in the

manufacture of cigarettes, ordered from #oises Lim -,/// bales of tobacco. CLA issuedto #oises Lim - crossed checs postdated #arch 1?, 122< and April 1?, 122< in full paymenttherefor. =n Danuary 12, 122< #oises Lim sold to &ragon Investment ouse $&8AF=3% at adiscount the - checs drawn by CLA in his favor.

#oises Lim failed to deliver the bales of tobacco as agrees despite CLA!s demand.Conse'uently, on #arch 1, 122< CLA issued a 4stop payment5 order on the - checsissued to #oises Lim. &8AF=3, claiming to be a holder in due course, filed a complaint for collection against CLA for the value of the checs.

8ule on the complaint of &8AF=3. Five your legal basis.

Answer *&8AF=3 cannot collect from CLA. The instruments are crossed checs which

were intended to pay for the -,/// bales of tobacco to be delivered by #oises Lim. It wastherefore the obligation of &8AF=3 to in'uire as to the purpose of the issuance of the -

crossed checs before causing them to be discounted. 7ailure on its part to mae such in'uiry,which resulted in its bad faith, &8AF=3 cannot claim to be a holder in due course. #oreover,the checs were sold, not endorsed, by him to &8AF=3 which did not become a holder in duecourse. 3ot being a holder in due course, &8AF=3 is sub9ect to the personal defense on thepart of CLA concerning the breach of trust on the part of #oises Lim in not complying withhis obligation to deliver the -,/// bales of tobacco.

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Q"es#$%n N%& ,! Ale issued a negotiable promissory note $"3% payable to Benito or order in payment of

certain goods. Benito indorsed the "3 to Celso in payment of an eisting obligation. Later Alefound the goods to be defective. 6hile in Celso!s possession the "3 was stolen by &ennis whoforged Celso!s signature and discounted it with dgar, a money lender who did not maein'uiries about the "3. dgar indorsed the "3 to 7eli, a holder in due course. 6hen 7eli

demanded payment of the "3 from Ale the latter refused to pay. &ennis could no longer belocated.

1. 6hat are the rights of 7eli, if any, against Ale. Bento, Celso and dgar) plain.-. &oes Celso have nay right against Ale, Benito and 7eli) plain.

Answer *1. 7eli has no right to claim against Ale, Benito and Celso who are parties prior to the forgery

of Celso!s signature by &ennis. "arties to an instrument who are such prior to the forgerycannot be held liable by any party who became such at or subse'uent to the forgery.owever, dgar, who became a party to the instrument subse'uent to the forgery and whoindorsed the same to 7eli, can be held liable by the latter.

-. Celso has the right to collect from Ale and Benito. Celso is a party subse'uent to the two.owever, Celso has no right to claim against 7eli who is a party subse'uent to Celso.

Q"es#$%n N%& -!un@#oon Insurance issued a "ersonal Accident "olicy to enry &y with a face value of

"?//,///. A provision in the policy states that 4the company shall not be liable in respect of bodily in9ury conse'uent upon the insured person attempting to commit suicide or willfullyeposing himself to needless peril ecept in an attempt to save human life5. months later,enry died of a bullet wound in his head. Investigation showed that one evening enry was in ahappy mood although he was not drun. e was playing with his handgun from which he had

previously removed its maga:ine. e pointed the gun at his sister who got scared. e assuredher it was not loaded. e then pointed the gun at his temple and pulled the trigger. The gun firesand enry slumped dead on the floor.

enry!s wife, Beverly, as the designated beneficiary, sought to collect under the policy.un@#oon re9ected her claim on the ground that the death of enry was not accidental. Beverlysued the insurer.

&ecide. &iscuss fully.

Answer *Beverly can recover the proceeds of the policy from the insurer. The death of the insured

was not due to suicide or willful eposure to needless peril which are the ecepted riss. Theinsured!s act was purely on act of negligence which is covered by the policy and for which theinsured got the insurance for his protection. In fact, he removed the maga:ine from the gun andwhen he pointed the gun to his temple he did so because he thought that it was safe for him todo so. e did so to assure his sister that the gun was harmless. There is none in the policy thatwould relieve the insurer of liability for the death of the insured since the death was an accident.

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Q"es#$%n N%& .!ouse of "i::a $"IGGA% is the owner and operator of a nationwide chain of pi::a outlets.

ouse of Li'uor $LI0=8% is a retailer of all inds of li'uor.

ouse of 7oods $7==&% has offered to purchase all of the outlets, e'uipment, fituresand furniture of "IGGA. 7==& also offered to purchase from LI0=8 all of its moderately

priced stoc constituting ?/K of its total inventory.

Both "IGGA and LI0=8 have creditors. 6hat legal re'uirements must "IGGA andLI0=8 comply with in order for 7==& to consummate the transactions) &iscuss fully.

Answer *"IGGA and LI0=8 must prepare an affidavit stating the names of all their creditors,

their addresses, the amounts of their credits and their respective maturities. "IGGA and LI0=8must submit said affidavit to 7==& which, in turn, should notify the creditors about thetransaction which is about to be concluded with "IGGA and LI0=8.

Q"es#$%n N%& 10!1. &istinguish between suspension of payments and insolvency.-. &istinguish between voluntary insolvency and involuntary insolvency.

Answer!

1. In suspension of payments, the debtor is not insolvent. e only needs time within which toconvert his asset;s into cash with which to pay his obligations when they fall due. In the caseof insolvency, the debtor is insolvent, that is, his assets are less than his liabilities

-. In voluntary insolvency, it is the debtor himself who files the petition for insolvency, while ininvoluntary insolvency, at least creditors are the ones who file the petition for insolvency

against the insolvent debtor.

Q"es#$%n N%& 11!#ichael withdrew authority funds of the partnership in the amounts of "?//,/// and

used 0O?/,/// for services he claims he rendered for the benefit of the partnership. edeposited the "?//,/// in his personal peso current account with "rosperity Ban and the0O?/,/// in his personal foreign currency savings account with astern Ban.

The partnership instituted an action in court against #ichael, "rosperity Ban andastern Ban to compel #ichael to return the sub9ect funds to the partnership and pendinglitigation to order both bans to disallow any withdrawal from his accounts.

At the initial hearing of the case the court ordered "rosperity Ban to produce therecords of #ichaels!s peso current account, and astern Ban to produce the records of hisforeign currency savings account.

Can the court compel "rosperity Ban and astern Ban to disclose the ban depositsof #ichael) &iscuss fully.

Answer!

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+es, as far as the peso account is concerned. ection - of 8A 3o. 1</? allows thedisclosure of ban deposits in case where the money deposited is the sub9ect matter of thelitigation. ince the case filed against #ichael is aimed at recovering the amount he withdrewfrom the funds of the partnership, which amount he allegedly deposited in his account, adisclosure of his ban deposits would be proper.

3o, with respect to the foreign currency account. 0nder the 7oreign Currency Law, theeemption to the prohibition against disclosure of information concerning ban deposits is thewritten consent of the depositor.

Q"es#$%n N%& 12!Flobal EL #alaysia $FL=BAL%, a 1//K #alaysian@owned corporation, desires to build a

hotel beach resort in amal Island, &avao City, to tae advantage of the increased traffic of tourists and boost the tourism industry of the "hilippines.

1. Assuming that FL=BAL has 0O1// #illion to invest in a hotel beach resort in the"hilippines, may it be allowed to ac'uire the land on which to build the resort) If so, under

what terms and conditions may FL=BAL ac'uire the land) &iscuss fully.-. #ay FL=BAL be allowed to manage the hotel beach resort) plain.. #ay FL=BAL be allowed to operate restaurants within the hotel beach resort) plain.

Answer *1. FL=BAL can secure a lease on the land. As a corporation with a #alaysian nationality,

FL=BAL cannot own the land.-. +es, FL=BAL can manage the hotel beach resort. There is no law prohibiting it from

managing a resort.. FL=BAL may be allowed to operate restaurants within the beach resort. This is part of the

operation of the resort.

Q"es#$%n N%& 13!1. Two vessels coming from opposite directions collided with each other due to fault imputable

to both. 6hat are the liabilities of the two vessels with respect to the damage caused tothem and their cargoes) plain.

-. If it cannot be determined which of the vessels was at fault resulting in the collision, whichparty should bear the damage caused to the vessels and the cargoes) plain.

. 6hich party should bear the damage to the vessels and the cargoes if the cause of thecollision was a fortuitous event) plain.

Answer!1. ach vessel must bear its own damage. Both of them are at fault.

-. ach of them should bear their respective damages. ince it cannot be determined as towhich vessel is at fault. This is under the doctrine of 4inscrutable fault5.

. 3o party shall be held liable since the cause of the collision is fortuitous event. The carrier isnot an insurer.

Q"es#$%n N%& 14!

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#. &i:on Trucing $&IG=3% entered into a hauling contract with 7airgoods Corporation$7AI8F==&% whereby the former bound itself to haul the latter!s -,/// sacs of soya beanmeal from #anila "ort Area to Calamba, Laguna. To carry out faithfully its obligation &IG=3subcontracted with nrico 8eyes the delivery of <// sacs of the soya bean meal. Aside fromthe driver, three male employees of 8eyes rode on the truc with the cargo. 6hile the truc wason its way to Laguna two strangers suddenly stopped the trucs and hi9aced the cargo.

Investigation by the police disclosed that one of the hi9acers was armed with a bladed weaponwhile the other was unarmed. 7or failure to deliver the <// sacs, 7IA8F==& sued &i:on for damages. &IG=3 in turn set up a third@party complaint against 8eyes which the latter resistedon the ground that the loss was due to force ma9eure.

&id the hi9acing constitute force ma9eure to eculpate 8eyes from any liability to&IG=3) &iscuss fully.

Answer *3o. the hi9acing in this case cannot be considered force ma9eure. =nly one of the two

hi9acers was armed with a bladed weapon. As against < male employees of 8eyes, - hi9acers,with only one of them being armed with a bladed weapon, cannot be considered force ma9eure.

The hi9acers did not act with grave or irresistible threat, violence or force.

Q"es#$%n N%& 1*!1. 6hat intellectual property rights are protected by copyright)-. olid Investment ouse $=LI&% commissioned #on Blanco and his son teve, both noted

artist, to paint a mural for the #ain Lobby of the new building of =LI& for a contract price of "- #.

a% 6ho owns the mural) plain.b% 6ho owns the copyright of the mural) plain.

Answer!1. ection ? of "& <2 provides that Copyright shall consist the eclusive right*

a% To print, reprint, publish, copy, distribute, multiply, sell and mae photographs, photoengravings, and pictorial illustrations of the worsJ

b% To mae any translation or other version or etracts or arrangements or adaptationthereofJ to dramati:e if it be a non@dramatic worJ to convert it into a non@dramatic wor if it be a dramaJ to complete or eecute if it be a model or designJ

c% To ehibit, perform, represent, produce, or reproduce the wor in any manner or by anymethod whatever for profit or otherwiseJ if not reproduced in copies for sale, to sell anymanuscripts or any record whatsoever thereofJ

d% To mae any other use or disposition of the wor consistent with the laws of the land.

-. a% =LI& owns the mural. =LI& was the one who commissioned the artists to do the worand paid for the wor in the sum of "- #.

b% 0nless there is a stipulation to the contrary in the contract, the copyright shall belong in 9oint ownership to =LI& and #on Blanco and his son teve.

Q"es#$%n N%& 1+!

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#ario Fu:man issued to onesto antos a chec for "?/,/// as payment for a second@hand car. 6ithout the nowledge of #ario, onesto changed the amount to "1?/,/// whichalteration could not be detected by the naed eye. onesto deposited the altered chec withhure Ban which forwarded the same to "rogressive Ban for payment. "rogressive Banwithout noticing the alteration paid the chec, debiting "1?/,/// from the account of #ario.onesto withdrew the amount of "1?/,/// from hure Ban and disappeared. After receiving

his ban statement, #ario discovered the alteration and demanded restitution from "rogressiveBan.

&iscuss fully the rights and liabilities of the parties concerned.

Answer *The demand of #ario for restitution of the amount of "1?/,/// to his account is tenable.

"rogressive Ban has no right to deduct said amount from #ario!s account since the order of #ario is different. #oreover, "rogressive Ban is liable for the negligence of its employees innot noticing the alteration which, though it cannot be detected by the naed eye, could bedetected by a magnifying instrument used by tellers.

As between "rogressive Ban and hure Ban, it is the former that should bear the loss."rogressive Ban failed to notify hure Ban that there was something wrong with the checwithin the clearing hour rule of -< hours.

1..4 BAR EXAMINATION

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Q"es#$%n N%&1!1. 6hat is your understanding of a 4no fault indemnity5 clause found in an insurance policy)-. &istinguish co@insurance from re@insurance.. In letters of credit in baning transactions, distinguish the liability of a confirming ban from a

notifying ban.

Answer *1. 0nder the 4no fault indemnity5 clause any claim for the death or in9ury of any passenger or

third party shall be paid without the necessity of proving fault or negligence of any ind. Theindemnity in respect of any one person shall not eceed "1?,///, provided they are under oath, the following proofs shall be sufficient*

a% "olice report of the accidentJ andb% &eath certificate and evidence sufficient to establish the proper payeeJ or c% #edical report and evidence of medical or hospital disbursement in respect of which

refund is claimed.

Claim may be made against one motor vehicle only.

-. Co@insurance is the percentage in the value of the insured property which the insuredhimself assumes or undertaes to act as insurer to the etent of the deficiency in theinsurance of the insured property. In case of loss or damage, the insurer will be liable onlyfor such proportion of the loss or damage as the amount of insurance bears to thedesignated percentage of the full value of the property insured.

8einsurance is where the insurer procures a third party, called the reinsurer, to insure himagainst liability by reason of such original insurance. Basically, a reinsurance is an insuranceagainst liability which the original insurer may incur in favor of the original insured.

. In case anything wrong happens to the letter of credit, a confirming ban incurs liability for the amount of the letter of credit, while a notifying ban does not incur any liability.

Q"es#$%n N%& 2!1. Five a case where a person who is not an issuing corporation, director or officer thereof, or

a person controlling, controlled by or under common control with the issuing corporation, isalso considered an 4insider5.

-. In ecurities Law, what is a 4shortswing5 transaction.. In 4insider trading5, what is a 4fact of special significance5)

Answer *1. It may be a case where a person, whose relationship or former relationship to the issuer

gives or gave him access to a fact of special significance about the issuer or the securitythat is not generally available, or a person, who learns such a fact from any of the insiders,with nowledge that the person from whom he learns the fact, is such an insider.

-. A 4shortswing5 is a transaction where a person buys securities and sells or disposes of thesame within a period of months.

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. In 4insider trading5, a 4fact of special significance5 is, in addition to being material, such factas would liely, on being made generally available, to affect the maret price of a security toa significant etent, or which a reasonable person would consider as especially importantunder the circumstances in determining his course of action in the light of such factors asthe degree of its specificity, the etent of its difference from information generally available

previously, and its nature and reliability.

Q"es#$%n N%& 3!"o "ress issued in favor of Dose a postdated crossed chec, in payment of newsprint

which Dose promised to deliver. Dose sold and negotiated the chec to cel Inc. at a discount.cel did not as Dose the purpose of crossing the chec. ince Dose failed to deliver thenewsprint, "o ordered the drawee ban to stop payment on the chec.

fforts of cel to collect from "o failed. cel wants to now from you as counsel*

1. 6hat are the effects of crossing a chec)

-. 6hether as second indorser and holder of the crossed chec, is it a holder in duecourse)

. 6hether "o!s defense of lac of consideration as against Dose is also available asagainst cel)

Answer *1. The effects of crossing a chec are*

a% The chec is for deposit only in the account of the payee.b% The chec may be indorsed only once in favor of a person who has an account with the

ban.c% The chec is issued for a specific purpose and the person who taes it not in accordance

with said purpose does not become a holder in due course and is not entitled to paymentthereunder.

-. 3o. It is a crossed chec and cel did not tae it in accordance with the purpose for whichthe chec was issued. 7ailure on its part to in'uire as to said purpose, prevented cel frombecoming a holder in due course, as such failure or refusal constituted bad faith.

. +es. 3ot being a holder in due course, cel is sub9ect to the personal defense which "o"ress can set up against Dose.

Q"es#$%n N%& 4!

Femma drew a chec on eptmeber 1, 122/. The holder presented the chec to thedrawee ban only on #arch ?, 122<. The ban dishonored the chec on the same date. After dishonor by the drawee ban, the holder gave a formal notice of dishonor to Femma through aletter dated April ->, 122<.

1. 6hat is meant by 4unreasonable time5 as applied to presentment)-. Is Femma liable to the holder)

Answer *

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1. As applied to presentment for payment, 4reasonable time5 is meant not more than monthsfrom the date of issue. Beyond said period, it is 4unreasonable time5 and the chec becomesstale.

-. 3o. Aside from the chec being already stale, Femma is also discharged from liability under the chec, being a drawer and a person whose liability is secondary, this is due to the givingof the notice of dishonor beyond the period allowed by law. The giving of notice of dishonor

on April ->, 122< is more than 1 month from #arch ?, 122< when the chec wasdishonored. ince it is not shown that Femma and the holder resided in the same place, theperiod within which to give notice of dishonor must be the same time that the notice wouldreach Femma if sent by mail.

Q"es#$%n N%& *!Celeste, a domestic corporation wholly owned by 7ilipino citi:ens, is engaged in trading

and operates as general contractor. It buys and resells the products of #atilde, a domesticcorporation, 2/K of whose capital stoc is owned by aliens. All of #atilde!s goods are made inthe "hilippines from materials found or produced in the "hilippines.

=n the other hand, C Integrated is a 1//K 7ilipino@owned corporation andmanufacturer of asbestos products.

Celeste and C too part in a public bidding conducted by #6 for its asbestos pipere'uirements. Celeste won the bid, having offered 1K lower than that offered by CJ and#6 awarded the contract to supply its asbestos pipes to Celeste. C sought to nullify theaward in favor of Celeste.

1. Is Celeste barred under the 7lag Law from taing part in bidding to supply thegovernment)

-. &id Celeste and #atilde violate the Anti@&ummy Law). &id Celeste and #atilde violate the 8etail Trade 3ationali:ation Law) plain.

Answer *1. 3o. The materials offered in the bids submitted are made in the "hilippines from articles

produced or grown in the "hilippines, and the bidder, Celeste, is a domestic entity. The 7lagLaw does not apply. It can be invoed only against a bidder who is not a domestic entity, or against a domestic entity who offers imported materials.

-. 3o, since Celeste is merely a dealer of #atilde and not an alter ego of the latter. Celestebuys and sells on its own account the products of #atilde.

. #atilde did not violate the 8etail Trade Law since it does not sell its products to consumers,but to dealers who resell them. 3either did Celeste violate the 8etail Trade Law since, in thefirst place, it is not prohibited to engage in retail trade. Besides, #atilde!s sale of theasbestos products to Celeste, being wholesale, the transaction is not covered by the 8etail

Trade Law.

Q"es#$%n N%7 +!tanrus, Inc., a department store with outlets in #aati, #andaluyong and ue:on City,

is contemplating to refurbish and renovate its #aati store in order to introduce the mostmodern and state of the art e'uipment in merchandise display. To carry out its plan, it intends tosell ALL of the eisting fitures and e'uipment $display cases, wall decoration, furniture,

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counters, etc.% to Crossroads &epartment tore. Thereafter, it will buy and install new fituresand e'uipment and continue operations.

Crossroads wants to now from you, as counsel*1. 6hether the intended sale is 4bul sale5.-. ow can it protect itself from future claims of creditors of tanrus.

Answer *1. +es. The sale involves all fitures and e'uipment, not in the ordinary course of trade and the

regular prosecution of business of tanrus, Inc.

-. Crossroads should re'uire from tanrus, Inc. submission of a written waiver of the Bulales Law by the creditors as shown by verified statements or to comply with there'uirements of the Bul ales Law, that is, the seller must notify his creditors of the termsand conditions of the sale, and also, before receiving from the vendee any part of thepurchase price, deliver to such vendee a written sworn statement of the names andaddresses of all his creditors together with the amount of indebtedness due to each.

Q"es#$%n N%& ,!In a civil suit, the Court ordered Ben9ie to pay 3at "?//,///. To eecute the 9udgment,

the sheriff levied upon Ben9ie!s registered property $a parcel of land and the building thereon%,and sold the same at public auction to 3at, the highest bidder. The latter, on #arch 1H, 122-,registered with the 8egister of &eeds the certificate of sale issued to him by the sheriff.#eanwhile, on Danuary ->, 122, Ben9ie insured with Farapal Insurance for "1 # the samebuilding that was sold at public auction to 3at. Ben9ie failed to redeem the property by #arch 1H,122.

=n #arch 12, 122, a fire ra:ed the building to the ground. Farapal Insurance refused tomae good its obligation to Ben9ie under the insurance contract.

1. Is Farapal Insurance legally 9ustified in refusing payment to Ben9ie)-. Is 3at entitled to collect on the insurance policy)

Answer *1. +es. At the time of the loss, Ben9ie was no longer the owner of the property insured as he

failed to redeem the property. The law re'uires in property insurance that a person canrecover the proceeds of the policy if he has insurable interest at the time of the issuance of the policy and also at the time when the loss occurs. At the time of fire, Ben9ie no longer hadinsurable interest in the property insured.

-. 3o. 6hile at the time of the loss he has insurable interest in the building, as he was the

owner thereof, 3at did not have any interest in the policy. There was no automatic transfer clause in the policy that would give him such interest in the policy.

Q"es#$%n N%& -!8aul!s truc bumped the car owned by Lu:. The car was insured by Cala Insurance. 7or

the damage caused, Cala paid Lu: "?,/// in amicable settlement. Lu: eecuted a releaseclaim, subrogating Cala to all her rights against 8aul. 6hen Cala demanded reimbursement

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from 8aul, the latter refused saying that he had already paid Lu: "<,?// for the damage to thecar as evidenced by a release of claim eecuted by Lu: discharging 8aul.

o Cala demanded reimbursement from Lu:, who refused to pay, saying that the totaldamage to the car was "2,?//. ince Cala paid "?,/// only, Lu: contends that she was entitledto go after 8aul to claim the additional "<,?//.

1. Is Cala, as subrogee of Lu:, entitled to reimbursement from 8aul)-. #ay Cala recover what it has paid Lu:)

Answer *1. 3o. Lu: eecuted a release in favor of 8aul.-. +es. Cala lost its right against 8aul because of the release eecuted by Lu:. ince the

release was made without the consent of Cala, Cala may recover the amount of "?,///.

Q"es#$%n N%& .!=n eptember -, 122/, Tan too a life insurance policy from "hilam. The policy was

issued on 3ovember , 122/. e died on April -, 122- of hepatoma. The insurance companydenied the beneficiaries! claim and rescinded the policy by reason of alleged misrepresentationand concealment of material facts made by Tan in his application. It returned the premiums paid.

The beneficiaries contend that the company had no right to rescind the contract asrescission must be done 4during the lifetime5 of the insured within - years and prior to thecommencement of the action.

Is the contention of the beneficiaries tenable)

Answer *3o. The incontestability clause does not apply. The insured died within less than - years

from the issuance of the policy on eptember -, 122/. The insured died on April -, 122-, or less than - years from eptember -, 122/.

The right of the insurer to rescind is only lost if the beneficiary has commenced an actionon the policy. There is no such action in this case.

Q"es#$%n N%& 10!#ariter, a paying bus passenger, was hit above her left eye by a stone hurled at the bus

by an unidentified bystander as the bus was speeding through the 3ational ighway. The busowner!s personnel lost no time in bringing #ariter to the provincial hospital where she wasconfined and treated.

#ariter wants to sue the bus company for damages and sees your advice whether shecan legally hold the bus company liable)

Answer!#ariter cannot legally hold the bus company liable. There is no showing that any such

incident previously happened so as to impose an obligation on the part of the personnel of thebus company to warn the passengers and to tae the necessary precaution. uch hurling of astone constitutes fortuitous event in this case. The bus company is not an insurer.

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Q"es#$%n N%& 11!Toni, a copra dealer, loaded 1,/// sacs of copra on board the vessel #; Tonichi $a

common carrier engaged in coastwise trade owned by Ichi% for shipment from "uerto Falera to#anila.

The cargo did not reach #anila because the vessel capsi:ed and san with all its cargo.

6hen Toni sued Ichi for damages based on breach of contract, the latter invoed the4limited liability rule5

1. 6hat do you understand of the 4rule5 invoed by Ichi)-. Are there eceptions to the 4limited liability rule5

Answer *1. By 4limited liability rule5 is meant that the liability of a ship owner for damages in case of loss

is limited to the value of the vessel involved. is other properties cannot be reached by the

parties entitled to damages.

-. +es. 6hen the ship owner of the vessel involved is guilty of negligence, the 4limited liabilityrule5 does not apply. In such case, the ship owner is liable to the full etent of the damagessustained by the aggrieved parties.

Q"es#$%n N%& 12! Angelene is a customer of #eralco lectric Company $#C=%. Because of the abrupt

rise of the electricity rates. Angelene complained with #C= insisting that she should becharged the former rates. owever, Angelene did not tender any payment.

6hen #C=!s employees served the first <H@hour notice of disconnection, Angeleneprotested. #C=, however, did not implement the <H@hour notice of disconnection. Instead, itsemployees eamined Angelene!s electric meter, changed the same, and installed another. till,

Angelene made no tender of payment.

#C= served a second <H@hour notice of disconnection on Dune --, 12H<. It gave Angelene until ?*//pm of Dune -?, 12H<, within which to pay. As no payment had been made,#C= cut Angelene!s electric service on Dune -H, 12H<.

Angelene contends that the <H@hour written notice of disconnection rule cannot beinvoed by #C= when there is a bona fide and 9ust dispute as to the amount due as her electric consumption rate.

Is Angelene!s contention valid)

Answer *3o. Angelene!s only legal recourse in this case was to pay the electric bill under protest.

er failure to do so 9ustified #eralco to cut the electric service.

Q"es#$%n N%& 13!

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A corporation was created by a special law. Later, the law creating it was declaredinvalid. #ay such corporation claim to be a de facto corporation)

Answer!3o. a private corporation may be created only under the Corporation Code. =nly public

corporation may be created under a special law.

6here a private corporation is created under a special law, there is no attempt at a validincorporation. uch corporation cannot claim a de facto status.

Q"es#$%n N%& 14!ictor was employed in #AIA Corporation. e subscribed to "1,?// shares of the

corporation at "1// per share or a total of "1?/,///. e made an initial down payment of ">,?//. e was appointed "resident and Feneral #anager. Because of his disagreement withthe Board of &irectors, he resigned and demanded payment of his unpaid salaries, his cost of living allowance, his bonus, and reimbursement of his gasoline and representation epenses.

#AIA Corporation admits that it owed ictor "</,/// but told him that this will be appliedto the unpaid balance of his subscription in the amount of "1//,///. There was no call or noticefor the payment of the unpaid subscription. ictor 'uestioned the set@off.

1. #ay #AIA set@off unpaid subscription with ictor!s claim for salaries)-. 6ould your answer be the same if indeed there had been a call for the unpaid

subscription)

Answer *1. 3o. #AIA cannot set@off the unpaid subscription with ictor!s claim for salaries. The unpaid

subscription is not yet due as there is no call.

-. +es. The reason is that ictor is entitled to the payment of his salaries which #AIA has noright to withhold in payment of unpaid subscription. To do so would violate Labor Laws.

Q"es#$%n N%& 1*!Because of disagreement with the Board of &irectors and a threat by the Board to

epel her for misconduct and inefficiency, Carissa offered in writing to resign as "resident and#ember of the Board of &irectors, and to sell to the company all her shares therein for "//,///. er offer to resign was 4effective as soon as my shares are fully paid5. At its meeting,the Board of &irectors accepted Carissa!s resignation, approved her offer to sell bac her shares of stoc to the company, and promised to buy the stocs on a staggered basis. Carissawas informed of the Board 8esolution in a letter agreement to which she affied her consent.

The Company!s new "resident signed the promissory note. After paying "1//,///, thecompany defaulted in paying the balance of "-//,///.

Carissa wants to sue the Company to collect the balance. If you were retained byCarissa as her lawyer, where will you file the suit) $a% Labor ArbiterJ $b% 8TCJ or $c% C)

Answer *

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a% 3o. the Labor Arbiter has no 9urisdiction. This is not a labor case, involving employer@employee relationship.

b% 3o. The 8TC has no 9urisdiction over this case which involves intra@corporate controversy.

c% +es. The C has 9urisdiction over this case. The case is between a stocholder and a

corporation of which he is a stocholder, and the dispute arose out of such relationship.#oreover, the 'uestion whether or not the transaction falls under the right of appraisal so asto mae the withdrawal legal, properly falls under the C 9urisdiction.

Q"es#$%n N%& 1+!8afael inherited from his uncle 1/,/// shares of ta. Ana Corporation, a close

corporation. The shares have a par value of "1/.// per share. 8afael notified ta. Ana that hewas selling his shares at ">/ per share. There being no taers among the stocholders, 8afaelsold the same to his cousin icente $who is not a stocholder% for ">//,///.

The Corporate ecretary refused to transfer the shares in icente!s name in the

corporate boos because Alberto, one of the stocholders, opposed the transfer on the groundthat the same violated the by@laws. Alberto offered to buy the shares at "1-.?/ per share, asfied by the by@laws or a total price of "1-?,/// only.

6hile the by@laws of ta. Ana provides that the right of first refusal can be eercised 4ata price not eceeding -?K more than the par value of such shares, the Articles of Incorporationsimply provides that the stocholders of record5 shall have preferential right to purchase the saidshares.5 It is silent as to pricing.

Answer *+es. In a close corporation, the restriction as to the transfer of shares has to be stated;

annotated in the Articles of Incorporation, the By@Laws and the certificate of stoc. This serves

as notice to the person dealing with such shares lie 8afael in this case. 6ith such notice, he isbound by the pricing in the By@Laws.

Q"es#$%n N%& 1,!#iguel, a special customs agent is charged before the =mbudman with having ac'uired

property out of proportion to his salary, in violation of the Anti@Fraft and Corrupt "ractices Act.The =mbudsman issued a subpoena duces tecum to the Banco de Cinco commanding itsrepresentative to furnish the =mbudsman records of transactions by or in the name of #iguel,his wife and children. A second subpoena was issued epanding the first by including theproduction of records of friends of #iguel in said ban and in all its branches and etensionoffices, specifically naming them.

#iguel moved to 'uash the subpoenas arguing that they violate the Law on ecrecy of Ban &eposits. In addition, he contends that the subpoenas are in the nature of 4fishingepedition5 or 4general warrants5 and are constitutionally impermissible with respect to privateindividuals who are not under investigation.

Is #iguel!s contention tenable)

Answer *

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3o. #iguel!s contention is not tenable. The in'uiry into illegally ac'uired propertyetends to cases where such property is concealed by being held by or recorded in the name of other persons. To sustain #iguel!s theory and restrict the in'uiry only to property held by or inthe name of the government who illegally ac'uire property an easy means of evadingprosecution. All they have to do would be to simply place the property in the name of personsother than their spouses and children.

Q"es#$%n N%& 1-!The ictoria otel chain reproduces videotapes, distributes the copies thereof to its

hotels and maes them available to hotel guests for viewing in the hotel guest rooms. It chargesa separate normal fee for the use of the videotape player.

1. Can the ictoria otel be en9oined for infringing copyrights and held liable for damages)-. 6ould it mae any difference if ictoria otel does not charge any fee for the use of the

videotape)

Answer *

1. +es. ictoria otel has no right to use such video tapes in its hotel business without theconsent of the creator;owner of the copyright.

-. 3o. The use if the videotapes is for business and not merely for home consumption.

Q"es#$%n N%& 1.!Figi obtained a loan from D=D= Corporation, payable in installments. Figi eecuted a

chattel mortgage in favor of D=D= whereby she transferred 4in favor of D=D=, its successorsand assigns, all her title, rights to a vessel of which FIFI is the absolute owner.5 The chattelmortgage was registered with the "hilippine Coast Fuard pursuant to "& 3o. 1?-1. Figidefaulted and had a total accountability of " #. But D=D= could not foreclose the mortgage onthe vessel because it san during a typhoon.

#eanwhile, Lutang Corporation which rendered salvage for refloating the vessel suedFigi.

6hose lien should be given preference, that of D=D or of Lutang)

Answer *Lutang Corporation!s lien should be given preference. The lien of D=D= by virtue of a

loan on bottomry was etinguished when the vessel san. 0nder such loan on bottomry D=D=acted not only as creditor but also as insurer. D=D=!s right to recover the amount of the loan ispredicated on the safe arrival of the vessel at the port of destination. The right was lost when thevessel san.

Q"es#$%n N%& 20!Laberge, Inc. manufactures and marets after@shave lotion, shaving cream, deodorant,

talcum powder and toilet soap, using the trademar 4"80T5, which is registered with the"hilippine "atent =ffice. Laberge does not manufacture briefs and underwear and these itemsare not specified in the certificate of registration.

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DF, who manufactures briefs and underwear, wants to now whether, under our laws, hecan use and register the trademar 4"80T5 for his merchandise. 6hat is your advice)

Answer *+es. The trademar registered in the name of Laberge, Inc. covers only after@shave

lotion, shaving cream, deodorant, talcum powder and toilet soap. It does not cover briefs and

underwear.

The limit of the trademar is stated in the certificate issued to Laberge, Inc. It doesinclude briefs and underwear which are different products protected by Laberge!s trademar.

DF can register the trademar 4"80T5 to cover its briefs and underwear.


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Q"es#$%n N%& 1!&iscuss the negotiability or non@negotiability of the following notes*

1. #anila, eptember 1, 122

"-,?//.//I promise to pay "edro an Duan or order the sum of "-,?//.//

$gd.% 3=L CAT8=

-. #anila, Dune , 122"1/,///.//

7or value received, I promise to pay ergio &ee or order the sum of "1/,///.//in five $?% installments, with the first installment payable on =ctober ?, 122 and theother installments on or before the fifth day of the succeeding month thereafter.

$gd.% LIT= ILLA

Answer *1. The promissory note is negotiable as it complies with ec. 1, 3IL.

7irstly, it is in writing and signed by the maer, 3oel Castro.

econdly, the promise is unconditional to pay a sum certain in money, that is, "-,?//.//

Thirdly, it is payable on demand as no date of maturity is specified.

7ourth, it is payable to order.

-. The promissory note is not negotiable. All the re'uirements of ec. 1, 3IL, are compliedwith. The sum to be paid is still certain despite that the sum is to be paid by installments.

Q"es#$%n N%& 2!Larry issued a negotiable promissory note to velyn and authori:ed the latter to fill up

the amount in blan with his loan account in the sum of "1,///. owever, velyn inserted"?,/// in violation of the instruction. he negotiated the note to Dulie who had nowledge of theinfirmity. Dulie in turn negotiated said note to &evi for value and who had no nowledge of theinfirmity.

1. Can &evi enforce the note against Larry and if she can, for how much) plain.-. upposing &evi endorses the note to Baby for value but who has nowledge of the

infirmity, can the latter enforce the note against Larry)

Answer *1. +es. &evi can enforce the negotiable promissory note against Larry in the amount of "?,///.

&evi is a holder in due course and the breach of trust committed by velyn cannot be set upby Larry against &evi because it is a personal defense. As a holder in due course, &evi isnot sub9ect to such personal defense.

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-. +es. Baby is not a holder in due course because she had nowledge of the breach of trustcommitted by velyn against Larry which is 9ust a personal defense. But having taen theinstrument from &evi, a holder in due course, Baby has all the rights of a holder in duecourse. Baby did not participate in the breach of trust committed by velyn who filled theblan but filled up the instrument with "?,/// instead of "1,/// as instructed by Larry.

Q"es#$%n n%& 3!Duan y purchased from 4A5 Appliance center 1 generator set on installment with the

chattel mortgage in favor of the vendor. After getting hold of the generator set, Duan yimmediately sold it without consent of the vendor. Duan y was criminally charged with estafa.

To settle the case etra@9udicially, Duan y paid the sum of "-/,/// and for the balanceof "?,///, he eecuted a promissory note for said amount with Ben Lope: as anaccommodation party. Duan y failed to pay the balance.

1. 6hat is the liability of Ben Lope: as an accommodation party) plain.

-. 6hat is the liability of Duan y)

Answer!1. Ben, as an accommodation party, is liable as maer to the holder up to the sum of "?,///

even if he did not receive any consideration for the promissory note. This is the nature of accommodation. But Ben can as for reimbursement from Duan, the accommodated party.

-. Duan is liable to the etent of "?,/// in the hands of a holder in due course. If Ben paid thepromissory note, Duan has the obligation to reimburse Ben for the amount paid. If Duan paysdirectly to the holder of the promissory note, or he pays Ben for the reimbursement of thepayment by the latter to the holder, the instrument is discharged.

Q"es#$%n N%& 4!=n =ctober 1/, 12H1, B borrowed from C the sum of "1.? #. To hedge against the

depreciation of the "hilippine "eso, it was stipulated in the promissory note eecuted by B infavor of C that the loan shall be paid in 0 dollars at the echange rate prevailing on the datethe obligation was incurred, plus interest at 1-K per annum.

1. Is the stipulation valid) plain.-. Assuming that the stipulation is invalid, does the obligation to pay subsist) ow should it

be discharged)

Answer *1. 3o. The obligation was incurred in the "hilippines. ence, the 0niform Currency Law, which

re'uires payment in the "hilippine currency, applies.

-. +es. It should be discharged in "hilippine pesos at the rate of echange prevailing at thetime of payment.

Q"es#$%n N%& *!

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In the annual meeting of the 4M+G5 Corporation, the stocholders unanimously adopted aresolution proposed by the Board of &irectors to sell substantially all the fitures and e'uipmentused in and about its business. The "resident of the Corporation approached you and ased for legal assistance to effect the sale.

1. 6hat steps should you tae so that the sale may be valid)

-. 6hat are two instances when the sale, transfer, mortgage or assignment of stoc of goods, wares, merchandise, provision, or materials otherwise than in the ordinary courseof trade and the regular prosecution of the business of the vendor are not deemed to bea sale or transfer in bul)

Answer!1. The re'uirements of the Bul ales Law must be complied with. The seller delivers to the

purchaser a list of his creditors and the purchaser in turn notifies such creditors of theproposed sale at a stipulated time in advance.

-. If the sale and transfer is made $1% by vendor, mortgagor, transferor or assignor whoproduces and delivers a written waiver of the provisions of the Bul ales Law from his

creditors as shown by verified statementJ and $-% by a vendor, mortgagor, receiver, assigneein insolvency, or public officer acting under 9udicial process, the sale or transfer is notcovered by the Bul ales Law.

Q"es#$%n N%& +!1. 4A5 invested "?//,// in a security agency on =ctober /, 122/. e was charged with

being a dummy of his friend, a foreigner. If you were the prosecutor, what evidence canyou present to prove violation of the Anti@&ummy Law)

-. Duana de la Cru:, a common@law wife of a foreigner wrested the control of a televisionfirm. At the instance of the minority group of the firm, she was charged with violation of

the Anti@&ummy Law. #ay she be convicted by the mere fact that she is a common@lawwife of a foreigner) plain.

Answer!1. 4A5 allows or permits the use or eploitation or en9oyment of a right, privilege or business,

the eercise of en9oyment of which is epressly reserved by the Constitution or the laws tociti:ens of the "hilippines, by the foreigner not possessing the re'uisites prescribed by theConstitution or the laws of the "hilippines. The prosecutor should prove the above elementsof the crime and also the facts that 4A5 does not have the means and resources to invest"?//,/// in the security agency.

-. 3o. The mere fact of being a common@law wife of a foreigner does not bring her within the

ambit of the Anti@&ummy law.

Q"es#$%n N%& ,! A foreign firm is engaged in the business of manufacturing and selling rubber products to

dealers who in turn sell them to others. It also sells directly to agricultural enterprises,automotive assembly plants, public utilities which buy them in large bul, and to its officers andemployees.

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1. Is there a violation of the 8etail Trade Law) plain.-. #ay said firm operate a canteen inside the premises of its plant eclusive for its officials

and employees without violating the 8etail Trade Act) plain.

Answer!1. =n the assumption that the foreign firm is doing business in the "hilippines, the sale to the

dealers of agricultural enterprises, automotive assembly plants, and public utilities iswholesale and, therefore, not in violation of the 8etail Trade Act.

-. +es. The operation of the canteen inside the premises eclusively for its officers andemployees, would amount to an input in the manufacturing process and, therefore, does notviolate the 8etail Trade Act.

Q"es#$%n N%& -!B agreed to sell to AC, a hip and #erchandise Broer, -,?// cubic meters of logs at

O-> per cubic meter 7=B. After inspecting the logs, C& issued a purchase order.

=n the arrangements made upon instruction of the consignee, ZT Corporation of Los Angeles, California, the " Ban of Los Angeles issued an irrevocable letter of credit availableat sight in favor of B for the total purchase price of the logs. The letter of credit provided thatthe draft to be drawn is on " Ban and that it be accompanied by, among other things, acertification from AC, stating that the logs have been approved prior to shipment in accordancewith the terms and conditions of the purchase order.

Before loading on the vessel chartered by AC, the logs were inspected by custominspectors and representatives of the Bureau of 7orestry, who certified to the good conditionand eportability of the logs. After the loading was completed, the Chief #ate of the vesselissued a mate receipt of the cargo which stated that the logs are in good condition. owever, ACrefused to issue the re'uired certification in the letter of credit. Because of the absence of the

certification, 7 Ban refused to advance payment on the letter of credit.

1. #ay 7 Ban be held liable under the letter of credit) plain.-. 0nder the facts stated above, the seller, B, argued that 7 Ban, by accepting the

obligation to notify him that the irrevocable letter of credit. Conse'uently, 7 Ban isliable under the letter of credit. Is the argument tenable) plain.

Answer *1. 3o. The letter of credit provide as a condition a certification from AC. 6ithout such

certification, there is no obligation on the part of 7 Ban to advance payment of the letter of credit.

-. 3o. 7 Ban may have confirmed the letter of credit when it notified B, that an irrevocableletter of credit has been transmitted to it on its behalf. But the conditions in the letter of creditmust first be complied with, namely, that the draft be accompanied by a certification from

AC. 7urther, confirmation of a letter of credit must be epressed.

Q"es#$%n n%& .!7erdie is a patent owner of a certain invention. e discovered that his invention is being

infringed by Dohann.

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1. 6hat are the remedies available to 7erdie against Dohann)-. If you were the lawyer of Dohann in the infringement suit, what are the defenses that

your client can assert)

Answer!

1. The following are the remedies available to 7erdie against Dohann*

a. ei:e and destroyb. In9unctionc. &amages in such amount may have been obtained from the use of the invention if

properly transacted which can be more than what the infringer $Dohann% received.d. Attorney!s fees and costs.

-. These are the defenses that can be asserted in an infringement suit*

a. "atent is invalidb. "atent is not new or patentable

c. pecification of the invention does not comply with ec.1<d. "atent was issued not to the true and actual inventor, designer or author of the utility

model or the plaintiff did not derive his rights from the true and actual inventor,designer or author of the utility model.

Q"es#$%n N%& 10! Insurance Company issued a "ersonal Accident "olicy to Bob Tan with a face value of

"?//,///.

In the evening of eptember ?, 122-, after his birthday party, Tan was in a happy moodbut not drun. e was playing with his handgun, from which he previously removed the

maga:ine. As his secretary was watching television, he stood in front of her and pointed the gunat her. he pushed it aside and said that it may be loaded. e assured her that it was not andthen pointed it at his temple. The net moment, there was an eplosion and Tan slumped to thefloor lifeless.

The wife of the deceased sought payment on the policy but her claim was re9ected. Theinsurance company agreed that there was no suicide. owever, it was the submission of theinsurance company that there was no accident. In support thereof, it contended $a% that therewas no accident when a deliberated act was performed unless some additional, unepected,independent and unforeseen happening occur which produces or brings about the in9ury or deathJ and $b% that the insured willfully eposed himself to needless peril and thus removedhimself from the coverage of the insurance policy. Are the two contentions of the insurance

company tenable) plain.

Answer!3o. these - contentions of the insurance company are not tenable. The insurer is liable

for in9ury or death even due to the insured!s gross negligence. The fact that the insuredremoved the maga:ine from the handgun means that the insured did not willfully epose himself to needless peril. At most, the insured is only guilty of negligence.

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Q"es#$%n N%& 11!L insured his brand new car with " Insurance Company for comprehensive coverage

wherein the insurance company undertoo to indemnify him against loss or damage to the car $a% by accidental collision $b% by fire, eternal eplosion, burglary, or theft, and $c% maliciousact.

After a month, the car was carnapped while pared in the paring space in front of theIntercontinental otel in #aati. L!s wife who was driving the said car when it was carnappedwas in possession of an epired driver!s license, a violation of the 4authori:ed driver5 clause of the insurance company.

1. #ay the insurance company be held liable to indemnify L for the loss of the insuredvehicle) plain.

-. upposing that the car was brought by L on installment basis and there wereinstallments due and payable before the loss of the car, the vendor demanded from Lthe unpaid balance of the promissory note. L resisted the demand and claimed that hewas only liable for the installments due and payable before the loss of the car but nolonger liable for the other installments not yet due at the time of the loss of the car.

&ecide.

Answer *1. +es. The car was lost due to theft. 6hat applies in this case is the 4theft5 clause, and not the

4authori:ed driver5 clause. It is immaterial that L!s wife was driving the car with an epireddriver!s license at the time it was carnapped.

-. The promissory note is not affected by whatever befalls the sub9ect matter of the accessorycontract. The unpaid balance on the promissory note should be paid and not only theinstallments due and payable before the loss of the car.

Q"es#$%n N%& 12!The City of #anila passed an ordinance banning provincial buses from the city. The

ordinance was challenged as invalid under the "ublic ervice Acct by M who has a certificate of public convenience to operate auto@trucs with fied routes from certain towns in Bulacan and8i:al to #anila and within #anila. 7irstly, he claimed that the ordinance was null and voidbecause, among other things, it in effect amends his certificate of public convenience, a thingwhich only the "ublic ervice Commission can do so under ection 1$m% of the "ublic ervice

Act. 0nder said section, the Commission is empowered to amend, modify or revoe a certificateof public convenience after notice and hearing. econdly, he contended that even if theordinance was valid, it is only the Commission which can re'uire compliance with its provisionsunder ection 1>$9% of said Act and since the implementation of the ordinance was without

sanction or approval of the Commission, its enforcement was unauthori:ed and illegal.

1. #ay the reliance of M on ection 1$m% of the "ublic ervice Act be sustained) plain.-. 6as M correct in his contention that under ection 1> $9% of the public ervice Act it is

only the Commission which can re'uire compliance with the provision of the ordinance)plain.

Answer *

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1. 3o. The power vested in the public ervice Commission under ection 1$m% is subordinateto the authority of the City of #anila under ection 1H$hh% of its revised charter, tosuperintend, regulate or control the streets of the City of #anila.

-. 3o. The powers conferred by law upon the "ublic ervice Commission were not designed or supersede the regulatory power of local governments over motor traffic in the streets sub9ect

to their control.

Q"es#$%n N%& 13!1. 8obert is a holder of a certificate of public convenience to operate a taicab service in

#anila and suburbs. =ne evening, one of his taicab units was boarded by robbers asthey escaped after staging a hold@up. Because of said incident, the LT78B revoed thecertificate of public convenience of 8obert on the ground that said operator failed to render safe, proper and ade'uate service as re'uired under ection 12$a% of the "ublic ervice Act.

a. 6as the revocation of the certificate of public convenience of 8obert 9ustified)plain.

b. 6hen can the Commission $Board% eercise its power to suspend or revoecertificate of public convenience)

-. "epay, a holder of a certificate of public convenience, failed to register the complete number of units re'uired by her certificate. owever, she tried to 9ustify such failure by the accidentsthat allegedly befell her, claiming that she was so shoced and burdened by the successiveaccidents and misfortunes that she did not now what she was doing, she was confusedand thrown off tangent momentarily, although she always has the money and financial abilityto buy new trucs or repair the destroyed one. Are the reasons given by "epay sufficientgrounds to ecuse her from completing her units) plain.

Answer!

1. a% 3o. A single hold@up incident which does not lin 8obert!s taicab cannot be construedthat he rendered a service that is unsafe, inade'uate and improper.

b% 0nder ection 12$a% of the "ublic ervice Act, the Commission $Board% can suspend or revoe a certificate of public convenience when the operator fails to provide a service that issafe, proper or ade'uate, and refuses to render any service which can be reasonablydemanded and furnished.

-. 3o. The reasons given by "epay are not sufficient grounds to ecuse her from completingher units. The same could be undertaen by her children or by other authori:edrepresentatives.

Q"es#$%n N%& 14!D8T, Inc. entered into a contract with C. Co. of Dapan to eport anahaw fans valued at

O-,///. As payment thereof, a letter of credit was issued to D8, Inc. by the buyer. The letter of credit re'uired was issued to D8, Inc. by the buyer. The letter of credit re'uired the issuance of an on@board bill of lading and prohibited the transhipment. The "resident of D8T, inc. thencontracted a shipping agent to ship the anahaw fans through = Containers Lines, specifying the

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re'uirements of the letter of credit. owever, the bill of lading issued by the shipping lines borethe notation 4received for shipment5 and contained an entry indicating transshipment inongong. The "resident of D8T, Inc, personally received and signed the bill of lading anddespite the entries, he delivered the corresponding chec in payment of the freight.

The shipment was delivered at the port of discharge but he buyer refused to accept the

anahaw fans because there was no on@board bill of lading, and there was transshipment sincethe goods were transferred in ongong from # "acific, the feeder vessel, to # =riental, amother vessel. The same cannot be considered transshipment because both vessels belong tothe same shipping company.

1. 6as there transshipment) plain.-. D8T, Inc. further argued that assuming there was transshipment, it cannot be deemed to

have agreed thereto even if it signed the bill of lading containing such entry because ithas made nown to the shipping lines from the start that transshipment was prohibitedunder the letter of credit and that, therefore, it had no intention to allow transshipment of the sub9ect cargo. Is the argument tenable) 8eason.

Answer *1. +es. Transshipment is the act of taing cargo out of one ship and loading it in another. It is

immaterial whether or not the same person, firm or entity owns the - vessels.

-. 3o. D8T is bound by the terms of the bill of lading when it accepted the bill of lading with fullnowledge of its contents which included transshipment in ongong Acceptance under such circumstances maes the bill of lading binding contract.

Q"es#$%n N%& 1*! A shipped 1 pieces of luggage through LF Airlines from Teheran to #anila as

evidences by LF Air 6aybill which disclosed that the actual gross weight of the luggage was

1H/Eg. G did not declare an inventory of the contents or the value of the 1 pieces of luggage. After the said pieces of luggage arrived in #anila, the consignee was able to claim from thecargo broer only 1- pieces, with a total weight of 1><Eg. M adviced the airlines of the loss of one of the 1 pieces of luggage and of the contents thereof. fforts of the airlines to trace themissing luggage were fruitless. ince the airlines failed to comply with the demand of M toproduce the missing luggage, M filed an action for breach of contract with damages against LF

Airlines. In its answer, LF Airlines of the carrier, if any, with respect to cargo to a sum of O-/ per ilo or O2./> per pound, unless a higher value is declared in advance and additional charger arepaid by the passenger and the conditions of the contract as set forth in the air waybill. presslysub9ect the contract of the carriage of cargo to the 6arsaw Convention. #ay the allegation of LF Airlines be sustained) plain.

Answer *+es. 0nless the contents of a cargo are declared or the contents of a lost luggage are

proved by the satisfactory evidence other than the self@serving declaration of one party, thecontract should be enforced as it is the only reasonable basis to arrive at a 9ust award. Thepassenger or shipper is bound by the terms of the passenger ticet or the waybill.

Q"es#$%n N%& 1+!

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A became a stocholder of prime 8eal state Corporation $"8C% on Duly 1/, 1221,when he was given one share by another stocholder to 'ualify him as a director. A was not re@elected director in the Duly 1, 122- annual meeting but he continued to be a registeredshareholder of "8C.

6hen he was still a director, A discovered that on Danuary ?, 1221, "8C issued free of

charge 1/,/// shares to M, a lawyer who assisted in a court case involving "8C.

1. Can A now bring an action in the name of the corporation to 'uestion the issuance of theshares to M without receiving any payment)

-. Can M 'uestion the right of A to sue him in behalf of the corporation on the ground that Ahas only one share in his name)

. Can not the shares issued to M be considered as watered stoc)

Answer!1. As a general rule, A cannot bring a derivative suit in the name of the corporation concerning

an act that too place before he became a stocholder. owever, if the act complained of isa continuing one, A may do so.

-. 3o. In a derivative suit, the action is instituted; brought in the name of a corporation and thereliefs are prayed for therein for the corporation and reliefs are prayed for therein for thecorporation, by a minority stocholder. The law does not 'ualify the term 4minority5 in termsof the number of shares owned by a stocholder bringing the action in behalf of thecorporation.

. 3o. 6atered shares are those sold by the corporation for less than the par; boo value. Inthe instant case, it will depend upon the value of services rendered in relation to the total par value of the shares.

Q"es#$%n N%& 1,!The AB #emorial 7oundation, Inc. was incorporated as a non@profit, non@stoc

corporation in order to establish and maintain a library and museum in honor of the deceasedparents of the incorporators. Its Articles of Incorporation provide for a board of trusteescomposed of the ? incorporators, which is authori:ed to admit new members. The Articles of Incorporation also allow the 7oundation to receive donations from members. As of Danuary /,122, / members had been admitted by the board of trustees.

1. Can the 7oundation use the funds donated to it by its members for the purchase of foodand medicine for distribution to the victims of the "inatubo eruption)

-. Can the 7oundation operate a specialty restaurant that caters to the general public inorder to augment its funds)

. =ne of the original trustees died and the other - resigned because they immigrated tothe 0nited tates. ow will the vacancies in the board of trustees be filled)

Answer!1. +es, ec. $2% of the Corporation Code provides that as long as the amount of donation is

reasonable.

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-. If the purposes of the corporation are limited to the establishment and maintenance of thelibrary and museum as stated in the problem, the foundation cannot operate a specialtyrestaurant that caters to the general public. In such case, the action of the foundation will beultra vires.

Q"es#$%n N%& 1-! A purchased from 1?/ cavans of palay on credit. A deposited the palay in 6!s

warehouse. 6 issued to A a negotiable warehouse receipt in the name of A. thereafter, Anegotiated the receipt to B who purchased the said receipt for value and in good faith.

1. 6ho has a better right to the deposit, , the unpaid vendor, or B, the purchaser of thereceipt for value and in good faith) 6hy)

-. 6hen can the warehouseman be obliged to deliver the palay to A)

Answer *1. B has a better right than . the right of the unpaid seller, , to the goods was defeated by

the act of A in endorsing the receipt to B.

-. The warehouseman can be obliged to deliver the palay to A if B negotiates bac the receiptto A. in that case, A becomes a holder again of the receipt, and A can comply with ec. H of the 6arehouse 8eceipts Law.

Q"es#$%n N%& 1.!0nder the Articles of Incorporation of #anila Industrial Corporation, its principal place of

business shall be in "asig, #etro #anila. The principal corporate offices are at the =rtigasCenter, "asig, #etro #anila while its factory processing leather products is in #anila. Thecorporation holds its annual stocholder!s meeting at the #anila otel in #anila and, its board of directors! meeting at a hotel in #aati, #etro #anila. The by@laws are silent as to the place of

meetings of the stocholders and the directors.

1. 6ho shall preside at the meeting of the directors)-. Can Ting, a stocholder, who did not attend the stocholder! annual meeting in #anila,

'uestion the validity of the corporate resolutions passed at such meeting). Can the same stocholder 'uestion the validity of the resolutions adopted by the board

of directors at the meeting held in #aati)

Answer *1. The "resident presides over the meeting of the directors, if there is no position of

Chairman provided in the By@Laws. If there is the position of Chairman provided in theBy@Laws, the Chairman presides over the meeting of the &irectors.

-. 3o. The law provides that the annual stocholders! meeting shall be held in the city or municipality where the principal office of the Corporation is located. 7or this purpose, thelaw also provides that #etro #anila is considered a city or municipality. ince theprincipal place of business of #IC is "asig, #etro #anila, the holding of the annualstocholders! meeting in #anila is proper.

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. 3o. The law allows the Board of &irectors to hold its meeting anywhere in the"hilippines. The holding of the board meeting in #aati was proper and the validity of the resolution adopted by the Board in that meeting cannot be 'uestion.

Q"es#$%n N%& 20!

Dulie and Alma formed a business partnership. 0nder the business name "ino hop, thepartnership engaged in a sale of construction materials. Dulie insured the stocs in trade of "inohop with 6FC Insurance Company for "?/,///. ubse'uently, she again got an insurancecontract with 8I for "1 # and then from IC for "-//,///. A fire of unnown origin gutted thestore of the partnership. Dulie filed her claims with the insurance companies. owever, her claims were denied separately for breach of policy condition which re'uired the insured to givenotice of any insurance effected covering the stocs in trade. Dulie went to court and contendedthat she should not be blamed for the omission, alleging that the insurance agents for 6FC,8I and IC new of the eistence of the additional insurance coverage and that she was notinformed about the re'uirement that such other or additional insurance should be stated in thepolicy.

1. Is the contention of Dulie tenable) plain.-. #ay she recover on her fire insurance policies) plain.

Answer *1. 3o. An insured is re'uired to disclose the other insurances covering the sub9ect matter of

the insurance being applied for.-. 3o, because she is guilty of violation of a warranty; condition.


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Q"es#$%n N%& 1!"erla brought a motor car payable in installments from Automotive Company for

"-?/,///. he made a down payment of "?/,/// and eecuted a promissory note for thebalance. The company subse'uently indorsed the note to 8eliable 7inance Corporation whichfinanced the purchase. The promissory note read*

47or value received, I promise to pay Automotive Company or order at its office inLegaspi City, the sum of "-//,///.// with interest at twelve $1-K% per cent per annum, payablein e'ual installments of "-/,///.// monthly for ten $1/% months starting =ctober -1, 1221.

#anila eptember -1, 1221.

$gd.% "erla

"ay to the order of 8eliable 7inance Corp.

Automotive CompanyBy*

$gd.% #anager

Because "erla defaulted in the payment of her installments, 8eliable 7inanceCorporation initiated a case against her for a sum of money. "erla argued that the promissorynote is merely open to all defenses available to the assignor and, therefore, 8eliable 7inanceCorporation is not a holder in due course.

a% Is the promissory note a mere assignment of credit or a negotiable instrument) 6hy)

Answer *The promissory note in the problem is a negotiable instrument, being in compliance with

the provisions of ection 1 of the 3IL. 3either the fact that the payable sum is to be paid with

interest nor that the maturities are in stated installments renders uncertain the amount payable.

b% Is 8eliable 7inance Corporation a holder in due course) plain briefly.

Answer *+es, 8eliable 7inance Corporation is a holder in due course given the factual settings.

aid corporation apparently too the promissory note for value, and there are no indications thatit ac'uired it in bad faith.

Q"es#$%n N%& 2! A Cooperative purchased from 4+5 Corporation on installments a rice mill and made a

down payment therefor. As security for the payment of the balance, the Cooperative eecuted achattel mortgage in favor of + Corporation. + Corporation, in turn, assigned its rights to thechattel mortgage to G, Inc., a ?K foreign@owned company doing business in the "hilippines. Thecooperative thereafter made installment payment to G, Inc.

Because the Cooperative was unable to meet its obligations in full, G, Inc. filed against ita court suit for collection. The Cooperative resisted contending that G, Inc. was illegally engagedin the retail trade business for having sold a consumer good as opposed to a producer item. TheCooperative also alleged that G, Inc had violated the Anti@&ummy Law.

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Is G, Inc. guilty of violating the 8etail Trade Law and the Anti@&ummy Law) 6hy)

Answer *G, Inc. is not guilty of violating the 8etail Trade Law and the Anti@&ummy Law. The term

4retail5 under the 8etail Trade Act re'uires that the seller must be habitually engaged in selling

to the general public consumption goods. By consumption goods are meant 4personal, familyand household5 purposes. A 8ice #ill does not fall under that category. 3either does it appear that G, Inc, is habitually engaged in selling to the general public that commodity. ince there isno violation of the 8etail Trade Law, there would liewise be no violation of the Anti@&ummyLaw.

Q"es#$%n N%& 3! An insurance company issued a marine insurance policy covering a shipment by sea

from #indoro to Batangas of 1,/// pieces of #indoro garden stones against 4total loss only5.The stones were loaded in two lighters, the first with // pieces and the second with <//pieces. Because of rough seas, damage was caused the second lighter resulting in the loss of

-? out of the <// pieces. The owner of the shipment filed claims against the insurancecompany on the ground of constructive total loss inasmuch as more than of the value of thestones had been lost in one of the lighter.

Is the insurance company liable under its policy) 6hy)

Answer *The insurance company is not liable under its policy covering against 4total loss only5 the

shipment of 1,/// pieces of #indoro garden stones. There is no constructive total loss that canbe claimed since the rule is to be computed on the total 1,/// pieces of #indoro gardenstones covered by the single policy coverage.

Q"es#$%n N%& 4!#arino was a passenger on a train. Another passenger, Duancho, had taen a gallon of

gasoline placed in a plastic bag into the same coach where #arino was riding. The gasolineignited and eploded causing in9ury to #arino who filed a civil suit for damages against therailway company claiming that Duancho should have been sub9ected to inspection by itsconductor.

The railway company disclaimed liability resulting from the eplosion contending that itwas unaware of the contents of the plastic bag and invoing the right of Duancho to privacy.

a% hould the railway company be held liable for damages)

Answer *3o. The railway company is not liable for damages. In overland transportation, the

common carrier is not bound nor empowered to mae an eamination on the contents of pacages or bags, particularly those hand carried by passengers.

b% If it were an airline company involved, would your answer be the same) plain your answer briefly.

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Answer *3o. If it were an airline company, the common carrier should be made liable. In the case

of air carriers, it is not lawful to carry flammable materials in passenger aircrafts, and airlinecompanies may open and investigate suspicious pacages and cargoes.

Q"es#$%n N%& *!7or a cargo of machinery shipped from abroad to a sugar central in &umaguete, 3egros

=riental, the Bill of Lading $B;L% stipulated 4To hipper!s =rder,5 with notice of arrival to beaddressed to the Central. The cargo arrived at its destination and was released to the Centralwithout surrender of the B;L on the basis of the latter!s undertaing to hold the carrier free andharmless from any liability.

ubse'uently, a Ban to whom the Central was indebted, claimed the cargo andpresented the original of the B;L stating that the Central had failed to settle its obligations withthe Ban.

6as there misdelivery by the carrier to the sugar central considering the non@surrender of the B;L) 6hy)

Answer!There was no misdelivery to the carrier since the cargo was consigned to the sugar

central per the 4hipper!s =rder5.

Q"es#$%n N%& +! Antonio was granted a Certificate of "ublic Convenience $C"C% in 12H to operate a

ferry between #indoro and Batangas using the motor vessel 4# Lotus5. e stopped operationsin 12HH due to unserviceability of the vessel.

In 12H2, Basilio was granted a C"C for the same route. After a few months, hediscovered that Carlos was operating on his route under Antonio!s C"C. Because Basilio filed acomplaint for illegal operations with the #aritime Industry Authority, Antonio and Carlos 9ointlyfiled an application for sale and transfer of Antonio!s C"C and substitution of the vessel 4#Lotus5 with another owned by Carlos.

hould Antonio!s and Carlos! 9oint application be approved) Five your reasons.

Answer *The 9oint application of Antonio and Carlos for the sale and transfer of Antonio!s C"C

and substitution of the vessel # Lotus with another vessel owned by the transferee should not

be approved. The C"C and 4# Lotus5 are inseparable. The unserviceability of the vesselcovered by the certificate had liewise rendered ineffective the certificate itself, and the holder thereof may not legally transfer the same to another.

Q"es#$%n N%& ,! A corporation eecuted a promissory note binding itself to pay its "resident; &irector,

who had tendered his resignation, a certain sum in payment of the latter!s shares and interests

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in the company. The corporation defaulted in paying the full amount so that the said former "resident filed suit for collection of the balance before the C.

a% 0nder what condition is a stoc corporation empowered to ac'uire its own shares)

Answer *

A stoc corporation may only ac'uire its own shares of stoc if the trust fund doctrine isnot impaired. This is to say, for instance, that it may purchase its own shares of stoc by utili:ingmerely its surplus profits over and above the subscribed capital of the corporation.

b% Is the arrangement between the corporation and its "resident covered by the trust funddoctrine) plain your answers briefly.

Answer *The arrangement between the corporation and its "resident to the etent that it calls for

the payment of the latter!s shares is covered by the trust fund doctrine. The only eceptionsfrom the trust fund doctrine are the redemption of redeemable shares and, in the case of close

corporation, when there should be a deadloc and the C orders the payment of the appraisedvalue of a stocholder!s share.

Q"es#$%n N%& -! A distressed company eecuted a voting trust agreement for a period of years over

/K of its outstanding paid@up shares in favor of a ban to whom it was indebted, with the Bannamed as trustee. Additionally, the Company mortgaged all its properties to the Ban.

Because of the insolvency of the Company, the Ban foreclosed the mortgagedproperties, and as the highest bidder, ac'uired said properties and assets of the Company.

The @year period prescribed in the oting Trust Agreement having epired, thecompany demanded the turnover and transfer of all its assets and properties, including themanagement and operation of the Company, claiming that under the oting Trust Agreement,the ban was constituted as trustee of the management and operations of the Company.

&oes the demand of the Company tally with the concept of a oting Trust Agreement)plain briefly.

Answer!3o. The demand of the Company does not tally with the concept of a oting Trust

Agreement. The oting Trust Agreement merely conveys to the trustee the right to vote theshares of grantor;s. the conse'uence of the foreclosure of the mortgaged properties would be

alien to the oting Trust Agreement and its effects.

Q"es#$%n N%& .! A local consignee sought to enforce 9udicially a claim against the carrier for loss of a

shipment of drums of lubricating oil from Dapan under the C=FA after the carrier had re9ectedits demand. The carrier pleaded in its Answer the affirmative defense of prescription under theprovisions of the same Act inasmuch as the suit was brought by the consignee after 1 year fromdelivery of the goods. In turn, the consignee contended that the period of prescription was

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suspended by the written etra9udicial demand it had made against the carrier within the 1@year period, pursuant to Article 11?? of the Civil Code providing that the prescription of actions isinterrupted when there is a written etra9udicial demand by the creditors.

a% as the action, in fact, prescribed) 6hy)

Answer *The action taen by the local consignee has, in fact, prescribed. The period of 1 year

under the C=FA is not interrupted by a written etra9udicial demand. The provision of Article11?? of the Civil Code merely apply to the prescriptive periods provided for in said Code and notthe special laws ecept when otherwise provided.

b% If the consignee!s action were predicated on misdelivery or conversion of the goods, wouldyour answer be the same) plain briefly.

Answer *If the consignee!s action were predicated on misdelivery or conversion of the goods, the

provisions of the C=FA would be inapplicable. In these case, the Civil Code prescriptive

periods, including Art. 11?? of the Civil Code, will apply.

Q"es#$%n N%& 10!7amily Ban was placed under statutory receivership and subse'uently ordered

li'uidated by the Central Ban $CB% due to fraud and irregularities in its lending operationswhich rendered it insolvent. Dudicial proceedings for li'uidation were thereafter commenced bythe CB before the 8TC. 7amily Ban opposed the petition.

hortly thereafter, 7amily Ban filed in the same court a special civil action against theCB seeing to en9oin and dismiss the li'uidation proceeding on the ground of grave abuse of discretion by the CB. The court was poised to* $1% restrain the CB from closing 7amily BanJ and

$-% authori:e 7amily Ban to withdraw money from its deposits during the pendency of the case.

If you were the 9udge, would you issue such orders) 6hy)

Answer *3o. the 8TC has no authority to restrain the monetary board of the Central Ban from

statutory authority to undertae receivership and ultimate li'uidation of a ban. Any opposition tosuch an action could be made to the court itself where assistance is sought.

The action of the 8TC where the proceeding is pending appeal have to be made in theCourt of Appeals.

Q"es#$%n N%& 11!"lacido, a ban depositor, left his checboo on his des at his house. 0nnown to him,

a visitor at the time, noticing the same, too a chec therefrom, filled it up in the amount of ",/// and succeeded in encashing the chec on the same day. "lacido!s account was therebydebited in the same amount.

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&iscovering the erroneous debit, "lacido demanded that the ban credit him with a lieamount. The ban refused on the ground that "lacido was negligent in leaving his checboo onhis des so that he could not put up the defense of forgery or want of authority under the 3IL.

The facts disclose that even to the naed eye, there were mared differences between"lacido!s signature and the one in the chec forged by the visitor.

As between "lacido and the ban, who should bear the loss) plain.

Answer *The ban should bear the loss. A drawee ban must eercise the highest diligence in

safeguarding the accounts of its client@depositors. The ban is also charged with genuineness of the signatures of its current account holders. But what can be more striing is that there weremared differences between "lacido!s signature and the one in the chec forged by the visitor.Certainly, "lacido was not negligent in leaving his checboo on his des.

Q"es#$%n N%& 12!

ocorro received O1/,/// from a foreign ban although she was entitled only to O1,///.In an apparent plan to conceal the erroneously sent amount, she opened a dollar account withher local ban, deposited the O1/,/// and issued < checs in the amount of O-,/// and 1 checfor O1,/// each payable to different individuals who deposited the same in their respectivedollar accounts with different local bans.

The sender ban then brought a civil suit before the 8TC for the recovery of theerroneously sent amount. In the course of the trial, the sender presented testimonies of theban officials to show that the funds were, in fact, deposited in a ban by ocorro and paid outto several persons, who participated in the concealment and dissipation of the amount thatocorro had erroneously received.

ocorro moved to strie out said testimonies from the record invoing the law on secrecyof ban deposits.

If you were the Dudge, would you issue an order to strie them out) 6hy)

Answer *3o. I will not strie out the testimonies from the record. The testimonies of ban officials

indicating where the 'uestioned dollar accounts were opened in depositing misappropriatedsums must be considered as liewise involved in litigation(one which is among the eceptedcases under the ecrecy of Ban &eposits Act.

Q"es#$%n N%& 13!M Z Co., obtained a loan from a local ban in the amount of "?//,///, mortgaging as

security therefore its real property. ubse'uently, the company applied with the same ban for aLetter of Credit $L;C% for O-//,/// in favor of a foreign ban to cover the importation of machinery. To guarantee payment of the obligation under the L;C, the company and its"resident and Treasurer eecuted a urety Agreement in the local ban!s favor.

The machinery arrived and was received to the company under a trust receiptagreement. As the company defaulted in the payment of its obligations, the ban too

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possession of the imported machinery. At the same time, it sought to foreclose the mortgagedproperty and to hold the company, as well as its "resident and Treasurer, liable under theurety Agreement.

&id the taing of possession of the machinery by the ban result in the $1% full paymentof the obligations of the company, and $-% foreclosure of the mortgage) 6hy)

Answer *The taing of possession of the machinery by the ban did not result in full payment of

the obligations owing from the company and its officers. The taing of such possession must beconsidered merely as a measure in order to protect or further safeguard the ban!s securityinterest. &acion en pago can only be considered as having taen place when a creditor acceptsand appropriates the ownership of goods in payment of a due obligation.

The mere taing of possession of mortgaged assets does not amount to foreclosure.7oreclosure re'uires a sale at public auction. The foreclosure, therefore, has not yet beeneffected.

Q"es#$%n N%& 14!To guarantee the payment of a loan obtained from a ban, 8aoul pledged ?// bales of

tobacco deposited in a warehouse to said ban and endorsed in blan the warehouse receipt.Before 8aoul could pay for the loan, the tobacco disappeared from the warehouse.

6ho should bear the loss(the pledgor or the ban) 6hy)

Answer *The pledgor should bear the loss. In the pledge of a warehouse receipt the ownership of

the goods remain with depositor or his transferee. Any contract or real security, among them apledge, does not amount to or result in an assumption of ris of loss by the creditor. The

6arehouse 8eceipts Law did not deviate from this rule.

Q"es#$%n N%& 1*!In an action for infringement of patent, the alleged infringer defended himself by stating

$1% that the patent issued by the "atent =ffice was not really an invention which was patentableJ$-% that he had no intent to infringe so that there was no actionable case for infringementJ and$% that there was no eact duplication of the patentee!s eisting patent but only a minor improvement.

6ith those defenses, would you eempt the alleged violator from liability) 6hy)

Answer *I would not eempt the alleged violator from liability for the following reasons*

1. A patent once issued by the "atent =ffice raises a presumption that the article ispatentableJ it can, however be shown otherwise. A mere statement or allegation is notenough to destroy that presumption.

-. An intention to infringe is not necessary nor an element in a case for infringement of apatent.

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. There is no need of eact duplication of the patentee!s eisting patent such as when theimprovement made by another is merely minor. To be independently patentable, animprovement of an eisting patented invention must be a ma9or improvement.


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Q"es#$%n N%& 1!The law $8A 3o. H-% creating a Commission to Conduct a Thorough 7act@7inding

Investigation of the 7ailed Coup &!tat of &ecember 12H2, 8ecommended #easures to"revent The =ccurrence of imilar Attempts at a iolent ei:ure of "ower and for =ther "urposes, provides that the Commission may as the #onetary Board to disclose information

on and;or grant authority to eamine any ban deposits, trust or investment funds, or baningtransactions in the name of and;or to grant authority to eamine any ban deposits, trust or investment funds, or baning transactions in the name of and;or utili:ed by a person, natural or

9uridical, under investigation by the Commission, in any ban or baning institution in the"hilippines, when the Commission has reasonable ground to believe that said deposits, trust or investment funds, or baning transactions have been used in support or in furtherance of theob9ectives of the said coup d!etat.

&oes not the above provision violate the Law on ecrecy of Ban &eposits $8A 3o.1</?%)

Answer *

The law on ecrecy of Ban &eposits is itself merely a statutory enactment, and it may,therefore, be modified, or amended $such as by providing further eceptions therefrom%, or even repealed, epressly or impliedly, by a subse'uent law. The ecrecy of Ban &eposits Actdid not amount to a contract between the depositors and depositary bans within the meaningof the non@impairment clause of the Constitution. ven if it did, the police power of the tate issuperior to the non@impairment clause. 8A 3o, H-, creating a commission to conduct aninvestigation of the failed 12H2 coup d!etat and to recommend measures to prevent similar attempts to sei:e power is a valid eercise of police power.

Q"es#$%n N%& 2! A. To secure the payment of his loan of "-//,///, A eecuted in favor of the Angeles Baning

Corp., in 1 document, a real estate mortgage over lots registered in his name and achattel mortgage over his cars and 1 Isu:u cargo truc.

0pon his failure to pay the loan on due date, the ban foreclosed the mortgage on the lots, which were subse'uently sold for only "22,/// at the foreclosure sale. Thereafter, theban filed an ordinary action for the collection of the deficiency. A contended that themortgage contract he eecuted was indivisible and conse'uently, the ban had no legalright to foreclose only the real estate mortgage and leave out the chattel mortgage, andthen sue him for a supposed deficiency 9udgment.

If you were the Dudge, would you sustain the contention of A)

Answer *If I were the Dudge, I would dismiss the action as being premature since the proper

remedy would be to complete the foreclosure of the mortgages and only thereafter canthere be an action for collection of any deficiency. In Caltex vs. )ntermediate AppellateCourt $F.8. ><>/, -? August 12H2%. The remedies on a secured debt, said the court, areeither an action to collect or to foreclose a contract of real security. These remedies arealternative remedies, although an action for any deficiency is not precluded, sub9ect tocertain eception such as those stated in Article 1<H< of the Civil Code, by a foreclosure onthe mortgages. 6hile the factual settings in the case of !uria vs. )ntermediate Appellate

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Court $/ Dune 12H>% are not similar to the facts given in the problem, the upreme Courtimplied that foreclosure as a remedy in secured obligations must first be availed of by acreditor in preference to other remedies that might also be invoed by him.

B. To secure the payment of an earlier loan of "-/,///, as well as subse'uent loans which

her friend, 3oreen, would etend to her, Earen eecuted in favor of 3oreen a chattelmortgage over her $Earen% care.

Is the mortgage valid)

Answer * A chattel mortgage cannot effectively secure after@incurred obligations. 6hile a

stipulation to include after@incurred obligations in a chattel mortgage is itself not invalid, theobligation cannot, however, be deemed automatically secured by that mortgage until after anew chattel mortgage or an addendum to the original chattel mortgage is eecuted to cover the obligation after it has been actually incurred. Accordingly, unless such supplements aremade, the chattel mortgage in the problem given would be deemed to secure only the loan

of "-/,///.

Q"es#$%n N%& 3! A. &uring the annual stocholders meeting, 8i:a, a stocholder proposed to the body that a

part of the corporation!s undeserved earned surplus be capitali:ed and stoc dividends bedistributed to the stocholders, arguing that as owners of the company, the stocholders, byma9ority vote, can do anything. As chairman of the meeting, how would you rule on themotion to declare stoc dividends)

Answer * As the chairman of the meeting, I would rule against the motion considering that a

declaration of stoc dividends should initially be taen by the board of directors andthereafter to be concurred in by a -; vote of the stocholders. There is no prohibition,however, against the stocholders! resolving to recommend to the board of directors that itconsider a declaration of stoc dividends for concurrence thereafter by the stocholders.

B. ABC #anagement, Inc. presented to &7 #ining Corp. the draft of its proposed#anagement Contract. As an incentive, ABC included in the terms of compensation that

ABC would be entitled to 1/K of any stoc dividend which &7 may declare during thelifetime of the #anagement Contract. 6ould you approve of such provision) If not, whatwould you suggest as an alternative)

Answer *I would not approve of a proposed stipulation in the management contract that the

managing corporation, as an additional compensation to it, should be entitled to 1/K of anystoc dividend that may be declared. tocholders are the only ones entitled to receive stocdividends. I would add that the unsubscribed capital stoc of a corporation may only be issuedfor cash or property or for services already rendered constituting a demandable debt. As analternative, I would suggest that the managing corporation should instead be given a net profitparticipation and, if later so desires, to then convert the amount that may be due thereby toe'uity or shares of stoc at no less than the par value thereof.

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C. Assuming that the minority bloc of the M+G Corporation is able to elect only 1 director andtherefore, the ma9ority stocholders can always muster a -; vote, would you allow thema9ority stocholders to remove the one director representing the minority)

Answer *3o. I would not allow the ma9ority stocholders to remove the director. 6hile the

stocholders may, by a -; vote, remove a director, the law also provides, however, that thisright may not, without 9ust cause, be eercised so as to deprive the minority of representation inthe board of directors.

&. After many difficult years, which called for sacrifices on the part of the company!s directors, ABC #anufacturing Inc. was finally earning substantial profits. Thus, the "resident proposedto the Board of &irectors that the directors be paid a bonus e'uivalent to 1?K of thecompany!s net income before ta during the preceding year. The "resident!s proposal wasunanimously approved by the Board. A stocholder of ABC 'uestioned the bonus. &oes he

have grounds to ob9ect)

Answer *+es, the stocholder has a valid and legal ground to ob9ect to the payment to the

directors of a bonus e'uivalent to 1?K of the company!s net income. The law provides that thetotal annual compensation of directors, in the preceding year, cannot eceed 1/K of thecompany!s net income before income ta.

Q"es#$%n N%& 4! A. ABC "iggery, Inc. is engaged in raising and selling hogs in the local maret. #r. &e &ios,

one of its directors, while travelling abroad, met a leather goods manufacturer who was

interested in buying pig sins from the "hilippines. #r. &e &ios set up a separate companyand started eporting pig sins to his foreign contact but the pig sins eported were notsourced from ABC. is fellow directors in ABC complained that he should have given hisbusiness to ABC. ow would you decide this matter)

Answer *I would decide in favor of #r. &e &ios. ABC, Inc., is engaged in raising and selling hogs

in the local maret. The company that #r. &e &ios had set up was to engage, as it did, in theeport of pig sins. There is thus no conflict of interest situation under the law.

B. #r. "ablo, a rich merchant in his early forties, was a defendant in a lawsuit which could

sub9ect him to substantial damages. A year before the court rendered 9udgment, #r. "ablosought his lawyer!s advice on how to plan his estate to avoid taes. is lawyer suggestedthat he should form a corporation with himself, his wife and his children $all students and stillunemployed% as stocholders and then transfer all his assets and liabilities to thiscorporation. #r. "ablo and the plaintiff sought to enforce this 9udgment. The sheriff, however,could not locate any property in the name of #r. "ablo and therefore returned the writ of eecution unsatisfied. 6hat remedy, if any, is available to the plaintiff)

Answer *

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The plaintiff can avail himself of the doctrine of piercing the veil of corporate fiction whichcan be invoed when a corporation is formed or used in avoiding a 9ust obligation. 6hile it istrue that a family corporation may be organi:ed to pursue an estate ta planning, which isnot per se illegal or unlawful, the factual settings, however, indicate the eistence of alawsuit that could sub9ect #r. "ablo to a substantial amount of damages. It would thus bedifficult for #r. "ablo to convincingly assert that the incorporation of the family corporation

was intended merely as a case of 4estate ta planning5.

Q"es#$%n N%& *!=n Dune 1, 122/, A obtained a loan of "1//,/// from B, payable not later than

&ecember -/, 122/. B re'uired A to issue him a chec for that amount to be dated &ecember -/, 122/. ince he does not have any checing account, A, with the nowledge of B, re'uestedhis friend, C, "resident of the aad Baning Corp. $AA&%, to accommodate him. C agreed, hesigned a chec for the aforesaid amount, dated &ecember -/, 122/, drawn against AA&!saccount with the ABC Commercial Baning Corp. the By@laws of AA& re'uires that checsissued by it must be signed by the "resident and the Treasurer or the ice@"resident. ince theTreasurer was absent, C re'uested the ice@"resident to co@sign the chec, which the latter

reluctantly did. The chec was delivered to B. the chec was dishonored upon presentment ondue date for insufficiency of funds.

a% Is the AA& liable on the checs as an accommodation party)

Answer *3o. AA& is not liable on the checs as an accommodation party. The act of the

corporation in accommodating a friend of the "resident, is ultra vires. 6hile it may be legallypossible for a corporation, whose business is to provide financial accommodation in theordinary course of business, such as one given by a financing company, to be anaccommodation party, this situation, however, is not the case in the bar problem.

b% If it is not, who then, under the above facts, is;are the accommodation party)

Answer *Considering that both the "resident and the ice@"resident were signatories to the

accommodation, they themselves can be sub9ect to the liabilities of accommodation partiesto the instrument in their personal capacity.

Q"es#$%n N%& +! A. #r. "ablo sought to borrow "-//,/// from #r. Carlos. The latter agreed to loan the amount

in the form of a post@dated chec which was crossed $i.e., two parallel lines diagonally drawn

on the top left portion of the chec%. Before the due date of the chec, #r. "ablo discountedit with #r. 3oble. =n due date, #r. 3oble deposited the chec with his ban. The chec wasdishonored. #r. 3oble sued #r. "ablo. The court dismissed #r. 3oble!s complaint. 6as thecourt!s decision correct)

Answer *

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The court!s decision was incorrect. #r. "ablo and #r. Carlos, being immediate parties tothe instrument, are governed by the rules of privity. Fiven the factual circumstances of theproblem, #r. "ablo has no valid ecuse from denying liability. #r. "ablo undoubtedly hadbenefited in the transaction. To hold otherwise would also contravene the basic rules of un9ust enrichment. ven in negotiable instruments, the Civil Code and other laws of generalapplication can still apply suppletorily.

B. #r. Lim issued a chec drawn against B"I Ban in favor of #r. +u as payment for certainshares of stoc which he purchased. =n the same day that he issued the chec to #r. +u,#r. Lim ordered B"I to stop payment. "er standard baning practice, #r. Lim was made tosign a waiver of B"I!s liability in the event that it should pay #r. +u through oversight or inadvertence. &espite the stop order by #r. Lim, B""I nevertheless paid #r. +u uponpresentation of the chec. #r. Lim sued B"I for paying his order. &ecide the case.

Answer *In the event that #r. Lim, in fact, had sufficient legal reasons to issue the stop payment

order, he may sue B"I for paying against his order. The waiver eecuted by #r. Lim did not

mean that it need not eercise due diligence to protect the interest of its account holder. It isnot amiss to state that the drawee, unless the instrument had earlier been accepted by it, isnot bound to honor payment to the holder of the chec that thereby ecludes it from anyliability if it were to comply with the stop payment order.

Q"es#$%n N%& ,! A. Atty. 8oberto too out a life insurance policy from &ana Insurance Corp. $&IC% on

eptember 1, 12H2. =n August 1, 122/, 8oberto died. &IC refused to pay his beneficiariesbecause it discovered that 8oberto had misrepresented certain material facts in hisapplication. The beneficiaries sued on the basis that &IC can contest the validity of theinsurance policy only within - years from the date of issue and during the lifetime of the

insured. &ecide the case.

Answer *I would rule in favor of the insurance company. The incontestability clause, applies only if

the policy had been in effect for at least - years. The -@year period is counted from the timethe insurance becomes effective until the death of the insured and not thereafter.

B. The policy of insurance upon his life, with a face value of "1//,///, was assigned by Dose,a married man with - legitimate children, to his nephew, + as security for a loan of "?/,///.e did not give the insurer any written notice of such assignment despite the eplicitprovision to that effect in the policy. Dose died. 0pon the claim on the policy by the assignee,

the insurer refused to pay on the ground that it was not notified of the assignment. 0pon theother hand, the heirs of Dose contended that + is not entitled to any amount under the policybecause the assignment without due notice to the insurer was void. 8esolve the issues.

Answer * A life insurance is assignable. A provision, however, in the policy stating that written

notice of such an assignment should be given to the insurer is valid. The failure of the noticeof assignment would thus preclude the assignee from claiming rights under the policy. Thefailure of notice did not, however, avoid the policyJ hence, upon the death of Dose, the

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proceeds would, in the absence of a designated beneficiary, go to the estate of the insured.The estate, in turn, would be liable for the loan of "?/,/// owing in favor of +.

Q"es#$%n N%& -!heryl insured her newly ac'uired car, a 3IA3 #aima against any loss or damage

for "?/,/// and against third party liability for "-/,/// with the M+G Insurance Corp. $M+G%.0nder the policy, the car must be driven only by an authori:ed driver who is either* $1% theinsured, or $-% any person driving on the insured!s order or with his permission* provided that theperson driving is permitted in accordance with the licensing or other laws or regulations to drivethe motor vehicle and is not dis'ualified from driving such motor vehicle by order of a court.

&uring the effectivity of the policy, the car, then driven by heryl herself, who had nodriver!s license, met an accident and was etensively damaged. The estimated cost of the repair was "</,///. heryl immediately notified M+G, but the latter refused to pay on the policyalleging that heryl violated the terms thereof when she drove it without a driver!s license.

Is the insurer correct)

Answer *3o. the insurer is not correct in denying the claim since the proviso 4that the person

driving is permitted in accordance with the licensing, etc.5 'ualifies only a person driving thevehicle, other than the insured, at the time of the accident.

Q"es#$%n N%& .! A piece of machinery was shipped to #r. "ablo on the basis of CZ7, #anila. #r. "ablo

insured said machinery with the Talaga #erchants Insurance Corp. $TA#IC% for loss or damageduring the voyage. The vessel san en route to #anila. #r. "ablo then filed a claim with TA#ICwhich was denied for the reason that prior to delivery, #r. "ablo had no insurable interest.

&ecide the case.

Answer *#r. "ablo had an eisting insurable interest on the piece of machinery he bought. The

purchase of goods under a perfected contract of sale already vested e'uitable interest on theproperty in favor of the buyer even while it is pending delivery.

Q"es#$%n N%& 10!#r. 3oble, as the "resident of ABC Trading, Inc., eecuted a trust receipt in favor of B"I

Ban to secure the importation by his company of certain goods. After release and sale of theimported goods, the proceeds from the sale were not turned over to B"I. 6ould B"I be 9ustified

in filing a case for estafa against 3oble)

Answer *B"I would be 9ustified in filing a case for estafa under "& 11? against 3oble. The fact

that the trust receipt issued in favor of a ban, instead of a seller, to secure the importation of the goods did not preclude the application of the Trust 8eceipts Law $"& 11?%. 0nder the law,any officer or employee of a corporation responsible for the violation of a trust receipt is sub9ectto the personal liability thereunder.Q"es#$%n N%& 11!

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A. ABC #anufacturing, Inc., a company wholly owned by foreign nationals, manufacturestypewriters which ABC distributes to the general public in - ways*

a% ABC consigns its typewriters to independent dealers who in turn sell them to the publicJand,

b% Through individuals, who are not employees of ABC, and who are paid strictly on a

commission basis for each sale.

&o these arrangements violate the 8etail Trade Law)

Answer *a% The first arrangement would not be in violation of the 8etail Trade Law. The law applies

only when the sale is direct to the general public. A dealer buys and sells for and in hisown behalf and, therefore, the sale to the general public is made by the dealer and notby the manufacturer.

b% The second arrangement would be violative of the 8etail Trade Law, since the sale isdone through individuals being paid strictly on a commission basis. The said individuals

would then be acting merely as agents of the manufacturer. ales, therefore, made bysuch agents are deemed direct sales by the manufacturer itself.

B. Is the 7ilipino common@law wife of a foreigner is not barred from engaging in retail business.=n the assumption that she acts for and in her own behalf, and absent a violation of the

Anti@&ummy Law which prohibits a foreigner from being either the real proprietor or anemployee of a person engaged in the retail trade, she should be violating the 8etail Trade

Act.

Answer *It is possible that the eaminee would have responded on the basis of the basis of the

Anti@&ummy Law eclusively in which case the engagement by the common@law wife may,by presumption, be considered as having violated the law.

Q"es#$%n N%& 12!

=3+ is a registered trademar for T, stereo, radio, cameras, betama and other electronic products. A local company, Best #anufacturing, Inc., produced electric fans which itsold under the trademar!s =3+ without the consent of =3+. =3+ sued Best#anufacturing for infringement. &ecide the case.

Answer *

In order that a case for infringement of trademar can prosper, the products on which thetrademar is used must be of the same ind. The electric fans produced by Best #anufacturingcannot be said to be similar to such products as T, stereo and radio sets or cameras or betama products of =3+.

Q"es#$%n N%& 13!

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In a collision between #;T #anila, a taner, and #; &on Claro, an inter@island vessel,#; &on Claro san and many of its passengers drowned and died. All its cargoes were lost.The collision occurred at nighttime but the sea was calm, the weather fair and visibility wasgood. "rior to the collision and while still < nautical miles apart, #; &on Claro already sighted#;T #anila on its radar screen. #;T #anila had no radar e'uipment. As for speed, #; &onClaro was twice as fast as #;T #anila.

At the time of the collision, #;T #anila failed to follow 8ule 12 of the International 8ulesof the 8oad which re'uired - vessels meeting head on to change their course by each vesselsteering to starboard $right% so that each vessel may pass on the port side $left% of the other. #;T#anila signaled that it would turn to port side and steered accordingly, thus resulting in thecollision. #;T &on Claro!s captain was off@duty and was having a drin at the ship!s bar at thetime of the collision.

a% 6ho would you hold liable for the collision)

Answer *I could hold the - vessels liable. In the problem given, whether on the basis of the factual

settings or under the doctrine of inscrutable fault, both vessels can be said to have beenguilty of negligence. The liability of the - carriers for the death or in9ury of passengers andfor the loss of or damage to the goods arising from the collision is solidary. 3either carrier may invoe the doctrine of last clear chance which can only be relevant, if at all, betweenthe - vessels but not on the claims made by passengers or shippers.

b% If #; &on Claro was at fault, may the heirs of the passengers who died and the owners of the cargoes recover damages from the owner of said vessel)

Answer *+es, but sub9ect to the doctrine of limited liability. The doctrine is to the effect that the

liability of the shipowners would only be to the etent of any remaining value of the vessel,proceeds of insurance, if any, and earned freightage. Fiven the factual settings, theshipowner himself was not guilty of negligence and, therefore, the doctrine can well apply.

Q"es#$%n N%& 14! A. Is the issuance of an order, declaring a petitioner in a oluntary Insolvency proceeding

insolvent, mandatory upon the court)

Answer * Assuming that the petition was in due form and substance and that the assets of the

petitioner are less than his liabilities, the court must ad9udicate the insolvency.

B. 6hat are the effects of a 9udgment in insolvency in oluntary Insolvency cases)

Answer *The ad9udication or declaration of insolvency by the court, after hearing or default, shall

have the following effects*

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1. 7orbid the payment to the debtor of any debt due to him and the delivery to him of anyproperty belonging to himJ

-. 7orbid the transfer of any property by himJ and. tay of all civil proceedings against the insolvent but foreclosure may be allowed.

Q"es#$%n N%& 1*! A. The aad &evelopment Corp. enters into a voyage charter with the M+G hipping Corp.

over the latter!s vessel, the #; Lady Love. Before the aad &evelopment Corp. could loadit, M+G hipping Corp. sold #; Lady Love to =slob #aritime Corp., which decided to load itfor its own account.

a% #ay +G hipping Corp. validly as for the rescission of the charter party) If so, can aad&evelopment Corp. recover damages) To what etent)

Answer *M+G hipping Corporation may as for the rescission of the charter party if, as in this

case, it sold the vessel before the charterer has begun to load the vessel and the purchaser

loads it for his own account. aad &evelopment Corp. may recover damages to the etentof its losses.

b% If =slob #aritime Corp. did not load it for its own account, is it bound by the charter party)

Answer *=slob #aritime Corp. did not load #; Lady Love for its own account, it would be bound

by the charter party, but M+G hipping would have to indemnify =slob #aritime if it was notinformed of the Charter "arty at the time of sale.

B. The term 4owner pro hac vice of the vessel.5 In what ind of charter party does this obtain)

Answer *The term 4owner pro hac vice of the vessel5, is generally understood to be the charterer

of a vessel in the case of bareboat or demise charter.

Q"es#$%n N%& 1+! Ale9andro Camaling of Alegria, Cebu, is engaged in buying copra, charcoal, firewood and

used bottles and in reselling them in Cebu City. e uses - big Isu:u trucs for the purposeJhowever, he has no certificate of public convenience or franchise to do business as a common

carrier. =n the return trips to Alegria, he loads his trucs with various merchandise of other merchants in Alegria and the neighboring municipalities of Badian and Finatilan. e chargesthem freight rates much lower than the regular rates. In one of the return trips, which left CebuCity at H*/pm, 1 cargo truc was loaded with several boes of sardines, valued at "1//,///,belonging to one of his customers, "edro 8abor. 6hile passing the :ig:ag road between Carcar and Barili, Cebu, which is midway between Cebu City and Alegria, the trucs was hi9aced by armed men who too all the boes of sardines and idnapped the driver and his helper,releasing them in Cebu City only - days later.

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"edro 8abor sought to recover from Ale9andro the value of the sardines. The latter contends that he is not liable therefor because he is not a common carrier under the Civil Codeand, even granting for the sae of argument that he is, he is not liable for the occurrence of theloss as it was due to a cause beyond his control.

If you were the Dudge, would you sustain the contention of Ale9andro)

Answer *If I were the Dudge, I would hold Ale9andro as 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 mainbusiness or incidental to such business, whether it is scheduled or unscheduled service, andwhether he offers his services to the general public or to a limited few.

I will however, sustain the contention of Ale9andro that he is not liable for the loss of thegoods. A common carrier is not an insurer of the cargo. If it can be established that the loss,despite the eercise of etraordinary diligence, could not have been avoided, liability does notensue against the carrier. The hi9acing by armed men of the truc used by Ale9andro is one of

such cases.

Q"es#$%n N%& 1,!6hen is a warehouseman bound to deliver the goods upon a demand made either by

the holder of a receipt for the goods or by the depositor)

Answer *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 $a% anofficer to satisfy the warehouseman!s lien, $b% an offer to surrender the receipt, if negotiable,with such indorsements as would be necessary for the negotiation thereof, and $c% readiness

and willingness to sign when the goods are delivered if so re'uested by the warehouseman.

Q"es#$%n N%& 1-!&ana Fianina purchase on a @month installment basis the latest model of the 3IA3

entra edan car from the Dobel Cars, Inc. In addition to the advertised selling price, the latter imposed finance charges consisting of interests, fees and service charges. It did not, however,submit to &ana a written statement setting forth therein the information re'uired by the Truth inLending Act $8A 3o. >?%. 3evertheless, the conditional deed of sale which the partieseecuted mentioned that the total amount indicated therein included such finance charges.

a% as there been substantial compliance of the aforesaid Act)

Answer *3o. there was no substantial compliance with the Truth in Lending Act. The law provides

that the creditor must mae a full disclosure of the credit cost. The statement that the totalamount due includes the principal and the financial charges, without specifying the amountsdue on each portion thereof would be insufficient and unacceptable.

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b% If your answer to the foregoing 'uestion is in the negative, what is the effect of the violationon the contract)

Answer * A violation of the Truth in Lending Act will not adversely affect the validity of the contract

itself.

c% In the event of a violation of the Act, what remedies may be availed of by &ana)

Answer *The violation of the Truth in Lending Act would allow &ana to refuse payment of financial

charges or, if already paid, to recover the same. &ana may also initiate criminal chargesagainst the creditor.

Q"es#$%n N%& 1.!=n &ecember , 12HH, A, an incorporator and the Feneral #anager of the "AD #ulti@

7arms Corp., resigned as Feneral #anager and sold the corporation his shares of stocs in thecorporation for "//,///, the boo value thereof, payable as follows* $a% "1//,/// asdownpaymentJ $b% "1//,/// on or before eptember /, 12H2. A promissory note, with anacceleration clause, was eecuted by the corporation for the unpaid balance.

The corporation failed to pay the first installment on due date. A then sued "AD #ulit@7arms Corp. on the promissory note in the 8TC.

a% &oes said court have 9urisdiction over the case)

Answer *The 8TC has no 9urisdiction over the case. In %oman =nvironmental &evelopment

Corporation v. Court of Appeals $F.8. 3o. >>H/, 3ovember --, 12HH%, the upreme Courtobserved that a corporation may only buy its own shares of stoc if it has enough surplusprofits therefor. =n an issue involving the trust fund doctrine, the C would be in better position than ordinary courts to mae an assessment and 9udgment on the matter.

b% 6ould your answer be the same if A instead sold his shares to his friend #abel and thelatter filed a case with the 8TC against the corporation to compel it to register the sale andto issue new certificates of stoc in her name)

Answer *#y answer would be the same. An action to compel a corporation to register a sale and

to issue new certificates of stoc is itself an intracorporate matter eclusively lies with theC to tae cogni:ance.

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Q"es#$%n N%& 1!The articles of incorporation to be registered in the C contained the following

provisions(

a% 47irst Article. The name of the corporation shall be Toho #areting Company.5b% 4Third Article. The principal office of the corporation shall be located in 8egion III, in such

municipality therein as its Board of &irectors may designate.5c% 4eventh Article. The capital stoc of the corporation is =ne #illion "esos $"1,///.//%,

"hilippine Currency.5

6hat are your comments and suggested changes to the proposed articles)

Answer *a% =n the 7irst Article, I would suggest that the corporate name indicate the fact of

incorporation by using either 4Toho #areting Corporation5 or 4Toho #areting Company,

Incorporated5.

b% The Third Article should indicate the City or the #unicipality and the "rovince in the"hilippines, and not merely the region or as its Board of &irectors may later designate, tobe its place of principal office.

c% The eventh Article must additionally point out the number of shares into which thecapital stoc is divided, as well as the par value thereof or a statement that said stoc or a portion thereof are without par value.

Q"es#$%n N%& 2!

At least -; of the stocholders of olar Corporation, meeting upon the recommendationof the Board of &irectors, declared a ?/K stoc dividend during their annual meeting. Thenotice of the annual stocholders! meeting did not mention anything about a stoc dividenddeclaration. The matter was taen up only under the item 4=ther Business5 in the agenda of themeeting. C.E. enwa, a stocholder, who received his copy of the notice but did not attend themeeting, subse'uently learned about the ?/K stoc dividend declaration. e desires to havethe stoc dividend declaration cancelled and set aside, and wishes to retain your services as alawyer for the purpose.

6ill you accept the case) &iscuss with reasons.

Answer *

I will not accept the case. ection < of the Corporation Code states that no stocdividend shall be issued without the approval of the stocholders representing not less than -; f the outstanding capital stoc at a regular or special meeting duly called for that purpose.Conformably with ection ?/ of the Corporation Code, a written notice of the holding of theregular meeting sent to the shareholders will suffice. The notice itself specifies the said sub9ectmatter.

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Q"es#$%n N%& 3!Luis was the holder of an accident insurance policy effective 3ovember 1, 12HH to

=ctober 1, 12H2. At a boing contest held on Danuary 1, 12H2 and sponsored by his employer,he slipped and was hit on the face by his opponent so he fell and his head hit one of the postsof the boing ring. e was rendered unconscious and was dead on arrival at the hospital due to4intracranial hemorrhage.5

Can his father who is a beneficiary under said insurance policy successfully claimindemnity from the insurance company) plain your answer.

Answer *+es, the father who is a beneficiary under the accident insurance can successfully claim

indemnity for the death of the insured. Clearly, the proimate cause of the death was the boingcontest. &eath is sustained in a boing contest is an accident.

Q"es#$%n N%& 4! Acme Trading Company, Inc. $Acme%, a trading company wholly owned by foreign

stocholders, was persuaded by "aulo Alva, a 7ilipino, to invest in -/K of the outstandingshares of stoc of a corporation he is forming which will engage in the department storebusiness $the 4department store corporation5%. "aulo also urged Acme to invest in </K of theoutstanding shares of stoc of the realty corporation he is putting up to own the land on whichthe department store will be built $the 4realty corporation5%.

a% #ay Acme invest in the said department store corporation) plain your answer.b% #ay Acme invest in the realty corporation) &iscuss with reasons.c% #ay the "resident of Acme, a foreigner, sit in the Board of &irectors of the said

department store corporation) &iscuss with reasons.d% #ay the Treasurer of Acme, another foreigner, occupy the same position in the said

department store corporation) #ay he be the treasurer of the said realty corporation)

plain your answers)

Answer *a% Acme may not invest in the department store corporation since the 8etail Trade Act

allows, in the case of corporations, only 1//K 7ilipino@owned companies to engage inretail trade.

b% Acme may invest in the realty corporation, on the assumption that the balance of /K of ownership of the latter corporation, is 7ilipino@owned since the law merely re'uired /K7ilipino holding in land corporate ownership.

c% The Anti@&ummy Law allows board representation to the etent of actual and permissible

foreign investments in corporations. Accordingly, the "resident of Acme may not sit inthe Board of &irectors of the department store corporation but can do so in the realtycorporation.

d% The Treasurer of Acme may not hold that position either in the department storecorporation or in the realty corporation since the Anti@&ummy Law prohibits theemployment of aliens in such nationali:ed areas of business ecept those that call for highly technical 'ualifications.

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Q"es#$%n N%& *!Dose loaned #ario some money and, to evidence his indebtedness, #ario eecuted and

delivered to Dose a promissory note payable to his order.

Dose endorsed the note to "ablo. Bert fraudulently obtained the note from "ablo andendorsed it to Dulian by forging "ablo!s signature. Dulian then endorsed the note to Camilo.

a% #ay Camilo enforce the said promissory note against #ario and Dose)b% #ay Camilo go against "ablo)c% #ay Camilo enforce said note against Dulian)d% Against whom can Dulian have the right of recourse)e% #ay "ablo recover from either #ario or Dose)

plain your answers.

Answer *a% Camilo may not enforce said promissory note against #ario and 9ose. The promissory

note at the time of forgery being payable to order, the signature of "ablo was essential

for the instrument to pass title to subse'uent parties. A forged signature is inoperative. Accordingly, the parties after the forgery are not 9uridically related to parties after theforgery to allow such enforcement.

b% Camilo may not go against "ablo, the latter not having indorsed the instrument.

c% Camilo may enforce the instrument against Dulian because of his special indorsement toCamilo, thereby maing him secondarily liable, both being parties after the forgery.

d% Dulian, in turn, may enforce the instrument against Bert who, by his forgery, hasrendered himself primarily liable.

e% "ablo preserves his right to recover from either #arion or Dose who remain parties 9uridically related to him. #ario is still considered primarily liable to "ablo. "ablo may, incase of dishonor, go after Dose who, by his special indorsement, is secondarily liable.

Q"es#$%n N%& +!Che@che invented a device that can convert rainwater to automobile fuel. he ased

#acon, a lawyer, to assist in getting her invention patented. #acon suggested that they form acorporation with other friends and have the corporation apply for a patent, H/K of the shares of stoc thereof to be subscribed by Che@hhe and ?K by #acon. The corporation was formed andthe patent application was filed. owever, Che@che died months later of a heart attac.

7ranco, the estranged husband of Che@che, contested the application of the corporationof the corporation and filed his own patent application of the corporation and filed his own patentapplication as the sole surviving heir of Che@che. &ecide the issue with reasons.

Answer *The estranged husband of Che@che cannot successfully contest the application. The

right over inventions accrue from the moment of creation and as a right it can lawfully beassigned. =nce the title thereto is vested in the transferee, the latter has the right to apply for its

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registration. The estranged husband of Che@che, if not dis'ualified to inherit, merely wouldsucceed to the interest of Che@che.

Q"es#$%n N%& ,!a% #anosa, a newspaper columnist, while maing a deposit in a ban, overheard a pretty ban

teller informing a co@employee that Figi, a well@nown public official, has 9ust a few hundredpesos in her ban account and that her net chec will in all probability bounce. #anosawrote this information in his newspaper column. Thus, Figi filed a complaint with the =fficeof the City 7iscal of #anila for unlawfully disclosing information about her ban account. 6illthe said suit prosper) plain your answer.

b% upposing that Figi is charged with unlawfully ac'uiring wealth under 8A 3o. 1>2 and thatthe fiscal issued a subpoena duces tecum for the records of the issuance on the ground thatthe same violates the law on secrecy of ban deposits) plain your answer.

Answer!a% The ecrecy of Ban &eposits Act prohibits, sub9ect to its eclusionary clauses, any person

from eamining, in'uiring or looing into all deposits of whatever nature with bans or baning institutions in the "hilippines which by law are declared 4absolutely confidential5 innature. #anosa, who merely overheard what appeared to be vague remar of a Banemployee to a co@employee and writing the same in his newspaper column is neither thein'uiry nor disclosure contemplated by the law.

b% Among the instances ecepted from the coverage of the ecrecy of Ban &eposits Act areanti@graft cases. ence, Figi may not validly oppose the issuance of a subpoena ducestecum for the ban records on her.

Q"es#$%n N%& -!

=ne day 9erry haw, doing business under the name tarlight nterprises, a soleproprietorship, finds himself short on cash and unable to pay his debts as they fall due althoughhe has sufficient property to cover such debts. e ass you, as his retained counsel, for adviceon the following 'ueries*

a% hould he file a petition with the C to be declared in a state of suspension of payments inview of the said financial condition he faces) plain your answer.

b% hould he sell profit participation certificates to his 1/ brothers and sisters in order to raisecash for his business) plain your answer.

Answer *

a% I would counsel Derry aw to file the "etition for uspension of "ayment with the ordinarycourts, rather than the C. C!s 9urisdiction over such cases is confined only to petitionsfiled by corporations and partnerships under its regulatory powers.

b% Instead of selling profit participation certificates, I would urge Derry aw to enter into apartnership or to incorporate in order to raise cash for his business.

Q"es#$%n N%& .!

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"eter o hailed a taicab owned and operated by Dimmy Cheng and driven by ermieCorte:. "eter ased Corte: to tae him to his office in #alate. =n the way to #alate, the taicabcollided with a passenger 9eepney, as a result of which "eter was in9ured, i.e., he fractured hisleft leg. "eter sued Dimmy for damages, based upon a contract of carriage, and "eter won.Dimmy wanted to challenge the decision before the upreme Court on the ground that the trialcourt erred in not maing an epress finding as to whether or not Dimmy was responsible for the

collision and, hence, civilly liable to "eter. e went to see you for advice. 6hat will you tell him)plain your answer.

Answer *I will counsel Dimmy to desist from challenging the decision. The action of "eter being

based on culpa contractual, the carrier!s negligence is presumed upon the breach of contract.The burden of proof instead would lie on Dimmy to establish that despite an eercise of utmostdiligence the collision could not have been avoided.

Q"es#$%n N%& 10!Gone, who lives in Bulacan, bought a 12HH model Toyota Corolla sedan on Duly 1, 12H2

from Anadelaida, who lives in ue:on City, for "//,///, paying "1?/,/// as down paymentand promising to pay the balance in e'ual 'uarterly installments beginning =ctober 1, 12H2.

Anadelaida eecuted a deed of sale of the vehicle in favor of Gonee and, to secure the unpaidbalance of the purchase price, had Gonee eecute a deed of chattel mortgage on the vehicle in

Anadelaida!s favor.

1/ days after the eecution of the abovementioned documents, Gonee had the car transferred and registered in her name. Contemporaneously, Anadelaida had the chattelmortgage on the car registered in the Chattel #ortgage 8egistry of the =ffice of the 8egister of &eed of ue:on City.

In eptember 12H2, Gonee sold the sedan to Dimbo without telling the latter that the car

was mortgaged to Anadelaida. 6hen Gonee failed to pay the first installment on =ctober 1,12H2, Anadelaida went to see Gonee and discovered that the latter had sold the car to Dimbo.

a% Dimbo refused to give up the car on the ground that the chattel mortgage eecuted byGonee in favor of Anadelaida is not valid because it was eecuted before the car wasregistered in Gonee!s name, i.e, before Gonee became the registered owner of the car. Isthe said argument meritotios) plain your answer.

b% Dimbo also argued that even if the chattel mortgage is valid, it cannot affect him becauseit was not properly registered with the government offices where it should be registered.6hat government office is Dimbo referring to)

Answer *a% Dimbo!s argument is not meritorious. Gone became the owner of the property upon

deliveryJ registration is not essential to vest that ownership in the buyer. The eecution of the chattel mortgage by the buyer in favor of the seller, in fact, can demonstrate thevesting of such ownership to the mortgagor.

b% Dimbo was referring to the 8egister of &eeds of Bulacan where Gonee was a resident.The Chattel #ortgage Law re'uires the registration to be made in the =ffice of the

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8egister of &eeds of the province where the mortgagor resides and also in which theproperty is situated as well as the LT= where the vehicle is registered.

Q"es#$%n N%& 11!Dohnny owns a arao 9eepney. e ased his neighbor an if he could operate the said

9eepney under an!s certificate of public convenience. an agreed and, accordingly, Dohnnyregistered his 9eeney in an!s name.

=n Dune 1/, 122/, one of the passenger 9eepneys operated by an bumped Tomas.Tomas was in9ured and in due time, he filed a complaint for damages against an and his driver for the in9uries he suffered. The court rendered 9udgment in favor of Tomas and ordered an andhis driver, 9ointly and severally, to pay Tomas actual and moral damages, attorney!s fees, andcost.

The heriff levied on the 9eepney belonging to Dohnny but registered in the name of an.Dohnny filed a third@party claim with the heriff alleging ownership of the 9eepney levied uponand stating that the 9eepney was registered in the name of an merely to enable Dohnny to

mae use of an!s certificate of public convenience.

#ay the heriff proceed with the public auction of Dohnny!s 9eepeny) &iscuss thereasons.

Answer *+es, the heriff may proceed with the auction sale of D9ohnny!s 9eepney. In contemplation

of law as regards the public and third persons, the vehicle is considered the property of theregistered operator.

Q"es#$%n N%& 12!

a% uppose that 7ortune owns a house valued at "//,/// and insured the same againstfire with insurance companies as follows*

M @@@@@@@@@@@@@@@@@@@ "<//,///.//+ @@@@@@@@@@@@@@@@@@@ "-//,///.//G @@@@@@@@@@@@@@@@@@@ "//,///.//

In the absence of any stipulation in the policies from which insurance company or companies may 7ortune recover in case of fire should destroy his house completely)

b% If each of the fire insurance policies obtained by 7ortune in problem $a% is a valued policyand the value of his house was fied in each of the policies at "1 #, how much would

7ortune recover from M if he has already obtained full payment on the insurance policiesissued by + and G)

c% If each of the policies obtained by 7ortune in problem $a% above is an open policy and itwas immediately determined after the fire that the value of 7ortune!s house was "-.< #,how much may he collect from M, + and G)

d% In problem $a%, what is the etent of the liability of the insurance companies amongthemselves)

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e% upposing in problem $a% above, 7ortune was able to collect from both + and G, may heeep the entire amount he was able to collect from the said - insurance companies)

plain your answer.

Answer *a% 7ortune may recover from the insurers in such order as he may select up to their concurrent

liability.

b% =ne Answer $assuming that the real value is "1 #%*7ortune may still recover only the balance of "-//,/// from M Insurance Company since

the insured may only recover up to the etent of his loss.

Another Answer $assuming that the real value is "//,///%*aving obtained full payment on the insurance policies issued by + and G, 7ortune may

no longer recover from M Insurance Company.

c% In an open policy, the insured may recover his total loss up to the amount of the insurancecoverage. Thus, the etent of recovery would be "<//,/// from MJ "-//,/// from +J and"//,/// from G.

d% In the problem $a%, the insurance companies among themselves would be liable, vi:*

M( <;1- of "//,/// Y "-//,///+( -;1- of "//,/// Y "1//,///G( ;1- of "//,/// Y "//,///

e% 3o, he can only be indemnified for his loss, not profit therebyJ hence, he must return"-//,/// of the "H//,/// he was able to collect.

Q"es#$%n N%& 13!In 12HH, the 7&A approved the labels submitted by Turbo Corporation for its new drug

brand name, 4Ailon5. Turbo is now applying with the Bureau of "atents, Trademars andTechnology Transfer for the registration of said brand name. It was subse'uently confirmed that4Accilonne5 is a generic term for a class of anti@fungal drugs and is used as such by the medicalprofessional and the pharmaceutical industry, and that it is used as generic chemical name invarious scientific and professional publications. A competing drug manufacturer ass you tocontest the registration of the brand name 4Ailon5 by Turbo.

6hat will be your advice)

Answer *The application for registration by Turbo Corporation may be contested. The Trademar

Law would not allow the registration of a trademar which, when applied to or used inconnection with his products, is merely descriptive or deceptively misdescriptive of them.Confusion can result from the result from the use of 4Ailon5 as the generic product itself.

Q"es#$%n N%& 14!

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#ercy subscribed to 1,/// shares of stoc of 8osario Corporation. he paid -?K of saidsubscription. &uring the stocholders! meeting, ca mercy vote all her subscribed shares)plain your answer.

Answer *+es, #ercy can vote all her subscribed shares. ection >- of the Corporation Code state

that holders of subscribed shares not fully paid which are not delin'uent shall have all the rightsof a stocholder.

Q"es#$%n N%& 1*!To accommodate Carmen, drawer $sic@ should be maer% of a promissory note, Dorge

signed as indorser thereon, and the instrument was negotiated to 8affy a holder for value. At thetime 8affy too the instrument, he new Dorge to be an accommodation party only. 6hen thepromissory note was not paid, and 8affy discovered that Carmen had no funds, he sued Dorge.e pleads in defense the fact the he had endorsed the instrument without receiving valuetherefor, and the further fact that 8affy new that at the time he too the instrument Dorge hadnot received any value or consideration of any ind for his instrument.

Is Dorge liable) &iscuss with reasons.

Answer *+es, Dorge is liable. ection -2 of the 3IL provides that an accommodation party is liable

on the instrument to a holder for value, notwithstanding the holder at the time of taing saidinstrument new him to be only an accommodation party. This is the nature or the essence of accommodation.

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5. mercantile law (1990-2014)

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