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

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ANSWERS TO BAR EXAMINATION QUESTIONS IN

MERCANTILE LAW ARRANGED BY TOPIC


(1990 2006)
Edited and Arranged by:

Silliman Univer ity C!llege !" La# $at%& '00(


U)dated by:

D BAR-Retake 2007

Dondee

From the ANSWERS TO BAR EXAMINATION QUESTIONS b the U! "AW #OM!"EX $ !%I"I!!INE ASSO#IATION OF "AW S#%OO"S 200&

'()e 2*+ 200*

*er i!n 1++0,'003 Arranged by SULAW Cla

Dondee

'00(

*er i!n 1++0,'00- U)dated by

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

.eneral Prin%i)le !" Mer%antile La#


Commercial Transaction (2003) What do you understand by the term commercial transaction? s it essential that at least one !arty to a contract be a merchant in order to consider such a commercial transaction? "#$%
SUGGESTED ANSWER:

co*nition- ,hile the &ode o' &ommerce *enerally reco*ni4es the theory o' mani'estationin the !er'ection o' contracts( 5o, do these t,o theories di''er?
SUGGESTED ANSWER:

6nder the theory o' co*nitionthe acce!tance is considered to e''ecti)ely bind the o''eror only 'rom the time it came to his kno,led*e( 6nder the theory o' mani'estation- the contract is !er'ected at the moment ,hen the acce!tance is declared or made by the o''eree(

A &ommercial transaction is de'ined as (((((( t is not essential that at least one !arty to the commercial transaction be a merchant( What is essential is that the transaction e)ince an intent to en*a*e in commerce or trade( Joint Account (2000) What is a +oint account? "2$%
SUGGESTED ANSWER:

A +oint account is a transaction o' merchants ,here other merchants a*ree to contribute the amount o' ca!ital a*reed u!on- and !artici!atin* in the 'a)orable or un'a)orable results thereo' in the !ro!ortion they may determine( Joint Account s! "artners#i$ (2000) Distin*uish +oint account 'rom !artnershi!( ".$%
SUGGESTED ANSWER:

Will the com!laint 'iled a*ainst the directors o' 5i 7ieldin* &or!oration !ros!er? 89!lain(

/he 'ollo,in* are the distinctions bet,een +oint account and !artnershi!0 "1% A !artnershi! has a 'irm name ,hile a +oint account has none and is conducted in the name o' the ostensible !artner( "2% While a !artnershi! has +uridical !ersonality and may sue or be sued under its 'irm name- a +oint account has no +uridical !ersonality and can sue or be sued only in the name o' the ostensible !artner( ".% While a !artnershi! has a common 'und- a +oint account has none( "#% While in a !artnershi!- all *eneral !artners ha)e the ri*ht o' mana*ement- in a +oint accountthe ostensible !artner mana*es its business o!erations( "2% While li3uidations o' a !artnershi! may- by a*reement- be entrusted to a !artner or !artners- in a +oint account li3uidation thereo' can only be done by the ostensible !artner( T#eor% o& Co'nition s! T#eor% o& (ani&estation ()**+) /he &i)il &ode ado!ts the theory o'

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$an/ing La#
,an-s: A$$lica.ilit%: /orei'n Currenc% De$osit Act 0 Secrec% o& ,an- De$osits (2001) 5i 7ieldin* &or!oration 'iled a com!laint a*ainst 'i)e o' its o''icers 'or )iolation o' :ection .1 o' the &or!oration &ode( /he cor!oration claimed that the said o''icers ,ere *uilty o' ad)ancin* their !ersonal interests to the !re+udice o' the cor!oration- and that they ,ere *rossly ne*li*ent in handlin* its a''airs( Aside 'rom documents and contracts- the cor!oration also submitted in e)idence records o' the o''icers 6(:( Dollar de!osits in se)eral banks o)erseas Boston Bank- Bank o' :,it4erland- and Bank o' ;e, 7ork(
<or their !art- the o''icers 'iled a criminal com!laint a*ainst the directors o' 5i 7ieldin* &or!oration 'or )iolation o' Re!ublic Act ;o( =#2=- other,ise kno,n as the <orei*n &urrency De!osit Act o' the >hili!!ines( /he o''icers alle*ed that their bank de!osits ,ere ille*ally disclosed 'or ,ant o' a court order- and that such de!osits ,ere not e)en the sub+ect o' the case a*ainst them( a%
SUGGESTED ANSWER:

accounts- e)en thou*h they are bankso!ened and constituted abroad( b% Was there a )iolation o' the :ecrecy o' Bank De!osits ?a, "Re!ublic Act ;o( 1#02%? 89!lain(

"2$%
SU..ESTE0 ANSWER:

;o- because the !uniti)e !ro)isions o' the :ecrecy o' Bank De!osits ?a, "R(A( ;o( 1#02%- includin* the statutory e9em!tions !ro)ided therein- are not a!!licable to <&D6 accounts- e)en ,hen constituted locally(
"Intengan v. Court of Appeals, G.R. No. 128996, February 15, 2 2%

,an-s: Collateral Securit% (2002)


Andre, is en*a*ed in the business o' buildin* lo,-cost housin* units under contracts ,ith real estate de)elo!ers( 5e a!!lied 'or a loan o' >. @illion 'rom Ready &redit Bank "the Bank%- ,hich re3uired Andre, to !ro)ide collateral security 'or it( Andre, o''ered to assi*n to the Bank his recei)ables amountin* to ># million 'rom 5ome Builders De)elo!ment &or!oration "the Abli*or%( /he Bank acce!ted the o''er( Accordin*ly- Andre, obtained the loan and he e9ecuted a !romissory note undertakin* to !ay the loan in 'ull in one lum! sum on :e!tember 12002- to*ether ,ith interest thereon at the rate o' 20$ !er annum( At the same timeAndre, e9ecuted a Deed o' Assi*nment in 'a)or o' the Bank assi*nin* to the Bank his recei)ables 'rom the Abli*or( /he deed o' assi*nment read0

;o- because the <orei*n &urrency De!osit Act "R(A( ;o( =#2=%- includin* its !uniti)e !ro)isions- re'ers to 'orei*n currency de!osits accounts constituted ,ithin the >hili!!ines( t has no a!!lication at all to

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

- Andre, ?ee- hereby assi*n- trans'er and con)eyabsolutely and unconditionally- to Ready &redit Bank "hereina'ter called the Bank% all o' my ri*ht- title and interest in and to my accounts recei)able 'rom 5ome Builders De)elo!ment &or!oration "hereina'ter called the Abli*or% arisin* 'rom deli)ery o' housin* units ,ith a total contract !rice o' >#-000-000(00the descri!tion and contract )alue o' ,hich are attached hereto as Anne9 A "hereina'ter called the Recei)ables%( n the e)ent that shall be unable to !ay my outstandin* indebtedness o,ned to the Bank- the Bank shall ha)e the ri*ht- ,ithout any 'urther 'ormality or act on its !artto collect the Recei)ables 'rom the Abli*or and to a!!ly the !roceeds thereo' to,ard !ayment o' my said indebtedness( Andre, 'ailed to !ay the loan on its due date on :e!tember 1- 2002( When the Bank attem!ted to collect 'rom the Abli*or- the Bank disco)ered that the latter had already closed o!erations and li3uidated all its assets( /he Bank sued Andre, 'or collection- but Andre, mo)ed to dismiss the com!laint on the *round that the debt had already been !aid by reason o' his e9ecution o' the a'oresaid Deed o' Assi*nment ,hich- bein* absolute and unconditional- ,as in essence a dacion en !a*o( /he Bank o!!osed the motion- contendin* that the Deed o' Assi*nment ,as only a security 'or a loan( ' you ,ere the Bud*e- ho, ,ould you resol)e the motion to dismiss 'iled by Andre,? 89!lain "2$%
SU..ESTE0 ANSWER:

'a)or o' his creditor- @A( &D& com!lained that the *arnishment )iolated the ?a, on the :ecrecy o' Bank De!osits because the e9istence o' his sa)in*s account ,as disclosed to the !ublic( "2$% s &D&Cs com!laint meritorious or not? Reason brie'ly(
SU..ESTE0 ANSWER:

;o( &D&Cs com!laint is not meritorious( t ,as held in


C!"na #an$"ng Corporat"on v. %rtega, &9 'CRA (55 )19*(+ that !eso de!osits may

be *arnished and the de!ositary bank can com!ly ,ith the order o' *arnishment ,ithout )iolatin* the ?a, on the :ecrecy o' Bank De!osits( 89ecution is the *oal o' liti*ation as it is its 'ruit( Darnishment is !art o' the e9ecution !rocess( 6!on ser)ice o' the notice o' *arnishment on the bank ,here the de'endant de!osited 'unds- such 'unds become !art o' the sub+ect matter o' liti*ation(

(Since the question is outside the scope of the Bar Examination, it is recommended that the candidate be given full credit of 5%, whatever ma be his answer, and he be given a bonus if he made an answer in the following manner!"

/he motion to dismiss should be *ranted( /he sim!le absolute and unconditional con)eyance embodied in the deed o' assi*nment ,ould be o!erati)e- and the assi*nment ,ould constitute essentially a mode o' !ayment or dacion en !a*o( ,an-s: Secrec% o& ,an- De$osits2 Garnis#ment (2003) &D& maintained a sa)in*s account ,ith &Bank( An orders o' the @@ Re*ional /rial &ourt- the :heri'' *arnished >20-000 o' his account- to satis'y the +ud*ment in

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,an-s2 Classi&ications o& ,an-s (2002) /here are si9 "=% classes o' banks identi'ied in the Deneral Bankin* ?a, o' 2000( ;ame at least 'our "#% o' them and e9!lain the distin*uishin* characteristic or 'unction o' each one( "2$%
SU..ESTE0 ANSWER:

Any 'our "#% o' the 'ollo,in* si9 "=% classes o' banks identi'ied in the Deneral Bankin* ?a, o' 2002- to ,it0

the /hri't Banks Act o' 1FF2 "RA 7F0=%( #( Rural #an$s E these are those ,hich are or*ani4ed !rimarily to e9tend loans and other credit 'acilities to 'armers'ishermen or 'arm 'amilies- as ,ell as coo!erati)esmerchantsand !ri)ate and !ublic em!loyees and ,hose o!erations are !rimarily *o)erned by the Rural Banks Act o' 1FF2 "RA 7.2.%(

1( ,n"versal #an$s E /hese are those ,hich used to be called e9!anded commercial banks and the o!erations o' ,hich are no, !rimarily *o)erned by the Deneral Bankin* ?a, o' 2002( /hey can e9ercise the !o,ers o' an in)estment house and in)est in non-allied enter!rises( /hey ha)e the hi*hest ca!itali4ation re3uirement( 2( Co--er."al #an$s E /hese are ordinary or re*ular commercial banksas distin*uished 'rom a uni)ersal bank( /hey ha)e a lo,er ca!itali4ation re3uirement than uni)ersal banks and cannot e9ercise the !o,ers o' an in)estment house and in)est in nonallied enter!rises(

2( Cooperat"ve #an$s E these are those ,hich are or*ani4ed !rimarily to !ro)ide 'inancial and credit ser)ices to coo!erati)es and ,hose o!erations are !rimarily *o)erned by the &oo!erati)e &ode o' the >hili!!ines "RA =F.G%( =( Isla-". #an$s E these are those ,hich are or*ani4ed !rimarily to !ro)ide 'inancial and credit ser)ices in a manner or transaction consistent ,ith the slamic :hariah( At !resent- only the Al Amanah slamic n)estment Bank o' the >hili!!ines has been or*ani4ed as an slamic Bank( ,an-s2 Conser ator s! Recei er (2004) Distin*uish bet,een the role o' a conser)ator and that o' a recei)er o' a bank( "2(2$%
SU..ESTE0 ANSWER:

.( /!r"ft #an$s E /hese banks "such as sa)in*s and mort*a*e banks- stock sa)in*s and loan associationsand !ri)ate de)elo!ment banks% may e9ercise most o' the !o,ers and 'unctions o' a commercial bank e9ce!t that they cannot- amon* others- o!en current or check accounts ,ithout !rior @onetary Board a!!ro)al- and they cannot issue letters o' credit( /heir o!erations are *o)erned !rimarily by
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/he &onser)ator is a!!ointed 'or a !eriod not e9ceedin* one "1% year- to take char*e o' the assets- liabilities- and the mana*ement o' a bank or a 3uasi-bank in a state o' continuin* inabilityor un,illin*ness to maintain a condition o' li3uidity deemed ade3uate to !rotect the interest o' de!ositors and creditors( An the other hand- the Recei)er is a!!ointed to mana*e a bank or 3uasi-bank that is unable to !ay its liabilities in
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Dondee

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

the ordinary course o' business- or has insu''icient reali4able assets to meet its liabilities- or cannot continue in business ,ithout !robable losses to its de!ositors or creditorsH or has ,ill'ully )iolated a 'inal cease and desist order- in)ol)in* acts or transactions amountin* to 'raud or a dissi!ation o' the assets o' the institution( /he main !ur!ose o' the Recei)er is to recommend the rehabilitation or li3uidation o' the bank(

,an-s2 Dili'ence Re5uire6 ()**2) >lacido- a bank de!ositor- le't his checkbook on his desk at his house( 6nkno,n to him- a )isitor at the timenoticin* the same- took a check there'rom'illed it u! in the amount o' >.-000(00 and succeeded in encashin* the check on the same day( >lacidos account ,as thereby debited in the same amount(
Disco)erin* the erroneous debit- >lacido demanded that the bank credit him ,ith a like amount( /he bank re'used on the *round that >lacido ,as ne*li*ent in lea)in* his checkbook on his desk so that he could not !ut u! the de'ense o' 'or*ery or ,ant o' authority under the ; ?( /he <acts disclose that e)en to the naked eyethere ,ere marked di''erences bet,een >lacidos si*nature and the one in the check 'or*ed by the )isitor( As bet,een >lacido and the bank- ,ho should bear the loss? 89!lain(
SU..ESTE0 ANSWER:

'inancial !it the bank had 'allen into( mmediately a'ter the meetin*- I caused the !re!aration and issuance o' a mana*ers check !ayable to himsel' in the sum o' 2 million !esos e3ui)alent to the amount !laced or in)ested in the bank by a business ac3uaintance( 5e no, claims that he is kee!in* the 'unds in trust 'or the o,ner and that he had committed no )iolation o' the Deneral Bankin* Act "RA ..7- as amended% 'or ,hich he should be !unished( Do you a*ree that there has been no )iolation o' the statute? ".$%
SU..ESTE0 ANSWER:

;o( do not a*ree that there is no )iolation o' the statute "RA ..7- as amended%( I )iolated :ec G2 ,hen he caused the !re!aration and issuance o' a mana*ers check

/he bank should bear the loss( A dra,ee bank must e9ercise the hi*hest dili*ence in sa'e*uardin* the accounts o' its client-de!ositors( /he bank is also char*ed ,ith *enuineness o' the si*natures o' its current account holders( But ,hat can be more strikin* is that there ,ere marked di''erences bet,een >lacidos si*nature and the one in the check 'or*ed by the )isitor( &ertainly- >lacido ,as not ne*li*ent in lea)in* his checkbook in his o,n desk "0N# v 1u"-po 158 'CRA 582% ,an-s2 7nsol enc%2 "ro#i.ite6 Transactions (2000) /he @onetary Board o' the B:> closed 6rban Bank a'ter it encountered cri!!lin* 'inancial di''iculties that resulted in a bank run( I- one o' the members o' the BAD o' the bank- attended and stayed throu*hout the entire meetin* o' the Board that ,as held ,ell in ad)ance o' the bank run and be'ore ne,s had be*un to trickle to the business community about the dire

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!ayable to himsel' in the sum o' >2 million( /his is !ayin* out or !ermittin* to be !aid out 'unds o' the bank a'ter the latter became insol)ent( /his act is !enali4ed by 'ine o' not less than >1-000(00 nor more than >10-000(00 and by im!risonment 'or not less than t,o nor more than ten years( ,an-s2 7nsol enc%2 Re5uirements ()**+) Di)e the basic re3uirements to be com!lied ,ith by the B:> be'ore the @onetary Board can declare a bank insol)entorder it closed and 'orbid it 'rom doin* 'urther business in the >hili!!ines(
SU..ESTE0 ANSWER:

shall determine and con'irm i' the bank is insol)ent- and !ublic interest re3uires- to order the li3uidation o' the bank( ,an-s2 Restrictions on 8oan Accommo6ations (2002) As !art o' the sa'e*uards a*ainst im!rudent bankin*- the Deneral Bankin* ?a, im!oses limits or restrictions on loans and credit accommodations ,hich may be e9tended by banks( denti'y at least t,o "2% o' these limits or restrictions and e9!lain the rationale o' each o' them( "2$%
SU..ESTE0 ANSWER:

1( /here must be an e9amination by the head o' the De!artment o' :u!er)ision or his e9aminers or a*ents into the condition o' the bank(

Be'ore the @onetary Board can declare a bank insol)ent- order it closed and 'orbid it 'rom doin* 'urther business in the >hili!!inesthe 'ollo,in* basic re3uirements must be com!lied ,ith by the B:>- to ,it0

2( /he e9amination discloses that the condition o' the bank is one o' insol)ency- or that its continuance in business ,ould in)ol)e !robable loss to creditors or de!ositors( .( /he head o' said De!artment shall in'orm in ,ritin* the @onetary Board o' such 'acts(
#( 6!on 'indin* said in'ormation or statement to be true- the @onetary Board shall a!!oint a recei)er to take char*e o' the assets and liabilities o' the bank(

Any t,o "2% o' the 'ollo,in* limits or restrictions on loan and credit transactions ,hich may be e9tended by banks- as !art o' the sa'e*uards a*ainst im!rudent bankin*- to ,it0 1( SBL Rules E "i(e(- :in*le Borro,ers ?imit% rules are those !romul*ated by the Ban*ko :entral n* >ili!inasu!on the authority o' :ection .2 o' the Deneral Bankin* ?a, o' 2000,hich re*ulate the total amount o' loans- credit accommodations and *uarantees that may be e9tended by a bank to any !erson- !artnershi!associationcor!oration or other entity( /he rules seek to !rotect a bank 'rom makin* e9cessi)e loans to a sin*le borro,er by !rohibitin* it 'rom lendin* beyond a s!eci'ied ceilin*(
2( DOSRI Rules E /hese rules !romul*ated by the B:>u!on authority o' :ection 2 o' the Deneral Bankin* ?a, o' 2000- ,hich re*ulate the amount o' credit accommodations that a bank may e9tend to its
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2( Within =0 days- the @onetary Board


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

directors- o''icers- stockholders and their related interests "thus- DA:R %( Denerallya banks credit accommodations to its DA:R must be in the re*ular course o' business and on terms not less 'a)orable to the bank than those o''ered to non- DA:R borro,ers( .( ;o commercial bank shall make any loan or discount on the security o' shares o' its o,n ca!ital stock( ,an-s2 Restrictions on 8oan Accommo6ations (2004) >io is the !resident o' Western Bank( 5is ,i'e a!!lied 'or a loan ,ith the said bank to 'inance an internet ca'e( /he loan o''icer told her that her a!!lication ,ill not be a!!ro)ed because the *rant o' loans to related interests o' bank directors- o''icersand stockholders is !rohibited by the Deneral Bankin* ?a,( 89!lain ,hether the loan o''icer is correct( "2$%
SU..ESTE0 ANSWER:

,ith the use o' both keys( /he renters de!osited certi'icates o' title in the bo9( But later- they disco)ered that the certi'icates ,ere *one( @; and A> no, claim 'or dama*es 'rom : BA;J( s the bank liable? 89!lain brie'ly( "2$%
SU..ESTE0 ANSWER:

/he bank is liable- based on the decisions o' the :u!reme &ourt in '1 1gro8/ndustrial
Development 'orp0 v0 'ourt of 1ppeals, %#9 S',1 5%& (#99$" and Sia v0 'ourt of 1ppeals, %%% S',1 %5 (#99$"0 n those cases- the :u!reme &ourt

ruled that the rentin* out o' sa'ety de!osit bo9es is a Kspecial (ind of depositK ,herein the bank is the de!ositary( n the absence o' any sti!ulation !rescribin* the de*ree o' dili*ence re3uired- that o' a *ood 'ather o' a 'amily is to be
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:ection .= o' the Deneral Bankin* ?a, o' 2000 does not entirely !rohibit directors or o''icers o' the bank- directly or indirectly'rom borro,in* 'rom the bank( n this case>io is the !resident o' Western Bank- ,hich makes him an o''icer- director and stockholder o' the said bank( /he Deneral Bankin* ?a, !ro)ides 'or additional restrictions to the bank be'ore it can lend to its directors or o''icers( A ,ritten a!!ro)al o' the ma+ority )ote o' all the directors o' the bank- e9cludin* the director concerned- is re3uired( <urthermore- such dealin*s must be u!on terms not less 'a)orable to the bank than those o''ered to others "Section #$%&, 'entral Ban()s *+anual of ,egulations for Ban(s and -ther .inancial /ntermediaries, cited in ,anioso v0 '1, 20,0 3o0 ##45#&, December 6, %777 %( A )iolation o' this !ro)ision ,ill cause his or her !osition to be declared )acant and the errin* director or o''icer sub+ected to the !enal !ro)isions o' the ;e, &entral Bank Act(

,an-s2 Sa&et% De$osit ,o92 8ia.ilit% @; and A> rented a sa'ety de!osit bo9 at : BA;J( /he !arties si*ned a contract o' lease ,ith the conditions that0 the bank is not a de!ository o' the contents o' the sa'e and has neither the !ossession nor control o' the sameH the bank assumed no interest in said contents and assumes no liability in connection there,ith( /he sa'ety de!osit bo9 had t,o keyholes0 one 'or the *uard key ,hich remained ,ith the bankH and the other 'or the rentersC key( /he bo9 can be o!ened only

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the houses and lots( .( n disclosin* RudyCs bank accounts to the A@?&- did the bank )iolate any la,? "2(2$%
SU..ESTE0 ANSWER:

obser)ed by the de!ositary( Any sti!ulation e9em!tin* the de!ositary 'rom any liability arisin* 'rom the loss o' the thin* de!osited ,ould be )oid 'or bein* contrary to la, and !ublic !olicy( /he de!osit bo9 is located in the bank !remises and is under the absolute control o' the bank( ,an-s2 Secrec% o& ,an- De$osit2 A(8C (2004)
Rudy is +obless but is re!uted to be a +ueten* o!erator( 5e has ne)er been char*ed or con)icted o' any crime( 5e maintains se)eral bank accounts and has !urchased 2 houses and lots 'or his children 'rom the ?uansin* Realty- nc( :ince he does not ha)e any )isible +obthe com!any re!orted his !urchases to the Anti-@oney ?aunderin* &ouncil "A@?&%( /herea'ter- A@?& char*ed him ,ith )iolation o' the Anti-@oney ?aunderin* ?a,( 6!on re3uest o' the A@?&- the bank disclosed to it RudyCs bank de!osits amountin* to >100 @illion( :ubse3uentlyhe ,as char*ed in court 'or )iolation o' the Anti@oney ?aunderin* ?a,(

;o- the bank did not )iolate any la,( /he bank bein* s!eci'ied as a Kco)ered institutionK under the Anti- @oney ?aunderin* ?a,- is obli*ed to re!ort to the A@?& co)ered and sus!icious transactions- ,ithout thereby )iolatin* any la,( /his is one o' the e9ce!tions to the :ecrecy o' Bank De!osit Act(

*er i!n 1++0,'00- U)dated by Dondee

1( &an Rudy mo)e to dismiss the case on the *round that he has no criminal record? "2(2$%
SU..ESTE0 ANSWER:

;o( 6nder the Anti-@oney ?aunderin* ?a,Rudy ,ould be *uilty o' a Kmoney launderin* crimeK committed ,hen the !roceeds o' an Kunla,'ul acti)ity-K like +ueten* o!erations- are made to a!!ear as ha)in* ori*inated 'rom le*itimate sources( /he money launderin* crime is se!arate 'rom the unla,'ul acti)ity o' bein* a +ueten* o!eratorand re3uires no !re)ious con)iction 'or the unla,'ul acti)ity ":ee also :ec( .- Anti- @oney ?aunderin* Act o' 2001%(

2( /o raise 'unds 'or his de'ense- Rudy sold the houses and lots to a 'riend( &an ?uansin* Realty- nc( be com!elled to trans'er to the buyer o,nershi! o' the houses and lots? "2(2$%
SU..ESTE0 ANSWER:

?uansin* Realty- nc( is a real estate com!any- hence it is not a co)ered institution under :ection . o' the Anti@oney ?aunderin* Act( Anly bankin* institutionsinsurance com!aniessecurities dealers and brokers- !re- need com!anies and other entities administerin* or other,ise dealin* in currencycommodities or 'inancial deri)ati)es are co)ered institutions( 5ence- ?uansin* Realty- nc( may not use the Anti-@oney ?aunderin* Act to re'use to trans'er to the buyer o,nershi! o'

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

F(

#( :u!!osin* the titles o' the houses and lots are in !ossession o' the ?uansin* Realtync(is it under obli*ation to deli)er the titles to Rudy? "2(2$%
SU..ESTE0 ANSWER:

Niolations o' the Anti-@oney ?aunderin* ?a,( 10( When the :tate e9ercisesLin)okes its >olice >o,er(
(3-:1 BE3E! /t is suggested that an of the above be given full credit" &

7es- it has an obli*ation to deli)er titles to Rudy( As ?uansin* Realty- nc( is not a co)ered institution under :ection . o' the Anti-@oney ?aunderin* Act- it may not in)oke this la, to re'use deli)ery o' the titles to Rudy(

,an-s2 Secrec% o& ,an- De$osits ()**0)


@anosa- a ne,s!a!er columnist- ,hile makin* a de!osit in a bank- o)erheard a !retty bank teller in'ormin* a co- em!loyee that Di*i- a ,ell kno,n !ublic o''icial- has +ust a 'e, hundred !esos in her bank account and that her ne9t check ,ill in all !robability bounce( @anosa ,rote this in'ormation in his ne,s!a!er column( /hus- Di*i

,an-s2 Secrec% o& ,an- De$osit2 E9ce$tions (2004)


6nder Re!ublic Act ;o(1#02 "/he Bank :ecrecy ?a,%- bank de!osits are considered absolutely con'idential and may not be e9amined- in3uired or looked into by any !erson- *o)ernment o''icial- bureau or o''ice(

What are the e9ce!tions? "2$%


SU..ESTE0 ANSWER:

/he e9ce!tions to the Bank :ecrecy ?a, are the 'ollo,in*0 1( :!ecial or *eneral e9amination o' a bank- authori4ed by the Ban*ko :entral n* >ili!inasC @onetary Board- in connection ,ith a bank 'raud or serious irre*ularity( 2( 89amination by an inde!endent Auditor- hired by the Bank and 'or the BankCs e9clusi)e use( .( Disclosure ,ith the De!ositorCs ,ritten !ermission( a( n case o' m!eachment( b( n cases o' Bribery or dereliction o' duty by a >ublic A''iceru!on order o' a com!etent court( c( n cases o' money de!ositedLin)ested ,hich- in turn- is the sub+ect o' ?iti*ationu!on order o' a com!etent &ourt( #( DA:R ?oans0 ?oans ,ith their Banks o' Bank Directors- A''icers:tockholders and related interests( a( ?oans in e9cess o' 2$ o' the BankCs &a!ital M :ur!lus b( /he Borro,er ,ai)ed his ri*ht as re*ards the :ecrecy o' Bank De!osits 2( Niolation o' the Anti-Dra't and &orru!t >ractices Act( =( &ou! dC etat ?a, "RA =F=G- Act 2#-1FF0%( 7( BR &ommissionerCs authority to )eri'y a decedentCs Dross 8state and a ta9!ayerCs re3uest 'or a com!romise a*reement due to inca!acity to !ay his ta9 liability( G( <orei*n &urrency De!osits by 'orei*n lenders M in)estors under >Ds 10.#(

Page

1- of 103

'iled a com!laint ,ith the &ity <iscal o' @anila 'or unla,'ully disclosin* in'ormation about her bank account( a% Will the said suit !ros!er? 89!lain your ans,er(
b% :u!!osin* that Di*i is char*ed ,ith unla,'ully ac3uirin* ,ealth under RA 1.7F and that the 'iscal issued a subpoena duces tecum 'or the records o' the bank account o' Di*i( @ay Di*i )alidly o!!ose the said issuance on the *round that the same )iolates the la, on secrecy o' bank

subpoena duces tecum 'or the bank records on her(

,an-s2 Secrec% o& ,an- De$osits ()**))


/he la, "RA =G.2% creatin* a &ommission to conduct a /horou*h <act-<indin* n)esti*ation o' the <ailed &ou! detat o' Dec 1FGF- Recommend @easures to >re)ent the Accurrence o' :imilar Attem!ts At a Niolent :ei4ure o' >o,er and 'or Ather >ur!oses!ro)ides that the &ommission may ask the @onetary Board to disclose in'ormation on andLor to *rant authority to e9amine any bank de!osits- trust or in)estment 'undsor bankin* transactions in the name o' andLor utili4ed by a !erson- natural or +uridicalunder in)esti*ation by the &ommission- in any bank or bankin* institution in the >hili!!ines- ,hen the &ommission has reasonable *round to belie)e that said de!osits- trust or in)estment 'unds- or bankin* transactions ha)e been used in su!!ort or in 'urtherance o' the ob+ecti)es o' the said cou! detat( Does the abo)e !ro)ision not )iolate the ?a, on :ecrecy o' Bank De!osits "RA 1#02%?
SU..ESTE0 ANSWER:

de!osits? 89!lain your ans,er(


SU..ESTE0 ANSWER:

a% /he :ecrecy o' Bank De!osits Act !rohibitssub+ect to its e9clusionary clauses- any !erson 'rom e9aminin*- in3uirin* or lookin* into all de!osits o' ,hate)er nature ,ith banks or bankin* institutions in the >hili!!ines ,hich by la, are declared absolutely con'idential in nature( @anosa ,ho merely o)erheard ,hat a!!eared to be a )a*ue remark o' a Bank em!loyee to a coem!loyee and ,ritin* the same in his ne,s!a!er column is neither the in3uiry nor disclosure contem!lated by la,(
ALTERNATI*E ANSWER:

a% /he com!laint a*ainst @anosa ,ill not !ros!er because merely ,ritin* a )a*ue remark o' a Bank em!loyee to a co-em!loyee is not the disclosure contem!lated by la,( ' anyone should be liable- it ,ill be the bank em!loyee ,ho disclosed the in'ormation(
SU..ESTE0 ANSWER:

b% Amon* the instances e9ce!ted 'rom the co)era*e o' the :ecrecy o' Bank De!osits Act are Anti-*ra't cases( 5ence Di*i may not )alidly o!!ose the issuance o' a
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

/he ?a, on :ecrecy o' Bank De!osits is itsel' merely a statutory enactment- and it maythere'ore- be modi'ied- or amended "such as by !ro)idin* 'urther e9ce!tions there'rom%- or e)en re!ealed- e9!ressly or im!liedly- by a subse3uent la,( /he :ecrecy o' Bank De!osits Act did not amount to a contract bet,een the de!ositors and de!ository banks ,ithin the meanin* o' the non- im!airment clause o' the &onstitution( 8)en i' it did- the !olice !o,er o' the :tate is su!erior to the non*er i!n 1++0,'00- U)dated by

Dondee

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

im!airment clause( RA =G.2- creatin* a commission to conduct an in)esti*ation o' the 'ailed 1FGF cou! detat and to recommend measures to !re)ent similar attem!ts to sei4e !o,er is a )alid e9ercise o' !olice !o,er(

branches and e9tension namin* them(

o''ices- s!eci'ically

,an-s2 Secrec% o& ,an- De$osits ()**2) :ocorro recei)ed O10-000 'rom a 'orei*n bank althou*h she ,as entitled only to O1-000(00( n an a!!arent !lan to conceal the erroneously sent amount- she o!ened a dollar account ,ith her local bankde!osited the O10-000 and issued # checks in the amount o' O2-000 and 1 check 'or O1-000 each !ayable to di''erent indi)iduals ,ho de!osited the same in their res!ecti)e dollar accounts ,ith di''erent local banks( /he sender bank then brou*ht a ci)il suit be'ore the R/& 'or the reco)ery o' the erroneously sent amount( n the course o' the trialthe sender !resented testimonies o' bank o''icials to sho, that the 'unds ,ere- in 'act- de!osited in a bank by :ocorro and !aid out to se)eral !ersons- ,ho !artici!ated in the concealment and dissi!ation o' the amount that :ocorro had erroneously recei)ed( :ocorro mo)ed to strike out said testimonies 'rom the record in)okin* the la, on secrecy o' bank de!osits( ' you ,ere the Bud*e- ,ould you issue an order to strike them out? Why?
SU..ESTE0 ANSWER:

@i*uel mo)ed to 3uash the sub!oenas ar*uin* that they )iolate the :ecrecy o' Bank De!osits ?a,( n addition- he contends that the sub!oenas are in the nature o' 'ishin* e9!edition or *eneral ,arrants and are constitutionally im!ermissible ,ith res!ect to !ri)ate indi)iduals ,ho are not under in)esti*ation( s @i*uels contention tenable?
SU..ESTE0 ANSWER:

;o( @i*uels contention is not tenable( /he in3uiry into ille*ally ac3uired !ro!erty e9tends to cases ,here such !ro!erty is concealed by bein* held by or recorded in the

,ill not strike out the testimonies 'rom the record( /he testimonies o' bank o''icials indicatin* ,here the 3uestioned dollar accounts ,ere o!ened in de!ositin* misa!!ro!riated sums must be considered as like,ise in)ol)ed in liti*ation E one ,hich is amon* the e9ce!ted cases under the :ecrecy o' Bank De!osits Act )2elon
#an$ v 2ags"no 19 'CRA 6((+

,an-s2 Secrec% o& ,an- De$osits ()**3)


@i*uela s!ecial customs a*ent is char*ed be'ore the Ambudsman ,ith ha)in* ac3uired !ro!erty out o' !ro!ortion to his salary- in )iolation o' the Anti-Dra't and &orru!t >ractices Act( /he Ambudsman issued a subpoena duces tecum to the Banco de &inco commandin* its re!resentati)e to 'urnish the Ambudsman records o' transactions by or in the name o' @i*uel- his ,i'e and children( A second sub!oena ,as issued e9!andin* the 'irst by includin* the !roduction o' records o' 'riends o' @i*uel in said bank and in all its

Page 12 of 103 name o' other !ersons( /o sustain @i*uels theory and restrict the in3uiry only to !ro!erty held by or in the name o' the *o)ernment o''icial ,ould make a)ailable to !ersons in *o)ernment ,ho ille*ally ac3uire !ro!erty an easy means o' e)adin* !rosecution( All they ha)e to do ,ould be to sim!ly !lace the !ro!erty in the name o' !ersons other than their s!ouses and children (Banco .ilipino

8astern to disclose the bank de!osits o' @ichael? Discuss 'ully(


SU..ESTE0 ANSWER:

Savings vs0 ;urisima #&# scra 54&< Sec 6 1nti8 2raft =aw as amended b B; #95"

,an-s2 Secrec% o& ,an- De$osits ()**1) @ichael ,ithdre, ,ithout authority 'unds o' the !artnershi! in the amounts o' >200th and 6:O20th 'or ser)ices he claims he rendered 'or the bene'it o' the !artnershi!( 5e de!osited the >200th in his !ersonal !eso current account ,ith >ros!erity Bank and the 6:O20th in his !ersonal 'orei*n currency sa)in*s account ,ith 8astern Bank( /he !artnershi! instituted an action in court a*ainst @ichael- >ros!erity- and 8astern to com!el @ichael to return the sub+ect 'unds to the !artnershi! and !endin* liti*ation to order both banks to disallo, any ,ithdra,al 'rom his accounts( At the initial hearin* o' the case the court ordered >ros!erity to !roduce the records o' @ichaels !eso current account- and 8astern to !roduce the records o' his 'orei*n currency sa)in*s account( &an the court com!el >ros!erity and
*er i!n 1++0,'003 Arranged by SULAW Cla

7es- as 'ar as the !eso account is concerned( :ec 2 o' RA 1#02 allo,s the disclosure o' bank de!osits in case ,here the money de!osited is the sub+ect matter o' liti*ation( :ince the case 'iled a*ainst @ichael is aimed at reco)erin* the amount he ,ithdre, 'rom the 'unds o' the !artnershi!- ,hich amount he alle*edly de!osited in his accounta disclosure o' his bank de!osits ,ould be !ro!er( ;o- ,ith res!ect to the 'orei*n currency account( 6nder the <orei*n &urrency ?a,- the e9em!tion to the !rohibition a*ainst disclosure o' in'ormation concernin* bank de!osits is the ,ritten consent o' the de!ositor( ,an-s2 Secrec% o& ,an- De$osits ()**:)
1FFG "20% An insurance com!any is deluded into releasin* a check to A 'or >.2th to !ay 'or /reasury Bills "/-bills% ,hich A claims to be en route on board an armored truck 'rom a *o)ernment bank( /he check is deli)ered to A ,ho de!osits it to his account ,ith I7P Bank be'ore the insurance com!any reali4es it is a scam( 6!on such reali4ation- the insurance com!any 'iles an action a*ainst A 'or reco)ery o' the amount de'rauded and obtains a ,rit o' !reliminary attachment( n addition to the ,rit- the Bank is also ser)ed a sub!oena to e9amine the account records o' A( /he Bank declines to !ro)ide any in'ormation in res!onse to the ,rit and mo)es to 3uash the sub!oena in)okin* secrecy o' bank
*er i!n 1++0,'00- U)dated by

Dondee

'00(

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

de!osits under RA 1#02- as amended( &an the Bank +usti'iably in)oke RA 1#02 and a% not res!ond to the ,rit and b% 3uash the sub!oena 'or e9amination? "2$%
SU..ESTE0 ANSWER:

!erson- *o)ernment o''icial- bureau or o''ice( 5o,e)er- the la, !ro)ides e9ce!tions in certain instances(

7es( Whether the transaction is considered a sale or money !lacement does not make the money sub+ect matter o' liti*ation ,ithin the meanin* o' :ec 2 o' RA 1#02 ,hich !rohibits the disclosure or in3uiry into bank de!osit e9ce!t in cases ,here the money de!osited or in)ested is the sub+ect matter o' liti*ation nor ,ill it matter ,hether the money ,as s,indled( ,an-s2 Secrec% o& ,an- De$osits (2000)
D> is a sus!ected +ueten* lord ,ho is rumored to be en+oyin* !olice and military !rotection( /he en)y o' many dru* lords ,ho had not esca!ed the dra*net o' the la,D> ,as summoned to a hearin* o' the &ommittee on Racketeerin* and Ather :yndicated &rimes o' the 5ouse o' Re!resentati)es- ,hich ,as conductin* a con*ressional in)esti*ation in aid o' le*islation on the in)ol)ement o' !olice and military !ersonnel- and !ossibly e)en o' local *o)ernment o''icials- in the ille*al acti)ities o' sus!ected *amblin* and dru* lords( :ub!oenaed to attend the in)esti*ation ,ere o''icers o' certain identi'ied banks ,ith a directi)e to them to brin* the records and documents o' bank de!osits o' indi)iduals mentioned in the sub!oenas- amon* them D>( D> and the banks o!!osed the !roduction o' the banks records o' de!osits on the *round that no such in3uiry is allo,ed under the ?a, on :ecrecy o' Bank De!osits "RA 1#02 as amended%( s the o!!osition o' D> and the banks )alid? 89!lain(
SU..ESTE0 ANSWER:

Which o' the 'ollo,in* may not be amon* the e9ce!tions0 1( n cases o' im!eachment( 2( n cases in)ol)in* bribery .( n cases in)ol)in* B R in3uiry( #( n cases o' anti-*ra't and corru!t !ractices( 2( n cases ,here the money in)ol)ed is the sub+ect o' liti*ation( 89!lain your ans,er or choice brie'ly( "2$%
SU..ESTE0 ANSWER:

7es( /he o!!osition is )alid( D> is not a !ublic o''icial( /he in)esti*ation does not in)ol)e one o' the e9ce!tions to the !rohibition a*ainst disclosure o' any in'ormation concernin* bank de!osits under the ?a, on :ecrecy o' Bank De!osits( /he &ommittee conductin* the in)esti*ation is not a com!etent court or the Ambudsman authori4ed under the la, to issue a sub!oena 'or the !roduction o' the bank record in)ol)in* such disclosure(

,an-s2 Secrec% o& ,an- De$osits2 E9ce$tions (2003)


/he ?a, on :ecrecy o' Bank De!osits !ro)ides that all de!osits o' ,hate)er nature ,ith banks or bankin* institutions are absolutely con'idential in nature and may not be e9amined- in3uired or looked into by any

Page

13 of 103

6nder :ection ="<% o' the ;ational nternal Re)enue &ode- the &ommissioner o' nternal Re)enue can in3uire into the de!osits o' a decedent 'or the !ur!ose o' determinin* the *ross estate o' such decedent( A!art 'rom this case- a B R in3uiry into bank de!osits cannot be made( /hus- e9ce!tion . may not al,ays be a!!licable( /urnin* to e9ce!tion #- an in3uiry into bank de!osits is !ossible only in !rosecutions 'or une9!lained ,ealth under the Anti-Dra't and &orru!t >ractices Act- accordin* to the :u!reme &ourt in the cases o' ;hilippine
3ational Ban( v0 2anca co, #5 S',1 9# (#9&5" and Banco .ilipino Savings and +ortgage Ban( v0 ;urisima, #&# S',1 54& (#966"0

la,? :tate the reason"s% 'or "2$%


SU..ESTE0 ANSWER:

your ans,er(

;o( /he notice o' *arnishment ser)ed on a bank at the instance o' a creditor is not co)ered by the ?a, on :ecrecy o' Bank De!osits( Darnishment is +ust a !art o' the !rocess o' e9ecution( /he moment a notice o' *arnishment is ser)ed on a bank and there e9ists a de!osit by the +ud*ment debtor- the bank is directly accountable to the sheri''- 'or the bene'it o' the +ud*ment creditor- 'or the ,hole amount o' the de!osit( n such e)ent- the amount o' the de!osit becomesin e''ect- a sub+ect o' the liti*ation( ,S"2 Recei ers#i$2 Juris6iction ()**2) <amily Bank ,as !laced under statutory recei)ershi! and subse3uently ordered li3uidated by the &entral Bank "&B% due to 'raud and irre*ularities in its lendin* o!erations ,hich rendered it insol)ent( Budicial !roceedin*s 'or li3uidation ,ere therea'ter commenced by the &B be'ore the R/&( <amily Bank o!!osed the !etition( :hortly therea'ter- <amily Bank 'iled in the same court a s!ecial ci)il action a*ainst the &B seekin* to en+oin and dismiss the li3uidation !roceedin* on the *round o' *ra)e abuse o' discretion by the &B( /he court !oised to0 1% restrain the &B 'rom closin* <amily BankH and 2% authori4e <amily Bank to ,ithdra, money 'rom its de!osits durin* the !endency o' the case( ' you ,ere the Bud*e- ,ould you issue such orders? Why?
SU..ESTE0 ANSWER:
*er i!n 1++0,'00- U)dated by

5o,e)er- all other cases o' anti-*ra't and corru!t !ractices ,ill not ,arrant an in3uiry into bank de!osits( /hus- e9ce!tion # may not al,ays be a!!licable( ?ike any other e9ce!tion- it must be inter!reted strictly(

89ce!tions 1- 2 and 2- on the other handare !ro)ided e9!ressly in the ?a, on :ecrecy o' Bank De!ositors( /hey are a)ailable to de!ositors at all times( ,an-s2 Secrec% o& ,an- De$osits2 Garnis#ment (200)) /he ?a, on :ecrecy o' Bank De!ositsother,ise kno,n as RA 1#02- is intended to encoura*e !eo!le to de!osit their money in bankin* institutions and also to discoura*e !ri)ate hoardin* so that the same may be !ro!erly utili4ed by banks to assist in the economic de)elo!ment o' the country( s a notice o' *arnishment ser)ed on a bank at the instance o' a creditor o' a de!ositor co)ered by the said
*er i!n 1++0,'003 Arranged by SULAW Cla

Dondee

'00(

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

;o( /he R/& has no authority to restrain the monetary board o' the B:> 'rom statutory authority to undertake recei)ershi! and ultimate li3uidation o' a bank( Any o!!osition to such an action could be made to the court itsel' ,here assistance is sou*ht( /he action o' the R/& ,here the !roceedin* is !endin* a!!eal ha)e to be made in the &ourt o' A!!eals( 8e'al Ten6er (2000) A'ter many years o' sho!!in* in the @etro @anila area- house,i'e 5W has de)elo!ed the sound habit o' makin* cash !urchases only- none on credit( n one sho!!in* tri! to @e*a @all- she *ot the shock o' her sho!!in* li'e 'or the 'irst time- a stores smart sales*irl re'used to acce!t her coins in !ayment 'or a !urchase ,orth not more than one hundred !esos( 5W ,as !ayin* se)enty !esos in 22- centa)o coins and t,enty 'i)e !esos in 10 centa)o coins( :tran*e as it may seem- the sales*irl told 5W that her coins ,ere not le*al tender( Do you a*ree ,ith the sales*irl in res!ect o' her understandin* o' le*al tender? 89!lain "2$%
SU..ESTE0 ANSWER:

/he B:> shall !ro)ide !olicy directions in the areas o' money- bankin* and credit( t shall ha)e su!er)ision o)er the o!erations o' banks and e9ercise such re*ulatory !o,ers as !ro)ided in the &entral Bank Act and other !ertinent la,s o)er the o!erations o' 'inance com!anies and non-bank 'inancial institutions !er'ormin* 3uasi- bankin* 'unctionssuch as 3uasi-banks and institutions !er'ormin* similar 'unctions(
/he !rimary ob+ecti)e o' the B:> is to maintain !rice stability conduci)e to a balanced and sustainable *ro,th

;o( /he sales*irls understandin* that coins are not le*al tender is not correct( &oins are le*al tender in amounts not e9ceedin* 'i'ty !esos 'or denominations 'rom t,enty 'i)e centa)os and abo)e- and in amounts not e9ceedin* t,enty !esos 'or denominations ten centa)os and less( "D7C 8a; s! Secrec% o& ,an- De$osits Act ()**+) An em!loyee o' a lar*e manu'acturin* 'irm earns a salary ,hich is +ust a bit more than ,hat he needs 'or a com'ortable li)in*( 5e is thus able to still maintain a >10-000 sa)in*s account- a >20-000 checkin* account- a >.0-000 money market !lacement and a >#0-000 trust 'und in a medium-si4e commercial bank( a% :tate ,hich o' the 'our accounts are deemed insured by the >D &(
b% :tate ,hich o' the abo)e accounts are co)ered by

the ?a, on :ecrecy o' Bank De!osits(


SU..ESTE0 ANSWER:

a% /he >10th sa)in*s account and the >20th checkin* account are deemed insured by the >D &( b% /he >10th sa)in*s account and the >20th checkin* account are co)ered by the ?a, on :ecrecy o' Bank De!osits( Res$onsi.ilities 0 <.=ecti es o& ,S" ()**:) What are the res!onsibilities and !rimary ob+ecti)es o' the B:>? "2$%
SU..ESTE0 ANSWER:

Page

1+ of 103

b% A )iolation o' the /ruth in ?endin* Act ,ill not ad)ersely a''ect the )alidity o' the contract itsel'(

o' the economy( t shall !romote and maintain monetary stability and con)ertibility o' the >eso( Trut# in 8en6in' Act ()**))
Dana Dianina !urchased on a .= month installment basis the latest model o' the ;issan :entra :edan car 'rom the Bobel &ars nc( n addition to the ad)ertised sellin* !ricethe latter im!osed 'inance char*es consistin* o' interests- 'ees and ser)ice char*es( t did not- ho,e)er- submit to Dana a ,ritten statement settin* 'orth therein the in'ormation re3uired by the /ruth in ?endin* Act "RA .7=2%( ;e)ertheless- the conditional deed o' sale ,hich the !arties e9ecuted mentioned that the total amount indicated therein included such 'inance char*es(

c%

t ,ould allo, Dana to re'use !ayment o' 'inancial char*es or- i' already !aidto reco)er the same( Dana may also initiate criminal char*es a*ainst the creditor(

ALTERNATI*E ANSWER:

c% ">er Atty Bomby >aras i' u read the !ro)isions closely% 6nder the /ruth in ?endin* Act- said 'inancial char*es are )alidand Dana may not re'use !ayment thereo'( Anly criminal char*es may be initiated a*ainst the creditor( Trut# in 8en6in' Act (2000)
8mbassy A!!liances sells home theater com!onents that are desi*ned and customi4ed as entertainment centers 'or consumers ,ithin the medium-to-hi*h !rice bracket( @ost- i' not all- o' these !acka*es are sold on installment basisusually by means o' credit cards allo,in* a ma9imum o' .= e3ual monthly !ayments( >re'erred credit cards o' this ty!e are those issued by banks- ,hich re*ularly hold mall ,ide sales blit4es !artici!ated in by a!!liance retailers like 8mbassy A!!liances( 7ou are a buyer o' a home theater center at 8mbassy A!!liances( /he salesclerk ,ho is attendin* to you sim!ly s,i!es your credit card on the electronic a!!ro)al machine ",hich momentarily !rints out your char*e sli! since you ha)e unlimited credit%- tears the sli! 'rom the machine- hands the same o)er to you 'or your si*nature- and
*er i!n 1++0,'00- U)dated by

a( 5as there been substantial com!liance o' the a'oresaid Act? b( ' your ans,er to the 'ore*oin* 3uestion is in the ne*ati)e- ,hat is the e''ect o' the )iolation on the contract? c( n the e)ent o' a )iolation o' the Act,hat remedies may be a)ailed o' by Dana?
SU..ESTE0 ANSWER:

a% /here ,as no substantial com!liance ,ith the /ruth in ?endin* Act( /he la, !ro)ides that the creditor must make a 'ull disclosure o' the credit lost( /he statement that the total amount due includes the !rinci!al and the 'inancial char*es,ithout s!eci'yin* the amounts due on each !ortion thereo' ,ould be insu''icient and unacce!table(
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

,ithout more- !roceeds to arran*e the deli)ery and installation o' your ne, home theater system( 7ou kno, you ,ill recei)e a statement on your credit card !urchases 'rom the bank containin* an o!tion to !ay only a minimum amount- ,hich is usually 1L.= o' the total !rice you ,ere char*ed 'or your !urchase( Did 8mbassy A!!liances com!ly ,ith the !ro)isions o' the /ruth in ?endin* Act "RA .7=2%?
SU..ESTE0 ANSWER:

to*ether ,ith the amount o' indebtedness due to each ":ec 2 Act .F22- amended%

,ul- Sales 8a;2 Co ere6 Transactions (2000)


&om!any I- en*a*ed in the business o' manu'acturin* car !arts and accessorieso!erates a 'actory ,ith e3ui!mentmachinery and tools 'or this !ur!ose( /he manu'actured *oods are sold ,holesale to distributors and dealers throu*hout the >hili!!ines( &om!any I ,as amon* the business entities ad)ersely hit by the 1FF7 Asian business crisis( ts sales dro!!ed ,ith the decline in car sales and its o!eratin* costs escalated,hile its creditor banks and other 'inancial institutions ti*htened

/here is no need 'or 8mbassy A!!liances to com!ly ,ith the /ruth in ?endin* Act( /he transaction is not a sale on installment basis( 8mbassy A!!liances is a seller on cash basis( t is the credit card com!any ,hich allo,s the buyer to en+oy the !ri)ile*e o' !ayin* the !rice on installment basis(

$4l/ Sale La#


,ul- Sales 8a;2 Co ere6 Transactions ()**3)
:tanrus nc a de!artment store ,ith outlets in @akati@andaluyon*and Que4on &ity- is contem!latin* to re'urbish and reno)ate its @akati store in order to introduce the most modern and state o' the art e3ui!ment in merchandise dis!lay( /o carry out its !lan- it intends to sell A?? o' the e9istin* 'i9tures and e3ui!ment "dis!lay cases,all decorations- 'urniture- counters- etc(% to &rossroads De!artment :tore( /herea'terit ,ill buy and install ne, 'i9tures and e3ui!ment and continue o!erations( &rossroads ,ants to kno, 'rom you as counsel0

1% Whether the intended sale is bulk sale( 2% 5o, can it !rotect itsel' 'rom 'uture claims o' creditors o' :tanrus(
SU..ESTE0 ANSWER:

1% 7es( /he sale in)ol)es all 'i9tures and e3ui!ment- not in the ordinary course o' trade and the re*ular !rosecution o' business o' :tanrus- nc( ":ec 2 Act .F22as amended%
2% &rossroads should re3uire 'rom :tanrus nc( submission o' a ,ritten ,ai)er o' the Bulk :ales ?a, by the creditors as sho,n by )eri'ied statements or to com!ly ,ith the re3uirements o' the Bulk :ales ?a,that is- the seller must noti'y his creditors o' the terms and conditions o' the sale- and also- be'ore recei)in* 'rom the )endee any !art o' the !urchase !rice- deli)er to such )endee a ,ritten s,orn statement o' the names and addresses o' all his creditors

Page '0 of 103 their loan !ort'olios( &om!any I ,as 'aced ,ith the dismal choice o' either sus!endin* its o!erations or sellin* its business( t chose the latter( 5a)in* struck a deal ,ith &om!any P- a more )iable entity en*a*ed in the same business- &om!any I sold its entire business to the 'ormer ,ithout much 'an'are or any 'orm o' !ublicity( n 'act- e)idence e9ists that the transaction ,as 'urti)ely entered into to a)oid the !ryin* eyes o' &om!any Is creditors( /he creditor banks and other 'inancial institutions sued &om!any I 'or )iolation o' the Bulk :ales ?a,( Decide( "2$% SU..ESTE0 ANSWER:

not a sale by a merchant( :ection G o' the Bulk :ales ?a, itsel' !ro)ides that it has no a!!lication to e9ecutorsadministrators- recei)ers- assi*nees in insol)encyor !ublic o''icers- actin* under !rocess( /he Bulk :ales ?a, only a!!lies to the sale or encumbrance o' a merchant o' *oods- merchandise or commodity done Kin bulkK as de'ined by the ?a, itsel'( ,ul- Sales 8a;2 E9clusions ()**3) n the annual meetin* o' I7P &or!orationthe stockholders unanimously ado!ted a resolution !ro!osed by the BAD to sell substantially all the 'i9tures and e3ui!ment used in and about its business( /he >resident o' the &or!oration a!!roached you and asked 'or le*al assistance to e''ect the sale( 1% What ste!s should you take so that the sale may be )alid?
2% What are the t,o instances ,hen the saletrans'er- mort*a*e or assi*nment o' stock o' *oods- ,ares- merchandise!ro)ision- or materials other,ise than in the ordinary course o' trade and the re*ular !rosecution o' the business o' the )endor are not

&om!any I )iolated the Bulk :ales ?a, ,hen it sold its entire business to &om!any P 'urti)ely to a)oid the !ryin* eyes o' its creditors( ts manu'actured *oods are sold ,holesale to distributors and dealers( /he sale o' all or substantially all o' its stocks- not in the ordinary course o' business- constitutes bulk sale( /he transaction bein* a bulk sale- enterin* into such transaction ,ithout com!lyin* ,ith the re3uirements o' the Bulk :ales ?a,- &om!any I )iolated said la,( ,ul- Sales 8a;2 Co ere6 Transactions (2004) >ursuant to a ,rit o' e9ecution issued by the Re*ional /rial &ourt in K89!ress Bank )( Don Rubio-K the sheri'' le)ied and sold at !ublic auction G !hotoco!yin* machines o' Don Rubio( s the sheri''Cs sale co)ered by the Bulk :ales ?a,? "2$%
SU..ESTE0 ANSWER:

deemed to be a sale or trans'er in bulk?


SU..ESTE0 ANSWER:

;o( /he sale by sheri'' at !ublic sale is


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1% /he re3uirements o' the Bulk :ales ?a, must be com!lied ,ith( /he seller deli)ers to the !urchaser a list o' his creditors and the !urchaser in turn noti'ies such creditors o' the !ro!osed sale at a sti!ulated time in ad)ance(

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Dondee

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

2% ' the sale and trans'er is made a% by the )endormort*a*ortrans'eror or assi*nor ,ho !roduces and deli)ers a ,ritten ,ai)er o' the !ro)isions o' the Bulk :ales ?a, 'rom his creditors as sho,n by )eri'ied statementH and b% by a )endor- mort*a*or- trans'eror or assi*nor ,ho is an e9ecutoradministratorrecei)er- assi*nee in insol)ency- or !ublic o''icer actin* under +udicial !rocess- the sale or trans'er is not co)ered by the Bulk :ales ?a,(

:ales ?a,? n the a''irmati)e- ,hat must be done by the !arties so as to com!ly ,ith the la,?
SU..ESTE0 ANSWER:

7es( /his is a sale o' the stock o' *oods'i9tures and entire business- not in the ordinary course o' business or trade o' the )endor( Be'ore recei)in* 'rom the )endee any !art o' the !urchase !rice- the )endor must deli)er to such )endee a ,ritten statement- duly s,orn- o' the names and addresses o' all creditors to ,hom said )endor may be indebted- to*ether ,ith the amount o'

,ul- Sales 8a;2 <.li'ation o& t#e >en6or ()**1) 5ouse o' >i44a ">i44a% is the o,ner and o!erator o' a nation,ide chain o' !i44a outlets( 5ouse o' ?i3uor "?i3uor% is a retailer o' all kinds o' li3uor( 5ouse o' <oods "<oods% has o''ered to !urchase all o' the outlets- e3ui!ment'i9tures and 'urniture o' >i44a( <oods also o''ered to !urchase 'rom ?i3uor all o' its moderately !riced stock constitutin* 20$ o' its total in)entory( Both >i44a and ?i3uor ha)e creditors( What le*al re3uirements must >i44a and ?i3uor com!ly ,ith in order 'or <oods to consummate the transactions? Discuss 'ully(
SU..ESTE0 ANSWER:

>i44a and ?i3uor must !re!are an a''ida)it statin* the names o' all their creditors- their addresses- the amounts o' their credits and their res!ecti)e maturities( >i44a and ?i3uor must submit said a''ida)it to <oods ,hichin turn- should noti'y the creditors about the transaction ,hich is about to be concluded ,ith >i44a and ?i3uor(
ALTERNATI*E ANSWER:

As 'ar as ?i3uor is concerned- it must !re!are an a''ida)it statin* the names o' all its creditors- their addresses- the amounts o' their credits and their res!ecti)e maturities( t must submit said a''ida)it to its buyer,ho in turnshould noti'y the creditors about the transaction ,hich is about to be concluded ,ith his seller(

But as 'ar as >i44a is concerned- it is not co)ered by the Bulk :ales ?a,( :o <oods can consummate the transaction ,ithout doin* anythin*( ,ul- Sales 8a;2 <.li'ation o& t#e >en6or ()**+) /he sole !ro!rietor o' a medium-si4e *rocery sho!- en*a*ed in both ,holesale and retail transactions- sells the entire business lock- stock and barrel because o' his !lan to emi*rate abroad ,ith his 'amily( s he co)ered by the !ro)isions o' the Bulk

Page '1 of 103

indebtedness due or o,in*- on account o' the *oods- 'i9tures or business sub+ect matter o' the bulk sale(

!rocedureLste!s re3uired by la, under 3uestion letter "a% hereo'? "1$%


SU..ESTE0 ANSWER:

,ul- Sales 8a;2 <.li'ation o& t#e >en6or (200)) A is a merchant en*a*ed in the sale o' a )ariety o' *oods and merchandise( Because o' the economic crisis- he incurred indebtedness to I- 7 and P( /herea'ter- A sold to B all the stock o' *oods and merchandise( a% What ste!s should A undertake to e''ect a )alid sale in bulk o' his *oods to B( "2$%(
SU..ESTE0 ANSWER:

/he recourse o' I- 7- and P is to 3uestion the )alidity o' the sale 'rom A to B so as to reco)er the *oods and merchandise to satis'y their credits(

C!n 4mer Pr!te%ti!n La#


(etric S%stem 8a; ()**3) An*elene is a customer o' @eralco 8lectric &om!any "@8&A%( Because o' the abru!t rise in electricity ratesAn*elene com!lained ,ith @8&A insistin* that she should be char*ed the 'ormer rates( 5o,e)er- An*elene did not tender any !ayment( When @8&As em!loyees ser)ed the 'irst #G- hour notice o' disconnectionAn*elene !rotested( @8&A- ho,e)er- did not im!lement the #G-hour notice o' disconnection( nsteadits em!loyees e9amined An*elenes electric meterchan*ed the sameand installed another( :till- An*elenemade no tender o' !ayment( @8&A ser)ed a second #G-hour notice o' disconnection on Bune 22- 1FG#( t *a)e An*elene until 2 !m o' Bune 22- 1FG# ,ithin ,hich to !ay( As no !ayment had been made- @8&A cut An*elenes electric ser)ice on Bune 2G- 1FG#( An*elene contends that the #G-hour ,ritten notice o' disconnection rule cannot be in)oked by @8&A
*er i!n 1++0,'00- U)dated by

A must !re!are an a''ida)it statin* the names o' all his creditors- in this case- I7- and P- their addresses- the amount o' their credits and their maturity( A should *i)e the a''ida)it to B ,ho- in turn- should 'urnish a co!y to each creditor and noti'y the creditors that there is a !ro!osed bulk sale in order to enable the latter to !rotect their interests(
b% :u!!ose A submitted a 'alse statement on the schedule o' his creditors( What is the e''ect o' such

'alse statement as to Nendee B( "2$%


SU..ESTE0 ANSWER:

' the )endee does not ha)e kno,led*e o' the 'alsity o' the schedule- the sale is )alid( 5o,e)er- i' the )endee has kno,led*e o' such 'alsity- the sale is )oid because he is in bad 'aith( c% What is the ri*ht o' creditors I- 7- and P i' A 'ailed to com!ly ,ith the
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Dondee

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

SU..ESTE0 ANSWER:

,hen there is a bona 'ide and +ust dis!ute as to the amount due as her electric consum!tion rate( s An*elenes contention )alid?
SU..ESTE0 ANSWER:

;o( An*elenes only le*al recourse in this case ,as to !ay the electric bill under !rotest( 5er 'ailure to do so +usti'ied @8&A to cut the electric ser)ice ('eni>a v '1
%#6 S %97"

C!r)!rati!n La#
,<D: Election o& Aliens as mem.ers (2001) A Jorean national +oined a cor!oration ,hich is en*a*ed in the 'urniture manu'acturin* business( 5e ,as elected to the Board o' Directors( /o com!lement its 'urniture manu'acturin* business- the cor!oration also en*a*ed in the lo**in* business( With the additional lo**in* acti)ity- can the Jorean national still be a member o' the Board o' Directors? 89!lain( ".$%
SU..ESTE0 ANSWER:

;o- there is no bindin* contract 'or the 2-000 ba*s o' 'ertili4er( <irst- the 'acts do not indicate that Rodman- the >resident o' /< &o- ,as authori4ed by the BAD to enter into the said contract or that he ,as em!o,ered to do so under some !ro)ision o' the by-la,s o' /< &o( /he 'acts do not also indicate that Rodman has been clothed ,ith the a!!arent !o,er to e9ecute the contract or a*reements similar to it( :econd- /< &o has s!eci'ically in'ormed Dre*orio that it has not rati'ied the contract 'or the sale o' 2-000 ba*s o' 'ertili4er and that the deli)ery to

7es- +ust as lon* as si9ty !ercent "=0$% o' the Board o' Directors are <ili!inos( &or!orations that are si9ty !ercent "=0$% o,ned by <ili!inos can en*a*e in the business o' e9!loration- de)elo!ment and utili4ation o' natural resources( "Art( I :ec( 2- 1FG7 &onstitution% /he election o' aliens as members o' the Board A' Directors en*a*in* in !artially-nationali4ed acti)ities is allo,ed in !ro!ortion to their allo,able !artici!ation or share in the ca!ital o' such entities( ":ec( 2-A- AntiDummy ?a,% ;othin* in the 'acts sho,s that more than 'orty !ercent "#0$% o' the Board o' Directors are 'orei*ners(

,<D2 Ca$acit% o& Directors ()**4) Rodman- the >resident o' /< &o- ,rote a letter to Dre*orio- o''erin* to sell to the latter 2-000 ba*s o' 'ertili4er at >100 !er ba*( Dre*orio si*ned his con'ormity to the letter-o''er- and !aid a do,n-!ayment o' >20th( A 'e, days later- the &or!orate :ecretary o' /< in'ormed Dre*orio o' the decision o' their BAD not to rati'y the letter o''er( 5o,e)ersince Dre*orio had already !aid the do,n-!ayment- /< deli)ered 200 ba*s o' 'ertili4er ,hich Dre*orio acce!ted( /< made it clear that the deli)ery should be considered an entirely ne, transaction( /herea'terDre*orio sou*ht en'orcement o' the lettero''er( s there a bindin* contract 'or the 2-000 ba*s o' 'ertili4er? 89!lain(

Page

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Aune #5,

Dre*orio o' 200 ba*s- ,hich Dre*orio acce!ted- is an entirely ne, transaction(
(?ao @a Sin :rading v '1 2, 5$6%7 #99% %79s4&$"

contact but the !i* skins e9!orted ,ere not sourced 'rom AB&( 5is 'ello, directors in AB& com!lained that he should ha)e *i)en this business to AB&( 5o, ,ould you decide on this matter?
SU..ESTE0 ANSWER:

,<D2 Com$ensation ()**))


A'ter many di''icult years- ,hich called 'or sacri'ices on the !art o' the com!anys directors- AB& @anu'acturin* nc ,as 'inally earnin* substantial !ro'its( /husthe >resident !ro!osed to the BAD that the directors be !aid a bonus e3ui)alent to 12$ o' the com!anys net income be'ore ta9 durin* the !recedin* year( /he >residents !ro!osal ,as unanimously a!!ro)ed by the BAD( A stockholder o' AB& 3uestioned the bonus( Does he ha)e *rounds to ob+ect?
SU..ESTE0 ANSWER:

,ould decide in 'a)or o' @r De Dios( AB& is en*a*ed in raisin* and sellin* ho*s in the local market( /he com!any that @r De Dios had set u! ,as to en*a*e- as it did- in the e9!ort o' !i*s skins( /here is thus no con'lict o' interest bet,een @r( De Dios and AB& >i**er nc so as to make the case 'all ,ithin the con'lict o' interest situation under the la, ":ec .# &or! &ode%
-bservation! :he term Bconflict of interestC is susceptible to varied views and interpretations0

7es- the stockholder as a )alid and le*al *round to ob+ect to the !ayment to the directors o' a bonus e3ui)alent to 12$ o' the com!anys net income( /he la, !ro)ides that the total annual com!ensation o' the directors- in the !recedin* year- cannot e9ceed 10$ o' the com!anys net income be'ore income ta9 ":ec .0 &or! &ode%( ,<D2 Con&lict o& 7nterest ()**3) AB& >i**er nc is en*a*ed in raisin* and sellin* ho*s in the local market( @r( De Dios- one o' its directors ,hile tra)elin* abroad- met a leather *oods manu'acturer ,ho ,as interested in buyin* !i* skins 'rom the >hili!!ines( @r De Dios set u! a se!arate com!any and started e9!ortin* !i* skins to his 'orei*n

,<D2 7nterloc-in' Directors ()**1) &hito :antos is a director o' both >latinum &or!oration and J,ik :il)er &or!oration( 5e o,ns 1$ o' the outstandin* ca!ital stock o' >latinum and #0/ o' J,ik( >latinum !lans to enter into a contract ,ith J,ik that ,ill make both com!anies earn )ery substantial !ro'its( /he contract is !resented at the res!ecti)e board meetin*s o' >latinum and J,ik( 1( n order that the contract ,ill not be )oidable- ,hat conditions ,ill ha)e to be com!lied ,ith? 89!lain( 2( ' these conditions are not met- ho, may this contract be rati'ied? 89!lain(
SU..ESTE0 ANSWER:

1( At the meetin* o' the BAD o' >latinum to a!!ro)e the contract- &hito ,ould ha)e to make sure that
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Dondee

'00(

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

a% his !resence as director at the meetin* is not necessary to constitute a 3uorum 'or such meetin*H b% his )ote is not necessary 'or the a!!ro)al o' the contractH and c% the contract is 'air and reasonable under the circumstances( At the meetin* o' the BAD o' J,ik to a!!ro)e the contract- &hito ,ould ha)e to make sure that a% there is no 'raud in)ol)edH and b% the contract is 'air and reasonable under the circumstances(
SU..ESTE0 ANSWER:

the assum!tion that the same ,as a!!ro)ed by the BAD o' ;/ &o be'ore it ,as si*ned and that such a!!ro)al ,as made under the 'ollo,in* conditions0 1% /hat the !resence o' Ra!hael- the o,ner o' A 8nt- in the meetin* o' the BAD at ,hich the a*reement ,as a!!ro)ed ,as not necessary to constitute a 3uorum 'or such meetin*H 2% /hat the )ote o' Ra!hael ,as not necessary 'or the a!!ro)al o' the a*reementH .% /hat the a*reement is 'air and reasonable under the circumstances ":ec .2 &or! &ode% ,%?8a;s2 >ali6it%2 limitin' 5uali&ications o& ,<D mem.ers ()**:)

2( ' the conditions relatin* to the 3uorum and re3uired number o' )otes are not met- the contract must be rati'ied by the )ote o' stockholders re!resentin* at least 2L. o' the outstandin* ca!ital stock in a meetin* called 'or the !ur!ose( <urthermore- the ad)erse interest o' &hito in the contract must be disclosed and the contract is 'air and reasonable( ":ecs( .2 and ..- B> =G% ,<D2 7nterloc-in' Directors ()**4)
?eonardo is the &hairman and >resident- ,hile Ra!hael is a Director o' ;/ &or!oration( An one occasion- ;/ &ore!resented by ?eonardo and A 8nta sin*le !ro!rietorshi! o,ned by Ra!haelentered into a dealershi! a*reement ,hereby ;/ &o a!!ointed A 8nt as e9clusi)e distributor o' its !roducts in ;orthern ?u4on( s the dealershi! a*reement )alid? 89!lain(
SU..ESTE0 ANSWER:

/he dealershi! a*reement is )oidable at the o!tion o' ;/ &o inasmuch as the 'acts do not indicate that the same ,as a!!ro)ed by the BAD o' ;/ &o be'ore it ,as si*ned or- assumin* such a!!ro)al- that it ,as a!!ro)ed under the 'ollo,in* conditions0 1% /hat the !resence o' Ra!hael- the o,ner o' A 8nt- in the meetin* o' the BAD at ,hich the a*reement ,as a!!ro)ed ,as not necessary to constitute a 3uorum 'or such meetin*H 2% /hat the )ote o' Ra!hael ,as not necessary 'or the a!!ro)al o' the a*reementH .% /hat the a*reement is 'air and reasonable under the circumstances ":ec .2 &or! &ode%
ALTERNATI*E ANSWER:

/he dealershi! a*reement is )alid u!on

Page

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/he BAD o' I &o- actin* on a standin* authority o' the stockholders to amend the by-la,s- amended its by-la,s so as to dis3uali'y any o' its stockholders ,ho is also a stockholder and director o' a com!etitor 'rom bein* elected to its BAD(
7- a stockholder holdin* su''icient assets to assure him o' a seat in the BAD- 'iled a !etition ,ith the :8& 'or a declaration o' nullity o' the amended by-la,s( 5e alle*ed amon* other thin*s that as a stockholderhe had ac3uired ri*hts inherent in stock o,nershi! such as the ri*ht to )ote and be )oted u!on in the election o' directors( s the stockholders !etition tenable? "2$%
SU..ESTE0 ANSWER:

cor!oration ,hose business com!etition ,ith or is anta*onistic other cor!oration is )alid( ,%?8a;s2 >ali6it%2 limitin' 5uali&ications o& ,<D mem.ers (2000)

is in to the

;o( /here is no )ested ri*ht o' a stockholder to be elected as director( When a !erson buys stock in a cor!oration he does so ,ith the kno,led*e that its a''airs are dominated by a ma+ority o' the stockholders( /o this e9tent- the stockholder !arted ,ith his !ersonal ri*ht to re*ulate the dis!osition o' his !ro!erty ,hich he in)ested in the ca!ital stock o' the cor!oration and surrendered it to the ,ill o' the ma+ority o' his 'ello, incor!orators or stockholders( &or!orations ha)e the !o,er to make byla,s declarin* a !erson em!loyed in the ser)ice o' a ri)al com!any to be ineli*ible 'or the &or!orations BAD( An amendment ,hich renders a director ineli*ible- or i' elected- sub+ects him to remo)al- i' he is also a director in a
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

At the annual stockholders meetin* o' @: &or!orationthe stockholders unanimously !assed a resolution authori4in* the Board o' Directors to amend the cor!orate by-la,s so as to dis3uali'y any stockholder ,ho is also a director or stockholder o' a com!etin* business 'rom bein* elected to the Board o' Directors o' @: &or!oration( /he by-la,s ,ere accordin*ly amended( DJa stockholder o' @: &or!oration and a ma+ority stockholder o' a com!etitor- sou*ht election to the Board o' Directors o' @: &or!oration( 5is nomination ,as denied on the *round that he ,as ineli*ible to run 'or the !osition( :eekin* a nulli'ication o' the o''endin* dis3uali'ication !ro)isionDJ consults you about its )alidity under the &or!oration &ode o' the >hils( What ,ould your le*al ad)ice be? ".$%
SU..ESTE0 ANSWER:

/he !ro)ision in the amended by-la,s dis3uali'yin* any stockholder ,ho is also a director or stockholder o' a com!etin* business 'rom bein* elected to the Board o' Directors o' @: &or! is )alid( /he cor!oration is em!o,ered to ado!t a code o' by-la,s 'or its *o)ernment not inconsistent ,ith the &or! &ode( :uch dis3uali'yin* !ro)ision is not inconsistent ,ith the &or! &ode( ,%?8a;s2 >ali6it%2 limitin' 5uali&ications o& ,<D mem.ers (200))
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Mercantile Law Bar Examination Q & A (1990-2006)

s a by-la, !ro)ision o' I &or!oration renderin* ineli*ible or i' elected- sub+ect to remo)al- a director i' he is also a director in a cor!oration ,hose business is in com!etition ,ith or is anta*onistic to said cor!oration )alid and le*al? :tate your reasons( "2$%(
SU..ESTE0 ANSWER:

such !o,er o' sel'-*o)ernment bein* essential to enable the cor!oration to accom!lish the !ur!oses o' its creation(K Close Cor$orations2 Dea6loc-s ()**1)
Robert- Rey and Ben e9ecuted a +oint )enture a*reement to 'orm a close cor!oration under the &or! &ode the outstandin* ca!ital stock o' ,hich the three o' them ,ould e3ually o,n( /hey also !ro)ided therein that any cor!orate act ,ould need the )ote o' 70$ o' the outstandin* ca!ital stock( /he terms o' the a*reement ,ere accordin*ly im!lemented and the corres!ondin* close cor!oration ,as incor!orated( A'ter . years- Robert- Rey and Ben could not a*ree on the business in

7es- the by-la, !ro)ision is )alid( t is the ri*ht o' a cor!oration to !rotect itsel' a*ainst !ossible harm and !re+udice that may be caused by its com!etitors( /he !osition o' director is hi*hly sensiti)e and con'idential( /o say the least- to allo, a !erson- ,ho is a director in a cor!oration ,hose business is in com!etition ,ith or is anta*onistic to I &or!oration- to become also a director in I &or!oration ,ould be harborin* a con'lict o' interest ,hich is harm'ul to the latter (2o(ongwei Ar v SE' 69 S $$& (#949"<
94 S 46 (#967""0

,%?8a;s2 >ali6it%2 limitin' 5uali&ications o& ,<D mem.ers (2003) /o !re)ent the entry o' @arlo 8nri3ue4- ,hom it considered as one anta*onistic to its interests- into its Board o' Directors- Bayan &or!oration amended its articles o' incor!oration and by-la,s to add certain 3uali'ications o' stockholders to be elected as members o' its Board o' Directors( When !resented 'or a!!ro)al at a meetin* o' its stockholders duly called 'or the !ur!ose- the amendments ,ere o)er,helmin*ly rati'ied( @arlo 8nri3ue4 brou*ht suits a*ainst Bayan &or!oration to 3uestion the amendments( Would the action !ros!er? Why? "#$%
SU..ESTE0 ANSWER:

(per Dondee" /he :& reiterated in the case o'

S+' vs0 SE' decided in 1pril ##, #949, that it is reco*ni4ed by all authorities that Ce)ery cor!oration has the inherent !o,er to ado!t by-la,s C'or its internal *o)ernment- and to re*ulate the conduct and !rescribe the ri*hts and duties o' its members to,ards itsel' and amon* themsel)es in re'erence to the mana*ement o' its a''airs(CK At common la,- the rule ,as Kthat the !o,er to make and ado!t by- la,s ,as inherent in e)ery cor!oration as one o' its necessary and inse!arable le*al incidents( And it is settled throu*hout the 6nited :tates that in the absence o' !ositi)e le*islati)e !ro)isions limitin* it- e)ery !ri)ate cor!oration has this inherent !o,er as one o' its necessary and inse!arable le*al incidentsinde!endent o' any s!eci'ic enablin* !ro)ision in its charter or in *eneral la,-

Page '1 of 103 ,hich to in)est the 'unds o' the cor!oration( Robert ,ants the deadlock broken( 1( What are the remedies a)ailable to Robert under the &or! code to break the deadlock? 89!lain( 2(Are there any remedies to !re)ent the !araly4ation o' the business a)ailable to Robert under >D F02-A ,hile the !etition to break the deadlock is !endin* liti*ation? 89!lain( SU..ESTE0 ANSWER:

by-la,s or a total !rice o' >122-000 only( While the by-la,s o' :ta( Ana !ro)ides that the ri*ht o' 'irst re'usal can be e9ercised at a !rice not e9ceedin* 22$ more than the !ar )alue o' such shares- the Articles o' ncor!oration sim!ly !ro)ides that the stockholders o' record shall ha)e !re'erential ri*ht to !urchase said shares( t is silent as to !ricin*( s Ra'ael bound by the !ricin* !ro)iso under the by-la,s o' :ta( Ana &or!oration?
SU..ESTE0 ANSWER:

1( Robert can !etition the :8& to arbitrate the dis!ute,ith such !o,ers as !ro)ided in :ec 10# o' the &or! &ode( 2( /he :8& can a!!oint a rehabilitation recei)er or a mana*ement committee( Close6 Cor$oration2 Restriction2 Trans&er o& s#ares ()**3) Ra'ael inherited 'rom his uncle 10-000 shares o' :ta( Ana &or!oration- a close cor!oration( /he shares ha)e a !ar )alue o' >10(00 !er share( Ra'ael noti'ied :ta( Ana that he ,as sellin* his shares at >70(00 !er share( /here bein* no takers amon* the stockholders- Ra'ael sold the same to his cousin Nicente ",ho is not a stockholder% 'or >700-000( /he &or!orate :ecretary re'used to trans'er the shares in Nicentes name in the cor!orate books because Alberto- one o' the stockholders- o!!osed the trans'er on the *round that the same )iolated the by-la,s( Alberto o''ered to buy the shares at >12(20 !er share- as 'i9ed by the

7es( n a close cor!oration- the restriction as to the trans'er o' shares has to be statedL annotated in the Articles o' ncor!oration- the By-?a,s and the certi'icate o' stock( /his ser)es as notice to the !erson dealin* ,ith such shares like Ra'ael in this case( With such notice- he is bound by the !ricin* stated in the By-la,s(
ALTERNATI*E ANSWER:

;o- Ra'ael is not bound by the !ricin* !ro)iso under the By-la,s o' :ta Ana &or!oration( 6nder the cor!oration la,- the restrictions on the ri*ht to trans'er shares must a!!ear in the articles o' incor!oration and in the by-la,s as ,ell as in the certi'icate o' stock- other,ise- the same shall not be bindin* on any !urchaser thereo' in *ood 'aith( @oreo)er the restriction shall not be more onerous than *rantin* the e9istin* stockholders or the cor!oration the o!tion to !urchase the shares o' the trans'errin* stockholder ,ith such reasonable term or !eriod stated therein(
*er i!n 1++0,'00- U)dated by

*er i!n 1++0,'003 Arranged by SULAW Cla

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

5ere- limitin* the !rice to be !aid- ,hen the ri*ht o' 'irst re'usal is e9ercised- to not more than 22$ !ar )alue- ,ithout any 3uali'ication ,hatsoe)er- is not in the articles( t is merely stated in the By-la,s( /here'ore such limitation shall not be bindin* on the !urchaser( (2oSoc( D Sons D S 2ui Euat
/nc v /1' #9 .eb 64 +in ,es"

moral and e9em!lary dama*es- attorneys 'ees and costs( A@D 'iled a motion to dismissar*uin* that the :8& has no +urisdiction o)er cases o' ille*al dismissal- and has no !o,er to a,ard dama*es(

:hould the motion to dismiss be *ranted? 89!lain(


SU..ESTE0 ANSWER:

Contro ers%2 7ntra?Cor$orate ()**3)


Because o' disa*reement ,ith the BAD and a threat by the BAD to e9!el her 'or misconduct and ine''iciency&arissa o''ered in ,ritin* to resi*n as >resident and member o' the BAD- and to sell to the com!any all her shares therein 'or >.00-000(00 5er o''er to resi*n ,as e''ecti)e as soon as my shares are 'ully !aid( At its meetin*the BAD acce!ted &arissas resi*nation- a!!ro)ed her o''er to sell back her shares o' stock to the com!any- and !romised to buy the stocks on a sta**ered basis( &arissa ,as in'ormed o' the BAD Resolution in a letter-a*reement to ,hich she a''i9ed her consent( /he &om!anys ne, >resident sin*ed the !romissory note( A'ter !ayment >100-000 the com!any de'aulted in !ayin* the balance o' >200-000(

As o' 200=- the a!!licable rule is that there is a /RA;:<8RR8D B6R :D &/ A; under :ec( 2(2 o' the :R&the &ommissions +urisdiction o)er all cases enumerated under >D F02-A sec( 2 has been trans'erred to the &ourts o' *eneral +urisdiction or the a!!ro!riate R8D A;A? /R A? &A6R/( Contro ers%2 7ntra?Cor$orate ()**4)

&arissa ,ants to sue the &om!any to collect the balance( ' you ,ere retained by &arissa as her la,yer- ,here ,ill you 'ile the suit? A% ?abor ArbiterH b% R/&H or c% :8&?
SU..ESTE0 ANSWER:

/he R/& has +urisdiction o)er this case ,hich in)ol)es intra-cor!orate contro)ersy( As o' 200=- the a!!licable rule is that there is a /RA;:<8RR8D B6R :D &/ A; under :ec( 2(2 o' the :R&- the &ommissions +urisdiction o)er all cases enumerated under >D F02-A sec( 2 has been trans'erred to the &ourts o' *eneral +urisdiction or the a!!ro!riate Re*ional /rial &ourt(

Contro ers%2 7ntra?Cor$orate ()**4) n 1F70- @a*no +oined A@D &o as a Bunior Accountant( 5e steadily rose 'rom the ranks until he became A@Ds 89ecuti)e N>( :ubse3uently- ho,e)er because o' his in)ol)ement in certain anomaliesthe A@D BAD considered him resi*ned 'rom the com!any due to loss o' con'idence(
A**rie)ed- @a*no 'iled a com!laint in the :8& 3uestionin* the )alidity o' his termination- and seekin* reinstatement to his 'ormer !osition,ith back,a*es)acation and sick lea)e bene'its- 1.th month !ay and &hristmas bonus- !lus

Page

'( of 103

Benni'er and Dabriel o,ned the controllin* stocks in @<< &o and &?A ncboth 'amily cor!orations( Due to serious disa*reements- Benni'er assi*ned all her shares in @<< to Dabriel- ,hile Dabriel assi*ned all his shares in &?A to Benni'er( :ubse3uently- Benni'er and &?A 'iled a com!laint a*ainst Dabriel and @<< in the :8& seekin* to reco)er the cor!orate records and 'unds o' &?A ,hich Dabriel alle*edly re'used to turn o)er- and ,hich remained in the o''ices o' @<<( s there an intra-cor!orate contro)ersy in this case?
SU..ESTE0 ANSWER:

the :tate inso'ar as it concerns their indi)idual 'ranchises( t is 'urther re3uired that the dis!ute be intrinsically connected ,ith the re*ulation o' the cor!oration (Speed
Distributing 'orp0, et al0 v0 'ourt of 1ppeals, et al, 20,0 3o0 #59$5#, +arch #4, %775< /ntestate Estate of 1lexander :0: v0 'ourt of 1ppeals, 20,0 3o0 ##%64%, 1pril #9, %77#"0

Is t!e 'e.ur"t"es an7 89.!ange Co--"ss"on t!e venue for a.t"ons "nvolv"ng "ntra4.orporate .ontrovers"es5 )26+
SU..ESTE0 ANSWER:

7es- there is an intra-cor!orate contro)ersy in this case( /he 'act that- ,hen the com!laint a*ainst Dabriel and @<< ,as 'iled ,ith the :8& "!er 200=- R/&s Burisdiction%- Benni'er and &?A ,ere no lon*er stockholders o' @<< did not di)est the :8& "!er 200=R/&s Burisdiction% o' its +urisdiction o)er the case inasmuch as Benni'er ,as a 'ormer stockholder o' @<< and the contro)ersy arose out o' this relation( (SE' v '1 2,
9$6$% 1ug %$ 9#< %7#s#%5"

;o- !ursuant to :ubsection 2(2 o' the :ecurities Re*u- lation &ode- the 3uasi+udicial +urisdiction o' the :ecurities and 89chan*e &ommission to hear cor!orate casesincludin* intra-cor!orate contro)ersiesunder :ection 2 o' >res( Decree ;o( F02-A- has been e9!ressly trans'erred to the desi*nated Re*ional /rial &ourt( >ursuant to a memorandum circular issued by the :u!reme &ourtonly !articularly desi*nated R/& s!ecial commercial courts in each +udicial re*ion ha)e ori*inal and e9clusi)e +urisdiction o)er such cases (See /ntestate Estate of
1lexander :0 : v0 'ourt of 1ppeals, 20,0 3o0 ##%64%, 1pril #9, %77#"0

Contro ers%2 7ntra?Cor$orate (2004) 3!at "s an "ntra4.orporate .ontroversy5 )86+


SU..ESTE0 ANSWER:

Contro ers%2 7ntra?cor$orate2 Juris6iction ()**+)


Buan ,as a stockholder o' I &o( 5e o,ned a total o' 200 shares e)idenced by &ert o' :tock ;o 1001( 5e sold the shares to >edro( A'ter *ettin* !aid- Buan indorsed and deli)ered said &erti'icate o' :tock ;o 1001 to >edro( /he 'ollo,in* day- Buan ,ent to the o''ices o' the cor!oration and claimed that his &erti'icate o' :tock ;o 1001 ,as lost and that- des!ite dili*ent e''orts- the certi'icate could
*er i!n 1++0,'00- U)dated by

An intra-cor!orate contro)ersy is a con'lict bet,een stockholders- members or !artners and the cor!orationassociation or !artnershi! re*ardin* the re*ulation o' the cor!oration( /he contro)ersy must arise out o' intra- cor!orate or !artnershi! relations o' the !artiesH or bet,een such cor!oration- !artnershi! or association and
*er i!n 1++0,'003 Arranged by SULAW Cla

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

not be located( /he 'ormalities !rescribed by la, 'or the re!lacement o' the lost certi'icate ,ere com!lied ,ith( 8)entually I &o issued in substitution o' the lost certi'icate- &ert o' :tock ;o 2002( Buan 'orth,ith trans'erred 'or )aluable consideration the ne, certi'icate to Bose ,ho kne, nothin* o' the !re)ious sale to >edro( n timethe cor!oration ,as con'ronted ,ith the con'lictin* claims o' Bose and >edro( /he BAD o' I &o in)ited you to enli*hten them on these 3uestionsH )i40

o' Banice as its consultant? Discuss your ans,er( "2$%


SU..ESTE0 ANSWER:

a%

' a suit ,ere to be initiated in order to resol)e the contro)ersy bet,een >edro and Bose- should the matter be submitted to the :8& or to the re*ular courts?

7es- !ro)ided the a!!ro)al o' stockholders re!resentin* t,o-thirds "2L.% o' the outstandin* ca!ital stock is obtained( Althou*h the 'acts indicate that the consultancy ,ork has already been KrenderedK constitutin* K!re)iously contracted debt-K under :ection .F o' the &or!oration &ode- the !re-em!ti)e ri*hts o' e9istin* stockholders need not be res!ected Kin !ayment o' a !re)iously contracted debt-K but only ,ith the indicated stockholdersC a!!ro)al( 6nder :ection =2 o' the &or!oration &odeconsideration 'or the issuance o'

b% Bet,een Bose and >edro,hom should the cor!oration so reco*ni4e as the ri*ht'ul stockholder?

5o, ,ould you res!ond to the abo)e 3ueries?


SU..ESTE0 ANSWER:

a% /he matter should be submitted to the re*ular courts E s!eci'ically in the Re*ional /rial &ourt ,here the !rinci!al o''ice o' the cor!oration is located( /he contro)ersy bet,een >edro and Bose is not an intra- cor!orate contro)ersy( b% ' there is no o)er-issuance o' shares resultin* 'rom the t,o-transactions o' Buan- the cor!oration should reco*ni4e both >edro and Bose as ri*ht'ul stockholders( /his is ,ithout !re+udice to the ri*ht o' the cor!oration to claim a*ainst Buan 'or the )alue o' the shares ,hich Buan sold to Bose( Cor$oration Sole2 De&inition (2003) What is a cor!oration sole?
SU..ESTE0 ANSWER:

:ection 110 o' the &or!oration &ode de'ines a Kcor!oration soleK as one 'ormed 'or the !ur!ose o' administerin* and mana*in*- as trustee- the a''airs!ro!erty and tem!oralities o' any reli*ious denomination- sect or church( t is 'ormed by the chie' archbisho!- bisho!- !riestminister- rabbi or other !residin* elder o' such reli*ious denomination- sect or church(

Cor$oration: 7ssuance o& s#ares o& stoc- to $a% &or t#e ser ices (2001) Banice rendered some consultancy ,ork 'or I7P &or!oration( 5er com!ensation included shares o' stock therein( &an I7P &or!oration issue shares o' stock to !ay 'or the ser)ices

Page

'- of 103 stock

may include labor !er'ormed 'or or ser)ices actually rendered to the cor!oration( Cor$oration: Ri'#t o& Re$urc#ase o& S#ares2 Trust /un6 Doctrine (2001) 6nder ,hat conditions may a stock cor!oration ac3uire its o,n shares? "2$%
SU..ESTE0 ANSWER:

n line ,ith the trust 'und doctrine that *enerally renders it unla,'ul 'or the cor!oration to return assets to the stockholders re!resentin* ca!itala cor!oration may ac3uire its o,n shares onl when there exists in the boo(s unrestricted retained earnings to cover the repurchase of shares0 /he !ur!ose o' the re!urchase o' shares must be a le*itimate business !ur!ose o' the cor!oration- such as to0

7J: has no !ersonality to sue- not bein* incor!orated- and that the >resident o' >W& ,as not authori4ed to enter into a contract ,ith !lainti'' by the >W& Board o' Directors- hence the contract is ultra )ires( 7J: /radin* re!lied that it is a sole !ro!rietorshi! o,ned by 7J:- and that the >resident o' >W& had made it a!!ear in se)eral letters !resented in e)idence that he had authority to si*n contracts on behal' o' the Board o' Directors o' >W&( Will the suit !ros!er or not? Reason brie'ly( "2$%
SU..ESTE0 ANSWER:

1( 8? @ ;A/8 'ractional shares arisin* out o' stock di)idendsH 2( &A??8&/ or &A@>RA@ :8 an indebtedness to the cor!oration arisin* out o' un!aid subscri!tion in a delin3uency saleH .( to >6R&5A:8 delin3uent shares sold durin* the saleH and
#( to >A7 dissentin* or ,ithdra,in* stockholders entitled to such !ayment under the &or!oration &ode( ":ees( #1 and G2- &or!oration &ode%

7es the suit ,ill !ros!er( As a sole !ro!rietorshi!- the !ro!rietor o' 7J: /radin* has the ca!acity to act and the !ersonality to sue >W&( t is not necessary 'or 7J: /radin* to be incor!orated be'ore it can sue( An the other hand>W& is esto!!ed 'rom assertin* that its >resident had no authority to enter into the contract- considerin* that- in se)eral o' >W&Cs letters- it had clothed its >resident ,ith a!!arent authority to deal ,ith 7J: /radin*( Cor$oration2 Articles o& 7ncor$oration ()**0) /he articles o' incor!oration to be re*istered in the :8& contained the 'ollo,in* !ro)isions - a% <irst Article( /he name o' the cor!oration shall be /oho @arketin* &om!any( b% /hird Article( /he !rinci!al o''ice o' such cor!oration shall be located in Re*ion in such munici!ality therein as its Board o' Directors may desi*nate(
*er i!n 1++0,'00- U)dated by

Cor$oration: Sole "ro$rietors#i$ (2003)


7J: /radin* 'iled a com!laint 'or s!eci'ic !er'ormance ,ith dama*es a*ainst >W& &or!oration 'or 'ailure to deli)er cement ordered by !lainti''( n its ans,er- >W& denied liability on the *round- inter alia- that
*er i!n 1++0,'003 Arranged by SULAW Cla

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

c% :e)enth Article( /he ca!ital stock o' the cor!oration is Ane @illion >esos ">1-000-000% >hili!!ine &urrency( What are your comments and su**ested chan*es to the !ro!osed articles?
SU..ESTE0 ANSWER:

6nder :ec( 2 o' the Bulk :ales ?a,- a bulk sale includes any sale- trans'ermort*a*eor assi*nment o' all- or substantially all- o' the business or trade thereto'ore conducted by the )endormort*a*or- trans'eror- or assi*nor( /his is e9actly ,hat ha!!ened in the case at bar(
2% &an Di)ine &or!oration sell the a'oresaid items to its com!etitor- /o! Drade <ashion &or!oration? What are the re3uirements to )alidly sell the items?

a% An the <irst Article,ould su**est that the cor!orate name indicate the 'act o' incor!oration by usin* either /oho @arketin* &or!oration or /oh @arketin* &om!any- ncor!orated( b% /he /hird Article should indicate the &ity or the @unici!ality and the >ro)ince in the >hili!!ines- and not merely the re*ion or as its BAD may later desi*nate- to be its !lace o' !rinci!al o''ice( c% /he :e)enth Article must additionally !oint out the number o' shares into ,hich the ca!ital stock is di)ided- as ,ell as the !ar )alue thereo' or a statement that said stock or a !ortion thereo' are ,ithout !ar )alue( ":ec 1# M 12 &or! &ode%

89!lain(
SU..ESTE0 ANSWER:

<or such a transaction to be )alid- it re3uires not only the 'a)orable resolution o' the Board o' Directors o' Di)ine &or!oration- but also the rati'icatory )ote o'

Cor$oration2 ,ul- Sales 8a; (2001)


Di)ine &or!oration is en*a*ed in the manu'acture o' *arments 'or e9!ort( n the course o' its business- it ,as able to obtain loans 'rom indi)iduals and 'inancin* institutions( 5o,e)er- due to the dro! in the demand 'or *arments in the international market- Di)ine &or!oration could not meet its obli*ations( t decided to sell all its e3ui!ment such as se,in* machines!erma-!ress machineshi*h s!eed se,erscuttin* tablesironin* tablesetc(- as ,ell as its su!!lies and materials to /o! Drade <ashion &or!oration- its com!etitor( "2$%

1% 5o, ,ould you classi'y the transaction?


SU..ESTE0 ANSWER:

/he transactions ,ould constitute a sale o' Ksubstantially all o' the assets o' Di)ine &or!oration com!lyin* ,ith the test under :ec( #0 o' the &or!oration &odethe transactions not bein* Kin the ordinary course o' business-K and one Kthereby the cor!oration ,ould be rendered inca!able o' continuin* the business or accom!lishin* the !ur!ose 'or ,hich it ,as incor!orated(K
ALTERNATI*E ANSWER:

t is a sale and trans'er in bulk in contem!lation o' the Bulk :ales ?a,(

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'2 of 103

stockholders re!resentin* at least t,othirds "2L.% o' the outstandin* ca!ital stock- as mandated under :ec( #0 o' the &or!oration &ode( /he sale ,ould be )oid in case o' 'ailure to meet the t,in a!!ro)als(
(/slamic Directorate of the ;hilippines v0 'ourt of 1ppeals, 20,0 3o0 ##4694, +a #5, #994"
ALTERNATI*E ANSWER:

Di)ine &or!oration can sell the items to its com!etitor/o! Drade <ashion &or!oration( 5o,e)er- Di)ine &or!oration must com!ly ,ith :ections .- # and 2 o' the Bulk :ales ?a,- namely0 "1% deli)er s,orn statement o' the names and addresses o' all the creditors to ,hom the )endor or mort*a*or may be indebted to*ether ,ith the amount o' indebtedness due or o,in* to each o' the said creditorsH "2% a!!ly the !urchase or mort*a*e money to the !ro-rata !ayment o' bona 'ide claims o' the creditorsH and ".% make a 'ull detailed in)entory o' the stock o' *oods- ,ares- merchandise- !ro)isions or materials- in bulk- and noti'y e)ery creditor at least ten "10% days be'ore trans'errin* !ossession(

are notH a!!lied !ro!ortionately to,ards the settlement o' the accounts o' the cor!orate debts- to ha)e the sale o' the sub+ect matters to /o! Drade <ashion &or!(- as bein* K'raudulent and )oidK and obtain satis'action 'rom the !ro!erties ,hich are deemed to still be o,ned by Di)ine &or!oration in s!ite o' deli)ery to the buyer( /he creditors can collect on the credit a*ainst Di)ine &or!oration- and i' it cannot !ay- the creditors can a!!ly 'or attachment on the !ro!erty 'raudulently sold( )'ee
0eople v. 2apoy, G.R. No. &88(6, 'epte-ber 21, 19&2+

#%

n case Di)ine &or!oration )iolated the la,- ,hat remedies are a)ailable to /o! Drade <ashion

&or!oration a*ainst Di)ine &or!oration?


SU..ESTE0 ANSWER:

' the sale by Di)ine &or!oration did not obtain the re3uired t,o-thirds "2L.% )ote o' the outstandin* ca!ital stock- then the transaction is )oid0 (/slamic Directorate of the
;hilippines v0 'ourt of ##4694, +a #5, #994" 1ppeals, 20,0 3o,

.%

5o, ,ould you !rotect the interests o' the creditors o' Di)ine &or!oration?

SU..ESTE0 ANSWER:

&onsiderin* that Di)ine &or!oration has entered a de 'acto sta*e o' dissolution ,ith the ceasin* o' its o!erations,ould in)oke on behal' o' the creditors the !rotection under :ec( 122 o' the &or!oration &ode- that the !roceeds o' the sale should 'irst be a!!lied to,ards the settlement o' the obli*ations o' the cor!oration- be'ore any amount can be !aid to the stockholders(
ALTERNATI*E ANSWER:

/o! Drade <ashion &or!oration can ha)e the !urchase declared )oid and reco)er the !urchase !rice !aid- as ,ell as dama*es a*ainst the directors and o''icers ,ho undertook the transaction in )iolation o' the la,(
ALTERNATI*E ANSWER:

6nder the Bulk :ales ?a,- i' the !roceeds


*er i!n 1++0,'003 Arranged by SULAW Cla '00(

<or )iolation o' the Bulk :ales ?a,- the !rinci!al o''icers o' the Di)ine &or!oration can be held criminally liable( n addition/o! Drade can sue Di)ine &or!oration 'or dama*es( Niolation o' the Bulk :ales ?a, ,ould render such a sale 'raudulent and )oid( :ince /o! Drade ,ould be com!elled to return the *oods to Di)ine &or!oration*er i!n 1++0,'00- U)dated by

Dondee

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

/o! Drade can com!el Di)ine &or!oration to return the !urchase !rice and !ay dama*es( Cor$oration2 ,%?la;s (200)) :u!!ose that the by-la,s o' I &or!- a minin* 'irm !ro)ides that /he directors shall be relie)ed 'rom all liability 'or any contract entered into by the cor!oration ,ith any 'irm in ,hich the directors may be interested( /hus- director A ac3uired claims ,hich o)erla!!ed ,ith Is claims and ,ere necessary 'or the de)elo!ment and o!eration o' Is minin* !ro!erties( a% s the by-la, !ro)ision )alid? Why? ".$%
b% What ha!!ens i' director A is able to consummate his minin* claims o)er and abo)e that o' the

a% &ould this be le*ally done? Why? ".$% b% Would your ans,er be the same i' at the ince!tionI &om!any is a non-stock cor!oration? Why? "2$%
SU..ESTE0 ANSWER:

a% 7es- it can be le*ally done( n con)ertin* the stock cor!oration to a non-stock cor!oration by a mere amendment o' the articles o' incor!oration- the stock cor!oration is not distributin* any o' its assets to the stockholders( An the contrarythe stockholders are deemed to ha)e ,ai)ed their ri*ht to share in the !ro'its o' the cor!oration ,hich is a *ain not a loss to the cor!oration(

cor!orations claims? "2$%


SU..ESTE0 ANSWER:

a% ;o( t is in )iolation o' :ection .2 o' the &or! &ode( b% A should account to the cor!oration 'or the !ro'its ,hich he reali4ed 'rom the transaction( 5e *rabbed the business o!!ortunity 'rom the cor!oration( ":ection .#- &or! &ode% Cor$oration2 Commencement2 Cor$orate E9istence (2003)
1( When cor!orate does a cor!oration ac3uire

e9istence?
SU..ESTE0 ANSWER:

2( &B7 M &o(- nc(- re*istered ,ith the :ecurities and 89chan*e &ommission its articles o' incor!oration( t 'ailedho,e)er- 'or one reason or another- to ha)e its by-la,s 'iled ,ithand re*istered by- the &ommission( t ne)ertheless transacted and did business as a cor!oration 'or sometime( A suit ,as commenced by its minority stockholders assailin* the continued e9istence o' &B7 M &o(- nc(- because o' the non-ado!tion and re*istration o' its by-la,s(

Would the action !ros!er? Why? "=$%


SU..ESTE0 ANSWER:

Cor$oration2 Con ersion o& Stoc- Cor$oration (200)) I com!any is a stock cor!oration com!osed o' the Reyes 'amily en*a*ed in the real estate business( Because o' the re*ional crisis- the stockholders decided to con)ert their stock cor!oration into a charitable non-stock and non-!ro'it association by amendin* the articles o' incor!oration(

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cannot claim a de 'acto status(

b% ;o- my ans,er ,ill not be the same( n a non-stock cor!oration- the members are not entitled to share in the !ro'its o' the cor!oration because all !resent and 'uture !ro'its belon* to the cor!oration( n con)ertin* the non- stock cor!oration to a stock cor!oration by a mere amendment o' the Articles o' ncor!oration- the nonstock cor!oration is deemed to ha)e distributed an asset o' the cor!oration E i(e( its !ro'its- amon* its members- ,ithout a !rior dissolution o' the cor!oration( 6nder :ec 122- the non-stock cor!oration must be dissol)ed 'irst(
(-bservation! :he question is rather vague more particularl question #b0 :he question does not specif that the conversion is from a non8 stoc( corporation to a stoc( corporation0 :he candidate is li(el to be confused because of the words Bif at the inception, F 'o is a nonstoc( corporation0C Eence, an answer along the same line should be treated with liberalit "

Cor$oration2 Dissolution2 (et#o6s o& 8i5ui6ation (200)) I &or!oration shortened its cor!orate li'e by amendin* its Articles o' ncor!oration( t has no debts but o,ns a !rime !ro!erty located in Que4on &ity( 5o, ,ould the said !ro!erty be li3uidated amon* the 'i)e stockholders o' said cor!oration? Discuss t,o methods o' li3uidation( "2$%
SU..ESTE0 ANSWER:

/he !rime !ro!erty o' I &or!oration can be li3uidated amon* the 'i)e stockholders a'ter the !ro!erty has been con)eyed by the cor!oration to the 'i)e stockholders- by di)idin* or !artitionin* it amon* themsel)es in any t,o o' the 'ollo,in* ,ays0 1%by >57: &A? D N : A; or >AR/ / A; based on the !ro!ortion o' the )alues o' their stockholdin*sH or 2% :8?? ;D /58 >RA>8R/7 to a third !erson and di)idin* the !roceeds amon* the 'i)e stockholders in !ro!ortion to their stockholdin*sH or .%a'ter the determination o' the )alue o' the !ro!erty- by A:: D; ;D or /RA;:<8RR ;D /58 >RA>8R/7 to one stockholder ,ith the obli*ation on the !art o' said stockholder to !ay the other 'our stockholders the amountLs in !ro!ortion to the )alue o' the stockholdin* o' each( Cor$oration2 7ncor$oration2 Re5uirements (2004) What is the minimum and ma9imum number o' in- cor!orators re3uired to incor!orate a stock cor!oration?
*er i!n 1++0,'00- U)dated by

Cor$oration2 De /acto Cor$oration ()**3) A cor!oration ,as created by a s!ecial la,( ?ater- the la, creatin* it ,as declared in)alid( @ay such cor!oration claim to be a de 'acto cor!oration?
SU..ESTE0 ANSWER:

;o( A !ri)ate cor!oration may be created only under the &or!oration &ode( Anly !ublic cor!orations may be created under s!ecial la,(
Where a !ri)ate cor!oration is created under a s!ecial la,- there is no attem!t at a )alid incor!oration( :uch cor!oration
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

s this also the same minimum and ma9imum number o' directors re3uired in a stock cor!oration? "2(2$%
SU..ESTE0 ANSWER:

6nder :ection 10 o' the &or!oration &odeany number o' natural !ersons not less than 'i)e "2% but not more than 'i'teen "12%- all o' le*al a*e and a ma+ority o' ,hom are residents o' the >hili!!ines- may 'orm a !ri)ate cor!oration 'or any la,'ul !ur!ose( /his is the same minimum and ma9imum number o' directors re3uired in a stock cor!oration under :ection 1#"=% o' the &or!oration &ode( Cor$oration2 7ncor$oration2 Resi6enc% Re5uirements (2004) @ust all incor!orators and directors be residents o' the >hili!!ines? "2(2$%
SU..ESTE0 ANSWER:

7% ?etter authori4in* the :8& or @onetary Board or its duly authori4ed re!resentati)e to e9amine the bank records re*ardin* the de!osit o' the !aid-u! ca!italH G% Re*istration :heetH Cor$oration2 (eetin's2 ,<D 0 Stoc-#ol6ers ()**3)
6nder the Articles o' ncor!oration o' @anila ndustrial &or!- its !rinci!al !lace o' business shall be in >asi*- @@( /he !rinci!al cor!orate o''ices are at the Arti*as

;ot all directors and incor!orators need to be residents o' the >hili!!ines( 6nder :ection 10 o' the &or!oration &ode- only a ma+ority o' the incor!orators need to be residents o' the >hili!!ines( As !ro)ided in :ection 2. o' the same &ode- only a ma+ority o' the members o' the Board o' Directors need to be residents o' the >hili!!ines( Cor$oration2 7ncor$oration2 Re5uisites (2002) 7ou ha)e been asked to incor!orate a ne, com!any to be called <:B :a)in*s M @ort*a*e Bank- nc( ?ist the documents that you must submit to the :ecurities and 89chan*e &ommission ":8&% to obtain a certi'icate o' incor!oration 'or <:B :a)in*s M @ort*a*e Bank- nc( "2$%
SU..ESTE0 ANSWER:

/he documents to be submitted to the :ecurities and 89chan*e &ommission ":8&% to incor!orate a ne, com!any to be called <:B :a)in*s M @ort*a*e Bank- nc(- to obtain the certi'icate o' incor!oration 'or said com!any- are0 1% Articles o' ncor!oration 2% /reasurers A''ida)itH .% &erti'icate o' Authority 'rom the @onetary Board o' the B:>H #% Neri'ication sli! 'rom the records o' the :8& ,hether or not the !ro!osed name has already been ado!ted by another cor!oration!artnershi! or associationH 2% ?etter undertakin* to chan*e the !ro!osed name i' already ado!ted by another cor!oration- !artnershi! or associationH =% Bank certi'icate o' de!osit concernin* the !aid-u! ca!italH

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&enter- >asi*- @@ ,hile its 'actory !rocessin* leather !roducts- is in @anila( /he cor!oration holds its annual stockholders meetin* at the @anila 5otel in @anila and its BAD meetin* at a hotel in @akati @@( /he by-la,s are silent as to the !lace o' meetin*s o' the stockholders and directors( 1% Who shall !reside at the meetin* o' the directors? 2% &an /in*- a stockholder- ,ho did not attend the stockholders annual meetin* in @anila- 3uestion the )alidity o' the cor!orate resolutions !assed at such meetin*?
.% &an the same stockholder 3uestion the )alidity o' the resolutions ado!ted by the BAD at the meetin*

.% ;o( /he la, allo,s the BAD to hold its meetin* any,here in the >hili!!ines( /he holdin* o' the BAD meetin* in @akati ,as !ro!er and the )alidity o' the resolutions ado!ted by the Board in that meetin* cannot be 3uestioned( ":ec 2. &or! code% Cor$oration2 Nationalit% o& Cor$oration ()**:) What is the nationality o' a cor!oration or*ani4ed and incor!orated under the la,s o' a 'orei*n country- but o,ned 100$ by <ili!inos? "2$%
SU..ESTE0 ANSWER:

held in @akati?
SU..ESTE0 ANSWER:

1% /he >resident !resides o)er the meetin* o' the directors- i' there is no !osition o' &hairman !ro)ided in the By?a,s( ' there is the !osition o' &hairman !ro)ided in the By-?a,s- the &hairman !resides o)er the meetin* o' the Directors ":ec 2# &or! &ode%

6nder the control test o' cor!orate nationality- this 'orei*n cor!oration is o' <ili!ino ;ationality( Where there are *rounds 'or !iercin* the )eil o' cor!orate entity- that is- disre*ardin* the 'ictionthe cor!oration ,ill 'ollo, the nationality o' the controllin* members or stockholderssince the cor!oration ,ill then be considered as one and the same( Cor$oration2 Non?Stoc- Cor$oration ()**3) /he AB @emorial <oundation ,as incor!orated as a non-!ro'it- non-stock cor!oration in order to establish and maintain a library and museum in honor o' the deceased !arents o' the incor!orators( ts Articles o' ncor!oration !ro)ided 'or a board o' trustees com!osed o' 2 incor!orators- ,hich authori4ed to admit ne, members( /he Articles o' ncor!oration also allo, the 'oundation to recei)e donations 'rom members( As o' Ban .0- 1FF.- =0 members had been admitted by the BA/(
*er i!n 1++0,'00- U)dated by

2% ;o( /he la, !ro)ides that the annual stockholders meetin* shall be held in the city or munici!ality ,here the !rinci!al o''ice o' the &or!oration is located( <or this !ur!ose- the la, also !ro)ides that @etro @anila is considered a city or munici!ality( :ince the !rinci!al !lace o' business o' @ & is >asi*- @@- the holdin* o' the annual stockholders meetin* in @anila is !ro!er( ":ec 21 &or!%
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

1%&an the <oundation use the 'unds donated to it by its members 'or !urchase o' 'ood and medicine 'or distribution to the )ictims o' the >inatubo eru!tion?
2% &an the <oundation o!erate a s!ecialty restaurant that caters to the *eneral !ublic in order to au*ment its 'unds?

As 'or the 3uarry o!erations 'or limestonethe same is an indis!ensable in*redient in the manu'acture o' cement and maythere'orebe considered reasonably necessary to accom!lish the !rimary !ur!ose o' :tikki( n such case- only the a!!ro)al o' the BAD ,ould be necessary ":ec #2 B> =G%
ALTERNATI*E ANSWER:

.% Ane o' the ori*inal trustees died and the other t,o resi*ned because they immi*rated to the 6:( 5o, ,ill the )acancies in the BA/ be 'illed?
SU..ESTE0 ANSWER:

1% 7es- ":ec .="F% o' the &or! &ode% as lon* as the amount o' donation is reasonable( 2% ' the !ur!oses o' the cor!oration are limited to the establishment and maintenance o' the library and museum as stated in the !roblem- the 'oundation cannot o!erate a s!ecialty restaurant that caters to the *eneral !ublic( n such case- the action o' the 'oundation ,ill be ultra )ires(
ALTERNATI*E ANSWER:

1( /he ma+ority )ote o' the BAD is necessary( /he in)estment in a% a !o,er !lant !ro+ect- b% a concrete road !ro+ect- and c% 3uarry o!erations o' limestone used in the manu'acture o' cement- is ,ithin the e9!ress or im!lied !o,er o' the cor!oration- or at least the same is

2% ' the act o' the cor!oration is +usti'ied by the secondary !ur!ose o' the cor!oration ,hich includes the act o' o!eratin* a restaurant- the 'oundation ,ill be ,ithin its !o,er to do so( .% :ince there are only 2 o' the members o' the BA/ remainin* and there is no 3uorum- the )acancies ,ill ha)e to be 'illed u! in a s!ecial meetin* o' the members "sec 2F &or!% Cor$oration2 "o;er to 7n est Cor$orate /un6s &or ot#er "ur$ose ()**1)
:tikki &ement &o ,as or*ani4ed !rimarily 'or cement manu'acturin*( Antici!atin* substantial !ro'its- its >resident !ro!osed that :tikki in)est in a% a !o,er !lant !ro+ectb% a concrete road !ro+ect- and c% 3uarry o!erations 'or limestone in the manu'acture o' cement(

1% What cor!orate a!!ro)als or )otes are needed 'or the !ro!osed in)estments? 89!lain( 2% Describe the !rocedure in securin* these a!!ro)als(
SU..ESTE0 ANSWER:

1( 6nless the !o,er !lant and the concrete road !ro+ect are reasonable necessary to the manu'acture o' cement by :tikki "and they do not a!!ear to be so%then the a!!ro)al o' said !ro+ects by a ma+ority o' the BAD and the rati'ication o' such a!!ro)al by the stockholders re!resentin* at least 2L. o' the outstandin* ca!ital stock ,ould be necessary(

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incidental to- or necessary 'or the e9istence o' the cor!oration(


SU..ESTE0 ANSWER:

2(a% /he !rocedure in securin* the a!!ro)al o' the BAD is as 'ollo,s0 a( a notice o' the BAD should be sent to all the directors( /he notice should state the !ur!ose o' the meetin*( b( At the meetin*each o' the !ro+ect should be a!!ro)ed by a ma+ority o' the BAD "not merely a ma+ority o' those !resent at the meetin*% 2(b% /he !rocedure in securin* the a!!ro)al o' the stockholders is as 'ollo,s0 a( Written notice o' the !ro!osed in)estment and the time and !lace o' the stockholders meetin* should be sent to each stockholder at his !lace o' residence as sho,n on the books o' the cor!oration and de!osited to the addressee in the !ost o''ice ,ith !osta*e !re!aid- or ser)ed !ersonally(

A cor!oration may in)est its 'unds in another cor!oration or business or 'or any other !ur!ose other than the !rimary !ur!ose 'or ,hich it ,as or*ani4ed ,hen the said in)estment is a!!ro)ed by a ma+ority o' the BAD and such a!!ro)al is rati'ied by the stockholders re!resentin* at least 2L. o' the outstandin* ca!ital stock( Written notice o' the !ro!osed in)estment and the date- time and !lace o' the stockholders meetin* at ,hich such !ro!osal ,ill be taken u! must be sent to each stockholder( ":ec #2 &or! &ode%

Cor$oration2 Reco er% o& (oral Dama'es ()**:)


n a com!laint 'iled a*ainst I7P &or!oration?u4on /radin* &or!oration alle*ed that its >resident M Deneral @ana*er,ho is also a stockholder- su''ered mental an*uish- 'ri*ht- social humiliation and serious an9iety as a result o' the tortuous acts o' I7P &or!oration(

b( At the meetin*- each o' the !ro+ects should be a!!ro)ed by the stockholders re!resentin* at least 2L. o' the outstandin* ca!ital stock( ":ec #2 B> =G%

n its counterclaim- I7P &o claimed to ha)e su''ered moral dama*es due to besmirched re!utation or *ood,ill as a result o' ?u4on /radin* &os com!laint( 1% @ay ?u4on /radin* &o reco)er dama*es based on the alle*ations o' the com!laint? "2$% 2% @ay I7P &o reco)er moral dama*es? ".$%
SU..ESTE0 ANSWER:

Cor$oration2 "o;er to 7n est Cor$orate /un6s in anot#er Cor$oration ()**4) When may a cor!oration in)est its 'unds in another cor!oration or business or 'or any other !ur!oses?
SU..ESTE0 ANSWER:

;o( A cor!oration- bein* an arti'icial !erson ,hich has no 'eelin*semotions or senses- and ,hich cannot e9!erience !hysical su''erin* or mental an*uish- is not entitled to moral dama*es(
ALTERNATI*E ANSWER:

*er i!n 1++0,'003 Arranged by SULAW Cla

'00(

*er i!n 1++0,'00- U)dated by

Dondee

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

7es( When a +uridical !erson has a *ood re!utation that is debased- resultin* in social humiliation- moral dama*es may be a,arded( @oreo)er- *ood,ill can be considered an asset o' the cor!oration( n the case o' F#N In.. vs A28C, <anuary 1*, 2 5- the :& ruled thatH <B; contends that A@8& is not entitled to moral dama*es because it is a cor!oration(
/A:8 N%/8;

sold the tractor to Briccio ndustries "Briccio% 'or >=0th( Briccio disco)ered that the en*ine o' the tractor ,as reconditioned so he re'used to !ay /urtle( As a result- Dick :eldon ordered :to! >ayment o' the check issued to :hamron( :hamron sued /urtle and Dick :eldon( :hamron obtained a 'a)orable +ud*ment holdin* co-de'endants /urtle and Dick :eldon +ointly and se)erally liable(
&omment on the decision o' the trial court( Discuss 'ully(
SU..ESTE0 ANSWER:

A +uridical !erson is *enerally not entitled to moral dama*es because- unlike a natural !ersonit cannot e9!erience !hysical su''erin* or such sentiments as ,ounded 'eelin*s- serious an9iety- mental an*uish or moral shock( /he &ourt o' A!!eals cites @ambulao ?umber &o( )( >;Bet al( to +usti'y the a,ard o' moral dama*es( 5o,e)erthe &ourtCs statement in @ambulao that Ka cor!oration may ha)e a *ood re!utation ,hich- i' besmirched- may also be a *round 'or the a,ard o' moral dama*esK is an obiter dictum(

/he trial court erred in holdin* Dick :eldon- >resident and D@ o' /urtle- +ointly and se)erally liable ,ith /urtle( n issuin* the check issued to :hamron andtherea'ter-

;e)ertheless- A@8&Cs claim 'or moral dama*es 'alls under item 7 o' Article 221F o' the &i)il &ode( /his !ro)ision e9!ressly authori4es the reco)ery o' moral dama*es in cases o' libel- slander or any other 'orm o' de'amation( Article 221F"7% does not 3uali'y ,hether the !lainti'' is a natural or +uridical !erson( /here'ore- a +uridical !erson such as a cor!oration can )alidly com!lain 'or libel or any other 'orm o' de'amation and claim 'or moral dama*es( @oreo)er- ,here the broadcast is libelous !er se- the la, im!lies dama*es( n such a case- e)idence o' an honest mistake or the ,ant o' character or re!utation o' the !arty libeled *oes only in miti*ation o' dama*es( ;either in such a case is the !lainti'' re3uired to introduce e)idence o' actual dama*es as a condition !recedent to the reco)ery o' some dama*es( n this casethe broadcasts are libelous !er se( /hus- A@8& is entitled to moral dama*es( Cor$oration2 Se$arate Juri6ical "ersonalit% ()**1) Ronald :ham doin* business under the name o' :5A@RA; @achineries ":hamron% sold to /urtle @ercantile "/urtle% a diesel 'arm tractor( n !ayment- /urtles >resident and @ana*er Dick :eldon issued a check 'or >20th in 'a)or o' :hamron( A ,eek later- /urtle

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31 of 103

cor!orate !ro!erty( (,ebecca Bo er8,oxas


v '1 2, #776&& Aul #5, 9% %##s547"

sto!!in* !ayment thereo'- :eldon ,as actin* in his ca!acity as an o''icer o' /urtle( 5e ,as not actin* in his !ersonal ca!acity( <urthermore- no 'acts ha)e been !ro)ided ,hich ,ould indicate that the action o' :eldon ,as dictated by an intent to de'raud :hamron by himsel' or in collusion ,ith /urtle( 5a)in* acted in ,hat he considered as his duty as an o''icer o' the cor!oration- :eldon should not be held !ersonally liable( Cor$oration2 Se$arate Juri6ical "ersonalit% ()**4)
>R &o o,ns a beach resort ,ith se)eral cotta*es( Baimethe >resident o' >Roccu!ied one o' the cotta*es 'or residential !ur!oses( A'ter Baimes term e9!ired>R ,anted to reco)er !ossession o' the cotta*e( Baime re'used to surrender the cotta*e- contendin* that as a stockholder and 'ormer >resident- he has a ri*ht to !ossess and en+oy the !ro!erties o' the cor!oration(

Cor$oration2 Se$arate Juri6ical "ersonalit% ()**4) Richard o,ns F0$ o' the shares o' the ca!ital stock o' DA@ &o( An one occasion- DA@ re!resented by Richard as >resident and Deneral @ana*er e9ecuted a contract to sell a subdi)ision lot in 'a)or o' /omas( <or 'ailure o' DA@ to de)elo! the subdi)ision- /omas 'iled an action 'or rescission and dama*es a*ainst DA@ and Richard( Will the action !ros!er? 89!lain(
SU..ESTE0 ANSWER:

s Baimes contention correct? 89!lain(


SU..ESTE0 ANSWER:

Baimes contention is not correct( Baime may o,n shares o' stock in >R &or! but such o,nershi! does not entitle him to the !ossession o' any s!eci'ic !ro!erty o' the cor!oration or a de'inite !ortion thereo'( ;either is he a co-o,ner o' cor!orate !ro!erty( >ro!erties re*istered in the name o' the cor!oration are o,ned by it as an entity se!arate and distinct 'rom its stockholders( :tockholders like Baime only o,n shares o' stock in the cor!oration( :uch shares o' stock do not re!resent s!eci'ic
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

/he action may !ros!er a*ainst DA@ but de'initely not a*ainst Richard( Richard has a le*al !ersonality se!arate and distinct 'rom that o' DA@( ' he sin*ed the contract to sell- he did so as the >resident and Deneral @ana*er o' DA@ and not in his !ersonal ca!acity( @ere o,nershi! by Richard o' F0$ o' the ca!ital stock o' DA@ is not o' itsel' su''icient *round to disre*ard his se!arate le*al !ersonality absent a sho,in*- 'or e9am!le that he acted maliciously or in bad 'aith (E;2 'onst 'o v '1
2, #7$$4% An %%,9% %#7s%$7"

Cor$oration2 Se$arate Juri6ical "ersonalit% ()***) As a result o' !erennial business lossesa cor!orations net ,orth has been ,i!ed out( n 'act- it is no, in ne*ati)e territory( ;onetheless- the stockholders did not like to *i)e u!( &reditor-banksho,e)er- do not share the con'idence o' the stockholders and re'use to *rant more loans( a% What tools are a)ailable to the stockholders to re!lenish ca!ital? ".$%
*er i!n 1++0,'00- U)dated by

Dondee

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

b% Assumin* that the cor!oration continues to o!erate e)en ,ith de!leted ca!ital,ould the stockholders or the mana*ers be solidarily liable 'or the obli*ations incurred by the cor!oration? 89!lain(

@arulas( t is the one rentin* the o''ice and store s!ace- as lessee- 'rom the o,ner o' the buildin*- I- as lessor(
But the suit a*ainst 7 ,ill not !ros!er( 7as !resident and *eneral mana*er- and also stockholder o' @arulas &reati)e /echnolo*y- nc(- has a le*al !ersonality se!arate and distinct 'rom that o' the cor!oration( /he liability o' the cor!oration is that o' the cor!oration and not that o' its o''icers and stockholders ,ho are not liable 'or cor!orate liabilities(

".$%
SU..ESTE0 ANSWER:

a% n the 'ace o' the re'usal o' the creditorbanks to *rant more loans- the 'ollo,in* are tools a)ailable to the stockholders to re!lenish ca!ital- to ,it0 1% additional subscri!tion to shares o' stock o' the cor!oration by stockholders or by in)estorsH 2% ad)ances by the stockholders to the cor!orationH
.% !ayment by the o' un!aid subscri!tion

Cor$oration2 Se$arate Juri6ical "ersonalit% (2000)


;ine indi)iduals 'ormed a !ri)ate cor!oration !ursuant to the !ro)isions o' the &or!oration &ode o' the

stockholders(
SU..ESTE0 ANSWER:

b% ;o( As a *eneral rulethe stockholders or the mana*ers cannot be held solidarily liable 'or the obli*ations incurred by the cor!oration( /he cor!oration has a se!arate and distinct !ersonality 'rom that o' the stockholders or mana*ers( /he latter are !resumed to be actin* in *ood 'aith in continuin* the o!eration o' the cor!oration( /he obli*ations incurred by the cor!oration are those o' the cor!oration ,hich alone is liable there'or( 5o,e)er- ,hen the cor!oration is already insol)ent- the directors and o''icers become trustees o' the business and assets o' the cor!oration 'or the bene'it o' the creditors and are liable 'or ne*li*ence or mismana*ement(

Cor$oration2 Se$arate Juri6ical "ersonalit% (2000) @arulas &reati)e /echnolo*y nc(an e-business enter!rise en*a*ed in the manu'acture o' com!uter media accessoriesH rents an o''ice and store s!ace at a commercial buildin* o,ned by I( Bein* a start-u! com!any@arulas en+oyed some leniency in its rent !aymentsH but a'ter three years- I !ut a sto! to it and asked @arulas !resident and *eneral mana*er- 7- ,ho is a stockholder- to !ay the back rentals amountin* to a hundred thousand !esos or to )acate the !remises at the end o' the month( @arulas neither !aid its debt nor )acated the !remises( I sued @arulas and 7 'or collection o' the un!aid rentals- !lus interest and costs o' liti*ation( Will the suit !ros!er a*ainst I? A*ainst 7? "2$%
SU..ESTE0 ANSWER:

7es-

the

suit

,ill

!ros!er

a*ainst

Page

3' of 103

>hili!!ines "B> =G%( ncor!orator : ,as elected director and !resident E *eneral mana*er( >art o' his emolument is a <ord 89!edition- ,hich the cor!oration o,ns( A'ter a 'e, years- : lost his cor!orate !ositions but he re'used to return the motor )ehicle claimin* that as a stockholder ,ith a substantial e3uity sharehe o,ns that !ortion o' the cor!orate assets no, in his !ossession( s the contention o' : )alid? 89!lain "2$%
SU..ESTE0 ANSWER:

!ayment o' the un!aid subscri!tion( Nictor 3uestioned the set-o''( 1% @ay @A A set-o'' the un!aid subscri!tion ,ith )ictors claim 'or salaries? 2% Would your ans,er be the same i' indeed there had been a call 'or the un!aid subscri!tion?
SU..ESTE0 ANSWER:

1%;o( @A A cannot seto'' the un!aid subscri!tion ,ith Nictors claim 'or salaries( /he un!aid subscri!tion is not yet due as there is no call(

;o( /he contention o' : is not )alid( /he <ord 89!edition is o,ned by the cor!oration( /he cor!oration has a le*al !ersonality se!arate and distinct 'rom that o' its stockholder( What the cor!oration o,ns is its o,n !ro!erty and not the !ro!erty o' any stockholder e)en ho, substantial the e3uity share that stockholder o,ns(

2% 7es(

/he reason is that Nictor is entitled to the !ayment o' his salaries ,hich @A A has no ri*ht to ,ithhold in !ayment o' un!aid subscri!tion( /o do so ,ould )iolate ?abor ?a,s (1podaco v 3=,' #4%
S 55%"

Cor$oration2 Stoc- Cor$oration (200))


I7 is a recreational club ,hich ,as or*ani4ed to o!erate a *ol' course 'or its members ,ith an ori*inal authori4ed ca!ital stock o' >100@( /he articles o' incor!oration nor the by-la,s did not !ro)ide 'or distribution o' di)idends althou*h there is a !ro)ision that a'ter its dissolution- the assets shall be *i)en to a charitable cor!oration( s I7 a stock cor!oration? Di)e reasons 'or your ans,er? "2$%
SU..ESTE0 ANSWER:

Cor$oration2 Set?<&&2 Un$ai6 Su.scri$tion ()**3) Nictor ,as em!loyed in @A A &or!oration( 5e subscribed to 1-200 shares o' the cor!oration at >100 !er share or a total o' >120-000( 5e made an initial do,n !ayment o' >.7-200(00( 5e ,as a!!ointed >resident and Deneral @ana*er( Because o' his disa*reement ,ith the BAD- he resi*ned and demanded !ayment o' his un!aid salaries- his cost o' li)in* allo,ance- his bonus- and reimbursement o' his *asoline and re!resentation e9!enses( @A A &or!oration admits that it o,ed Nictor >#0-000( but told him that this ,ill be a!!lied to the un!aid balance o' his subscri!tion in the amount o' >100-000(00 /here ,as no call or notice 'or the
*er i!n 1++0,'003 Arranged by SULAW Cla

I7 is a stock cor!oration because it is or*ani4ed as a stock cor!oration and there is no !rohibition in its Articles o' ncor!oration or its by-la,s 'or it to declare di)idends( When a cor!oration is or*ani4ed as a stock cor!oration and its articles o' ncor!oration or By-?a,s
*er i!n 1++0,'00- U)dated by

Dondee

'00(

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

are silent- the cor!oration is deemed to ha)e the !o,er to declare di)idends under :ec #.( :ince it has the !o,er to declare di)idends- I7 is a stock cor!oration(
/he !ro)ision o' the Articles o' ncor!oration that at dissolution the assets o' the cor!oration shall be *i)en to a charitable cor!oration does not !rohibit the cor!oration 'rom declarin* di)idends be'ore dissolution(

1% I? <oods &or!oration- ,hich is en*a*ed in the 'ast- 'ood business- entered into a contract ,ith its >resident Bose &ru4,hereby the latter ,ould su!!ly the cor!oration ,ith its meat and !oultry

re3uirements(
SU..ESTE0 ANSWER:

Noidable E ,ith one trustees or o!tion o' &or!oration

A contract o' the cor!oration or more o' its directors or o''icers is )oidable- at the such cor!oration ":ec .2&ode%(

Cor$oration2 >ali6it% o& Cor$orate Acts ()**:)


/he stockholders o' >eo!le >o,er nc ">> % a!!ro)ed t,o resolutions in a s!ecial stockholders meetin*0

a% Resolution increasin* the authori4ed ca!ital stock o' >> H and b% Resolution authori4in* the BAD to issue- 'or cash !aymentthe ne, shares 'rom the !ro!osed ca!ital stock increase in 'a)or o' outside in)estors ,ho are non-stockholders( /he 'ore*oin* resolutions ,ere a!!ro)ed by stockholders re!resentin* FF$ o' the total outstandin* ca!ital stock( /he sole dissenter ,as Bimmy @orato ,ho o,ned 1$ o' the stock( 1(Are the resolutions bindin* on the cor!oration and its stockholders includin* Bimmy @oratothe dissentin* stockholder? ".$% 2( What remedies- i' any- are a)ailable to @orato? "2$%
SU..ESTE0 ANSWER:

2% /he Board o' Directors o' I? <oods &or!oration declared and !aid cash di)idends ,ithout a!!ro)al o' the stockholders(

1( ;o( /he resolutions are not bindin* on the cor!oration and its stockholders includin* Bimmy @orato( While these resolutions ,ere a!!ro)ed by the stockholders- the directors a!!ro)al,hich is re3uired by la, in such case- does not e9ist(

2( Bimmy @orato can !etition the :8& ";o, R/&% to declare the 2 resolutionsas ,ell as any and all actions taken by the BAD thereunder- null and )oid( Cor$oration2 >ali6it% o& Cor$orate Acts (2002) Which o' the 'ollo,in* cor!orate acts are )alid- )oid- or )oidable? ndicate your ans,er by ,ritin* the !ara*ra!h number o' the 3uery'ollo,ed by your corres!ondin* ans,er as Nalid- Noid- or Noidable- as the case may be( ' your ans,er is Noid- e9!lain your ans,er( n case o' a Noidable ans,er- s!eci'y ,hat conditions must be !resent or com!lied ,ith to make the cor!orate act )alid( "2$%

Page SU..ESTE0 ANSWER:

33 of 103

Nalid .% I? <oods &or!oration *uaranteed the loan o' its sister com!any I? @eat >roducts- nc(

amendment o' incor!oration(

the

articles

o'

SU..ESTE0 ANSWER:

Noid E /his is an ultra )ires act on !art o' I? <oods &or!oration- and is not one o' the !o,ers !ro)ided 'or in :ec( .= o' the &or!oration &ode( Cor$oration2 >oluntar% Dissolution (2002)
;ame three ".% methods by ,hich a stock cor!oration may be )oluntarily dissol)ed( 89!lain each method( "2$%
SU..ESTE0 ANSWER:

Cor$oration2 >otin' Trust A'reement ()**2) A distressed com!any e9ecuted a )otin* trust a*reement 'or a !eriod o' three years o)er =0$ o' its outstandin* !aid u! shares in 'a)or o' a bank to ,hom it ,as indebted- ,ith the Bank named as trustee( Additionally- the &om!any mort*a*ed all its !ro!erties to the Bank( Because o' the insol)ency o' the &om!anythe Bank 'oreclosed the mort*a*ed !ro!erties- and as the hi*hest bidder- ac3uired said !ro!erties and assets o' the &om!any(
/he three-year !eriod !rescribed in the Notin* /rust A*reement ha)in* e9!iredthe com!any demanded the turn-o)er and trans'er o' all its assets and !ro!ertiesincludin* the mana*ement and o!eration o' the &om!anyclaimin* that under the Notin* /rust A*reement- the Bank ,as constituted as trustee o' the mana*ement and o!erations o' the &om!any(

/he three ".% methods by ,hich a stock cor!oration may be )oluntarily dissol)ed are0 1% Noluntary Dissolution ,here no creditors are a''ected( /his is done by a ma+ority )ote o' the directorsand resolution o' at least 2L. )ote o' stockholderssubmitted to the :ecurities and 89chan*e &ommission( 2% Noluntary dissolution ,here creditors are a''ected( /his is done by a !etition 'or dissolution ,hich must be 'iled ,ith the :ecurities and 89chan*e &ommission- si*ned by a ma+ority o' the members o' the board o' directors- )eri'ied by the !resident or secretary- and u!on a''irmati)e )ote o' stockholders re!resentin* at least 2L. o' the outstandin* ca!ital stock( .% Dissolution by shortenin* o' the cor!orate term( /his is done by
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Does the demand o' the &om!any tally ,ith the conce!t o' a Notin* /rust A*reement? 89!lain brie'ly(
SU..ESTE0 ANSWER:

/he demand o' the com!any does not tally ,ith the conce!t o' a Notin* /rust A*reement( /he Notin* /rust A*reement merely con)eys to the trustee the ri*ht to )ote the shares o' *rantorLs( /he conse3uence o' 'oreclosure o' the mort*a*ed !ro!erties ,ould be alien to the Notin* /rust A*reement and its e''ects(
*er i!n 1++0,'00- U)dated by

Dondee

Mercantile Law Bar Examination Q & A (1990-2006) N5TE: 6)er 0 !ndee7 T&e la# im )ly )r!vide t&ata v!ting tr4 tagreem enti an agreem entin #riting #&ereby !ne !r m !re t!%/&!lder !" a %!r)!rati!n %!n entt! tran "er&i !r t&eir &are t! a tr4 tee in !rdert! ve tin t&e latterv!ting !r !t&er rig&t )ertaining t! aid &are "!r a )eri!d n!t e8%eeding "ive year 4)!n t&e "4l"illm ent!" tat4t!ry %!nditi!n and 4%& !t&er term and %!nditi!n )e%i"ied in t&e agreem ent9 T&e "ive year,)eri!d m ay be e8tended in %a e #&ere t&e v!ting tr4 t i e8e%4ted )4r 4ant t! a l!an agreem ent#&ereby t&e )eri!d i m ade %!ntingent4)!n "4ll )aym ent!" t&e l!an9
Under e%ti!n (+ !" t&e C !r)!rati!n C !de: 4)ra: a v!ting tr4 t agreem ent m ay %!n"er 4)!n a tr4 tee n!t !nly t&e t!%/&!lder; v!ting rig&t b4tal ! !t&errig&t )ertaining t! &i &are a l!ng a t&e v!ting tr4 tagreem enti n!tentered <"!r t&e )4r)! e !" %ir%4m venting t&e la# again tm !n!)!lie and illegal%!m binati!n in re traint!" trade !r4 ed "!r)4r)! e !" "ra4d9< 6 e%ti!n (+: (t& )aragra)& !" t&e C !r)!rati!n C !de79 T&4 : t&e traditi!nal %!n%e)t !" a v!ting tr4 t agreem ent )rim arily intended t! ingle !4ta t!%/&!lder; rig&tt! v!te irrev!%abl "!r a "r!m &i !t&er rig&t a 4%& and m ade a legal devi%e lim ited d4rati!n m ay in )ra%ti%e be%!m e

connection- it ,as held in


'onmart (;hils0" /nc0 v0 Securities and Exchange 'ommission, #96 S',1 4$ (#99#"

that to *rant to the cor!oration concerned the ri*ht o' ,ithdra,in* or dismissin* the suit- at the instance o' the ma+ority stockholders and directors ,ho themsel)es are the !ersons alle*ed to ha)e

#&ereby a tran "er !" t&e t!%/&!lder &are i e""e%ted 4b=e%tt! t&e )e%i"i% )r!vi i!n !" t&e v!ting tr4 tagreem ent9 T&e e8e%4ti!n !" a v!ting tr4 t agreem ent: t&ere"!re: m ay %reat a di%&!t!m y bet#een t&e e>4itable !r bene"i%ial !#ner &i) !" t&e %!r)!rate &are !" a t!%/&!lder: !n t&e !ne &and: and t&e legaltitle t&eret! !n t&e !t&er &and9 (Lee vs !A" #e$ %" 1992)

Deri ati e Suit: Re5uisites (2003)


AA- a minority stockholder- 'iled a suit a*ainst BB- &&- DD- and 88- the holders o' ma+ority shares o' @A> &or!oration- 'or alle*ed misa!!ro!riation o' cor!orate 'unds( /he com!laint a)erred- inter aliathat @A> &or!oration is the cor!oration in ,hose behal' and 'or ,hose bene'it the deri)ati)e suit is brou*ht( n their ca!acity as members o' the Board o' Directors- the ma+ority stockholders ado!ted a resolution authori4in* @A> &or!oration to ,ithdra, the suit( >ursuant to said resolutionthe cor!orate counsel 'iled a @otion to Dismiss in the name o' the @A> &or!oration( :hould the motion be *ranted or denied? Reason brie'ly( "2$%
SU..ESTE0 ANSWER:

;o( All the re3uisites 'or a )alid deri)ati)e suit e9ist in this case( <irst- AA ,as e9em!t 'rom e9haustin* his remedies ,ithin the cor!oration- and did not ha)e to make a demand on the Board o' Directors 'or the latter to sue( 5ere- such a demand ,ould be 'utile- since the directors ,ho com!rise the ma+ority "namely- BB- &&- DD and 88% are the ones *uilty o' the ,ron* com!lained o'( :econd- AA a!!ears to be stockholder at the time the alle*ed misa!!ro!riation o' cor!orate 'unds(
/hird- the suit is brou*ht on behal' and 'or the bene'it o' @A> &or!oration( n this

Page 31 of 103

committed the breach o' trust a*ainst the interests o' the cor!oration ,ould be to emasculate the ri*ht o' minority stockholders to seek redress 'or the cor!oration( <ilin* such action as a deri)ati)e suit e)en by a lone stockholder is one o' the !rotections e9tended by la, to minority stockholders a*ainst abuses o' the ma+ority(

cor!oration concernin* an act that took !lace be'ore he became a stockholder( 5o,e)er- i' the act com!lained o' is a continuin* one- A may do so(

2% ;o( n a deri)ati)e suit- the action is


institutedL brou*ht in the name o' a cor!oration and relie's are !rayed 'or therein 'or the cor!orationby a minority stockholder( /he la, does not 3uali'y the term minority in terms o' the number o' shares o,ned by a stockholder brin*in* the action in behal' o' the cor!oration( (S+' v @han
#4& S',1 556"

Deri ati e Suit: Watere6 Stoc- ()**3) A became a stockholder o' >rime Real 8state &or!oration ">R8&% on Buly 10- 1FF1- ,hen he ,as *i)en one share by another stockholder to 3uali'y him as a director( A ,as not re-elected director in the Buly 1- 1FF2 annual meetin* but he continued to be a re*istered shareholder o' >R8&( When he ,as still a director- A disco)ered that on Ban 2- 1FF1- >R8& issued 'ree o' char*e 10-000 shares to I a la,yer ,ho assisted in a court case in)ol)in* >R8&( 1% &an A no, brin* an action in the name o' the cor!oration to 3uestion the issuance o' the shares to I ,ithout recei)in* any !ayment? 2% &an I 3uestion the ri*ht o' A to sue him in behal' o' the cor!oration on the *round that A has only one share in his name? .% &annot the shares considered as ,atered stock?
SU..ESTE0 ANSWER:

.% ;o( WA/8R8D :5AR8: are those sold by the cor!oration 'or less than the !arLbook )alue( n the instant case- it ,ill de!end u!on the )alue o' ser)ices rendered in relation to the total !ar )alue o' the shares(

Deri ati e Suit2 Close Cor$oration2 Cor$orate <$$ortunit% (2001)


@alyn:chiera and Ba4 are the directors o' >atio n)estments- a close cor!oration 'ormed to run the >atio &a'e- an al 'resco co''ee sho! in @akati &ity( n 2000- >atio &a'e be*an e9!eriencin* 'inancial re)erses- conse3uently- some o' the checks it issued to its be)era*e distributors and em!loyees bounced(

issued

to

be

1% As a *eneral rule- A cannot brin* a deri)ati)e suit in the name o' the
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

n Actober 200.- :chiera in'ormed @alyn that she 'ound a location 'or a second ca'e in /a*ui* &ity( @alyn ob+ected because o' the dire 'inancial condition o' the cor!oration(

*er i!n 1++0,'00- U)dated by

Dondee

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

cor!oration is dissol)ed durin*

the !endency o' the suit? 89!lain(


SU..ESTE0 ANSWER:

:ometime in A!ril 200#- @alyn learned about <ort >atio &a'e located in /a*ui* &ity and that its de)elo!ment ,as undertaken by a ne, cor!oration kno,n as <ort >atio- nc(- ,here both :chiera and Ba4 are directors( @alyn also 'ound that :chiera and Ba4on behal' o' >atio n)estments- had obtained a loan o' >200-000(00 'rom >B&om Bank- 'or the !ur!ose o' o!enin* <ort >atio &a'e( /his loan ,as secured by the assets o' >atio n)estments and !ersonally *uaranteed by :chiera and Ba4( @alyn then 'iled a cor!orate deri)ati)e action be'ore the Re*ional /rial &ourt o' @akati &ity a*ainst :chiera and Ba4alle*in* that the t,o directors had breached their 'iduciary duties by misa!!ro!riatin* money and assets o' >atio n)estments in the o!eration o' <ort >atio &a'e( "2$% 1% Did :chiera and Ba4 )iolate the !rinci!le o' cor!orate o!!ortunity? 89!lain(
SU..ESTE0 ANSWER:

7es- 'or in s!ite o' the dissolution o' any cor!oration- it remains a +uridical !erson 'or !ur!ose o' dissolution 'or three years 'rom the date o' dissolution- !recisely one o' the !ur!oses is to allo, the ,indin*-u! o' its a''airs- includin* the termination o' !endin* suits( Deri ati e Suit2 (inorit% Stoc-#ol6er (2003)
Dina :e)illaa minority stockholder o' Bayan &or!oration- 'elt that )arious in)estments o' the com!anys ca!ital ,ere ultra vires i' not- indeed- made in )iolation o' la,( :he 'iled a deri)ati)e suit seekin* to

7es( Althou*h @alyn re'used the business be'ore- ne)ertheless- usin* the resources and credit standin* o' the com!any:chiera and Ba4 clearly demonstrated that the business could ha)e been success'ully !ursued in the name o' the close cor!oration( @ore im!ortantly- :chiera and Ba4 are *uilty o' di)ertin* the resources o' the close cor!oration to another entity- e3ui)alent to 'raud and bad 'aith( 2% Was it !ro!er 'or @alyn to 'ile a deri)ati)e suit ,ith a !rayer 'or in+uncti)e relie'? 89!lain(

SU..ESTE0 ANSWER:

Althou*h it is a close cor!orationne)ertheless the !rinci!les o' se!arate +uridical !ersonality still a!!ly( /he business o' the cor!oration is still se!arate and distinct 'rom the !ro!rietary interests o' its stockholders and directors( &onse3uentlysince the business o!!ortunity and the resourceCs used !ertain to the close cor!oration- the standin* to sue and to reco)er remains ,ith the close cor!oration and not ,ith @alyn( /here'oreit is still necessary to 'ile a deri)ati)e suit on behal' o' the close cor!orationalthou*h the !roceedin*s ,ould be *o)erned under the nterim Rules o' >rocedure 'or ntra&or!orate Dis!utes( .% Assumin* that a deri)ati)e suit is !ro!erH may the action continue i' the

Page 3( of 103 nulli'y the 3uestioned in)estments( Would her action !ros!er? Why? SU..ESTE0 ANSWER:

!artners 'or all debts- liabilities and dama*es incurred or arisin* as a result o' their actions( Distinction: Di i6en6s s! "ro&it: Cas# Di i6en6 s! Stoc- Di i6en6 (2001) Distin*uish di)idend 'rom !ro'itH cash di)idend 'rom stock di)idend( "2$%
SU..ESTE0 ANSWER:

7es- she is already a stockholder at the time the alle*ed misa!!ro!riation o' cor!orate 'unds( And that 'ilin* such action as a deri)ati)e suit e)en by a lone stockholder is one o' the !rotections e9tended by la, to minority stockholders a*ainst abuses o' the ma+ority( ;e)ertheless- Dina must 'irst e9haust any administrati)e remedies be'ore her suit be consider in court( Distinction: De &acto Cor$oration s! Cor$oration .% Esto$$el (2003) s there a di''erence bet,een a de 'acto cor!oration and a cor!oration by esto!!el? 89!lain brie'ly( "2$%
SU..ESTE0 ANSWER:

>RA< /: are residual amounts re!resentin* return o' ca!ital a'ter deductin* all cor!orate costs and e9!enses 'rom re)enues( /he accumulated !ro'its- 'rom year to yearre!resent the cor!orate retained earnin*s 'rom ,hich the di)idends can be declared( &A:5 D N D8;D: re!resent an actual distribution o' accumulated !ro'its to the stockholders as a return on their in)estments( Declaration o' cash di)idends re3uires only the a!!ro)al o' the ma+ority o' the Board o' Directors in a !ro!er resolution( :/A&J D N D8;D: are sim!ly trans'ers o' retained earnin*s to ca!ital stockthereby increasin* the number o' shares o' stocks o' each stockholder ,ith no re3uired cash contribution( A t,o-thirds )ote o' the stockholders- cou!led ,ith a ma+ority )ote o' the Board o' Directors- is needed to declare stock di)idends( Distinction2 "ri ate s! "u.lic Cor$oration (2003) Distin*uish clearly a !ri)ate cor!oration 'rom a !ublic cor!oration
SU..ESTE0 ANSWER:
*er i!n 1++0,'00- U)dated by

A D8 <A&/A &AR>ARA/ A; is one ,hich actually e9ists 'or all !ractical !ur!oses as a cor!oration but ,hich has no le*al ri*ht to cor!orate e9istence as a*ainst the :tate( t is essential to the e9istence o' a de 'acto cor!oration that there be "1% a )alid la, under ,hich a cor!oration mi*ht be incor!orated- "2% a bona 'ide attem!t to or*ani4e as a cor!oration under such la,- and ".% actual use or e9ercise in *ood 'aith o' cor!orate !o,ers con'erred u!on it by la,( A &AR>ARA/ A; B7 8:/A>>8? e9ists ,hen !ersons assume to act as a cor!oration kno,in* it to be ,ithout authority to do so( n this case- those !ersons ,ill be liable as *eneral
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

A >R NA/8 &AR>ARA/ A; is one 'ormed 'or some !ri)ate !ur!ose- bene'it or end,hile a >6B? & &AR>ARA/ A; is 'ormed 'or the *o)ernment o' a !ortion o' the :tate 'or the *eneral *ood or ,el'are( /he true test is the !ur!ose o' the cor!oration( ' the cor!oration is created 'or !olitical or !ublic !ur!ose connected ,ith the administration o' *o)ernment- then it is a !ublic cor!oration( ' not- it is a !ri)ate cor!oration althou*h the ,hole or substantially the ,hole interest in the cor!oration belon*s to the :tate( A !ublic cor!oration is created by s!ecial le*islation or act o' &on*ress( A !ri)ate cor!oration must be or*ani4ed under the &or!oration &ode(

retained earnin*s- the di)idends ,ould ha)e to be sourced 'rom the ca!ital stock( /his is ille*al( t )iolates the K/R6:/ <6;D DA&/R ;8K that !ro)ides that the ca!ital stock o' the cor!oration is a trust 'und to be ke!t intact durin* the li'e o' the cor!oration 'or the bene'it o' the creditors o' the cor!oration( ('ommissioner of /nternal8
,evenue v0 'ourt of 1ppealG, 20,0 3o0 #7654&, Aanuar %7, #999< Boman Environmental Development 'orp0 v0 'ourt of 1ppeals, 20,0 3o0 446&7, 3ovember %%, #966< and Steinberg v0 Helasco, 20,0 3o0 $75&7, +arch #%,#9%9"

Distinction2 Stoc- s! Non?Stoc- Cor$oration (2003) Distin*uish clearly a stock cor!oration 'rom a non-stock cor!oration(
SU..ESTE0 ANSWER:

A stock cor!oration is one that has ca!ital stock di)ided into shares and is authori4ed to distribute to the holders o' such shares di)idends or allotments o' the sur!lus !ro'its on the basis o' the shares held( All other cor!orations are nonstock cor!orations( Di i6en6s: Declaration o& Di i6en6s (2001) 6nder ,hat circumstances may a cor!oration declare di)idends? "2$%C
SU..ESTE0 ANSWER:

;o 'orm o' di)idends can be declared and !aid by the cor!oration e9ce!t 'rom unrestricted retained earnin*s a!!earin* on its books( Di)idends must be !aid in amounts !ro!ortional to all stockholders on the basis o' outstandin* stock held by them( &ash or !ro!erty di)idends- can be declared 'rom such unrestricted retained earnin*s by a !ro!er resolution o' the Board o' Directors( :tock di)idendsho,e)er- must be declared by a !ro!er resolution o' the Board o' Directors 'rom e9istin* unrestricted retained earnin*s and rati'ied by stockholders re!resentin* at least t,o-thirds "2LG% o' the outstandin* ca!ital stock o' the cor!oration- obtained in a meetin* duly called 'or the !ur!ose( ":ec( #.- &or!oration &ode% Di i6en6s: Sources o& Di i6en6s2 Trust /un6 Doctrine (2001) <rom ,hat 'unds are cash and stock di)idends sourced? 89!lain ,hy( "2$%
SU..ESTE0 ANSWER:

All cash and stock di)idends are al,ays !aid out o' the unrestricted retained earnin*s "also called sur!lus !ro'it% o' the cor!oration( ' the cor!oration has no unrestricted

Page

3- of 103

Di i6en6s2 Declaration o& Di i6en6s ()**0)


At least 2L. o' the stockholders o' :olar &or!orationmeetin* u!on the recommendation o' the BAD- declared a 20$ stock di)idend durin* their annual meetin*( /he notice o' the annual stockholders meetin* did not mention anythin* about a stock di)idend declaration( /he matter ,as taken u! only under the item other business in the a*enda o' the meetin*( &(J( :en,a- a stockholder- ,ho recei)ed his co!y o' the notice but did not attend the meetin*subse3uently learned about the 20$ stock di)idend declaration( 5e desires to ha)e the stock di)idend declaration cancelled and set aside- and ,ishes to retain your ser)ices as a la,yer 'or the !ur!ose( Will you acce!t the case? Discuss ,ith reasons(
SU..ESTE0 ANSWER:

Durin* the annual stockholders meetin*- Ri4a- a stockholder !ro!osed to the body that a !art o' the cor!orations unreser)ed earned sur!lus be ca!itali4ed and stock di)idends be distributed to the stockholders- ar*uin* that as o,ners o' the com!any- the stockholders- by a ma+ority )ote- can do anythin*( As chairman o' the meetin*ho, ,ould you rule on the motion to declare stock di)idends?
SU..ESTE0 ANSWER:

,ill not acce!t the case( :ec #. o' the &or! &ode states that no stock di)idend shall be issued ,ithout the a!!ro)al o' the stockholders re!resentin* not less than 2L. o' the outstandin* ca!ital stock at a re*ular or s!ecial meetin* duly called 'or that !ur!ose( &on'ormably ,ith :ec 20 o' the &or! &ode- a ,ritten notice o' the holdin* o' the re*ular meetin* sent to the shareholders ,ill su''ice( /he notice itsel' s!eci'ied the said sub+ect matter(
ALTERNATI*E ANSWER:

As the chairman o' the meetin*- ,ould rule a*ainst the motion considerin* that a declaration o' stock di)idends should initially be taken by the BAD and therea'ter to be concurred in by a 2L. )ote o' the stockholders ":ec #. &or! &ode%( /here is no !rohibitionho,e)era*ainst the stockholders resol)in* to recommend to the BAD that it consider a declaration o' stock di)idends 'or concurrence therea'ter by the stockholders(

Di i6en6s2 Declaration o& Di i6en6s (200))


<or the !ast three years o' its commercial o!eration- Ian oil com!any- has been earnin* tremendously in e9cess o' 100$ o' the cor!orations !aid-in ca!ital( All o' the stockholders ha)e been claimin* that they share in the !ro'its o' the cor!oration by ,ay o' di)idends but the Board o' Directors 'ailed to li't its 'in*er(

7es,ill acce!t the case( /he !roblem does not indicate that there is action by the BAD ,hich is also necessary 'or the declaration o' 20$ stock di)idend( Di i6en6s2 Declaration o& Di i6en6s ()**))
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

a% s &or!oration I *uilty o' )iolatin* a la,? ' in the a''irmati)e- state the basis "2$%
SU..ESTE0 ANSWER:

&or!oration I is *uilty o' )iolatin* :ection #. o' the &or! &ode( /his !ro)ision !rohibits stock cor!orations
*er i!n 1++0,'00- U)dated by

Dondee

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

'rom retainin* sur!lus !ro'its in e9cess o' 100$ o' their !aid-in ca!ital( b% Are there instances ,hen a cor!oration shall not be held liable 'or not declarin* di)idends? ".$%
SU..ESTE0 ANSWER:

Doctrine o& Cor$orate <$$ortunit% (2001) Brie'ly discuss the doctrine o' cor!orate o!!ortunity( "2$%
SU..ESTE0 ANSWER:

/he instances ,hen a cor!oration shall not be held liable 'or not declarin* di)idends are0 1% ,hen +usti'ied by de'inite cor!orate e9!ansion !ro+ects or !ro*rams a!!ro)ed by the BADH or 2% ,hen the cor!oration is !rohibited under any loan a*reement ,ith any 'inancial institution or creditor- ,hether local or 'orei*n'rom declarin* di)idends ,ithout its or his consentand such consent has not yet been securedH or .% ,hen it can be clearly sho,n that such retention is necessary under s!ecial circumstances obtainin* in the cor!oration- such as ,hen there is need 'or s!ecial reser)e 'or !robable contin*encies( Di i6en6s2 Ri'#t2 (ana'in' Cor$oration ()**)) AB& @ana*ement nc( !resented to the D8< @inin* &o- the dra't o' its !ro!osed @ana*ement &ontract( As an incenti)eAB& included in the terms o' com!ensation that AB& ,ould be entitled to 10$ o' any stock di)idend ,hich D8< may declare durin* the li'etime o' the @ana*ement &ontract( Would you a!!ro)e o' such !ro)ision? ' not- ,hat ,ould you su**est as an alternati)e?
SU..ESTE0 ANSWER:

n brie'- the doctrine dis3uali'ies a directortrustee or o''icer 'rom a!!ro!riatin* 'or his !ersonal bene'it a transaction or o!!ortunity that !ertains to the cor!oration- and ,hich under the duty o' loyalty he should 'irst brin* to the cor!oration 'or its use or e9!loitation( /he doctrine o' cor!orate o!!ortunity is an en'orcement o' the duty o' loyalty o' cor!orate directors and o''icers( When a director- trustee or o''icer attem!ts to ac3uire or

,ould not a!!ro)e a !ro!osed sti!ulation in the mana*ement contract that the mana*in* cor!oration- as an additional com!ensation to it- should be entitled to 10$ o' any stock di)idend that may be declared( :tockholders are the only ones entitled to recei)e stock di)idends (3ielsen D 'o v =epanto +ining %& s 5&9" ,ould add that the unsubscribed ca!ital stock o' a cor!oration may only be issued 'or cash or !ro!erty or 'or ser)ices already rendered constitutin* a demandable debt ":ec =2 &or! &ode%( As an alternati)e,ould su**est that the mana*in* cor!oration should instead be *i)en a net !ro'it !artici!ation and- i' it later so desires- to then con)ert the amount that may be due thereby to e3uity or shares o' stock at no less than the !ar )alue thereo'(

Page 32 of 103

ac3uires- in )iolation o' his duty- an interest ad)erse to the cor!oration in res!ect o' any matter ,hich has been re!osed in him in con'idence- he shall be liable as a trustee 'or the cor!oration and must account 'or the !ro'its ,hich other,ise ,ould ha)e accrued to the cor!oration( 83uity im!oses liability u!on him not to deal 'or his o,n bene'it( ":ec( .1&or!oration &ode%

had e9!ired- it could no lon*er o!t to rene, the lease( I7P &or!( countered that ,ithstandin* the la!se o' its cor!orate term it still has the ri*ht to rene, the lease because no 3uo ,arranto !roceedin*s 'or in)oluntary dissolution o' I7P &or!( has been instituted by the A''ice o' the :olicitor Deneral(

s the contention o' I7P &or!( meritorious? 89!lain brie'ly( "2$%


SU..ESTE0 ANSWER:

6nder :ec( .# o' the &or!oration &ode ,here a director- by )irtue o' his o''iceac3uires 'or himsel' a business o!!ortunity ,hich should belon* to the cor!oration- thereby obtainin* !ro'its to the !re+udice o' such cor!orationhe must account to the latter 'or all such !ro'its by re'undin* the sameunless his act has been rati'ied by a )ote o' the stockholders o,nin* or re!resentin* at least t,o-thirds "2LG% o' the outstandin* ca!ital stock( E&&ect: E9$iration o& Cor$orate Term (2003)
I7P &or!oration entered into a contract o' lease ,ith AB&- nc(- o)er a !iece o' real estate 'or a term o' 20 years- rene,able 'or another 20 years- !ro)ided that I7PCs cor!orate term is e9tended in accordance ,ith la,( <our years a'ter the term o' I7P &or!oration e9!ired- but still ,ithin the !eriod allo,ed by the lease contract 'or the e9tension o' the lease !eriod- I7P &or!( noti'ied AB&- nc(- that it is e9ercisin* the o!tion to e9tend the lease( AB&- nc(ob+ected to the !ro!osed e9tension- ar*uin* that since the cor!orate li'e o' I7P &or!(
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

I7P &or!orationCs contention is not meritorious( Based on the rulin* o' the :u!reme &ourt in ;hilippine 3ational Ban( vs0 './ of ,i>al, %79 S',1 (#99%"0 I7P &or!( ,as dissol)ed i!so 'acto u!on the e9!iration o' its ori*inal term( t ceased to be a body cor!orate 'or the !ur!ose o' continuin* the business 'or ,hich it ,as or*ani4ede9ce!t only 'or !ur!oses connected ,ith its ,indin* u! or li3uidation( 89tendin* the lease is not an act to ,ind u! or li3uidate I7P &or!(Cs a''airs( t is contrary to the idea o' ,indin* u! the a''airs o' the cor!oration(

E&&ects2 (er'er o& Cor$orations ()***) /,o cor!orations a*reed to mer*e( /hey then e9ecuted an a*reement s!eci'yin* the sur)i)in* cor!oration and the absorbed cor!oration( 6nder the a*reement o' mer*er dated ;o)ember 21FFGthe sur)i)in* cor!oration ac3uired all the ri*hts- !ro!erties and liabilities o' the absorbed cor!oration(
1% What ,ould ha!!en to the absorbed cor!oration? @ust the absorbed cor!oration undertake dissolution and the ,indin* u! !rocedures? 89!lain

your ans,er( ".$%


SU..ESTE0 ANSWER:
*er i!n 1++0,'00- U)dated by

Dondee

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

;o( /here is no need 'or the absorbed cor!oration to undertake dissolution and ,indin* u! !rocedure( As a result o' the mer*erthe absorbed cor!oration is automatically dissol)ed and its assets and liabilities are ac3uired and assumed by the sur)i)in* cor!oration( 2% >endin* a!!ro)al o' the mer*er by the :8&- may the sur)i)in* cor!oration already institute suits to collect all recei)ables due to the absorbed cor!oration 'rom

dis!osition and distribution o' its remainin* assets( ' the . year e9tended li'e e9!ires ,ithout a trustee or recei)er bein* desi*nated by the cor!oration ,ithin that !eriod and by that time "e9!iry o' the . year e9tended term%- the cor!orate li3uidation is not yet o)er- ho,i' at all- can a 'inal settlement o' the cor!orate a''airs be made?
SU..ESTE0 ANSWER:

its customers? 89!lain your ans,er( ".$%


SU..ESTE0 ANSWER:

/he li3uidation can continue ,ith the ,indin* u!( /he members o' the BAD can continue ,ith the ,indin* o' the cor!orate a''airs until 'inal li3uidation( /hey can act as trustees or recei)ers 'or this !ur!ose( E&&ects2 Win6in' U$ "erio6 o& a Cor$oration (2000)
/he :8& a!!ro)ed the amendment o' the Articles o' ncor!oration o' D5Q &or! shortenin* its cor!orate li'e to only 22 years in accordance ,ith :ec 120 o' the &or!

;o( /he mer*er does not become e''ecti)e until and unless a!!ro)ed by the :8&( Be'ore a!!ro)al by the :8& o' the mer*er- the sur)i)in* cor!oration has no le*al !ersonality ,ith res!ect to recei)ables due to the absorbed cor!oration(
.% A case ,as 'iled a*ainst a customer to collect on the !romissory note issued by him a'ter the date o' the mer*er a*reement( /he customer raised the de'ense that ,hile the recei)ables as o' the date o' the mer*er a*reement ,as trans'erred to the sur)i)in* cor!oration- those recei)ables ,hich ,ere created a'ter the mer*er a*reement remained to be o,ned by the absorbed cor!oration( /hese recei)ables ,ould be distributed to the stockholders con'ormably ,ith the dissolution and li3uidation !rocedures under the ;e, &or!oration &ode?

Discuss the merits o' this ar*ument( ".$%


SU..ESTE0 ANSWER:

Whether the recei)able ,as incurred by the absorbed cor!oration be'ore or a'ter the mer*er a*reement- or be'ore or a'ter the a!!ro)al thereo' by the :8&- the said recei)able ,ould still belon* to the sur)i)in* cor!oration under :ec G0 o' the &or!( &ode ,hich does not make any distinction as to the assets and liabilities o' the absorbed cor!oration that the sur)i)in* cor!oration ,ould inherit( E&&ects2 Win6in' U$ "erio6 o& a Cor$oration ()**+) /he cor!oration- once dissol)ed- therea'ter continues to be a body cor!orate 'or three years 'or !ur!oses o' !rosecutin* and de'endin* suits by and a*ainst it and o' enablin* it to settle and close its a''airsculminatin* in the 'inal

Page

33 of 103

&ode( As shortened- the cor!oration continued its business o!erations until @ay .0- 1FF7- the last day o' its cor!orate e9istence( >rior to said date- there ,ere a number o' !endin* ci)il actions- o' )aryin* nature but mostly money claims 'iled by creditors- none o' ,hich ,as e9!ected to be com!leted or resol)ed ,ithin 'i)e years 'rom @ay .0- 1FF7( ' the creditors had sou*ht your !ro'essional hel! at that time about ,hether or not their cases could be !ursued beyond @ay .01FF7- ,hat ,ould ha)e been your ad)ice? "2$%
SU..ESTE0 ANSWER:

be )erm itted t! ! %!ntin4e a <tr4 tee < by legal im )li%ati!n t! %!m )let t&e %!r)!rate li>4idati!n9 (&E&'(!)LA &*(L(&&(+E'" (+! " vs ,*E !)-., )# A&&EAL'" /0 . +o 1%1211 +ovem$er 2%" 200% 3)

/orei'n Cor$oration2 @Doin' ,usinessA in t#e "#ili$$ines ()**:) When is a 'orei*n cor!oration deemed to be doin* business in the >hili!!ines? ".$%
SU..ESTE0 ANSWER:

/he cases can be !ursued e)en beyond @ay .0- 1FF7- the last day o' the cor!orate e9istence o' D5Q &or!( /he &or!oration is not actually dissol)ed u!on the e9!iration o' its cor!orate term( /here is still the !eriod 'or li3uidation or ,indin* u!(
N5TE: Under Se%ti!n 1''
!" t&e C !r)!rati!n C !de: a %!r)!rati!n #&! e %!r)!rate e8i ten%e i term inated in any m anner%!ntin4e t! be a b!dy %!r)!rate "!rt&ree 637 year a"terit di !l4ti!n "!r)4r)! e !" )r! e%4ting and de"ending 4it by and again titand t! enable itt! ettle and %l! e it a""air : %4lm inating in t&e di )! iti!n and di trib4ti!n !" it rem aining a et9 Itm ay: d4ring t&e t&ree,yearterm : a))!inta tr4 tee !ra re%eiver#&! m ay a%tbey!nd t&at)eri!d9

A 'orei*n cor!oration is deemed to be doin* business in the >hili!!ines i' it is continuin* the body or substance o' the business or enter!rise 'or ,hich it ,as or*ani4ed( t is the intention o' an entity to continue the body o' its business in the country( /he *rant and e9tension o' F0- day credit terms o' a 'orei*n cor!oration to a domestic cor!oration 'or e)ery !urchase sho,s an intention to continue transactin* ,ith the latter( /orei'n Cor$oration2 @Doin' ,usinessA in t#e "#ili$$ines2 Acts or Acti ities (2002) Di)e at least three ".% e9am!les o' the acts or acti)ities that are s!eci'ically identi'ied under our 'orei*n in)estment la,s as constitutin* doin* business in the >hili!!ines ".$%
SU..ESTE0 ANSWER:

T&e term inati!n !" t&e li"e !" a %!r)!rate entity d!e n!tby it el" %a4 e t&e e8tin%ti!n !r dim in4ti!n !" t&e rig&t and liabilitie !" 4%& entity9 '2 I" t&e t&ree, yeare8tended li"e &a e8)ired #it&!4ta tr4 tee !r re%eiver &aving been e8)re ly de ignated by t&e %!r)!rati!n: #it&in t&at)eri!d: t&e b!ard !" dire%t!r 6!rtr4 tee 7 it el": m ay
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Any three ".% o' the 'ollo,in* acts or acti)ities constitute doin* business in the >hili!!ines under our 'orei*n in)estment la,s0 1( :olicitin* orders
*er i!n 1++0,'00- U)dated by

Dondee

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

2( A!enin* o''ices by ,hate)er name .( >artici!atin* in the mana*ementsu!er)ision or control o' any domestic entity #( 8nterin* into ser)ice contracts 2( A!!ointin* re!resentati)es or distributors- o!eratin* under the control o' the 'orei*n entity- ,ho is domiciled in the >hili!!ines or ,ho stays in the country 'or a !eriod or !eriods totalin* at least 1G0 days in any calendar year( /orei'n Cor$oration2 @Doin' ,usinessA in t#e "#ili$$ines2 Test (2002) What is the le*al test 'or determinin* i' an unlicensed 'orei*n cor!oration is doin* business in the >hili!!ines? "2$%
SU..ESTE0 ANSWER:

2% When he acts in bad 'aith or ,ith *ross ne*li*ence in directin* the a''airs o' the cor!oration- or in con'lict ,ith the interest o' the cor!oration resultin* in dama*es to the cor!oration- its stockholders or other !ersonsH .% When he consents to the issuance o' ,atered stocks or ,hoha)in* kno,led*e thereo'does not 'orth,ith 'ile ,ith the cor!orate secretary his ,ritten ob+ection theretoH #% When he a*rees to hold himsel' !ersonally and solidarily liable ,ith the cor!orationH or

/he test is ,hether or not the unlicensed 'orei*n cor!oration has !er'ormed an act or acts that im!ly a continuity o' commercial dealin*s or arran*ements- and contem!late to that e9tent the !er'ormance o' acts or ,orks- or the e9ercise o' some o' the 'unctions normally incident to- and in !ro*ressi)e !rosecution o'- commercial *ain or o' the !ur!ose and ob+ect o' the business cor!oration( Joint >enture2 Cor$oration ()**4) @ay a cor!oration enter into a +oint )enture?
SU..ESTE0 ANSWER:

A cor!oration may enter into a +oint )enture( 5o,e)erinasmuch as the term R+oint )enture has no !recise le*al de'inition- it may take )arious 'orms( t could take the 'orm o' a sim!le !oolin* o' resources "not in)ol)in* incor!oration% bet,een t,o or more cor!orations 'or a s!eci'ic !ro+ect!ur!ose or undertakin*- or 'or a limited time( t may in)ol)e the creation o' a more 'ormal structure and- hence- the 'ormation o' a cor!oration( ' the +oint )enture ,ould in)ol)e the creation o' a !artnershi!- as the term is understood under the &i)il &ode- then a cor!oration cannot be a !arty to it(

8ia.ilities2 ,<D2 Cor$orate Acts ()**4) When may a cor!orate director- trusteeor o''icer be held !ersonally liable ,ith the cor!oration?
SU..ESTE0 ANSWER:

A cor!orate director- trustee or o''icer may be held !ersonally liable ,ith the cor!oration under the 'ollo,in* circumstances0 1% When he assents to a !atently unla,'ul act o' the cor!orationH

S',1 $59"

(Delpher :rades 'orp v /1' #54

e9istence o'

Page

3+ of 103

2% When

he is made- by a s!eci'ic !ro)ision o' la,- to !ersonally ans,er 'or the cor!orate action( (:ramat
+ercantile /nc v '1 2, ###776, 3ov 4, 95 %$6s#5"

8ia.ilities2 Stoc-#ol6ersB DirectorsB <&&icers ()**+)


A- B- and & are shareholders o' I7P &o( A has an un!aid subscri!tion o' >100thBs shares are 'ully !aid u!- ,hile & o,ns only nominal but 'ully !aid u! shares and is a director and o''icer( I7P becomes insol)ent- and it is established that the insol)ency is the result o' 'raudulent !ractices ,ithin the com!any( ' you ,ere counsel 'or a creditor o' I7P- ,ould you ad)ise le*al action a*ainst A- B- and &?
SU..ESTE0 ANSWER:

'raudulent !ractices ,ithin the com!any( Directors are liable +ointly and se)erally 'or dama*es sustained by the cor!orationstockholders or other !ersons resultin* 'rom *ross ne*li*ence or bad 'aith in directin* the a''airs o' the cor!oration( ":ec .1 &or! &ode%

"iercin' t#e Cor$orate >eil ()**3)


@r( >ablo- a rich merchant in his early 'orties- ,as a de'endant in a la,suit ,hich could sub+ect him to substantial dama*es( A year be'ore the court rendered +ud*ment>ablo sou*ht his la,yers ad)ice on ho, to !lan his estate to a)oid ta9es( 5is la,yer su**ested that he should 'orm a cor!oration ,ith himsel'- his ,i'e and his children "all students and still unem!loyed% as stockholders and then trans'er all his assets and liabilities to this cor!oration( @r >ablo 'ollo,ed the recommendation o' his la,yer( 1 year later- the court rendered +ud*ment a*ainst >ablo and the !lainti'' sou*ht to en'orce this +ud*ment( /he sheri''- ho,e)er- could not locate any !ro!erty in the name o' >ablo and there'ore returned the ,rit o' e9ecution unsatis'ied( What remedy- i' any- is a)ailable to the !lainti''?
SU..ESTE0 ANSWER:

a% As to AS an action can be brou*ht a*ainst A 'or >100th ,hich is the amount o' un!aid subscri!tion( :ince the cor!oration is insol)ent- the limit o' the stockholders liability to the creditor is only u! to the e9tent o' his un!aid subscri!tion(

b% As to BS there is no cause o' action a*ainst B because he has already 'ully !aid 'or his subscri!tion( As stated earlierthe limit o' the stockholders liability to the creditor o' the cor!oration- ,hen the latter becomes insol)ent- is the e9tent o' his subscri!tion(
c% As to &S an action can be 'iled a*ainst &- not as stockholder because he has already !aid u! the shares- but in his ca!acity as director and o''icer because o' the cor!orations insol)ency bein* the result o'
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

/he !lainti'' can a)ail himsel' o' the doctrine o' !iercin* the )eil o' cor!orate 'iction ,hich can be in)oked ,hen a cor!oration is 'ormed or used in a)oidin* a +ust obli*ation( While it is true that a 'amily cor!oration may be or*ani4ed to !ursue an estate ta9H !lannin*- ,hich is

not !er se ille*al or unla,'ul the 'actual settin*s- ho,e)erindicate the a la,suit that could sub+ect >ablo to a
*er i!n 1++0,'00- U)dated by

Dondee

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

substantial amount o' dama*es( t ,ould thus be di''icult 'or >ablo to con)incin*ly assert that the incor!oration o' the 'amily cor!oration ,as intended merely as a case o' estate ta9 !lannin*( (:an Boon Bee v
Aarencio 5#$$4 $7Aune66"

business conduit or alter e*o o' 7 &or!oration ('/, v 3orton D Earrison 'o ## S 4#5
(#9&5""

"iercin' t#e Cor$orate >eil (2003) 5o, does one !ierce the )eil o' cor!orate 'iction?
SU..ESTE0 ANSWER:

"iercin' t#e Cor$orate >eil ()**4) 8 &o sold its assets to @ nc a'ter com!lyin* ,ith the re3uirements o' the Bulk :ales ?a,( :ubse3uently- one o' the creditors o' 8 &o tried to collect the amount due it- but 'ound out that 8 &o had no more assets le't( /he creditor then sued @ nc on the theory that @ nc is a mere alter e*o o' 8 &o( Will the suit !ros!er? 89!lain(
SU..ESTE0 ANSWER:

/he )eil o' cor!orate 'iction may be !ierced by !ro)in* in court that the notion o' le*al entity is bein* used to de'eat !ublic con)enience- +usti'y ,ron*- !rotect 'raud- or de'end crime or the entity is +ust an instrument or alter e*o or ad+unct o' another entity or !erson( "iercin' t#e Cor$orate >eil (2004)
#075#075

/he suit ,ill not !ros!er( /he sale by 8 &o o' its assets to @ nc does not result in the trans'er o' the liabilities o' the latter to- nor in the assum!tion thereo' by- the 'ormer( /he 'acts *i)en do not indicate that such trans'er or assum!tion took !lace or ,as sti!ulated u!on by the !arties in their a*reement( <urthermore- the sale by 8 &o o' its assets is a sale o' its !ro!erty( t does not in)ol)e the sale o' the shares o' stock o' the cor!oration belon*in* to its stockholders( /here is there'ore no mer*er or consolidation that took !lace( 8 &o continues to e9ist and remains liable to the creditor(

"iercin' t#e Cor$orate >eil (200))


>lainti''s 'iled a collection action a*ainst I &or!oration( 6!on e9ecution o' the courts decision- I &or!oration ,as 'ound to be ,ithout assets( /herea'ter !lainti''s 'iled an action a*ainst its !resent and !ast stockholder 7 &or!oration ,hich o,ned substantially all o' the stocks o' I &or!oration( /he t,o cor!orations ha)e the same board o' directors and 7 &or!oration 'inanced the o!erations o' I &or!oration( @ay 7 &or!oration be held liable 'or the debts o' I &or!oration? Why? "2$%
SU..ESTE0 ANSWER:

7es- 7 &or!oration may be held liable 'or the debts o' I &or!oration( /he doctrine o' !iercin* the )eil o' cor!oration 'iction a!!lies to this case( /he t,o cor!orations ha)e the same board o' directors and 7 &or!oration o,ned substantially all o' the stocks o' I &or!oration,hich 'acts +usti'y the conclusion that the latter is merely an e9tension o' the !ersonality o' the 'ormerand that the 'ormer controls the !olicies o' the latter( Added to this is the 'act that 7 &or!oration controls the 'inances o' I &or!oration ,hich is merely an ad+unct-

Page

10 of 103

%775"0

What is the doctrine o' K!iercin* the )eil o' cor!orate entity?K 89!lain(
SU..ESTE0 ANSWER:

7%

8)ade the la,'ul obli*ations o' the cor!oration like a +ud*ment credit
(Sibagat :imber 'orp0 v0 2arcia, 20,0 3o0 ##%55&, December ##, #99%"0

/he doctrine o' K!iercin* the )eil o' cor!orate entity-K is the doctrine that allo,s the courts to look behind the se!arate +uridical !ersonality o' a cor!oration and treat the cor!oration as an association o' !ersons and thereby make the indi)idual actors !ersonally liable 'or cor!orate liabilities( /he 'iction o' cor!orate identity is disre*arded and the indi)iduals com!risin* it can be treated identically( /he stockholders can be held directly liable 'or cor!orate obli*ations- e)en to the e9tent o' their !ersonal assets ('oncept Builders v0 3=,', +arabe, et al, 20,0 3o0 #764$5, +a %9, #99&"( /o =!at ."r.u-stan.es ="ll t!e 7o.tr"ne apply5 )2.56+ /he doctrine is a!!licable ,hen the notion o' le*al entity is used to S 1% De'eat !ublic con)enience( 2% Busti'y ,ron*( .% >rotect 'raud( #% De'end crime (;3B v0 1ndrada

G% F%

8sca!e liability arisin* 'rom a debt


(1rcilla v0 'ourt of 1ppeals, 20,0 3o0 66##$, -ctober %$, #99%"0

A)oid inclusion o' cor!orate assets as !art o' the estate o' the decedent
('ease v0 'ourt of 1ppeals, $56&#, -ctober #6, #949"0 20,0 3o0 =8

10% /o !romote ob+ecti)es

or

to

shield

un'air

(Hillanueva v0 1dre, 20,0 3o0 676&$, 1pril %4, #969"0

"re?em$ti e Ri'#t (200))


:u!!ose that I &or!oration has already issued the 1000 ori*inally authori4ed shares o' the cor!oration so that its BAD and stockholders ,ish to increase Is authori4ed ca!ital stock( A'ter com!lyin* ,ith the re3uirements o' the la, on increase o' ca!ital stock- I issued an additional 1000 shares o' the same )alue( a%Assume that the stockholder A !resently holds 200 out o' the 1000 ori*inal shares( Would A ha)e a !re-em!ti)e ri*ht to 200 o' the ne, issue o' 1000 shares? Why? ".$%

2%

Electric, %77%"(

20,0

3o0

#5%9$&, 1pril #4,

:hield a )iolation o' the !roscri!tion a*ainst 'orum sho!!in* (.irst


;hilippine /nternational Ban( v0 'ourt of 1ppeals, 20,0 3o0 #$45$4, Aanuar %5, #99&"0

b% When should stockholder A e9ercise the !re-em!ti)e ri*ht? "2$%


SU..ESTE0 ANSWER:

=%

Work ine3uities amon* members o' the cor!oration internallyin)ol)in* no ri*hts o' the !ublic or third !ersons (Secosa v0 Eeirs ofErwin
Suare> .rancisco, 20,0 3o0 #5&#75, Aune %9,

a% 7es- A ,ould ha)e a !re-em!ti)e ri*ht to 200 o' the ne, issue o' 1000 shares( A is a stockholder o' record holdin* 200 shares in I &or!o( Accordin* to the &or! &odeeach stockholder has the !re-em!ti)e ri*ht to all issues o' shares made by the cor!oration in !ro!ortion to
*er i!n 1++0,'00- U)dated by

*er i!n 1++0,'003 Arranged by SULAW Cla

'00(

Dondee

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

the number o' shares he holds on record in the cor!oration( b% >re-em!ti)e ri*ht must be e9ercised in accordance ,ith the Articles o' ncor!oration or the By-?a,s( When the Articles o' ncor!oration and the By-?a,s are silent- the BAD may 'i9 a reasonable time ,ithin ,hich the stockholders may e9ercise the ri*ht( "re?Em$ti e Ri'#t s! A$$raisal Ri'#t ()***) AB& &or!oration has an authori4ed ca!ital stock o' >1@ di)ided into 20-000 common shares and 20-000 !re'erred shares( At its ince!tion- the &or!oration o''ered 'or subscri!tion all the common shares( 5o,e)eronly #0-000 shares ,ere subscribed( Recentlythe directors thou*ht o' raisin* additional ca!ital and decided to o''er to the !ublic all the authori4ed shares o' the &or!oration at their market )alue( a% Would @r( I- a stockholder holdin* #-000 shares- ha)e !re-em!ti)e ri*hts to the remainin* 10-000 shares? "2$% b% Would @r( I ha)e !re-em!ti)e ri*hts to the 20-000 !re'erred shares? "2$% c% Assumin* that the e9istin* stockholders are entitled to !re-em!ti)e ri*hts- at ,hat !rice ,ill the shares be o''ered? "2$% d% Assumin* a stockholder disa*rees ,ith the issuance o' ne, shares and the !ricin* 'or the shares- may the stockholder in)oke his a!!raisal ri*hts and demand !ayment 'or his shareholdin*s? "2$%
SU..ESTE0 ANSWER:

any classin !ro!ortion to their res!ecti)e shareholdin*s(


ALTERNATI*E ANSWER:

b( 7es- @r( I has !reem!ti)e ri*ht o)er the 20-000 !re'erred shares because they ,ere not o''ered be'ore by the cor!oration 'or subscri!tion(
SU..ESTE0 ANSWER:

c( /he shares ,ill be o''ered to e9istin* stockholders,ho are entitled to !reem!ti)e ri*ht- at a !rice 'i9ed by the BAD- ,hich shall not be less than the !ar )alue o' such shares(

a( 7es( @r( I- a stockholder holdin* #-000 shares- has !re-em!ti)e ri*ht to the remainin* 10-000 shares( All stockholders o' a stock cor!oration shall en+oy !re- em!ti)e ri*ht to subscribe to all issues or dis!osition o' shares o' any class- in !ro!ortion to their res!ecti)e shareholdin*s(
ALTERNATI*E ANSWER9

a( ;o- @r I does not ha)e !re-em!ti)e ri*ht o)er the remainin* 10-000 shares because these shares ha)e already been o''ered at incor!oration and he chose not to subscribe to them( 5e- there'ore- has ,ai)ed his ri*ht thereto and the cor!oration may o''er them to anyone(
SU..ESTE0 ANSWER:

b( 7es( @r( I ,ould ha)e !re-em!ti)e ri*hts to the 20-000 !re'erred shares( All stockholders o' a stock cor!oration shall en+oy !re-em!ti)e ri*ht to subscribe to all issues or dis!osition o' shares o'

Page SU..ESTE0 ANSWER:

11 of 103

d( ;o- the stockholder may not e9ercise a!!raisal ri*ht because the matter that he dissented 'rom is not one o' those ,here ri*ht o' a!!raisal is a)ailable under the cor!oration code( SEC2 Juris6iction2 Trans&erre6 Juris6iction ()**4) What is the ori*inal and e9clusi)e +urisdiction o' the :8&?
SU..ESTE0 ANSWER:

/he :8& has ori*inal and e9clusi)e +urisdiction o)er cases in)ol)in*0 a% De)ices or schemes amountin* to 'raud and misre!resentationH b% &ontro)ersies arisin* out o' intracor!orate or !artnershi! relationsH c% &ontro)ersies in the election or a!!ointment o' directors- o''icers- etcH d% >etitions to be declared in a state o' sus!ension o' !ayments ":ec 2 >D F02A% /he RTC has +urisdiction o)er the cases ,hich in)ol)es intra-cor!orate contro)ersy( As o' 200=- the a!!licable rule is that there is a /RA;:<8RR8D B6R :D &/ A; under :ec( 2(2 o' the :R&- the &ommissions +urisdiction o)er all cases enumerated under >D F02-A sec( 2 has been trans'erred to the &ourts o' *eneral +urisdiction or the a!!ro!riate Re*ional /rial &ourt(
TA?E N5TE:

/he BAD o' a cor!oration- by a )ote o' ten in 'a)or o' one a*ainst- declared due and !ayable all un!aid subscri!tion to the ca!ital stock( /he lone dissentin* director 'ailed to !ay on due date- i(e(- 1F :e!t 1FF7- his un!aid subscri!tion( Ather than the shares ,herein he ,as unable to com!lete !ayment- he did not o,n any share in the cor!oration( An 2. :e!t 1FF7- he ,as in'ormed by the BAD thatunless due !ayment is mean,hile recei)ed- he0 a% could no lon*er ser)e as a director o' the cor!oration 'orth,ith0 b% ,ould not be entitled to the cash and stock di)idends ,hich ,ere declared and !ayable on 2# :e! 1FF7H and c% could not )ote in the stockholders meetin* scheduled to take !lace on 2= :e!t 1FF7( Was the action o' the BAD on each o' the 'ore*oin* matters )alid?
SU..ESTE0 ANSWER:

a% ;o( /he !eriod o' .0 days ,ithin ,hich the stockholder can !ay the un!aid subscri!tion had not yet e9!ired(
b% ;o( /he delin3uency did not de!ri)e the stockholder o' his ri*ht to recei)e di)idends declared( 5o,e)er- the cash di)idend declared may be a!!lied by the cor!oration to the un!aid subscri!tion( ":ec 71 &or! &ode%

Stoc-#ol6er2 Delin5uent2 Un$ai6 Su.scri$tion ()**+)

*er i!n 1++0,'003 Arranged by SULAW Cla

Dondee

'00(

*er i!n 1++0,'00- U)dated by

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

c% ;o( /he !eriod o' .0 days ,ithin ,hich the stockholder can !ay the un!aid subscri!tion had not yet e9!ired( Stoc-#ol6ers: "reem$ti e Ri'#t (2003) /he Board o' Directors o' AB&- nc(a domestic cor!oration!assed a resolution authori4in* additional issuance o' shares o' stocks ,ithout notice nor a!!ro)al o' the stockholders( DI- a stockholderob+ected to the issuancecontendin* that it )iolated his ri*ht o' !re- em!tion to the unissued shares( s his contention tenable? 89!lain brie'ly( "2$%
SU..ESTE0 ANSWER:

a''irmati)e )ote o' the stockholders re!resentin* 2L. o' the outstandin* ca!ital stock( s Is contention le*ally tenable( Why? "2$%
SU..ESTE0 ANSWER:

;o( :tockholders a!!ro)al is necessary only 'or the remo)al o' the members o' the BAD( <or the remo)al o' a cor!orate o''icer or em!loyee- the )ote o' the BAD is su''icient 'or the !ur!ose( Stoc-#ol6ers2 Remo al2 (inorit% Director ()**))
Assumin* that the minority block o' the I7P &or!oration is able to elect only 1 director and there'ore-

7es( DICs contention is tenable( 6nder :ection .F o' the &or!oration &ode- all stockholders o' AB&- nc( en+oy !reem!ti)e ri*ht to subscribe to all issues o' shares o' any class- includin* the reissuance o' treasury shares in !ro!ortion to their res!ecti)e shareholdin*s(

Stoc-#ol6ers2 A$$raisal Ri'#t (2003) n ,hat instances may the ri*ht o' a!!raisal be a)ailed o' under the &or!oration &ode?
SU..ESTE0 ANSWER:

:8&/ A; G1( nstances o' A!!raisal Ri*ht( S Any stockholder o' a cor!oration shall ha)e the ri*ht to dissent and demand !ayment o' the 'air )alue o' his shares in the 'ollo,in* instances0 1( n case any amendment to the articles o' incor!oration has the e''ect o' chan*in* or restrictin* the ri*hts o' any stockholders or class o' shares- or o' authori4in* !re'erences in any res!ect su!erior to those o' outstandin* shares o' any class- or o' e9tendin* or shortenin* the term o' cor!orate e9istenceH 2( n case o' sale- lease- e9chan*etrans'er- mort*a*e- !led*e or other dis!osition o' all or substantially all o' the cor!orate !ro!erty and assets as !ro)ided in the &odeH and .( n case o' mer*er or consolidation( "n% Stoc-#ol6ers2 Remo al o& <&&icers 0 ,<D (200))
n 1FFF- &or!oration A !assed a board resolution remo)in* I 'rom his !osition as mana*er o' said cor!oration( /he byla,s o' A cor!oration !ro)ides that the o''icers are the !resident- )ice-!residenttreasurer and secretary( 6!on com!laint 'iled ,ith the :8&- it held that a mana*er could be remo)ed by mere resolution o' the board o' directors( An motion 'or reconsideration- I alle*ed that he could only be remo)ed by the

Page 1' of 103 the ma+ority stockholders can al,ays muster a 2L. )ote- ,ould you allo, the ma+ority stockholders to remo)e the one director re!resentin* the minority? SU..ESTE0 ANSWER:

stock o' Rosario &or!oration( :he !aid 22$ o' said subscri!tion( Durin* the stockholders meetin*- can @ercy )ote all her subscribed shares? 89!lain(
SU..ESTE0 ANSWER:

;o( ,ill not allo, the ma+ority stockholders to remo)e the director( While the stockholders may- by a 2L. )ote- remo)e a director- the la, also !ro)ides- ho,e)erthat his ri*ht may not- ,ithout +ust causebe e9ercised so as to de!ri)e the minority o' re!resentation in the BAD (Sec %6 'orp
code< 2ovIt vs 1goncillo 57p$56"

7es- @ercy can )ote all her subscribed shares( :ection 72 o' the &or!oration &ode states that holders o' subscribed shares not 'ully !aid ,hich are not delin3uent shall ha)e all the ri*hts o' a stockholder( Stoc-s2 7ncrease o& Ca$ital Stoc- (200)) :u!!ose I &or!oration has an authori4ed ca!ital stock o' >1@ di)ided into 100-000 shares o' stock ,ith !ar )alue o' >10 each( a%Di)e t,o ,ays ,hereby said authori4ed ca!ital stock may be increased to about >1(2@( ".$% b% Di)e three !ractical reasons 'or a cor!oration to increase its ca!ital stock "2$%
SU..ESTE0 ANSWER:

Stoc-#ol6ers2 Ri'#ts ()**4) What are the ri*hts o' a stockholder?


SU..ESTE0 ANSWER:

/he ri*hts o' a stockholder are as 'ollo,s0 1% /he ri*ht to )ote- includin* the ri*ht to a!!oint a !ro9yH 2% /he ri*ht to share in the !ro'its o' the cor!orationincludin* the ri*ht to declare stock di)idendsH .% /he ri*ht to a !ro!ortionate share o' the assets o' the cor!oration u!on li3uidationH #% /he ri*ht o' a!!raisalH 2% /he !re-em!ti)e ri*ht to sharesH =% /he ri*ht to ins!ect cor!orate books and recordsH 7% /he ri*ht to elect directorsH G% :uch other ri*hts as may contractually be *ranted to the stockholders by the cor!oration or by s!ecial la,( Stoc-#ol6ers2 >otin' "o;er o& Stoc-#ol6ers ()**0) @ercy subscribed to 1-000 shares
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

a%/,o ,ays o' increasin* the Authori4ed &a!ital :tock o' I cor!oration to >1(2@ are0 1% ncrease the number o' shares 'rom 100-000 to 120-000 shares ,ith the same !ar )alue o' >10(00 each( 2% ncrease !ar )alue o' 100-000 shares to >12(00 each( b% /hree !ractical reasons 'or a cor!oration to increase its ca!ital stock are0 1% to *enerate more ,orkin* ca!italH
*er i!n 1++0,'00- U)dated by

o'

Dondee

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

2% to ha)e more shares ,ith ,hich to !ay 'or the ac3uisition o' more assets like ac3uisition o' com!any carstockshousemachinery or businessH and .% to ha)e e9tra share ,ith ,hich to co)er or meet the re3uirement 'or declaration o' stock di)idend( Stoc-s2 SaleB Trans&er o& Certi&icates o& Stoc- ()**4) Arnold has in his name 1-000 shares o' the ca!ital stock o' AB& &o as e)idenced by a stock certi'icate( Arnold deli)ered the stock certi'icate to :te)en ,ho no, claims to be the real o,ner o' the sharesha)in* !aid 'or Arnolds subscri!tion( AB& re'used to reco*ni4e and re*ister :te)ens o,nershi!( s the re'usal +usti'ied? 89!lain(
SU..ESTE0 ANSWER:

entrusted by him to B( By his said actsA is no, esto!!ed 'rom claimin* said shares 'rom I- a bona 'ide !urchaser ,ho relied on the endorsement by A o' the certi'icate o' stock( b% 7es( n the case ,here the certi'icate o' stock ,as lost or stole 'rom A- A has a ri*ht to claim the certi'icate o' stock 'rom the thie' ,ho has no ri*ht or title to the same( Ane ,ho has lost any mo)able or has been unla,'ully de!ri)ed thereo'- may reco)er it 'rom the !erson in !ossession o' the same( "Art 22F ;&&% Stoc-s2 SaleB Trans&er o& Certi&icates o& Stoc- (2003) <our months be'ore his death- >I assi*ned 100 shares o' stock re*istered in his name in 'a)or o' his ,i'e and his

AB&s re'usal to reco*ni4e and re*ister :te)ens o,nershi! is +usti'ied( /he 'acts indicate that the stock certi'icate 'or the 1-000 shares in 3uestion is in the name o' Arnold( Althou*h the certi'icate ,as deli)ered by Arnold to :te)en- the 'acts do not indicate that the certi'icate ,as duly endorsed by Arnold at the time it ,as deli)ered to :te)en or that the !rocedure 'or the e''ecti)e trans'er o' shares o' stock set out in the by-la,s o' AB& &o- i' any- ,as obser)ed( :ince the certi'icate ,as not endorsed in 'a)or o' :te)en "or anybody else 'or that matter%- the only conclusion could be no other than that the shares in 3uestion still belon* to Arnold( (,a>on v /1' 2,
45$7& +ar #&,9% %74s%$5"

Stoc-s2 SaleB Trans&er o& Certi&icates o& Stoc- (200))


A is the re*istered o,ner o' :tock &erti'icate ;o( 000011( 5e entrusted the !ossession o' said certi'icate to his best 'riend B ,ho borro,ed the said endorsed certi'icate to su!!ort Bs a!!lication 'or !ass!ort "or 'or a !ur!ose other than trans'er%( But B sold the certi'icate to I- a bona 'ide !urchaser ,ho relied on the endorsed certi'icates and belie)ed him to be the o,ner thereo'(

a% &an A claim the shares o' stock 'rom I? 89!lain ".$%


b% Would your ans,er be the same i' A lost the stock

certi'icate in 3uestion or i' it ,as stolen 'rom him? "2$%


SU..ESTE0 ANSWER:

a% ;o( Assumin* that the shares ,ere already trans'erred to B- A cannot claim the shares o' stock 'rom I( /he certi'icate o' stock co)erin* said shares ha)e been duly endorsed by A and

Page 13 of 103

children( /hey then brou*ht the deed o' assi*nment to the !ro!er cor!orate o''icers 'or re*istration ,ith the re3uest 'or the trans'er in the cor!orationCs stock and trans'er books o' the assi*ned shares- the cancellation o' the stock certi'icates in >ICs name- and the issuance o' ne, stock certi'icates in the names o' his ,i'e and his children as the ne, o,ners( /he o''icers o' the &or!oration denied the re3uest on the *round that another heir is contestin* the )alidity o' the deed o' assi*nment( @ay the &or!oration be com!elled by mandamus to re*ister the shares o' stock in the names o' the assi*nees? 89!lain brie'ly( "2$%
SU..ESTE0 ANSWER:

in !ayin* the 'ull amount so that said 'ormer >resident 'iled suit 'or collection o' the balance be'ore the :8&( a% 6nder ,hat conditions is a stock cor!oration em!o,ered to ac3uire its o,n shares?

b% s the arran*ement bet,een the cor!oration and its >resident co)ered by the trust 'und doctrine? 89!lain

your ans,ers brie'ly(


SU..ESTE0 ANSWER:

a% A stock cor!oration may only ac3uire its o,n shares o' stock i' the trust 'und doctrine is not im!aired( /his is to say- 'or instance- that it may !urchase its o,n shares o' stock by utili4in* merely its sur!lus !ro'its o)er and abo)e the subscribed ca!ital o' the cor!oration(
ALTERNATI*E ANSWER:

7es( /he cor!oration may be com!elled by mandamus to re*ister the shares o' stock in the name o' the assi*nee( /he only le*al limitation im!osed by :ection =. o' the &or!oration &ode is ,hen the &or!oration holds any un!aid claim a*ainst the shares intended to be trans'erred( /he alle*ed claim o' another heir o' >I is not su''icient to deny the issuance o' ne, certi'icates o' stock to his ,i'e and children( t ,ould be other,ise i' the trans'ereeCs title to the shares has no !rima 'acie )alidity or is uncertain( Trust /un6 Doctrine ()**2) A &or!oration e9ecuted a !romissory note bindin* itsel' to !ay its >residentLDirector- ,ho had tendered his resi*nation- a certain sum in !ayment o' the latters shares and interests in the com!any( /he cor!oration de'aulted
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

a% "an ans,er enumeratin* the instances or cases under the &or!oration &ode ,here the &or! allo,s the ac3uisition o' shares such as in the stockholders e9ercise o' a!!raisal ri*ht- 'ailure o' bids in the sale o' delin3uent shares- etc(%
SU..ESTE0 ANSWER:

b% /he arran*ement bet,een the cor!oration and its >resident to the e9tent that it calls 'or the !ayment o' the latters shares is co)ered by the trust 'und doctrine( /he only e9ce!tions 'rom the trust 'und doctrine are the redem!tion o' redeemable shares and- in the case o' close cor!oration- ,hen there should be a deadlock and the :8& orders the !ayment o' the a!!raised )alue o' a stockholders share( Trust /un6 Doctrine2 7ntra?Cor$orate Contro ers% ()**))
*er i!n 1++0,'00- U)dated by

Dondee

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

An December =- 1FGG- A- an incor!orator and the Deneral @ana*er o' the >a+e @ulti <arms &o- resi*ned as D@ and sold to the cor!oration his shares o' stocks in the cor!oration 'or >.00th- the book )alue thereo'- !ayable as 'ollo,s0 a% >100th as do,n !aymentH b% >100th on or be'ore .1 Buly1FGFH and c% the remainin* balance o' >100th on or be'ore .0 :e! 1FGF( A !romissory note- ,ith an acceleration clause- ,as e9ecuted by the cor!oration 'or the un!aid balance(

sti!ulation to include a'terincurred obli*ations in a chattel mort*a*e is itsel' not in)alidthe obli*ation cannotho,e)erbe deemed automatically secured by that mort*a*e until a'ter a ne, chattel mort*a*e or an addendum to the ori*inal chattel mort*a*e is e9ecuted to co)er the obli*ation a'ter it has been actually incurred( Accordin*lyunless such su!!lements are made- the chattel mort*a*e in the !roblem *i)en ,ould be deemed to secure only the loan o' >20-000
(Sec 5 1ct #575< Belgian 'atholic +issionaries v +agallanes ;ress 59p&54"

/he cor!oration 'ailed to !ay the 'irst installment on due date( A then sued >a+e on the !romissory note in the R/&( a% Does the court ha)e +urisdiction o)er the case?
b% Would your ans,er be the same i' A instead sold his shares to his 'riend @abel and the latter 'iled a case ,ith the R/& a*ainst the cor!oration to com!el it to re*ister the sale and to issue ne, certi'icates o' stock in her

name?
SU..ESTE0 ANSWER:

a% /he R/& has +urisdiction o)er the case( /he :& said that a cor!oration may only buy its o,n shares o' stock i' it has enou*h sur!lus !ro'its there'ore( b% @y ans,er ,ould be the same( An action to com!el a cor!oration to re*ister a sale and to issue ne, certi'icates o' stock is itsel' an intra-cor!orate matter that e9clusi)ely lies ,ith the R/&( /he R/& has +urisdiction o)er the cases ,hich in)ol)es intra-cor!orate contro)ersy( As o' 200=- the a!!licable rule is that there is a /RA;:<8RR8D B6R :D &/ A; under :ec( 2(2 o' the :R&- the &ommissions +urisdiction o)er all cases enumerated under >D F02-A sec( 2 has been trans'erred to the &ourts o' *eneral +urisdiction or the a!!ro!riate Re*ional /rial &ourt(
TA?E N5TE:

Credit Tran a%ti!n


C#attel (ort'a'e s! A&ter?7ncurre6 <.li'ations ()**)) /o secure the !ayment o' an earlier loan o' >20-000 as ,ell as subse3uent loans ,hich her 'riend ;oreen- ,ould e9tend to herJaren e9ecuted in 'a)or o' ;oreen a chattel mort*a*e o)er her "Jaren% car( s the mort*a*e )alid?
SU..ESTE0 ANSWER:

A chattel mort*a*e cannot e''ecti)ely secure a'ter- incurred obli*ations( While a

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C#attel (ort'a'e s! A&ter?7ncurre6 <.li'ations ()***) An December 11FF=Borro,er e9ecuted a chattel mort*a*e in 'a)or o' the Bank to secure a loan o' >.@( n due time the loan ,as !aid( An December 1- 1FF7- Borro,er obtained another loan 'or >2@ ,hich the Bank *ranted under the same security as that ,hich secured the 'irst loan( <or the second loan- Borro,er merely deli)ered a !romissory noteH no ne, chattel mort*a*e a*reement ,as e9ecuted as the !arties relied on a !ro)ision in the 1FF= chattel mort*a*e a*reement ,hich included 'uture debts as amon* the obli*ations secured by the mort*a*e( /he !ro)ision reads0
n case the @ort*a*or e9ecutes subse3uent !romissory note or notes either as a rene,al- as an e9tension- or as a ne, loan- this mort*a*e shall also stand as security 'or the !ayment o' said !romissory note or notes ,ithout necessity o' e9ecutin* a ne, contract and this mort*a*e shall ha)e the same 'orce and e''ect as i' the said !romissory note or notes ,ere e9istin* on date hereo'(

*ranted( a% Decide the case and ratiocinate( "#$% b% :u!!ose the chattel mort*a*e ,as not re*istered- ,ould its )alidity and e''ecti)eness be im!aired? 89!lain( "#$%
SU..ESTE0 ANSWER:

a(/he 'oreclosure o' the chattel mort*a*e re*ardin* the second loan is not )alid( A chattel mort*a*e cannot )alidly secure a'ter incurred obli*ations( /he a''ida)it o' *ood 'aith re3uired under the chattel mort*a*e la, e9!ressly !ro)ides that the 'ore*oin* mort*a*e is made 'or securin* the obli*ation s!eci'ied in the conditions hereo'- and 'or no other !ur!ose( /he a'ter-incurred obli*ation not bein* s!eci'ied in the a''ida)it- is not secured by mort*a*e( b( 7es( /he chattel mort*a*e is not )alid as a*ainst any !ersone9ce!t the mort*a*orhis e9ecutors and administrators( C#attel (ort'a'e2 /oreclosure ()**+)
Rit4 bou*ht a ne, car on installments ,hich !ro)ided 'or an acceleration clause in the e)ent o' de'ault( /o secure !ayment o' the un!aid installments- as and ,hen duehe constituted t,o chattel mort*a*es- i(e(one o)er his )ery old car and the other co)erin* the ne, car that he had +ust bou*ht as a'oresaid- on installments( A'ter Rit4 de'aulted on three installments- the seller-mort*a*ee 'oreclosed on the old car( /he !roceeds o' the 'oreclosure ,ere not enou*h to satis'y the due obli*ationH hence- he similarly sou*ht to 'oreclose on the ne, car(
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As Borro,er 'ailed to !ay the second loan- the Bank !roceeded to 'oreclose the &hattel @ort*a*e(Borro,er sued the Bank claimin* that the mort*a*e ,as no lon*er in 'orce( Borro,er claimed that a 'resh chattel mort*a*e should ha)e been e9ecuted ,hen the second loan ,as

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SU..ESTE0 ANSWER:

Would the seller-mort*a*ee be le*ally +usti'ied in 'oreclosin* on this second chattel mort*a*e?
SU..ESTE0 ANSWER:

;o( /he t,o mort*a*es ,ere e9ecuted to secure the !ayment o' the un!aid installments 'or the !urchase o' a ne, car( When the mort*a*e on the old car ,as 'oreclosedthe sellermort*a*ee is deemed to ha)e renounced all other ri*hts( A 'oreclosure o' additional !ro!erty- that is- the ne, car co)ered by the second mort*a*e ,ould be a nullity( C#attel (ort'a'e2 <;ners#i$ o& T#in' (ort'a'e6 ()**0)
Ponee- ,ho li)es in Bulacan- bou*ht a 1FGG model /oyota &orolla sedan on Buly 1- 1FGF 'rom Anadelaida- ,ho li)es in Que4on &ity- 'or >.00th- !ayin* >120th as do,n!ayment and !romisin* to !ay the balance in . e3ual 3uarterly installments be*innin* Actober 1- 1FGF( Anadelaida e9ecuted a deed o' sale o' the )ehicle in 'a)or o' Ponee and- to secure the un!aid balance o' the !urchase !rice- had Ponee e9ecute a deed o' chattel mort*a*e on the )ehicle in Anadelaidas 'a)or(

a% Bimbos ar*ument is not meritorious( Ponee became the o,ner o' the !ro!erty u!on deli)eryH re*istration is not essential to )est that o,nershi! in the buyer( /he e9ecution o' the chattel mort*a*e by the buyer in 'a)or o' the seller- in 'act- can demonstrate the )estin* o' such o,nershi! to the mort*a*or(
b% Bimbo ,as re'errin* to the Re*ister o' Deeds o' Bulacan ,here Ponee ,as a resident( /he &hattel @ort*a*e ?a, re3uires the re*istration to be made in the A''ice o' the Re*ister o' Deeds o' the !ro)ince ,here the mort*a*or resides and also in ,hich the !ro!erty is

/en days a'ter the e9ecution o' the abo)ementioned documents- Ponee had the car trans'erred and re*istered in her name( &ontem!oraneouslyAnadelaida had the chattel mort*a*e on the car re*istered in the &hattel @ort*a*e Re*istry o' the A''ice o' the Re*ister o' Deeds o' Que4on &ity( n :e! 1FGF- Ponee sold the sedan to Bimbo ,ithout tellin* the latter that the car ,as mort*a*ed to Anadelaida( When Ponee 'ailed to !ay the 'irst installment on Actober 1- 1FGF- Anadelaida ,ent to see Ponee and disco)ered that the latter had sold the car to Bimbo(
a% Bimbo re'used to *i)e u! the car on the *round that the chattel mort*a*e e9ecuted by Ponee in 'a)or o' Anadelaida is not )alid because it ,as e9ecuted be'ore the car ,as re*istered in Ponees name- i(e(be'ore Ponee became the re*istered o,ner o' the car( s the said ar*ument meritorious? 89!lain your ans,er( b% Bimbo also ar*ued that e)en i' the chattel mort*a*e is )alid- it cannot a''ect him because it ,as not !ro!erly re*istered ,ith the *o)ernment o''ices ,here it should be re*istered( What *o)ernment o''ice is Bimbo re'errin* to?

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situated as ,ell as the ?/A ,here the )ehicle is re*istered( ":ec # &hattel @ort*a*e ?a,% Cre6it Transactions ()***) Narious buyers o' lots in a subdi)ision brou*ht actions to com!el either or both the de)elo!er and the bank to lease and deli)er 'ree and clear the titles to their res!ecti)e lots(
/he !roblem arose because not,ithstandin* !rior sales mostly on installments E made by the de)elo!er to buyers- de)elo!er had mort*a*ed the ,hole subdi)ision to a commercial bank( /he mort*a*e ,as duly e9ecuted and re*istered ,ith the a!!ro!riate *o)ernmental a*encies( 5o,e)er- as the lot buyers ,ere com!letely una,are o' the mort*a*e lien o' the bank- they reli*iously !aid the installments due under their sale contracts(

Questions in @ercantile ?a,- as it is ,ithin &i)il ?a,- it is su**ested that ,hate)er ans,er is *i)en by the e9aminee- or the lack o' ans,er should be *i)en 'ull credit( ' the e9aminee *i)es a *ood ans,er- he should be *i)en additional credit(
SU..ESTE0 ANSWER:

a(;o( /he bank may not dis!ossess the !rior !urchasers o' the indi)idual lots- much less re3uire them to !ay 'or the said lots( /he bank has to res!ect the ri*hts o' the !rior !urchasers o' the indi)idual lots( /he !urchasers ha)e the o!tion to !ay the installments o' the mort*a*ee( b( /he bank has to res!ect the ri*hts o' the buyers ,ith remainin* un!aid installments( /he !urchaser has the o!tion to !ay the installments to the mort*a*ee ,ho should a!!ly the !ayments to the mort*a*e indebtedness(

As the de)elo!er 'ailed to !ay its loan- the mort*a*e ,as 'oreclosed and the ,hole subdi)ision ,as ac3uired by the bank as the hi*hest bidder( a% @ay the bank dis!ossess !rior !urchasers o' indi)idual lots oralternati)ely- re3uire them to !ay a*ain 'or the !aid lots? Discuss ".$% b% What are the ri*hts o' the bank )isT-)is those buyers ,ith remainin* un!aid installments? Discuss( ".$%

(ort'a'e ()***) Debtor !urchased a !arcel o' land 'rom a realty com!any !ayable in 'i)e yearly installments( 6nder the contract o' saletitle to the lot ,ould be trans'erred u!on 'ull !ayment o' the !urchase !rice( But e)en be'ore 'ull !ayment- debtor constructed a house on the lot( :ometime therea'ter- debtor mort*a*ed the house to secure his obli*ation arisin* 'rom the issuance o' a bond needed in the conduct o' his business( /he mort*a*e ,as duly re*istered ,ith the !ro!er chattel mort*a*e re*istry(
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Recommendation0 :ince the sub+ect matter o' these t,o "2% 3uestions is not included ,ithin the sco!e o' the Bar
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<i)e years later a'ter com!letin* !ayment o' the !urchase !rice- debtor obtained title to the lot( And e)en as the chattel mort*a*e on the house ,as still subsistin*- debtor mort*a*ed to a bank the lot and im!ro)ement thereon to secure a loan( /his real estate mort*a*e ,as duly re*istered and annotated at the back o' the title(

binds the !arties and third !ersons( An the other hand- the chattel mort*a*e on the house securin* the credit o' the surety com!any did not a''ect the ri*hts o' third !arties such as the lendin* in)estor des!ite re*istration o' the chattel mort*a*e(

Due to business re)erses'ailed to !ay his creditors( /he mort*a*e ,as 'oreclosed ,hen the 'ailed to reimburse the com!any 'or !ayments made bond( n the 'oreclosure sale- the com!any ,as a,arded the house hi*hest bidder(

debtor chattel debtor surety on the surety as the

c% ;o( /he chattel mort*a*e o)er the house ,hich ,as 'oreclosed did not a''ect the ri*hts o' third !arties like the lendin* in)estor( :ince the third !arties are not bound by the chattel mort*a*ethey are not also bound by any en'orcement o' its !ro)isions( /he 'oreclosure o' such chattel mort*a*e did not bolster or add anythin* to the !osition o' the surety com!any( (ort'a'e s! 8e % (2003)

Anly a'ter the 'oreclosure sale did the surety com!any learn o' the real estate mort*a*e in 'a)or o' the lendin* in)estor on the lot and the im!ro)ement thereon( mmediatelyit 'iled a com!laint !rayin* 'or the e9clusion o' the house 'rom the real estate mort*a*e( t ,as submitted that as the chattel mort*a*e ,as e9ecuted and re*istered ahead- it ,as su!erior to the real estate mort*a*e(
An the su**estion that a chattel mort*a*e on a house- a real !ro!erty- ,as a nullitythe surety com!any countered that ,hen the chattel mort*a*e ,as e9ecuted- debtor ,as not yet the o,ner o' the lot on ,hich the house ,as built( Accordin*lythe house ,as a !ersonal !ro!erty and a !ro!er sub+ect o' a chattel mort*a*e(

a(Discuss the )alidity o' the !osition taken by the surety com!any( ".$% b( Who has a better claim to the housethe surety com!any or the lendin* in)estor? 89!lain ".$%
c( Would the !osition o' the surety com!any be bolstered by the 'act that it ac3uired title in a 'oreclosure sale

conducted by the >ro)incial :heri''( 89!lain ".$%


SU..ESTE0 ANSWER:

a%/he house is al,ays a real !ro!erty e)en thou*h it ,as constructed on a land not belon*in* to the builder( 5o,e)er- the !arties may treat it as a !ersonal !ro!erty and constitute a chattel mort*a*e thereon( :uch mort*a*e shall be )alid and bindin* but only on the !arties( t ,ill not bind or a''ect third !arties(
b% /he lendin* in)estor has a better claim to the house( /he real estate mort*a*e co)erin* the house and lot ,as duly re*istered and

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/o !ay 'or her loan obtained 'rom :tela- ?i4a constituted in :telas 'a)or a chattel mort*a*e o)er an electric *enerator( &ecil- a creditor o' ?i4a- le)ied on attachment the *enerator( :tela 'iled a third !arty claim( &ecil o!!osed the claim( Rule on their con'lictin* claims(
SU..ESTE0 ANSWER:

(ort'a'e2 E9tra=u6icial /oreclose (2004)


A real estate mort*a*e may be 'oreclosed +udicially or e9tra+udicially( n ,hat instance may a mort*a*ee e9tra+udicially 'oreclose a real estate mort*a*e? "2$%
SU..ESTE0 ANSWER:

de'iciency( n their ans,er- Banette and Beanne did not deny the e9istence o' the loan nor the 'act o' their de'ault( /heyho,e)er- inter!osed the de'enses that the !rice at the auction ,as e9tremely lo, and that their loan- des!ite the loan documents- ,as a lon*-term loan ,hich had not yet matured( ' you ,ere the +ud*eho, ,ould you rule on the case? Why? "=$%
SU..ESTE0 ANSWER:

When a sale is made under a s!ecial !o,er inserted or attached to any realestate mort*a*e- therea'ter *i)en as security 'or the !ayment o' money or the 'ul'illment o' any other obli*ationthen the mort*a*ee may e9tra+udicially 'oreclose the real estate mort*a*e ":ec( 1Act ;o( .1.2- as amended%( (ort'a'e2 /oreclosure (2003) @ay the sale at !ublic auction by a bank o' a !ro!erty mort*a*ed to it be nulli'ied because the !rice ,as e9tremely lo,? Why?
SU..ESTE0 ANSWER:

(ort'a'e2 /oreclosure o& 7m$ro ements ()***) Borro,er obtained a loan a*ainst the security o' a mort*a*e on a !arcel o' land( While the mort*a*e ,as subsistin*borro,er leased 'or 'i'ty years the mort*a*ed !ro!erty to ?and De)elo!ment &om!any "?D&%( /he mort*a*ee ,as duly ad)ised o' the lease( /herea'ter- ?D& constructed on the mort*a*ed !ro!erty an o''ice condominium( Borro,er de'aulted on his loan and mort*a*ee 'oreclosed the mort*a*e( At the 'oreclosure sale- the mort*a*ee ,as a,arded the !ro!erty as the hi*hest bidder( /he corres!ondin* &erti'icate o' :ale ,as e9ecuted and a'ter the la!se o' one year- title ,as consolidated in the name o' mort*a*ee( @ort*a*ee then a!!lied ,ith the R/& 'or the issuance o' a ,rit o' !ossession not only o)er the land but also the condominium buildin*( /he mort*a*ee contended that the mort*a*e included all accessions- im!ro)ements and accessories 'ound on the mort*a*ed !ro!erty(
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(ort'a'e2 /oreclosure (2003) Because o' 'ailure o' Banette and Beanne to !ay their loan to I Bank- the latter 'oreclosed on the mort*a*e constituted on their !ro!erty ,hich ,as !ut u! by them as security 'or the !ayment o' the loan( /he !rice !aid 'or the !ro!erty at the 'oreclosure sale ,as not enou*h to li3uidate the obli*ation( /he bank sued 'or
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?D& countered that it had built on the mort*a*ed !ro!erty ,ith the !rior kno,led*e o' mort*a*ee ,hich had recei)ed 'ormal notice o' the lease( a% 5o, ,ould you resol)e the dis!ute bet,een the mort*a*ee and ?D&? ".$%
b% s the mort*a*ee entitled to the lease rentals due

'rom ?D& under the lease a*reement? ".$%


Re.o--en7at"on; Since the subJect matter of these two (%" questions is not included within the scope of the Bar Kuestions in +ercantile =aw, as it is within 'ivil =aw, it is suggested that whatever answer is given b the examinee, or the lac( of answer should be given full credit0 /f the examinee gives a good answer, he should be given additional credit0
SU..ESTE0 ANSWER:

a( Assumin* that the o''ice condominium ,as duly constituted under the &ondominium ?a,- be'ore ?D& could )alidly constitute the same as a condominium- it should cause to be recorded in the re*ister o' deeds o' the !ro)ince or city ,here the land is situated an enablin* or master deed sho,in*- amon* others- a certi'icate o' the re*istered o,ner and o' all re*istered holders o' any lien or encumbrance on the !ro!erty that they consent to the re*istration o' the deed( ":ec #( RA #72=%( ' the mort*a*ee *a)e its consent thereto- then ?D& should !re)ail( ' no consent ,as *i)en- the condominium ,as included in the mort*a*e(
SU..ESTE0 ANSWER:

a( /he mort*a*ee has a better ri*ht than ?D&( /he mort*a*e e9tends to the im!ro)ements introduced on the land,ith the declarations- am!li'ications- and limitations established by la,- ,hether the estate remains in the !ossession o' the mort*a*or or !asses into the hands o' a third !erson "Art 2127 ;&&%( /he notice *i)en by ?D& to the mort*a*ee ,as not enou*h to remo)e the buildin* 'rom co)era*e o' the mort*a*e considerin* that the buildin* ,as built a'ter the mort*a*e ,as constituted and the notice ,as only as re*ards the lease and not as to the construction o' the buildin*( :ince the mort*a*ee ,as in'ormed o' the lease and did not ob+ect to it- the mort*a*ee became bound by the terms o' the lease ,hen it ac3uired the !ro!erty as the hi*hest bidder( 5ence- the mort*a*ee ste!s into the shoes o' the mort*a*or and ac3uires the ri*hts o' the lessor under Art 17=G o' the ;&&( /his !ro)ision *i)es the lessor the ri*ht to a!!ro!riate the condominium buildin* but a'ter !ayin* the lessee hal' o' the )alue o' the buildin* at that time( :hould the lessor re'use to reimburse said amount- the lessee may remo)e the im!ro)ement e)en thou*h the land ,ill su''er dama*e thereby(
1 t Alternative An #er:

a( /he mort*a*ee has a better ri*ht to the buildin*( 6nder Art 2127 o' the ;&&- the mort*a*e e9tends to all im!ro)ements on the mort*a*ed !ro!erty re*ardless o' ,ho and ,hen the im!ro)ements ,ere introduced( ?D& cannot com!lain other,ise- because it kne, that the !ro!erty it ,as leasin* ,as mort*a*ed ,hen it built the condominium(
'nd alternative An #er:

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SU..ESTE0 ANSWER:

b( /he lease rentals belon* to the mort*a*or( 5o,e)erthe mort*a*e e9tends to rentals not yet recei)ed ,hen the obli*ation becomes due and the mort*a*ee may ran a'ter the said rentals 'or the !ayment o' the mort*a*e debt( (ort'a'e2 /oreclosure2 E&&ect o& mere ta-in' .% cre6itor? mort'a'or o& $ro$ert% ()**2)
I M &o obtained a loan 'rom a local bank in the amount o' >200thmort*a*in* as security there'ore its real !ro!erty( :ubse3uently- the com!any a!!lied ,ith the same bank 'or a ?etter o' &redit "?&% 'or O200th in 'a)or o' a 'orei*n bank to co)er the im!ortation o' machinery( /o *uarantee !ayment o' the obli*ation under the ?&the com!any and its >resident and /reasurer e9ecuted a surety a*reement in the local banks 'a)or(

1%/he takin* o' !ossession o' the machinery by the bank did not result in 'ull !ayment o' the obli*ations o,in* 'rom the com!any and its o''icers( /he takin* o' such !ossession must be considered merely as a measure in order to !rotect or 'urther sa'e*uard the banks security interest( Dacion en pago can only be considered as ha)in* taken !lace ,hen a creditor acce!ts and a!!ro!riates the o,nershi! o' the *oods in !ayment o' a due obli*ation(
(;3B v ;ineda #94 s #"

2% /he mere takin* o' !ossession o' mort*a*ed assets does not amount to 'oreclosure( <oreclosure re3uires a sale at !ublic auction( /he 'oreclosurethere'ore- has not as yet been e''ected( (ort'a'e2 Re6em$tion "erio62 /oreclose6 "ro$ert% (2002) >rimetime &or!oration "the Borro,er% obtained a >10 @illion- 'i)e-year term loan 'rom 6ni)ersal Bank "the Bank% in 1FF=( As security 'or the loan and as re3uired by the Bank- the Borro,er *a)e the 'ollo,in* collateral security in 'a)or o' the Bank0
1% a real estate mort*a*e o)er the land and buildin* o,ned by the Borro,er and located in Que4on &ityH

/he machinery arri)ed and ,as released to the com!any under a trust recei!t a*reement( As the com!any de'aulted in the !ayment o' its obli*ations- the bank took !ossession o' the im!orted machinery( At the same time- it sou*ht to 'oreclose the mort*a*ed !ro!erty and to hold the com!any as ,ell as its >resident and /reasurerliable under the :urety A*reement( Did the takin* o' !ossession o' the machinery by the bank result in the 1% 'ull !ayment o' the obli*ations o' the com!any and its o''icersand 2% 'oreclosure o' the mort*a*e?

2% the +oint and se)eral !romissory note o' >r( >rimo /imbol- the >resident o' the Borro,erH and .% a real estate mort*a*e o)er the residential house and lot o,ned by @r( /imbol- also located in Que4on &ity(

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

Because o' business re)erses- neither the Borro,er nor @r( /imbol ,as able to !ay the loan( n Bune 2001- the Bank e9tra+udicially 'oreclosed the t,o real estate mort*a*es- ,ith the Bank as the only bidder in the 'oreclosure sale( An :e!tember 1=- 2001- the certi'icates o' sale o' the t,o !ro!erties in 'a)or o' the Bank ,ere re*istered ,ith the Re*ister o' Deeds o' Que4on &ity(

/en months later- both the Borro,er and @r( /imbol ,ere able to raise su''icient 'unds to redeem their res!ecti)e !ro!erties 'rom the Bankbut the Bank re'used to !ermit redem!tion on the *round that the !eriod 'or redem!tion had already e9!ired- so that the Bank no, has absolute o,nershi! o' both !ro!erties( /he Borro,er and @r( /imbol came to you today- :e!tember 12- 2002- to 'ind out i' the !osition o' the Bank is correct( What ,ould be your ans,er? :tate your reasons "2$%(
SU..ESTE0 ANSWER:

As o' Bune 1- 2002- 8d4o :ystems &or!oration "8d4o% ,as indebted to the 'ollo,in* creditors0 "1% Ace 83ui!ment :u!!lies E 'or )arious !ersonal com!uters and accessories sold to 8d4o on credit amountin* to >.00-000( "2% 5andyman Dara*e E 'or mechanical re!airs "!arts and ser)ice% !er'ormed on 8d4os com!any car amountin* to >10-000( ".% Boselyn Reyes E 'ormer em!loyee o' 8d4o ,ho sued 8d4o 'or unla,'ul termination o' em!loyment and ,as able to obtain a 'inal +ud*ment a*ainst 8d4o 'or >100-000( "#% Bureau o' nternal Re)enue E 'or un!aid )alue- added ta9es amountin* to >.0-000(

1( With res!ect to the real estate mort*a*e o)er the land and buildin* o,ned by the Borro,er>rimetime &or!oration- a +uridical bodythe !eriod o' redem!tion is only three ".% months,hich !eriod already e9!ired( 2( As to the real estate mort*a*e o)er the residential house and lot o,ned by @r( /imbol- the !eriod o' redem!tion is one "1% year 'rom the date o' re*istration o' the certi'icate o' sale,hich !eriod has not yet e9!ired in this case( (ort'a'e2 Reme6ies (2003)
&armakers- nc(- sold a motor )ehicle on installment basis to &hari >aredes( /he transaction ,as re'lected on a !romissory note e9ecuted by &hari in 'a)or o' &armakers( /he note ,as secured by a mort*a*e o)er the car( &ontem!oraneous ,ith the e9ecution o' the note and the mort*a*e deed- &armakers- nc(- assi*ned the instruments sans recourse to Adelantado <inance &or!oration( &hari de'aulted in her obli*ations( &ould Adelantado <inance cor!oration take action a*ainst both &armakers nc(- and &hari? Why? "=$%
SU..ESTE0 ANSWER:

"re&erence o& Cre6its (2002)

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13 of 103

"2% nte*rity Bank E ,hich *ranted 8d4o a loan in 2001 in the amount o' >200-000( /he loan ,as not secured by any asset o' 8d4o- but it ,as *uaranteed unconditionally and solidarily by 8d4os >resident and controllin* stockholder- 8duardo P( An*- as accommodation surety( /he loan due to nte*rity Bank 'ell due on Bune 12- 2002( Des!ite !leas 'or e9tension o' !ayment by 8d4o- the bank demanded immediate !ayment( Because the bank threatened to !roceed a*ainst the surety- 8duardo P( An*- 8d4o decided to !ay u! all its obli*ations to nte*rity Bank( An Bune 20- 2002- 8d4o !aid to nte*rity Bank the 'ull !rinci!al amount o' >200-000- !lus accrued interests amountin* to >22-000( As a result- 8d4o had hardly any cash le't 'or o!erations and decided to close its business( A'ter !ayin* the un!aid salaries o' its em!loyees- 8d4o 'iled a !etition 'or insol)ency on Buly 1- 2002( 5o, ,ould you- as +ud*e in the insol)ency !roceedin*s- rank the res!ecti)e credits or claims o' the 'i)e "2% creditors mentioned abo)e in terms o' !re'erence or !riority a*ainst each other? "2$%
SU..ESTE0 ANSWER:

!re'erence or !riority a*ainst each other in the 'ollo,in* order0 "1% ;o( # E claim o' the B R 'or un!aid )alue added ta9es "2% ;o( . E claim o' Boselyn Reyes 'or 6nla,'ul termination ".% ;o( 1 E claim o' Ace e3ui!ment :u!!lies as an un!aid sellerH and "#% ;o( 2 E claim o' nte*rity Bank( "romissor% Note: 8ia.ilit% (200)) I- 7 and P si*ned a !romissory note in 'a)or o' A statin*0 We !romise to !ay A on December .1- 2001 the sum o' >2-000(00 When the note 'ell due- A sued I and 7 ,ho !ut u! the de'ense that A should ha)e im!leaded P( s the de'ense )alid? Why? "2$%
SU..ESTE0 ANSWER:

/he de'ense is not )alid( /he liability o' I- 7- and P under the !romissory note is +oint( :uch bein* the case- P is not an indis!ensable !arty( /he 'act that A did not im!lead P ,ill not !re)ent A 'rom collectin* the !ro!ortionate share o' I and 7 in the !ayment o' the loan( (-bservation! Even if the liabilit of F, ?, and L is solidar , the defense would still not be valid" Reme6ies2 A aila.le to (ort'a'ee?Cre6itor ()**4)
<indin* a 2#-month !ayment !lan attracti)e- An+o !urchased a /amara, <I 'rom /oyota Q&( 5e !aid a do,n-!ayment o' >100th and obtained 'inancin* 'or the balance 'rom A6 &o( 5e e9ecuted a chattel mort*a*e
*er i!n 1++0,'00- U)dated by

/he claim o' 5andyman Dara*e 'or >10-000 has a s!eci'ic lien on the car re!aired( /he remainin* 'our "#% claims ha)e
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

o)er the )ehicle in 'a)or o' A6( When An+o de'aultedA6 'oreclosed the chattel mort*a*e- and sou*ht to reco)er the de'iciency( @ay A6 still reco)er the de'iciency? 89!lain(
SU..ESTE0 ANSWER:

A6 may no lon*er reco)er the de'iciency( 6nder Art 1#G# o' the ;&&- in a contract o' sale o' !ersonal !ro!erty the !rice o' ,hich is !ayable in installments- the )endor may- amon* se)eral o!tions- 'oreclose the chattel mort*a*e on the thin* sold- i' one has been constitutedshould the )endees 'ailure to !ay co)er t,o or more installments( n such case- ho,e)er- the )endor shall ha)e no 'urther action a*ainst the !urchaser to reco)er any un!aid balance o' the !rice and any a*reement to the contrary is )oid( While the *i)en 'acts did not e9!licitly state that An+os 'ailure to !ay co)ered 2 or more installments- this may sa'ely be !resumed because the ri*ht o' A6 &o to 'oreclose the chattel mort*a*e under the circumstances is !remised on An+os 'ailure to !ay 2 or more installments( /he 'oreclosure ,ould not ha)e been )alid i' it ,ere not so( "/he *i)en 'acts did not also state e9!licitly ,hether An+os de'ault ,as a !ayment de'ault or a de'ault arisin* 'rom a breach o' a ne*ati)e !led*e or breach o' a ,arranty( n such case- ho,e)er- A6 &om!any ,ould not ha)e been able to 'oreclose the chattel mort*a*e )alidly as such 'oreclosureunder the circumstances contem!lated by the la,- could only be e''ected 'or a !ayment de'ault co)erin* t,o or more installments% (=uis ,idad v .ilipinas /nvestment and .inance 'o 2, =8$967& Aan%4,6$ #%7s%5&"

transaction- bank 7 is *uilty o' s!littin* a cause o' action( /he loan o' >10@ is the !rinci!al obli*ation ,hile the mort*a*e securin* the same is merely an accessory to said loan obli*ation( /he collection o' the loan and the 'oreclosure o' the mort*a*e securin* said loan constitute one and the same cause o' action( /he 'ilin* o' the collection case bars the subse3uent 'ilin* o' the 'oreclosure !roceedin*s(

Reme6ies2 Secure6 De.t ()**)) /o secure the !ayment o' his loan o' >200th- A e9ecuted in 'a)or o' the An*eles Bankin* &o in 1 document- a real estate mort*a*e o)er . lots re*istered in his name and a chattel mort*a*e o)er his . cars and 1 su4u car*o truck(

Reme6ies2 A aila.le to (ort'a'ee?Cre6itor (200)) Debtor A issued a !romissory note in the amount o' >10@ in 'a)or o' commercial bank 7 secured by mort*a*e o' his !ro!erties ,orth >.0@( When A 'ailed to !ay his indebtednessdes!ite demands made by bank 7the latter instituted a collection suit to en'orce !ayment o' the >10@ account( :ubse3uentlybank 7 also 'iled 'oreclosure !roceedin*s a*ainst A 'or security *i)en 'or the account( ' you ,ere the +ud*e- ho, ,ould you resol)e the t,o cases? "2$%
SU..ESTE0 ANSWER:

/he case 'or collection ,ill be allo,ed to !roceed( But the 'oreclosure !roceedin*s ha)e to be dismissed( n institutin* 'oreclosure !roceedin*s- a'ter 'ilin* a collection case in)ol)in* the same account or

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6!on his 'ailure to !ay the loan on due date- the bank 'oreclosed the mort*a*e on the . lots,hich ,ere subse3uently sold 'or only >FFth at the 'oreclosure sale( /herea'ter- the bank 'iled an ordinary action 'or the collection o' the de'iciency( A contended that the mort*a*e contract he e9ecuted ,as indi)isible and conse3uently- the bank had no le*al ri*ht to 'oreclose only the real estate mort*a*e and lea)e out the chattel mort*a*e- and then sue him 'or a su!!osed de'iciency +ud*ment( ' you ,ere the Bud*e- ,ould you sustain the contention o' A?
SU..ESTE0 ANSWER:

/he indi)isibility o' a contract o' real securitysuch as a real estate mort*a*e or a chattel mort*a*e- only means that a di)ision or a !artial !ayment o' a secured obli*ation does not ,arrant a corres!ondin* di)ision or !ro!ortionate reduction o' the security *i)en( A creditor in such secured debts may !ursue the remedy o' 'oreclosure- in !art or in 'ull- or 'ile an ordinary action 'or collection on any amount due( A 'a)orable +ud*ment can ,arrant an issuance o' a ,rit o' e9ecution on any !ro!erty- not e9em!t 'rom e9ecution- belon*in* to the +ud*ment debtor( /here should be no le*al obstacle 'or a creditor to ,ai)e- in 'ull or in !art- his ri*ht to 'oreclosure on contracts o' real security(

' ,ere the Bud*e- ,ould dismiss the action as bein* !remature since the !ro!er remedy ,ould be to com!lete the 'oreclosure o' the mort*a*es and only therea'ter can there by an action 'or collection o' any de'iciency( n 'altex v /1' (2, 454$7, %5 1ug 69" - the remedies on a secured debt- said the courtare either an action to collect or to 'oreclose a contract o' real security( /hese remedies are alternati)e remedies- althou*h an action 'or any de'iciency is not !recludedsub+ect to certain e9ce!tions such as those stated in Art 1#G# o' the &i)il &ode- by a 'oreclosure on the mort*a*es( While the 'actual settin*s in the case o' Suria v /1' ($7 Aune 64" are not similar to the 'acts *i)en in the !roblemthe :& im!lied that 'oreclosure as a remedy in secured obli*ations must 'irst be a)ailed o' by a creditor in !re'erence to other remedies that mi*ht also be in)oked by him(
ALTERNATI*E ANSWER:

In 4ran%e La#
,ene&iciar%: E&&ects: 7rre oca.le ,ene&iciar% (2001)
What are the e''ects o' an irre)ocable desi*nation o' a bene'iciary under the nsurance &ode? 89!lain( "2$%
SUGGESTED ANSWER:

/he irre)ocable desi*nation *i)es the bene'iciary a )ested ri*ht o)er ?i'e nsurance( /he nsured cannot act to di)est the irre)ocable bene'iciary- in ,hole or in !art- ,ithout the bene'iciaryCs consent( /o be s!eci'ic0

"1% /he bene'iciary desi*nated in a li'e


insurance contract cannot be chan*ed ,ithout the consent o' the bene'iciary because he has a )ested interest in the !olicy (;hilamlife v0 ;ineda, 20,0 3o0
55%#&, Aul #9,

*er i!n 1++0,'003 Arranged by SULAW Cla

'00(

*er i!n 1++0,'00- U)dated by

Dondee

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

#969, citing 2crcio v0 Sun =ife, 20,0 3o0 %$47$, September %6, #9%5< and 2o v0 ,edfern, 20,0 3o0 54475, 1pril %5, #65#"<

"2% ;either

can the nsured take the cash surrender )alue- assi*n or e)en borro, on said !olicy ,ithout the bene'iciaryCs consent (3ario v0
;hilamlife, 20,0 3o0 %%49&, Aune %&, #9&4"<

bene'iciary( Buan re'erred to >urita in his a!!lication and !olicy as the le*al ,i'e( . years later- Buan died( >urita 'iled her claim 'or the !roceeds o' the !olicy as the desi*nated bene'iciary therein( /he ,ido,- &ynthia- also 'iled a claim as the le*al ,i'e( /o ,hom should the !roceeds o' the insurance !olicy be a,arded? "2$%
SUGGESTED ANSWER:

".% /he

nsured cannot add another bene'iciary because that ,ould reduce the amount ,hich the 'irst bene'iciary may reco)er and there'ore ad)ersely a''ect his )ested ri*ht (2o v0 ,edfem, 20,0 3o0 54475,
1pril %5, #95#"<

/he !roceeds o' the insurance !olicy shall be a,arded to the 8:/A/8 o' Buan de la &ru4( >urita- the common- la,-,i'e- is dis3uali'ied as the bene'iciary o' the deceased because o' illicit relation bet,een the deceased and >urita- the desi*nated bene'iciary( Due to such illicit

"#% 6nless the !olicy allo,s- the nsured cannot e)en desi*nate another bene'iciary should the ori*inal bene'iciary !redecease him( 5is estate ac3uires the bene'iciaryCs )ested ri*ht u!on his deathH and

"2% /he nsured cannot allo, his creditors to


attach or e9ecute on the !olicy(
(;hilamlife v0 ;ineda, 20,0 3o0 55%#&, Aul #9, #969"

,ene&iciar%: Ri'#ts2 7rre oca.le ,ene&iciar% (2001)


Bacob obtained a li'e insurance !olicy 'or >1 @illion desi*natin* irre)ocably Di,ataa 'riendas his bene'iciary( Bacob- ho,e)er- chan*ed his mind and ,ants 7ob and Bo+o- his other 'riends- to be included as bene'iciaries considerin* that the !roceeds o' the !olicy are su''icient 'or the three 'riends( &an Bacob still add 7ob and Bo+o as his bene'iciaries? 89!lain( "2$%
SUGGESTED ANSWER:

;o- Bacob can no lon*er add 7ob and Bo+o as his bene'iciaries in addition to Di,ata( As the irre)ocable bene'iciaryDi,ata has ac3uired a-)ested ri*ht o)er BacobCs li'e insurance !olicy( Any additional bene'iciaries ,ill reduce the amount ,hich Di,ata- as the 'irst bene'iciary- may reco)er- ,hich ,ill ad)ersely a''ect her )ested ri*ht( (2o v0 ,edfern, 20,0 3o0 54475, 1pril %5, #95#" ,ene&iciar%2 8i&e 7nsurance2 "ro#i.ite6 ,ene&iciaries ()**:) Buan de la &ru4 ,as issued >olicy ;o( GGGG o' the @idland ?i'e nsurance &o on a ,hole li'e !lan 'or >20-000 on Au*ust 1F- 1FGF( Buan is married to &ynthia ,ith ,hom he has three le*itimate children( 5e- ho,e)er- desi*nated >uritahis common-la, ,i'e- as the re)ocable

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relation- >urita cannot be a donee o' the deceased( 5ence- she cannot also be his bene'iciary( Concealment2 (aterial Concealment (200)) A a!!lied 'or a non-medical li'e insurance( /he insured did not in'orm the insurer that one ,eek !rior to his a!!lication 'or insurance- he ,as e9amined and con'ined at :t( ?ukes 5os!ital ,here he ,as dia*nosed 'or lun* cancer( /he insured soon therea'ter died in a !lane crash( s the insurer liable considerin* that the 'act concealed had no bearin* ,ith the cause o' death o' the insured? Why? "2$%
SUGGESTED ANSWER:

/he bene'iciaries contend that the com!any had no ri*ht to rescind the contract as rescission must be done durin* the li'etime o' the insured ,ithin t,o years and !rior to the commencement o' the action( s the contention o' the bene'iciaries tenable?
SUGGESTED ANSWER:

;o( /he incontestability clause does not a!!ly( /he insured dies ,ithin less than t,o years 'rom the issuance o' the !olicy on :e!tember 2.- 1FF0( /he insured died on A!ril 2=- 1FF2- or less than 2 years 'rom :e!tember 2.- 1FF0(
/he ri*ht o' the insurer to rescind is only lost i' the bene'iciary has commenced an action on the !olicy( /here is no such action in this case( (:an v '1 #45 s #5$"

;o( /he concealed 'act is material to the a!!ro)al and issuance o' the insurance !olicy( t is ,ell settled that the insured need not die o' the disease he 'ailed to disclose to the insurer( t is su''icient that his nondisclosure misled the insurer in 'ormin* his estimate o' the risks o' the !ro!osed insurance !olicy or in makin* in3uiries(

Concealment2 (aterial Concealment: 7ncontesta.ilit% Clause ()**4)


Buan !rocured a non-medical li'e insurance 'rom Dood ?i'e nsurance( 5e desi*nated his ,i'e- >etra- as the bene'iciary( 8arlierin his a!!lication in res!onse to the 3uestion as to ,hether or not he had e)er been hos!itali4ed- he ans,ered in the ne*ati)e( 5e 'or*ot to mention his con'inement at the Jidney 5os!ital( A'ter Buan died in a !lane crash- >etra 'iled a claim ,ith Dood ?i'e( Disco)erin* Buans !re)ious hos!itali4ation- Dood ?i'e re+ected >etras claim on the *round o' concealment and misre!resentation( >etra sued Dood ?i'e- in)okin* *ood 'aith on !art o' Buan(
*er i!n 1++0,'00- U)dated by

Concealment2 (aterial Concealment: 7ncontesta.ilit% Clause ()**3) An :e!tember 2.- 1FF0- /an took a li'e insurance !olicy 'rom >hilam( /he !olicy ,as issued on ;o)ember =- 1FF0( 5e died on A!ril 2=- 1FF2 o' he!atoma( /he insurance com!any denied the bene'iciaries claim and rescinded the !olicy by reason o' alle*ed misre!resentation and concealment o' material 'acts made by /an in his a!!lication( t returned the !remiums !aid(
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

Will >etras suit !ros!er? 89!lain(


SUGGESTED ANSWER:

;o- >etras suit ,ill not !ros!er "assumin* that the !olicy o' li'e insurance has been in 'orce 'or a !eriod o' less than 2 years 'rom the date o' its issue%( /he matters ,hich Buan 'ailed to disclose ,as material and rele)ant to the a!!ro)al and issuance o' the insurance !olicy( /hey ,ould ha)e a''ected Dood ?i'es action on his a!!lication- either by a!!ro)in* it ,ith the corres!ondin* ad+ustment 'or a hi*her !remium or re+ectin* the same( @oreo)er- a disclosure may ha)e ,arranted a medical e9amination o' Buan by Dood ?i'e in order 'or it to reasonably assess the risk in)ol)ed in acce!tin* the a!!lication( n any case- *ood 'aith is no de'ense in concealment( /he ,ai)er o' a medical e9amination in the Rnon-medical li'e insurance 'rom Dood ?i'e makes it e)en more necessary that Buan su!!ly com!lete in'ormation about his !re)ious hos!itali4ation 'or such in'ormation constitutes an im!ortant 'actor ,hich Dood ?i'e takes into consideration in decidin* ,hether to issue the !olicy or not( (See Sunlife
1ssurance 'o of 'anada v '1 2, #75#$5, Aune %%, #995 %55 s %&6"

heart ailmentis material to the determination by the insurance com!any ,hether or not to acce!t the a!!lication 'or insurance and to re3uire the medical e9amination o' the insured(

5o,e)er- i' the incontestability clause ,hich a!!lies to the insurance !olicy co)erin* the li'e o' the insured had been in 'orce 'or 2 years 'rom issuance thereo'the insurance com!any ,ould not be +usti'ied in denyin* the claim 'or !roceeds o' the insurance and in returnin* the !remium !aid( n that case- the insurer cannot !ro)e the !olicy )oid ab initio or rescindible by reason o' 'raudulent concealment or misre!resentation o' the insured(

' the !olicy o' li'e insurance has been in 'orce 'or a !eriod o' 2 years or more 'rom the date o' its issue "on ,hich !oint the *i)en 'acts are )a*ue% then Dood ?i'e can no lon*er !ro)e that the !olicy is )oid ab initio or is rescindible by reason o' the 'raudulent concealment or misre!resentation o' Buan " :ec #G ns &ode%

Concealment2 (aterial Concealment: 7ncontesta.ilit% Clause ()**+) /he assured ans,ers ;o to the 3uestion in the a!!lication 'or a li'e !olicy0 Are you su''erin* 'rom any 'orm o' heart illness? n 'act- the assured has been a heart !atient 'or many years( An 7 :e! 1FF1- the assured is killed in a !lane crash( /he insurance com!any denies the claim 'or insurance !roceeds and returns the !remiums !aid( s the decision o' the insurance com!any +usti'ied?
SUGGESTED ANSWER:

Assumin* that the incontestability clause does not a!!ly because the !olicy has not been in 'orce 'or 2 years- 'rom the date o' issuedurin* the li'etime o' the insured- the decision o' the insurance com!any not to !ay is +usti'ied( /here ,as 'raudulent concealment( t is not material that the insured died o' a di''erent cause than the 'act concealed( /he 'act concealed- that is

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(1 of 103

Concealment2 (aterial Concealment2 7ncontesta.ilit% Clause ()**)) Atty Roberto took out a li'e insurance !olicy 'rom the Dana ns &o "D &% on 1 :e! 1FGF( An .1 Au* 1FF0- Roberto died( D& re'used to !ay his bene'iciaries because it disco)ered that Robert had misre!resented certain material 'acts in his a!!lication( /he bene'iciaries sued on the basis that D & can contest the )alidity o' the insurance !olicy only ,ithin 2 years 'rom the date o' issue and durin* the li'etime o' the insured( Decide the case(
SUGGESTED ANSWER:

Renato ,as issued a li'e insurance !olicy on Banuary 2- 1FF0( 5e concealed the 'act that . years !rior to the issuance o' his li'e insurance !olicy- he had been seein* a doctor about his heart ailment( An @arch 1- 1FF2- Renato died o' heart 'ailure( @ay the heirs 'ile a claim on the !roceeds o' the li'e insurance !olicy o' Renato? "2$%
SUGGESTED ANSWER:

7es( /he li'e insurance !olicy in 3uestion ,as issued on Banuary F- 1FF0( @ore than 2 years had ela!sed ,hen Renatothe insured- died on @arch 1- 1FF2( /he incontestability clause a!!lies(
INC%N/8'/A#I>I/? C>A,'8

,ould rule in 'a)or o' the insurance com!any( /he incontestability clausea!!lies only i' the !olicy had been in e''ect 'or at least 2 years( /he 2 year !eriod is counted 'rom the time the insurance becomes e''ecti)e until the death o' the insured and not therea'ter (:an v '1 2,
56755 %9Aun#969"
A8TERNAT7>E ANSWER:

,ould rule in 'a)or o' the insurance com!any( Althou*h an insurer may not rescind the contract on *round o' misre!resentation a'ter an action is commenced 'or reco)ery under the !olicy- the insurer is not !recluded 'rom in)okin* the *round o' misre!resentation as a de'ense in the action 'or reco)ery( /his is alri*ht since the bar !roblem is not co)ered yet by the incontestability clause(

/he insurer has t,o years 'rom the date o' issuance o' the insurance contract or o' its last reinstatement ,ithin ,hich to contest the !olicy- ,hether or not- the insured still li)es ,ithin such !eriod( A'ter t,o yearsthe de'enses o' concealment or misre!resentation- no matter ho, !atent or ,ell 'ounded- no lon*er lie(

Concealment2 (aterial Concealment2 7ncontesta.ilit% Clause ()**:)


*er i!n 1++0,'003 Arranged by SULAW Cla

7nsura.le 7nterest: ,an- De$osit (2000) BD has a bank de!osit o' hal' a million !esos( :ince the limit o' the insurance co)era*e o' the >hili!!ine De!osit nsurance &or! ">D &% "RA .2F1% is only one tenth o' BDs de!osit- he ,ould like some !rotection 'or the e9cess by takin* out an insurance a*ainst all risks or contin*encies o' loss arisin* 'rom any unsound or unsa'e bankin* !ractices includin* un'oreseen ad)erse e''ects o'
*er i!n 1++0,'00- U)dated by

Dondee

'00(

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

the continuin* crisis in)ol)in* the bankin* and 'inancial sector in the Asian re*ion( Does BD ha)e an insurable interest ,ithin the meanin* o' the nsurance &ode o' the >hili!!ines ">D1#=0%? "2$%
SUGGESTED ANSWER:

c% :u!!ose you are the Bud*e- ho, much ,ould you allo, the businessman and the creditor to reco)er
SUGGESTED ANSWER:

that double insurance is contrary to la,( s this contention tenable? ".$%

7es( BD has insurable interest in his bank de!osit( n case o' loss o' said de!ositmore !articularly to the e9tent o' the amount in e9cess o' the limit co)ered by the >D & Act- >BD ,ill be damni'ied( 5e ,ill su''er !ecuniary loss o' >.00-000(00that is- his bank de!osit o' hal' a million !esos minus >200-000(00 ,hich is the ma9imum amount reco)erable 'rom the >D &(

'rom their res!ecti)e insurers( 89!lain ".$%

a%7es( /he businessman- as o,ner- and the creditor- as mort*a*ee- ha)e se!arate insurable interests in the same stocks-intrade( 8ach may insure such interest to !rotect his o,n se!arate interest(

7nsura.le 7nterest: "u.lic Enem% (2000) @ay a member o' the @ ?< or its breaka,ay *rou!- the Abu :ayya'- be insured ,ith a com!any licensed to do business under the nsurance &ode o' the >hils ">D 1#=0%? 89!lain( ".$%
SUGGESTED ANSWER:

b% /he contention o' <irst nsurance that double insurance is contrary to la, is untenable( /here is no la, !ro)idin* that double insurance is ille*al !er se(

A member o' the @ ?< or the Abu :ayya' may be insured ,ith a com!any licensed to do business under the nsurance &ode o' the >hils( What is !rohibited to be insured is a !ublic enemy( A !ublic enemy is a citi4en or national o' a country ,ith ,hich the >hili!!ines is at ,ar( :uch member o' the @ ?< or the Abu :ayya' is not a citi4en or national o' another countrybut o' the >hili!!ines( 7nsura.le 7nterest: Se$arate 7nsura.le 7nterest ()***) A businessman in the *rocery business obtained 'rom <irst nsurance an insurance !olicy 'or >2@ to 'ully co)er his stocks-in-trade 'rom the risk o' 'ire( /hree months therea'ter- a 'ire o' accidental ori*in broke out and com!letely destroyed the *rocery includin* his stocks-in-trade( /his !rom!ted the businessman to 'ile ,ith <irst nsurance a claim 'or 'i)e million !esos re!resentin* the 'ull )alue o' his *oods(
<irst nsurance denied the claim because it disco)ered that at the time o' the lossthe stocks-in-trade ,ere mort*a*ed to a creditor ,ho like,ise obtained 'rom :econd nsurance &om!any 'ire insurance co)era*e 'or the stocks at their 'ull )alue o' >2@(

a% @ay the businessman and the creditor obtain se!arate insurance co)era*es o)er the same stocks- intrade? 89!lain ".$% b% <irst nsurance re'used to !ay claimin*

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@oreo)er- in the !roblem at hand- there is no double insurance because the insured ,ith the <irst nsurance is di''erent 'rom the insured ,ith the :econd nsurance &om!any( /he same is true ,ith res!ect to the interests insured in the t,o !olicies( c% As Bud*e,ould allo, the businessman to reco)er his total loss o' >2@ re!resentin* the 'ull )alue o' his *oods ,hich ,ere lost throu*h 'ire( As to the creditor,ould allo, him to reco)er the amount to the e9tent o' or e3ui)alent to the )alue o' the credit he e9tended to the businessman 'or the stocks-intrade ,hich ,ere mort*a*ed by the businessman( 7nsura.le 7nterest2 E5uita.le 7nterest ()**)) A !iece o' machinery ,as shi!!ed to @r >ablo on the basis o' &M< @anila( >ablo insured said machinery ,ith the /ala*a @erchants ns &o "/amic% 'or loss or dama*e durin* the )oya*e( /he )essel sank en route to @anila( >ablo then 'iled a claim ,ith /amic ,hich ,as denied 'or the reason that !rior to deli)er- >ablo had no insurable interest( Decide the case(
SUGGESTED ANSWER:

7nsura.le 7nterest2 8i&e s! "ro$ert% 7nsurance ()**+) a% A obtains a 'ire insurance on his house and as a *enerous *esture names his nei*hbor as the bene'iciary( ' As house is destroyed by 'ire- can B success'ully claim a*ainst the !olicy?
b% A obtains insurance o)er his li'e and names his nei*hbor B the bene'iciary because o' As secret lo)e 'or B( ' A diescan B success'ully claim a*ainst the
SUGGESTED ANSWER:

!olicy?

a%;o( n !ro!erty insurance- the bene'iciary must ha)e insurable interest in the !ro!erty insured( ":ec 1G ns &ode%( B does not ha)e insurable interest in the house insured( b% 7es( n li'e insurance- it is not re3uired that the bene'iciary must ha)e insurable interest in the li'e o' the insured( t ,as the insured himsel' ,ho took the !olicy on his o,n li'e( 7nsura.le 7nterest2 8i&e s! "ro$ert% 7nsurance (2000)
:- an elderly bachelor ,ith no kno,n relati)es- obtained li'e insurance co)era*e 'or >220-000(00 'rom :tarbrite nsurance &or!oration- an entity licensed to en*a*e in the insurable business under the nsurance &ode o' the >hili!!ines ">D1#=0%( 5e also insured his residential house 'or t,ice that amount ,ithin the same cor!oration( 5e immediately assi*ned all his ri*hts to the insurance !roceeds to BI- a 'riend-com!anion li)in* ,ith him( /hree years later- : died in a 'ire that *utted his insured house t,o days a'ter he had sold it( /here is
*er i!n 1++0,'00- U)dated by

>ablo had an e9istin* insurable interest on the !iece o' machinery he bou*ht( /he !urchase o' *oods under a !er'ected contract o' sale already )ests e3uitable interest on the !ro!erty in 'a)or o' the buyer e)en ,hile it is !endin* deli)ery (.ilipino +erchants /ns 'o
v '1 2, 65#55 %63ov#969"

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

no e)idence o' suicide or arson or in)ol)ement o' BI in these e)ents( BI demanded !ayment o' the insurance !roceeds 'rom the t,o !olicies- the !remiums 'or ,hich : had been 'aith'ully !ayin* durin* all the time he ,as ali)e( :tarbrite re'used !ayment- contendin* that BI had no insurable interest and there'ore ,as not entitled to recei)e the !roceeds 'rom :s insurance co)era*e on his li'e and also on his !ro!erty( s :tarbrites contention )alid? 89!lain? "2$%
SUGGESTED ANSWER:

+ud*ment- the sheri'' le)ied u!on Ben+ies re*istered !ro!erty "a !arcel o' land and the buildin* thereon%-and sold the same at !ublic auction to ;at- the hi*hest bidder( /he latter- on @arch 1G- 1FF2- re*istered ,ith the Re*ister o' Deeds the certi'icate o' sale issued to him by the sheri''( @ean,hile- on Banuary 27- 1FF.Ben+ie insured ,ith Dara!al nsurance 'or >1-000-000(00 the same buildin* that ,as sold at !ublic auction to ;at( Ben+ie 'ailed to redeem the !ro!erty by @arch 1G- 1FF.(

:tarbrite is correct ,ith res!ect to the insurance co)era*e on the !ro!erty o' :( /he bene'iciary in the !ro!erty insurance !olicy or the assi*nee thereo' must ha)e insurable interest in the !ro!erty insured( BI- a mere 'riend-com!anion o' :has no insurable interest in the residential house o' :( BI is not entitled to recei)e the !roceeds 'rom :s insurance on his !ro!erty( As to the insurance co)era*e on the li'e o' :- BI is entitled to recei)e the !roceeds( /here is no re3uirement that BI should ha)e insurable interest in the li'e o' :( t ,as : himsel' ,ho took the insurance on his o,n li'e(

7nsura.le 7nterest2 8i&e s! "ro$ert% 7nsurance (2002) Distin*uish insurable interest in !ro!erty insurance 'rom insurable interest in li'e insurance( "2$%
SUGGESTED ANSWER:

a%

n !ro!erty insurancethe e9!ectation o' bene'it must ha)e a le*al basis( n li'e insurance- the e9!ectation o' bene'it to be deri)ed 'rom the continued e9istence o' a li'e need not ha)e any le*al basis( n !ro!erty insurance- the actual )alue o' the interest therein is the limit o' the insurance that can )alidly be !laced thereon( n li'e insurance- there is no limit to the amount o' insurance that may be taken u!on li'e( n !ro!erty insurance- an interest insured must e9ist ,hen the insurance takes e''ect and ,hen the loss occurs but need not e9ist in the meantime( n li'e insurance- it is enou*h that insurable interest e9ists at the time ,hen the contract is made but it need not e9ist at the time o' loss(

b%

c%

7nsura.le 7nterest2 "ro$ert% 7nsurance ()**3) n a ci)il suit- the &ourt ordered Ben+ie to !ay ;at >200-000(00( /o e9ecute the

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SUGGESTED ANSWER:

An @arch 1F- 1FF.- a 'ire ra4ed the buildin* to the *round( Dara!al nsurance re'used to make *ood its obli*ation to Ben+ie under the insurance contract( 1% s Dara!al nsurance le*ally +usti'ied in re'usin* !ayment to Ben+ie? 2% s ;at entitled to collect on the insurance !olicy?
SUGGESTED ANSWER:

1%7es( At the time o' the loss- Ben+ie ,as no lon*er the o,ner o' the !ro!erty insured as he 'ailed to redeem the !ro!erty( /he la, re3uires in !ro!erty insurance that a !erson can reco)er the !roceeds o' the !olicy i' he has insurable interest at the time o' the issuance o' the !olicy and also at the time ,hen the loss occurs( At the time o' 'ireBen+ie no lon*er had insurable interest in the !ro!erty insured( 2% ;o( While at the time o' the loss he had insurable interest in the buildin*- as he ,as the o,ner thereo'- ;at did not ha)e any interest in the !olicy( /here ,as no automatic trans'er clause in the !olicy that ,ould *i)e him such interest in the !olicy( 7nsura.le 7nterest2 "ro$ert% 7nsurance (200)) BQ- o,ner o' a condominium unitinsured the same a*ainst 'ire ,ith the I7P nsurance &o(- and made the loss !ayable to his brother- @?Q( n case o' loss by 'ire o' the said condominium unit- ,ho may reco)er on the 'ire insurance !olicy? :tate the reason"s% 'or your ans,er( "2$%

BQ can reco)er on the 'ire insurance !olicy 'or the loss o' said condominium unit( 5e has the insurable interest as o,nerinsured( As bene'iciary in the 'ire insurance !olicy- @?Q cannot reco)er on the 'ire insurance !olicy( <or the bene'iciary to reco)er on the 'ire or !ro!erty insurance !olicy- it is re3uired that he must ha)e insurable interest in the !ro!erty insured( n this case- @?Q does not ha)e insurable interest in the condominium unit( 7nsurance2 Cas# 0 Carr% ,asis (2003) What is meant by cash and carry in the business o' insurance?
SUGGESTED ANSWER:

7nsurance2 Co?7nsurance s! Re?7nsurance ()**3) Distin*uish co-insurance 'rom re-insurance(


SUGGESTED ANSWER:

&A- ;:6RA;&8 is the !ercenta*e in the )alue o' the insured !ro!erty ,hich the insured himsel' assumes or undertakes to act as insurer to the e9tent o' the de'iciency in the insurance o' the insured !ro!erty( n case o' loss or dama*e- the insurer ,ill be liable only 'or such !ro!ortion o' the loss or dama*e as the amount o' insurance bears to the desi*nated !ercenta*e o' the 'ull )alue o' the !ro!erty insured(
R8 ;:6RA;&8 is ,here the insurer !rocures a third !artycalled the reinsurer- to insure him a*ainst liability by reason o' such ori*inal insurance( Basically- a

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

reinsurance is an insurance a*ainst liability ,hich the ori*inal insurer may incur in 'a)or o' the ori*inal insured( 7nsurance2 Dou.le 7nsurance (2001) When does double insurance e9ist? "2$%
SUGGESTED ANSWER:

6nder :ection F. o' the nsurance &odethere is double insurance ,hen there is o)er-insurance ,ith t,o or more com!aniesco)erin* the same !ro!erty- the same insurable interest and the same risk( Double insurance e9ists ,here the same !erson is insured by se)eral insurers se!arately in res!ect o' the same sub+ect matter and interests( (2eagonia v0 'ourt of 1ppeals,
20,0 3o0 ##55%4, .ebruar &, #995"

in = months( <rancis only !aid the 'irst t,o months installments( Des!ite demandshe 'ailed to !ay the subse3uent installments( <i)e months a'ter the issuance o' the !olicy- the )ehicle ,as carna!!ed( <rancis 'iled ,ith the insurance com!any a claim 'or its )alue( 5o,e)er- the com!any denied his claim on the *round that he 'ailed to !ay the !remium resultin* in the cancellation o' the !olicy( &an <rancis reco)er 'rom the >eninsula nsurance &om!any? "2$%
SU..ESTE0 ANSWER:

7nsurance2 Dou.le 7nsurance2 e&&ect ()**3)


Bulie and Alma 'ormed a business !artnershi!( 6nder the business name >ino :ho!- the !artnershi! en*a*ed in a sale o' construction materials( Bulie insured the stocks in trade o' >ino :ho! ,ith WD& nsurance &o 'or >.20th( :ubse3uently- she a*ain *ot an insurance contract ,ith R: 'or >1m and then 'rom 8 & 'or >200th( A 'ire o' unkno,n ori*in *utted the store o' the !artnershi!( Bulie 'iled her claims ,ith the three insurance com!anies( 5o,e)er- her claims ,ere denied se!arately 'or breach o' !olicy condition ,hich re3uired the insured to *i)e notice o' any insurance e''ected co)erin* the stocks in trade( Bulie ,ent to court and contended that she should not be blamed 'or the omission- alle*in* that the insurance a*ents 'or WD&- R: and 8 & kne, o' the e9istence o' the additional insurance co)era*es and that she ,as not in'ormed about the re3uirement that such other or additional insurance should be stated in the !olicy(

s the contention o' Bulie tenable? 89!lain( @ay she reco)er on her 'ire insurance !olicies? 89!lain(
SUGGESTED ANSWER:

1% ;o( An insured is re3uired to disclose the other insurances co)erin* the sub+ect matter o' the insurance bein* a!!lied 'or( (3ew =ife Ent v '1 %74 s &&9"

2% ;o- because she is *uilty o' )iolation o' a ,arrantyL condition( 7nsurance2 E&&ects2 "a%ment o& "remiums .% 7nstallment (2004) /he >eninsula nsurance &om!any o''ered to insure <rancisC brand ne, car a*ainst all risks in the sum o' > @illion 'or 1 year( /he !olicy ,as issued ,ith the !remium 'i9ed at 1=0-000(00 !ayable

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(1 of 103

7es- ,hen insured and insurer ha)e a*reed to the !ayment o' !remium by installments and !artial !ayment has been made at the time o' loss- then the insurer becomes liable( When the car loss ha!!ened on the 2th month- the si9 months a*reed !eriod o' !ayment had not yet ela!sed (M';B
2eneral /nsurance v0 +asagana :elamart, 20,0 3o0 #$4#4%, 1pril 5, %77#" ( <rancis can

,ould thus !reclude the assi*nee 'rom claimin* ri*hts under the !olicy( /he 'ailure o' notice did not- ho,e)er- a)oid the !olicyH hence- u!on the death o' Bose- the !roceeds ,ould- in the absence o' a desi*nated bene'iciary- *o to the estate o' the insured( /he estate- in turn- ,ould be liable 'or the loan o' >20-000 o,in* in 'a)or o' 7( 7nsurance2 "er&ection o& 7nsurance Contracts (2003)
Bosie Datbonton obtained 'rom Warranty nsurance &or!oration a com!rehensi)e motor )ehicle insurance to co)er her brand ne, automobile( :he !aid- and the insurer acce!ted !ayment in check( Be'ore the check could be encashed- Bosie ,as in)ol)ed in a motor )ehicle accident ,here her car became a total ,reck( :he sou*ht !ayment 'rom the insurer( &ould the insurer be made liable under the insurance co)era*e? "=$%
SUGGESTED ANSWER:

reco)er 'rom >eninsula nsurance &om!anybut the latter has the ri*ht to deduct the amount o' un!aid !remium 'rom the insurance !roceeds(

7nsurance2 8i&e 7nsurance2 Assi'nment o& "olic% ()**)) /he !olicy o' insurance u!on his li'e- ,ith a 'ace )alue o' >100th ,as assi*ned by Bose- a married man ,ith 2 le*itimate children- to his ne!he, 7 as security 'or a loan o' >20th( 5e did not *i)e the insurer any ,ritten notice o' such assi*nment des!ite the e9!licit !ro)ision to that e''ect in the !olicy( Bose died( 6!on the claim on the !olicy by the assi*nee- the insurer re'used to !ay on the *round that it ,as not noti'ied o' the assi*nment( 6!on the other hand- the heirs o' Bose contended that 7 is not entitled to any amount under the !olicy because the assi*nment ,ithout due notice to the insurer ,as )oid( Resol)e the issues(
SUGGESTED ANSWER:

"!er Dondee% 7es- because there ,as a !er'ected contract o' insurance the moment there is a meetin* o' the minds ,ith res!ect to the ob+ect and the cause o' !ayment( /he !ayment o' check is a )alid !ayment unless u!on encashment the check bounced( 7nsurance2 "ro$ert% 7nsurance2 "rescri$tion o& Claims ()**4) Robin insured his buildin* a*ainst 'ire ,ith 8<D Assurance( /he insurance !olicy contained the usual sti!ulation that any action or suit must be 'iled ,ithin one year a'ter the re+ection o' the claim(
*er i!n 1++0,'00- U)dated by

A li'e insurance is assi*nable( A !ro)ision- ho,e)er- in the !olicy statin* that ,ritten notice o' such an assi*nment should be *i)en to the insurer is )alid ":ecs 1G1-1G2 ns &ode%( /he 'ailure o' the notice o' assi*nment
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Mercantile Law Bar Examination Q & A (1990-2006)

A'ter his buildin* burned do,n- Robin 'iled his claim 'or 'ire loss ,ith 8<D( An <eb 2G- 1FF#- 8<D denied Robins claim( An A!ril .1FF#Robin sou*ht reconsideration o' the denial- but 8<D reiterated its !osition( An @arch 20- 1FF2Robin commenced +udicial action a*ainst 8<D( :hould Robins action be *i)en due course? 89!lain(
SUGGESTED ANSWER:

any de'ault o' the insured other than actual 'raudthe insurer ne)er incurred any liability under the !olicy(
A8TERNAT7>E 7NSTANCE:

;o- Robins action should not be *i)en due course( s 'ilin* o' the re3uest 'or reconsideration did not sus!end the runnin* o' the !rescri!ti)e !eriod o' one year sti!ulated in the insurance !olicy( /hus,hen robin commenced +udicial action a*ainst 8<D Assurance on @arch 201FF2- his ability to do so had already !rescribed( /he one-year !eriod is counted 'rom <eb 2G- 1FF# ,hen 8<D denied Robins claim- not 'rom the date "!resumably a'ter A!ril .- 1FF#% ,hen 8<D reiterated its !osition denyin* Robins claim( /he reason 'or this rule is to insure that claims a*ainst insurance com!anies are !rom!tly settled and that insurance suits are brou*ht by the insured ,hile the e)idence as to the ori*in and cause o' the destruction has not yet disa!!eared( (See Sun /ns -ffice =td v '1 gr
6945#, +ar #$ 9# #95s#9$"

n case o' an o)er insurance by se)eral insurers- the insured is entitled to a ratable return o' the !remium!ro!ortioned to the amount by ,hich the a**re*ate sum insured in all the !olicies e9ceeds the insurable )alue o' the thin* at risk( 7nsure62 Acci6ent "olic% (2003)
&; insure :A@ under a homeo,nerCs !olicy a*ainst claims 'or accidental in+uries by nei*hbors( :A@Cs minor
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5o,e)erin

7nsurance2 Return o& "remiums (2000) ;ame at least three instances ,hen an insured is entitled to a return o' the !remium !aid(
SUGGESTED ANSWER:

/hree instances ,hen an insured is entitled to a return o' !remium !aid are0 1( /o the W5A?8 >R8@ 6@- i' no !art o' his interest in the thin* insured be e9!osed to any o' the !erils insured a*ainst(
2( Where the insurance is made 'or a de'inite !eriod o' time and the insured surrenders his !olicy- to such !ortion o' the !remium as corres!onds ,ith the une9!ired time at a !ro rata rateunless a short !eriod rate has been a*reed u!on and a!!ears on the 'ace o' the !olicy- a'ter deductin* 'rom the ,hole !remium any claim 'or loss or dama*e under the !olicy ,hich has !re)iously accrued(

.( When the contract is )oidable on account o' the 'raud or misre!resentation o' the insurer or o' his a*ent or on account o' 'acts the e9istence o' ,hich the insured ,as i*norant ,ithout his 'aultH or ,hen- by

Page (( of 103 sonBA7- in+ured . children o' >A:- a nei*hbor- ,ho sued :A@ 'or dama*es( :A@Cs la,yer ,as A//- ,ho ,as !aid 'or his ser)ices by the insurer 'or re!ortin* !eriodically on the case to &; ( n one re!ort- A// disclosed to &; that a'ter his in)esti*ations- he 'ound the in+uries to the . children not accidental but intentional(

the 'act by his o!!onent so he 'ell and his head hit one o' the !osts o' the bo9in* rin*( 5e ,as rendered unconscious and ,as dead on arri)al at the hos!ital due to intra-cranial hemorrha*e( &an his 'ather ,ho is a bene'iciary under said insurance !olicy success'ully claim indemnity 'rom the insurance com!any? 89!lain(
SUGGESTED ANSWER:

:A@ lost the case in court- and >A: ,as a,arded one million !esos in dama*es ,hich he sou*ht to collect 'rom the insurer( But &; used A//s re!ort to deny the claim on the *round that the in+uries to >A:Cs . children ,ere intentional- hence e9cluded 'rom the !olicyCs co)era*e( >A: countered that &; ,as esto!!ed 'rom usin* A//s re!ort because it ,as unethical 'or A// to !ro)ide !re+udicial in'ormation a*ainst his client to the insurer- &; ( Who should !re)ail0 the claimant- >A:H or the insurer- &; ? Decide ,ith reasons brie'ly( "2$%
SUGGESTED ANSWER:

7es- the 'ather ,ho is a bene'iciary under the accidental insurance can success'ully claim indemnity 'or the death o' the insured( &learly- the !ro9imate cause o' death ,as the bo9in* contest( Death sustained in a bo9in* contest is an accident0 (De la 'ru> v 'apital /ns D Suret 'o
#4s559"
*er i!n 1++0,'00- U)dated by Dondee

&; is not esto!!ed 'rom usin* A//Cs re!ort- because &; - in the 'irst !lacecommissioned it and !aid A// 'or it( An the other hand- A// has no con'lict o' interest because :A@ and &; are on the same side S their interests bein* con*ruent ,ith each other- namely- to o!!ose >A:Cs claim( t cannot be said that A// has used the in'ormation to the disad)anta*e or !re+udice o' :A@(
.inman 2eneral 1ssurance 'orp0 v0 'ourt of 1ppeals,
%#$ S',1 59$ (#99%", it ,as e9!lained that

there is no KaccidentK in the conte9t o' an accident !olicy- i' it is the natural result o' the insuredCs )oluntary actunaccom!anied by anythin* un'oreseen e9ce!t the in+ury( /here is no accident ,hen a deliberate act is !er'ormed- unless some additional and un'oreseen ha!!enin* occurs that brin*s about the in+ury( /his element o' deliberateness is not clearly sho,n 'rom the 'acts o' the case- es!ecially considerin* the 'act that BA7 is a minor- and the in+ured !arties are also children( Accordin*ly- it is !ossible that &; may not !ros!er( A//Cs re!ort is not conclusi)e on >A: or the court(

7nsure62 Acci6ent s! Suici6e ()**0) ?uis ,as the holder o' an accident insurance !olicy e''ecti)e ;o) 1- 1FGG to Act .1- 1FGF( At a bo9in* contest held on Ban 1- 1FGF and s!onsored by his em!loyer- he sli!!ed and ,as hit on

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

7nsure62 Acci6ent s! Suici6e ()**3) : nsurance &o issued a !ersonal accident !olicy to Bob /an ,ith a 'ace )alue o' >200th( n the e)enin* o' :e! 2- 1FF2a'ter his birthday !arty- /an ,as in a ha!!y mood but not drunk( 5e ,as !layin* ,ith his hand *un- 'rom ,hich he !re)iously remo)ed the ma*a4ine( As his secretary ,as ,atchin* tele)ision- he stood in 'ront o' her and !ointed the *un at her( :he !ushed it aside and said that it may be loaded( 5e assured her that it ,as not and then !ointed it at his tem!le( /he ne9t momentthere ,as an e9!losion and /an slum!ed to the 'loor li'eless( /he ,i'e o' the deceased sou*ht !ayment on the !olicy but her claim ,as re+ected( /he insurance com!any a*reed that there ,as no suicide( 5o,e)er- it ,as the submission o' the insurance com!any that there ,as no accident( n su!!ort thereo'- it contended a% that there ,as no accident ,hen a deliberate act ,as !er'ormed unless some additionalune9!ected- inde!endent and un'oreseen ha!!enin* occur ,hich !roduces or brin*s about the in+ury or deathH and b% that the insured ,ill'ully e9!osed himsel' to needless !eril and thus remo)ed himsel' 'rom the co)era*e o' the insurance !olicy( Are the t,o contentions o' the insurance com!any tenable? 89!lain(
SUGGESTED ANSWER:

ma*a4ine( 5e !ointed the *un at his sister ,ho *ot scared( 5e assured her it ,as not loaded( 5e then !ointed the *un at his tem!le and !ulled the tri**er( /he *un 'ired and 5enry slum!ed on the 'loor( 5enrys ,i'e Be)erly- as the desi*nated bene'iciarysou*ht to collect under the !olicy( :un-@oon nsurance re+ected her claim on the *round that the death o' 5enry ,as not accidental( Be)erly sued the insurer(

Decide and Discuss 'ully(


SUGGESTED ANSWER:

Be)erly can reco)er the !roceeds o' the !olicy 'rom the insurer( /he death o' the insured ,as not due to suicide

;o( /hese t,o contentions are not tenable( /he insurer is liable 'or in+ury or death e)en due to the insureds *ross ne*li*ence( /he 'act that the insured remo)ed the ma*a4ine 'rom the hand *un means that the insured did not ,ill'ully e9!ose himsel' to needless !eril( At mostthe insured is only *uilty o' ne*li*ence (Sun /ns v '1 %## s 555" 7nsure62 Acci6ent s! Suici6e ()**1)
:un-@oon nsurance issued a >ersonal Accident >olicy to 5enry Dy ,ith a 'ace )alue o' >200th( A !ro)ision in the !olicy states that the com!any shall not be liable in res!ect o' bodily in+ury conse3uent u!on the insured !erson attem!tin* to commit suicide or ,ill'ully e9!osin* himsel' to needless !eril e9ce!t in an attem!t to sa)e human li'e( :i9 months later 5enry Dy died o' a bullet ,ound in his head( n)esti*ation sho,ed that one e)enin* 5enry ,as in a ha!!y mood althou*h he ,as not drunk( 5e ,as !layin* ,ith his hand*un 'rom ,hich he had !re)iously remo)ed its

Page (- of 103 or ,ill'ul e9!osure to needless !eril ,hich are e9ce!ted risks( /he insureds act ,as !urely an act o' ne*li*ence ,hich is co)ered by the !olicy and 'or ,hich the insured *ot the insurance 'or his !rotection( n 'act- he remo)ed the ma*a4ine 'rom the *un and ,hen he !ointed the *un to his tem!le he did so because he thou*ht that it ,as sa'e 'or him to do so( 5e did so to assure his sister that the *un ,as harmless( /here is none in the !olicy that ,ould relie)e the insurer o' liability 'or the death o' the insured since the death ,as an accident(

While dri)in* his car alon* 8D:A- &esar sides,i!ed Roberto- causin* in+uries to the latter- Roberto sued &esar and the third !arty liability insurer 'or dama*es andLor insurance !roceeds( /he insurance com!any mo)ed to dismiss the com!laintcontendin* that the liability o' &esar has not yet been determined ,ith 'inality( a% s the contention o' the insurer correct? 89!lain( b% @ay the insurer be held liable ,ith &esar?
SUGGESTED ANSWER:

7nsurer: E&&ects: Se eral 7nsurers (2001) What is the nature o' the liability o' the se)eral insurers in double insurance? 89!lain( "2$%
SUGGESTED ANSWER:

/he nature o' the liability o' the se)eral insurers in double insurance is that each insurer is bound to the contribute ratably to the loss in !ro!ortion to the amount 'or ,hich he is liable under his contract as !ro)ided 'or by :ec F# o' &> !ar( /he ratable contribution o' each o' each insurer ,ill be determined based on the 'ollo,in* 'ormula0 A@A6;/ A< >A? &7 di)ided by /A/A? ;:6RA;&8 /AJ8; multi!lied by ?A:: U ? AB ? /7 A< /58 ;:6R8R(
A8TERNAT7>E ANSWER:

;o- the contention o' the insurer is not correct( /here is no need to ,ait 'or the decision o' the court determinin* &esars liability ,ith 'inality be'ore the third !arty liability insurer could be sued( /he occurrence o' the in+ury to Roberto immediately *a)e rise to the liability o' the insurer under its !olicy( n other ,ords,here an insurance !olicy insures directly a*ainst liability- the insurers liability accrues immediately u!on the occurrence o' the in+ury or e)ent u!on ,hich the liability de!ends
(Sherman Shafer v Audge ,:' -longapo 'it Branch 45 2, l846656, 3ov #5 66 #&4s$6&"

8ach insurer is bound- as bet,een himsel' and other insurers- to contribute ratably to the loss in !ro!ortion to the amount 'or ,hich he is liable under his contract( ":ec( F#- nsurance &ode% 7nsurer2 3r6 "art% 8ia.ilit% ()**4)
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

/he insurer cannot be held solidarily liable ,ith &esar( /he liability o' the insurer is based on contract ,hile that o' &esar is based on tort( ' the insurer ,ere solidarily liable ,ith &esar- it could be made to !ay more than the amount stated in the !olicy( /his ,ould- ho,e)er- be contrary to the !rinci!les underlyin* insurance contracts( An the other hand- i' the insurer ,ere solidarily liable ,ith &esar and it is made to !ay only u! to the amount
*er i!n 1++0,'00- U)dated by

Dondee

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

stated in the insurance !olicythe !rinci!les underlyin* solidary obli*ations ,ould be )iolated0 (+ala an /ns 'o v '1 2, =8
$&5#$ Sep %&, 66 #&5s5$&< .iguracion vda de +aglana v 'onsolacion 2, &757& 1ug &, 9% %#%s%&6"

.( medical re!ort and e)idence o' medical or hos!ital disbursement in res!ect o' ,hich re'und is claimed(

to establish the !ro!er !ayeeH or

#( &laim may be made a*ainst one motor )ehicle only( 7nsurer2 3r6 "art% 8ia.ilit%2 Cuitclaim ()**3)
Rauls truck bum!ed the car o,ned by ?u4( /he car ,as insured by &ala nsurance( <or the dama*e caused- &ala !aid ?u4 >2-000(00 in amicable settlement( ?u4 e9ecuted a release o' claim- subro*atin* &ala to all her ri*hts a*ainst Raul( When &ala demanded reimbursement 'rom Raul- the latter re'used sayin* that he had already !aid

7nsurer2 3r6 "art% 8ia.ilit% (2000)


I ,as ridin* a suburban utility )ehicle ":6N% co)ered by a com!rehensi)e motor )ehicle liability insurance "&@N? % under,ritten by <ast>ay nsurance &om!any ,hen it collided ,ith a s!eedin* bus o,ned by R@ /ra)el nc( /he collision resulted in serious in+uries to IH 7- a !assen*er o' the busH and P- a !edestrian ,aitin* 'or a ride at the scene o' the collision( /he !olice re!ort established that the bus ,as the o''endin* )ehicle( /he bus had &@N? !olicy issued by Dra*on ns &o( I- 7- and P +ointly sued R@ /ra)el and Dra*on ns 'or indemnity under the nsurance &ode o' the >hils ">D1#=0%( /he lo,er court a!!lied the no 'ault indemnity !olicy o' the statute- dismissed the suit a*ainst R@ /ra)el- and ordered Dra*on ns to !ay indemnity to all three !lainti''s( Do you a*ree ,ith the courts +ud*ment? 89!lain "2$%
SUGGESTED ANSWER:

;o( /he cause o' action o' 7 is based on the contract o' carria*e- ,hile that o' I and P is based on torts( /he court should not ha)e dismissed the suit a*ainst R@ /ra)el( /he court should ha)e ordered Dra*on ns to !ay each o' I- 7 - and P to the e9tent o' the insurance co)era*ebut ,hate)er amount is a*reed u!on in the !olicy should be ans,ered 'irst by R@ /ra)el and the succeedin* amount should be !aid by Dra*on nsurance u! to the amount o' the insurance co)era*e( /he e9cess o' the claims o' I- 7- and Po)er and abo)e such insurance co)era*ei' any- should be ans,ered or !aid by R@ /ra)el( 7nsurer2 3r6 "art% 8ia.ilit%2 No /ault 7n6emnit% ()**3) What is your understandin* o' a no 'ault indemnity clause 'ound in an insurance !olicy?
SUGGESTED ANSWER:

6nder the ;A <A6?/ ;D8@; /7 clauseany claim 'or death or in+ury o' any !assen*er or third !arty shall be !aid ,ithout the necessity o' !ro)in* 'ault or ne*li*ence o' any kind( /he indemnity in res!ect o' any one !erson shall not e9ceed >2-000(00- !ro)ided they are under oath- the 'ollo,in* !roo's shall be su''icient0

1( !olice re!ort o' the accidentH and 2( death certi'icate and e)idence su''icient

Page

(2 of 103

?u4 >#-200 'or the dama*e to the car as e)idenced by a release o' claim e9ecuted by ?u4 dischar*in* Raul( :o &ala demanded reimbursement 'rom ?u4- ,ho re'used to !ay- sayin* that the total dama*e to the car ,as >F-200(00 :ince &ala !aid >2-000 only- ?u4 contends that she ,as entitled to *o a'ter Raul to claim the additional >#-200(00 1% s &ala- as subro*ee o' ?u4- entitled to reimbursement 'rom Raul? 2% @ay &ala reco)er ,hat it has !aid ?u4?
SUGGESTED ANSWER:

or other la,s or re*ulations to dri)e the motor )ehicle and is not dis3uali'ied 'rom dri)in* such motor )ehicle by order o' a court( Durin* the e''ecti)ity o' the !olicy- the carthen dri)en by :heryl hersel'- ,ho had no dri)ers license- met an accident and ,as e9tensi)ely dama*ed( /he estimated cost o' re!air ,as >#0th( :heryl immediately noti'ied I7P- but the latter re'used to !ay on the !olicy alle*in* that :heryl )iolated the terms thereo' ,hen she dro)e it ,ithout a dri)ers license( s the insurer correct?
SUGGESTED ANSWER:

1% ;o( ?u4 e9ecuted a release in 'a)or


o' Raul (+anila +ahogan +fg 'orp v '1 2,
5%45&, #% -ct #964"

/he insurer ,as not correct in denyin* the claim since the !ro)iso that the !erson dri)in* is !ermitted in accordance ,ith the licensin*- etc( 3uali'ied only a !erson dri)in* the )ehicle other than the insured at the time o' the accident (;alermo v ; ramid /ns 'o 2,
$&567 $# +a 66"
A8TERNAT7>E ANSWER:

2% 7es( &ala lost its ri*ht a*ainst Raul


because o' the release e9ecuted by ?u4( :ince the release ,as made ,ithout the consent o' &ala- &ala may reco)er the amount o' >2-000 'orm ?u4 (+anila
+ahogan #964"0 +fg 'orp v '1 2, 5%45&, #% -ct

7nsurer2 Aut#oriDe6 Dri er Clause ()**))


:heryl insured her ne,ly ac3uired car- a ;issan @a9ima a*ainst any loss or dama*e 'or >20th and a*ainst .rd !arty liability 'or >20th ,ith the I7P ns &o( 6nder the !olicythe car must be dri)en only by an authori4ed dri)er ,ho is either0 1% the insured- or 2% any !erson dri)in* on the insureds order or ,ith his !ermission0 !ro)ided that the !erson dri)in* is !ermitted in accordance ,ith the licensin*
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

/he insurer is correct( /he clause authori4ed dri)er in the !olicy e)idently a!!lies to both the insured and any other !erson dri)in* the )ehicle at the time o' the accident( /he term authori4ed dri)er should be construed as a !erson ,ho is authori4ed by la, to dri)er the )ehicle (;e>a v 1li(pala #&7s$#" 7nsurer2 Aut#oriDe6 Dri er Clause (2003)
Rick de la &ru4 insured his !assen*er +ee!ney ,ith Asiatic nsurersnc( /he !olicy !ro)ided that the authori4ed dri)er o' the )ehicle should ha)e a )alid and e9istin* dri)ers license( /he !assen*er +ee!ney o' Rick de la &ru4 ,hich ,as at the time dri)en by Bay &ru4-

*er i!n 1++0,'00- U)dated by

Dondee

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

'i*ured in an accident resultin* in the death o' a !assen*er( At the time o' the accident- Bay &ru4 ,as licensed to dri)e but it ,as con'iscated by an ?/A a*ent ,ho issued him a /ra''ic Niolation Re!ort "/NR% +ust minutes be'ore the accident( &ould Asiatic nsurers- nc(- be made liable under its !olicy? Why? "=$%
SUGGESTED ANSWER:

demand and claimed that he ,as only liable 'or the installments due and !ayable be'ore the loss o' the car but no lon*er liable 'or other installments not yet
SUGGESTED ANSWER:

due at the time o' the loss o' the car( Decide(

1%

Asiatic nsurers- nc(- should be made liable under the !olicy( /he 'act that the dri)er ,as merely holdin* a /NR does not )iolate the condition that the dri)er should ha)e a )alid and e9istin* dri)ers license( Besides- such a condition should be disre*arded because ,hat is in)ol)ed is a !assen*er +ee!ney- and ,hat is in)ol)ed here is not o,n dama*e insurance but third !arty liability ,here the in+ured !arty is a third !arty not !ri)y to the contract o' insurance( 7nsurer2 Aut#oriDe6 Dri er Clause2 e#icle is stolen ()**3)
5? insured his brand ne, car ,ith > ns &o 'or com!rehensi)e co)era*e ,herein the insurance com!any undertook to indemni'y him a*ainst loss or dama*e to the car a% by accidental collision ((( b% by 'ire- e9ternal e9!losion- bur*lary- or the't- and c% malicious act(

7es( /he car ,as lost due to the't( What a!!lies in this case is the the't clause- and not the authori4ed dri)er clause( t is immaterial that 5?s ,i'e ,as dri)in* the car ,ith an e9!ired dri)ers license at the time it ,as carna!!ed 0
(;erla 'ompania de Seguros v '1 %76 s 564"

2% /he !romissory note is not a''ected by ,hate)er be'alls the sub+ect matter o' the accessory contract( /he

A'ter a month- the car ,as carna!!ed ,hile !arked in the !arkin* s!ace in 'ront o' the ntercontinental 5otel in @akati( 5?s ,i'e ,ho ,as dri)in* said car be'ore it ,as carna!!ed re!orted immediately the incident to )arious *o)ernment a*encies in com!liance ,ith the insurance re3uirements( Because the car could not be reco)ered- 5? 'iled a claim 'or the loss o' the car ,ith the insurance com!any but it ,as denied on the *round that his ,i'e ,ho ,as dri)in* the car ,hen it ,as carna!!ed ,as in the !ossession o' an e9!ired dri)ers license- a )iolation o' the authori4ed dri)er clause o' the insurance com!any( 1% @ay the insurance com!any be held liable to indemni'y 5? 'or the loss o' the insured )ehicle? 89!lain(

2% :u!!osin* that the car ,as brou*ht by 5? on installment basis and there ,ere installments due and !ayable be'ore the loss o' the car as ,ell as installments not yet !ayable( Because o' the loss o' the car- the )endor demanded 'rom 5? the un!aid balance o' the !romissory note( 5? resisted the

Page

(3 of 103 un!aid

balance on the !romissory note should be !aid and not only the installments due and !ayable be'ore the loss o' the car( 7nsurer2 Grou$ 7nsurance2 Em$lo%er?"olic% Eol6er (2000)
I com!any !rocured a *rou! accident insurance !olicy 'or its construction em!loyees )ariously assi*ned to its !ro)incial in'rastructure !ro+ects( 7 nsurance &om!any under,rote the co)era*e- the !remiums o' ,hich ,ere !aid 'or entirely by I &om!any ,ithout any em!loyee contributions( While the !olicy ,as in e''ect'i)e o' the co)ered em!loyees !erished at sea on their ,ay to their !ro)incial assi*nments( /heir ,i)es sued 7 nsurance &om!any 'or !ayment o' death bene'its under the !olicy( While the suit ,as !endin*- the ,i)es si*ned a !o,er o' attorney desi*natin* I &om!any e9ecuti)e>Bas their authori4ed re!resentati)e to enter into a settlement ,ith the insurance com!any( When a settlement ,as reached>B instructed the insurance com!any to issue the settlement check to the order o' I &om!any- ,hich ,ill undertake the !ayment to the indi)idual claimants o' their res!ecti)e shares( >B misa!!ro!riated the settlement amount and the ,i)es !ursued their case a*ainst 7 nsurance &o( Will the suit !ros!er? 89!lain ".$%
SUGGESTED ANSWER:

that the em!loyer-!olicy holder is the a*ent o' the insurer(

7nsurer2 8ia.ilit% o& t#e 7nsurers ()**0) a% :u!!ose that <ortune o,ns a house )alued at >=00th and insured the same a*ainst 'ire ,ith . insurance com!anies as 'ollo,s0 I E >#00th 7 E >200th P E >=00th
n the absence o' any sti!ulation in the !olicies 'rom ,hich insurance com!any or com!anies may <ortune reco)er in case 'ire should destroy his house com!letely?
SUGGESTED ANSWER:

<ortune may reco)er 'rom the insurers in such order as he may select u! to their concurrent liability ":ec F# ns &ode% Valued Policy b% ' each o' the 'ire insurance !olicies obtained by <ortune in the !roblem "a% is a )alued !olicy and the )alue o' his house ,as 'i9ed in each o' the !olicies at >1m- ho, much ,ould <ortune reco)er 'rom I i' he has already obtained 'ull !ayment on the insurance !olicies issued by 7 and P?
SUGGESTED ANSWER:

7es( /he suit ,ill !ros!er( 7 ns &o is liable( I &o- throu*h its e9ecuti)e- >B- acted as a*ent o' 7 ns &o( /he latter is thus bound by the misconduct o' its a*ent( t is the usual !ractice in the *rou! insurance business
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

<ortune may still reco)er only the balance o' >200-000 'rom I insurance com!any since the insured may only reco)er u! to the e9tent o' his loss(
A8TERNAT7>E:
*er i!n 1++0,'00- U)dated by

Dondee

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

5a)in* already obtained 'ull !ayment on the insurance !olicies issued by 7 and P- <ortune may no lon*er reco)er 'rom I insurance !olicy( Open Policy c% ' each o' the !olicies obtained by <ortune in the !roblem "a% abo)e is an o!en !olicy and it ,as immediately determined a'ter the 'ire that the )alue o' <ortunes house ,as >2(#m- ho, much may he collect 'rom I-7 and P?
SUGGESTED ANSWER:

loss( :uch a loss e9ists in this case since the rice- ha)in* been soaked in sea ,ater and thereby rendered un'it 'or human consum!tion- has become totally useless 'or the !ur!ose 'or ,hich it ,as im!orted (;an
+ala an /ns 'o v '1 gr 95747 Sep 5, #99#"

8oss: Constructi e Total 8oss (2001)


@LN >early :hells- a !assen*er and car*o )essel- ,as insured 'or >#0-000-000(00 a*ainst constructi)e total loss( Due to a ty!hoon- it sank near >ala,an( ?uckilythere ,ere no casualties- only in+ured !assen*ers( /he shi! o,ner sent a notice o' abandonment o' his interest o)er the )essel to the insurance com!any ,hich then

n an o!en !olicy- the insured may reco)er his total loss u! to the amount o' the insurance co)er( /hus- the e9tent o' reco)ery ,ould be >#00th 'rom I>200th 'rom 7- and >=00th 'rom P( d% n !roblem "a%- ,hat is the e9tent o' the liability o' the insurance com!anies amon* themsel)es?
SUGGESTED ANSWER:

n !roblem "a%- the insurance com!anies amon* themsel)es ,ould be liable- )i40 I E #L12 o' >=00th U >200th 7 E 2L12 o' >=00th U >100th P E =L12 o' >=00th U >.00th e% :u!!osin* in !roblem "a% abo)e- <ortune ,as able to collect 'rom both 7 and Pmay he kee! the entire amount he ,as able to collect 'rom the said 2 insurance com!anies?
SUGGESTED ANSWER:

;o- he can only be indemni'ied 'or his loss- not !ro'it therebyH hence he must return >200th o' the >G00th he ,as able to collect( 8oss: Actual Total 8oss ()**4)
R& &or!oration !urchased rice 'rom /hailand,hich it intended to sell locally( Due to stormy ,eather- the shi! carryin* the rice became submer*ed in sea ,ater- and ,ith it the rice car*o( When the car*o arri)ed in @anila- R& 'iled a claim 'or total loss ,ith the insurer- because the rice ,as no lon*er 'it 'or human consum!tion( Admittedly- the rice could still be used as animal 'eed( s R&s claim 'or total loss +usti'ied? 89!lain(
SUGGESTED ANSWER:

7es- R&s claim 'or total loss is +usti'ied( /he rice- ,hich ,as im!orted 'rom /hailand 'or sale locally- is ob)iously intended 'or consum!tion by the !ublic( /he com!lete !hysical destruction o' the rice is not essential to constitute an actual total

Page

(+ of 103 hired

!ro'essionals to a'loat the )essel 'or >F00-000(00( When re-'loated- the )essel needed re!airs estimated at >2-000-000(00( /he insurance com!any re'used to !ay the claim o' the shi! o,ner- statin* that there ,as no constructi)e total loss( a% Was there constructi)e total loss to entitle the shi! o,ner to reco)er 'rom the insurance com!any? 89!lain(
b% Was it !ro!er 'or the shi! o,ner to send a notice o' abandonment to the insurance com!any? 89!lain(
SUGGESTED ANSWER:

;o- it ,as not !ro!er 'or the shi! o,ner to send a notice o' abandonment to the insurance com!any because abandonment can only be a)ailed o' ,hen- in a marine insurance contract- the amount to be e9!ended to reco)er the )essel ,ould ha)e been more than three- 'ourths o' its )alue( Nessel @; >early :hells needed only >2(F @illion- ,hich does not meet the re3uired three- 'ourths o' its )alue to merit abandonment( ":ection 1.F- nsurance &odecited in -riental 1ssurance v0 'ourt of 1ppeals
and ;anama Saiv +ill, 20,0 3o0 9575%, 1ugust 9, #99#"

"2$%

8oss: Total 8oss <nl% ()**2)


An insurance com!any issued a marine insurance !olicy co)erin* a shi!ment by sea 'rom @indoro to Batan*as o' 1-000 !ieces o' @indoro *arden stones a*ainst total loss only( /he stones ,ere loaded in t,o li*hters- the 'irst ,ith =00 !ieces and the second ,ith #00 !ieces( Because o' rou*h seas- dama*e ,as caused the second li*hter resultin* in the loss o' .22 out o' the #00 !ieces( /he o,ner o' the shi!ment 'iled claims a*ainst the insurance com!any on the *round o' constructi)e total loss inasmuch as more than V o' the )alue o' the stones had been lost in one o' the li*hters(

;o- there ,as no Kconstructi)e total lossK because the )essel ,as re'loated and the costs o' re'loatin* !lus the needed re!airs "> 2(F @illion% ,ill not be more than three-'ourths o' the )alue o' the )essel( A constructi)e total loss is one ,hich *i)es to a !erson insured a ri*ht to abandon( ":ec1.1- nsurance &ode% /here ,ould ha)e been a constructi)e total loss had the )essel @; >early :hells su''er loss or needed re'loatin* and re!airs o' more than the re3uired three-'ourths o' its )alue- i(e(more than >.0(0 @illion (Sec0 #$9, /nsurance
'ode, cited in -riental 1ssurance v0 'ourt of 1ppeals and ;anama Saw +ill, 20,0 3o0 9575%, 1ugust 9, #99#"

5o,e)er- the insurance com!any shall !ay 'or the total costs o' re'loatin* and needed re!airs ">2(F @illion%( c% Was it !ro!er 'or the shi! o,ner to send a notice o' abandonment to the insurance com!any? 89!lain(

s the insurance com!any liable under its !olicy? Why?


SUGGESTED ANSWER:

SUGGESTED ANSWER:
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

/he insurance com!any is not liable under its !olicy co)erin* a*ainst total loss only the shi!ment o' 1-000 !ieces o' @indoro *arden stones( /here is no constructi)e total loss that can claimed since the V rule is to be com!uted on the total 1-000 !ieces o' @indoro
*er i!n 1++0,'00- U)dated by

Dondee

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

#56765, -ctober #5, %775"0

*arden stones co)ered by the sin*le !olicy co)era*e (see -riental 1ssurance 'o
v '1 %77 s 559"

Intelle%t4al Pr!)erty
Co$%ri'#t ()**1) What intellectual !ro!erty ri*hts are !rotected by co!yri*ht?
SUGGESTED ANSWER:

(arine 7nsurance2 7m$lie6 Warranties (2000) What ,arranties are im!lied in marine insurance?
SUGGESTED ANSWER:

/he 'ollo,in* ,arranties are im!lied in marine insurance0 1% /hat the shi! is sea,orthy to make the )oya*e andLor to take in certain car*oes 2% /hat the shi! shall not de)iate 'rom the )oya*e insuredH .% /hat the shi! shall carry the necessary documents to sho, nationality or neutrality and that it ,ill not carry any document ,hich ,ill cast reasonable sus!icion thereonH #% /hat the shi! shall not carry contrabandes!ecially i' it is makin* a )oya*e throu*h belli*erent ,aters( (arine 7nsurance2 "eril o& t#e S#i$ s! "eril o& t#e Sea ()**:)
A marine insurance !olicy on a car*o states that the insurer shall be liable 'or losses incident to !erils o' the sea( Durin* the )oya*esea,ater entered the com!artment ,here the car*o ,as stored due to the de'ecti)e drain!i!e o' the shi!( /he insured 'iled an action on the !olicy 'or reco)ery o' the dama*es caused to the car*o( @ay the insured reco)er dama*es? "2$%
SUGGESTED ANSWER:

:ec 2 o' >D #F !ro)ides that &o!yri*ht shall consist in the e9clusi)e ri*ht0

;o( /he !ro9imate cause o' the dama*e to the car*o insured ,as the de'ecti)e drain!i!e o' the shi!( /his is !eril o' the shi!- and not !eril o' the sea( /he de'ect in the drain!i!e ,as the result o' the ordinary use o' the shi!( /o reco)er under a marine insurance !olicy- the !ro9imate cause o' the loss or dama*e must be !eril o' the sea( (utual 7nsurance Com$an%2 Nature 0 De&inition (2004) What is a mutual insurance com!any or association?
SU..ESTE0 ANSWER:

A mutual li'e insurance cor!oration is a coo!erati)e that !romotes the ,el'are o' its o,n members,ith the money collected 'rom amon* themsel)es and solely 'or their o,n !rotection and not 'or !ro'it( @embers are both the insurer and insured( A mutual li'e insurance com!any has no ca!ital stock and relies solely u!on its contributions or !remiums to meet une9!ected losses- contin*encies and e9!enses (,epublic v0 Sunlife, 20,0 3o

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a( to !rintre!rint!ublishco!ydistributemulti!ly- sell and make !hoto*ra!hs- !hoto en*ra)in*s- and !ictorial illustrations o' the ,orksH b( to make any translation or other )ersion or e9tracts or arran*ements or ada!tation thereo'H to dramati4e i' it be a non-dramatic ,orkH to con)ert it into a non-dramatic ,ork i' it be a dramaH to com!lete or e9ecute it i' it be a model or desi*nH c( to e9hibit- !er'orm- re!resent- !roduce or re!roduce the ,ork in any manner or by any method ,hate)er 'or !ro'it or other,iseH i' not re!roduced in co!ies 'or sale- to sell any manuscri!ts or any record ,hatsoe)er thereo'H d( to make any other use or dis!osition o' the ,ork consistent ,ith the la,s o' the land Co$%ri'#t2 Commissione6 Artist ()**1) :olid n)estment 5ouse commissioned @on Blanco and his son :te)e- both noted artists- to !aint a mural 'or the @ain ?obby o' the ne, buildin* o' :olid 'or a contract !rice o' >2m( a% ,ho o,ns the mural? 89!lain b% Who o,ns the co!yri*ht o' the mural? 89!lain(
SUGGESTED ANSWER:

b%6nless there is a sti!ulation to the contrary in the contract- the co!yri*ht shall belon* in +oint o,nershi! to :olid and @on and :te)e( Co$%ri'#t2 Commissione6 Artist (2003) BR and &/ are noted artists ,hose !aintin*s are hi*hly !ri4ed by collectors( Dr( D? commissioned them to !aint a mural at the main lobby o' his ne, hos!ital 'or children( Both a*reed to collaborate on the !ro+ect 'or a total 'ee o' t,o million !esos to be e3ually di)ided bet,een them( t ,as also a*reed that Dr( D? had to !ro)ide all the materials 'or the !aintin* and !ay 'or the ,a*es o' technicians and laborers needed 'or the ,ork on the !ro+ect( Assume that the !ro+ect is com!leted and both BR and &/ are 'ully !aid the amount o' >2@ as artistsC 'ee by D?( 6nder the la, on intellectual !ro!erty- ,ho ,ill o,n the mural? Who ,ill o,n the co!yri*ht in the mural? Why? 89!lain( "2$%
SUGGESTED ANSWER:

a% :olid o,ns the mural( :olid ,as the one ,ho commissioned the artists to do the ,ork and !aid 'or the ,ork in the sum o' >2m
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

6nder :ection 17G(# o' the ntellectual >ro!erty &ode- in case o' commissioned ,ork- the creator "in the absence o' a ,ritten sti!ulation to the contrary% o,ns the co!yri*ht- but the ,ork itsel' belon*s to the !erson ,ho commissioned its creation( Accordin*ly- the mural belon*s to D?( 5o,e)er- BR and &/ o,n the co!yri*ht- since there is no sti!ulation to the contrary( Co$%ri'#t2 7n&rin'ement ()**3)
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Mercantile Law Bar Examination Q & A (1990-2006)

/he Nictoria 5otel chain re!roduces )ideota!es- distributes the co!ies thereo' to its hotels and makes them a)ailable to hotel *uests 'or )ie,in* in the hotel *uest rooms( t char*es a se!arate nominal 'ee 'or the use o' the )ideota!e !layer( 1% &an the Nictoria 5otel be en+oined 'or in'rin*in* co!yri*hts and held liable 'or dama*es? 2% Would it make any di''erence i' Nictoria 5otel does not char*e any 'ee 'or the use o' the )ideota!e?
SUGGESTED ANSWER:

Co$%ri'#t2 7n&rin'ement (2004) n a ,ritten le*al o!inion 'or a client on the di''erence bet,een a!!renticeshi! and learnershi!- ?i4a 3uoted ,ithout !ermission a labor la, e9!ertCs comment a!!earin* in his book entitled KAnnotations on the ?abor &ode(K &an the labor la, e9!ert hold ?i4a liable 'or in'rin*ement o' co!yri*ht 'or 3uotin* a !ortion o' his book ,ithout his !ermission? "2$%
SU..ESTE0 ANSWER:

1% 7es( Nictoria 5otel has no ri*ht to use such )ideo ta!es in its hotel business ,ithout the consent o' the creatorL o,ner o' the co!yri*ht(

2%

;o( /he use o' the )ideota!es is 'or business and not merely 'or home consum!tion( (.ilipino Societ of 'omposers,
1uthors ;ublishers v :an #56 s 5&#< pd #966"

Co$%ri'#t2 7n&rin'ement ()**+)


n an action 'or dama*es on account o' an in'rin*ement o' a co!yri*ht- the de'endant "the alle*ed !irate% raised the de'ense that he ,as una,are that ,hat he had co!ied ,as a co!yri*ht material( Would this de'ense be )alid?
SUGGESTED ANSWER:

;o( An intention to !irate is not an element o' in'rin*ement( 5ence- an honest intention is no de'ense to an action 'or in'rin*ement(
A8TERNAT7>E ANSWER:

7es( /he o,ner o' the co!yri*ht must make others a,are that the material in 3uestion is under or co)ered by a co!yri*ht( /his is done by the *i)in* o' such notice at a !rominent !ortion o' the co!yri*ht material( When the alle*ed !irate is thus made a,are thereo'- his act o' !iratin* the co!y material ,ill constitute in'rin*ement(

Co$%ri'#t2 7n&rin'ement ()**:) Buan Ia)ier ,rote and !ublished a story similar to an un!ublished co!yri*hted story o' @anolin* :antia*o( t ,asho,e)er- conclusi)ely !ro)en that Buan Ia)ier ,as not a,are that the story o' @anolin* :antia*o ,as !rotected by co!yri*ht( @anolin* :antia*o sued Buan Ia)ier 'or in'rin*ement o' co!yri*ht( s Buan Ia)ier liable? "2$%
SUGGESTED ANSWER:

7es( Buan Ia)ier is liable 'or in'rin*ement o' co!yri*ht( t is not necessary that Buan Ia)ier is a,are that the story o' @anolin* :antia*o ,as !rotected by co!yri*ht( /he ,ork o' @anolin* :antia*o is !rotected at the time o' its creation(

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?i4a cannot be held liable 'or in'rin*ement o' co!yri*ht since under the ntellectual >ro!erty &ode- one o' the limitations to the co!yri*ht is the makin* o' 3uotations 'rom a !ublished ,ork 'or !ur!ose o' any +udicial !roceedin*s or 'or *i)in* o' !ro'essorial ad)ice by le*al !ractitioner!ro)ided that the source and name o' the author are identi'ied ":ee :ection 1G#(1WkX o' the ntellectual >ro!erty &ode o' the >hili!!ines%(

2% <raudulent intent is unnecessary in in'rin*ement o' trademark- ,hereas 'raudulent intent is essential in un'air com!etitionH

.% /he

!rior re*istration o' the trademark is a !rere3uisite to an action 'or in'rin*ement o' trademark- ,hereas re*istration o' the trademark is not necessary in un'air com!etition( (Del +onte 'orp v '1
46$%5 Aan %5,97 #6#s5#7"

Co$%ri'#t2 "#otoco$%2 ;#en allo;e6 ()**:) @ay a !erson ha)e !hotoco!ies o' some !a*es o' the book o' >ro'essor Rosario made ,ithout )iolatin* the co!yri*ht la,? ".$%
SUGGESTED ANSWER:

7n&rin'ement s! Un&air Com$etition (2003) n ,hat ,ay is an in'rin*ement o' a trademark similar to that ,hich !ertains to un'air com!etition?
SUGGESTED ANSWER:

7es( /he !ri)ate re!roduction o' a !ublished ,ork in a sin*le co!y- ,here the re!roduction is made by a natural !erson e9clusi)ely 'or research and !ri)ate studyis !ermitted- ,ithout the authori4ation o' the o,ner o' the co!yri*ht in the ,ork( 7n&rin'ement s! Un&air Com$etition ()**4) What is the distinction bet,een in'rin*ement and un'air com!etition?
SUGGESTED ANSWER:

7n&rin'ement2 Juris6iction (2003)


J-F &or!oration- a 'orei*n cor!oration alle*in* itsel' to be the re*istered o,ner o' trademark J-F and lo*o J- 'iled an nter >artes case ,ith the ntellectual >ro!erty A''ice a*ainst Janin &or!oration 'or the cancellation o' the latters mark J-F and lo*o J( Durin* the !endency o' the case be'ore the >A- Janin &or!oration brou*ht suit a*ainst J-F &or!oration be'ore the R/& 'or in'rin*ement and dama*es( &ould the action be'ore the R/& !ros!er? Why?
SUGGESTED ANSWER:

/he distinction bet,een in'rin*ement "!resumably trademark% and un'air com!etition are as 'ollo,s0 1% n'rin*ement o' trademark is the unauthori4ed use o' a trademark,hereas un'air com!etition is the !assin* o'' o' ones *oods as those o' anotherH
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

"atent2 Non?"atenta.le 7n entions (2004)


:u!!osin* Albert 8instein ,ere ali)e today and he 'iled ,ith the ntellectual >ro!erty A''ice " >A% an a!!lication 'or !atent 'or his theory o' relati)ity e9!ressed in the

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

'ormula 8Umc2( /he >A disa!!ro)ed 8insteinCs a!!lication on the *round that his theory o' relati)ity is not !atentable( s the >ACs action correct? "2$%
SU..ESTE0 ANSWER:

in)ention- ,hich has been taken 'rom him and 'raudulently re*istered by <rancis( .% :u!!osin* Boab *ot ,ind o' the in)entions o' his em!loyees and also laid claim to the !atents- assertin* that &e4ar and <rancis ,ere usin* his materials and com!any time in makin* the de)ices- ,ill his claim !re)ail o)er those o' his em!loyees?
SUGGESTED ANSWER:

7es- the >A is correct because under the ntellectual >ro!erty &odedisco)eriesscienti'ic theories and mathematical methods- are classi'ied to be as Knon!atentable in)entions(K 8inteinCs theory o' relati)ity 'alls ,ithin the cate*ory o' bein* a non-!atentable Kscienti'ic theory(K "atents: Gas?Sa in' De ice: &irst to &ile rule (2001)
&e4ar ,orks in a car manu'acturin* com!any o,ned by Boab( &e4ar is 3uite inno)ati)e and lo)es to tinker ,ith thin*s( With the materials and !arts o' the car- he ,as able to in)ent a *as-sa)in* de)ice that ,ill enable cars to consume less *as( <rancis- a co-,orker- sa, ho, &e4ar created the de)ice and like,ise- came u! ,ith a similar *ad*et- also usin* scra! materials and s!are !arts o' the com!any( /herea'ter<rancis 'iled an a!!lication 'or re*istration o' his de)ice ,ith the Bureau o' >atents( 8i*hteen months later- &e4ar 'iled his a!!lication 'or the re*istration o' his de)ice ,ith the Bureau o' >atents(

89!lain(

;o- BoabCs claim cannot !re)ail o)er those o' his em!loyees( n the 'irst !lace- Boab did not commission any o' the t,o em!loyees to in)ent the de)ice- and its

1% s the *as-sa)in* de)ice !atentable? 89!lain(


SUGGESTED ANSWER:

7esthe *as-sa)in* de)ice is !atentable because it !ro)ides a technical solution to a !roblem in a 'ield o' human acti)ity( t is ne, and in)ol)es an in)enti)e ste!- and certainly industrially a!!licable( t there'ore 'ul'ills the re3uisites mandated by the intellectual >ro!erty &ode 'or ,hat is !atentable(
2% Assumin* that it is !atentable- ,ho is entitled to the !atent? What- i' any- is the remedy o' the losin*
SUGGESTED ANSWER:

!arty?

&e4ar is entitled to the !atent because he ,as the real in)entor( <rancis- co!yin* 'rom the ,ork o' &e4ar- cannot claim the essential criteria o' an in)entor- ,ho must !ossess essential elements o' no)eltyori*inality and !recedence to be entitled to !rotection( ;e)erthelessunder the K'irst to 'ile rule-K <rancis a!!lication ,ould ha)e to be *i)en !riority( &e4ar- ho,e)er- has ,ithin three months 'rom the decision- to ha)e it cancelled as the ri*ht'ul in)entorH or ,ithin one year 'rom !ublication- to 'ile an action to !ro)e his !riority to the

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in)ention did not 'all ,ithin their re*ular duties( What !re)ails is the !ro)ision o' the ntellectual >ro!erty &ode that holds that the in)ention belon*s to the em!loyeei' the in)enti)e acti)ity is not a !art o' his re*ular duties- e)en i' he uses the time- 'acilities and materials o' the em!loyer( "atents: 7n&rin'ement2 Reme6ies 0 De&enses ()**3) <erdie is a !atent o,ner o' a certain in)ention( 5e disco)ered that his in)ention is bein* in'rin*ed by Bohann( 1% What are the remedies a)ailable to <erdie a*ainst Bohann? 2% ' you ,ere the la,yer o' Bohann in the in'rin*ement suit- ,hat are the de'enses that your client can assert?
SUGGESTED ANSWER:

d( >atent ,as issued not to the true and actual in)entor- desi*ner or author o' the utility model or the !lainti'' did not deri)e his ri*hts 'rom the true and actual in)entor- desi*ner or author o' the utility model ":ec 2G RA 1=2 as amended%

not com!ly ,ith :ec 1#

1%/he <erdie a( b( c(

'ollo,in* remedies are a)ailable to a*ainst Bohann( sei4e and destroy in+unction dama*es in such amount may ha)e been obtained 'rom the use o' the in)ention i' !ro!erly transacted ,hich can be more than ,hat the in'rin*er "Bohann % recei)ed( d( Attorneys 'ees and cost

"atents2 7n&rin'ement ()**2) n an action 'or in'rin*ement o' !atentthe alle*ed in'rin*er de'ended himsel' by statin* 1% that the !atent issued by the >atent A''ice ,as not really an in)ention ,hich ,as !atentableH 2% that he had no intent to in'rin*e so that there ,as no actionable case 'or in'rin*ementH and .% that there ,as no e9act du!lication o' the !atentees e9istin* !atent but only a minor im!ro)ement( With those de'enses,ould you e9em!t the alle*ed )iolator 'rom liability? Why?
SUGGESTED ANSWER:

2% /hese are the de'enses that can be asserted in an in'rin*ement suit0 a( >atent is in)alid ":ec #2 RA 1=2- as amended% b( >atent is not ne, or !atentable c( :!eci'ication o' the in)ention does
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

,ould not e9em!t the alle*ed )iolator 'rom liability 'or the 'ollo,in* reasons0 1% A !atent once issued by the >atent A''ice raises a !resum!tion that the article is !atentableH it can- ho,e)er be sho,n other,ise ":ec #2 RA 1=2%( A mere statement or alle*ation is not enou*h to destroy that !resum!tion( "1quas v de =eon $7 Aan 6% =8 $%#&7% 2% An intention to in'rin*e is not necessary nor an element in a case 'or in'rin*ement o' a !atent(
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Mercantile Law Bar Examination Q & A (1990-2006)

.% /here is no need o' e9act du!lication o' the !atentees e9istin* !atent such as ,hen the im!ro)ement made by another is merely minor

it is used as a *eneric chemical name in )arious scienti'ic and !ro'essional !ublications( A com!etin* dru* manu'acturer asks you to contest the re*istration o' the brand name A9ilon by /urbo(

/o be inde!endently !atentablean im!ro)ement o' an e9istin* !atented in)ention must be a ma+or im!ro)ement
(.ran( v Benito, (1quas v de =eon =8$%#&7 $7Aan6%"

5#p4#$" (

What ,ill you ad)ice be?


SUGGESTED ANSWER:

"atents2 Ri'#ts o er t#e 7n ention ()**0) &heche in)ented a de)ice that can con)ert rain,ater into automobile 'uel( :he asked @acon- a la,yer- to assist in *ettin* her in)ention !atented( @acon su**ested that they 'orm a cor!oration ,ith other 'riends and ha)e the cor!oration a!!ly 'or the !atent- G0$ o' the shares o' stock thereo' to be subscribed by &heche and 2$ by @acon( /he cor!oration ,as 'ormed and the !atent a!!lication ,as 'iled( 5o,e)er- &heche died . months later o' a heart attack( <ranco- the estran*ed husband o' &hechecontested the a!!lication o' the cor!oration and 'iled his o,n !atent a!!lication as the sole sur)i)in* heir o' &heche( Decide the issue ,ith reasons(
SUGGESTED ANSWER:

/he a!!lication 'or re*istration by /urbo &or!oration may be contested( /he /rademark ?a, ,ould not allo, the re*istration o' a trademark ,hich- ,hen a!!lied to or used in connection ,ith his !roducts- is merely descri!ti)e or dece!ti)ely misdescri!ti)e o' them( &on'usion can result 'rom the use o' A9ilon as the *eneric !roduct itsel'(
A8TERNAT7>E ANSWER:

@edical dru*s may be !rocured only u!on !rescri!tion made by a duly licensed !hysician( /he !ossibility o'

/he estran*ed husband o' &hecke cannot success'ully contest the a!!lication( /he ri*ht o)er in)entions accrue 'rom the moment o' creation and as a ri*ht it can la,'ully be assi*ned( Ance the title thereto is )ested in the trans'eree- the latter has the ri*ht to a!!ly 'or its re*istration( /he estran*ed husband o' &heche- i' not dis3uali'ied to inherit- merely ,ould succeed to the interest o' &heche(
3ote! 1n examinee who answers on the basis of the issue of validit of the transfer of patent as a valid consideration for subscription of the shares of stoc(s should be given due credit0

Tra6emar- ()**0)
n 1FGG- the <ood and Dru* Administration a!!ro)ed the labels submitted by /urbo &or!oration 'or its ne, dru* brand nameA9ilon( /urbo is no, a!!lyin* ,ith the Bureau o' >atents/rademarks and /echnolo*y /rans'er 'or the re*istration o' said brand name( t ,as subse3uently con'irmed that Accilonne is a *eneric term 'or a class o' anti-'un*al dru*s and is used as such by the medical !ro'ession and the !harmaceutical industry- and that

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dece!tion could be rather remote( :ince it cannot really be said that !hysicians can be so easily decei)ed by such trademark as A9ilon- it may be hard to e9!ect an o!!osition thereto to succeed(
AN<TEER ANSWER:

does not include brie's and under,ear ,hich are di''erent !roducts !rotected by ?arber*es trademark( BD can re*ister the trademark >R6/8 to co)er its brie's and under,ear (.aberge
/nc v /1' %#5 s $#&"

/he a!!lication 'or re*istration o' /urbo &or!oration may be contested( /he 'actual settin*s do not indicate that there had been !rior use 'or at least 2 months o' the trademark A9ilon( Tra6emar- ()**3)
?aber*e- nc(- manu'actures and markets a'ter-sha)e lotionsha)in* creamdeodorant- talcum !o,der and toilet soa!usin* the trademark >R6/- ,hich is re*istered ,ith the >hil >atent A''ice( ?aber*e does not manu'acture brie's and under,ear and these items are not s!eci'ied in the certi'icate o' re*istration(

Tra6emar-B Test o& Dominanc% ()**4) What is the test o' dominancy?
SUGGESTED ANSWER:

/he test o' dominancy re3uires that i' the com!etin* trademark contains the main or essential 'eatures o' another and con'usion and dece!tion is likely to resultin'rin*ement takes !lace( Du!lication or imitation is not necessaryH not is it necessary that the in'rin*in* label should su**est an e''ort to imitate( :imilarity in si4e- 'orm and color- ,hile rele)ant- is not conclusi)e( (1sia Brewer v '1 2, #7$55$
Aul5,9$ %%5s5$4"

BD ,ho manu'actures brie's and under,ear- ,ants to kno, ,hetherunder our la,s- he can use and re*ister the trademark >R6/8 'or his merchandise( What is your ad)ice?
SUGGESTED ANSWER:

7es( /he trademark re*istered in the name o' ?aber*e nc co)ers only a'ter-sha)e lotionsha)in* creamdeodorant- talcum !o,der and toilet soa!( t does not co)er brie's and under,ear( /he limit o' the trademark is stated in the certi'icate issued to ?aber*e nc( t
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Tra6emar-2 7n&rin'ement ()**)) :ony is a re*istered trademark 'or /Nstereo- radio- cameras- betama9 and other electronic !roducts( A local com!any- Best @anu'acturin* nc !roduced electric 'ans ,hich it sold under the trademark :ony ,ithout the consent o' :ony( :ony sued Best @anu'acturin* 'or in'rin*ement( Decide the case(
SUGGESTED ANSWER:

/here is no in'rin*ement( n order that a case 'or in'rin*ement o' trademark can !ros!er- the !roducts on ,hich the trademark is used must be o' the same kind( /he electric 'ans !roduced by Best @anu'acturin* cannot
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Mercantile Law Bar Examination Q & A (1990-2006)

be said to be similar to such !roducts as /Nstereo and radio sets or cameras or betama9 !roducts o' :ony(
A8TERNAT7>E ANSWER:

/here is in'rin*ement( ' the o,ner o' a trademark ,hich manu'actures certain ty!es o' *oods could reasonably be e9!ected to en*a*e in the manu'acture o' another !roduct usin* the same trademarkanother !arty ,ho uses the trademark 'or that !roduct can be held liable 'or usin* that trademark( 6sin* this standardin'rin*ement e9ists because :ony can be reasonably e9!ected to use such trademark on electric 'ans(

and that it had been usin* the same in its restaurant business( :han*rila &or!oration counters that it is an a''iliate o' an international or*ani4ation ,hich has been usin* such lo*o and tradename :han*rila 'or o)er 20 years( 5o,e)er:han*rila &or!oration re*istered the tradename and lo*o in the >hili!!ines only a'ter the suit ,as 'iled( Which o' the t,o cor!orations has a better ri*ht to use the lo*o and the tradename? 89!lain(
SUGGESTED ANSWER:

Tra6emar-2 Test o& Dominanc% ()**4) ; &or!oration manu'actures rubber shoes under the trademark Bordann ,hich hit the >hil market in 1FG2- and re*istered its trademark ,ith the Bureau o' >atents- /rademarks and /echnolo*y "B>///% in 1FF0( >J &om!any also manu'actures rubber shoes ,ith the trademark Ba)orski ,hich it re*istered ,ith B>/// in 1F7G( n 1FF2- >J &o ado!ted and co!ied the desi*n o' ; &or!orations Bordann rubber shoes- both as to sha!e and colorbut retained the trademark Ba)orski on its !roducts( @ay >J &om!any be held liable to ; &o? 89!lain(
SUGGESTED ANSWER:

: De)elo!ment &or!oration has a better ri*ht to use the lo*o and the tradenamesince the !rotecti)e bene'its o'

>J &o may be liable 'or un'airly com!etin* a*ainst ; &o( By co!yin* the desi*nsha!e and color o' ; &or!orations Bordann rubber shoes and usin* the same in its rubber shoes trademarked Ba)orski- >J is ob)iously tryin* to !ass o'' its shoes 'or those o' ;( t is o' no moment that he trademark Ba)orski ,as re*istered ahead o' the trademark Bordann( >riority in re*istration is not material in an action 'or un'air com!etition as distin*uished 'rom an action 'or in'rin*ement o' trademark( /he basis o' an action 'or un'air com!etition is con'usin* and misleadin* similarity in *eneral a!!earancenot similarity o' trademarks
('onverse ,ubber 'o v Aacinto ,ubber D ;lastics 'o 2, %45%5 and $7575, 1pr%6,67 94s#56"

Tra6ename: 7nternational A&&iliation (2001) : De)elo!ment &or!oration sued :han*rila &or!oration 'or usin* the : lo*o and the tradename :han*rila( /he 'ormer claims that it ,as the 'irst to re*ister the lo*o and the tradename in the >hili!!ines

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b%

the la, are con'erred by the 'act o' re*istration and not by use( Althou*h :han*rila &or!orationCs !arent had used the tradename and lo*o lon* be'ore- the !rotection o' the la,s ,ill be 'or : De)elo!ment &or!oration because it ,as the 'irst entity to re*ister the intellectual !ro!erties( @o= 7oes t!e "nternat"onal aff"l"at"on of '!angr"la Corporat"on affe.t t!e out.o-e of t!e 7"spute5 89pla"n. )56+
SUGGESTED ANSWER:

sus!ension o' !ayments- assets o' the debtor are more than his liabilities( n insol)ency- the assets o' the debtor are to be con)erted into cash 'or distribution amon* his creditors- ,hile in sus!ension o' !aymentsthe debtor is only askin* 'or time ,ithin ,hich to con)ert his 'ro4en assets into li3uid cash ,ith ,hich to !ay his obli*ations ,hen the latter 'all due(

7nsol enc%: >oluntar% 7nsol enc% (2001)


Aaron- a ,ell-kno,n architect- is su''erin* 'rom 'inancial re)erses( 5e has 'our creditors ,ith a total claim o' >2= @illion( Des!ite his intention to !ay these obli*ations- his current assets are insu''icient to co)er all o' them( 5is creditors are about to sue him( &onse3uently- he ,as constrained to 'ile a !etition 'or insol)ency( "2$%

/he international a''iliation o' :han*rila &or!oration may be critical in the e)ent that its a''iliates or !arent com!any abroad had re*istered in a 'orei*n +urisdiction the tradename and the lo*o( A ,ell-kno,n mark and tradename is sub+ect to !rotection under /reaty o' >aris 'or the >rotection o' ntellectual >ro!erty to ,hich the >hili!!ines is a member(

In !lven%y @ C!r)!rate Re%!very


7nsol enc% s! Sus$ension o& "a%ment ()**:) Distin*uish insol)ency 'rom sus!ension o' !ayments( ".$%
SUGGESTED ANSWER:

a% :ince Aaron ,as merely 'orced by circumstances to !etition the court to declare him insol)ent- can the +ud*e !ro!erly treat the !etition as one 'or in)oluntary insol)ency? 89!lain(
SUGGESTED ANSWER:

a%

n insol)ency- the liabilities o' the debtor are more than his assets- ,hile in

;o( /his is a case 'or )oluntary insol)ency because this ,as 'iled by an insol)ent debtor o,in* debts e9ceedin* the amount o' >1-000(00 under :ection 1# o' the nsol)ency ?a,( 6nder :ection 20 o' the nsol)ency ?a,- the !etition must be 'iled by three or more creditors( n the case at bar- it is Aaron- the debtor- ,ho 'iled the insol)ency !roceedin*s(
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' Aaron is declared an insol)ent by the court- ,hat ,ould be the e''ect- i' anyo' such declaration on

creditors( While his liabilities are ,orth >1(2m- his assets- ho,e)er are ,orth >1(2m( @ay 5oracio be declared insol)ent? "2$%
SUGGESTED ANSWER:

SUGGESTED ANSWER:

his creditors? 89!lain(

A declaration by the court that the !etitioner is insol)ent ,ill ha)e the 'ollo,in* e''ects0 1% /he sheri'' shall take !ossession o' all assets o' the debtor until the a!!ointment o' a recei)er or assi*neeH

;o( 5oracio may not be declared insol)ent( 5is assets ,orth >1(2m are more than his liabilities ,orth >1(2m(

7nsol enc%2 Assi'nees ()**4)


An Bune 1=- 1FF2- Nicente obtained a ,rit o' !reliminary attachment a*ainst &arlito( /he le)y on &arlitos !ro!erty occurred on Bune 22- 1FF2( An Buly 2F- 1FF2- another creditor 'iled a !etition 'or in)oluntary insol)ency a*ainst &arlito( /he insol)ency court *a)e due course to the

2% >ayment to the debtor o' any debts due to him and the deli)ery to the debtor o' any !ro!erty belon*in* to him- and the trans'er o' any !ro!erty by him are 'orbiddenH

.% All ci)il !roceedin*s !endin* a*ainst the insol)ent shall be stayedH and #% @ort*a*es and !led*es are not a''ected by the order declarin* a !erson insol)ent( ":ec( 2Fnsol)ency ?a,%
c% Assumin* that- Aaron has *uarantors 'or his debts- are the *uarantors released 'rom their obli*ations once Aaron is dischar*ed 'rom his debts? 89!lain(
SUGGESTED ANSWER:

;o- !recisely under the !rinci!le o' e9cussion- the liability o' the *uarantors arises only a'ter the e9haustion o' the assets o' the !rinci!al obli*or( /he e''ect o' dischar*e merely con'irms e9haustion o' the assets o' the obli*or a)ailable to his creditors(
A8TERNAT7>E ANSWER:

7es( Article 207= o' the &i)il &ode !ro)ides0 /he obli*ation o' the *uarantor is e9tin*uished at the same time as that o' the debtor- and 'or the same causes as all other obli*ations( d% What remedies are a)ailable to the *uarantors in case they are made to !ay the creditors? 89!lain(

SUGGESTED ANSWER:

6nder Article 20G1- the *uarantor may set u! a*ainst the creditor all the de'enses that !ertain to the !rinci!al debtor( /he dischar*e obtained by Aaron on the !rinci!al obli*ation can no, be used as a de'ense by the *uarantors a*ainst the creditors( /he *uarantors are also entitled to indemnity under Article 20== o' the &i)il &ode( 7nsol enc%2 Assets s! 8ia.ilities ()**:) 5oracio o!ened a co''ee sho! usin* money borro,ed 'rom 'inancial institutions( A'ter . months- 5oracio le't 'or the 6: ,ith the intent o' de'raudin* his

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!etition( n the meantime- the case 'iled by Nicente !roceeded and resulted in a +ud*ment a,ard in 'a)or o' Nicente( @ay the +ud*ment obtained by Nicente be en'orced inde!endently o' the insol)ency !roceedin*s? 89!lain(
SUGGESTED ANSWER:

to himH b% <orbid the trans'er o' any !ro!erty by himH and c% :tay o' all ci)il !roceedin*s a*ainst the insol)ent but 'oreclosure may be allo,ed ":ecs 1G M 2# nsol)ency ?a,% 7nsol enc%2 /rau6ulent "a%ment (2002) As o' Bune 1- 2002- 8d4o :ystems &or!oration "8d4o% ,as indebted to the 'ollo,in* creditors0 a% Ace 83ui!ment :u!!lies E 'or )arious !ersonal com!uters and accessories sold to 8d4o on credit amountin* to >.00-000( b% 5andyman Dara*e E 'or mechanical re!airs "!arts and ser)ice% !er'ormed on 8d4os com!any car amountin* to >10-000( c% Boselyn Reyes E 'ormer em!loyee o' 8d4o ,ho sued 8d4o 'or unla,'ul termination o' em!loyment and ,as able to obtain a 'inal +ud*ment a*ainst 8d4o 'or >100-000( d% Bureau o' nternal Re)enue E 'or un!aid )alue- added ta9es amountin* to >.0-000( e% nte*rity Bank E ,hich *ranted 8d4o a loan in 2001 in the amount o' >200-000( /he loan ,as not secured by any asset o' 8d4o- but it ,as *uaranteed unconditionally and solidarily by 8d4os >resident and controllin* stockholder- 8duardo P( An*- as accommodation surety(
/he loan due to nte*rity Bank 'ell due on Bune 12- 2002( Des!ite !leas 'or e9tension o' !ayment by 8d4o- the
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/he +ud*ment obtained by Nicente can be en'orced inde!endently o' the insol)ency !roceedin*s( 6nder :ec .2 o' the nsol)ency ?a,- the assi*nment to the assi*nee o' all the real and !ersonal !ro!erty- estate and e''ects o' the debtor made by the clerk o' the court shall )acate and set aside any +ud*ment entered in any action commenced ,ith .0 days immediately !rior to the commencement o' insol)ency !roceedin*s( n this case- ho,e)er- the action 'iled by Nicente a*ainst &arlito ,as commenced by Nicente not later than Bune 1=- 1FF2 "the 'acts on this !oint are not clear% ,hen Nicente obtained a ,rit o' !reliminary attachment a*ainst &arlito or more than .0 days be'ore the !etition 'or in)oluntary insol)ency ,as 'iled a*ainst &arlito by his other creditors( "i(e( on Buly 2F1FF2% (,adiola8:oshiba ;hil v /1' 2, 45%%%
Aul #6,9# #99s$4$"

7nsol enc%2 E&&ect2 Declaration o& 7nsol enc% ()**)) What are the e''ects o' a +ud*ment in insol)ency in Noluntary nsol)ency cases?
SUGGESTED ANSWER:

/he ad+udication or declaration o' insol)ency by the court- a'ter hearin* or de'ault- shall ha)e the 'ollo,in* e''ects0 a% <orbid the !ayment to the debtor o' any debt due to him and the deli)ery to him o' any !ro!erty belon*in*
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Mercantile Law Bar Examination Q & A (1990-2006)

bank demanded immediate !ayment( Because the bank threatened to !roceed a*ainst the surety- 8duardo P( An*8d4o decided to !ay u! all its obli*ations to nte*rity Bank( An Bune 202002- 8d4o !aid to nte*rity Bank the 'ull !rinci!al amount o' >200-000- !lus accrued interests amountin* to >22-000( As a result- 8d4o had hardly any cash le't 'or o!erations and decided to close its business( A'ter !ayin* the un!aid salaries o' its em!loyees- 8d4o 'iled a !etition 'or insol)ency on Buly 1- 2002( n the insol)ency !roceedin*s in courtthe assi*nee in insol)ency sou*ht to in)alidate the !ayment made by 8d4o to nte*rity Bank 'or bein* a 'raudulent trans'er because it ,as made ,ithin .0 days be'ore the 'ilin* o' the insol)ency !etition( n de'ensente*rity Bank asserted that the !ayment to it ,as 'or a le*itimate debt that ,as not co)ered by the !rohibition because it ,as a )aluable !ecuniary consideration made in *ood 'aith- thus 'allin* ,ithin the e9ce!tion s!eci'ied in the nsol)ency ?a,( As +ud*e in the !endin* insol)ency caseho, ,ould you decide the res!ecti)e contentions o' the assi*nee in insol)ency and o' nte*rity Bank? 89!lain "2$%
SUGGESTED ANSWER:

the ordinary courts- rather than :8&s +urisdiction o)er such con'ined only to !etitions cor!orations and !artnershi!s re*ulatory !o,ers(

the :8&( cases is 'iled by under its

b% nstead o' sellin* !ro'it !artici!ation certi'icates,ould ur*e Berry to enter into a !artnershi! or to incor!orate in order to raise cash 'or his business(
A8TERNAT7>E ANSWER:

b% Berry may sell !ro'it !artici!ation certi'icates to his brothers and sisters ,ithout re*isterin* the same ,ith the :8& because his sale is an e9em!ted transaction bein* isolated and not a sale to the !ublic( 7nsol enc%2 o.li'ations t#at sur i e ()**+)

/he contention o' the assi*nee in insol)ency is correct( /he !ayment made by 8d4o to nte*rity Bank ,as a 'raudulent !re'erence or !ayment- bein* made ,ithin thirty ".0% days be'ore the 'ilin* o' the insol)ency !etition( 7nsol enc%2 Juris6iction2 Sole "ro$rietors#i$ ()**0) Ane day Berry 5a,- doin* business under the name :tarli*ht 8nter!rise- a sole !ro!rietorshi!- 'inds himsel' short on cash and unable to !ay his debts as they 'all due althou*h he has su''icient !ro!erty to co)er such debts( 5e asks you- as his retained counsel- 'or ad)ice on the 'ollo,in* 3ueries0 a% :hould he 'ile a !etition ,ith the :8& to be declared in a state o' sus!ension o' !ayments in )ie, o' the said 'inancial condition he 'aces? 89!lain your ans,er(
b% :hould he sell !ro'it !artici!ation certi'icates to his 10 brothers and sisters in order to raise cash 'or his

business? 89!lain(
SUGGESTED ANSWER:

a% ,ould counsel Berry to 'ile the >etition 'or :us!ension o' >ayment ,ith

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An insol)ent debtor- a'ter la,'ul dischar*e 'ollo,in* an ad+udication o' insol)ency- is released 'rom- *enerally- all debts- claimsliabilities and demands ,hich are or ha)e been !ro)ed a*ainst his estate( Di)e 2 obli*ations o' the insol)ent debtor to sur)i)e(
SUGGESTED ANSWER:

7nsol enc%2 >oluntar% s! 7n oluntar% Sol enc% ()**1) Distin*uish bet,een )oluntary insol)ency and in)oluntary insol)ency(
SUGGESTED ANSWER:

/he 2 obli*ations o' the insol)ent debtor that sur)i)e are as 'ollo,s0 1( /a9es and assessments due the *o)ernment- national or localH 2( Abli*ations arisin* 'rom embe44lement or 'raudH .( Abli*ation o' any !erson liable ,ith the insol)ent debtor 'or the same debt- either as a solidary co- debtorsurety- *uarantor- !artner- indorser or other,ise( #( Alimony or claim 'or su!!ortH and 2( Debts not !ro)able a*ainst the estate "such as a'ter- incurred obli*ations% o'or not included in the schedule submitted by- the insol)ent debtor( 7nsol enc%2 >oluntar% 7nsol enc% "rocee6in' ()**)) s the issuance o' an order- declarin* a !etition in a Noluntary nsol)ency !roceedin* insol)ent- mandatory u!on the court?
SUGGESTED ANSWER:

n )oluntary insol)ency- it is the debtor himsel' ,ho 'iles the !etition 'or insol)ency,hile in in)oluntary insol)ency- at least . creditors are the ones ,ho 'ile the !etition 'or insol)ency a*ainst the insol)ent debtor(
A8TERNAT7>E ANSWER:

/he 'ollo,in* are the distinctions0 1( n in)oluntary insol)ency- . or more creditors are re3uired- ,hereas in )oluntary insol)encyone creditor may be su''icientH 2( n in)oluntary insol)encythe creditors must be residents o' the >hili!!ines,hose credits or demand accrued in the >hili!!ines- and none o' the creditors has become a creditor by assi*nment ,ithin .0 days !rior to the 'ilin* o' the !etition,hereas in )oluntary insol)ency- these are not re3uired( .( n in)oluntary insol)ency- the debtor must ha)e done any o' the acts o' insol)ency as enumerated by :ec 20,hereas in )oluntary insol)ency- the debtor must not ha)e done any o' said acts(
#( n in)oluntary insol)encythe amount o' indebtedness must not be less than >1-000 ,hereas in )oluntary insol)ency- it must e9ceed >1-000(

Assumin* that the !etition ,as in due 'orm and substance and that the assets o' the !etitioner are less than his liabilitiesthe court must ad+udicate the insol)ency ":ec 1G nsol)ency ?a,%

2(

n in)oluntary insol)encythe !etition must be accom!anied by a bond,hereas such is not re3uired in )oluntary insol)ency(
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Mercantile Law Bar Examination Q & A (1990-2006)

8a; on Cor$orate Reco er% (2003)


I &or!oration a!!lied 'or its rehabilitation and submitted a rehabilitation !lan ,hich called 'or the entry by it into a +oint )enture a*reement ,ith 7 &or!oration( 6nder the a*reement- 7 &or!oration ,as to lend to I &or!oration its credit 'acilities ,ith certain banks to obtain 'unds not only to o!erate I &or!oration but also 'or a !art thereo' in the amount o' >1 million as initial de!osit in a sinkin* 'und to be au*mented annually in amounts e3ui)alent to 10$ o' the yearly income 'rom its o!eration o' the business o' I &or!oration( <rom this 'und the creditors o' I &or!oration ,ere to be !aid annuallystartin* 'rom the second year o' o!erations- ,ith the entire indebtedness to be li3uidated in 12 years( /he creditors o' I &or!oration ob+ected to the !lan because 7 &or!oration ,ould be takin* o)er the business and assets o' I &or!oration( &ould the court a!!ro)e the !lan des!ite the ob+ections o' the creditors o' I &or!oration and could the creditors be com!elled to 'ollo, the !lan? &ould 7 &or!oration- in mana*in* the business o' I &or!oration in the meantimebe deemed to ha)e taken-o)er I &or!oration itsel'? "=$%
SUGGESTED ANSWER:

and .inance 'orp v0 'ourt of #7477%, -ctober 4,#995"(

1ppeals, 20 ,0 3o0

Sus$ension o& "a%ment s! 7nsol enc% ()**1) Distin*uish bet,een sus!ension !ayments and insol)ency(
SUGGESTED ANSWER:

o'

n sus!ension o' !ayments- the debtor is not insol)ent( 5e only needs time ,ithin ,hich to con)ert his assetLs into cash ,ith ,hich to !ay his obli*ations ,hen they 'all due( n the case o' insol)ency- the debtor is insol)ent- that is- his assets are less than his liabilities(
A8TERNAT7>E ANSWER:

/he 'ollo,in* are the distinctions0

Re#a.ilitation2 Sta% <r6er (2004) /he Blue :tar &or!oration 'iled ,ith the Re*ional /rial &ourt a !etition 'or rehabilitation on the *round that it 'oresa, the im!ossibility o' !ayin* its obli*ations as they 'all due( <indin* the !etition su''icient in 'orm and substance- the court issued an Arder a!!ointin* a rehabilitation recei)er and stayin* the en'orcement o' all claims a*ainst the cor!oration( 3!at "s t!e rat"onale for t!e 'tay %r7er5 )56+
SU..ESTE0 ANSWER:

/he !ur!ose o' the stay order is intended to *i)e the mana*ement committee or rehabilitation recei)er the lee,ay to make the business )iable a*ain- ,ithout ha)in* to di)ert attention and resources to liti*ation in )arious 'ora (;hilippine 1irlines v0 Spouses
@urang(ing, et al, 20,0 3o0 #5&&96, September %5, %77%< B. Eomes, /nc0 v0 'ourt of 1ppeals, 20,0 3os0 4&649 D 44#5$, -ctober $, #997< ,ubberworld N;hils0O /nc0 v0 3=,', 20,0 3o0 #%&44$, 1pril #5, #999< SobreJuanite v0 1SB Dev0 'orp0, 20,0 3o0 #&5&45, September $7, %775"0 t also !re)ents a creditor 'rom

obtainin* an ad)anta*e or !re'erence o)er another ,ith res!ect to actions a*ainst the cor!oration (.inasia /nvestments

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1(

2(

n sus!ension o' !ayments- the debtor has su''icient !ro!erty to co)er all his debts but 'oresees the im!ossibility o' meetin* them ,hen they res!ecti)ely 'all due,hereas- in insol)ency- the debtor does not ha)e su''icient !ro!erty to !ay all his debts in 'ullH

control o' the cor!oration and all its assets and liabilities- earnin*s and o!erationsand to determine the 'easibility o' continuin* o!erations and rehabilitatin* the com!any 'or the bene'it o' in)estors and creditors( Denerally- the unsecured creditors had mani'ested ,illin*ness to coo!erate ,ith Debtor &or!oration( /he secured creditors- ho,e)er- e9!ressed serious ob+ections and reser)ations( <irst Bank had already initiated +udicial 'oreclosure !roceedin*s on the mort*a*e constituted on the 'actory o' Debtor &or!oration(
:econd Bank had already initiated 'oreclosure !roceedin*s on a third-!arty mort*a*e constituted on certain assets o' the !rinci!al stockholders(

n sus!ension o' !aymentsthe !ur!ose is to sus!end or delay !ayment o' debts ,hich remain una''ected althou*h a !ost!onement o' !ayment is declared,hereasin insol)ency- the ob+ect is to obtain dischar*e 'rom all debts and liabilityH

.(

n sus!ension o' !ayments- no limit 'or the amount o' indebtedness is re3uired- ,hereas- in insol)ency- the debts must e9ceed >1-000 in case o' )oluntary insol)ency- or must not be less than >1-000 in case o' in)oluntary insol)ency(

Sus$ension o& "a%ments s! Sta% <r6er (2003) Distin*uish the stay order in cor!orate rehabilitation 'rom a declaration in a state o' sus!ension o' !ayments? "#$%
SUGGESTED ANSWER:

/hird Bank had already 'iled a suit a*ainst the !rinci!al stockholders ,ho had held themsel)es liable +ointly and se)erally 'or the loans o' Debtor &or!oration ,ith said Bank( A'ter hearin*- the :8& directed the a!!ointment o' a rehabilitation recei)er and ordered the sus!ension o' all actions and claims a*ainst the Debtor cor!oration as ,ell as a*ainst the !rinci!al stockholders( a% Discuss the )alidity o' the :8& order or sus!ension? "2$%

Sus$ension o& "a%ments2 Re#a.ilitation Recei er ()***) Debtor &or!oration and its !rinci!al stockholders 'iled ,ith the :ecurities and 89chan*e &ommission ":8&% a !etition 'or rehabilitation and declaration o' a state o' sus!ension o' !ayments under >D F02-A( /he ob+ecti)e ,as 'or :8& to take

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

b% Discuss the e''ects o' the :8& order o' sus!ension on the +udicial 'oreclosure !roceedin*s initiated by <irst Bank( "2$% c% Would the order o' sus!ension ha)e any e''ect on the 'oreclosure !roceedin*s initiated by :econd Bank? 89!lain "2$% d% Would the order o' sus!ension ha)e any e''ect on the suit 'iled by /hird Bank? 89!lain( "2$% e% What are the le*al conse3uences o' a rehabilitation recei)ershi!? "2$% '% What measures may the recei)er take to !reser)e the assets o' Debtor &or!oration? "2$%
SUGGESTED ANSWER:

o' sus!ension o' !ayments sus!ended the suit 'iled by /hird Bank a*ainst the !rinci!al stockholders(
A8TERNAT7>E ANSWER:

d( /he action a*ainst the !rinci!al stockholders surety in 'a)or o' the cor!oration is not sus!ended as it is not an action a*ainst the cor!oration but a*ainst the stockholders ,hose !ersonality is se!arate 'rom that o' the cor!oration(
SUGGESTED ANSWER:

e( 6nder >D F02A- the a!!ointment o' a rehabilitation recei)er ,ill sus!end all actions 'or claims a*ainst the cor!oration and the cor!oration ,ill be !laced under

a( /he :8& order o' sus!ension o' !ayment is )alid ,ith res!ect to the debtor cor!oration- but not ,ith res!ect to the !rinci!al stockholders( /he :8& has +urisdiction to declare sus!ension o' !ayments ,ith res!ect to cor!orations- !artnershi! or associationsbut not ,ith res!ect to indi)iduals(
SUGGESTED ANSWER:

b( /he :8& order o' sus!ension o' !ayment sus!ended the +udicial !roceedin*s initiated by the <irst Bank( Accordin* to the :u!reme &ourt in a line o' cases- the sus!ension order a!!lies to secured creditors and to the action to en'orce the security a*ainst the cor!oration re*ardless o' the sta*e thereo'(
SUGGESTED ANSWER:

c( /he order o' sus!ension o' !ayments sus!ended the 'oreclosure !roceedin*s initiated by the :econd Bank( While the 'oreclosure is a*ainst the !ro!erty o' a third !arty- it is in reality an action to collect the !rinci!al obli*ation o,ned by the cor!oration( Durin* the time that the !ayment o' the !rinci!al obli*ation is sus!endedthe debtor cor!oration is considered to be not in de'ault andthere'ore- e)en the ri*ht to en'orce the security- ,hether o,ned by the debtorcor!oration or o' a third !arty- has not yet arisen(
A8TERNAT7>E ANSWER:

c( /he sus!ension order does not a!!ly to a third !arty mort*a*e because in such a case- the credit is not yet bein* en'orced a*ainst the cor!oration but a*ainst the third !arty mort*a*ors !ro!erty(
SUGGESTED ANSWER:

d( <or the same reason as in "c%- the order

Page

-3 of 103
8etter o& Cre6it: (ort'a'e (2001) Ricardo mort*a*ed his 'ish!ond to A& Bank to secure a >1 @illion loan( n a se!arate transaction- he o!ened a letter o' credit ,ith the same bank 'or O200-000(00 in 'a)or o' 5: Bank- a 'orei*n bank- to !urchase outboard motors( ?ike,iseRicardo e9ecuted a :urety A*reement in 'a)or o' A& Bank( /he outboard motors arri)ed and ,ere deli)ered to Ricardo- but he ,as not able to !ay the !urchase !rice thereo'( a% &an A& Bank take !ossession o' the outboard motors? Why?
b% &an A& Bank also mort*a*e o)er the 'oreclose the

rehabilitation in accordance ,ith a rehabilitation !lan a!!ro)ed by the :8&(


SUGGESTED ANSWER:

'( /o !reser)e the assets o' the Debtor &or!oration- the recei)er may take custody o'- and control o)er- all the e9istin* assets and !ro!erty o' the cor!orationH e)aluate e9istin* assets and liabilities- earnin*s and o!erations o' the cor!orationH and determine the best ,ay to sal)a*e and !rotect the interest o' the in)estors and creditors(

Sus$ension o& "a%ments2 Reme6ies (2003) When is the remedy o' declaration in a state o' sus!ension o' !ayments a)ailable to a cor!oration?
SUGGESTED ANSWER:

'ish!ond? 89!lain( "2$%


SUGGESTED ANSWER:

"!er dondee% /his remedy is a)ailable to a cor!oration ,hen it e9!eriences inability to !ay oneCs debts and liabilities- and ,here the !etitionin* cor!oration either0

1( has su''icient !ro!erty to co)er all its debts but 'oresees the im!ossibility o' meetin* them ,hen they 'all due "sol)ent but illi3uid% or

2( has no su''icient !ro!erty "insol)ent% but is under the mana*ement o' a rehabilitation recei)er or a mana*ement committee- the a!!licable la, is >(D( ;o( F02-A !ursuant to :ec( 2 !ar(

a% ;o- 'or A& Bank has no le*al standin*much less a lien- on the outboard motors( nso'ar as A& Bank is concerned- it has !ri)ity ,ith the !erson o' Ricardo under the :urety A*reement- and a lien on the 'ish!ond based on the real estate mort*a*e constituted therein( b% 7es- but only to en'orce !ayment o' the !rinci!al loan o' >1million secured by the real estate mort*a*e on the 'ish!ond 8etter o& Cre6it2 Certi&ication &rom Consi'nee ()**3)

Letter !" Credit


*er i!n 1++0,'003 Arranged by SULAW Cla '00(

*er i!n 1++0,'00- U)dated by

Dondee

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

must be e9!ressed( (.eati Ban( v '1 #9& s 54&"

BN a*reed to sell to A&- a :hi! and @erchandise Broker- 2-200 cubic meters o' lo*s at O27 !er cubic meter <AB( A'ter ins!ectin* the lo*s- &D issued a !urchase order(
An the arran*ements made u!on instruction o' the consi*nee5M/ &or!oration o' ?A- &ali'ornia- the :> Bank o' ?A issued an irre)ocable letter o' credit a)ailable at si*ht in 'a)or o' BN 'or the total !urchase !rice o' the lo*s( /he letter o' credit ,as mailed to <8 Bank ,ith the instruction to 'or,ard it to the bene'iciary( /he letter o' credit !ro)ided that the dra't to be dra,n is on :> Bank and that it be accom!anied by- amon* other thin*sa certi'ication 'rom A&- statin* that the lo*s ha)e been a!!ro)ed !rior shi!ment in accordance ,ith the terms and conditions o' the !urchase order( Be'ore loadin* on the )essel chartered by A&- the lo*s ,ere ins!ected by custom ins!ectors and re!resentati)es o' the Bureau o' <orestry- ,ho certi'ied to the *ood condition and e9!ortability o' the lo*s( A'ter the loadin* ,as com!leted- the &hie' @ate o' the )essel issued a mate recei!t o' the car*o ,hich stated that the lo*s are in *ood condition( 5o,e)er- A& re'used to issue the re3uired certi'ication in the letter o' credit( Because o' the absence o' certi'ication- <8 Bank re'used to ad)ance !ayment on the letter o' credit(

8etters o& Cre6it2 8ia.ilit% o& a con&irmin' an6 noti&%in' .an- ()**3) n letters o' credit in bankin* transactionsdistin*uish the liability o' a con'irmin* bank 'rom a noti'yin* bank(
SUGGESTED ANSWER:

n case anythin* ,ron* ha!!ens to the letter o' credit- a con'irmin* bank incurs liability 'or the amount o' the letter o' credit- ,hile a noti'yin* bank does not incur any liability( 8etters o& Cre6it2 8ia.ilit% o& a Noti&%in' ,an- (2003) a% What liability- i' any is incurred by an ad)isin* or noti'yin* bank in a letter o' credit transaction?

1%@ay <e Bank be held liable under the letter o' credit? 89!lain( 2%6nder the 'acts abo)e- the seller- BNar*ued that <8 Bank- by acce!tin* the obli*ation to noti'y him that the irre)ocable letter o' credit has been transmitted to it on his behal'has con'irmed the letter o' credit( &onse3uently- <8 Bank is liable under the letter o' credit( s the ar*ument tenable? 89!lain(
SUGGESTED ANSWER:

1% ;o( /he letter o' credit !ro)ides as a


condition a certi'ication o' A&( Without such certi'ication- there is no obli*ation on the !art o' <8 Bank to ad)ance !ayment o' the letter o' credit( (.eati Ban( v '1
#9& S 54&"

2%

;o( <8 Bank may ha)e con'irmed the letter o' credit ,hen it noti'ied BN- that an irre)ocable letter o' credit has been transmitted to it on its behal'( But the conditions in the letter o' credit must 'irst be com!lied ,ith- namely that the dra't be accom!anied by a certi'ication 'rom A&( <urther- con'irmation o' a letter o' credit

Page SUGGESTED ANSWER:

-+ of 103

t incurs no liability unless it is also the ne*otiatin* bank


b% Bra)o Bank recei)ed 'rom &isco Bank by re*istered mail an irre)ocable letter o' credit issued by Delta Bank 'or the account o' 7 &om!any in the amount o' 6:O10-000-000 to co)er the sale o' canned 'ruit +uices( /he bene'iciary o' the letter o' credit ,as I &or!oration ,hich later on !artially a)ailed itsel' o' the letter o' credit by submittin* to Bra)o Bank all documents relati)e to the shi!ment o' the cans o' 'ruit +uices( Bra)o Bank !aid I &or!oration 'or its !artial a)ailment( ?ater- ho,e)er- it re'used 'urther a)ailment because o' sus!icions o' 'raud bein* !racticed u!on it and- instead - sued I &or!oration to reco)er ,hat it had !aid the latter( 5o, ,ould you rule i' you ,ere the +ud*e to decide the
SUGGESTED ANSWER:

1% Bet,een the a!!licantLbuyerLim!orter and the bene'iciaryLsellerLe9!orter E /he a!!licantLbuyerLim!orter is the one ,ho !rocures the letter o' credit and obli*es himsel' to reimburse the issuin* bank u!on recei!t o' the documents o' title,hile the bene'iciaryLsellerLe9!orter is the one ,ho in com!liance ,ith the contract o' sale shi!s the *oods to the buyer and deli)ers the documents o' title and dra't to the issuin* bank to reco)er !ayment 'or the *oods( /heir relationshi! is *o)erned by the contract o' sale(

contro)ersy? "=$%

2% Bet,een the issuin* bank and the bene'iciaryLsellerLe9!orter E /he issuin* bank is the one that issues the letter o' credit and undertakes to !ay the seller u!on recei!t o' the dra't and !ro!er documents o' title and to surrender the documents to the buyer u!on reimbursement( /heir relationshi! is *o)erned by the terms o' the letter o' credit issued by the bank( .% Bet,een the issuin* bank and the a!!licantLbuyerLim!orter E /heir relationshi! is *o)erned by the terms o' the a!!lication and a*reement 'or the issuance o' the letter o' credit by the bank(

8etters o& Cre6it2 T#ree Distinct Contract Relations#i$s (2002) 89!lain the three ".% distinct but intert,ined contract relationshi!s that are indis!ensable in a letter o' credit transaction(
SUGGESTED ANSWER:

/he three ".% distinct but intert,ined contract relationshi!s that are indis!ensable in a letter o' credit transaction are0
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Maritime C!mmer%e
A era'e2 "articular A era'e s! General A era'e (2003)
*er i!n 1++0,'00- U)dated by

Dondee

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

@LN lo* de @anila ,ith a car*o o' 200 tons o' iron ore le't the >ort o' Pamboan*a &ity bound 'or @anila( <or one reason or another- @LN lo* de @anila hit a submer*ed obstacle causin* it to sink alon* ,ith its car*o( A sal)or- :al)adornc(- ,as contracted to re'loat the )essel 'or >1 @illion( What kind o' a)era*e ,as the re'loatin* 'ee o' >1 million- and 'or ,hose account should it be? Why? "#$%
SUGGESTED ANSWER:

>articular A)era*e( /he o,ner o' the )essel shall shoulder the a)era*e( Denerally s!eakin*- sim!le or !articular a)era*es include all e9!enses and dama*es caused to the )essel or car*o ,hich ha)e not inured to the common bene'it "Art( G0F- and are- there'ore- to be borne only by the o,ner o' the !ro!erty ,hich *a)e rise to the same "Art( G10% ,hile *eneral or *ross a)era*es include Kall the dama*es and e9!enses ,hich are deliberately caused in order to sa)e the )essel- its car*o- or both at the same time- 'rom a real and kno,n riskK "Art( G11%( Bein* 'or the common bene'it- *ross a)era*es are to be borne by the o,ners o' the articles sa)ed "Art( G12%( n the !resent case there is no !roo' that the )essel had to be !ut a'loat to sa)e it 'rom an imminent dan*er(

Carria'e o& Goo6s: De iation: 8ia.ilit% (2001) An a clear ,eather- @LN :undo- carryin* insured car*o- le't the !ort o' @anila bound 'or &ebu( While at sea- the )essel encountered a stron* ty!hoon 'orcin* the ca!tain to steer the )essel to the nearest island ,here it stayed 'or se)en days( /he )essel ran out o' !ro)isions 'or its !assen*ers( &onse3uently- the )essel !roceeded to ?eyte to re!lenish its su!!lies( Assumin* that the car*o ,as dama*ed because o' such de)iation- ,ho bet,een the insurance com!any and the o,ner o' the car*o bears the loss? 89!lain(
SUGGESTED ANSWER:

,ottomr% ()**3)
Di*i obtained a loan 'rom Bo+o &or!oration!ayable in installments( Di*i e9ecuted a chattel mort*a*e in 'a)or o' Bo+o ,hereby she trans'erred in 'a)or o' Bo+o- its successors and assi*ns- all her title- ri*hts ((( to a )essel o' ,hich Di*i is the absolute o,ner( /he chattel mort*a*e ,as re*istered ,ith the >hili!!ine &oast Duard !ursuant to >D 1221( Di*i de'aulted and had a total accountability o' >.@( But Bo+o could not 'oreclose the mort*a*e on the )essel because it sank durin* a ty!hoon(

@ean,hile- ?utan* &or!oration ,hich rendered sal)a*e ser)ices 'or re'loatin* the )essel sued Di*i( Whose lien should be *i)en !re'erencethat o' Bo+o or ?utan*?
SUGGESTED ANSWER:

?utan* &or!orations lien should be *i)en !re'erence( /he lien o' Bo+o by )irtue o' a loan o' bottomry ,as e9tin*uished ,hen the )essel sank( 6nder such loan on bottomry Bo+o acted not only as creditor but also as insurer( Bo+os ri*ht to reco)er the amount o' the loan is !redicated on the sa'e arri)al o' the )essel at the !ort o' destination( /he ri*ht ,as lost ,hen the )essel sank ":ec 17 >D 1221%

Page

20 of 103

/he insurance com!any should bear the loss to the car*o because the de)iation o' the )essel ,as !ro!er in order to a)oid a !eril,hich ,as the stron* ty!hoon( /he runnin* out o' !ro)isions ,as a direct conse3uence o' the !ro!er de)iation in order to a)oid the !eril o' the ty!hoon(
A8TERNAT7>E ANSWER:

/he o,ner o' the car*o bears the loss because in the case at bar- they stayed too lon* at the island- makin* it an im!ro!er de)iation( 8)ery de)iation not s!eci'ied in :ec( 12# is im!ro!er( ":ec( 122- nsurance &ode% Carria'e o& Goo6s2 De iation2 W#en "ro$er (2001) 6nder ,hat circumstances can a )essel !ro!erly !roceed to a !ort other than its !ort o' destination? 89!lain( "#$%
SUGGESTED ANSWER:

:tar :hi!!in* ?ines acce!ted 100 cartons o' sardines 'rom @aster to be deli)ered to 222 &om!any in @anila( Anly GG cartons ,ere deli)ered- ho,e)er- these ,ere in bad condition( 222 &om!any claimed 'rom :tar :hi!!in* ?ines the )alue o' the missin* *oods- as ,ell as the dama*ed *oods( :tar :hi!!in* ?ines re'used because the 'ormer 'ailed to !resent a bill o' ladin*( Resol)e ,ith reasons the claim o' 222 &om!any( "#$%
SUGGESTED ANSWER:

De)iation is !ro!er0 a% ,hen caused by circumstances o)er ,hich neither the master nor the o,ner o' the shi! has any controlH b% ,hen necessary to com!ly ,ith a ,arranty or a)oid a !eril- ,hether or not the !eril is insured a*ainstH c% ,hen made in *ood 'aith- and u!on reasonable *rounds o' belie' in its necessity to a)oid a !erilH or d% ,hen in *ood 'aith- 'or the !ur!ose o' sa)in* human li'e- or relie)in* another )essel in distress( ":ec( 12#- nsurance &ode% Carria'e o& Goo6s2 E9ercise E9traor6inar% Dili'ence (2001)
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

/he claim o' 222 &om!any is meritoriouse)en i' it 'ails to !resent a bill o' ladin*( Althou*h a bill o' ladin* is the best e)idence o' the contract o' carria*e 'or car*one)ertheless such contract can e9ist e)en ,ithout a bill o' ladin*( ?ike any other contract- a contract o' carria*e is a meetin* o' minds that *i)es rise to an obli*ation on the !art o' the carrier to trans!ort the *oods( Buris!rudence has held that the moment the carrier recei)es the car*o 'or trans!ort- then its duty to e9ercise e9traordinary dili*ence arises0 ('ia0 +aritima v0 /nsurance 'o0 of 3orth
1merica, 20,0 3o0 =8#69&5, -ctober $7, #9&5< 3egre v0 'abahug Shipping D 'o0, 20,0 3o0 =8 #9&79, 1pril %9, #9&&"
A8TERNAT7>E ANSWER:

:tar :hi!!in* ?ines can re'use to honor 222 &om!anyCs claim 'or the missin* and dama*ed *oods( /he Bill o' ?adin* is the document o' title that le*ally establishes the o,nershi! o' 222 &om!any o)er said *oods( 222 needs to !resent the Bill o' ?adin* to le*ally claim said *oods(
(3ational Mnion .ire /nsurance of ;ittsburg v0 Stolt83ielaen, 20,0 3o0 64956, 1pril %&, #997"

C#arter "art% ()**))


*er i!n 1++0,'00- U)dated by

Dondee

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

/he :aad De) &o enters into a )oya*e charter ,ith I7P o)er the latters )esselthe @N ?ady?o)e( Be'ore the :aad could load it- I7P sold ?ady ?o)e to Aslob @aritime &o ,hich decided to load it 'or its o,n account( a% @ay I7P :hi!!in* &o )alidly ask 'or the rescission o' the charter !arty? ' socan :aad reco)er dama*es? /o ,hat e9tent? b% ' Aslob did not load it 'or its o,n account- is it bound by the charter !arty?
c% 89!lain the meanin* o' o,ner !ro hac )ice o' the )essel( n ,hat kind o' charter !arty does this obtain?
SUGGESTED ANSWER:

&ommerce- the shi!!in* a*ent is ci)illy liable 'or dama*es in 'a)or o' third !ersons due to the conduct o' the carrierCs ca!tain- and the shi!!in* a*ent can e9em!t himsel' there'rom only by abandonin* the )essel ,ith all his e3ui!ment and the 'rei*ht he may ha)e earned durin* the )oya*e( An the other hand- assumin* there is bareboat charter- the sti!ulation in the charter !arty e9em!tin* the o,ner 'rom liability is not a*ainst !ublic !olicy because the !ublic at lar*e is not in)ol)ed (Eome /nsurance 'o0 v0 1merican
Steamship 1gencies, /nc0, %$ S',1%5 (#9&6"0

C<GSA: "rescri$tion o& ClaimsFActions (2003)


*er i!n 1++0,'003 Arranged by SULAW Cla '00(

a% I7P may ask 'or the rescission o' the charter !arty i'- as in this case- it sold the )essel be'ore the charterer has be*un to load the )essel and the !urchaser loads it 'or his o,n account( :aad may reco)er dama*es to the e9tent o' its losses "Art =GF &ode o' &ommerce% b% ' Aslob did not load ?ady ?o)e 'or its o,n account- it ,ould be bound by the charter !arty- but I7P ,ould ha)e to indemni'y Aslob i' it ,as not in'ormed o' the &harter >arty at the time o' sale( "Art =GF &ode o' &ommerce%

c% /he term A,ner >ro 5ac Nice o' the


Nessel- is *enerally understood to be the charterer o' the )essel in the case o' bareboat or demise charter (=itonJua
Shipping 'o v 3ational SeamenIs Board 2, 5#9#7 #71ug#969"

C#arter "art% (2003)


6nder a charter !arty- IIA /radin* &om!any shi!!ed su*ar to &oca-&ola &om!any throu*h :: ;e*ros :hi!!in* &or!(- insured by &a!itol nsurance &om!any( /he car*o arri)ed but ,ith shorta*es( &oca-&ola demanded 'rom &a!itol nsurance &o( >200(000 in settlement 'or IIA /radin*( /he @@ Re*ional /rial &ourt- ,here the ci)il suit ,as 'iledKabsol)ed the insurance com!any- declarin* that under the &ode o' &ommercethe shi!!in* a*ent is ci)illy liable 'or dama*es in 'a)or o' third !ersons due to the conduct o' the carrierCs ca!tain- and the sti!ulation in the charter !arty e9em!tin* the o,ner 'rom liability is not a*ainst !ublic !olicy( &oca-&ola a!!ealed( Will its a!!eal !ros!er? Reason brie'ly( "2$%
SUGGESTED ANSWER:

;o( /he a!!eal o' &oca-&ola ,ill not !ros!er( 6nder Article 2G7 o' the &ode o'

Page

21 of 103

SUGGESTED ANSWER:

AA entered into a contract ,ith BB thru && to trans!ort ladiesC ,ear 'rom @anila to <rance ,ith transhi!ment at /ai,an( :omeho, the *oods ,ere not loaded at /ai,an on time( 5ence- ,hen the *oods arri)ed in <rance- they arri)ed Ko''-seasonK and AA ,as !aid only 'or one-hal' the )alue by the buyer( AA claimed dama*es 'rom the shi!!in* com!any and its a*ent( /he de'ense o' the res!ondents ,as !rescri!tion( &onsiderin* that the ladiesC ,ear su''ered Kloss o' )alue-K as claimed by AA- should the !rescri!ti)e !eriod be one year under the &arria*e o' Doods by :ea Act- or ten years under the &i)il &ode? 89!lain brie'ly( "2$%
SUGGESTED ANSWER:

a% /he action taken by the local consi*nee has- in 'act- !rescribed( /he !eriod o' one year under the &arria*e o' Doods by :ea Act "&AD:A% is not interru!ted by a ,ritten e9tra+udicial demand( /he !ro)isions o' Art 1122 o' the ;&& merely a!!ly to !rescri!ti)e !eriods !ro)ided 'or in said &ode and not to s!ecial la,s such as &AD:A e9ce!t ,hen other,ise !ro)ided( (Dole v +aritime 'o #56
s ##6"0

/he a!!licable !rescri!ti)e !eriod is ten years under the &i)il &ode( /he one-year !rescri!ti)e !eriod under the &arria*e o' Doods by :ea Act a!!lies in cases o' loss or dama*es to the car*o( /he term KlossK as inter!reted by the :u!reme &ourt in +itsui
-0S0@0 =ines =td0 v0 'ourt of 1ppeals, %64 S',1 $&& (#996"- contem!lates a situation

b% ' the consi*nees action ,ere !redicated on misdeli)ery or con)ersion o' *oods- the !ro)isions o' the &AD:A ,ould be ina!!licable( n these cases- the ;&& !rescri!ti)e !eriods- includin* Art 1122 o' the ;&& ,ill a!!ly (1ng v 'ompania
+aritama #$$ s &77"
*er i!n 1++0,'00- U)dated by Dondee

,here no deli)ery at all ,as made by the carrier o' the *oods because the same had !erished or *one out o' commerce deteriorated or decayed ,hile in transit( n the !resent case- the shi!ment o' ladiesC ,ear ,as actually deli)ered( /he Kloss o' )alueK is not the total loss contem!lated by the &arria*e o' Doods by :ea Act(

C<GSA2 "rescri$tion o& Claims ()**2)


A local consi*nee sou*ht to en'orce +udicially a claim a*ainst the carrier 'or loss o' a shi!ment o' drums o' lubricatin* oil 'rom Ba!an under the &arria*e o' Doods by :ea Act "&AD:A% a'ter the carrier had re+ected its demand( /he carrier !leaded in its Ans,er the a''irmati)e de'ense o' !rescri!tion under the !ro)isions o' said Act inasmuch as the suit ,as brou*ht by the consi*nee a'ter one "1% year 'rom the deli)ery o' the *oods( n turn- the consi*nee contended that the !eriod o' !rescri!tion ,as sus!ended by the ,ritten e9tra+udicial demand it had made a*ainst the carrier ,ithin the one- year !eriod!ursuant to Article 1122 o' the &i)il &ode !ro)idin* that the !rescri!tion o' actions is interru!ted ,hen there is a ,ritten e9tra+udicial demand by the creditors(

a% 5as the action in 'act !rescribed? Why? b% ' the consi*nees action ,ere !redicated on misdeli)ery or con)ersion o' the *oods- ,ould your ans,er be the same? 89!lain brie'ly(

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

C<GSA2 "rescri$tion o& Claims (2000) R& im!orted com!uter motherboards 'rom the 6nited :tates and had them shi!!ed to @anila aboard an ocean- *oin* car*o shi! o,ned by B& :hi!!in* &om!any( When the car*o arri)ed at @anila sea!ort and deli)ered to R&- the crate a!!eared intactH but u!on ins!ection o' the contents- R& disco)ered that the items inside had all been badly dama*ed( 5e did not 'ile any notice o' dama*e or anythin* ,ith anyone- least o' all ,ith B& :hi!!in* &om!any( What he did ,as to !roceed directly to your o''ice to consult you about ,hether he should ha)e *i)en a notice o' dama*e and ho, lon* a time he had to initiate a suit under the !ro)isions o' the &arria*e o' Doods by :ea Act "&A =2%( What ,ould your ad)ice be? "2$%
SUGGESTED ANSWER:

res!ecti)e dama*es( :ince it cannot be determined as to ,hich )essel is at 'ault( /his is the doctrine o' inscrutable 'ault( .( ;o !arty shall be held liable since the cause o' the collision is 'ortuitous e)ent( /he carrier is not an insurer(

Doctrine o& 7nscruta.le /ault ()**+) 89!lain the doctrine in @aritime accidents E Doctrine o' nscrutable <ault

@y ad)ice ,ould be that R& should *i)e notice o' the dama*e sustained by the car*o ,ithin . days and that he has to 'ile the suit to reco)er the dama*e sustained by the car*o ,ithin one year 'rom the date o' the deli)ery o' the car*o to him( C<GSA2 "rescri$ti e "erio6 ()**1) What is the !rescri!ti)e !eriod 'or actions in)ol)in* lost or dama*ed car*o under the &arria*e o' Doods by :ea Act?
SUGGESTED ANSWER:

A;8 78AR a'ter the deli)ery o' the *oods or the date ,hen the *oods should ha)e been deli)ered ":ec ."=%- &AD:A% Doctrine o& 7nscruta.le /ault ()**1) 1(2 )essels comin* 'rom the o!!osite directions collided ,ith each other due to 'ault im!utable to both( What are the liabilities o' the t,o )essels ,ith res!ect to the dama*e caused to them and their car*oes? 89!lain( 2( ' it cannot be determined ,hich o' the t,o )essels ,as at 'ault resultin* in the collision- ,hich !arty should bear the dama*e caused to the )essels and the car*oes? 89!lain( .(Which !arty should bear the dama*e to the )essels and the car*oes i' the cause o' the collision ,as a 'ortuitous e)ent? 89!lain(
SUGGESTED ANSWER:

1( 8ach )essel must bear its o,n dama*e( Both o' them ,ere at 'ault( "Art G27- &ode o' &ommerce%
2( 8ach o' them should bear their

Page SUGGESTED ANSWER:

2' of 103

6nder the doctrine o' inscrutable 'ault- ,here 'ault is established but it cannot be determined ,hich o' the t,o )essels ,ere at 'ault- both shall be deemed to ha)e been at 'ault( Doctrine o& 7nscruta.le /ault ()**:) A se)ere ty!hoon ,as ra*in* ,hen the )essel :: @asdaam collided ,ith @N >rinces( t is conceded that the ty!hoon ,as the ma+or cause o' the collisionalthou*h there ,as a )ery stron* !ossibility that it could ha)e been a)oided i' the ca!tain o' :: @asdaam ,as not drunk and the ca!tain o' the @N >rinces ,as not aslee! at the time o' collisions( Who should bear the dama*es to the )essels and their car*oes? "2$%
SUGGESTED ANSWER:

1% What do you understand o' the rule in)oked by chi? 2% Are there e9ce!tions to the limited liability rule?
SUGGESTED ANSWER:

1%By limited liability rule is meant that the liability o' a shi!o,ner 'or dama*es in case o' loss is limited to the )alue o' the )essel in)ol)ed( 5is other !ro!erties cannot be reached by the !arties entitled to dama*es(
2% 7es( When the shi! o,ner o' the )essel in)ol)ed is *uilty o' ne*li*ence- the limited liability rule does not a!!ly( n such case- the shi! o,ner is liable to the 'ull e9tent o' the dama*es sustained by the a**rie)ed !arties
(+ecenas v '1 #67 s 6$"

/he shi!o,ners o' :: @asdaam and @N >rincess shall each bear their res!ecti)e loss o' )essels( <or the losses and dama*es su''ered by their car*oes both shi!o,ners are solidarily liable( 8imite6 8ia.ilit% Rule ()**3)
/oni- a co!ra dealer- loaded 1000 sacks o' co!ra on board the )essel @N /onichi "a common carrier en*a*ed in coast,ise trade o,ned by chi% 'or shi!ment 'rom >uerto Dalera to @anila( /he car*o did not reach @anila because the )essel ca!si4ed and sank ,ith all its car*o(

8imite6 8ia.ilit% Rule ()**+) 89!lain the doctrine in @aritime accidents E /he Doctrine o' ?imited ?iability
SUGGESTED ANSWER:

6nder the doctrine o' limited liability the e9clusi)ely real and hy!othecary nature o' maritime la, o!erates to limit the liability o' the shi!o,ner to the )alue o' the )essel- earned 'rei*hta*e and !roceeds o' the insurance( 5o,e)er- such doctrine does not a!!ly i' the shi!o,ner and the ca!tain are *uilty o' ne*li*ence( 8imite6 8ia.ilit% Rule ()***)
/hinkin* that the im!endin* ty!hoon ,as still 2# hours a,ay- @N >ioneer le't !ort to sail 'or ?eyte( /hat ,as a miscalculation o' the ty!hoon si*nals by both the shi!*er i!n 1++0,'00- U)dated by

When /oni sued chi 'or dama*es based on breach o' contract- the latter in)oked the limited liability rule(
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

o,ner and the ca!tain as the ty!hoon came earlier and o)ertook the )essel( /he )essel sank and a number o' !assen*ers disa!!eared ,ith it( Relati)es o' the missin* !assen*ers claimed dama*es a*ainst the shi!o,ner( /he shi!o,ner set u! the de'ense that under the doctrine o' limited liability- his liability ,as co-e9tensi)e ,ith his interest in the )essel( As the )essel ,as totally losthis liability had also been e9tin*uished( a( 5o, ,ill you ad)ice the claimants? Discuss the doctrine o' limited liability in maritime la,( ".$%
b( Assumin* that insured- may the
SUGGESTED ANSWER:

7es( /he contentions o' @arina ;a) &o are meritorious( /he ca!tain o' @N @ari!osa is *uilty o' ne*li*ence in i*norin* the ty!hoon bulletins issued by >ADA:A and in o)erloadin* the )essel( But only the ca!tain o' the )essel @N @ari!osa is *uilty o' ne*li*ence( /he shi! o,ner is not( /here'ore- the shi! o,ner can in)oke the doctrine o' limited liability( 8imite6 8ia.ilit% Rule2 Doctrine o& 7nscruta.le /ault ()**))
n a collision bet,een @L/ @anila- a tankerand @LN Don &laro- an inter-island )esselDon &laro sank and many o' its !assen*ers dro,ned and died( All its car*oes ,ere lost( /he collision occurred at ni*httime but the sea ,as calm- the ,eather 'air and )isibility ,as *ood( >rior to the collision and ,hile still # nautical miles a!art- Don

the

)essel

,as

claimants *o a'ter the insurance !roceeds? ".$% a(6nder the doctrine o' limited liability in maritime la,- the liability o' the shi!o,ner arisin* 'rom the o!eration o' a shi! is con'ined to the )essel- e3ui!ment- and 'rei*ht- or insurance- i' any- so that i' the shi!o,ner abandoned the shi!e3ui!ment- and 'rei*ht- his liability is e9tin*uished( 5o,e)er- the doctrine o' limited liability does not a!!ly ,hen the shi!o,ner or ca!tain is *uilty o' ne*li*ence( b(7es( n case o' a lost )essel- the claimants may *o a'ter the !roceeds o' the insurance co)erin* the )essel( 8imite6 8ia.ilit% Rule (2000)
@N @ari!osa- one o' 'i)e !assen*er shi!s o,ned by @arina ;a)i*ation &o- sank o'' the coast o' @indoro ,hile en route to loilo &ity( @ore than 200 !assen*ers !erished in the disaster( 8)idence sho,ed that the shi! ca!tain i*nored ty!hoon bulletins issued by >a*-asa durin* the 2#-hour !eriod immediately !rior to the )essels de!arture 'rom @anila( /he bulletins ,arned all ty!es o' sea cra'ts to a)oid the ty!hoons e9!ected !ath near @indoro( /o make matters ,orse- he took more load than ,as allo,ed 'or the shi!s rated ca!acity( :ued 'or dama*es by the )ictims sur)i)in* relati)es- @arina ;a) &o contended 1% that its liabilityi' anyhad been e9tin*uished ,ith the sinkin* o' @N @ari!osaH and 2% that assumin* it had not been so e9tin*uished- such liability should be limited to the loss o' the car*o( Are these contentions meritorious in the conte9t o' a!!licable !ro)isions o' the &ode o' &ommerce? ".$%
SUGGESTED ANSWER:

Page

23 of 103

SUGGESTED ANSWER:

&laro already si*hted @anila on its radar screen( @anila had no radar e3ui!ment( As 'or s!eed- Don &laro ,as t,ice as 'ast as @anila(
At the time o' the collision- @anila 'ailed to 'ollo, Rule 1F o' the nternational Rules o' the Road ,hich re3uires 2 )essels meetin* head on to chan*e their course by each )essel steerin* to starboard "ri*ht% so that each )essel may !ass on the !ort side "le't% o' the other( @anila si*naled that it ,ould turn to the !ort side and steered accordin*ly- thus resultin* in the collision( Don &laros ca!tain ,as o''-duty and ,as ha)in* a drink at the shi!s bar at the time o' the collision(

7es- but sub+ect to the doctrine o' limited liability( /he doctrine is to the e''ect that the liability o' the shi!o,ners ,ould only be to the e9tent o' any remainin* )alue o' the )essel!roceeds o' insurance- i' any- and earned 'rei*hta*e( Di)en the 'actual settin*s- the shi!o,ner himsel' ,as not *uilty o' ne*li*ence and- there'ore- the doctrine can ,ell a!!ly (1mparo de los Santos
v '1 #6& s &9"

SUGGESTED ANSWER:

a% Who ,ould you hold liable 'or the collision? b% ' Don &laro ,as at 'ault- may the heirs o' the !assen*ers ,ho died and the o,ners o' the car*oes reco)er dama*es 'rom the o,ner o' said )essel?

can hold the 2 )essels liable( n the !roblem *i)en- ,hether on the basis o' the 'actual settin*s or under the doctrine o' inscrutable 'ault- both )essels can be said to ha)e been *uilty o' ne*li*ence( /he liability o' the 2 carriers 'or the death or in+ury o' !assen*ers and 'or the loss o' or dama*e to the *oods arisin* 'rom the collision is solidary( ;either carrier may in)oke the doctrine o' last clear chance ,hich can only be rele)ant- i' at allbet,een the t,o )essels but not on the claims made by !assen*ers or shi!!ers
(=itonJua Shipping v 3ational Seamen Board 2, 5#9#7 #71ug#969"
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

8imite6 8ia.ilit% Rule2 General A era'e 8oss (2000) I :hi!!in* &om!any s!ent almost a 'ortune in re'ittin* and re!airin* its lu9ury !assen*er )essel- the @N @arina- ,hich !lied the inter-island routes o' the com!any 'rom ?a 6nion in the north to Da)ao &ity in the south( /he @N @arina met an untimely 'ate durin* its !ost-re!air )oya*e( t sank o'' the coast o' Pambales ,hile en route to ?a 6nion 'rom @anila( /he in)esti*ation sho,ed that the ca!tain alone ,as ne*li*ent( /here ,ere no casualties in that disaster( <aced ,ith a claim 'or the !ayment o' the re'ittin* and re!air- I :hi!!in* com!any asserted e9em!tion 'rom liability on the basis o' the hy!othecary or limited liability rule under Article 2G7 o' the &ode o' &ommerce( s I :hi!!in* &om!anys assertion )alid? 89!lain ".$%(
SUGGESTED ANSWER:

;o( /he assertion o' I :hi!!in* &om!any is not )alid( /he total destruction o' the )essel does not a''ect the liability o' the shi! o,ner 'or re!airs on the )essel com!leted be'ore its loss( 8imite6 8ia.ilit% Rule2 General A era'e 8oss (2000)
*er i!n 1++0,'00- U)dated by

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@N :u!er<ast- a !assen*er-car*o )essel o,ned by :< :hi!!in* &om!any !lyin* the inter-island routes- ,as on its ,ay to Pamboan*a &ity 'rom the @anila !ort ,hen it accidentallyand ,ithout 'ault or ne*li*ence o' anyone on the shi!- hit a hu*e 'loatin* ob+ect( /he accident caused dama*e to the )essel and loss o' an accom!anyin* crated car*o o' !assen*er >R( n order to li*hten the )essel and sa)e it 'rom sinkin* and in order to a)oid risk o' dama*e to or loss o' the rest o' the shi!!ed items "none o' ,hich ,as located on the deck%- some had to be +ettisoned( :< :hi!!in* had the )essel re!aired at its !ort o' destination( :< :hi!!in* therea'ter 'iled a com!laint demandin* all the other car*o o,ners to share in the total re!air costs incurred by the com!any and in the )alue o' the lost and +ettisoned car*oes( n ans,er to the com!laint- the shi!!ers sole contention ,as that- under the &ode o' &ommerce- each dama*ed !arty should bear its or his o,n dama*e and those that did not su''er any loss or dama*e ,ere not obli*ated to make any contribution in 'a)or o' those ,ho did( s the shi!!ers contention )alid? 89!lain "2$%
SUGGESTED ANSWER:

?a,( @ay she be con)icted by the mere 'act that she is a common la, ,i'e o' a 'orei*ner? 89!lain(
SUGGESTED ANSWER:

1% A allo,s or !ermits the use or e9!loitation or en+oyment o' a ri*ht!ri)ile*e or business- the e9ercise or en+oyment o' ,hich is e9!ressly reser)ed by the &onstitution or the la,s to citi4ens o' the >hili!!ines- by the 'orei*ner not !ossessin* the re3uisites !rescribed by the &onstitution or the la,s o' the >hili!!ines( /he !rosecutor should !ro)e the abo)e elements o' the crime

;o( /he shi!!ers contention is not )alid( /he o,ners o' the car*o +ettisoned- to sa)e the )essel 'rom sinkin* and to sa)e the rest o' the car*oes- are entitled to contribution( /he +ettisonin* o' said car*oes constitute *eneral a)era*e loss ,hich entitles the o,ners thereo' to contribution 'rom the o,ner o' the )essel and also 'rom the o,ners o' the car*oes sa)ed( :< :hi!!in* is not entitled to contributionL reimbursement 'or the costs o' re!airs on the )essel 'rom the shi!!ers(

Nati!naliAed A%tivitie !r Underta/ing


NationaliDe6 Acti ities or Un6erta-in's ()**3) 1%A in)ested >200th in a security a*ency on Actober .0- 1FF0( 5e ,as char*ed ,ith bein* a dummy o' his 'riend- a 'orei*ner( ' you ,ere the !rosecutor,hat e)idence can you !resent to !ro)e )iolation o' the Anti-Dummy ?a,? 2% Buana de la &ru4- a common la, ,i'e o' a 'orei*ner ,rested the control o' a tele)ision 'irm( At the instance o' the minority *rou! o' the 'irm- she ,as char*ed ,ith )iolation o' the Anti-Dummy

Page 21 of 103 and also the 'act that A does not ha)e the means and resources to in)est >200th in the security a*ency( A8TERNAT7>E ANSWER:

1% /he !rosecutor may establish the 'act that the >200th ,ould constitute a ma+or in)estment and yet A is not e)en elected member o' the BAD or one o' the o''icers( <urthermore- it may also be sho,n that A does not e)en ha)e the means to raise the amount o' >200th and that the o''icers or ma+ority o' the directors are 'orei*ners(
SUGGESTED ANSWER:

&eleste and 8&Q took !art in a !ublic biddin* conducted by @W:: 'or its asbestos !i!e re3uirements( &eleste ,on the bid- ha)in* o''ered 1.$ lo,er than that o''ered by 8&QH and @W:: a,arded the contract to su!!ly its asbestos !i!es to &eleste( 8&Q sou*ht to nulli'y the a,ard in 'a)or o' &eleste( 1% s &eleste barred under the <la* ?a, 'rom takin* !art in biddin*s to su!!ly the *o)ernment? 2% Did &eleste and @atilde )iolate the Anti-Dummy ?a,? .% Did &eleste and @atilde )iolate the Retail /rade ;ationali4ation ?a,? 89!lain(
SUGGESTED ANSWER:

2% ;o( /he mere 'act o' bein* a common la, ,i'e o' a 'orei*ner does not brin* her ,ithin the ambit o' the Anti-Dummy ?a,(
A8TERNAT7>E ANSWER:

2% 7es( Bein* a common la, ,i'e- it can be !resumed that she is the one runnin* the business- ,hich raises a !rima 'acie !resum!tion o' )iolation o' the Antidummy ?a,- "RA =0G#%( NationaliDe6 Acti ities or Un6erta-in's ()**3) &eleste- a domestic cor!oration ,holly o,ned by <ili!ino citi4ens- is en*a*ed in tradin* and o!erates as *eneral contractor( t buys and resells the !roducts o' @atilde- a domestic cor!oration- F0$ o' ,hose ca!ital stock is o,ned by aliens( All o' @atildes *oods are made in the >hili!!ines 'rom materials 'ound or !roduced in the >hili!!ines( An the other hand- 8&Q nte*rated is a 100$ <ili!ino o,ned cor!oration and manu'acturer o' asbestos !roducts(
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

1% ;o( /he materials o''ered in the bids submitted are made in the >hili!!ines 'rom articles !roduced or *ro,n in the >hili!!inesand the bidder- &eleste- is a domestic entity( /he <la* ?a, does not a!!ly( t can be in)oked only a*ainst a bidder ,ho is not a domestic entity- or a*ainst a domestic entity ,ho o''ers im!orted materials(

2%;o- since &eleste is merely a dealer o' @atilde and not an alter e*o o' the latter( &eleste buys and sells on its o,n account the !roducts o' @atilde(
.% @atilde did not )iolate the Retail /rade ?a, since it does not sell its !roducts to consumers- but to dealers ,ho resell them( ;either did &eleste )iolate the Retail /rade ?a, since- in the 'irst !lace- it is not !rohibited to
*er i!n 1++0,'00- U)dated by

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en*a*e in retail trade( Besides- @atildes sale o' the asbestos !roducts to &elestebein* ,holesalethe transaction is not co)ered by the Retail /rade ?a,
(1sbestos /ntegrated v ;eralta #55 S %#$"

a director o' the realty cor!oration? Discuss( d% @ay the /reasurer o' Acme- another 'orei*ner- occu!y the same !osition in the said de!artment store cor!oration? @ay he be the treasurer o' the
SUGGESTED ANSWER:

said realty cor!oration? 89!lain(

NationaliDe6 Acti ities or Un6erta-in's ()**1) Dlobal J? @alaysiaa 100$ @alaysian o,ned cor!oration- desires to build a hotel beach resort in :amal slandDa)ao &ity- to take ad)anta*e o' the increased tra''ic o' tourists and boost the tourism industry o' the >hili!!ines( 1( Assumin* that Dlobal has 6:O100@ to in)est in a hotel beach resort in the >hili!!ines- may it be allo,ed to ac3uire the land on ,hich to build the resort? ' so- under ,hat terms and conditions may Dlobal ac3uire the land? Discuss 'ully( 2( @ay Dlobal be allo,ed to mana*e the hotel beach resort? 89!lain( .( @ay Dlobal be allo,ed to o!erate restaurants ,ithin the hotel beach resort? 89!lain(
SUGGESTED ANSWER:

a% Acme may not in)est in the de!artment store cor!oration since the Retail /rade Act allo,s- in the case o' cor!orations- only 100$ <ili!ino o,ned com!anies to en*a*e in retail trade(
b% Acme may in)est in the realty cor!oration- on the assum!tion that the balance o' =0$ o' o,nershi! o' the latter cor!oration- is <ili!ino o,ned since the la, merely

1( Dlobal can secure a lease on the land( As a cor!oration ,ith a @alaysian nationality- Dlobal cannot o,n the land( 2(7es- Dlobal can mana*e the hotel beach resort( /here is no la, !rohibitin* it 'rom mana*in* the resort( .( Dlobal may be allo,ed to o!erate restaurants ,ithin the beach resort( /his is !art o' the o!eration o' the resort( Retail Tra6e 8a; ()**0) Acme /radin* &o nc- a tradin* com!any ,holly o,ned by 'orei*n stockholders- ,as !ersuaded by >aulo Al)a- a <ili!ino- to in)est in 20$ o' the outstandin* shares o' stock o' a cor!oration he is 'ormin* ,hich ,ill en*a*e in the de!artment store business "the de!artment store cor!oration%( >aulo also ur*ed Acme to in)est in #0$ o' the outstandin* shares o' stock o' the realty cor!oration he is !uttin* u! to o,n the land on ,hich the de!artment store ,ill be built "the realty cor!oration%( a% @ay Acme in)est in the said de!artment store cor!oration? 89!lain your ans,er( b% @ay Acme in)est in the realty cor!oration? Discuss(

c% @ay the >resident o' Acmea 'orei*ner- sit in the BAD o' the said de!artment store cor!oration? @ay he be

Page

2( of 103
in

re3uires =0$ <ili!ino holdin* land cor!orate o,nershi!(

c% /he Anti-dummy ?a, allo,s board re!resentation to the e9tent o' actual and !ermissible 'orei*n in)estments in cor!orations( Accordin*ly- the >resident o' Acme may no sit in the BAD o' the de!artment store cor!oration but can do so in the realty cor!oration( d% /he /reasurer o' Acme may not hold that !osition either in the de!artment store cor!oration or in the realty cor!oration since the Anti-Dummy ?a, !rohibits the em!loyment o' aliens in such nationali4ed areas o' business e9ce!t those that call 'or hi*hly technical 3uali'ications( Retail Tra6e 8a; ()**)) s the <ili!ino common-la, ,i'e o' a 'orei*ner barred 'rom en*a*in* in the retail business?
SUGGESTED ANSWER:

in the retail trade business- raises the !resum!tion that she has )iolated the AntiDummy ?a,( 5ence- the ,i'e is barred 'rom en*a*in* in the retail trade business( Retail Tra6e 8a; ()**2)
A &oo!erati)e !urchased 'rom 7 &o on installments a rice mill and made a do,n !ayment there'ore( As security 'or the !ayment o' the balance- the &oo!erati)e e9ecuted a chattel mort*a*e in 'a)or o' 7 &or!oration( 7 &o in turn assi*ned its ri*hts to the chattel mort*a*e to P &o a 2$ 'orei*n o,ned com!any doin* business in the >hili!!ines( /he coo!erati)e therea'ter made installment !ayments to P &o(

A <ili!ino common-la, ,i'e o' a 'orei*ner is not barred 'rom en*a*in* in retail business( An the assum!tion that she acts 'or and in her o,n behal'- and absent a )iolation o' the Anti-Dummy ?a, ,hich !rohibits a 'orei*ner 'rom bein* either the real !ro!rietor or an em!loyee o' a !erson en*a*ed in the retail trade- she ,ould be )iolatin* the Retail /rade Act(
A8TERNAT7>E ANSWER:

Because the &oo!erati)e ,as unable to meet its obli*ations in 'ull- P &o 'iled a*ainst it a court suit 'or collection( /he &oo! resisted contendin* that P &o ,as ille*ally en*a*ed in the retail trade business 'or ha)in* sold a consumer *ood as o!!osed to a !roducer item( /he &oo! also alle*ed that P had )iolated the Anti- Dummy ?a,( s P *uilty o' )iolatin* the Retail /rade ?a, and the Anti-Dummy ?a,? Why?
SUGGESTED ANSWER:

An en*a*ement by a ,i'e "includin* common-la, relationshi!s% o' a 'orei*ner


*er i!n 1++0,'003 Arranged by SULAW Cla

P &o is not *uilty o' )iolatin* the Retail /rade ?a, and the Anti-Dummy ?a,( /he term R8/A ? under the Retail /rade Act re3uires that the seller must be habitually en*a*ed in sellin* to the *eneral !ublic consum!tion *oods( By consum!tion *oods are meant !ersonal'amily and household !ur!oses( A Rice @ill
*er i!n 1++0,'00- U)dated by

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'00(

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

does not 'all under the cate*ory( ;either does it a!!ear that P is habitually en*a*ed in sellin* to the *eneral !ublic that commodity( :ince there is no )iolation o' the Retail /rade ?a,- there ,ould like,ise by no )iolation o' the Anti-Dummy ?a,( Retail Tra6e 8a; ()**3) A 'orei*n 'irm is en*a*ed in the business o' manu'acturin* and sellin* rubber !roducts to dealers ,ho in turn sell them to others( t also sells directly to a*ricultural enter!rises- automoti)e assembly !lants- !ublic utilities ,hich buy them in lar*e bulk- and to its o''icers and em!loyees( 1% s there )iolation o' the Retail /rade ?a,? 89!lain(

?a, that only >hili!!ine nationals shall en*a*e- directly- or indirectly- in the retail business is ina!!licable( <or this reasonthe !artici!ation o' @a ?ee- @arias common ?a, husbandin the mana*ement o' the business ,ould not be a )iolation o' the Retail /rade ?a, in relation to the Anti-Dummy ?a,(

Retail Tra6e 8a; ()**4)


8? nc- a domestic cor!oration ,ith 'orei*n e3uity- manu'actures electric *eneratorsand sells them to the 'ollo,in* customers0 a% *o)ernment o''ices ,hich use the *enerators durin* bro,nouts to render !ublic ser)iceb% a*ricultural enter!rises ,hich utili4e the *enerators as

2% @ay said 'irm o!erate a canteen inside the !remises o' its !lant e9clusi)ely 'or its o''icials and em!loyees ,ithout )iolatin* the Retail /rade Act? 89!lain(
SUGGESTED ANSWER:

1% An the assum!tion that the 'orei*n 'irm


is doin* business in the >hili!!ines- the sale to the dealers o' a*ricultural enter!rises- automoti)e assembly !lants- and !ublic utilities is ,holesale andthere'orenot in )iolation o' the Retail /rade Act (B. 2oodrich v ,e es #%# s
$&$"

2%7es( /he o!eration o' the canteen inside the !remises e9clusi)ely 'or its o''icers and em!loyees- ,ould amount to an in!ut in the manu'acturin* !rocess and- there'oredoes not )iolate the Retail /rade Act( Retail Tra6e 8a; ()**4) With a ca!ital o' >2th @aria o!erates a stall at a !ublic market( :he manu'actures soa! that she sells to the *eneral !ublic( 5er common la, husband- @a?ee- ,ho has a !endin* !etition 'or naturali4ationoccasionally 'inances the !urchase o' *oods 'or resale- and assists in the mana*ement o' the business( s there a )iolation o' the Retail /rade ?a,? 89!lain(
SUGGESTED ANSWER:

;o- there is no )iolation o' the Retail /rade ?a,( @aria is a manu'acturer ,ho sells to the *eneral !ublic- throu*h her stall in the !ublic marketthe soa! ,hich she manu'actures( nasmuch as her ca!ital does not e9ceed >2th "it is only >2th% then she is considered under :ec #a o' the Retail /rade ?a, as not en*a*ed in the retail business( nasmuch as @arias business is not a retail business- then the re3uirement in :ec 1 o' the Retail /rade

Page 2- of 103 backu! in the !rocessin* o' *oods- c% 'actories- and d% its o,n em!loyees( s 8? en*a*ed in retail trade? 89!lain( SUGGESTED ANSWER:

SUGGESTED ANSWER:

/he sale by 8? o' *enerators to *o)ernment o''ices- a*ricultural enter!rises and 'actories are outside the sco!e o' the term retail business and may- there'orebe made by the said cor!oration( 5o,e)er- sales o' *enerators by 8? to its o,n em!loyees constitute retail sales and are !roscribed( 6nder the amendment to the Retail /rade ?a, introduced by >D 71#the term retail business shall not include a manu'acturer "such as 8?% sellin* to industrial and commercial users or consumers ,ho use the !roducts bou*ht by them to render ser)ice to the *eneral !ublic "e* *o)ernment o''ices% andLor to !roduce or manu'acture *oods ,hich are in turn sold by them "e* a*ricultural enter!rises and 'actories%( (2ood ear :ires v ,e es Sr 2r $77&$,
Al %, 6$ #%$s%4$"0

a% /he 'irst arran*ement ,ould not be in )iolation o' the Retail /rade ?a,( /he la, a!!lies only ,hen the sale is direct to the *eneral !ublic( A dealer buys and sells 'or and in his o,n behal' andthere'ore- the sale to the *eneral !ublic is made by the dealer and not by the manu'acturer (+arsman D 'o v .irst
'oconut 'ontrol 'o 2,$965# %7Aune#966"
A8TERNAT7>E ANSWER:

a% /he 'irst arran*ement )iolates the Retail /rade ?a, because ,hen AB& consi*ned the ty!e,ritersthe transaction ,as one o' consi*nment sale( n consi*nment sale- an a*ency relationshi! is created so it is as i' AB& sells directly to the !ublic throu*h its a*ents(
SUGGESTED ANSWER:

Retail Tra6e 8a;2 Consi'nment ()**)) AB& @anu'acturin* nc- a com!any ,holly o,ned by 'orei*n nationalsmanu'actures ty!e,riters ,hich AB& distributes to the *eneral !ublic in 2 ,ays0 1( AB& consi*ns its ty!e,riters to inde!endent dealers ,ho in turn sell them to the !ublicH and2( /hrou*h indi)iduals,ho are not em!loyees o' AB&- and ,ho are !aid strictly on a commission

b% /he second arran*ement ,ould be )iolati)e o' the Retail /rade ?a,- since the sale is done throu*h indi)iduals bein* !aid strictly on a commission basis( /he said indi)iduals ,ould then be actin* merely as a*ents o' the manu'acturer( :ales- there'ore- made by such a*ents are deemed direct sales by the manu'acturer(
A8TERNAT7>E ANSWER:

b% /he 2nd arran*ement is not )iolati)e o' the Retail /rade ?a, because ty!e,riters are not consum!tion *oods or *oods 'or !ersonal- household and 'amily use(

Neg!tiable In tr4ment La#


,on6: Cas# ,on6 s! Suret% ,on6 (2003) Distin*uish clearly cash bond 'rom surety bond(
*er i!n 1++0,'00- U)dated by

basis 'or each sale( Do these arran*ements )iolate the Retail /rade ?a,?
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

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

courts decision correct?


SUGGESTED ANSWER:

A :6R8/7 BA;D is issued by a surety or insurance com!any in 'a)or o' a desi*nated bene'iciary- !ursuant to ,hich such com!any acts as a surety to the debtor or obli*or o' such bene'iciary( A &A:5 BA;D is a security in the 'orm o' cash established by a *uarantor or surety to secure the obli*ation o' another( C#ec-s: Crosse6 C#ec-s (2001) What is a crossed check? What are the e''ects o' crossin* a check? 89!lain(
SUGGESTED ANSWER:

/he courts decision ,as incorrect( >ablo and &arlos- bein* immediate !arties to the instrument- are *o)erned by the rules o' !ri)ity( Di)en the 'actual circumstances o' the !roblem- >ablo has no )alid e9cuse 'rom denyin* liability- (State investment Eouse v
/1' 2, 4%4&5 #$Aul #969"0

>ablo undoubtedly had bene'ited in the transaction( /o hold other,ise ,ould also contra)ene the basic rules o' un+ust enrichment( 8)en in ne*otiable instruments- the

A &rossed &heck under acce!ted bankin* !ractice- crossin* a check is done by ,ritin* t,o !arallel lines dia*onally on the le't to! !ortion o' the checks( /he crossin* is s!ecial ,here the name o' the bank or a business institution is ,ritten bet,een the t,o !arallel lines,hich means that the dra,ee should !ay only ,ith the inter)ention o' that com!any(

8ffe.ts of Crosse7 C!e.$s 1% /he check may not be encashed but only de!osited in the bank( 2% /he check may be ne*otiated only onceS to one ,ho has an account ,ith a bank( .% /he act o' crossin* the check ser)es as a ,arnin* to the holder that the check has been issued 'or a de'inite !ur!ose- so that he must in3uire i' he has recei)ed the check !ursuant to that !ur!oseH other,ise- he is not a holder in due course( C#ec-s: Crosse6 C#ec-s s! Cancelle6 C#ec-s (2003) Distin*uish clearly "1% crossed checks 'rom cancelled checksH
SUGGESTED ANSWER:

A crossed check is one ,ith t,o !arallel lines dra,n dia*onally across its 'ace or across a corner thereo'( An the other hand- a cancelled check is one marked or stam!ed K!aidK andLor KcancelledK by or on behal' o' a dra,ee bank to indicate !ayment thereo'( C#ec-s2 Crosse6 C#ec- ()**)) @r >ablo sou*ht to borro, >200th 'rom @r &arlos( &arlos a*reed to loan the amount in the 'orm o' a !ost- dated check ,hich ,as crossed "i(e( 2 !arallel lines dia*onally dra,n on the to! le't !ortion o' the check%( Be'ore the due date o' the check- >ablo discounted it ,ith ;oble An due date- ;oble de!osited the check ,ith his bank( /he check ,as dishonored( ;oble sued >ablo( /he court dismissed ;obles com!laint( Was the

Page

22 of 103

&i)il &ode and other la,s o' *eneral a!!lication can still a!!ly su!!letorily(
A8TERNAT7>E ANSWER:

/he dismissal by the court ,as correct( A check ,hether or not !ost-dated or crossed- is still a ne*otiable instrument and unless >ablo is a *eneral indorser- ,hich is not e9!ressed in the 'actual settin*s- he cannot be held liable 'or the dishonor o' the instrument( n State /nvestment Eouse v /1' (2, 4%4&5 #$Aul#969"- the court did not *o so 'ar as to hold that the 'act o' crossin* ,ould render the instrument non-ne*otiable(
A8TERNAT7>E ANSWER:

n State /nvestment Eouse v /1' (2, 4%4&5 #$Aul#969", the :& considered a crossed

check as sub+ectin* a subse3uent holder thereo' to the contractual co)enants o' the !ayor and the !ayee( ' such ,ere the case- then the instrument is not one ,hich can still be said to contain an unconditional !romise to !ay or order a sum certain in money( n the trans'er o' non-ne*otiable credits by assi*nmentthe trans'eror does not assume liability 'or the 'ault o' the debtor or obli*or( Accordin*ly the courts decision ,as correct(
A8TERNAT7>E ANSWER:

C#ec-s2 Crosse6 C#ec- ()**3) >o >ress issued in 'a)or o' Bose a !ostdated crossed check- in !ayment o' ne,s!rint ,hich Bose !romised to deli)er( Bose sold and ne*otiated the check to 89cel nc( at a discount( 89cel did not ask Bose the !ur!ose o' crossin* the check( :ince Bose 'ailed to deli)er the ne,s!rint- >o ordered the dra,ee bank to sto! !ayment on the check( 8''orts o' 89cel to collect 'rom >o 'ailed( 89cel ,ants to kno, 'rom you as counsel0 1% What are the e''ects o' crossin* a check? 2% Whether as second indorser and holder o' the crossed check- is it a holder in due course? .% Whether >os de'ense o' lack o' consideration as a*ainst Bose is also a)ailable as a*ainst 89cel?
SUGGESTED ANSWER:

1%

7es( /he check is crossed( t should ha)e 'ore,arned @r( ;oble that it ,as issued 'or a s!eci'ic !ur!ose( 5ence- @r ;oble could not be a holder in due course( 5e is sub+ect to the !ersonal de'ense o' breach o' trustL a*reement by @r( >ablo( :uch de'ense is a)ailable in 'a)or o' @r &arlos a*ainst @r ;oble(

/he e''ects o' crossin* a check are0 a( /he check is 'or de!osit only in the account o' the !ayee b( /he check may be indorsed only once in 'a)or o' a !erson ,ho has an account ,ith a bank c( /he check is issued 'or a s!eci'ic !ur!ose and the !erson ,ho takes it not in accordance ,ith said !ur!ose does not become a holder in due course and is not entitled to !ayment thereunder(

2% ;o( t is a crossed check and 89cel did not take it in accordance ,ith the !ur!ose 'or ,hich the check ,as issued( <ailure on its !art to in3uire as to said !ur!ose*er i!n 1++0,'00- U)dated by

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!re)ented 89cel 'rom becomin* a holder in due course- as such 'ailure or re'usal constituted bad 'aith( .% 7es( ;ot bein* a holder in due course89cel is sub+ect to the !ersonal de'ense ,hich >o >ress can set u! a*ainst Bose
(State /nvestment Eouse v /1' #45 S $#7"

the check has been issued 'or a de'inite !ur!ose so that the holder must in3uire i' he has recei)ed the check !ursuant to that !ur!ose- other,ise he is not a holder in due course (See Bataan 'igar
and 'igarette .actor , /nc0 v '1 2, 9$756, +ar $, #995< %$7 s &5$"

C#ec-s2 Crosse6 C#ec- ()**1) An Act 12- 1FF.- &helsea :trai*hts- a cor! en*a*ed in the manu'acture o' ci*arettes- ordered 'rom @oises 2-000 bales o' tobacco( &helsea issued to @oises t,o crossed checks !ostdated 12 @ar F# and 12 A!r F# in 'ull !ayment there'or( An 1F Ban F# @oises sold to Dra*on n)estment 5ouse at a discount the t,o checks dra,n by &helsea in his 'a)or( @oises 'ailed to deli)er the bales o' tobacco as a*reed des!ite &helseas demand( &onse3uently- on 1 @ar F# &helsea issued a sto! !ayment order on the 2 checks issued to @oises( Dra*onclaimin* to be a holder in due course- 'iled a com!laint 'or collection a*ainst &helsea 'or the )alue o' the checks( Rule on the com!laint o' Dra*on( Di)e your le*al basis(
SUGGESTED ANSWER:

C#ec-s2 Crosse6 C#ec- ()**4) An @arch 1- 1FF=- >entium &om!any ordered a com!uter 'rom &D Bytes- and issued a crossed check in the amount o' >.0-000 !ost-dated @ar .1- 1FF=( 6!on recei!t o' the check- &D Bytes discounted the check ,ith <und 5ouse(

Dra*on cannot collect 'rom &helsea( /he instruments are crossed checks ,hich ,ere intended to !ay 'or the 2-000 bales o' tobacco to be deli)ered to @oises( t ,as there'ore the obli*ation o' Dra*on to in3uire as to the !ur!ose o' the issuance o' the 2 crossed checks be'ore causin* them to be discounted( <ailure on its !art to make such in3uiry,hich resulted in its bad 'aithDra*on cannot claim to be a holder in due course( @oreo)er- the checks ,ere sold- not endorsed- by him to Dra*on ,hich did not become a holder in due course( ;ot bein* a holder in due courseDra*on is sub+ect to the !ersonal de'ense on the !art o' &helsea concernin* the breach o' trust on the !art o' @oises ?im in not com!lyin* ,ith his obli*ation to deli)er the 2000 bales o' tobacco( C#ec-s2 Crosse6 C#ec- ()**4) What are the e''ects o' crossin* a check?
SUGGESTED ANSWER:

/he e''ects o' crossin* a check are as 'ollo,s0 a( /he check may not be encashed but only de!osited in a bankH b( /he check may be ne*otiated only once to one ,ho has an account ,ith a bankH c( /he act o' crossin* a check ser)es as a ,arnin* to the holder thereo' that

Page

23 of 103

An A!ril 1- 1FF=- >entium sto!!ed !ayment o' the check 'or 'ailure o' &D Bytes to deli)er the com!uter( /hus- ,hen <und 5ouse de!osited the check- the dra,ee bank dishonored it( ' <und 5ouse 'iles a com!laint a*ainst >entium and &D Bytes 'or the !ayment o' the dishonored check- ,ill the com!laint !ros!er? 89!lain( SUGGESTED ANSWER:0
/he com!laint 'iled by <und 5ouse a*ainst >entium ,ill not !ros!er but the one a*ainst &D Bytes ,ill( <und 5ouse is not a holder in due course and- there'ore>entium can raise the de'ense o' 'ailure o' consideration a*ainst it( /he check in 3uestion ,as issued by >entium to !ay 'or a com!uter that it ordered 'rom &D Bytes( /he com!uter not ha)in* been deli)eredthere ,as a 'ailure o' consideration( /he check discounted ,ith <und 5ouse by &D Bytes is a crossed check and this should ha)e !ut <und 5ouse on in3uiry( t should ha)e ascertained the title o' &D Bytes to the check or the nature o' the latters !ossession( <ailin* in this res!ect<und 5ouse is deemed *uilty o' *ross ne*li*ence amountin* to le*al absence o' *ood 'aith and- thus- not a holder in due course( <und 5ouse can collect 'rom &D Bytes as the latter ,as the immediate indorser o' the check( (See Bataan 'igar and 'igarette
.actor v '1 et al %$7 s &5$ 2, 9$756 +ar $, 95"

I dra,s a check a*ainst his current account ,ith the Arti*as branch o' Boni'acio Bank in 'a)or o' B( Althou*h I does not ha)e su''icient 'unds- the bank honors the check ,hen it is !resented 'or !ayment( A!!arentlyI has cons!ired ,ith the banks bookkee!er so that his led*er card ,ould sho, that he still has su''icient 'unds( /he bank 'iles an action 'or reco)ery o' the amount !aid to B because the check !resented has no su''icient 'unds( Decide the case "2$%
SUGGESTED ANSWER:

/he bank cannot reco)er the amount !aid to B 'or the check( When the bank honored the check- it became an acce!tor( As acce!tor- the bank became !rimarily and directly liable to the !ayeeLholder B( /he recourse o' the bank should be a*ainst I and its bookkee!er ,ho cons!ired to make Is led*er sho, that he has su''icient 'unds(
A8TERNAT7>E ANSWER:

/he bank can reco)er 'rom B( /his is solutio indebiti because there is !ayment by the bank to B ,hen such !ayment is not due( /he check issued by I to B as !ayee had no su''icient 'unds( C#ec-s2 E&&ects2 Alterations2 "rescri$ti e "erio6 ()**4)
William issued to Albert a check 'or >10-000 dra,n on I@ Bank( Albert altered the amount o' the check to >210-000 and de!osited the check to his account ,ith ;D Bank( When ;D Bank !resented the check 'or
*er i!n 1++0,'00- U)dated by

C#ec-s2 E&&ect2 Acce$tance .% t#e 6ra;ee .an- ()**:)


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!ayment throu*h the &learin* 5ouse- I@ Bank honored it( /herea'ter- Albert ,ithdre, the >210-000 and closed his account( When the check ,as returned to him a'ter a month- William disco)ered the alteration( I@ Bank recredited >210-000 to Williams current accountand sou*ht reimbursement 'rom ;D Bank( ;D Bank re'used- claimin* that I@ Bank 'ailed to return the altered check to it ,ithin 2# hour clearin* !eriod( Who- as bet,een- I@ Bank and ;D Bankshould bear the loss? 89!lain(
SUGGESTED ANSWER:

dra,ee-bank bears the loss honors a 'or*ed check are as 'ollo,s0 "a% When Drawer's Signature is orged! Dra,ee-bank by acce!tin* the check cannot set u! the de'ense o' 'or*erybecause by acce!tin* the instrument- the dra,ee bank admits the *enuineness o' si*nature o' dra,er (B;/ .amil Ban( vs0
Buenaventura 20,0 3o0 #56#9&, September $7, %775< Section %$, 3egotiable /nstruments =aw"0

6nless a 'or*ery is attributable to the 'ault or ne*li*ence o' the dra,er himsel'- the remedy o' the dra,ee-bank is a*ainst the !arty res!onsible 'or the 'or*ery( Ather,ise-

;D Bank should bear the loss i' I@ Bank returned the altered check to ;D Bank ,ithin t,enty 'our hours a'ter its disco)ery o' the alteration( 6nder the *i)en 'acts- William disco)ered the alteration ,hen the altered check ,as returned to him a'ter a month( t may sa'ely be assumed that William immediately ad)ised I@ Bank o' such 'act and that the latter !rom!tly noti'ied ;D Bank therea'ter( &entral Bank &ircular ;o( F- as amended- on ,hich the decisions o' the :u!reme &ourt in Eong(ong D Shanghai Ban(ing 'orp v ;eopleIs Ban( D :rust 'o and ,epublic Ban( vs '1 ,ere based ,as e9!ressly cancelled and su!erseded by &B ;o .17 dated Dec 2. 1F70( /he latter ,as in turn amended by &B &ircular ;o 2G0- dated :e!t 1F- 1F77( As to altered checks- the ne, rules !ro)ide that the dra,ee bank can still return them e)en a'ter #000 !m o' the ne9t day !ro)ided it does so ,ithin 2# hours 'rom disco)ery o' the alteration but in no e)ent beyond the !eriod 'i9ed or !ro)ided by la, 'or 'ilin* o' a le*al action by the returnin* bank a*ainst the bank sendin* the same( Assumin* that the relationshi! bet,een the dra,ee bank and the collectin* bank is e)idenced by some ,ritten document- the !rescri!ti)e !eriod ,ould be 10 years( ('ampos, 3/= 5th ed 5558555"
A8TERNAT7>E ANSWER:

I@ Bank should bear the loss( When the dra,ee bank "I@ Bank% 'ailed to return the altered check to the collectin* bank ";D Bank% ,ithin the 2# hour clearin* !eriod !ro)ided in :ec #c o' &B &ircular Fdated <eb 17- 1F#F- the latter is absol)ed 'rom liability( (See ESB' v ;BD: 'o 2, =8
%6%%& Sep $7 #947< $5 s #57< also ,ep Ban( v '1 2, 5%4%5 1pr %%, #99# #9& s #77"

C#ec-s2 /or'e6 C#ec-2 E&&ects (2004) Discuss the le*al conse3uences ,hen a bank honors a 'or*ed check( "2$%
SU..ESTE0 ANSWER:

/he le*al conse3uences ,hen a bank

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2+ of 103
$7, %775"0

(B;/ .amil Ban( v0 Buenaventura,

(;hilippine 3ational Ban( v0 'ourt of 1ppeals, 20,0 3o0 =8%&77#, -ctober %9, #9&6"0

A dra,ee-bank !ayin* on a 'or*ed check must be considered as !ayin* out o' its 'unds and cannot char*e the amount to the dra,er
20,0 3o0 #56#9&, September

(Samsung 'onstruction 'o0 ;hils, v0 .ar East Ban(, 20,0 3o0 #%97#5, 1ugust #$, %775"0 ' the dra,ee-bank has char*ed

dra,erCs account- the latter can reco)er such amount 'rom the dra,ee-bank
(1ssociated Ban( v0 'ourt of 1ppeals, 20,0 3o0 #74$6%, Aanuar $#, #99&< Ban( of ;0 /0 v0 'ase +ontessori /nternationale, 20,0 3o0 #59555, +a %6, %775"0

"b% orged Payee's Signature! When dra,ee-bank !ays the 'or*ed check- it must be considered as !ayin* out o' its 'unds and cannot char*e the amount so !aid to the account o' the de!ositor( n such case- the bank becomes liable since its !rimary duty is to )eri'y the authenticity o' the !ayeeCs si*nature (:raders ,o al Ban( v0 ,adio
;hilippines 3etwor(, 20,0 3o0 #$65#7, -ctober #7, %77%< Pestmont Ban( v0 -ng, 20,0 3o0 #$%5&7, Aanuar $7, %77%"0

"c%

5o,e)er- the dra,er may be !recluded or esto!!ed 'rom settin* u! the de'ense o' 'or*ery as a*ainst the dra,ee- bank- ,hen it is sho,n that the dra,er himsel' had been *uilty o' *ross ne*li*ence as to ha)e 'acilitated the 'or*ery " +etropolitan
Paterwor(s v0 'ourt of 1ppeals, 20,0 3o0 =8 &%95$, #5$ S',1 %7, Aul #5, #96&%(
(3-:1 BE3E! :he question does not qualif the term *forged chec(*0 1n answer addressing the liabilities of a drawer should be deemed sufficient0 1nswers addressing liabilities of parties should li(ewise be given full credit"

orged Indorse$ent0 Dra,erCs account cannot be char*ed- and i' char*ed- he can reco)er 'rom the dra,ee-bank
(1ssociated Ban( v0 'ourt of 1ppeals, 20,0 3o0 #74$6% Aanuar $#,#99&"0

Drawee Ban" #ersus Collecting Ban" S When the si*nature o' the dra,er is 'or*ed- as bet,een the dra,ee- bank and collectin* bank- the dra,ee-bank sustains the loss- since the collectin* bank does not *uarantee the si*nature o' the dra,er( /he !ayment o' the check by the dra,ee bank constitutes the !ro9imate ne*li*ence since it has the duty to kno, the si*nature o' its client-dra,er(

Dra,er has no cause o' action a*ainst collectin* bank- since the duty o' collectin* bank is only to the !ayee( A collectin* bank is not *uilty o' ne*li*ence o)er a 'or*ed indorsement on checks 'or it has no ,ay o' ascertainin* the authority o' the endorsement and ,hen it caused the checks to !ass throu*h the clearin* house be'ore allo,in* ,ithdra,al o' the !roceeds thereo'
(+anila =ighter :ransportation, /nc0 v0 'ourt of 1ppeals, 20,0 3o0 57$4$, .ebruar #5, #997"0 An the other

handa collectin* bank ,hich endorses a check bearin* a 'or*ed endorsement and !resents it to the dra,ee bank *uarantees all !rior endorsements includin* the 'or*ed endorsement itsel' and should be held liable
*er i!n 1++0,'00- U)dated by

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(:raders ,o al Ban( v0 ,;3, 20,0 3o0 #$65#7, -ctober #7, %77%"0

there'or

Dra,ee-bank can reco)er 'rom the collectin* bank (2reat Eastern =ife
/ns0 'o0 v0 Eong(ong D Shanghai Ban(, 20,0 3o0 #6&54, 1ugust %$,#9%%" because e)en i' the

indorsement on the check de!osited by the bankCs client is 'or*edcollectin* bank is bound by its ,arranties as an indorser and cannot set u! de'ense o' 'or*ery as a*ainst dra,ee bank (1ssociated Ban( v0
'ourt of 1ppeals, 20,0 3o0 #74$6%, Aanuar $#, #99&"0

clearin* to dra,ee bank( Dra,ee bank re'used to honor the check on *round that the serial number thereo' had been altered( I7P marketin* sued dra,ee bank( a( s it !ro!er 'or the dra,ee bank to dishonor the check 'or the reason that it had been altered? 89!lain "2$%
b( n instant suit- dra,ee bank contended that I7P @arketin* as !ayee could not sue the dra,ee bank as there ,as no !ri)ity bet,een then( Dra,ee theori4ed that there ,as no basis to make it liable 'or the

C#ec-s2 8ia.ilit%2 Dra;ee ,an- ()**1)


@ario Du4man issued to 5onesto :antos a check 'or >20th as !ayment 'or a 2nd hand car( Without the kno,led*e o' @ario5onesto chan*ed the amount to >120th ,hich alteration could not be detected by the naked eye( 5onesto de!osited the altered check ,ith :hure Bank ,hich 'or,arded the same to >ro*ressi)e Bank 'or !ayment( >ro*ressi)e Bank ,ithout noticin* the alteration !aid the checkdebitin* >120th 'rom the account o' @ario( 5onesto ,ithdre, the amount o' >12th 'rom :hure Bank and disa!!eared( A'ter recei)in* his bank statement- @ario disco)ered the alteration and demanded restitution 'rom >ro*ressi)e Bank(

SUGGESTED ANSWER:

check( s this contention correct? 89!lain( ".$%

a( ;o( /he serial number is not a material !articular o' the check( ts alteration does not constitute material

Discuss 'ully the ri*hts and the liabilities o' the !arties concerned(
SUGGESTED ANSWER:

/he demand o' @ario 'or restitution o' the amount o' >120-000 to his account is tenable( >ro*ressi)e Bank has no ri*ht to deduct said amount 'rom @arios account since the order o' @ario is di''erent( @oreo)er- >ro*ressi)e Bank is liable 'or the ne*li*ence o' its em!loyees in not noticin* the alteration ,hich- thou*h it cannot be detected by the naked eye- could be detected by a ma*ni'yin* instrument used by tellers( As bet,een >ro*ressi)e Bank and :hure Bank- it is the 'ormer that should bear the loss( >ro*ressi)e Bank 'ailed to noti'y :hure Bank that there ,as somethin* ,ron* ,ith the check ,ithin the clearin* hour rule o' 2# hours(

C#ec-s2 (aterial Alterations2 8ia.ilit% ()***) A check 'or >20-000(00 ,as dra,n a*ainst dra,ee bank and made !ayable to I7P @arketin* or order( /he check ,as de!osited ,ith !ayees account at AB& Bank ,hich then sent the check 'or

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alteration o' the instrument( /he serial number is not material to the ne*otiability o' the instrument( b( 7es( As a *eneral rule- the dra,ee is not liable under the check because there is no !ri)ity o' contract bet,een I7P @arketin*as !ayee- and AB& Bank as the dra,ee bank( 5o,e)er- i' the action taken by the bank is an abuse o' ri*ht ,hich caused dama*e not only to the issuer o' the check but also to the !ayee- the !ayee has a cause o' action under 3uasi-delict( C#ec-s2 "resentment ()**3) Demma dre, a check on :e!tember 1.1FF0( /he holder !resented the check to the dra,ee bank only on @arch 2- 1FF#( /he bank dishonored the check on the same date( A'ter dishonor by the dra,ee bank- the holder *a)e a 'ormal notice o' dishonor to Demma throu*h a letter dated A!ril 27- 1FF#( 1% What is meant by unreasonable time as a!!lied to !resentment? 2% s Demma liable to the holder?
SUGGESTED ANSWER:

due to the *i)in* o' the notice o' dishonor beyond the !eriod allo,ed by la,( /he *i)in* o' notice o' dishonor on A!ril 27- 1FF# is more than one "1% month 'rom @arch 21FF# ,hen the check ,as dishonored( :ince it is not sho,n that Demma and the holder resided in the same !lace- the !eriod ,ithin ,hich to *i)e notice o' dishonor must be the same time that the notice ,ould reach Demma i' sent by mail( "; ? :ec 10. M 10#H <ar 8ast Realty n)estment nc ) &A 1== : 22=%
A8TERNAT7>E ANSWER:

2% Demma can still be liable under the ori*inal contract 'or the consideration o' ,hich the check ,as issued( C#ec-s2 "resentment (2003) A bank issues its o,n check( @ay the holder hold the bank liable thereunder i' he 'ails to E !ro)e !resentment 'or !ayment- or !resent the bill to the dra,ee 'or acce!tance? 89!lain your ans,ers( "#$%
SUGGESTED ANSWER:

1% As a!!lied to !resentment 'or !ayment- reasonable time0 is meant not more than = months 'rom the date o' issue( Beyond said !eriod- it is unreasonable time and the check becomes stale(
2% ;o( Aside 'orm the check bein* already stale- Demma is also dischar*ed 'orm liability under the check- bein* a dra,er and a !erson ,hose liability is secondary- this is
*er i!n 1++0,'003 Arranged by SULAW Cla

C#ec-s2 >ali6it%2 Wai er o& ,an-Gs lia.ilit% &or ne'li'ence ()**)) @r( ?im issued a check dra,n a*ainst B> Bank in 'a)or o' @r 7u as !ayment o' certain shares o' stock ,hich he !urchased( An the same day that he issued the check to 7u- ?im ordered B> to sto! !ayment( >er standard bankin* !ractice?im ,as made to si*n a ,ai)er o' B> s
*er i!n 1++0,'00- U)dated by

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

liability in the e)ent that it should !ay 7u throu*h o)ersi*ht or inad)ertence( Des!ite the sto! order by ?imB> ne)ertheless !aid 7u u!on !resentation o' the check( ?im sued B> 'or !ayin* a*ainst his order( Decide the case(
SUGGESTED ANSWER:

e)idence his indebtedness@ario e9ecuted and deli)ered to Bose a !romissory note !ayable to his order( Bose endorsed the note to >ablo( Bert 'raudulently obtained the note 'rom >ablo and endorsed it to Bulian by 'or*in* >ablos si*nature( Bulian endorsed the note to &amilo( a%@ay &amilo en'orce the said !romissory note a*ainst @ario and Bose? b%@ay &amilo *o a*ainst >ablo? c%@ay &amilo en'orce said note a*ainst Bulian? d% A*ainst ,hom can Bulian ha)e the ri*ht o' recourse?

n the e)ent that @r( ?im- in 'act- had su''icient le*al reasons to issue the sto! !ayment order- he may sue B> 'or !ayin* a*ainst his order( /he ,ai)er e9ecuted by @r ?im did not mean that it need not e9ercise due dili*ence to !rotect the interest o' its account holder( t is not amiss to state that the dra,ee- unless the instrument has earlier been acce!ted by it- is not bound to honor !ayment to the holder o' the check that thereby e9cludes it 'rom any liability i' it ,ere to com!ly ,ith its sto! !ayment order ":ec =1 ; ?%
A8TERNAT7>E ANSWER:

1FF1 =b% B> ,ould not be liable to @r ?im( @r ?im and B> are *o)erned by their o,n a*reement( /he ,ai)er e9ecuted by @r ?imneither bein* one o' 'uture 'raud or *ross ne*li*ence- ,ould be )alid( /he !roblem does not indicate the e9istence o' 'raud or *ross ne*li*ence on the !art o' B> so as to ,arrant liability on its !art(

De&enses2 /or'er% (2003) &I maintained a checkin* account ,ith 6BA;J- @akati Branch( Ane o' his checks in a stub o' 'i'ty ,as missin*( ?ater- he disco)ered that @s( D7 'or*ed his si*nature and succeeded to encash >12-000 'rom another branch o' the bank( D7 ,as able to encash the check ,hen 8/a 'riend- *uaranteed due e9ecution- sayin* that she ,as a holder in due course( &an &I reco)er the money 'rom the bank? Reason brie'ly( "2$%
SUGGESTED ANSWER:

7es- &I can reco)er 'rom the bank( 6nder :ection 2. o' the ;e*otiable nstruments ?a,- 'or*ery is a real de'ense( /he 'or*ed check is ,holly ino!erati)e in relation to &I( &I cannot be held liable thereon by anyone- not e)en by a holder in due course( 6nder a 'or*ed si*nature o' the dra,er- there is no )alid instrument that ,ould *i)e rise to a contract ,hich can be the basis or source o' liability on the !art o' the dra,er( /he dra,ee bank has no ri*ht or authority to touch the dra,erCs 'unds de!osited ,ith the dra,ee bank( /or'er%2 8ia.ilities2 "rior 0 Su.se5uent "arties ()**0) Bose loaned @ario some money and- to

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e% @ay >ablo reco)er 'rom either @ario or Bose?


SUGGESTED ANSWER:

a%&amilo may not en'orce said !romissory note a*ainst @ario and Bose( /he !romissory note at the time o' 'or*ery bein* !ayable to order- the si*nature o' >ablo ,as essential 'or the instrument to !ass title to subse3uent !arties( A 'or*ed si*nature ,as ino!erati)e ":ec 2. ; ?%( Accordin*ly- the !arties be'ore the 'or*ery are not +uridically related to !arties a'ter the 'or*ery to allo, such en'orcement( b%&amilo may not *o a*ainst >ablo- the latter not ha)in* indorsed the instrument( c% &amilo may en'orce the instrument a*ainst Bulian because o' his s!ecial indorsement to &amilo- thereby makin* him secondarily liableboth bein* !arties a'ter the 'or*ery( d%Bulian- in turn- may en'orce the instrument a*ainst Bert ,ho- by his 'or*ery- has rendered himsel' !rimarily liable(
e%>ablo !reser)es his ri*ht to reco)er 'rom either @ario or Bose ,ho remain !arties +uridically related to him( @ario is still considered !rimarily liable to >ablo( >ablo may- in case o' dishonor- *o a'ter Bose ,hoby his s!ecial

blan( and special indorsements of prior parties which can thereb materiall alter the above suggested answers0 :he problem did not clearl indicate the (ind of indorsements made0 /or'er%2 8ia.ilities2 "rior 0 Su.se5uent "arties ()**1) Ale9 issued a ne*otiable >; "!romissory note% !ayable to Benito or order in !ayment o' certain *oods( Benito indorsed the >; to &elso in !ayment o' an e9istin* obli*ation( ?ater Ale9 'ound the *oods to be de'ecti)e( While in &elsos !ossession the >; ,as stolen by Dennis ,ho 'or*ed &elsos si*nature and discounted it ,ith 8d*ar- a money lender ,ho did not make in3uiries about the >;( 8d*ar indorsed the >; to <eli9- a holder in due course( When <eli9 demanded !ayment o' the >; 'rom Ale9 the latter re'used to !ay( Dennis could no lon*er be located( 1( What are the ri*hts o' <eli9- i' anya*ainst Ale9- Benito- &elso and 8d*ar? 89!lain
2( Does &elso ha)e any ri*ht a*ainst Ale9Benito and

<eli9? 89!lain(
SUGGESTED ANSWER:

indorsement- is secondarily liable( 3ote! /t is possible that an answer might distinguish between
*er i!n 1++0,'003 Arranged by SULAW Cla

1( <eli9 has no ri*ht to claim a*ainst Ale9- Benito and &elso ,ho are !arties !rior to the 'or*ery o' &elsos si*nature by Dennis( >arties to an instrument ,ho are such !rior to the 'or*ery cannot be held liable by any !arty ,ho became such at or subse3uent to the 'or*ery( 5o,e)er- 8d*ar,ho became a !arty to the instrument subse3uent to the 'or*ery and ,ho indorsed the same to <eli9- can be held liable by the latter(
*er i!n 1++0,'00- U)dated by

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

2( &elso has the ri*ht to collect 'rom Ale9 and Benito( &elso is a !arty subse3uent to the t,o( 5o,e)er- &elso has no ri*ht to claim a*ainst <eli9 ,ho is a !arty subse3uent to &elso ":ec =0 and == ; ?% 7ncom$lete 0 Deli ere6 (2003)
AI- a businessman- ,as !re!arin* 'or a business tri! abroad( As he usually did in the !ast- he si*ned se)eral checks in blank and entrusted them to his secretary ,ith instruction to sa'e*uard them and 'ill them out only ,hen re3uired to !ay accounts durin* his absence( ABhis secretary- 'illed out one o' the checks by !lacin* her name as the !ayee( :he 'illed out the amount- endorsed and deli)ered the check to J&- ,ho acce!ted it in *ood 'aith 'or !ayment o' *ems that J& sold to AB( ?ater- AB told AI o' ,hat she did ,ith re*rets( AI timely directed the bank to dishonor the check( &ould AI be held liable to J&? Ans,er and reason brie'ly( "2$%
SUGGESTED ANSWER:

,as not a holder bad 'aith ,hen !ayment des!ite only 10-000(00 :eYorita sobel Brad(

in due course 'or actin* in acce!ted the note as his kno,led*e that it ,as that ,as allo,ed by durin* their meetin* ,ith

7ncom$lete 7nstruments2 7ncom$lete Deli ere6 7nstruments s! 7ncom$lete Un6eli ere6 7nstrument (2004)
Bun ,as about to lea)e 'or a business tri!( As his usual !ractice- he si*ned se)eral blank checks( 5e instructed Ruth- his secretaryto 'ill them as !ayment 'or his obli*ations( Ruth 'illed one check ,ith her name as !ayee!laced >.0-000(00 thereonendorsed and

7es( AI could be held liable to J&( /his is a case o' an incom!lete check- ,hich has been deli)ered( 6nder :ection 1# o' the ;e*otiable nstruments ?a,- J&- as a holder in due course- can en'orce !ayment o' the check as i' it had been 'illed u! strictly in accordance ,ith the authority *i)en by AI to AB and ,ithin a reasonable time( 7ncom$lete an6 Deli ere6 (2001)
Brad ,as in des!erate need o' money to !ay his debt to >ete- a loan shark( >ete threatened to take Brads li'e i' he 'ailed to !ay( Brad and >ete ,ent to see :eYorita sobel- Brads rich cousin- and asked her i' she could si*n a !romissory note in his 'a)or in the amount o' >10-000(00 to !ay >ete( <earin* that >ete ,ould kill Brad:eYorita sobel acceded to the re3uest( :he a''i9ed her si*nature on a !iece o' !a!er ,ith the assurance o' Brad that he ,ill +ust 'ill it u! later( Brad then 'illed u! the blank !a!er- makin* a !romissory note 'or the amount o' >100-000(00( 5e then indorsed and deli)ered the same to >ete- ,ho acce!ted the note as !ayment o' the debt(

What de'ense or de'enses can :eYorita sobel set u! a*ainst >ete? 89!lain( ".$%
SUGGESTED ANSWER:

/he de'ense "!ersonal de'ense% ,hich :eYorita sobel can set u! a*ainst >ete is that the amount o' >100-000(00 is not in accordance ,ith the authority *i)en to her to Brad "in the !resence o' >ete% and that >ete

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deli)ered it to @arie( :he acce!ted the check in *ood 'aith as !ayment 'or *oods she deli)ered to Ruth( 8)entually- Ruth re*retted ,hat she did and a!olo*i4ed to Bun( mmediately he directed the dra,ee bank to dishonor the check( When @arie encashed the checkit ,as dishonored( 1( s Bun liable to @arie? "2$%
SU..ESTE0 ANSWER:

ne*otiated ,ithout authority- be a )alid contract in the hands o' any holder- as a*ainst any !erson- includin* Bun- ,hose si*nature ,as !laced thereon be'ore deli)ery( :uch de'ense is a real de'ense e)en a*ainst a holder in due course- a)ailable to a !arty like Bun ,hose si*nature a!!eared !rior to deli)ery(

7es( /his co)ers the deli)ery o' an incom!lete instru- ment- under :ection 1# o' the ;e*otiable nstruments ?a,- ,hich !ro)ides that there ,as !rima 'acie authority on the !art o' Ruth to 'ill-u! any o' the material !articulars thereo'( 5a)in* done soand ,hen it is 'irst com!leted be'ore it is ne*otiated to a holder in due course like @arie- it is )alid 'or all !ur!oses- and @arie may en'orce it ,ithin a reasonable time- as i' it had been 'illed u! strictly in accordance ,ith the authority *i)en(

7n6orser: 7rre'ular 7n6orser s! General 7n6orser (2001) Distin*uish an irre*ular indorser 'rom a *eneral indorser( ".$%
SUGGESTED ANSWER:

rre*ular ndorser is not a !arty to the instrument but he !laces his si*nature in blank be'ore deli)ery( 5e is not a !arty but he becomes one because o' his si*nature in the instrument( Because his si*nature he is considered an indorser and he is liable to the !arties in the instrument(

2( :u!!osin* the check ,as stolen ,hile in RuthCs !os- session and a thie' 'illed the blank check- endorsed and deli)ered it to @arie in !ayment 'or the *oods he !urchased 'rom her- is Bun liable to @arie i' the check is dishonored? "2$%
SU..ESTE0 ANSWER:

While- a Deneral ndorser ,arrants that the instrument is *enuine- that he has a *ood title to it- that all !rior !arties had ca!acity to contractH that the instrument at the time o' the indorsement is )alid and subsistin*H and that on due !resentmentthe instrument ,ill be acce!ted or !aid or both acce!ted and !aid accordin* to its tenor- and that i' it is dishonored- he ,ill !ay i' the necessary !roceedin*s 'or dishonor are made( Ne'otia.ilit% ()**3) Discuss the ne*otiability or nonne*otiability o' the 'ollo,in* notes 1% @anila- :e!tember 1- 1FF.
*er i!n 1++0,'00- U)dated by

;o( 8)en thou*h @arie is a holder in due course- this is an incom!lete and undeli)ered instrument- co)ered by :ection 12 o' the ;e*otiable nstruments ?a,( Where an incom!lete instrument has not been deli)ered- it ,ill noti' com!leted and
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

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

>2-200(00 !romise to !ay >edro :an Buan or order the sum o' >2-200( ":*d(% ;oel &astro 2% @anila- Bune .- 1FF. >10-000(00 <or )alue recei)ed- !romise to !ay :er*io Dee or order the sum o' >10-000(00 in 'i)e "2% installments- ,ith the 'irst installment !ayable on Actober 2- 1FF. and the other installments on or be'ore the 'i'th day o' the succeedin* month or therea'ter( ":*d(% ?ito Nilla
SUGGESTED ANSWER:

d% /he >; *i)es the holder the o!tion either to re3uire !ayment in money or to re3uire the maker to ser)e as the body*uard or escort o' the holder 'or .0 days(
SUGGESTED ANSWER:

a% >ara*ra!h 1 E ne*otiability is ;A/ A<<8&/8D( /he date is not one o' the re3uirements 'or ne*otiability(

/he !romissory note is ne*otiable as it com!lies ,ith :ec 1- ; ?( <irstly- it is in ,ritin* and si*ned by the maker- ;oel &astro( :econdly- the !romise is unconditional to !ay a sum certain in money- that is>2-200(00 /hirdly- it is !ayable on demand as no date o' maturity is s!eci'ied( <ourth- it is !ayable to order( /he !romissory note is ne*otiable( All the re3uirements o' :ec 1 ; ? are com!lied ,ith( /he sum to be !aid is still certain des!ite that the sum is to be !aid by installments ":ec 2b ; ?% Ne'otia.ilit% (2002)
Which o' the 'ollo,in* sti!ulations or 'eatures o' a !romissory note ">;% a''ect or do not a''ect its ne*otiabilityassumin* that the >; is other,ise ne*otiable? ndicate your ans,er by ,ritin* the !ara*ra!h number o' the sti!ulation or 'eature o' the >; as sho,n belo, and your corres!ondin* ans,ereither A''ected or ;ot a''ected( 89!lain "2$%(

a% /he date o' the >; is <ebruary .02002( b% /he >; bears interest !ayable on the last day o' each calendar 3uarter at a rate e3ual to 'i)e !ercent "2$% abo)e the then !re)ailin* F1-day /reasury Bill rate as !ublished at the be*innin* o' such calendar 3uarter( c% /he >; *i)es the maker the o!tion to make !ayment either in money or in 3uantity o' !alay or e3ui)alent )alue(

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b% >ara*ra!h 2 E ne*otiability is ;A/ A<<8&/8D /he interest is to be com!uted at a !articular time and is determinable( t does not make the sum uncertain or the !romise conditional( c% >ara*ra!h . E ne*otiability is A<<8&/8D( Di)in* the maker the o!tion renders the !romise conditional d% >ara*ra!h # E ne*otiability is ;A/ A<<8&/8D( Di)in* the o!tion to the holder does not make the !romise conditional( Ne'otia.ilit%2 Eol6er in Due Course ()**2) >erla brou*ht a motor car !ayable on installments 'rom Automoti)e &om!any 'or >220th( :he made a do,n !ayment o' >20th and e9ecuted a !romissory note 'or the balance( /he com!any subse3uently indorsed the note to Reliable <inance &or!oration ,hich 'inanced the !urchase( /he !romissory note read0
<or )alue recei)ed!romised to !ay Automoti)e &om!any or order at its o''ice in ?e*as!i &ity- the sum o' >200-000(00 ,ith interest at t,el)e "12$% !ercent !er annum!ayable in e3ual installments o' >20-000(00 monthly 'or ten "10% months startin* Actober 21- 1FF1(

Automoti)e &om!any

By0 ":*d% @ana*er


Because >erla de'aulted in the !ayment o' her installments- Reliable <inance &or!oration initiated a case a*ainst her 'or a sum o' money( >erla ar*ued that the !romissory note is merely an assi*nment o' credit- a non-ne*otiable instrument o!en to all de'enses a)ailable to the assi*nor andthere'oreReliable <inance &or!oration is not a holder in due course(

a% s the !romissory note a mere assi*nment o' credit or a ne*otiable instrument? Why? b% s Reliable <inance &or! a holder in due course? 89!lain brie'ly(
SUGGESTED ANSWER:

a%/he !romissory note in the !roblem is a ne*otiable instrumentbein* in com!liance ,ith the !ro)isions o' :ec 1 ; ?( ;either the 'act that the !ayable sum is to be !aid ,ith interest nor that the maturities are in stated installments renders uncertain the amount !ayable ":ec 2 ; ?% b% 7es- Reliable <inance &or!oration is a holder in due course *i)en the 'actual settin*s( :aid cor!oration a!!arently took the !romissory note 'or )alue- and there are no indications that it ac3uired it in bad 'aith (Sec 5% 3/= see Salas v '1 #6# s %9&" Ne'otia.ilit%2 Re5uisites (2000)

@anila :e!tember 21- 1FF1( "s*d% >erla


>ay to the order o' Reliable <inance &or!oration(

*er i!n 1++0,'003 Arranged by SULAW Cla

'00(

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

a% @> bou*ht a used cell !hone 'rom BR( BR !re'erred cash but @> is a 'riend so BR acce!ted @Rs !romissory note 'or >10-000( BR thou*ht o' con)ertin* the note into cash by endorsin* it to his brother JR( /he !romissory note is a !iece o' !a!er ,ith the 'ollo,in* hand-!rinted notation0 @> W ?? >A7 BR /8; /5A6:A;D >8:A: ; >A7@8;/ <AR 5 : &8??>5A;8 1 W88J <RA@ /ADA7( Belo, this notation @>s si*nature ,ith GL1L00 ne9t to it- indicatin* the date o' the !romissory note( When BR !resented @>s note to JR- the latter said it ,as not a ne*otiable instrument under the la, and so could not be a )alid substitute 'or cash( BR took the o!!osite )ie,- insistin* on the notes ne*otiability( 7ou are asked to re'eree( Which o' the o!!osin* )ie,s is correct? b% /5 is an indorsee o' a !romissory note that sim!ly states0 >A7 /A B6A; /A; AR ARD8R #00 >8:A:( /he note has no date- no !lace o' !ayment and no consideration mentioned( t ,as si*ned by @J and ,ritten under his letterhead s!eci'yin* the address- ,hich ha!!ens to be his residence( /5 acce!ted the !romissory note as !ayment 'or ser)ices rendered to :5,ho in turn recei)ed the note 'rom Buan /an as !ayment 'or a !re!aid cell !hone card ,orth #20 !esos( /he !ayee ackno,led*ed ha)in* recei)ed the note on Au*ust 1- 2000( A Bar re)ie,ee had told /5,ho ha!!ens to be your 'riend- that /5 is not a holder in due course under Article 22 o' the ;e*otiable nstruments ?a, "Act 20.1% and there'ore does not en+oy the ri*hts and !rotection under the statute( /5 asks 'or our ad)ice s!eci'ically in connection ,ith the note bein* undated and not mentionin* a !lace o' !ayment and any consideration( What ,ould your ad)ice be? "2$%(
SUGGESTED ANSWER:

consideration is not material( &onsideration is !resumed( Ne'otia.le 7nstrument: Am.i'uous 7nstruments ()**:) 5o, do you treat a ne*otiable instrument that is so ambi*uous that there is doubt ,hether it is a bill or a note? "2$%
SUGGESTED ANSWER:

1( Where a ne*otiable instrument is so ambi*uous that there is doubt ,hether it is a bill or a note- the holder may treat it either as a bill o' e9chan*e or a !romissory note at his election(

a%JR is ri*ht( /he !romissory note is not ne*otiable( t is not issued to order or bearer( /here is no ,ord o' ne*otiability containin* therein( t is not issued in accordance ,ith :ection 1 o' the ;e*otiable nstruments ?a, b% /he 'act that the instrument is undated and does not mention the !lace o' !ayment does not militate a*ainst its bein* ne*otiable( /he date and !lace o' !ayment are not material !articulars re3uired to make an instrument ne*otiable( /he 'act that no mention is made o' any

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;e*otiable nstruments ?a,0 "2$%

Ne'otia.le 7nstrument: De&inition 0 C#aracteristics (2001) What is a ne*otiable instrument? Di)e the characteristics o' a ne*otiable instrument( "2$%
SUGGESTED ANSWER:

1% >ostal @oney ArderH

;e*otiable nstrument is a ,ritten contract 'or the !ayment o' money ,hich is intended as a substitute 'or money and !asses 'rom one !erson to another as money- in such a manner as to *i)e a holder in due course the ri*ht to hold the instrument 'ree 'rom de'enses a)ailable to !rior !arties( :uch instrument must com!ly ,ith :ec( 1 o' the ;e*otiable nstrument ?a, to be considered ne*otiable( /he characteristics o' a ne*otiable instrument areH 1% ;e*otiability /hat 3uality or attribute ,hereby a bill- note or check !asses or may !ass 'rom hand to handsimilar to money- so as to *i)e the holder in due course the ri*ht to hold the instrument and collect the sum !ayable 'or himsel' 'ree 'rom de'enses( 2% Accumulation o' :econdary &ontracts as they are trans'erred 'rom one !erson to another( Ne'otia.le 7nstrument: 76enti&ication (2001)
:tate and e9!lain ,hether the 'ollo,in* are ne*otiable instruments under the

2% A certi'icate o' time de!osit ,hich states /his is to certi'y that bearer has de!osited in this bank the sum o' <A6R /5A6:A;D >8:A: ">#-000(00% onlyre!ayable to the de!ositor 200 days a'ter date(

.% ?etters o' creditH #% Warehouse recei!tsH 2% /reasury ,arrants !ayable s!eci'ic 'und(
SUGGESTED ANSWER:

'rom

1% >ostal @oney Arder E ;on;e*otiable as it is *o)erned by !ostal rules and re*ulation ,hich may be inconsistent ,ith the ; ? and it can only be ne*otiated once( 2% A certi'icate o' time de!osit ,hich states /his is to certi'y that bearer has de!osited in this bank the sum o' <A6R /5A6:A;D >8:A: ">#-000(00% only- re!ayable to the de!ositor 200 days a'ter date( E ;on-;e*otiable as it does not com!ly ,ith the re3uisites o' :ec( 1 o' ; ? .% ?etters o' credit - ;on-;e*otiable #% Warehouse recei!ts - ;on-;e*otiable 'or the same as Bill o' ?adin* it merely re!resents *ood- not money( 2% /reasury ,arrants !ayable 'rom a s!eci'ic 'und - ;on-;e*otiable bein* !ayable out o' a !articular 'und(
*er i!n 1++0,'00- U)dated by

*er i!n 1++0,'003 Arranged by SULAW Cla

'00(

Dondee

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

Ne'otia.le 7nstrument: Ne'otia.le Document s! Ne'otia.le 7nstrument (2001) Distin*uish a ne*otiable document 'rom a ne*otiable instrument( "2$%
SUGGESTED ANSWER:

the same to ;a!oleon( /he note is subse3uently dishonored by Richard &linton( @ay ;a!oleon !roceed a*ainst Richard &linton 'or the note? "2$%
SUGGESTED ANSWER:

;e*otiable nstrument ha)e re3uisites o' :ec( 1 o' the ; ?- a holder o' this instrument ha)e ri*ht o' recourse a*ainst intermediate !arties ,ho are secondarily liable- 5older in due course may ha)e ri*hts better than trans'eror- its sub+ect is money and the nstrument itsel' is !ro!erty o' )alue(
An the other handne*otiable document does not contain re3uisites o' :ec( 1 o' ; ?- it has no secondary liability o' intermediate !artiestrans'eree merely ste!s into the shoes o' the trans'eror- its sub+ect are *oods and the instrument is merely e)idence o' titleH thin* o' )alue are the *oods mentioned in the document(

7es( Richard &linton is liable to ;a!oleon under the !romissory note( /he note made by Richard &linton is a bearer instrument( Des!ite s!ecial indorsement made by Aurora >a*e thereonthe note remained a bearer instrument and can be ne*otiated by mere deli)ery( When I deli)ered and trans'erred the note to ;a!oleon- the

Ne'otia.le 7nstrument2 Ne'otia.ilit% ()**+) &an a bill o' e9chan*e or a !romissory note 3uali'y as a ne*otiable instrument i' E a( it is not datedH or b( the day and the month- but not the year o' its maturity- is *i)enH or c( it is !ayable to cash or d( it names t,o alternati)e dra,ees
SUGGESTED ANSWER:

a% 7es( Date is not a material !articular re3uired by :ec 1 ; ? 'or the ne*otiability o' an instrument( b%;o( /he time 'or !ayment is not determinable in this case( /he year is not stated( c% 7es( :ec Fd ; ? makes the instrument !ayable to bearer because the name o' the !ayee does not !ur!ort to be the name o' any !erson( d%A bill may not be addressed to t,o or more dra,ees in the alternati)e or in succession- to be ne*otiable ":ec 12G ; ?%( /o do so makes the order conditional( Ne'otia.le 7nstruments2 ,earer 7nstrument ()**:) Richard &linton makes a !romissory note !ayable to bearer and deli)ers the same to Aurora >a*e( Aurora >a*e- ho,e)erendorses it to I in this manner0 >ayable to I( :i*ned0 Aurora >a*e( ?aterI!romissory ,ithout endorsin* the note- trans'ers and deli)ers

Page 3( of 103 latter became a holder thereo'( As such holder;a!oleon can !roceed a*ainst Richard &linton(

,hose si*nature ,as 'or*ed by 8 cannot be held liable by <( Ne'otia.le 7nstruments2 .earer instruments2 lia.ilities o& ma-er an6 in6orsers (200)) A issued a !romissory note !ayable to B or bearer( A deli)ered the note to B( B indorsed the note to &( & !laced the note in his dra,er- ,hich ,as stolen by the +anitor I( I indorsed the note to D by 'or*in* &s si*nature( D indorsed the note to 8 ,ho in turn deli)ered the note to <a holder in due course,ithout indorsement( Discuss the indi)idual liabilities to < o' A- B and &( "2$%
SUGGESTED ANSWER:

Ne'otia.le 7nstruments2 ,earer 7nstruments ()**+) A deli)ers a bearer instrument to B( B then s!ecially indorses it to & and & later indorses it in blank to D( 8 steals the instrument 'rom D and- 'or*in* the si*nature o' D- succeeds in ne*otiatin* it to < ,ho ac3uires the instrument in *ood 'aith and 'or )alue( a% '- 'or any reason- the dra,ee bank re'uses to honor the check- can < en'orce the instrument a*ainst the dra,er?
b% n case o' the dishonor o' the check by both the dra,ee and the dra,er- can < hold any o' B- & and D

liable secondarily on the instrument?


SUGGESTED ANSWER:

a% 7es( /he instrument ,as !ayable to bearer as it ,as a bearer instrument( t could be ne*otiated by mere deli)ery des!ite the !resence o' s!ecial indorsements( /he 'or*ed si*nature is unnecessary to !resume the +uridical relation bet,een or amon* the !arties !rior to the 'or*ery and the !arties a'ter the 'or*ery( /he only !arty ,ho can raise the de'ense o' 'or*ery a*ainst a holder in due course is the !erson ,hose si*nature is 'or*ed( b%Anly B and & can be held liable by <( /he instrument at the time o' the 'or*ery ,as !ayable to bearer- bein* a bearer instrument( @oreo)er- the instrument ,as indorsed in blank by & to D( D*er i!n 1++0,'003 Arranged by SULAW Cla '00(

A is liable to <( As the maker o' the !romissory note- A is directly or !rimarily liable to <- ,ho is a holder in due course( Des!ite the !resence o' the s!ecial indorsements on the note- these do not detract 'rom the 'act that a bearer instrument- like the !romissory note in 3uestion- is al,ays ne*otiable by mere deli)ery- until it is indorsed restricti)ely <or De!osit Anly(
B- as a *eneral indorser- is liable to < secondarilyand ,arrants that the instrument is *enuine and in all res!ects ,hat it !ur!orts to beH that he has *ood title to itH that all !rior !arties had ca!acity to contractH that he has no kno,led*e o' any 'act ,hich ,ould im!air the )alidity o' the instrument or render it )aluelessH that at the time o' his indorsement- the instrument is )alid and subsistin*H and that on due !resentment- it shall be acce!ted or !aid- or both- accordin* to its tenor- and that i' it be dishonored and the necessary !roceedin*s on dishonor
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Dondee

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

be duly taken- he ,ill !ay the amount thereo' to the holder- or to any subse3uent indorser ,ho may be com!elled to !ay( & is not liable to < since the latter cannot trace his title to the 'ormer( /he si*nature o' & in the su!!osed indorsement by him to D ,as 'or*ed by I( & can raise the de'ense o' 'or*ery since it ,as his si*nature that ,as 'or*ed(
A8TERNAT7>E ANSWER:

to ,hate)er de'enses- real o' !ersonala)ailable to the maker o' the

!romissory note(
A8TERNAT7>E ANSWER:

b% A !ayee can be a holder in due course( A holder is de'ined as the !ayee or indorsee o' the instrument ,ho is in !ossession o' it( 8)ery holder is deemed !rima 'acie to be a holder in due course( Ne'otia.le 7nstruments2 7ncom$lete Deli ere6 7nstruments2 Com$arati e Ne'li'ence ()**+)

As a *eneral endorser- B is secondarily liable to <( & is liable to < since it is due to the ne*li*ence o' & in !lacin* the note in his dra,er that enabled I to steal the same and 'or*e the si*nature o' & relati)e to the indorsement in 'a)or o' D( As bet,een & and < ,ho are both innocent !arties- it is & ,hose ne*li*ence is the !ro9imate cause o' the loss( 5ence & should su''er the loss(
Ne'otia.le 7nstruments2 incom$lete an6 un6eli ere6 instruments2 #ol6er in 6ue course (2000) >; makes a !romissory note 'or >2-000(00- but lea)es the name o' the !ayee in blank because he ,anted to )eri'y its correct s!ellin* 'irst( 5e mindlessly le't the note on to! o' his desk at the end o' the ,orkday( When he returned the 'ollo,in* mornin*- the note ,as missin*( t turned u! later ,hen I !resented it to >; 'or !ayment( Be'ore I- /- ,ho turned out to ha)e 'ilched the note 'rom >;s o''ice- had endorsed the note a'ter insertin* his o,n name in the blank s!ace as the !ayee( >; dishonored the note- contendin* that he did not authori4e its com!letion and deli)ery( But I said he had no !artici!ation in- or kno,led*e about- the !il'era*e and alteration o' the note and there'ore he en+oys the ri*hts o' a holder in due course under the ;e*otiable nstruments ?a,( Who is correct and ,hy? ".$%
b% &an the !ayee in a !romissory note be a holder in due course ,ithin the meanin* o' the ;e*otiable nstruments ?a, "Act 20.1%? 89!lain your ans,er( "2$%
SUGGESTED ANSWER:

a% >; is ri*ht( /he instrument is incom!lete and undeli)ered( t did not create any contract that ,ould bind >; to an obli*ation to !ay the amount thereo'( b% A !ayee in a !romissory note cannot be a holder in due course ,ithin the meanin* o' the ;e*otiable nstruments ?a,- because a !ayee is an immediate !arty in relation to the maker( /he !ayee is sub+ect

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A- sin*le !ro!rietor o' a business concernis about to lea)e 'or a business tri! and- as he so o'ten does on these occasions- si*ns se)eral checks in blank( 5e instructs B- his secretary- to sa'ekee! the checks and 'ill them out ,hen and as re3uired to !ay accounts durin* his absence( B 'ills out one o' the checks by !lacin* her name as !ayee- 'ills in the amount- endorses and deli)ers the check to & ,ho acce!ts it in *ood 'aith as !ayment 'or *oods sold to B( B re*rets her action and tells A ,hat she did( A directs the Bank in time to dishonor the check( When & encashes the check- it is dishonored(

check- each containin* the essential elements o' a ne*otiable instrument "2$%
SUGGESTED ANSWER:

A( "1% A ne*otiable !romissory note is an unconditional !romise in ,ritin* made by one !erson to another- si*ned by the maker- en*a*in* to !ay on demand or at a 'i9ed or determinable 'uture time- a sum certain in money to order or bearer(
"2% A bill o' e9chan*e is an unconditional order in ,ritin* addressed by one !erson to another- si*ned by the !erson *i)in* itre3uirin* the !erson to ,hom it is addressed to !ay on demand or at a 'i9ed or determinable 'uture time a sum certain in money to order or to bearer(

&an A be held liable to &?


SUGGESTED ANSWER:

7es- A can be held liable to &- assumin* that the latter *a)e notice o' dishonor to A( /his is a case o' an incom!lete instrument but deli)ered as it ,as entrusted to B- the secretary o' A( @oreo)er- under the doctrine o' com!arati)e ne*li*ence- as bet,een A and &- both innocent !arties- it ,as the ne*li*ence o' A in entrustin* the check to B ,hich is the !ro9imate cause o' the loss(

".% A check is a bill o' e9chan*e dra,n on a bank !ayable on demand( B( "1% ;e*otiable !romissory note :e!tember 12- 2002 <or )alue recei)edhereby !romise to !ay Buan :antos or order the sum o' /8; /5A6:A;D >8:A: ">10-000% thirty ".0% days 'rom date hereo'( ":i*ned% >edro &ru4
to0 >hili!!ine ;ational Bank 8scolta@anila Branch
*er i!n 1++0,'00- U)dated by

Ne'otia.le 7nstruments2 -in6s o& ne'otia.le instrument2 ;or6s o& ne'otia.ilit% (2002) A( De'ine the 'ollo,in*0 "1% a ne*otiable !romissory note- "2% a bill o' e9chan*e and ".% a check( ".$% B( 7ou are >edro &ru4( Dra't the a!!ro!riate contract lan*ua*e 'or "1% your ne*otiable !romissory note and "2% your
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

Ne'otia.le 7nstruments2 Re5uisites ()**4) What are the re3uisites o' a ne*otiable instrument?
SUGGESTED ANSWER:

time o' takin* said instrument kne, him to be only an accommodation !arty( /his is the nature or the essence o' accommodation( "arties2 Accommo6ation "art% ()**))
An Bune 1- 1FF0- A obtained a loan o' >100th 'rom B- !ayable not later than 20Dec1FF0( B re3uired A to issue him a check 'or that amount to be dated 20Dec1FF0( :ince he does not ha)e any checkin* account- A- ,ith the kno,led*e o' B- re3uested his 'riend&- >resident o' :aad Bankin* &or! ":aad% to accommodate him( & a*reedhe si*ned a check 'or the a'oresaid amount dated 20Dec 1FF0- dra,n a*ainst :aads account ,ith the AB&

/he re3uisites o' a ne*otiable instrument are as 'ollo,s0 a% t must be in ,ritin* and si*ned by the maker or dra,erH b% t must contain an unconditional !romise or order to !ay a sum certain in moneyH c% t must be !ayable to order or to bearerH and d% Where the instrument is addressed to a dra,ee- he must be named or other,ise indicated therein ,ith reasonable certainty( ":ec 1 ; ?% Notice Dis#onor ()**4) When is notice o' dishonor not re3uired to be *i)en to the dra,er?
SUGGESTED ANSWER:

;otice o' dishonor is not re3uired to be *i)en to the dra,er in any o' the 'ollo,in* cases0 a% Where the dra,er and dra,ee are the same !ersonH b% When the dra,ee is a 'ictitious !erson or a !erson not ha)in* ca!acity to contractH c% When the dra,er is the !erson to ,hom the instrument is !resented 'or !aymentH d% Where the dra,er has no ri*ht to e9!ect or re3uire that the dra,ee or acce!tor ,ill honor the instrumentH e% Where the dra,er has countermanded !ayment ":ec 11# ; ?% "arties2 Accommo6ation "art% ()**0)
/o accommodate &armen- maker o' a !romissory note- Bor*e si*ned as indorser thereon- and the instrument ,as ne*otiated to Ra''y- a holder 'or )alue( At the time Ra''y took the instrument- he kne, Bor*e to be an accomodation !arty only( When the !romissory note ,as not !aid- and Ra''y disco)ered that &armen had no 'unds- he sued Bor*e( Bor*e !leads in de'ense the 'act that he had endorsed the instrument ,ithout recei)in* )alue there'or- and the 'urther 'act that Ra''y kne, that at the time he took the instrument Bor*e had not recei)ed any )alue or consideration o' any kind 'or his indorsement(
SUGGESTED ANSWER:

s Bor*e liable? Discuss(

7es( Bor*e is liable( :ec 2F o' the ; ? !ro)ides that an accommodation !arty is liable on the instrument to a holder 'or )alue- not,ithstandin* the holder at the

Page

32 of 103

&ommercial Bankin* &o( /he By-la,s o' :aad re3uires that checks issued by it must be si*ned by the >resident and the /reasurer or the Nice->resident( :ince the /reasurer ,as absent- & re3uested the Nice->resident to co-si*n the check- ,hich the latter reluctantly did( /he check ,as deli)ered to B( /he check ,as dishonored u!on !resentment on due date 'or insu''iciency o' 'unds(

;ora a!!lied 'or a loan o' >100th ,ith B6R Bank( By ,ay o' accommodation;oras sister- Nilma- e9ecuted a !romissory note in 'a)or o' B6R Bank( When ;ora de'aulted- B6R Bank sued Nilma- des!ite its kno,led*e that Nilma recei)ed no !art o' the loan( @ay Nilma be held liable? 89!lain(
SUGGESTED ANSWER:

a% s :aad liable on the check as an accommodation !arty? b% ' it is not- ,ho then- under the abo)e 'acts- isLare the accommodation !arty?
SUGGESTED ANSWER:

7esNilma may be held liable( Nilma is an accommodation !arty( As such- she is liable on the instrument to a holder 'or )alue such as B6R Bank( /his is true e)en i' B6R Bank ,as a,are at the time it took the instrument that Nilma is merely an accommodation !arty and recei)ed no !art o' the loan (See Sec %9, 3/=< Eulalio
;rudencio v '1 2, =8$55$9, Aul #5, 6& #5$ s 4"

a(% :aad is not liable on the check as an accommodation !arty( /he act o' the cor!oration in accommodatin* a 'riend o' the >resident- is ultra )ires ('risologo8Aose v '1 2, 67599, #5Sep#969"0 While it may be le*ally !ossible 'or the cor!oration- ,hose business is to !ro)ide 'inancial accommodations in the ordinary course o' business- such as one *i)en by a 'inancin* com!any to be an accommodation !artythis situationho,e)er- is not the case in the bar !roblem(
b% &onsiderin* that both the >resident and Nice- >resident ,ere si*natories to the accommodation- they themsel)es can be sub+ect to the liabilities o' accommodation !arties to the instrument in their !ersonal ca!acity ('risologo8Aose v '1
#5Sep#969"

"arties2 Accommo6ation "art% ()**:)


<or the !ur!ose o' lendin* his name ,ithout recei)in* )alue there'ore- >edro makes a note 'or >20-000 !ayable to the order o' I ,ho in turn ne*otiates it to 7- the latter kno,in* that >edro is not a !arty 'or )alue(

1(@ay 7 reco)er 'rom >edro i' the latter inter!oses the absence o' consideration? ".$%
2( :u!!osin* under the same 'acts- >edro !ays the said >20-000 may he reco)er the same amount 'rom I? "2$%
SUGGESTED ANSWER:

"arties2 Accommo6ation "art% ()**4)


*er i!n 1++0,'003 Arranged by SULAW Cla '00(

1( 7es( 7 can reco)er 'rom >edro( >edro is an accommodation !arty( Absence o' consideration is in the nature o' an accommodation( De'ense o' absence o' consideration cannot be )alidly inter!osed by accommodation !arty a*ainst a holder in due course(
*er i!n 1++0,'00- U)dated by

Dondee

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

2( ' >edro !ays the said >20-000 to 7- >edro can reco)er the amount 'rom I( I is the accommodated !arty or the !arty ultimately liable 'or the instrument( >edro is only an accommodation !arty( Ather,ise- it ,ould be un+ust enrichment on the !art o' I i' he is not to !ay >edro(

' Buan :y !ays directly to the holder o' the !romissory note- or he !ays Ben ?o!e4 'or the reimbursement o' the !ayment by the latter to the holder- the instrument is dischar*ed(

"arties2 Accommo6ation "art% (2003) :usan Ja,ada borro,ed >200-000 'rom I7P Bank ,hich re3uired her- to*ether ,ith Rose Reyes ,ho did not recei)e any amount 'rom the bank- to e9ecute a !romissory note !ayable to the bankor its order on stated maturities( /he note ,as e9ecuted as so a*reed( What kind o' liability ,as incurred by Rosethat o' an accommodation !arty or that o' a solidary debtor? 89!lain( "#$%
SUGGESTED ANSWER:

"arties2 Accommo6ation "art% (2001) Da*ul has a business arran*ement ,ith <acundo( /he latter ,ould lend money to another- throu*h Da*ul- ,hose name ,ould a!!ear in the !romissory note as the lender( Da*ul ,ould then immediately indorse the note to <acundo( s Da*ul an accommodation !arty? 89!lain( "2$%
SUGGESTED ANSWER:

"!er Dondee% Rose may be held liable( Rose is an accommodation !arty( Absence o' consideration is in the nature o' an accommodation( De'ense o' absence o' consideration cannot be )alidly inter!osed by accommodation !arty a*ainst a holder in due course(

"arties2 Accommo6ation "art% (2003) Buan :y !urchased 'rom A A!!liance &enter one *enerator set on installment ,ith chattel mort*a*e in 'a)or o' the )endor( A'ter *ettin* hold o' the *enerator set- Buan :y immediately sold it ,ithout consent o' the )endor( Buan :y ,as criminally char*ed ,ith esta'a( /o settle the case e9tra +udicially- Buan :y !aid the sum o' >20-000 and 'or the balance o' >2-000(00 he e9ecuted a !romissory note 'or said amount ,ith Ben ?o!e4 as an accommodation !arty( Buan :y 'ailed to !ay the balance( 1% What is the liability o' Ben ?o!e4 as an accommodation !arty? 89!lain( 2% What is the liability o' Buan :y?
SUGGESTED ANSWER:

1% Ben ?o!e4- as an accommodation !artyis liable as maker to the holder u! to the sum o' >2-000 e)en i' he did not recei)e any consideration 'or the !romissory note( /his is the nature o' accommodation( But Ben ?o!e4 can ask 'or reimbursement 'rom Buan :y- the accommodation !arty( 2%Buan :y is liable to the e9tent o' >2-000 in the hands o' a holder in due course ":ec 1# ; ?%( ' Ben ?o!e4 !aid the !romissory note- Buan :y has the obli*ation to reimburse Ben ?o!e4 'or the amount !aid(

Page

33 of 103

78:Z Da*ul is an accommodation !arty because in the case at bar- he is essentiallya !erson ,ho si*ns as maker ,ithout recei)in* any considerationsi*ns as an accommodation !arty merely 'or the !ur!ose o' lendin* the credit o' his name( And as an accommodation !arty he cannot set u! lack o' consideration a*ainst any holder- e)en as to one ,ho is not a holder in due course(

the breach o' trust committed by 8)elyn a*ainst ?arry ,hich is +ust a !ersonal de'ense( But ha)in* taken the instrument 'rom De)i- a holder in due course- Baby has all the ri*hts o' a holder in due course( Baby did not !artici!ate in the breach o' trust committed by 8)elyn ,ho 'illed the blank but 'illed u! the instrument ,ith >2-000 instead o' >1-000 as instructed by ?arry ":ec 2G ; ?% "arties2 Eol6er in Due Course ()**4) What constitutes a holder in due course?
SUGGESTED ANSWER:

"arties2 Eol6er in Due Course ()**3)


?arry issued a ne*otiable !romissory note to 8)elyn and authori4ed the latter to 'ill u! the amount in blank ,ith his loan account in the sum o' >1-000( 5o,e)er- 8)elyn inserted >2-000 in )iolation o' the instruction( :he ne*otiated the note to Bulie ,ho had kno,led*e o' the in'irmity( Bulie in turn ne*otiated said note to De)i 'or )alue and ,ho had no kno,led*e o' the in'irmity(

1% &an De)i en'orce the note a*ainst ?arry and i' she can- 'or ho, much? 89!lain( 2% :u!!osin* De)i endorses the note to Baby 'or )alue but ,ho has kno,led*e o' the in'irmity- can the latter en'orce the note a*ainst ?arry?
SUGGESTED ANSWER:

A holder in due course is one ,ho has taken the instrument under the 'ollo,in* conditions0 1( /hat it is com!lete and re*ular u!on its 'aceH 2( /hat he became holder o' it be'ore it ,as o)erdue and ,ithout notice that it had been !re)iously dishonored- i' such ,as the 'actH .( /hat he took it in *ood 'aith and 'or )alueH #( /hat at the time it ,as ne*otiated to him- he had no notice o' any in'irmity in the instrument or de'ect in the title o' the !erson ne*otiatin* it( ":ec 22- ; ?% "arties2 Eol6er in Due Course ()**4) 1FF= 2(2% 8)a issued to melda a check in the amount o' >20th !ost-dated :e! .01FF2- as security 'or a diamond rin* to be sold on commission( An :e! 12- 1FF2melda ne*otiated the check to @/ in)estment ,hich !aid the amount o' >#0th to her( 8)a 'ailed to sell the rin*- so she returned it to melda on :e! 1F- 1FF2( 6nable to retrie)e her check- 8)a ,ithdre,
*er i!n 1++0,'00- U)dated by

1%7es- De)i can en'orce the ne*otiable !romissory note a*ainst ?arry in the amount o' >2-000( De)i is a holder in due course and the breach o' trust committed by 8)elyn cannot be set u! by ?arry a*ainst De)i because it is a !ersonal de'ense( As a holder in due course- De)i is not sub+ect to such !ersonal de'ense( 2% 7es( Baby is not a holder in due course because she has kno,led*e o'
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

her 'unds 'rom the dra,ee bank( /hus,hen @/ n)estment !resented the check 'or !ayment- the dra,ee bank dishonored it( ?ater on- ,hen @/ n)estment sued her- 8)a raised the de'ense o' absence o' consideration- the check ha)in* been issued merely as security 'or the rin* that she could not sell( Does 8)a ha)e a )alid de'ense? 89!lain(
SUGGESTED ANSWER:

bet,een immediate !arties or a*ainst !arties ,ho are not holders in due course( &s kno,led*e that A is a minor does not !re)ent & 'rom bein* a holder in due course( & took the !romissory note 'rom a holder 'or )alue- B( "arties2 Eol6er in Due Course2 7n6orsement in .lan(2002)
A( AB issued a !romissory note 'or >1-000 !ayable to &D or his order on :e!tember 12- 2002( &D indorsed the note in blank and deli)ered the same to 8<( D5 stole the note 'rom 8< and on :e!tember 1#- 2002 !resented it to AB 'or !ayment( When asked by AB- D5 said &D

;o( 8)a does not ha)e a )alid de'ense( <irst- @/ n)estment is a holder in due course and- as such- holds the !ostdated check 'ree 'rom any de'ect o' title o' !rior !arties and 'rom de'enses a)ailable to !rior !arties amon* themsel)es( 8)a can in)oke the de'ense o' absence o' consideration a*ainst @/ n)estment only i' the latter ,as !ri)y to the !ur!ose 'or ,hich the checks ,ere issued and- there'ore- not a holder in due course( :econd- it is not a *round 'or the dischar*e o' the !ost- dated check as a*ainst a holder in due course that it ,as issued merely as security( /he only *rounds 'or the dischar*e o' ne*otiable instruments are those set 'orth in :ec 11F o' the ; ? and none o' those *rounds are a)ailable to 8)a( /he latter may not unilaterally dischar*e hersel' 'rom her liability by the mere e9!ediency o' ,ithdra,in* her 'unds 'rom the dra,ee bank( (State /nvestments v '1 2, #7##&$, Aan ##, 9$ %#4s$%"0

"arties2 Eol6er in Due Course ()**:) I makes a !romissory note 'or >10-000 !ayable to A- a minor- to hel! him buy school books( A endorses the note to B 'or )alue- ,ho in turn endorses the note to &( & kno,s A is a minor( ' & sues I on the note- can I set u! the de'enses o' minority and lack o' consideration? ".$%
SUGGESTED ANSWER:

7es( & is not a holder in due course( /he !romissory note is not a ne*otiable instrument as it does not contain any ,ord o' ne*otiability- that is- order or bear- or ,ords o' similar meanin* or im!ort( ;ot bein* a holder in due course- & is to sub+ect such !ersonal de'enses o' minority and lack o' consideration( & is a mere assi*nee ,ho is sub+ect to all de'enses(
A8TERNAT7>E ANSWER:

I cannot set u! the de'ense o' the minority o' A( De'ense o' minority is a)ailable to the minor only( :uch de'ense is not a)ailable to I( I cannot set u! the de'ense a*ainst &( ?ack o' consideration is a !ersonal de'ense ,hich is only a)ailable

Page 3+ of 103 *a)e him the note in !ayment 'or t,o ca)ans o' rice( AB there'ore !aid D5 >1-00 on the same date( An :e!tember 122002- 8< disco)ered that the note o' AB ,as not in his !ossession and he ,ent to AB( t ,as then that 8< 'ound out that AB had already made !ayment on the note( &an 8< still claim !ayment 'rom AB? Why? ".$% B( As a se3uel to the same 'acts narrated abo)e- 8<- out o' !ity 'or AB ,ho had already !aid >1-000(00 to D5- decided to 'or*i)e AB and instead *o a'ter &D ,ho indorsed the note in blank to him( s &D still liable to 8< by )irtue o' the indorsement in blank? Why? "2$% SUGGESTED ANSWER:

bankin* hours( A; maturity date- R> ,as at the a'oresaid o''ice ready to !ay the note but >; did not sho, u!( What >; later did ,as to sue I? 'or the 'ace )alue o' the note- !lus interest and costs( Will the suit !ros!er? 89!lain( "2$%
SUGGESTED ANSWER:

7es( /he suit ,ill !ros!er as 'ar as the 'ace )alue o' the note is concerned- but not ,ith res!ect to the interest due subse3uent to the maturity o' the note and the costs o' collection( R> ,as ready and ,illin* to !ay the note at the s!eci'ied !lace o' !ayment on the s!eci'ied maturity datebut >; did not sho, u!( >; lost his ri*ht to reco)er the interest due subse3uent to the maturity o' the note and the costs o' collection(

A( ;o( 8< cannot claim !ayment 'rom AB( 8< is not a holder o' the !romissory note( /o make the !resentment 'or !ayment- it is necessary to e9hibit the instrument,hich 8< cannot do because he is not in !ossession thereo'( B( ;obecause &D ne*otiated instrument by deli)ery( the

P4bli% Servi%e La#


Certi&icate o& $u.lic Con enience ()**:) /he Baton* Bakal &or!oration 'iled ,ith the Board o' 8ner*y an a!!lication 'or a &erti'icate o' >ublic &on)enience 'or the !ur!ose o' su!!lyin* electric !o,er and li*hts to the 'actory and its em!loyees li)in* ,ithin the com!ound( /he a!!lication ,as o!!osed by the Bulacan 8lectric &or!oration contendin* that the Baton* Bakal &or!oration has not secured a 'ranchise to o!erate and maintain an electric !lant( s the o!!ositions contention correct? "2$%
SUGGESTED ANSWER:

"lace o& "a%ment (2000) >; is the holder o' a ne*otiable !romissory note ,ithin the meanin* o' the ;e*otiable nstruments ?a, "Act 20.1%( /he note ,as ori*inally issued by R> to I? as !ayee( I? indorsed the note to >; 'or *oods bou*ht by I?( /he note mentions the !lace o' !ayment on the s!eci'ied maturity date as the o''ice o' the cor!orate secretary o' >I Bank durin*
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

;o( A certi'icate o' !ublic con)enience may be *ranted to Baton* Bakal &or!orationthou*h not !ossessin* a
*er i!n 1++0,'00- U)dated by

Dondee

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

le*islati)e 'ranchise- i' it meets all the other re3uirements( /here is nothin* in the la, nor the &onstitution- ,hich indicates that a le*islati)e 'ranchise is necessary or re3uired 'or an entity to o!erate as su!!lier o' electric !o,er and li*ht to its 'actory and its em!loyees li)in* ,ithin the com!ound( Certi&icate o& "u.lic Con enience2 inse$ara.ilit% o& certi&icate an6 essel ()**2) Antonio ,as *ranted a &erti'icate o' >ublic &on)enience "&>&% in 1FG= to o!erate a 'erry bet,een @indoro and Batan*as usin* the motor )essel @N ?otus( 5e sto!!ed o!erations in 1FGG due to unser)iceability o' the )essel( n 1FGF- Basilio ,as *ranted a &>& 'or the same route( A'ter a 'e, months- he disco)ered that &arlos ,as o!eratin* on his route under Antonios &>&( Because Basilio 'iled a com!laint 'or ille*al o!erations ,ith the @aritime ndustry Authority- Antonio and &arlos +ointly 'iled an a!!lication 'or sale and trans'er o' Antonios &>& and substitution o' the )essel @N ?otus ,ith another o,ned by &arlos( :hould Antonios and &arlos +oint a!!lication be a!!ro)ed? Di)er your reasons(
SUGGESTED ANSWER:

b% /he a!!licant must !ro)e !ublic necessity( c% /he a!!licant must !ro)e that the o!eration o' the !ublic ser)ice !ro!osed and the authori4ation to do business ,ill !romote the !ublic interest in a !ro!er and suitable manner( ":ec 1=a &A 1#= as amended% d% /he a!!licant must be 'inancially ca!able o' undertakin* the !ro!osed ser)ice and meetin* the res!onsibilities incident to its o!eration( "o;ers o& t#e "u.lic Ser ice Commission ()**3)
/he &ity o' @anila !assed an ordinance bannin* !ro)incial buses 'rom the city( /he ordinance ,as challen*ed as in)alid under the >ublic :er)ice Act by I

/he +oint a!!lication o' Antonio and &arlos 'or the sale and trans'er o' Antonios &>& and substitution o' the )essel @N ?otus ,ith another )essel o,ned by the trans'eree should not be a!!ro)ed( /he certi'icate o' !ublic con)enience and @N ?otus are inse!arable( /he unser)iceability o' the )essel co)ered by the certi'icate had like,ise rendered ine''ecti)e the certi'icate itsel'- and the holder thereo' may not le*ally trans'er the same to another( ('ohon v '1 #66 s 4#9"0

Certi&icate o& "u.lic Con enience2 Re5uirements ()**1) What re3uirements must be met be'ore a certi'icate o' !ublic con)enience may be *ranted under the >ublic :er)ice Act?
SUGGESTED ANSWER:

/he 'ollo,in* are the re3uirements 'or the *rantin* o' a certi'icate o' !ublic con)enience- to ,it0 a% /he a!!licant must be a citi4en o' the >hili!!ines- or a cor!orationco!artnershi! or association or*ani4ed under the la,s o' the >hili!!ines and at least =0$ o' the stock o' !aid-u! ca!ital o' ,hich must belon* to citi4ens o' the >hili!!ines( ":ec 1=a&A 1#=- as amended%

,ho had a certi'icate o' !ublic con)enience to o!erate auto-trucks ,ith 'i9ed routes 'rom certain to,ns in Bulacan and Ri4al to @anila and ,ithin @anila( <irstly- he claimed that the ordinance ,as null and )oid because- amon* other thin*s- it in e''ect amends his certi'icate o' !ublic con)eniencea thin* ,hich only the >ublic :er)ice &ommission can do under :ec 1= "m% o' the >ublic :er)ice Act( 6nder said sectionthe &ommission is em!o,ered to amendmodi'y- or re)oke a certi'icate o' !ublic con)enience a'ter notice and hearin*( :econdly- he contended that e)en i' the ordinance ,as )alid- it is only the &ommission ,hich can re3uire com!liance ,ith its !ro)isions under :ec 17 "+% o' said Act and since the im!lementation o' the ordinance ,as ,ithout sanction or a!!ro)al o' the &ommission- its en'orcement ,as unauthori4ed and ille*al(

Page +0 of 103

desi*ned to deny or su!ersede the re*ulatory !o,er o' local *o)ernments o)er motor tra''ic in the streets sub+ect to their control(

(=agman v 'it of +anila #4 s 549" "u.lic utilities (2000)


WWW &ommunications nc( is an e-commerce com!any ,hose !resent business acti)ity is limited to !ro)idin* its clients ,ith all ty!es o' in'ormation technolo*y hard,are( t !lans to re-'ocus its cor!orate direction o' *radually con)ertin* itsel' into a 'ull con)er*ence or*ani4ation( /o,ards this ob+ecti)ethe com!any has been a**ressi)ely ac3uirin* telecommunications businesses and broadcast media enter!risesand consolidatin* their cor!orate structures( /he ultimate !lan is to ha)e only t,o or*ani4ations0 one to o,n the 'acilities o' the combined businesses and to de)elo! and !roduce content materialsand another to o!erate the 'acilities and !ro)ide mass media and commercial telecommunications ser)ices( WWW &ommunications ,ill be the 'la*shi! entity ,hich ,ill o,n the 'acilities o' the con*lomerate and !ro)ide content to the other ne, cor!oration ,hich- in turn- ,ill o!erate those 'acilities and !ro)ide the ser)ices( WWW &ommunications seeks your !ro'essional ad)ice on ,hether or not its reor*ani4ed business acti)ity ,ould be considered a !ublic utility re3uirin* a 'ranchise or certi'icate or any other 'orm o' authori4ation 'rom the *o)ernment( What ,ill be your ad)ice? 89!lain "2$%
SUGGESTED ANSWER:
*er i!n 1++0,'00- U)dated by

1%@ay the reliance o' I on :ection 1= "m% o' the >ublic :er)ice Act be sustained? 89!lain( 2%Was I correct in his contention that under :ection 17 "+% o' the >ublic :er)ice Act it is only the &ommissioner ,hich can re3uire com!liance ,ith the !ro)isions o' the ordinance? 89!lain(
SUGGESTED ANSWER:

1% ;o( /he !o,er )ested in the >ublic :er)ice &ommission under :ec 1=m is subordinate to the authority o' the &ity o' @anila under :ec 1G "hh% o' its re)ised charter to su!erintend- re*ulate or control the streets o' the city o' @anila( "?a*man ) &ity o' @anila 17 s 27F%
2% ;o( /he !o,ers con'erred by la, u!on the >ublic :er)ice &ommission ,ere not
*er i!n 1++0,'003 Arranged by SULAW Cla

Dondee

'00(

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

/he reor*ani4ed business acti)ity o' WWW &ommunications nc( ,ould not be considered a !ublic utility re3uirin* a 'ranchise or certi'icate or any other 'orm o' authori4ation 'rom the *o)ernment( t o,ns the 'acilities- but does not o!erate them( Re ocation o& Certi&icate ()**3) 1% Robert is a holder o' a certi'icate o' !ublic con)enience to o!erate a ta9icab ser)ice in @anila and suburbs( Ane e)enin*- one o' his ta9icab units ,as boarded by three robbers as they esca!ed a'ter sta*in* a hold-u!( Because o' said incident- the ?/<RB re)oked the certi'icate o' !ublic con)enience o' Robert on the *round that said o!erator 'ailed to render sa'e!ro!er and ade3uate ser)ice as re3uired under :ec 1Fa o' the >ublic :er)ice Act( a% Was the re)ocation o' the certi'icate o' !ublic con)enience o' Robert +usti'ied? 89!lain( b%When can the &ommission "Board% e9ercise its !o,er to sus!end or re)oke certi'icate o' !ublic con)enience?
SUGGESTED ANSWER:

not su''icient *rounds to e9cuse her 'rom com!letin* her units( /he same could be undertaken by her children or by other authori4ed re!resentati)es ":ec 1=n >ub :er) ActH 5alili ) 5erras 10 s 7=F%

Se%4ritie Reg4lati!n
7nsi6er (2003)
@s( AB ,as em!loyed in @A: n)estment Bank( W &- a medical dru* com!anyretained the Bank to assess ,hether it is desirable to make a tender o''er 'or DA> com!anya dru* manu'acturer( AB o)erheard in the

1a% ;o( A sin*le hold-u! incident ,hich does not link Roberts ta9icab cannot be construed that he rendered a ser)ice that is unsa'e- inade3uate and im!ro!er (+an>anal v 1useJo #&5 s $&" 1b% 6nder :ec 1Fa o' the >ublic :er)ice Actthe &ommission "Board% can sus!end or re)oke a certi'icate o' !ublic con)enience ,hen the o!erator 'ails to !ro)ide a ser)ice that is sa'e- !ro!er or ade3uate- and re'uses to render any ser)ice ,hich can be reasonably demanded and 'urnished( Re ocation o& Certi&icate ()**3)
>e!ay- a holder o' a certi'icate o' !ublic con)enience- 'ailed to re*ister to the com!lete number o' units re3uired by her certi'icate( 5o,e)er- she tried to +usti'y such 'ailure by the accidents that alle*edly be'ell her- claimin* that she ,as so shocked and burdened by the successi)e accidents and mis'ortunes that she did not kno, ,hat she ,as doin*- she ,as con'used and thro,n o'' tan*ent momentarilyalthou*h she al,ays had the money and 'inancial ability to buy ne, trucks and re!air the destroyed one( Are the reasons *i)en by >e!ay su''icient *rounds to e9cuse her 'rom com!letin* units? 89!lain(
SUGGESTED ANSWER:

;o(

/he

reasons

*i)en

by >e!ay

are

Page +1 of 103 course o' her ,ork the !lans o' W &( By hersel' and thru associates- she !urchased DA> stocks a)ailable at the stock e9chan*e !riced at >20 !er share( When W &Cs tender o''er ,as announced- DA> stocks +um!ed to >.0 !er share( /hus AB earned a si4able !ro'it( s AB liable 'or breach and misuse o' con'idential or insider in'ormation *ained 'rom her em!loyment? s she also liable 'or dama*es to sellers or buyers ,ith ,hom she traded? ' so- ,hat is the measure o' such dama*es? 89!lain brie'ly( "2$% SUGGESTED ANSWER:

e9ceedin* .0$ o' the a,ard( 7nsi6er Tra6in' ()**1)


6nder the Re)ised :ecurities Act- it is unla,'ul 'or an insider to sell or buy a security o' the issuer i' he kno,s a 'act o' s!ecial si*ni'icance ,ith res!ect to the issuer or the security that is not *enerally a)ailable- ,ithout disclosin* such 'act to the other !arty(

AB is an insider "as de'ined in :ubsection .(G".% o' the :ecurities Re*ulation &ode% since she is an em!loyee o' the Bank- the 'inancial ad)iser o' DA>and this relationshi! *i)es her access to material in'ormation about the issuer "DA>% and the latterCs securities "shares%- ,hich in'ormation is not *enerally a)ailable to the !ublic( Accordin*ly- AB is *uilty o' insider tradin* under :ection 27 o' the :ecurities Re*ulation &ode- ,hich re3uires disclosure ,hen tradin* in securities(

.(a% What does the term insider mean as used in the Re)ised :ecurities act? .(b% When is a 'act considered to be o' s!ecial si*ni'icance under the same Act? .(c% What are the liabilities o' a !erson ,ho )iolates the !ertinent !ro)isions o' the Re)ised :ecurities Act re*ardin* the un'air use o' inside in'ormation?
SUGGESTED ANSWER:

AB is also liable 'or dama*es to sellers or buyers ,ith ,hom she traded( 6nder :ubsection =.(1 o' the :ecurities Re*ulation &ode- the dama*es a,arded could be an amount not e9ceedin* tri!le the amount o' the transaction !lus actual dama*es( 89em!lary dama*es may also be a,arded in case o' bad 'aith- 'raud- male)olence or ,antonness in the )iolation o' the :ecurities Re*ulation &ode or its im!lementin* rules( /he court is also authori4ed to a,ard attorneyCs 'ees not
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

.a( nsider means 1% the issuer- 2% a director or o''icer o'or a !erson controllin*controlled byor under common control ,ith- the issuer- .% a !erson ,hose relationshi! or 'ormer relationshi! to the issuer *i)es or *a)e him access to a 'act o' s!ecial si*ni'icance about the issuer or the security that is not *enerally a)ailable- or #% a !erson ,ho learns such a 'act 'rom any o' the 'ore*oin* insiders ,ith kno,led*e that the !erson 'rom ,hom he learns the 'act is such an insider ":ec .0b- R:A%
.b( t is one ,hich- in addition to bein* material- ,ould be likely to a''ect the market !rice o' a security to a si*ni'icant e9tent on bein* made *enerally a)ailableor one ,hich a reasonable !erson ,ould consider es!ecially
*er i!n 1++0,'00- U)dated by

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

im!ortant under the circumstances in determinin* his course o' action in the li*ht o' such 'actors as the de*ree o' its s!eci'icity- the e9tent o' its di''erence 'rom in'ormation *enerally a)ailable !re)iously- and its nature and reliability( ":ec( .0c- R:A%
.c( /he !erson may be liable to 1% a 'ine o' not less than >2th nor more than >200th or 2% im!risonment o' not less than 7 years nor more than 21 years- .% or both such 'ine and im!risonment in the discretion o' the court(

si*ni'icance isin addition to bein* material- such 'act as ,ould likely- on bein* made *enerally a)ailable- to a''ect the market !rice o' a security to a si*ni'icant e9tent- or ,hich a reasonable !erson ,ould consider as es!ecially im!ortant under the circumstances in determinin* his course o' action in the li*ht o' such 'actors as the de*ree o' its s!eci'icity- the e9tent o' its di''erence 'rom in'ormation *enerally a)ailable !re)iously- and its nature and reliability ":ec .0 !ar c R:ecAct% (ani$ulati e "ractices (200)) :u!!ose A is the o,ner o' se)eral inacti)e securities( /o create an a!!earance o' acti)e tradin* 'or such securities-

' the !erson is a cor!oration- !artnershi!association or other +uridical entity- the !enalty shall be im!osed u!on the o''icers o' the cor!oration- etc( res!onsible 'or the )iolation( And i' such an o''icer is an alienhe shall- in addition to the !enalties !rescribed- be de!orted ,ithout 'urther !roceedin*s a'ter ser)ice o' sentence( ":ec 2= R:A% 7nsi6er Tra6in'2 (ani$ulati e "ractices ()**3)
1% Di)e a case ,here a !erson ,ho is not an issuin* cor!oration- director or o''icer thereo'- or a !erson controllin*- controlled by or under common control ,ith the issuin* cor!oration- is also considered an insider(

2% n :ecurities ?a,- ,hat is a shorts,in* transaction( .% n insider tradin*- ,hat is a 'act o' s!ecial si*ni'icance?
SUGGESTED ANSWER:

1% t may be a case ,here a !erson- ,hose relationshi! or 'ormer relationshi! to the issuer *i)es or *a)e him access to a 'act o' s!ecial si*ni'icance about the issuer or the security that is not *enerally a)ailable- or a !erson- ,ho learns such a 'act 'rom any o' the insiders- ,ith kno,led*e that the !erson 'rom ,hom he learns the 'act- is such an insider ":ec .0- !ar "b% Re) :ecurities Act%

2% A shorts,in* is a transaction ,here a !erson buys securities and sells or dis!oses o' the same ,ithin a !eriod o' si9 "=% months(
A8TERNAT7>E ANSWER:

2% t is a !urchase by any !erson 'or the issuer or any !erson controllin*controlled by- or under common control ,ith the issuer- or a !urchase sub+ect to the control o' the issuer or any such !erson- resultin* in bene'icial o,nershi! o' more than 10$ o' any class o' shares ":ec .2 R :ec Act% .% n insider tradin*- a 'act o' s!ecial

Page

+' of 103

A conni)es ,ith B by ,hich A ,ill o''er 'or sale some o' his securities and B ,ill buy them at a certain 'i9ed !rice- ,ith the understandin* that althou*h there ,ould be an a!!arent sale- A ,ill retain the bene'icial o,nershi! thereo'( a% s the arran*ement la,'ul? ".$% b% ' the sale materiali4es- ,hat is it called? "2$%
SUGGESTED ANSWER:

nstruments *i)in* to their le*al holders ri*hts to money or other !ro!ertyH they are there'ore instruments ,hich ha)e intrinsic )alue and are reco*ni4ed and used as such in the re*ular channels o' commerce(
(3ote! Sec %a of the ,evised Securities 1ct does not reall define the term Qsecurities0I"

Securities2 Sellin' o& Securities2 (eanin' (2002)


2002 "1G% 83uity Anline &or!oration "8A?%a ;e, 7ork cor!oration- has a securities brokera*e ser)ice on the nternet a'ter obtainin* all re3uisite 6(:( licenses and !ermits to do so( 8A?s ,ebsite ",,,(eonline((com%- ,hich is hosted by a ser)er in <lorida- enables nternet users to trade on-line in securities listed in the )arious stock e9chan*es in the 6(:( 8A? buys and sells 6(:( listed securities 'or the accounts o' its clients all o)er the ,orld- ,ho con)ey their buy and sell instructions to 8A? throu*h the nternet( 8A? has no o''ices- em!loyees or re!resentati)es outside the 6(:( /he ,ebsite has icons 'or many countries- includin* an icon <or <ili!ino /raders containin* the days !rices o' 6(:( listed securities e9!ressed in 6(:( dollars and their >hili!!ine !eso e3ui)alent( Drace Don4ales- a resident o' @akati- is a re*ular customer o' the ,ebsite and has been !urchasin* and sellin* securities throu*h 8A? ,ith the use o' her American 89!ress credit card( Drace has ne)er tra)eled outside the >hili!!ines( A'ter a series o' erroneous stock !icksshe had incurred a net indebtedness o' 6:O.0-000( ,ith 8A?- at ,hich time she cancelled her American 89!ress credit card( A'ter a
*er i!n 1++0,'00- U)dated by

a% ;o( /he arran*ement is not la,'ul( t is an arti'icial mani!ulation o' the !rice o' securities( /his is !rohibited by the :ecurities Re*ulation &ode( b% ' the sale materiali4es- it is called a ,ash sale or simulated sale( Securities Re'ulation Co6e2 "ur$ose ()**:) What is the !rinci!al !ur!ose o' la,s and re*ulations *o)ernin* securities in the >hili!!ines? "2$%
SUGGESTED ANSWER:

/he !rinci!al !ur!ose o' la,s and re*ulations *o)ernin* securities in the >hili!!ines is to !rotect the !ublic a*ainst the ne'arious !ractices o' unscru!ulous brokers and salesmen in sellin* securities( Securities2 De&inition ()**4) De'ine securities
SUGGESTED ANSWER:

:tocks- bonds notes- con)ertible debentures,arrants or other documents that re!resent a share in a com!any or a debt o,ned by a com!any or *o)ernment entity( 8)idences o' obli*ations to !ay money or o' ri*hts to !artici!ate in earnin*s and distribution o' cor!orate assets(
*er i!n 1++0,'003 Arranged by SULAW Cla

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

number o' demand letters sent to Draceall o' them unans,ered- 8A?- throu*h a @akati la, 'irm- 'iled a com!laint 'or collection a*ainst Drace ,ith the Re*ional /rial &ourt o' @akati( Drace- throu*h her la,yer- 'iled a motion to dismiss on the *round that 8A? "a% ,as doin* business in the >hili!!ines ,ithout a license and ,as there'ore barred 'rom brin*in* suit and "b% )iolated the :ecurities Re*ulation &ode by sellin* or o''erin* to sell securities ,ithin the >hili!!ines ,ithout re*isterin* the securities ,ith the >hili!!ine :8& and thus came to court ,ith unclean hands( 8A? o!!osed the motion to dismiss- contendin* that it had ne)er established a !hysical !resence in the >hili!!ines- and that all o' the acti)ities related to !lainti''s tradin* in 6(:( securities all trans!ired outside the >hili!!ines( ' you are the +ud*e- decide the motion to dismiss by rulin* on the res!ecti)e contentions o' the !arties on the basis o' the 'acts !resented abo)e( "10$%
SUGGESTED ANSWER:

sellers( b% /he !erson intends to ac3uire .0$ or more o' the e3uity shares o' a !ublic com!any ,ithin a !eriod o' 12 months( c% /he !erson intends to ac3uire e3uity shares o' a !ublic com!any that ,ould result in o,nershi! o' more than 20$ o' the said shares(

Tran )!rtati!n La#


,oun6ar% S%stem (2001)
Baldo is a dri)er o' 7ello, &ab &om!any under the boundary system( While cruisin* alon* the :outh 89!ress,ayBaldos cab 'i*ured in a collision- killin* his

/he *rounds o' the motion to dismiss are both untenable( 8A? is not doin* business in the >hili!!ines- and it did not )iolate the :ecurites Actbecause it ,as not sellin* securities in the country( /he contention o' 8A? is correct- because it ne)er did any business in the >hili!!ines( All its transactions in 3uestion ,ere consummated outside the >hili!!ines( Ten6er <&&er (2002) 2002 "=% A( What is a tender o''er?
B( n ,hat instances re3uired to be is a tender o''er

made?

SUGGESTED ANSWER:

A( /ender o''er is a !ublicly announced intention o' a !erson actin* alone or in concert ,ith other !ersons to ac3uire e3uity securities o' a !ublic com!any( t may also be de'ined as a method o' takin* o)er a com!any by askin* stockholders to sell their shares at a !rice hi*her than the current market !rice and on a !articular date(

B( nstances ,here tender o''er is re3uired to be made0 a% /he !erson intends to ac3uire 12$ or more o' the e3uity share o' a !ublic com!any !ursuant to an a*reement made bet,een or amon* the !erson and one or more

Page

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!assen*er- >ietro( /he heirs o' >ietro sued 7ello, &ab &om!any 'or dama*esbut the latter re'used to !ay the heirsinsistin* that it is not liable because Baldo is not its em!loyee( Resol)e ,ith reasons( "2$%
SUGGESTED ANSWER:

challen*in* the decision( /he action o' >eter bein* based on cul!a contractualthe carriers ne*li*ence is !resumed u!on the breach o' contract( /he burden o' !roo' instead ,ould lie on Bimmy to establish that des!ite an e9ercise o' utmost dili*ence the collision could not ha)e been a)oided( Carria'e2 ,reac# o& Contract2 "resum$tion o& Ne'li'ence ()**+) n a court case in)ol)in* claims 'or dama*es arisin* 'rom death and in+ury o' bus !assen*ers- counsel 'or the bus o!erator 'iles a demurrer to e)idence ar*uin* that the com!laint should be dismissed because the !lainti''s did not submit any e)idence that the o!erator or its em!loyees ,ere ne*li*ent( ' you ,ere the +ud*e- ,ould you dismiss the com!laint?
SUGGESTED ANSWER:

7ello, &ab &om!any shall be liable ,ith Baldo- on a solidary basis- 'or the death o' !assen*er >ietro( Baldo is an em!loyee o' 7ello, &ab under the boundary system( As such- the death o' !assen*er >ietro is breach o' contract o' carria*e- makin* both the common carrier 7ello, &ab and its em!loyee- Baldo- solidarily liable(
(Eernande> v0 Dolor, 20,, 3o0 #&7%6&, Aul $7, %775"

Carria'e2 ,reac# o& Contract2 "resum$tion o& Ne'li'ence ()**0) >eter so hailed a ta9icab o,ned and o!erated by Bimmy &hen* and dri)en by 5ermie &orte4( >eter asked &orte4 to take him to his o''ice in @alate( An the ,ay to @alatethe ta9icab collided ,ith a !assen*er +ee!ney- as a result o' ,hich >eter ,as in+ured- i(e(- he 'ractured his le't le*( >eter sued Bimmy 'or dama*es- based u!on a contract o' carria*e- and >eter ,on( Bimmy ,anted to challen*e the decision be'ore the :& on the *round that the trial court erred in not makin* an e9!ress 'indin* as to ,hether or not Bimmy ,as res!onsible 'or the collision and- henceci)illy liable to >eter( 5e ,ent to see you 'or ad)ice( What ,ill you tell him? 89!lain(
SUGGESTED ANSWER:

;o( n the carria*e o' !assen*ers- the 'ailure o' the common carrier to brin* the !assen*ers sa'ely to their destination immediately raises the !resum!tion that such 'ailure is attributable to the carriers 'ault or ne*li*ence( n the case at bar- the 'act o' death and in+ury o' the bus !assen*ers raises the !resum!tion o' 'ault or ne*li*ence on the !art o' the carrier( /he carrier must rebut such !resum!tion( Ather,ise- the conclusion can be !ro!erly made that the carrier 'ailed to e9ercise e9traordinary dili*ence as re3uired by la,(

Carria'e2 /ortuitous E ent ()**1)


@( Di4on /ruckin* entered into a haulin* contract ,ith <air*oods &o ,hereby the 'ormer bound itsel' to haul the latters 2000 sacks o' :oya bean meal 'rom @anila
*er i!n 1++0,'00- U)dated by

,ill
Dondee

counsel

Bimmy

to

desist

'rom

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

>ort Area to &alamba- ?a*una( /o carry out 'aith'ully its obli*ation Di4on subcontracted ,ith 8nrico Reyes the deli)ery o' #00 sacks o' the :oya bean meal( Aside 'rom the dri)er- three male em!loyees o' Reyes rode on the truck ,ith the car*o( While the truck ,as on its ,ay to ?a*una t,o stran*ers suddenly sto!!ed the truck and hi+acked the car*o( n)esti*ation by the !olice disclosed that one o' the hi+ackers ,as armed ,ith a bladed ,ea!on ,hile the other ,as unarmed( <or 'ailure to deli)er the #00 sacks- <air*oods sued Di4on 'or dama*es( Di4on in turn set u! a .rd !arty com!laint a*ainst Reyes ,hich the latter re*istered on the *round that the loss ,as due to 'orce ma+eure(
Did the hi+ackin* constitute 'orce ma+eure to e9cul!ate Reyes 'rom any liability to Di4on? Discuss 'ully(
SUGGESTED ANSWER:

Discuss ,hether or not the 'ollo,in* sti!ulations in a contract o' carria*e o' a common carrier are )alid0 1( a sti!ulation limitin* the sum that may be reco)ered by the shi!!er or o,ner to F0$ o' the )alue o' the *oods in case o' loss due to the't(

2( a sti!ulation that in the e)ent o' lossdestruction or deterioration o' *oods on account o' the de'ecti)e condition o' the )ehicle used in the contract o' carria*e- the carriers liability is limited to the )alue o' the *oods a!!earin* in the bill o' ladin* unless
SUGGESTED ANSWER:

the shi!!er or o,ner declares a hi*her )alue "2$%

;o( /he hi+ackin* in this case cannot be considered 'orce ma+eure( Anly one o' the t,o hi+ackers ,as armed ,ith a bladed ,ea!on( As a*ainst the # male em!loyees o' Reyes- 2 hi+ackers- ,ith only one o' them bein* armed ,ith a bladed ,ea!on- cannot be considered 'orce ma+eure( /he hi+ackers did not act ,ith *ra)e or irresistible threat)iolence or 'orce( Carria'e2 8ia.ilit%2 8ost ,a''a'e or Acts o& "assen'ers ()**+)
1FF7 "12% Antonio- a !ayin* !assen*erboarded a bus bound 'or Batan*as &ity( 5e chose a seat at the 'ront ro,- near the bus dri)er- and told the bus dri)er that he had )aluable items in his hand carried ba* ,hich he then !laced beside the dri)ers seat( ;ot ha)in* sle!t 'or 2# hours- he re3uested the dri)er to kee! an eye on the ba* should he do4e o'' durin* the tri!( While Antonio ,as aslee!- another !assen*er took the ba* a,ay and ali*hted at &alamba- ?a*una( &ould the common carrier be held liable by Antonio 'or the loss?
SUGGESTED ANSWER:

7es( Ardinarily- the common carrier is not liable 'or acts o' other !assen*ers( But the common carrier cannot relie)e itsel' 'rom liability i' the common carriers em!loyees could ha)e !re)ented the act or omission by e9ercisin* due dili*ence( n this case- the !assen*er asked the dri)er to kee! an eye on the ba* ,hich ,as !laced beside the dri)ers seat( ' the dri)er e9ercised due dili*ence- he could ha)e !re)ented the loss o' the ba*(

Carria'e2 "ro#i.ite6 0 >ali6 Sti$ulations (2002)

Page

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1( /he sti!ulation is considered unreasonable- un+ust and contrary to !ublic !olicy under Article 17#2 o' the &i)il &ode( 2( /he sti!ulation limitin* the carriers liability to the )alue o' the *oods a!!earin* in the bill o' ladin* unless the shi!!er or o,ner declares a hi*her )alue- is e9!ressly reco*ni4ed in Article 17#F o' the &i)il &ode( Carria'e2 >aluation o& Dama'e6 Car'o ()**3)
A shi!!ed thirteen !ieces o' lu**a*e throu*h ?D Airlines 'rom /eheran to @anila as e)idenced by ?D Air Waybill ,hich disclosed that the actual *ross ,ei*ht o' the lu**a*e ,as 1G0 k*( P did not declare an in)entory o' the contents or the )alue o' the 1. !ieces o' lu**a*e( A'ter the said !ieces o' lu**a*e arri)ed in @anilathe consi*nee ,as able to claim 'rom the car*o broker only 12 !ieces- ,ith a total ,ei*ht o' 17# k*( I ad)ised the airline o' the loss o' one o' the 1. !ieces o' lu**a*e and o' the contents thereo'( 8''orts o' the airline to trace the missin* lu**a*e ,ere 'ruitless( :ince the airline 'ailed to com!ly ,ith the demand o' I to !roduce the missin* lu**a*e- I 'iled an action 'or breach o' contract ,ith dama*es a*ainst ?D Airlines( n its ans,er- ?D Airlines alle*ed that the Warsa, &on)ention ,hich limits the liability o' the carrier- i' any- ,ith res!ect to car*o to a sum o' O20 !er kilo or OF(07 !er !ound- unless a hi*her )alue is declared in ad)ance and additional char*es are !aid by the !assen*er and the conditions o' the contract as set 'orth in the air ,aybill- e9!ressly
*er i!n 1++0,'003 Arranged by SULAW Cla

sub+ect the contract o' the carria*e o' car*o to the Warsa, &on)ention( @ay the alle*ation o' ?D Airlines be sustained? 89!lain(
SUGGESTED ANSWER:

7es( 6nless the contents o' a car*o are declared or the contents o' a lost lu**a*e are !ro)ed by the satis'actory e)idence other than the sel'-ser)in* declaration o' one !arty- the contract should be en'orced as it is the only reasonable basis to arri)e at a +ust a,ard( /he !assen*er or shi!!er is bound by the terms o' the !assen*er ticket or the ,aybill( (;anama v ,apadas %79 s &4"

Common Carrier ()**4) De'ine a common carrier?


SUGGESTED ANSWER:

A common carrier is a !ersoncor!oration- 'irm or association en*a*ed in the business o' carryin* or trans!ortin* !assen*ers or *oods or bothby land- ,ater or air 'or com!ensationo''erin* its ser)ices to the !ublic "Art 17.2&i)il &ode% Common Carrier2 ,reac# o& Contract2 Dama'es (2003)
Ni)ian @artin ,as booked by >A?- ,hich acted as a ticketin* a*ent o' <ar 8ast Airlines- 'or a round tri! 'li*ht on the latters aircra't- 'rom @anila-5on*kon*-@anila( /he ticket ,as cut by an em!loyee o' >A?( /he ticket sho,ed that Ni)ian ,as scheduled to lea)e @anila at 20.0 !(m( on 02 Banuary 2002 aboard <ar 8asts <li*ht <007( Ni)ian arri)ed at the ;inoy A3uino nternational Air!ort an hour be'ore the time scheduled in her ticket- but ,as told that <ar 8asts <li*ht <007 had le't at 12010 !(m( t
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Mercantile Law Bar Examination Q & A (1990-2006)

turned out that the ticket ,as inad)ertently cut and ,ron*ly ,orded( >A? em!loyees mannin* the air!orts *round ser)ices ne)ertheless scheduled her to 'ly t,o hours later aboard their !lane( :he a*reed and arri)ed in 5on*kon* sa'ely( /he aircra't used by <ar 8ast Airlines de)elo!ed en*ine trouble- and did not make it to 5on*kon* but returned to @anila( Ni)ian sued both airlines- >A? and <ar 8ast'or dama*es because o' her ha)in* unable to take the <ar 8ast 'li*ht( &ould either or both airlines be held liable to Ni)ian? Why? "=$%
SUGGESTED ANSWER:

his dismay- his t,o suitcases ,ere le't behind in &ebu( /he airline com!any assured I that the suitcases ,ould come in the ne9t 'li*ht but they ne)er did(
I claimed >2-000 'or the loss o' both suitcases- but the airline ,as ,illin* to !ay only >200 because the airline ticket sti!ulated that unless a hi*her )alue ,as declared- any claim 'or loss cannot e9ceed >220 'or each !iece o' lu**a*e( I reasoned out that he did not si*n the sti!ulation and in 'act had not e)en read it(

"!er dondee% ;o- there ,as breach o' contract and that she ,as accommodated ,ell ,ith the assistance o' >A? em!loyees to take the 'li*ht ,ithout undue delay( Common Carrier2 De&enses (2002) Why is the de'ense o' due dili*ence in the selection and su!er)ision o' an em!loyee not a)ailable to a common carrier? "2$%
SUGGESTED ANSWER:

/he de'ense o' due dili*ence in the selection and su!er)ision o' an em!loyee is not a)ailable to a common carrier because the de*ree o' dili*ence re3uired o' a common carrier is not the dili*ence o' a *ood 'ather o' a 'amily but e9traordinary dili*ence- i(e(- dili*ence o' the *reatest skill and utmost 'oresi*ht( Common Carrier2 De&enses2 /ortuitous E ents ()**3) @arites- a !ayin* bus !assen*er- ,as hit abo)e her le't eye by a stone hurled at the bus by an unidenti'ied bystander as the bus ,as s!eedin* throu*h the ;ational 5i*h,ay( /he bus o,ners !ersonnel lost no time in brin*in* @arites to the !ro)incial hos!ital ,here she ,as con'ined and treated( @arites ,ants to sue the bus com!any 'or dama*es and seeks your ad)ice ,hether she can le*ally hold the bus com!any liable( What ,ill you ad)ise her?
SUGGESTED ANSWER:

@arites can not le*ally hold the bus com!any liable( /here is no sho,in* that any such incident !re)iously ha!!ened so as to im!ose an obli*ation on !art o' the !ersonnel o' the bus com!any to ,arn the !assen*ers and to take the necessary !recaution( :uch hurlin* o' a stone constitutes 'ortuitous e)ent in this case( /he bus com!any is not an insurer( (;ilapil v '1 #67 s $5&"

Common Carrier2 De&enses2 8imitation o& 8ia.ilit% ()**:) I took a !lane 'rom @anila bound 'or Da)ao )ia &ebu ,here there ,as a chan*e o' !lanes( I arri)ed in Da)ao sa'ely but to

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I did not declare a *reater )alue des!ite the 'act that the clerk had called his attention to the sti!ulation in the ticket( Decide the case "2$%
SUGGESTED ANSWER:

8)en i' he did not si*n the ticket- I is bound by the sti!ulation that any claim 'or loss cannot e9ceed >220 'or each lu**a*e( 5e did not declare a hi*her )alue( I is entitled to >200 'or the t,o lu**a*es lost( Common Carrier2 De&enses2 8imitation o& 8ia.ilit% (200)) :u!!ose A ,as ridin* on an air!lane o' a common carrier ,hen the accident ha!!ened and A su''ered serious in+uries( n an action by A a*ainst the common carrier- the latter claimed that 1% there ,as a sti!ulation in the ticket issued to A absolutely e9em!tin* the carrier 'rom liability 'rom the !assen*ers death or in+uries ad notices ,ere !osted by the common carrier dis!ensin* ,ith the e9traordinary dili*ence o' the carrier- and 2% A ,as *i)en a discount on his !lane 'are thereby reducin* the liability o' the common carrier ,ith res!ect to A in !articular( a% Are those )alid de'enses? "1$% b% What are the de'enses a)ailable to any common carrier to limit or e9em!t it 'rom liability? "#$%
SUGGESTED ANSWER:

b%/he de'enses a)ailable to any common carrier to limit or e9em!t it 'rom liability are0 1( obser)ance o' e9traordinary dili*ence2( or the !ro9imate cause o' the incident is a 'ortuitous e)ent or 'orce ma+eure.( act or omission o' the shi!!er or o,ner o' the *oods#( the character o' the *oods or de'ects in the !ackin* or in the containers- and 2( order or act o' com!etent !ublic authority- ,ithout the common carrier bein* *uilty o' e)en sim!le ne*li*ence "Article 17.#- ;&&%( Common Carrier2 Duration o& 8ia.ilit% ()**4)
A bus o' D? /ransit on its ,ay to Da)ao sto!!ed to enable a !assen*er to ali*ht( At that moment- :antia*o- ,ho had been ,aitin* 'or a ride- boarded the bus( 5o,e)er- the bus dri)er 'ailed to notice :antia*o ,ho ,as still standin* on the bus !lat'ormand ste!!ed on the accelerator( Because o' the sudden motion:antia*o sli!!ed and 'ell do,n su''erin* serious in+uries(

@ay :antia*o hold D? /ransit liable 'or breach o' contract o' carria*e? 89!lain(
SUGGESTED ANSWER:

a% ;o( /hese are not )alid de'enses because they are contrary to la, as they are in )iolation o' the e9traordinary dili*ence re3uired o' common carriers( "Article 1727- 172G ;e, &i)il &ode%
*er i!n 1++0,'003 Arranged by SULAW Cla

:antia*o may hold D? /ransit liable 'or breach o' contract o' carria*e( t ,as the duty o' the dri)er- ,hen he sto!!ed the bus- to do no act that ,ould ha)e the e''ect o' increasin* the !eril to a !assen*er such as :antia*o ,hile he ,as attem!tin* to board the same( When a bus is not in motion there is no necessity 'or a
*er i!n 1++0,'00- U)dated by

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

!erson ,ho ,ants to ride the same to si*nal his intention to board( A !ublic utility busonce it sto!s- is in e''ect makin* a continuous o''er to bus riders( t is the duty o' common carriers o' !assen*ers to sto! their con)eyances 'or a reasonable len*th o' time in order to a''ord !assen*ers an o!!ortunity to board and enter- and they are liable 'or in+uries su''ered by boardin* !assen*ers resultin* 'rom the sudden startin* u! or +erkin* o' their con)eyances ,hile they are doin* so( :antia*o- by ste!!in* and standin* on the !lat'orm o' the bus- is already considered a !assen*er and is entitled to all the ri*hts and !rotection !ertainin* to a contract o' carria*e(

not one is a common carrier is ,hether the !erson or entity- 'or some business !ur!ose and ,ith *eneral or limited clientele- o''ers the ser)ice o' carryin* or trans!ortin* !assen*ers or *oods or both 'or com!ensation( Common Carriers2 De&enses ()**4) 1% A@ /ruckin*- a small com!anyo!erates t,o trucks 'or hire on selecti)e basis( t caters only to a 'e, customersand its trucks do not make re*ular or scheduled tri!s( t does not e)en ha)e a certi'icate o' !ublic con)enience(

(Dangwa :rans 'o v '1 9556% -ct 4,9# %7%s545" Common Carrier2 Dut% to E9amine ,a''a'es2 Rail;a% an6 Airline ()**2)
@arino ,as a !assen*er on a train( Another !assen*er- Buancho- had taken a *allon o' *asoline !laced in a !lastic ba* into the same coach ,here @arino ,as ridin*( /he *asoline i*nited and e9!loded causin* in+ury to @arino ,ho 'iled a ci)il suit 'or dama*es a*ainst the rail,ay com!any claimin* that Buancho should ha)e been sub+ected to ins!ection by its conductor(

/he rail,ay com!any disclaimed liability resultin* 'rom the e9!losion contendin* that it ,as una,are o' the contents o' the !lastic ba* and in)okin* the ri*ht o' Buancho to !ri)acy( a% :hould the rail,ay com!any be held liable 'or dama*es?
b% ' it ,ere an airline com!any in)ol)ed,ould your

ans,er be the same? 89!lain brie'ly(


SUGGESTED ANSWER:

a%;o( /he rail,ay com!any is not liable 'or dama*es( n o)erland trans!ortation- the common carrier is not bound nor em!o,ered to make an e9amination on the contents o' !acka*es or ba*s!articularly those handcarried by !assen*ers(
b% ' it ,ere an airline com!any- the common carrier should be made liable( n case o' air carriers- it is not la,'ul to carry 'lammable materials in !assen*er aircra'tsand airline com!anies may o!en and in)esti*ate sus!icious !acka*es and car*oes "RA =2.2%

Common Carrier2 Test ()**4) What is the test 'or determinin* ,hether or not one is a common carrier?
SUGGESTED ANSWER:

/he

test

'or

determinin*

,hether

or

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An one occasion- Reynaldo contracted A@ to trans!ort 'or a 'ee- 100 sacks o' rice 'rom @anila to /arlac( 5o,e)er- A@ 'ailed to deli)er the car*o- because its truck ,as hi+acked ,hen the dri)er sto!!ed in Bulacan to )isit his *irl'riend( a% @ay Reynaldo hold A@ liable as a common carrier?
b% @ay A@ set u! the hi+ackin* as a de'ense to

a narro, !o!ulation

se*ment

o'

the

*eneral

(;edro de 2u>man v '1 =8546%% Dec %%,66 #&6s&#%"


SUGGESTED ANSWER:

SUGGESTED ANSWER:

de'eat Reynaldos claim?

a% Reynaldo may hold A@ /ruckin* liable as a common carrier( /he 'acts that A@ /ruckin* o!erates only t,o trucks 'or hire on a selecti)e basis- caters only to a 'e, customers- does not make re*ular or scheduled tri!s- and does not ha)e a certi'icate o' !ublic con)enience are o' no moment as the la, does not distin*uish bet,een one ,hose !rinci!al business acti)ity is the carryin* o' !ersons or *oods or both and anyone ,ho does such carryin* only as an ancillary acti)ity the la, a)oids makin* any distinction bet,een a !erson or enter!rise o''erin* trans!ortation ser)ice on a re*ular or scheduled basis and one o''erin* such ser)ice on an occasionale!isodic or unscheduled basis- and
the la, re'rains 'rom makin* a distinction bet,een a carrier o''erin* its ser)ices to the *eneral !ublic and one ,ho o''ers ser)ices or solicits business only 'rom
'00(

b% A@ /ruckin* may not set u! the hi+ackin* as a de'ense to de'eat Reynaldos claim as the 'acts *i)en do not indicate that the same ,as attended by the use o' *ra)e or irresistible threat- )iolence- or 'orce( t ,ould a!!ear that the truck ,as le't unattended by its dri)er and ,as taken ,hile he ,as )isitin* his *irl'riend( " ;edro de 2u>man v '1 =8546%% Dec %%,66 #&6 scra &#%%(

Common Carriers2 8ia.ilit% &or 8oss ()**))


Ale+andor &amalin* o' Ale*ria- &ebu- is en*a*ed in buyin* co!ra- charcoal- 'ire,oodand used bottles and in resellin* them in &ebu &ity( 5e uses 2 bi* su4u trucks 'or the !ur!oseH ho,e)er- he has no certi'icate o' !ublic con)enience or 'ranchise to do business as a common carrier( An the return tri!s to Ale*ria- he loads his trucks ,ith )arious merchandise o' other merchants in Ale*ria and the nei*hborin* munici!alities o' Badian and Dinatilan( 5e char*es them 'rei*ht rates much lo,er than the re*ular rates( n one o' the return tri!s- ,hich le't &ebu &ity at G0.0 !(m( 1 car*o truck ,as loaded ,ith se)eral bo9es o' sardines- )alued at >100th- belon*in* to one o' his customers- >edro Rabor( While !assin* the 4i*4a* road bet,een &arcar and Barili- &ebu- ,hich is mid,ay bet,een &ebu &ity and Ale*ria- the truck ,as hi+acked by . armed men ,ho took all the bo9es o'

*er i!n 1++0,'003 Arranged by SULAW Cla

*er i!n 1++0,'00- U)dated by

Dondee

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

sardines and kidna!!ed the dri)er and his hel!er- releasin* them in &ebu &ity only 2 days later( >edro Rabor sou*ht to reco)er 'rom Ale+andro the )alue o' the sardines( /he latter contends that he is not liable there'ore because he is not a common carrier under the &i)il &ode and- e)en *rantin* 'or the sake o' ar*ument that he is- he is not liable 'or the occurrence o' the loss as it ,as due to a cause beyond his control( ' you ,ere the +ud*e- ,ould you sustain the contention o' Ale+andro?
SUGGESTED ANSWER:

a !erson *ranted con)enience allo,s their motor )ehicles 'ee or !ercenta*e

a certi'icate o' !ublic other !ersons to o!erate under his license- 'or a o' their earnings (=im v0

'ourt of 1ppeals and 2on>ale>, 20,, 3o0 #%56#4, Aanuar #&, %77%, citing Baliwag :rannit v0 'ourt of 1ppeals, 20,0 3o0 5459$, Aanuar 4, #964" /he la, en+oinin* the kabit

system aims to identi'y the !erson res!onsible 'or an accident in order to !rotect the ridin* !ublic( /he !olicy has no 'orce ,hen the !ublic at lar*e is neither decei)ed nor in)ol)ed( /he la, does not !enali4e the !arties to a kabit a*reement( But the kabit system is contrary to !ublic

' ,ere the Bud*e,ould hold Ale+andro as ha)in* en*a*ed as a common carrier( A !erson ,ho o''ers his ser)ices to carry !assen*ers or *oods 'or a 'ee is a common carrier re*ardless o' ,hether he has a certi'icate o' !ublic con)enience or not- ,hether it is his main business or incidental to such business- ,hether it is scheduled or unscheduled ser)ice- and ,hether he o''ers his ser)ices to the *eneral !ublic or to a limited 'e, (De 2u>man v '1 2, 546%%
%4Dec#966"

,ill ho,e)er- sustain the contention o' Ale+andro that he is not liable 'or the loss o' the *oods( A common carrier is not an insurer o' the car*o( ' it can be established that the loss- des!ite the e9ercise o' e9traordinary dili*ence- could not ha)e been a)oided- liability does not ensue a*ainst the carrier( /he hi+ackin* by . armed men o' the truck used by Ale+andro is one o' such cases (De 2u>man v '1 2, 546%%
%4Dec#966"0

Common s! "ri ate Carrier2 De&enses (2002) ;ame t,o "2% characteristics ,hich di''erentiate a common carrier 'rom a !ri)ate carrier( ".$%(
SUGGESTED ANSWER:

/,o "2% characteristics that di''erentiate a common carrier 'rom a !ri)ate carrier are0 1( A common carrier o''ers its ser)ice to the !ublicH a !ri)ate carrier does not( 2( A common carrier is re3uired to obser)e e9traordinary dili*enceH a !ri)ate carrier is not so re3uired( Ha.it S%stem (2001) Discuss the kabit system in land trans!ortation and its le*al conse3uences( "2$%
SUGGESTED ANSWER:

/he kabit system is an arran*ement ,here

Page

+2 of 103 !olicy

and there'ore )oid and ine9istent( "Art( 1#0FW1X- &i)il &ode% Ha.it S%stem2 A'ent o& t#e Re'istere6 <;ner (2001)
>roco!io !urchased an su4u !assen*er +ee!ney 'rom 8nten*- a holder o' a certi'icate o' !ublic con)enience 'or the o!eration o' !ublic utility )ehicle !lyin* the &alamba-?os BaYos route( While >roco!io continued o''erin* the +ee!ney 'or !ublic trans!ort ser)ices- he did not ha)e the re*istration o' the )ehicle trans'erred in his name( ;either did he secure 'or himsel' a certi'icate o' !ublic con)enience 'or its o!eration( /hus- !er the records o' the ?and /rans!ortation <ranchisin* and Re*ulatory Board- 8nten* remained its re*istered o,ner and o!erator( Ane day,hile the +ee!ney ,as tra)elin* southbound- it collided ,ith a ten-,heeler truck o,ned by 8mmanuel( /he dri)er o' the truck admitted res!onsibility 'or the accident- e9!lainin* that the truck lost its brakes(

this case because the !ublic at lar*e is not decei)ed nor in)ol)ed( (=im v0 'ourt of 1ppeals, 20,0 3o0 #%56#4, Aanuar #&, %77%, citing Baliwag :ransit v0 'ourt of 1ppeals, 20,0 3o0 5459$, Aanuar 4, #964"

n any e)ent- >roco!rio is deemed to be Kthe a*entK o' the re*istered o,ner( (.irst +ala an =easing v0 'ourt of 1ppeals, 20,0 3o0 9#$46, Aune 9,#99%< and *.* :ransit 'o0, /nc0 v0 3=,', 20,0 3os, 66#9589&, Aanuar %4, #995" (aritime Commerce2 ,are.oat (2003)
<or the trans!ortation o' its car*o 'rom the >ort o' @anila to the >ort o' JobeBa!anAsa,a M &o(chartered bareboat @LN lo* o' Jara*atan &or!oration( @LN lo* met a sea accident resultin* in the loss o' the car*o and the death o' some o' the seamen mannin* the )essel( Who should bear the loss o' the car*o and the death o' the seamen? Why? "#$%
SUGGESTED ANSWER:

>roco!io sued 8mmanuel 'or dama*esbut the latter mo)ed to dismiss the case on the *round that >roco!io is not the real !arty in interest since he is not the re*istered o,ner o' the +ee!ney( Resol)e the motion ,ith reasons( ".$%
SUGGESTED ANSWER:

"!er Dondee% Asa,a and &o( shall bear the loss because under a demise or bareboat charter- the charterer "Asa,a M &o(% mans the )essel ,ith his o,n !eo!le and becomes- in e''ect- the o,ner 'or the )oya*e or ser)ice sti!ulated- sub+ect to liability 'or dama*es caused by ne*li*ence( "rior <$erator Rule (2003) Bayan Bus ?ines had been o!eratin* satis'actorily a bus ser)ice o)er the route @anila to /arlac and )ice )ersa )ia the @cArthur 5i*h,ay( With the u!*radin* o' the ne, ;orth 89!ress,ay- Bayan Bus ?ines ser)ice became
*er i!n 1++0,'00- U)dated by

/he motion to dismiss should be denied because >roco!io- as the real o,ner o' the +ee!ney- is the real !arty in interest( >roco!io 'alls under the Jabit system( 5o,e)er- the le*al restriction as re*ards the Jabit system does not a!!ly in
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

seemin*ly inade3uate des!ite its e''orts o' im!ro)in* the same( >asok /rans!ortationnc(- no, a!!lies 'or the issuance to it by the ?and /rans!ortation <ranchisin* and Re*ulatory Board o' a certi'icate o' !ublic con)enience 'or the same @anila/arlac-@anila route( &ould Bayan Bus ?inesnc(- in)oke the !rior o!erator rules a*ainst >asok /rans!ortation- nc(? Why? "=$%
SUGGESTED ANSWER:

auction sale o' Bohnnys +ee!ney( n contem!lation o' la, as re*ards the !ublic and third !ersonsthe )ehicle is considered the !ro!erty o' the re*istered o!erator (Santos v Sibug #75 S 5%7"

Trans?S#i$ment2 ,ill o& 8a6in'2 .in6in' contract ()**3)


BR/ nc entered into a contract ,ith & &o o' Ba!an to e9!ort anaha, 'ans )alued at O2.-000( As !ayment thereo'- a letter o' credit ,as issued to BR/ by the buyer( /he letter o' credit re3uired the issuance o' an on-board bill o' ladin* and !rohibited the transshi!ment( /he >resident o' BR/ then contracted a shi!!in* a*ent to shi! the anaha, 'ans throu*h A &ontainers ?ines- s!eci'yin* the re3uirements o' the letter o' credit( 5o,e)er- the bill o' ladin* issued by the shi!!in* lines bore the notation
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

"!er Dondee% ;o- Bayan Bus ?ines- nc(cannot in)oke the !rior o!erator rules a*ainst >asok /rans!ortation- nc( because such >rior or Ald A!erator Rule under the >ublic :er)ice Act only a!!lies as a !olicy o' the la, o' the >ublic :er)ice &ommission to issue a certi'icate o' !ublic con)enience to a second o!erator ,hen !rior o!erator is renderin* su''icientade3uate and satis'actory ser)ice- and ,ho in all thin*s and res!ects is com!lyin* ,ith the rule and re*ulation o' the &ommission( n the 'acts o' the case at bar- Bayan Bus ?ines ser)ice became seemin*ly inade3uate des!ite its e''orts o' im!ro)in* the same( 5ence- in the interest o' !ro)idin* e''icient !ublic trans!ort ser)ices- the use o' the C!rior o!eratorC and the C!riority o' 'ilin*C rules shall is untenable n this case(

Re'istere6 <;ner2 Conclusi e "resum$tion ()**0) Bohnny o,ns a :arao +ee!ney( 5e asked his nei*hbor Nan i' he could o!erate the said +ee!ney under Nans certi'icate o' !ublic con)enience( Nan a*reed andaccordin*lyBohnny re*istered his +ee!ney under Nan name(
An Bune 101FF0one o' the !assen*er +ee!neys o!erated by Nan bum!ed /omas( /omas ,as in+ured and in due time- he 'iled a com!laint 'or dama*es a*ainst Nan and his dri)er 'or the in+uries he su''ered( /he court rendered +ud*ment in 'a)or o' /omas and ordered Nan and his dri)er- +ointly and se)erally- to !ay /omas actual and moral dama*es- attorneys 'eesand costs( /he :heri'' le)ied on the +ee!ney belon*in* to Bohnny but re*istered in the name o' Nan( Bohnny 'iled a .rd !arty claim ,ith the :heri'' alle*in* o,nershi! o' the +ee!ney le)ied u!on and statin* that the +ee!ney ,as re*istered in the name o' Nan merely to enable Bohnny to make use o' Nans certi'icate o' !ublic con)enience(

@ay the :heri'' !roceed ,ith the !ublic auction o' Bohnnys +ee!ney( Discuss ,ith reasons(
SUGGESTED ANSWER:

7es-

the

:heri''

may

!roceed

,ith

the

Page

+3 of 103

recei)ed 'or shi!ment and contained an entry indicatin* transshi!ment in 5on*kon*( /he >resident o' BR/ !ersonally recei)ed and si*ned the bill o' ladin* and des!ite the entries- he deli)ered the corres!ondin* check in !ayment o' the 'rei*ht( /he shi!ment ,as deli)ered at the !ort o' dischar*e but the buyer re'used to acce!t the anaha, 'ans because there ,as no on-board bill o' ladin*- and there ,as transshi!ment since the *oods ,ere trans'erred in 5on*kon* 'rom @N >aci'ic- the 'eeder )essel- to @N Ariental- a mother )essel( BR/ ar*ued that the same cannot be considered transshi!ment because both )essels belon* to the same shi!!in* com!any( 1% Was there transshi!ment? 89!lain

recei!tsH or "b% return the !roceeds o' the sale o' said *oods
(+etropolitan Ban( v0 :onda, 20,0 3o0 #$55$&, 1ugust #&, %777"0

Is la.$ of "ntent to 7efrau7 a bar to t!e prose.ut"on of t!ese a.ts or o-"ss"ons5 )2.56+
SU..ESTE0 ANSWER:

;o( /he /rust Recei!ts ?a, is )iolated ,hene)er the entrustee 'ails to0 "1% turn o)er the !roceeds o' the sale o' the *oods- or "2% return the *oods co)ered by the trust recei!ts i' the *oods are not sold( /he mere 'ailure to account or return *i)es rise to the crime ,hich is malum !rohibitum( /here is no re3uirement to !ro)e intent to de'raud "'hing v0 Secretar of Austice, 20,0 3o0
#&5$#4, .ebruar &, %77&< 'olinares v0 'ourt of 1ppeals, 20,0 3o0 976%6, September 5, %777< -ng v0 'ourt of 1ppeals, 20,0 3o0 ##9656, 1pril %9, %77$"0
*er i!n 1++0,'00- U)dated by Dondee

2% BR/ 'urther ar*ued that assumin* that there ,as transshi!ment- it cannot be deemed to ha)e a*reed thereto e)en i' it si*ned the bill o' ladin* containin* such entry because it ,as made kno,n to the shi!!in* lines 'rom the start that transshi!ment ,as !rohibited under the letter o' credit and that- there'ore- it had no intention to allo, transshi!ment o' the sub+ect car*o( s the ar*ument tenable? Reason(
SUGGESTED ANSWER:

1% 7es( /ransshi!ment is the act o' takin* car*o out o' one shi! and loadin* it in another( t is immaterial ,hether or not the same !erson- 'irm- or entity o,ns the t,o )essels( "@a*ellan ) &A 201 s 102%
2% ;o( BR/ is bound by the terms o' the bill o' ladin* ,hen it acce!ted the bill o' ladin* ,ith 'ull kno,led*e o' its contents ,hich included transshi!ment in 5on*kon*( Acce!tance under such circumstances makes the bill o' ladin* a bindin* contract( "@a*ellan ) &a 201 s 102%

Tr4 t Re%ei)t La#


Trust Recei$ts 8a;2 Acts 0 <missions2 Co ere6 (2004) 3!at a.ts or o-"ss"ons are penal"Ae7 un7er t!e /rust Re.e"pts >a=5 )2.56+
SU..ESTE0 ANSWER:

/he /rust Recei!ts ?a, ">(D( ;o( 112% declares the 'ail- ure to turn o)er *oods or !roceeds reali4ed 'rom sale thereo'- as a criminal o''ense under Art( .12"l%"b% o' Re)ised >enal &ode( /he la, is )iolated ,hene)er the entrustee or !erson to ,hom trust recei!ts ,ere issued 'ails to0 "a% return the *oods co)ered by the trust

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

ri*ht a*ainst im!risonment 'or non!ayment o' a debt( s he correct?


SUGGESTED ANSWER:

Trust Recei$ts 8a;2 8ia.ilit% &or esta&a ()**))


@r( ;oble- as the >resident o' AB& /radin* nc e9ecuted a trust recei!t in 'a)or o' B> Bank to secure the im!ortation by his com!any o' certain *oods( A'ter release and sale o' the im!orted *oods- the !roceeds 'rom the sale ,ere not turned o)er to B> ( Would B> be +usti'ied in 'ilin* a case 'or esta'a a*ainst ;oble?
SUGGESTED ANSWER:

B> ,ould be +usti'ied in 'ilin* a case 'or esta'a under >D 112 a*ainst ;oble( /he 'act that the trust recei!t ,as issued in 'a)or o' a bank- instead o' a seller- to secure the im!ortation o' the *oods did not !reclude the a!!lication o' the /rust Recei!t ?a,( ">D 112% 6nder the la,- any o''icer or em!loyee o' a cor!oration res!onsible 'or the )iolation o' a trust recei!t is sub+ect to the !enal liability thereunder (Sia v ;eople #&&s&55"
A8TERNAT7>E ANSWER:

;o( Niolation o' a trust recei!t is criminal as it is !unished as esta'a under Art .12 o' the R>&( /here is a !ublic !olicy in)ol)ed ,hich is to assure the entruster the reimbursement o' the amount ad)anced or the balance thereo' 'or the *oods sub+ect o' the trust recei!t( /he e9ecution o' the trust recei!t or the use thereo' !romotes the smooth 'lo, o' commerce as it hel!s the im!orter or buyer o' the *oods co)ered thereby(

/he 'ilin* o' a case 'or esta'a under the !enal !ro)isions o' the R>& ,ould not be +usti'ied( t has been held in Sia v ;eople (#&# s &55" that cor!orate o''icers and directors are not criminally liable 'or a )iolation o' said &ode( 2 conditions are re3uired be'ore a cor!orate o''icer may be criminally liable 'or an o''ense committed by the cor!orationH )i40 1( /here must be a s!eci'ic !ro)ision o' la, mandatin* a cor!oration to act or not to actH and 2( /here must be an e9!licit statement in the la, itsel' that- in case o' such )iolation by a cor!orationthe o''icers and directors thereo' are to be !ersonally and criminally liable there'ore( /hese conditions are not met in the !enal !ro)isions o' the R>& on trust recei!ts( Trust Recei$ts 8a;2 8ia.ilit% &or Esta&a ()**+)
A buys *oods 'rom a 'orei*n su!!lier usin* his credit line ,ith a bank to !ay 'or the *oods( 6!on arri)al o' the *oods at the !ier- the bank re3uires A to si*n a trust recei!t be'ore A is allo,ed to take deli)ery o' the *oods( /he trust recei!t contains the usual lan*ua*e( A dis!oses o' the *oods and recei)es !ayment but does not !ay the bank( /he bank 'iles a criminal action a*ainst A 'or )iolation o' the /rust Recei!ts ?a,( A asserts that the trust recei!t is only to secure his debt and that a criminal action cannot lie a*ainst him because that ,ould be )iolati)e o' his constitutional

Page

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Trusts Recei$t 8a; (2003) >B M &o(- nc(- a manu'acturer o' steel and steel
!roducts- im!orted certain ra, materials 'or use by it in the manu'acture o' its !roducts( /he im!ortation ,as e''ected throu*h a trust recei!t arran*ement ,ith AB Bankin* cor!oration( When it a!!lied 'or the issuance by AB Bankin* &or!oration o' a letter o' credit- >B M &o(- nc(- did not make any re!resentation to the bank that it ,ould be sellin* ,hat it had im!orted( t 'ailed to !ay the bank( When demand ,as made u!on it to account 'or the im!ortation- to return the articles- or to turn-o)er the !roceeds o' the sale thereo' to the bank- >B M &o(- nc(- also 'ailed( /he bank sued >B M &o(s >resident ,ho ,as the si*natory o' the trust recei!t 'or esta'a( /he >resident !ut u! the de'ense that he could not be made liable because there ,as no deceit resultin* in the )iolation o' the trust recei!t( 5e also submitted that there ,as no )iolation o' the trust recei!t because the ra, materials ,ere not sold but used by the cor!oration in the manu'acture o' its !roducts( Would those de'enses be sustainable? Why? "=$%
SUGGESTED ANSWER:

immaterial because a )iolation o' the trust recei!ts la, ha!!ened ,hen it 'ailed to account 'or the *oods or return them to the Bank u!on demand(

U 4ry La#
Usur% 8a; ()**) Borro,er obtained a loan 'rom a money lendin* enter!rise 'or ,hich he issued a !romissory note undertakin* to !ay at the end o' a !eriod o' .0 days the !rinci!al !lus interest at the rate 2(2$ !er month !lus 2$ !er annum as ser)ice char*e( An maturity o' the loan- borro,er 'ailed to !ay the !rinci!al debt as ,ell as the sti!ulated interest and ser)ice char*e( 5ence- he ,as sued( 1( 5o, ,ould you dis!ose o' the issues raised by the borro,er? 2( /hat the sti!ulated interest rate is e9cessi)e and unconscionable? ".$% .( s the interest rate usurious? ".$%
,ecommendation! Since the subJect matter of these two (%" questions is not included within the scope of the Bar Kuestions in +ercantile =aw, it is suggested that whatever answer is given b the examinee, or the lac( of answer should be given full credit0 /f the examinee gives a good answer, he should be given additional credit0
SUGGESTED ANSWER:

;o- the de'enses are not sustainable( /he lack o' deceit should not be sustained because the mere 'ailure to account 'or the im!ortation- or return the articles constitutes the abuse o' con'idence in the crime o' esta'a( /he 'act that the *oods arent sold but are used in the manu'acture o' its !roducts is
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

a( /he rate o' interest o' 2(2$ !er month is e9cessi)e and unconscionable(

Dondee

*er i!n 1++0,'00- U)dated by

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

b( /he interest cannot be considered usurious( /he 6sury ?a, has been sus!ended in its a!!lication- and the interest rates are made 'loatin*(

When is a ,arehouseman bound to deli)er the *oods- u!on a demand made either by the holder o' a recei!t 'or the *oods or by the de!ositor?
SUGGESTED ANSWER:

Ware&!4 e Re%ei)t La#


,ill o& 8a6in' ()**:) 1( What do you understand by a bill o' ladin*? "2$% 2( 89!lain the t,o-'old character o' a bill o' ladin*( ".$%
SUGGESTED ANSWER:

1( A bill o' ladin* may be de'ined as a ,ritten ackno,led*ement o' the recei!t o' *oods and an a*reement to trans!ort and to deli)er them at a s!eci'ied !lace to a !erson named therein or on his order(

/he ,arehouseman is bound to deli)er the *oods u!on demand made either by the holder o' the recei!t 'or the *oods or by the de!ositor i' the demand is accom!anied by 1( an o''er to satis'y the ,arehousemans lien2( an o''er to surrender the recei!t- i' ne*otiable- ,ith such indorsements as ,ould be necessary 'or the ne*otiation thereo'-

2( A bill o' ladin* has a t,o-'old characternamely- a% it is a recei!t o' the *oods to be trans!ortedH and b% it constitutes a contract o' carria*e o' the *oods( Deli er% o& Goo6s2 Re5uisites ()**:)
?u4on Warehousin* &o recei)ed 'rom >edro 200 ca)ans o' rice 'or de!osit in its ,arehouse 'or ,hich a ne*otiable recei!t ,as issued( While the *oods ,ere stored in said ,arehouse- &icero obtained a +ud*ment a*ainst >edro 'or the reco)er o' a sum o' money( /he sheri'' !roceeded to le)y u!on the *oods on a ,rit o' e9ecution and directed the ,arehouseman to deli)er the *oods( s the ,arehouseman under obli*ation to com!ly ,ith the sheri''s order? "2$%
SUGGESTED ANSWER:

;o( /here ,as a )alid ne*otiable recei!t as there ,as a )alid deli)ery o' 200 ca)ans o' rice 'or de!osit( n such case- the ,arehouseman "?W&% is not obli*ed to deli)er the 200 ca)ans o' rice de!osited to any !erson- e9ce!t to the one ,ho can com!ly ,ith sec G o' the Warehouse Recei!ts ?a,- namely0 1( surrender the recei!t o' ,hich he is a holderH 2( ,illin* to si*n a recei!t 'or the deli)ery o' the *oodsH and .( !ays the ,arehousemans liens that is- his 'ees and ad)ances- i' any( /he sheri'' cannot com!ly ,ith these re3uisites es!ecially the 'irst- as he is not the holder o' the recei!t( Deli er% o& t#e Goo6s ()**))

Page

100 of 103

.( and readiness and ,illin*ness to si*n ,hen the *oods are deli)ered i' so re3uested by the ,arehouseman ":ec G Warehouse Recei!ts ?a,%(

en+oined( /he Warehouse &om!any be com!elled to deli)er the !ossession o' the rice until the is surrendered to it or im!ounded court(

cannot actual recei!t by the

Garnis#ment or Attac#ment o& Goo6s ()***) A Warehouse &om!any recei)ed 'or sa'ekee!in* 1000 ba*s o' rice 'rom a merchant( /o e)idence the transactionthe Warehouse &om!any issued a recei!t e9!ressly !ro)idin* that the *oods be deli)ered to the order o' said merchant(
A month a'ter- a creditor obtained +ud*ment a*ainst the said merchant 'or a sum o' money( /he sheri'' !roceeded to le)y on the rice and directed the Warehouse &om!any to deli)er to him the de!osited rice(

b( 7es( /he rice mill- as a holder 'or )alue o' the recei!t- has a better ri*ht to the rice than the creditor( t is the rice mill that can surrender the recei!t ,hich is in its !ossession and can com!ly ,ith the other re3uirements ,hich ,ill obli*e the ,arehouseman to deli)er the ricenamely- to si*n a recei!t 'or the deli)ery o' the rice- and to !ay the ,arehousemans liens and 'ees and other char*es( Ne'otia.le Documents o& Title ()**2) <or a car*o o' machinery shi!!ed 'rom abroad to a su*ar central in Duma*uete;e*ros Ariental- the Bill o' ?adin* "BL?% sti!ulated to shi!!ers order- ,ith notice o' arri)al to be addressed to the &entral( /he car*o arri)ed at its destination and ,as released to the &entral ,ithout surrender o' the BL? on the basis o' the latters undertakin* to hold the carrier 'ree and harmless 'rom any liability( :ubse3uently- a Bank to ,hom the central ,as indebtedclaimed the car*o and !resented the ori*inal o' the BL? statin* that the &entral had 'ailed to settle its obli*ations ,ith the Bank( Was there misdeli)ery by the carrier to the su*ar central considerin* the nonsurrender o' the BL?? Why?
SUGGESTED ANSWER:

a( What ad)ice ,ill you *i)e the Warehouse &om!any? 89!lain "2$% b(Assumin* that a ,eek !rior to the le)ythe recei!t ,as sold to a rice mill on the basis o' ,hich it 'iled a claim ,ith the sheri''( Would the rice mill ha)e better ri*hts to the rice than the creditor? 89!lain your ans,er( "2$%
SUGGESTED ANSWER:

a(/he 1000 ba*s o' rice ,ere deli)ered to the Warehouse &om!any by a merchant- and a ne*otiable recei!t ,as issued there'or( /he rice cannot therea'ter- ,hile in the !ossession o' the Warehouse &om!any- be attached by *arnishment or other,ise- or be le)ied u!on under an e9ecution unless the recei!t be 'irst surrendered to the ,arehousemanor its ne*otiation
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Mercantile Law Bar Examination Q & A (1990-2006)

/here ,as no misdeli)ery by the carrier since the car*o ,as considered consi*ned to the :u*ar central !er the :hi!!ers Arder "8astern :hi!!in* ?ines ) &A 1F0 s 212%
A8TERNAT7>E ANSWER:

/o *uarantee the !ayment o' a loan obtained 'rom a bank- Raul !led*ed 200 bales o' tobacco de!osited in a ,arehouse to said bank and endorsed in blank the ,arehouse recei!t( Be'ore Raul could !ay 'or the loan- the tobacco disa!!eared 'rom the ,arehouse( Who should bear the loss E the !led*or or the bank? Why?
SUGGESTED ANSWER:

/here ,as misdeli)ery( /he BL? ,as a ne*otiable document o' title because it ,as to the :hi!!ers Arder( 5encethe common carrier should ha)e deli)ered the car*o to the &entral only u!on surrender o' the BL?( /he non-surrender o' the BL? ,ill make it liable to holders in due course(

/he !led*or should bear the loss( n the !led*e o' a ,arehouse recei!t the o,nershi! o' the *oods remain ,ith de!ositor or his trans'eree( Any contract or real security- amon* them a !led*edoes not amount to or result in an assum!tion o' risk o' loss by the creditor( /he Warehouse Recei!ts ?a, did not de)iate 'rom this rule( Ri'#t to t#e Goo6s (2001)
Bo+o de!osited se)eral ,ith :; Warehouse cartons o' *oods &or!oration( /he

<;ners#i$ o& Goo6s Store6 ()**2)

corres!ondin* ,arehouse recei!t ,as issued to the order o' Bo+o( 5e endorsed the ,arehouse recei!t to 8B ,ho !aid the )alue o' the *oods de!osited( Be'ore 8B could ,ithdra, the *oods- @elchor in'ormed :; Warehouse &or!oration that the *oods belon*ed to him and ,ere taken by Bo+o ,ithout his consent( @elchor ,ants to *et the *oods- but 8B also ,ants to ,ithdra, the same( "2$%

Page

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[ Who has a better ri*ht to the *oods? Why?


SUGGESTED ANSWER:

8B has a better ri*ht to the *oods- bein* co)ered by a ne*otiable document o' titlenamely the ,arehouse recei!ts issued to the Korder o' Bo+o(K 6nder the :ales !ro)isions o' the &i)il &ode on ne*otiable documents o' title- and under the !ro)isions o' the Warehouse Recei!ts ?a,,hen *oods de!osited ,ith the bailee are co)ered by a ne*otiable document o' titlethe endorsement and deli)ery o' the document trans'ers o,nershi! o' the *oods to the trans'eree( By o!eration o' la,the trans'eree obtains the direct obli*ation o' the bailee to hold the *oods in his name(K "Art( 121.- &i)il &odeH :ection #1Warehouse Recei!ts ?a,% :ince 8B is the holder o' the ,arehouse recei!t- he has the better ri*ht to the *oods( :; Warehouse is obli*ed to hold the *oods in his name( "=% ' :; Warehouse &or!oration is uncertain as to ,ho is entitled to the !ro!erty,hat is the !ro!er
SUGGESTED ANSWER:

:; Warehouse can 'ile an ;/8R>?8AD8R to com!el 8B and @elchor to liti*ate a*ainst each other 'or the o,nershi! o' the *oods( :ec( 17 o' the Warehouse Recei!ts ?a, states- K ' more than one !erson claims the title or !ossession o' the *oods- the ,arehouse may- either as a de'ense to an action brou*ht a*ainst him 'or non-deli)ery o' the *oods or as an ori*inal suit,hiche)er is a!!ro!riate- re3uire all kno,n claimants to inter!lead(K Un$ai6 Seller2 Ne'otiation o& t#e Recei$t ()**3) A !urchased 'rom : 120 ca)ans o' !alay on credit( A de!osited the !alay in Ws ,arehouse( W issued to A a ne*otiable ,arehouse recei!t in the name o' A( /herea'ter- A ne*otiated the recei!t to B ,ho !urchased the said recei!t 'or )alue and in *ood 'aith( c% Who has a better ri*ht to the de!osit:- the un!aid )endor or b- the !urchaser o' the recei!t 'or )alue and in *ood 'aith? Why? d% When can the ,arehouseman be obli*ed to deli)er the !alay to A?
SUGGESTED ANSWER:

7( B has a better ri*ht than :( /he ri*ht o' the un!aid seller- :- to the *oods ,as de'eated by the act o' A in endorsin* the recei!t to B( G(/he ,arehouseman can be obli*ed to deli)er the !alay to A i' B ne*otiates back the recei!t to A( n that case- A becomes a holder a*ain o' the recei!t- and A can com!ly ,ith :ec G o' the Warehouse Recei!ts ?a,( >ali6it% o& sti$ulations e9cusin' ;are#ouseman &rom ne'li'ence (2000)
: stored hard,are materials in the bonded ,arehouse o' W- a licensed ,arehouseman under the Deneral Bonded Warehouse ?a, "Act .GF. as amended%( W issued the corres!ondin* ,arehouse recei!t in the 'orm he ordinarily uses 'or such !ur!ose in the course o' his business( All the essential terms re3uired under :ection 2 o' the Warehouse Recei!ts ?a, "Act 21.7 as amended% are embodied in the 'orm( n addition- the recei!t issued to : contains a sti!ulation that W ,ould not be res!onsible 'or the loss o' all or any !ortion o' the hard,are materials co)ered by the recei!t e)en i' such loss is caused by the ne*li*ence o' W or his re!resentati)es or em!loyees( : endorsed and ne*otiated the ,arehouse recei!t to B,ho demanded deli)ery o' the *oods( W

recourse o' the cor!oration? 89!lain(

could not deli)er because the *oods ,ere no,here to be 'ound in his ,arehouse( 5e claims he is not liable because o' the 'ree-'rom-liability clause sti!ulated in the recei!t( Do you a*ree ,ith Ws contention? 89!lain( "2$%
SUGGESTED ANSWER:

;o( do not a*ree ,ith the contention o' W( /he sti!ulation that W ,ould not be
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

res!onsible 'or the loss o' all or any !ortion o' the hard,are materials co)ered by the recei!t e)en i' such loss is caused by the ne*li*ence o' W or his re!resentati)e or em!loyees is )oid( /he la, re3uires that a ,arehouseman should e9ercise due dili*ence in the care and custody o' the thin*s de!osited in his ,arehouse(
*er i!n 1++0,'00- U)dated by

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

Mi %ellane!4
Ener'% Re'ulator% Commission: Juris6iction 0 "o;er (2003)
&D- acustomer- sued @8RA?&A in the @@ Re*ional /rial &ourt to disclose the basis o' the com!utation o' the !urchased !o,er ad+ustment ">>A%( /he trial court ruled it had no +urisdiction o)er the case because- as contended by the de'endantthe customer not only demanded a breakdo,n o' @8RA?&ACs bill ,ith res!ect to >>A but 3uestioned as ,ell the im!osition o' the >>A- a matter to be decided by the Board o' 8ner*y- the re*ulatory a*ency ,hich should also ha)e +urisdiction o)er the instant suit( s the trial courtCs rulin* correct or not? Reason brie'ly( "2$%
SUGGESTED ANSWER:

A& DK !roblems corrodin* our +ustice system0 "1% limited access to +ustice by the !oorH "2% corru!tionH ".% incom!etenceH and "#% delay in the deli)ery o' 3uality +ud*ments( /he +udicial de!artment should dischar*e its 'unctions ,ith trans!arency- accountability and di*nity(
(3-:1 BE3E! /t is respectfull suggested that all Bar 'andidates receive a %05% bonus for the above question regardless of the answer"

/he trial courtCs rulin* is correct( As held in @anila 8lectric &om!any )( &ourt o' A!!eals- 271:&RA #17 "1FF7%- the Board o' 8ner*y had the !o,er to re*ulate and 'i9 !o,er rates to be char*ed by 'ranchised electric utilities like @8RA?&A( n 'act !ursuant to 89ecuti)e Arder ;o( #7G "A!ril 17- 1FFG%- this !o,er has been trans'erred to the 8ner*y Re*ulatory Board "no, the 8ner*y Re*ulatory &ommission%( 6nder :ection #."u% o' the 8lectric >o,er ndustry Re'orm Act o' 2001- the 8ner*y Re*ulatory &ommission has ori*inal and e9clusi)e +urisdiction o)er all cases contestin* !o,er rates( /our AC7D "ro.lems o& "#ili$$ine Ju6iciar% (2004) n se)eral !olicy addresses e9tensi)ely co)ered by media since his a!!ointment on December 21- 2002- &hie' Bustice Artemio N( >an*aniban )o,ed to lea)e a +udiciary characteri4ed by K'our nsK and to 'ocus in sol)in* the K'our A& DK !roblems that corrode the administration o' +ustice in our country( 89!lain this K'our nsK and K'our A& DK !roblems(
SU..ESTE0 ANSWER:

6!on assumin* his o''ice- &hie' Bustice >an*aniban )o,ed to lead a +udiciary characteri4ed by the K'our ns0K nte*ritynde!endencendustry and ntelli*enceH one that is morally coura*eous to resist in'luence- inter'erence- indi''erence and insolence( 5e en)isions a +udiciary that is im!er)ious to the !la*ue o' undue in'luence brou*ht about by kinshi!relationshi!- 'riendshi! and 'ello,shi!( 5e calls on the +udiciary to battle the K<our

Page

10' of 103

2( /he &hie' Bustice also said that the +udiciary must Ksa'e*uard the libertyK and Knurture the !ros!erityK o' our !eo!le( 89!lain this !hiloso!hy( &ite Decisions o' the :u!reme &ourt im!lementin* each o' these t,in beacons o' the &hie' Bustice( "2(2$%
SU..ESTE0 ANSWER:

3o0 #&9656, 1pril %5, %77&"< and the legalit of Executive -rder 3o0 5&5 and the ;resident)s exercise of Execu8 tive ;rivilege (Senate of the ;hilippines v0 Ermita, 20,0 3o0 #&9444, 1pril %7, %77&"0
An the other hand- cases that relate to Knurturin* the !ros!erityK o' the !eo!le include the 3uestion the constitutionality o' the @inin* ?a, (=a Bugal8B)=aan v0 ,amos, 20,0 3o0 #%466%, Dec0 #, %775 % and the W/A A*reement ":anada v0 1ngara, 20,0 ##6%95, +a %,#994%(

/he &hie' BusticeCs !hiloso!hy K:a'e*uardin* ?iberty- ;urturin* >ros!erityK embodies the :u!reme &ourtCs a!!roach in decision-makin* in the e9ercise o' its constitutional !o,er o' +udicial re)ie, ,hich !ro)ides0 n cases in)ol)in* liberty- the scales o' +ustice should ,ei*ht hea)ily a*ainst *o)ernment and in 'a)or o' the !oorthe o!!ressedthe mar*inali4edthe dis!ossessed and the ,eakH and that la,s and action that restrict 'undamental ri*hts come to the court K,ith a hea)y !resum!tion a*ainst their constitutional )alidity( An the other hand- as a *eneral rule- the :u!reme &ourt must ado!t a de'erential or res!ect'ul attitude to,ards actions taken by the *o)ernmental a*encies that ha)e !rimary res!onsibility 'or the economic de)elo!ment o' the countryH and only ,hen an act has been clearly made or e9ecuted ,ith *ra)e abuse o' discretion does the &ourt *et in)ol)ed in !olicy issues(

Go ernment Dere'ulation s! "ri atiDation o& an 7n6ustr% (2003)

What is the di''erence bet,een *o)ernment dere*ulation and the !ri)ati4ation o' an industry? 89!lain brie'ly( "2$%
SUGGESTED ANSWER:

Do)ernment dere*ulation is the rela9ation or remo)al o' re*ulatory constraints on 'irms or indi)iduals- ,ith a )ie, to !romotin* com!etition and marketoriented a!!roaches to,ard !ricin*out!utentryand other related economic decisions( >ri)ati4ation o' an industry re'ers to the trans'er o' o,nershi! and control by the *o)ernment o' assets'irms and o!erations in an industry to !ri)ate in)estors( "olitical 8a;2 WT< ()***)
Do)ernment !lans to im!ose an additional duty on im!orted su*ar on to! o' the current tari'' rate( /he intent is to ensure that the landed cost o' su*ar shall not be lo,er than >G00 !er ba*( /his is the !rice at ,hich locally !roduced su*ar ,ould be sold in order to enable su*ar !roducers to reali4e reasonable !ro'its( Without
*er i!n 1++0,'00- U)dated by

Decisions im!lementin* the Ksa'e*uardin* o' libertyK in- clude those in)ol)in* the constitutionality o' >residential >roclamation ;o( 1017 (David v0 1rro o, 20,0 3o0 #4#$97, +a $, %77&"< the validit of 'alibrated ;re8emptive ,esponse (';," and B0;0 Big0 667 or the ;ublic 1ssembl 1ct (Ba an v0 Ermita, 20,0
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

Dondee

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

this additional duty- the current lo, !rice o' su*ar in the ,orld market ,ill surely !ull the domestic !rice to le)els lo,er than the cost to !roducer domestic su*ar E a situation that could s!ell the demise o' the >hil su*ar industry( =( Discuss the )alidity o' this !ro!osal to im!ose an additional le)y on im!orted su*ar ".$% 7( Would the !ro!osal be consistent ,ith the tenets o' the World /rade Ar*ani4ation "W/A%? ".$%
Recommendation0 :ince the sub+ect matter o' these t,o "2% 3uestions is not included ,ithin the sco!e o' the Bar Questions in @ercantile ?a,- it is su**ested that ,hate)er ans,er is *i)en by the e9aminee- or the lack o' ans,er should be *i)en 'ull credit( ' the e9aminee *i)es a *ood ans,erhe should be *i)en additional credit(
SUGGESTED ANSWER:

'amily their li)elihood ,ithout due !rocess nor +ust com!ensation( Assumin* that the le*al system o' ?N@ is similar to ours- ,ould @rs( B&Cs contention be tenable or not? Reason brie'ly( "2$%
SUGGESTED ANSWER:

@rs( B&Cs contention is not tenable( <irstthe 6D5R does not !ur!ort to limit the ri*ht o' states "like ?N@% to re*ulate domestic trade( :econdthe W/A A*reement in)ol)es international trade bet,een states or *o)ernments- not domestic trade in timber or other commodities( /hird- nationality is an acce!ted norm 'or makin* classi'ications that do not run counter to the

.( /he !ro!osal to im!ose an additional duty on im!orted su*ar on to! o' the current tari'' rate is )alid- not bein* !rohibited by the &onstitution( t ,ould enable !roducers to reali4e reasonable !ro'its- and ,ould allo, the su*ar industry o' the country to sur)i)e( #( ;o( /he !ro!osal ,ould not be consistent ,ith the tenets o' the W/A ,hich call 'or the liberali4ation o' trade( 5o,e)er- such !ro!osal may be acce!table ,ithin the allo,able !eriod under the W/A 'or ad+ustment o' the local industry "o;er o& t#e State: Re'ulatin' o& Domestic Tra6e (2003) n its e9ercise o' !olice !o,er and business re*ulation- the le*islature o' ?N@ :tate !assed a la, !rohibitin* aliens 'rom en*a*in* in domestic timber trade( Niolators includin* dummies ,oulda'ter !ro!er trial- be 'ined and im!risoned or de!orted( @rs( B&- a citi4en o' ?N@ but married to P&- an alien merchant o' >;D'iled suit to in)alidate the la, or e9em!t 'rom its co)era*e their timber business(
:he contended that the la, is- inter alia*ra)ely o!!ressi)e and discriminatory( t )iolated the 6ni)ersal Declaration o' 5uman Ri*hts "6D5R% !assed in 1F#G by the 6nited ;ations- o' ,hich ?N@ is a member- she said- as ,ell as the reci!rocity !ro)isions o' the World /rade Ar*ani4ation "W/A% A*reement o' 1FF#- o' ,hich >;D and ?N@ are !arties( Aside 'rom denyin* them e3ual !rotectionaccordin* to B&- the la, ,ill also de!ri)e her

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e3ual !rotection o' la, clause o' the &onstitution( <ourth- there is no im!airment o' due !rocess here because )iolators o' the la, ,ill be !unished only a'ter K!ro!er trial(K <i'th- the issue o' K+ust com!ensationK does not arisebecause the !ro!erty o' @rs( B& is not bein* e9!ro!riated( An the contrary- as a citi4en o' ?N@- @rs( B& is 'reely allo,ed to en*a*e in domestic timber trade in ?N@( Tari&& an6 Customs Co6e: >iolation o& Customs 8a;s (2003) /he &ollector o' &ustoms ordered the sei4ure and 'or'eiture o' ne, electronic a!!liances shi!!ed by /A; &or!( 'rom 5on*kon* 'or )iolation o' customs la,s because they ,ere 'alsely declared as used o''ice e3ui!ment and then under)alued 'or !ur!oses o' customs
*er i!n 1++0,'003 Arranged by SULAW Cla '00(

duties( /A; 'iled a com!laint be'ore the @@ Re*ional /rial &ourt 'or re!le)inalle*in* that the &ustoms o''icials erred in the classi'ication and )aluation o' its shi!ment- as ,ell as in the issuance o' the ,arrant o' sei4ure( /he &ollector mo)ed to dismiss the suit 'or lack o' +urisdiction on the !art o' the trial court( :hould the &ollectorCs motion be *ranted or denied? Reason brie'ly( "2$%
SUGGESTED ANSWER:

/he &ollectorCs motion should be *ranted( 6nder :ection =02"*% o' the /ari'' and &ustoms &ode- the Bureau o' &ustoms has e9clusi)e ori*inal +urisdiction o)er sei4ure and 'or'eiture cases under the tari'' and customs la,s(
;A/80 "/his 3uestion is outside the co)era*e o' the Bar 89aminations( t is there'ore recommended that ,hate)er ans,er made by the candidate should be *i)en 'ull credit(%
*er i!n 1++0,'00- U)dated by

Dondee

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